Old Republic Ins. Co. v. United States

• Decision Date: 09 September 1986
• Docket Number: No. 83-10-01450.,83-10-01450.
• Citation: 10 CIT 589,645 F. Supp. 943
• Parties: OLD REPUBLIC INSURANCE CO., Plaintiff, v. The UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

645 F. Supp. 943

10 CIT 589

OLD REPUBLIC INSURANCE CO., Plaintiff, v. The UNITED STATES, Defendant.

No. 83-10-01450.

United States Court of International Trade.

September 9, 1986.

Sandler & Travis, P.A. (Gilbert Lee Sandler, Mark D. Crames, Santiago G. Leon, Paul E. Linet), Miami, Fla., for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office and Barbara M. Epstein and Jerry P. Wiskin, Civil Div., U.S. Dept. of Justice, New York City, for defendant.

OPINION

RESTANI, Judge:

Plaintiff Old Republic Insurance Company (Old Republic) acted as corporate surety in connection with two entries of diesel engines that were liquidated by Customs over a year after their entry dates.¹ Plaintiff makes four basic arguments in this suit challenging collection of increased duties which were assessed upon liquidation. 1) Plaintiff contends that Customs failed to comply with its regulation that requires notice of extension of time for liquidation be provided the surety. 19 C.F.R. § 159.12(b) (1980). Plaintiff asserts that this regulation was incorporated into the bonds covering the subject entries, and that the failure of Customs to comply with its obligations discharged Old Republic's liability. Defendant contends that this court lacks jurisdiction over this claim. Defendant also contests the merits of plaintiff's claim. 2) Plaintiff contends that because it never received a notice of extension of time for liquidation the merchandise should be deemed liquidated by operation of law at the rate of duty asserted by the importer at the time of entry, 19 U.S.C. § 1504(a) (1982).² 3) Plaintiff asserts Customs Ruling C.S.D. 83-20, which recognized discharge of the surety in this situation, was revoked through improper procedures. 4) Finally, plaintiff argues that regardless of its legal obligations, Customs is equitably estopped from seeking increased duties from Old Republic. Both parties have moved for summary judgment.

Certain critical facts underlying plaintiff's motion for summary judgment are not in dispute. Most importantly, it is clear that the importer, but not the surety, received a notice of extension of time for liquidation of the entry at issue.³ Following liquidation and in response to a memorandum from plaintiff, Customs issued a ruling, C.S.D. 83-20, in which it held, inter alia: (1) when Customs fails to properly notify a surety pursuant to regulation, that surety's liability for payment of any increased duties, charges, etc., is discharged; and (2) in those instances in which Customs fails to notify a surety of an extension, this failure to notify is not rectified by subsequent notification after the extension has commenced. A copy of this ruling was sent to plaintiff's counsel in a letter dated December 8, 1982. On March 24, 1983, Customs sent a second letter and opinion to plaintiff's counsel, advising him that Customs had reconsidered its original position and now considered the surety liable. On April 13, 1983, Customs issued C.S.D. 83-20, which was subsequently published on December 20, 1983. 17 Cust.Bull. 754. In the meantime, Customs published a notice in the Customs Bulletin regarding C.S.D. 83-20. The notice read as follows:

NOTICE

C.S.D. 83-20, initially published in the Customs Bulletin Volume 17, No. 15, page 39, was published inadvertently. The ruling letter dated December 20, 1982 has been reversed in part by Headquarters ruling dated March 24, 1983, which reversed holdings (1) and (2) of the ruling. Accordingly, holdings (1) and (2) of C.S.D. 83-20 are reversed. Holding (3) of the ruling remains valid.

17 Cust.Bull. No. 19 at 8 (May 11, 1983).

Although these facts are not in dispute, there is disagreement between the parties on a number of legal issues, most importantly on the issue of how the basic statutory and regulatory provisions should be construed in relation to each other. That is, the Secretary may avoid liquidation, pursuant to § 1504(a), in the amounts asserted at the time of entry, even if liquidation occurs more than one year after entry. During the relevant time period this could be accomplished by extending the one-year liquidation period by giving notice to "the importer, his consignee, or agent." 19 U.S.C. § 1504(b)(1)-(3) (1982).⁴ The Customs regulation, on the other hand, states: "If the district director extends the time for liquidation ... he promptly shall notify the importer or the consignee and his agent and surety...." 19 C.F.R. § 159.12(b) (1980).

I. Equitable Estoppel

The first issue to be addressed is whether Customs is equitably estopped from claiming the increased duties. Defendant argues that: (1) plaintiff cannot estop the government from recovering the duties because plaintiff already tendered the duties voluntarily in order to commence the action; (2) equitable estoppel is not available against the government in its sovereign role of collecting or refunding import duties; and (3) even if estoppel is available against the government, plaintiff has failed to demonstrate that the elements of estoppel are met.

