Cyber Power Sys. (USA) Inc. v. United States

• Decision Date: 02 September 2020
• Docket Number: Slip Op. 20-130,Court No. 20-00124
• Citation: 471 F.Supp.3d 1371
• Parties: CYBER POWER SYSTEMS (USA) INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

471 F.Supp.3d 1371

CYBER POWER SYSTEMS (USA) INC., Plaintiff,

v.UNITED STATES, Defendant.

Slip Op. 20-130

Court No. 20-00124

United States Court of International Trade.

September 2, 2020

John M. Peterson, Patrick Brady Klein, and Richard F. O'Neill, Neville Peterson, LLP of New York, NY for Plaintiff Cyber Power Systems (USA) Inc.

Beverly A. Farrell and Brandon A. Kennedy, Trial Attorneys, Commercial Litigation Branch, Civil Division, U.S. Department of Justice of New York, NY for Defendant United States. With them on the brief were Ethan P. Davis, Acting Assistant Attorney General, Jeanne E. Davidson, Director, Justin R. Miller, Attorney-In-Charge. Of counsel on the brief was Yelena Slepak, Office of Assistant Chief Counsel, U.S. Customs and Border Protection of New York, NY.

OPINION and ORDER

Gordon, Judge:

In this action Plaintiff Cyber Power (USA) Inc. challenges the denial by U.S. Customs and Border Protection ("Customs" or "CBP") of Plaintiff's protest of Customs’ deemed exclusion of Plaintiff's subject merchandise (five models of uninterruptible power supplies and one model of surge voltage protectors) for country of origin marking "made in Philippines" instead of "made in China." Plaintiff argues its merchandise is substantially transformed in the Philippines and requests an order directing Customs to enter Plaintiff's merchandise as marked "made in Philippines." Before the court is Plaintiff's request for a preliminary injunction that seeks the ultimate relief in the action. For the reasons set forth below, the court denies Plaintiff's motion.

Background

Before the subject entry was detained and deemed excluded, Cyber Power made a verbal prior disclosure to Customs in the summer of 2019, arising from a consumer affairs journalist who identified an over-label on packaging of imported Cyber Power surge voltage protectors and uninterruptible power supplies. The over-label stated that the good was "made in Philippines" but, when the reporter removed the label, the printing on the packaging stated "made in China."

In September 2019, Customs sent an initial Request for Information to Cyber Power seeking general information and certain production records. Customs followed up with another request in October 2019 again seeking production records. Cyber Power provided Customs with its Final Prior Disclosure in November 2019, in which Cyber Power explained that the disclosure related to the country of origin designation of certain imported merchandise "spanning from November 2018 to the present [November 27, 2019]." Among other things, Cyber Power stated that it believed the use of over-labels on pre-printed packaging was reasonable and compliant with 19 U.S.C. § 1304 and that the goods met the substantial transformation test. Cyber Power further explained that it had conducted an internal review of its certificate of origin declaration and marking practices.

In January 2020, Customs determined that the country of origin of certain Cyber Power uninterruptible power supplies and surge voltage protectors was China, not the Philippines. In February 2020, Customs sent a Notice of Action to Cyber Power on CBP Form 29 informing it of a rate advance. Plaintiff, through counsel, responded to the rate advance, disclosing, among other things, that the production country for the batteries and the circuit boards for the goods had changed. This contradicted the information in Cyber Power's November 2019 Final Prior Disclosure. In March 2020, Cyber Power advised its Customs broker that it intended to make only pen and ink changes to its Philippine invoices and that it would continue marking all items as "made in Philippines."

On April 10, 2020, Customs detained the subject entry for inspection. Customs sent Cyber Power and its Customs broker a notice of detention accompanied by a notice to mark and/or redeliver. See Compl., ECF No. 13-1, Exs. A-1 and A-2. The notice to mark states:

Cyber Power, council [sic] for Cyber Power, John Peterson, and broker C.H. Robinson were all advised by Import Specialist Horacek, in writing, back in February 2020 that Cyber Power is required to claim country of origin China on all Uninterruptible power supplies (UPS) and surge protectors and no exemption was given for marking purposes. All UPS and surge protectors must be entered as Chinese goods and marked made in China.

See Compl., Ex. A-2 at 4.

