Carnival Cruise Lines, Inc. v. U.S., Slip. Op. 02-78.

• Decision Date: 31 July 2002
• Docket Number: Slip. Op. 02-78.,Court No. 93-10-00691.
• Citation: 246 F.Supp.2d 1296
• Parties: CARNIVAL CRUISE LINES, INC., Hal Antillen, N.V., Hal Shipping Ltd., and Wind Surf Limited, Plaintiffs, v. The UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

246 F.Supp.2d 1296

CARNIVAL CRUISE LINES, INC., Hal Antillen, N.V., Hal Shipping Ltd., and Wind Surf Limited, Plaintiffs, v. The UNITED STATES, Defendant.

Slip. Op. 02-78.

Court No. 93-10-00691.

United States Court of International Trade.

July 31, 2002.

Paul, Weiss, Rifkind, Warton & Garrison (Robert E. Montgomery, Jr. and Robert P. Parker), Washington, DC, for Plaintiffs.

Robert D. McCallum, Jr., Assistant Attorney General, David M. Cohen, Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (Lara Levinson and Michael Duclos), and Richard McManus, Office of Chief Counsel, United States Customs Service, of counsel, for Defendant.

OPINION

MUSGRAVE, Judge.

In this action, plaintiffs Carnival Cruise Lines, Inc., HAL Antillen, N.V., HAL Shipping, Ltd., and Wind Surf Limited (collectively "Carnival") contest the assessment and collection of the Harbor Maintenance Tax ("HMT")¹ on passenger cruise ships by defendant the United States Customs Service ("Customs"). This matter began in 1992 when Customs audited the HMT paid by HAL Antillen for the period from April 1, 1987 through December 31, 1991 and assessed $322,311.00 for alleged underpayments. According to an August 20, 1992 letter from the Regional Director of Customs' Regulatory Audit Division the underpayments resulted from HAL Antillen's failure to pay the HMT for cruises that made only layover stops at ports subject to the HMT and its deduction of travel agents' commissions from the "value" of the cruise fare on which the HMT was based. After receiving formal notification of the audit results on April 6, 1993, HAL Antillen filed a timely protest. On October 6, 1993 it requested accelerated disposition of its protest pursuant to 19 C.F.R § 174.22(a). After receiving no decision for 30 days, the protest was deemed denied pursuant to 19 C.F.R § 174.22(d) on November 5, 1993.

Carnival commenced this action in October 1993 and an appeal from the denial of HAL Antillen's protest was added by an amended complaint. Subsequently, Carnival moved for partial summary judgment on the issues of (1) whether the HMT should be assessed on cruises that begin and end at ports that are exempt from the tax, but make layover stops at ports subject to it, and (2) whether the "value" of the cruise on which the HMT is assessed should include anything more than the actual cost for transportation. Following the Supreme Court's decision in United States v. United States Shoe Corp., 523 U.S. 360, 118 S.Ct. 1290, 140 L.Ed.2d 453 (1998), aff'g 114 F.3d 1564 (Fed.Cir.1997), aff'g 19 CIT 1284, 907 F.Supp. 408 (1995), holding the HMT unconstitutional as applied to exports, Carnival amended its complaint a second time adding a constitutional challenge. This Court held that the HMT was unconstitutional as applied to passenger cruises; therefore it did not reach the other issues raised by Carnival. See Carnival Cruise Lines, Inc. v. The United States, 22 CIT 486, 8 F.Supp.2d 877 (1998). The Court of Appeals for the Federal Circuit reversed this Court's holding on the constitutional issue and remanded this action for consideration of the remaining legal issues. See Carnival Cruise Lines, Inc. v. United States, 200 F.3d 1361, 1369 (Fed.Cir.2000).

For the reasons which follow, the Court holds that the Federal Circuit's decision in Princess Cruises, Inc. v. United States, 201 F.3d 1352 (Fed.Cir.2000), is controlling on the issue of whether cruise lines are liable for the HMT when a vessel makes a layover stop at a port subject to the HMT. Nevertheless, since the Federal Circuit found that the law was ambiguous with respect to layover stops prior to the issuance of HQ 112511 (Jan. 27, 1993), the Court holds that cruise lines are not liable for the HMT on cruises which made only layover stops at HMT covered ports prior to January 27, 1993. The Court also holds that Customs should not have included "port taxes" and charges for "U.S. Customs and U.S. Immigration and Naturalization services" in the cruise "value" on which the HMT is assessed, but was otherwise correct in assessing the HMT on the price paid for the cruise, exclusive of landbased services and commissions. Therefore, Carnival's motion for partial summary judgment is granted in part and Customs motion for summary judgment is granted in part.

