Int'l Custom Prods., Inc. v. United States

• Citation: 748 F.3d 1182
• Decision Date: 14 April 2014
• Docket Number: No. 2013–1176.,2013–1176.
• Parties: INTERNATIONAL CUSTOM PRODUCTS, INC., Plaintiff–Appellee, v. UNITED STATES, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

748 F.3d 1182

INTERNATIONAL CUSTOM PRODUCTS, INC., Plaintiff–Appellee,

v.UNITED STATES, Defendant–Appellant.

No. 2013–1176.

United States Court of Appeals,

Federal Circuit.

April 14, 2014.

Gregory H. Teufel, Eckert, Seamans, Cherin & Mellott, LLC, of Pittsburgh, PA, argued for plaintiff-appellee. With him on the brief was Jeremy L.S. Samek.

Edward F. Kenny, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of New York, NY, argued for defendant-appellant. With him on the brief were Stuart F. Delery, Assistant Attorney General and Jeanne E. Davidson, Director, of Washington, DC, and Jason M. Kenner, Trial Attorney, of New York, NY. Of counsel on the brief was Yelena Slepak, Attorney, Office of the Assistant Chief Counsel, International Trade Litigation, United States Customs and Border Protection, of New York, NY. Of counsel was Amy M. Rubin, Attorney, International Trade Field Office, Civil Division, United States Department of Justice, of New York, NY.

Before O'MALLEY, REYNA, and WALLACH, Circuit Judges.

WALLACH, Circuit Judge.

This is an appeal from the United States Court of International Trade (“CIT”) regardingthe classification of certain white sauce imports under the Harmonized Tariff Schedule of the United States (“HTSUS”). Following a request from International Custom Products, Inc. (“ICP”), the United States Customs and Border Protection (“Customs”) issued New York Ruling Letter D86228 (“the Ruling Letter”) classifying ICP's white sauce as “sauces and preparations therefor” under HTSUS 2103.90.9060 (1999). Years later, Customs issued a notice of action reclassifying all pending and future entries of white sauce as “[b]utter and ... dairy spreads” under HTSUS 0405.20.3000 (2005) (“the Notice of Action”), which increased the tariff by approximately 2400%.

After protesting and paying duties on a single entry, ICP filed a claim in the CIT, alleging the Notice of Action improperly revoked the Ruling Letter without following the procedures required by 19 U.S.C. § 1625(c) (2006). The CIT granted ICP's requested relief and ordered Customs to reliquidate the merchandise under the “[s]auces and preparations therefor” heading required by the Ruling Letter. Because the CIT properly held the Notice of Action effectively revoked the Ruling Letter without following the necessary procedures, this court affirms.

Background

I.

During the relevant time period, ICP was in the business of importing and distributing food ingredients to food product manufacturers. In 1998, ICP requested a ruling from Customs regarding the classification of white sauce under the HTSUS. ICP's request described that white sauce “may be used as the base for a gourmet sauce or salad dressing,” J.A. 1115, and listed its ingredients as “Milkfat, Water, Vinegar (and/or lactic acid and/or citric acid), Zanthum [ sic ] gum, Carboxymethelcellulose [ sic ], Sodium Phosphate and/or Sodium Citrate.” ¹ J.A. 942. Milkfat was listed as the dominant ingredient, at a concentration of 72–77%.

On January 20, 1999, Customs issued the Ruling Letter, which classified white sauce under HTSUS 2103.90.9060 (1999) for “sauces and preparations therefor” (“the sauces heading”), with a duty rate of 6.6% ad valorem.² ICP imported large quantities of white sauce under this classification for over five years. In March 2004, Customs notified ICP that it was initiating a new investigation into the proper HTSUS classification of ICP's white sauce and requested information from ICP regarding its white sauce entries. ICP responded to Customs' inquiries by providing samples of its white sauce for testing. The samples were materially identical to the ingredient list and concentrations described in ICP's ruling request and the Ruling Letter. ICP also reported that its largest customer of white sauce at the time was Schreiber Foods, Inc. (“Schreiber”), but stated it did not know Schreiber's intended use for the white sauce. After further investigation, Customs discovered that Schreiber used the white sauce to make different types of cheese.

Based on this information, a Customs import specialist requested reconsideration of the Ruling Letter on November 17, 2004. The relevant Customs branch sent an interoffice memorandum to the Office of Regulations and Rulings (“OR & R”), which is responsible for reviewing and issuing ruling letters, and recommended that the Ruling Letter be revoked. OR & R disagreed, finding the Ruling Letter was correct for the “circumstances presented.” J.A. 1036. However, the OR & R determined the Ruling Letter did not apply to the pending white sauce entries, because those entries would be used to make cheese.

