U.S. v. Utex Intern. Inc., 87-1414

• Citation: 857 F.2d 1408
• Decision Date: 08 September 1988
• Docket Number: No. 87-1414,87-1414
• Parties: , 6 Fed. Cir. (T) 166 UNITED STATES of America, Plaintiff-Appellee, v. UTEX INTERNATIONAL INC., Defendant, and Sentry Insurance Company, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1408

857 F.2d 1408

10 ITRD 1561, 6 Fed. Cir. (T) 166

UNITED STATES of America, Plaintiff-Appellee, v. UTEX INTERNATIONAL INC., Defendant, and Sentry Insurance Company, Defendant-Appellant.

No. 87-1414.

United States Court of Appeals, Federal Circuit.

Sept. 8, 1988.

Barbara M. Epstein, Commercial Litigation Branch, Dept. of Justice, New York City, argued for plaintiff-appellee. With her on the brief were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director and Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office.

William E. Melahn, Follick & Bessich, Boston, Mass., argued for defendant-appellant. With him on the brief was Angela Violin.

Before FRIEDMAN, DAVIS ^* and NEWMAN, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

In this action on a surety bond brought under 28 U.S.C. Sec. 1582(2), Sentry Insurance Company appeals the judgment of the United States Court of International Trade awarding liquidated damages to the United States in the amount of $11,718. ¹ We reverse.

Background

Utex International Inc. ("Utex") imported from India, through the Port of New York, 115 cartons of frozen shrimp. On February 1, 1980 the goods were released to Utex on the posting by Sentry Insurance Company ("Sentry") of a Single Entry Immediate Delivery and Consumption Entry Bond.

The Customs Service provided samples to the Food and Drug Administration ("FDA"). On February 6, 1980, a "Notice of Detention and Hearing" was issued to Utex by the FDA, copy to the Customs Service, stating that "the merchandise must be held intact pending final decision as to whether it shall be admitted or refused admission." The Notice also bore the statement: "The article is violative within the meaning of 801(a)(3) [of the Food, Drug and Cosmetics Act of 1938 as amended, 21 U.S.C. Sec. 381(a)(3) ] in that it appears to contain Salmonella, and/or filth, and/or appears to be decomposed." ²

Despite this Notice, the entry was liquidated by the Customs Service on February 29, 1980. The entry was not reliquidated.

On March 12, 1980 the Customs Service issued to Utex a "Notice of Refusal of Admission", which stated that the goods were in violation of Section 801(a)(3) and required Utex to export the shrimp under Customs' supervision within 90 days. Utex did not comply. On December 9, 1980 Customs sent Utex, with a copy to Sentry, a "Notice of Penalty or Liquidated Damages Incurred and Demand for Payment." The sum was not paid.

On June 27, 1984 Customs demanded payment of liquidated damages from Utex and/or Sentry, and on June 5, 1986 the government filed suit against both Utex and Sentry. Utex made no answer or appearance. Sentry was held liable on the entry bond, and takes this appeal.

The controlling question of law is whether the final liquidation of the goods discharged the surety from liability on the entry bond.

A. Liquidation

19 U.S.C. Sec. 1514(a) provides that all administrative decisions as to value, classification, duty, exclusion, liquidation, etc., including the legality of all orders and findings entering into such decisions, are "final and conclusive upon all persons (including the United States and any officer thereof)" unless the decision is timely protested. Sentry asserts that these decisions are subsumed in the final liquidation and that, because the goods were neither reliquidated nor a protest filed, the government as well as the surety are bound thereby.

The Court of International Trade held that liquidation and reliquidation relate only to the computation and imposition of duties, and thus that the finality expressed in Sec. 1514(a) does not apply to decisions on admissibility. Utex, 659 F.Supp. at 252. The court cites in support United States v. American Motorists Insurance Co., 10 CIT ----, slip op. 86-7 (1986), wherein the surety was held liable for payment of customs duties when the importer's checks were dishonored, despite intervening liquidation. The issues are not at all comparable, for the obligation to pay the duties owed had vested, and the only question was that of the dishonored checks. 19 U.S.C. Sec. 1648; 19 CFR Sec. 141.1(b). This decision sheds no light on the issues raised herein--other than to point up the absence of authority for the court's holding that liquidation is unrelated to admissibility.

