U.S. v. Ford Motor Co.

• Decision Date: 17 August 2007
• Docket Number: No. 2006-1479.,2006-1479.
• Citation: 497 F.3d 1331
• Parties: UNITED STATES, Plaintiff-Appellant, v. FORD MOTOR COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

497 F.3d 1331

UNITED STATES, Plaintiff-Appellant, v. FORD MOTOR COMPANY, Defendant-Appellee.

No. 2006-1479.

United States Court of Appeals, Federal Circuit.

August 17, 2007.

David A. Levitt, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for plaintiff-appellant.

With him on the brief were Peter D. Keisler, Assistant Attorney General, and Patricia M. McCarthy, Assistant Director of counsel on the brief was Kathleen Bucholtz, Attorney, United States Customs and Border Protection, of Chicago, IL.

Charles J. Cooper, Cooper & Kirk PLLC, of Washington, DC, argued for defendant-appellee. With him on the brief were Vincent J. Colatriano and Nicole Jo Moss of counsel on the brief were Robert B. Silverman, David M. Murphy, and Frances P. Hadfield, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP, of New York, NY; and Paulsen K. Vandevert, Ford Motor Company, of Dearborn, MI.

Before SCHALL, Circuit Judge, ARCHER, Senior Circuit Judge, and GAJARSA, Circuit Judge.

GAJARSA, Circuit Judge.

This is a waiver and issue preclusion case. The issues before us are whether the government was required to accept Ford Motor Company's ("Ford") waiver of a statute of limitations defense in order for the waiver to take effect and whether the government is barred by issue preclusion from pursuing its claims for civil penalties pursuant to 19 U.S.C. § 1592 for Ford's alleged fraud. Because we find that the government's claims are not barred by the statute of limitations in 19 U.S.C. § 1621 or by our decision in Ford IV, we vacate the Court of International Trade's decision to dismiss Counts I, II, and III of the government's complaint. However, because the government was not deprived of any lawful duties by Ford's allegedly unlawful conduct as required by § 1592(d), we affirm the Court of International Trade's dismissal of Count IV of the government's complaint.

I. BACKGROUND

This appeal derives from a dispute involving import duties at Ford's Foreign Trade Subzone ("FTSZ")¹ in Louisville, Kentucky. The relevant facts are set forth in one of our previous opinions in this case, Ford Motor Co. v. United States, 286 F.3d 1335, 1336-39 (Fed.Cir.2002) ("Ford IV"). Ford's Louisville FTSZ operated for three months, between November of 1985 and February of 1986. During those three months, Ford received eleven entries of engines and transmissions from abroad. The engines and transmissions could be used interchangeably for cars and trucks. The merchandise was incorporated into finished cars and trucks at Ford's assembly plant located within the Louisville FTSZ, and the finished cars and trucks were subsequently withdrawn for entry into the United States.

In 1985 and 1986, the duty rate for foreign-made engines and transmissions was 3.3% ad valorem, the duty rate on finished imported cars was 2.6% ad valorem, and the duty rate on finished imported trucks was 25% ad valorem. By establishing its Louisville FTSZ, Ford intended to take advantage of the duty differential between the unassembled car and truck parts and the assembled cars and trucks. Under the duty rates in place when Ford entered its merchandise, the optimal strategy for Ford was to import engines and transmissions into its Louisville FTSZ and then separate the merchandise used for cars from the merchandise used for trucks. In order for Ford to receive the benefit of the duty rates applicable to its FTSZ, the regulations required Ford to file Customs Form 214 designating each part entering the Louisville FTSZ as either a car part or a truck part. After making the designations, Ford could then pay duties on truck parts as they entered the FTSZ at the duty rate of 3.3% ad valorem, thereby avoiding the 25% duty rate for assembled trucks. Ford could also defer paying duties on car parts until the assembled car emerged from the plant, at which time Ford could pay the duty rate for the assembled car of 2.6% ad valorem, applying that rate to the car parts.²

However, when Ford filled out Customs Form 214, it incorrectly designated that each transmission and engine imported into the Louisville FTSZ was a part for an assembled car product. Consequently, for all eleven entries, Ford paid an estimated duty rate on the basis of the 2.6% ad valorem rate for car parts. Thus, to the extent that it meant to treat any of its entries as unassembled truck parts in order to receive the benefit of the 3.3% duty rate as opposed to the 25% duty rate, Ford failed to pay duties for any truck parts, as required by the regulations. See 19 C.F.R. § 146.22.

