Commodities Export Co. v. U.S. Customs Service
| Decision Date | 24 October 1989 |
| Docket Number | No. 88-2068,88-2068 |
| Parties | COMMODITIES EXPORT COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. U.S. CUSTOMS SERVICE, an Agency of the U.S. Government, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Roger E. Craig (argued), Naples, Fla., Walter H. Lubienski, Lubienski, Lubienski & Lubienski, Detroit, Mich., for plaintiff-appellant.
Carolyn Bell Harbin, Asst. U.S. Atty. (argued), Detroit, Mich., for defendant-appellee.
Before MERRITT, Chief Judge, NELSON, Circuit Judge, and CELEBREZZE, Senior Circuit Judge.
Commodities Export Company appeals from the decision of the District Court holding that the District Court lacked jurisdiction over Commodities' petition for an injunction barring the United States Customs Service from enforcing certain claims. Without reaching a due process issue present in the case, the District Court held that the controversy was within the exclusive jurisdiction of the Court of International Trade. We conclude that the District Court reached a legally erroneous conclusion in its interpretation of 28 U.S.C. Sec. 1582(2), and that it prematurely decided other issues without holding a hearing on Customs' motion to dismiss. Accordingly, we vacate the decision below and remand this case.
Commodities operates a "duty-free" shop in Detroit, Michigan, in which U.S. excise taxes and tariffs are not charged on the goods sold. Its facility is said by the parties to be the only duty-free shop located on the U.S. side of the "point of no return"--that is, the point at which a customer carrying goods recently purchased from the duty-free shop must take them through a Customs checkpoint in order to bring them into the United States and insert them into the stream of commerce here. It appears that the Detroit office of the Customs Service was unwilling to allow Commodities to operate at its unusual location because of the heightened risk of "runaways." "Runaways" are goods that have been sold at a duty-free shop without federal and state taxes and duties on the supposition that the goods would immediately be taken out of the United States, but that are taken into the United States instead.
Commodities sued Customs in District Court in 1976 and obtained a court order commanding Customs to allow Commodities to operate a duty-free shop on the United States side of the point of no return. The order specified the parties' respective duties in the maintenance of a surveillance regime that would allow Customs to ensure that goods sold by Commodities did not "run away." In 1985 that court order was amended, pursuant to an agreement of the parties, to allow Commodities to videotape its operations as a less expensive means of providing documentation of runaways. The District Court has retained jurisdiction over the original dispute.
Since the original order, Customs has brought several assessments for liquidated damages on Commodities' warehouse bond. As a duty-free shop, Commodities is required to maintain this bond by federal law. 19 U.S.C. Sec. 1555. The bond is meant to guarantee that Commodities will comply with the numerous regulations for storing merchandise in and withdrawing it from its bonded warehouse. 19 U.S.C. Sec. 1623(a). The Secretary of the Treasury is authorized to affix penalties to breaches of the conditions of a bond, and in particular may assess liquidated damages on the bond. 19 U.S.C. Sec. 1623(b)(1).
Acting under this authority, the Customs Service notified Commodities of more than twenty assessments for liquidated damages. Following the District Court, we divide these into five groups. The first (# 1), dated June 14, 1983, assesses $775.35 on the grounds of inventory shortages that allegedly violated Customs regulations. The second (# 2), dated March 21, 1983, assesses $6,293.96 on the grounds of inventory shortages and on the grounds that certain goods were not marked in accordance with regulations. The third (# 3), dated April 4, 1986, assesses $141,868.00 on the grounds of inadequate recordkeeping and marking of merchandise, unreported shortages and unreported breakage. The fourth (# 4) is a series of 17 assessments, dated November 28, 1986 and totalling $850,000: it is not immediately clear what alleged breaches underlie these assessments. The fifth (# 5), dated June 15, 1987, assesses $5,217.50, the total price of goods sold during a gap in the videotape of Commodities' operations on May 21, 1987.