It is long-standing customs law that when goods are finally liquidated they are deemed admissible, as summarized in R Sturm, Customs Law & Administration Sec. 8.3 Finality of Liquidation at 32, (3d ed. 1982), discussing 19 U.S.C. Sec. 1514(a):

All findings involved in a district director's decision merge in the liquidation. It is the liquidation which is final and subject to protest, not the preliminary findings or decisions of customs officers. Commonwealth Oil Refining Co., Inc. v. United States, 67 Cust.Ct. 155, C.D. 4267, 332 F.Supp. 203 (1971) and cases cited; Dart Export Corp. v. United States, 43 CCPA 64, C.A.D. 610 (1956), cert. denied, 352 U.S. 824, 88 S.Ct. 33, 1 L.Ed.2d 48 (1956).

In harmony with the finality of liquidation, the customs regulations require that liquidation be suspended when the goods are food, drugs, and other articles subject to FDA inspection:

19 CFR Sec. 159.55 Possible prohibited food, drugs, or other articles.

(a) Suspension of liquidation. The liquidation ... shall be suspended until it is determined whether admission of the merchandise into the United States is permitted under the law.

Other regulations require that Customs demand the return of inadmissible goods that had been released from Customs custody, and that such demand be made before liquidation has become final. 19 CFR Sec. 141.113(b):

If at any time after entry the district director finds that any merchandise contained in an importation is not entitled to admission into the commerce of the United States for any reason not enumerated in paragraph (a) of this section [relating to marking of certain merchandise], he shall promptly demand the return to Customs custody of any such merchandise which has been released.

19 CFR Sec. 114.113(f):

A demand for the return of merchandise to Customs custody shall not be made after the liquidation of the entry covering such merchandise has become final.

It is undisputed that Customs' liquidation on February 29, 1980 of Utex's 115 cartons of frozen shrimp was in violation of these regulations. These requirements enable Customs to implement a FDA refusal of admittance while the goods are still under detention by the importer and while they are subject to Customs' authority. The government's argument that the purpose of these regulations is simply to save Customs the bother of assessing duties and later making a refund, and not in recognition of any legally significant finality of liquidation, is contrary to the body of customs law.

The government itself calls the liquidation of Utex' shrimp "premature", using the word of the Court of Customs and Patent Appeals in United States v. A.N. Deringer, 593 F.2d 1015, 1020, 66 CCPA 50 (1979). The situation in Deringer was, in pertinent part, similar to that at bar. In appeal No. 78-8 in Deringer the foods were liquidated a few days before issuance by Customs of a Notice of Refusal of Admission based on FDA inspection. The Court of Customs and Patent Appeals held that the liquidation did not conform to the regulation (the predecessor of 19 CFR Sec. 159.55(a)) that requires suspension of liquidation until admissibility is determined, because the liquidation preceded the statutory notice of refusal required by 21 U.S.C. Sec. 381(a). Id. at 1019. However, the appellate court rejected the holding of the Customs Court that the liquidation was void ab initio, and held that neither the legality nor the correctness of the liquidation could be disturbed because it had not been challenged by appropriate and timely procedure. Id. at 1020. The court held that absent timely protest as required by 28 U.S.C. Sec. 1582(c), or reliquidation in accordance with statute and regulation, the matter should have been dismissed by the Customs Court for lack of jurisdiction. Id. at 1021.

A similar ruling was made by this court in Omni U.S.A., Inc., v. United States, 840 F.2d 912 (Fed.Cir.1988). The Customs Service, in an admitted error, liquidated an entry at an incorrectly high duty, although it was required to have held the liquidation in suspense. This court held that the error could be corrected only within the terms of the statute, and that:

Since nobody brought the errors to the attention of the appropriate customs officers within a year of the date of liquidation, authority to correct them lapsed according to the term of section 1520(c)(1)....

Id. at 914. This court rejected the proposition that the liquidation, since ultra vires, was void, stating "our want of enthusiasm for the void liquidations doctrine matches that of the Deringer court", and concluded that upon expiration of the time prescribed in the statute to correct errors, "jurisdiction to effect correction under that statute had lapsed." Id. at 915, 916.

Both the Omni and Deringer courts held that the erroneous liquidation could be corrected only by following the statutory procedures, and that failure to do so within the period set by statute leaves the liquidation final. See also, e.g., National Corn Growers Ass'n. v. Baker, 840 F.2d 1547 (1988); United States v. Uniroyal, Inc., 687 F.2d 467 (CCPA 1982). These decisions carried forward the established law that the statutory procedures of liquidation, reliquidation, and timely protest control the finality of the importation process.

We need not discuss what remedial action may have been available to the Customs Service, for it essayed none at all. There was no voluntary reliquidation within ninety days in accordance with 19 U.S.C. Sec. 1501, no protest filed under 19 U.S.C. Sec. 1514 or Sec. 1516 (during which the government might have raised the question of finality), no reliquidation within one...