As to defendant's first point, neither this court nor the Court of Appeals for the Federal Circuit has considered whether a plaintiff must forfeit an estoppel claim if it has tendered duties as a prerequisite to a 19 U.S.C. § 1581(a) suit. For the reasons outlined infra, however, the court does not need to answer this question today.

The Federal Circuit has clearly stated that equitable estoppel is only available against the government if the government is acting in its proprietary, rather than its sovereign, capacity. United States v. Bar Bea Truck Leasing Co., 1 Fed.Cir. 151, 155, 713 F.2d 1563, 1567 (1983); Air-Sea Brokers, Inc. v. United States, 66 CCPA 64, 68, 596 F.2d 1008, 1011 (1979) Thus, in Air-Sea Brokers, the court held that "equitable estoppel, even if available in cases involving the Government in its proprietary capacity, is not available against the Government in cases involving the collection or refund of duties on imports."⁵ Air-Sea Brokers, 66 CCPA at 68, 596 F.2d at 1011. This position has been reiterated on numerous occasions by both the Federal Circuit and this court. United States v. Reliable Chemical Co., 66 CCPA 123, 128, 605 F.2d 1179, 1184 (1979); Wally Packaging, Inc. v. United States, 7 CIT 19, 21, 578 F.Supp. 1408, 1410-11 (1984); Spearhead Industries, Inc. v. United States, 6 CIT 176, 180 (1983), aff'd, 738 F.2d 454 (1984); American Motorists Insurance Co. v. United States, 5 CIT 33, 41 (1983); Bethlehem Steel Corp. v. United States, 4 CIT 229, 232, 551 F.Supp. 1148, 1150 (1982).

The most recent Court of International Trade case on the subject, which is also the basis of plaintiff's estoppel claim, finds an exception to the aforementioned rule. United States v. Federal Insurance Co., 9 CIT ___, 605 F.Supp. 298 (1985), appeal docketed, No. 85-2343 (Fed.Cir. May 16, 1985).⁶ This exception applies in cases in which the plaintiff can demonstrate affirmative misconduct on the part of the government, as well as establish the standard elements of estoppel.⁷ Id. at ___, 605 F.Supp. at 303.

Whether or not affirmative misconduct exists here, plaintiff first must establish the elements of estoppel. Those elements are traditionally stated as follows:

(1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts and (4) he must rely on the former's conduct to his injury.

Federal Insurance, 9 CIT at ___, 605 F.Supp. at 303 (citing United States v. Ruby Co., 588 F.2d 697, 703 (9th Cir.1978), cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1979)).

First, in this case, the government "knew" that the liquidation period had been extended. It can also be assumed that it "knew" of the regulation requiring the district director to give plaintiff notice of any extension and that it had failed to provide such notice. Second, with regard to intent, this case is governed by this court's ruling in Federal Insurance that "the government's mechanism for collecting duties is in its nature intended to encourage reliance on its regularity and propriety by those owing duties." Federal Insurance, 9 CIT at ___, 605 F.Supp. at 303. Third, plaintiff has alleged that it had no actual notice of the extension of the liquidation period and defendant has not disputed this.

Plaintiff, however, has failed to demonstrate that it relied on the regulatory guaranty of notice. Assuming, arguendo, that plaintiff relied on the regulation's guaranty of notice, plaintiff has failed to establish that the failure of the government to provide the notice caused it harm. See, infra, Part V. In order to establish estoppel, plaintiff must be able to demonstrate that it was prejudiced in some tangible way. Lincoln National Life Insurance Co. v. United States, 582 F.2d 579, 582, 217 Ct.Cl. 515 (1978); cf. Federal Insurance, 9 CIT at ___, 605 F.Supp. at 303 ("As a result of reliance on the propriety of the government's conduct, Cometals lost $230,344.12."). Inasmuch as plaintiff has not established one of the traditional elements of estoppel, the court need not address whether affirmative misconduct is present.

II. Reversal of Ruling Recognizing Surety's Discharge

Following the issuance of C.S.D. 83-20, 17 Cust.Bull. 754 (1982), but before publication thereof, Customs issued a ruling reversing C.S.D. 83-20 in part. 17 Cust.Bull. No. 19 at 8 (1983). Normally there would be no question of the procedural validity of such a modification. The problem in this case arises because of the subsequent publication of C.S.D. 83-20.⁸ Plaintiff contends that this notice of reversal is ineffective to modify C.S.D. 83-20, because Customs failed to comply with regulations governing modification of published rulings. Defend...