In April 2005, over six years after issuing the Ruling Letter, Customs issued the Notice of Action stating that all eighty-six of ICP's pending entries of white sauce, and all future entries, would be classified under HTSUS 0405.20.3000 (2005) for “[d]airy spreads: [b]utter substitutes ...: [c]ontaining over 45 percent by weight of butterfat” (“the dairy spreads heading”), which carried a substantially higher duty rate than the sauces heading.³ The Notice of Action explained that Customs' lab analysis “reveal[ed] that this product is a spreadable, water-in-oil type emulsion with 78% milk fat,” and was therefore properly classified under the dairy spreads heading. J.A. 1046. The Notice of Action said nothing about the principal use of white sauce.

II.

The Notice of Action marks the beginning of a lengthy litigation history between ICP and the United States, including a prior appeal to this court. In the first round of litigation spanning from 2005 through 2007, ICP challenged the Notice of Action in the CIT without first exhausting the protest procedures necessary to establish jurisdiction under 28 U.S.C. § 1581(a) (2000), the traditional jurisdictional basis for the CIT to review a Customs liquidation decision. The CIT instead exercised jurisdiction under § 1581(i), which provides jurisdiction when other subsections of § 1581 are “manifestly inadequate.” Int'l Custom Prods., Inc. v. United States ( ICP I ), 374 F.Supp.2d 1311 (Ct.Int'l Trade 2005). The CIT reasoned that Customs' abrupt classification change had brought ICP to the “brink of bankruptcy,” and found § 1581(a) was “manifestly inadequate” because the protest procedures it required would put ICP out of business. Id. at 1321–22. On the merits, the CIT held the Notice of Action was null and void and ordered Customs to reliquidate ICP's white sauce entries under the sauces heading required by the Ruling Letter. Id. at 1333.

On the Government's appeal, this court held the CIT lacked jurisdiction under § 1581(i), because the normal requirements for jurisdiction under § 1581(a) were not manifestly inadequate. Int'l Custom Prods., Inc. v. United States ( ICP II ), 467 F.3d 1324 (Fed.Cir.2006). This court accordingly reversed the CIT's exercise of jurisdiction, vacated the decision on the merits, and remanded for the CIT to dismiss ICP's complaint. Id. at 1328.

The case currently pending before this court relates to white sauce Entry Number 180–0590029–7 (“the Entry”), which Customs liquidated pursuant to the Notice of Action's dairy spreads heading on June 29, 2007. Consistent with this court's decision in ICP II, ICP filed a protest challenging Customs' classification of the Entry. Customs denied ICP's protest and ICP filed the instant action in the CIT under § 1581(a).

In its complaint, ICP alleged the Notice of Action was null and void because it improperly revoked the Ruling Letter without following the notice and comment procedures set forth in 19 U.S.C. § 1625(c) and without due process of law. ICP arguedCustoms should instead have liquidated the Entry under the sauces heading, as required by the Ruling Letter. On March 31, 2008, the CIT denied-in-part the Government's motion to dismiss for failure to state a claim upon which relief may be granted. Int'l Custom Prods., Inc. v. United States (ICP III ), 549 F.Supp.2d 1384 (Ct.Int'l Trade 2008). It held ICP had stated a cognizable claim that the Notice of Action violated 19 U.S.C. § 1625(c) and the Due Process Clause of the Fifth Amendment. The CIT also denied the parties' cross motions for summary judgment, finding that genuine disputes of material fact required trial. Int'l Custom Prods., Inc. v. United States ( ICP IV ), No. 07–cv–00318, 2009 WL 205860 (Ct.Int'l Trade Jan. 29, 2009).

The CIT then granted the parties' joint motion to bifurcate the trial, and proceeded on ICP's claim alleging a violation of § 1625(c)(1). Section 1625(c)(1) requires Customs to follow multiple procedural requirements when issuing an “interpretive ruling or decision” that would “modify ... or revoke a prior interpretive ruling or decision which has been in effect for at least 60 days.” 19 U.S.C. § 1625(c)(1). In particular, Customs must publish the proposed ruling or decision in the Customs Bulletin, provide a comment period of at least 30 days after such publication, and publish the final decision in the Customs Bulletin within 30 days after the close of the comment period (“notice and comment procedures”). Id. § 1625(c). The final ruling or decision “become[s] effective 60 days after the date of its publication.” Id.

After a bench trial, the CIT found the Ruling Letter applied to the Entry because “the white sauce contained in the Entry materially conformed to the description in the Ruling Letter.” Int'l Custom Prods., Inc. v. United States ( ICP V ), 878 F.Supp.2d 1329, 1349 (Ct.Int'l Trade 2012). It also rejected the Government's argument that ICP had made material misstatements that rendered the Ruling Letter void ab initio. The CIT concluded the Notice of Action's reclassification of all pending and future entries of white sauce effectively revoked the otherwise controlling Ruling Letter without adherence to § 1625(c)'s notice and comment procedures. Accordingly, the CIT held the Notice of...