I. Jurisdiction and Standard of Review

Pursuant to 28 U.S.C. § 1581(i) the Court has jurisdiction over Carnival's claim for restitution of the amount of HMT that it allegedly overpaid, and pursuant to 28 U.S.C. § 1581(a) the Court has jurisdiction over the counts in Carnival's First Amended Complaint appealing the denial of HAL Antillen's protest. Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CIT Rule 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

II. Assessment of Harbor Maintenance Taxes for Layover Stops

The HMT is "a tax on any port use," 26 U.S.C. § 4461(a), and "port use" is defined as "the loading of commercial cargo on, or ... the unloading of commercial cargo from a commercial vessel at a port," 26 U.S.C. § 4462(a)(1). "The term `commercial cargo' means any cargo transported on a commercial vessel, including passengers transported for compensation or hire." 26 U.S.C. § 4462(a)(3)(A). Ports in Alaska, Hawaii, and possessions of the United States are exempt from the tax. 26 U.S.C. § 4462(b). Although the statute itself does not explain how the HMT is to be assessed on passengers, 19 C.F.R. § 24.24(e)(4) states that "when a passenger boards or disembarks a commercial vessel at a port within the definition of this section, the operator of that vessel is liable for the payment of the port use fee." In HQ 112511 Customs addressed for the first time the issue of whether a passenger who "temporarily goes ashore and subsequently gets back on the vessel [at a layover stop] is considered to have `disembarked' or `boarded' at that port for purposes of 19 C.F.R. § 24.24(e)(4) so as to incur liability on behalf of the vessel operator for the payment of a port use fee." Customs concluded that cruise operators are liable for the HMT on passengers who leave the vessel at these interim stops and that there is a rebuttable presumption that every passenger does so.

Subsequently, this issue came before the Federal Circuit in an action brought by Princess Cruises. The Federal Circuit held that both 26 U.S.C. § 4461-62 and 19 C.F.R. § 24.24(e)(4) were ambiguous with regard to layover stops by cruise ships and gave Chevron deference² to Customs' interpretation of the regulation. See Princess Cruises, Inc. v. United States, 201 F.3d 1352, 1359 (Fed.Cir.2000). The Federal Circuit concluded that:

In light of the clear intent of Congress to impose a fee on all port use as revealed in the legislative history, the Customs interpretation including stopovers and layovers in the port use covered by the HMT is not unreasonable. The HMT is intended to charge those using the ports for the expense of maintaining the ports. It is not apparent to us that the use of the port to discharge passengers for shopping and sight-seeing in a port and then reboard those same passengers is any less of a use or has any less impact on the port than boarding or discharging passengers at the beginning or end of a cruise.

Id. at 1360.

In the present action, Carnival challenges Customs' assessment of the HMT for layover stops on grounds that it is inconsistent with the language of the act, the legislative history, and Customs' procedures. See Pl.s' Mot. for Partial Summ. J. at 13-25. Customs asserts that Princess is dispositive of this issue. See Def.'s Mem. in Supp. of its Cross-Mot. for Summ. J. and in Opp'n to Pl.s' Renewed Mot. for Partial Summ. J. at 12-13. Nevertheless, Carnival argues that Princess is no longer valid following the decisions in United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001), aff'g, 185 F.3d 1304 (Fed.Cir.1999),³ because the Customs ruling at issue was not adopted pursuant to the Administrative Procedure Act. See Mem. of Points and Authorities in Support of Pl.s' Renewed Mot. for Partial Summ. J. at 17 n. 14. Therefore, Carnival concludes that the Court should consider its substantive legal arguments. Pl.s' Supplemental Mem. in Supp. of their Renewed Mot. for Summ. J. and in Opp'n to Def.'s Cross-Mot. for Summ. J. at 3.

The Court agrees with Customs that Princess is still valid precedent. Unlike the ruling in Mead, the ruling at issue in Princess did not interpret a statute, but interpreted a regulation that interpreted a statute. In Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), the Supreme Court held that an agency's interpretation of its own regulation is controlling unless it is "plainly erroneous or inconsistent with the regulation." 519 U.S. at 461, 117 S.Ct. 905 (citation omitted). See also Boivles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945); Barnhart v. Walton, 535 U.S. 212, 122 S.Ct. 1265, 1269, 152 L.Ed.2d 330 (2002). Therefore, based on the Federal Circuit's decision in Princess, the Court holds that Carnival is liable for payment of the HMT on passengers who disembark the ship at layover ports covered by the HMT.

As a separate issue Carnival contends that Princess only upholds Customs' assessment of the HMT for layover stops from the time HQ 112511 was issued in 1993 and does not address the legality of Customs' retroactive application of that ruling. Carnival argues that prior to Customs' pronouncement in HQ 112511 that all passengers were, in the absence of contrary evidence, presumed to "disembark" at layover ports, cruise line operators were administrative action is intended to...