Sea-Land Service, Inc. v. U.S.

• Decision Date: 23 September 1999
• Docket Number: SLIP OP. No. 99-100.,Nos. 96-02-00398.,s. 96-02-00398.
• Citation: 69 F.Supp.2d 1371
• Parties: SEA-LAND SERVICE, INC.; American President Lines, Ltd., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

Page 1371

69 F.Supp.2d 1371

SEA-LAND SERVICE, INC.; American President Lines, Ltd., Plaintiffs, v. UNITED STATES, Defendant.

Nos. 96-02-00398.

SLIP OP. No. 99-100.

United States Court of International Trade.

September 23, 1999.

Arter & Hadden LLP, Myles J. Ambrose and Evelyn M. Suarez (Robert S. Zuckerman, of counsel), Washington, DC, for plaintiff Sea-Land Service, Inc.

Garvey, Schubert & Barer (E. Charles Routh and Carol L. Saboda), Seattle, WA, for plaintiff American President Lines, Ltd.

David W. Odgen, Acting Assistant Attorney General, Joseph I. Liebman, Attorney-in-Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice, Barbara S. Williams (Karen P. Binder, Assistant Chief Counsel, International Trade Litigation, United States Customs Service, of counsel), New York City, for defendant.

Collier, Shannon, Rill & Scott, PLLC (Lauren R. Howard), for Shipbuilders Council of America, Inc., amicus curiae in support of defendant's cross-motion, for summary judgment.

OPINION

TSOUCALAS, Senior Judge.

This matter is before the Court on cross-motions for summary judgment pursuant to USCIT R. 56. In their motion for summary judgment, plaintiffs, Sea-Land Service, Inc. ("Sea-Land") and American President Lines, Ltd. ("APL"), seek to recover duties assessed by the United States Customs Service ("Customs") under 19 U.S.C. § 1466(a) (1994) on plaintiffs' entries of repairs completed on their United States flagged-vessels while abroad. Plaintiffs request that the Court hold the vessel repair entries as nondutiable and order Customs to reliquidate the protested entries and refund all excess duties plus interest as provided by law. Defendant counters that the entries were properly liquidated as dutiable pursuant to 19 U.S.C. § 1466(a). For the reasons set forth in the opinion which follows, the Court grants defendant's cross-motion for summary judgment and denies plaintiffs' motion. The action is dismissed.

BACKGROUND

I. Texaco's "But For" Test

This case involves Customs' application of Texaco Marine Servs., Inc. v. United States, 44 F.3d 1539 (Fed.Cir.1994). In Texaco, the United States Court of Appeals for the Federal Circuit ("CAFC") affirmed this Court's holding that postrepair cleaning and protective covering expenses related to repairs performed on a United States-flagged vessel by foreign labor while abroad, were properly dutiable as "expenses of repairs" pursuant to the vessel repair statute, 19 U.S.C. § 1466(a),¹ because the expenses were an integral part of the repair process and would not have been necessary "but for" the dutiable repairs. See Texaco, 44 F.3d at 1543-50.

The CAFC in Texaco also provided clear guidance for interpreting the phrase "expenses of repairs" in 19 U.S.C. § 1466(a). See id. at 1543-45. The CAFC found that "the language `expenses of repairs' is broad and unqualified." Id. at 1544. In particular, the CAFC interpreted "`expenses of repairs' as covering all expenses (not specifically excepted in the statute) which, but for dutiable repair work, would not have been incurred. Conversely, `expenses of repairs' does not cover expenses that would have been incurred even without the occurrence of dutiable repair work." Id. To interpret the statute any more restrictively would, according to the CAFC, thwart Congress' intent to make the statute's application broad in scope. See id. Indeed, the CAFC noted that such a "but for" interpretation effectuates the statute's clear purpose of protecting United States shipbuilding and repair industry. See id. at 1544-45.

The CAFC further found that to the extent that non-binding judicial authority relied upon by plaintiffs in Texaco was inconsistent with the court's "but for" interpretation, it was "not persuaded ... to interpret `expenses of repairs' any more restrictively than the plain language of the statute warrants." Id. at 1546. Specifically, the CAFC addressed three cases: (1) American Viking Corp. v. United States, 37 Cust. Ct. 237, 245, C.D. 1830, 150 F.Supp. 746, 752 (1956) (holding that expense of providing lighting needed to perform a dutiable repair was not dutiable as an expense of the repair); (2) International Navigation Co. v. United States, 38 Cust. Ct. 5, 12, C.D. 1836, 148 F.Supp. 448, 455 (1957) (holding that expenses to transport a foreign repair crew to and from an anchored vessel being repaired, which expenses the court specifically found were necessary to perform the work, were not dutiable as expenses of repairs); and (3) Mount Washington Tanker Co. v. United States, 1 CIT 32, 42, 505 F.Supp. 209, 216 (1980) (holding that expenses for compensating foreign repair crew members for their time spent traveling between their home country and a vessel anchored at sea off another foreign port were not dutiable as an expense of the dutiable repairs performed by the repair crew). See id. at 1546-47. The CAFC determined that the vessel repair-related expenses at issue in these three cases would also have been viewed as coming within 19 U.S.C. § 1466(a) if a "but for" approach was applied. See id. The CAFC, therefore, concluded that these cases were "incorrectly decided." Id. at 1547.