Plaintiff refused to change the marking on the goods and their packages, and on May 3, 2020, the subject merchandise was deemed excluded by operation of 19 U.S.C. § 1499(c)(5). On May 21, 2020, Plaintiff filed Protest No. 3501-20-101425 challenging Customs’ deemed exclusion. Plaintiff asserted that the imported products were manufactured in Cyber Power Systems Inc.’s plant in the Philippines through processes involving the assembly of hundreds of discrete components that originated primarily in China, but also in other countries. Plaintiff argued that the processes performed in the Philippines resulted in the "substantial transformation" of such components into new and different articles of Philippine origin, having a name, character, or use different than those constituent components. According to Plaintiff, the imported products were of Philippine origin, and the products and their packages were properly marked pursuant to 19 U.S.C. § 1304(a).

In connection with the protest, Cyber Power did not provide information and documents specific to the five models of uninterruptible power supplies and one model of surge voltage protectors at issue, but instead explained that "Manufacturing operations for representative units are described. Bills of materials and manufacturing processes for each model are available to Customs on request." Declaration of Linda Horacek at ¶ 5, Attach. to ECF No. 27 ("Horacek Decl."); see also ECF No. 20-1 at 5. Customs requested all the records relating to the subject merchandise. Horacek Decl. at ¶ 6. In reviewing Cyber Power's protest, Customs discovered discrepancies in the information provided. For example, Cyber Power states that of the 188 discrete components needed to make CP600LCDa, "approximately 118 of those components, consisting of various electronic microcomponents are combined in Taiwan to manufacture the main printed circuit board assembly for the power supply." Id. at ¶ 9. However, the process flow chart submitted contradicted this claim and alleged that circuit boards were being soldered in the Philippines. Id. Although Cyber Power claimed the main board of model CBN50048A-1 was soldered in the Philippines, a document (Exhibit H to the Horacek Decl.) showed that all main board assemblies were soldered in China. Id. at ¶ 13.

In response to a question from Customs about when Philippine-soldered components were first used on models OR500LCDRM1U and SX650U, Cyber Power admitted that information in the protest needed to be corrected to reflect that the boards were of Chinese origin. Id. at ¶ 12. Ultimately, Customs learned that only model CP600LCDa was claimed to possess a main board of Philippine origin. Id. at ¶ 14. However, work orders for circuit boards that were alleged to be contained in this model were completed either one day before, the day of, or two days after the model had been packed for export. Id. at ¶ 15.

After reviewing Plaintiff's submissions in support of the protest, Customs denied the protest on June 19, 2020, concluding that: "Insufficient documentation was provided by the protestant in order to change the country of origin from China to the Philippines for marking and classification purposes. All information, both verbal and written, was considered by this office. The country of origin marking for this shipment should remain ‘made in China’." See ECF No. 20-1 at 2.

This action, and Cyber Power's motion for a preliminary injunction followed. After considering the parties’ respective proposed scheduling orders for expedited litigation, the court entered a Scheduling Order on July 14, 2020.

Discussion

In an action under 28 U.S.C. § 1581(a), Plaintiff bears the burden of proof on contested factual issues that arise from the protest decision. 28 U.S.C. § 2639(a)(1) (2000) ; Universal Elecs., Inc. v. United States, 112 F.3d 488, 492 n.2 (Fed. Cir. 1997) ; Chrysler Corp. v. United States, 33 C.I.T. 90, 97, 601 F. Supp. 2d 1347, 1353-54 (2009), aff'd, 592 F.3d 1330 (Fed. Cir. 2010). Plaintiff therefore carries the burden to prove by a preponderance of the evidence that its subject merchandise is substantially transformed in the Philippines and not made in China.

Section 304(a) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1304(a), requires that all merchandise imported into the United States be marked permanently, legibly, indelibly, and in a conspicuous place, to indicate the English name of the product's country of origin. 19 C.F.R. § 134.1(b) defines the term "country of origin" as "the country of manufacture, production, or growth of any article of foreign origin entering the United States." Section 134.1(b) explains that "[f]urther work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within the meaning of this part." Where goods are not properly marked to show their country of origin, they are considered "restricted" merchandise, which Customs may exclude from entry into the United States.

See 19 U.S.C. § 1304(j) ; see also 19 C.F.R. § 134.3(a).

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (1940) ; Anheuser–Busch Brewing Ass'n v. United States, 207 U.S. 556, 562, 28 S.Ct. 204, 52 L.Ed. 336 (1908) ; Belcrest Linens v. United States, 741 F.2d 1368, 1372 (Fed. Cir. 1984) ; Superior Wire v. United States, 867 F.2d 1409, 1414 (Fed. Cir. 1989).

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