Ford reported its error to Customs. In July of 1986, Customs concluded that the proper duty rate on the truck parts received at Ford's FTSZ was the 25% ad valorem duty rate applicable to assembled trucks. As a result, Customs found that Ford owed approximately $5.3 million in additional duties. Customs also referred Ford's error to its fraud investigation office.

In August of 1986, pursuant to 19 U.S.C. § 1592, Customs initiated a civil fraud investigation, which continued until at least March of 1990. On the basis of its ongoing fraud investigation, Customs issued three one-year extensions of the statutory one-year liquidation deadline as permitted under 19 U.S.C. § 1504(b). Pursuant to 19 U.S.C. § 1504(a), an entry of merchandise that Customs does not liquidate within one year of the date of entry is deemed liquidated by operation of law at the rate of duty asserted by the importer at the time of entry unless Customs properly extends the limitations period as provided by 19 U.S.C. § 1504(b). Almost four years after Ford's eleventh entry, on December 1, 1989, Customs liquidated the merchandise designated by Ford as truck parts in its eleven entries at the duty rate of 25% ad valorem, applicable to assembled trucks.

Ford timely protested the liquidations, contending that because Customs' three liquidation extensions were not "reasonable" as required by 19 U.S.C. § 1504(b), the eleven entries of engines and transmissions were deemed liquidated by operation of law at the duty rate asserted on importation, 3.3% ad valorem. Customs denied Ford's protest, and Ford timely paid the $5.3 million in additional duties and initiated an action in the Court of International Trade, challenging the liquidations. See Ford IV, 286 F.3d at 1338-39.

In Ford IV, we reversed the Court of International Trade's holding in favor of the government, which held that the government's manner of conducting the fraud investigation and the length of the investigation were both reasonable. We reversed the Court of International Trade, holding that the liquidations were not properly extended under § 1504(b) because "Customs' delay in pursuing the fraud investigation and its resulting delay in liquidating the entries were not reasonable." Id. at 1341. We found that Customs' fraud investigation had taken a total of 44 months (from August of 1986 until March of 1990). We concluded that the 44-month long investigation was unreasonable in this case because the government did almost no substantive work during the first 30 months of the 44 months and because there were two periods of inactivity totaling 22 months. Id. at 1343. Moreover, we found that it was during the 30-month period of almost no activity that Customs had issued all three extensions of liquidation under § 1504(b)(1). Id. For these reasons, we held that Customs' delay was unreasonable and that Customs had not properly extended the liquidation of Ford's eleven entries. Id. As a result, we held that Ford's eleven entries were deemed liquidated under 19 U.S.C. § 1504(a) and that Customs was therefore required to return the $5.3 million of additional duties to Ford. Id. at 1343.

During the lengthy liquidation proceedings, Ford drafted ten consecutive letters waiving the statute of limitations period in 19 U.S.C. § 1621, which applies to government actions under 19 U.S.C. § 1592. The first nine waiver letters were dated between November 5, 1990 and February 15, 2002. Each waiver letter contained a signature line for Customs to "acknowledge receipt and acceptance" of the waiver pursuant to Treasury Decision 90-11. Customs signed the first nine waivers. In the tenth waiver letter, however, Customs crossed out the words "and acceptance" and sent Ford a follow-up letter explaining its new procedure to "only acknowledge receipt of waivers." Ford's tenth waiver letter extended the statute of limitations for 24 months until April 7, 2005.

On April 6, 2005, the government filed a § 1592 action against Ford in the Court of International Trade. Counts I through III of the government's complaint sought civil penalties based on fraud, gross negligence, and negligence pursuant to § 1592(c). Count IV sought "the restoration of lawful duties of which the United States has been deprived, in the amount of $5,275,329" pursuant to § 1592(d). Ford filed a Rule 12(b) motion to dismiss the government's complaint for failure to state a claim upon which relief can be granted based on: 1) the government's failure to accept Ford's tenth waiver thereby letting the statute of limitations expire; and 2) issue preclusion in light of our decision in Ford IV.

The Court of International Trade granted Ford's motion to dismiss, agreeing with Ford on both grounds. United States v. Ford Motor Co., 414 F.Supp.2d 1264, 1270-71 (Ct. Int'l Trade 2006). The Court of International Trade held that the statute of limitations in § 1621 had expired, and therefore, the government's § 1592 claims were extinguished as a matter of law. Id. at 1271. The Court of International Trade also held that notwithstanding the expiration of the statute of limitations, the government was still not entitled to a repayment of the $5.3 million in duties under 19 U.S.C. § 1592(d) because the government's request matched the dollar amount that this court in Ford IV ordered to be refunded to Ford and...