Finally, the CAFC rejected plaintiffs' claim in Texaco that Customs' assessment of duties on the cleaning and protective covering expenses was improper because it was based on an interpretation of "expenses of repairs" that was a change in established and uniform practice ("EUP"), as provided by a Treasury decision, and that Customs made the change without giving notice in the Federal Register as required under 19 U.S.C. § 1315(d) (1994). See id. at 1547-48. In particular, plaintiffs asserted that Treasury Decision ("T.D.") 39443, 43 Treas. Dec. 99 (1923), established an interpretation for "expenses of repairs" which was inconsistent with Customs' assessment of duties in the Texaco case. See Texaco, 44 F.3d at 1547. Plaintiffs claimed that T.D. 39443 interpreted "expenses of repairs" under 19 U.S.C. § 1466(a) "as covering only those expenses incurred for work directly involved in the actual making of repairs" and that, therefore, under this standard, cleaning and protective covering expenses were "not `expenses of repairs' within the meaning of the statute." Id. The CAFC disagreed that T.D. 39443 established a narrow standard for "expenses of repairs" and, in fact, the court concluded that it provided nothing with respect to the interpretation of "expenses of repairs." See id. at 1548.

After finding this Court properly adopted a "but for" standard for "expenses of repairs," the CAFC concluded that the expenses at issue in Texaco were properly assessed with the vessel repair duty under 19 U.S.C. § 1466(a).

II. Customs' Application of Texaco

A. HQ Memorandum 113308

Recognizing that the CAFC's decision in Texaco was not only dispositive for the expenses at issue in the case, but also instructive as to Customs' administration of the vessel repair statute with respect to the interpretation of the term "expenses of repairs" contained therein, the Assistant Commissioner for Customs Office of Regulations and Rulings ("OR & R") issued Headquarters ("HQ") memorandum 113308 to Customs Regional Director, Commercial Operations Division, New Orleans, dated January 18, 1995, and subsequently published it in the Customs Bulletin and Decisions. See 29 Cust. B. & Dec. 59 (Feb. 8, 1995). In that memorandum, copies of which were disseminated to two other field offices charged with the liquidation of vessel repair entries, Customs stated that pursuant to Texaco, foreign repair expenses previously considered nondutiable would possibly "constitute dutiable `expenses of repairs' under the `but for' test." Id. at 60. The memorandum instructed that any foreign repair costs contained in the vessel repair entries not finally liquidated as of the date of the CAFC's Texaco decision (that is, Dec. 29, 1994), should be liquidated as dutiable "expenses of repairs" provided they pass Texaco's "but for" test. See id.

B. HQ Memorandum 113350

In response to the HQ memorandum 113308, plaintiffs and other American vessel owners/operators requested a meeting with Customs to discuss Customs' implementation of Texaco's "but for" test. See Def.'s Mem. Supp. Cross-mot. Summ. J. at Ex. 3. On February 22, 1995, representatives of Sea-Land and APL met with the Assistant Commissioner of OR & R and other Customs staff and urged Customs to rescind HQ memorandum 113308, but Customs refused to retract it. See id.

Nevertheless, upon further review of the matter, the Assistant Commissioner of OR & R again issued a HQ memorandum, denominated 113350, to the Regional Director, Commercial Operations Division, New Orleans, dated March 3, 1995, and subsequently published in the Customs Bulletin and Decisions, which clarified the effective date of HQ memorandum 113308. See 29 Cust. B. & Dec. 24 (Apr. 5, 1995).² The HQ memorandum 113350 provided that instead of assessing duties on vessel repair entries unliquidated at the time of CAFC's Texaco decision, Customs would limit its assessment to entries filed on or after the date of that decision. See id. at 25. With respect to the vessel repair entries filed prior to the Texaco decision, Customs would retroactively apply Texaco's "but for" test only to the post-repair cleaning and protective covering expenses that were directly decided by the CAFC in that case. See id.

C. Assessment of Duties

From January 1995 through March 1996, Sea-Land and APL declared and entered with Customs the vessel repair expenses that are at issue here as required under 19 C.F.R. § 4.14(b) (1995 & 1996).³ The vessel repair entries involved expenses for work performed abroad on several United States-flagged vessels by foreign labor. The entries included expenses such as transportation, travel, equipment rental, meal, administrative, insurance and tax costs. None of the entries concerned dry-docking expenses....