Commodities seeks an injunction against the enforcement of four of these assessments, # 1, # 2, # 3 and # 5. All parties appear to agree that the fourth assessment was settled, though Commodities asserts that Customs officials refused to give it a valid receipt until this suit was filed. The parties disagree about the status of # 3. Customs asserts that it is under administrative review and therefore is ripe neither for enforcement nor for this contest. Commodities asserts that this claim is settled because Customs cashed its check for $668.00 made out with a restrictive endorsement stating that it was payment in full. It appears that, as to # 3, Commodities seeks an injunction barring Customs from continuing to treat this claim as unsatisfied; it also argues that the claim is improper because it seeks to enforce internal regulations of Customs that are not binding on the public.
Setting aside for the moment the difficulties attendant on the specific assessments enumerated above, Commodities' basic complaint before the District Court was that it had done everything required of it to obtain administrative review of the assessments and that Customs has ignored all its pleas for due process and has proceeded to enforce the claims without administrative review. Commodities contends that it sought administrative review by what it deemed to be the proper means under the Customs regulations, 19 C.F.R. Sec. 172. This section of the Customs regulations prescribes the means by which a private party subject to liquidated damages on a Customs bond may petition for relief. Commodities emphasizes that each notice of liquidated damages it received from Customs specified that, in order to prevent the assessment from becoming final and subject to enforcement, Commodities was required to take recourse to the petition process set forth in 19 C.F.R. Sec. 172. In each petition, Commodities also requested a hearing under the APA and correct information about the challenged claims under the Freedom of Information Act.
Commodities argues that, after refusing to give due consideration to its petitions, Customs proceeded to enforce the assessments. Although the District Court appears not to have ruled on this issue, the record before us indicates that Customs has set its collection machinery in motion, though it has not actually sued on the bond. On March 20, 1988, Customs sent Commodities final demands for payment stating that enforcement proceedings would commence in 10 days. JA 160-61. Commodities filed its motions in District Court nine days later. After the District Court denied Commodities' motion for a stay pending appeal, Customs made a formal demand for payment from Commodities' surety. JA 196.
Commodities also makes a number of allegations tending to show that Customs does not plan to restrict its actions to efforts to enforce the assessments. Commodities alleges that Customs officials have threatened to "terminate Commodities' business by refusing Customs service to Commodities." Petition for Supplemental Relief, Paragraph 11; JA 17. Commodities also alleges that a Customs official threatened to "do everything in his power" to make it impossible for Commodities to operate as a duty-free shop, in part on the grounds that the video monitoring system installed by order of the District Court violated the Customs laws. Petition for Supplemental Relief, Paragraph 17, JA 19; R. 46, Ex. T, JA 88. Commodities claims that the official making the latter threat indicated that "he was retiring soon and had nothing to lose," creating an inference that he intended to exceed the scope of his legitimate authority or to pursue an illegitimate end by the use of otherwise legal means.
The District Court held that it lacked jurisdiction over these claims because the Customs Court Act of 1980 vested exclusive jurisdiction over this species of dispute in the newly created Court of International Trade. It made two separate analyses, one applying 28 U.S.C. Sec. 1581(a) 1 to assessment # 5 and another applying 28 U.S.C. Sec. 1582(2) 2 to assessments # 1 and # 2. First, analyzing claim # 5 (involving the videotape system's failure) the District Court reasoned that a duty-free shop was a bonded warehouse established under 19 U.S.C. Sec. 1555; that the Secretary of the Treasury was empowered by 19 U.S.C. Sec. 1623(a) and (b)(1) to regulate such bonded warehouses and to assess against the warehouse bond liquidated damages for violations of relevant regulations; that liquidated damages assessments were subject to administrative review under 19 C.F.R. Sec. 172 () and 19 U.S.C. Secs. 1514, 1515 and 19 C.F.R. Sec. 174 (); and finally that Congress has vested exclusive jurisdiction over appeals from decisions on protests in the CIT, 28 U.S.C. Sec. 1581(a).
The District Court did not analyze the difference between the petition process set forth at 19 C.F.R. Sec. 172 and the protest procedure set forth at 19 U.S.C. Secs. 1514, 1515 and 19 C.F.R. Sec. 174. Here we will only observe that the petition process is required of those who wish to object to an assessment of liquidated damages, and triggers a reconsideration of a liquidated damages assessment by the district director of the Customs office that issued the assessment and...
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