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

• Decision Date: 24 February 2022
• Docket Number: Slip Op. 22-17,Court No. 20-00124
• Citation: 560 F.Supp.3d 1347
• Parties: CYBER POWER SYSTEMS (USA) INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

560 F.Supp.3d 1347

CYBER POWER SYSTEMS (USA) INC., Plaintiff,

v.UNITED STATES, Defendant.

Slip Op. 22-17

Court No. 20-00124

United States Court of International Trade.

February 24, 2022

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

Brandon Kennedy, Trial Counsel, and Beverly A. Farrell, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, N.Y., for Defendant United States. With them on the brief were Brian M. Boynton, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Justin R. Miller, Attorney-in-Charge. Of counsel was Yelena Slepak, Attorney, Office of the Assistant Chief Counsel, International Trade Litigation, U.S. Customs and Border Protection.

OPINION and ORDER

Gordon, Judge:

This action began with a prior disclosure about a "Made in Philippines" over-label on packaging that was also marked "Made in China." U.S. Customs and Border Protection ("Customs" or "CBP") determined that the country of origin was China, not the Philippines. In response, Plaintiff, Cyber Power Systems (USA) Inc. ("Cyber Power"), advised its customs broker that it would continue marking all items as "Made in Philippines." Customs subsequently 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. After Cyber Power refused to change the marking on the merchandise, it was deemed excluded by operation of 19 U.S.C. § 1499(c)(5). Cyber Power filed a protest challenging Customs’ deemed exclusion, arguing that the processes performed in the Philippines resulted in a "substantial transformation" of its merchandise into Philippine origin, having a name, character, and use different from its Chinese components. Customs denied the protest, concluding that "[i]nsufficient documentation was provided by the protestant 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 Protests & Entries from the Port of Minneapolis, MN at p. 2, ECF No. 20-1.

Cyber Power then commenced this action. The subject entry covers five models of uninterruptible power supplies ("UPS") and one model of surge voltage protector ("SVP"). With respect to four of the UPS products, and with regard to the single SVP product, it is undisputed that the majority of components, including the printed circuit board assemblies ("PCBAs"), were produced in China. In the case of one UPS unit—UPS Model No. CP600LCDa—Plaintiff maintains, and Defendant disputes, that its printed circuit board was produced in the Philippines, although the parties agree that various other components are made in China. Additionally, Plaintiff maintains that all of the subject merchandise is assembled, connected, and tested at its facility in the Philippines.

Cyber Power sought a preliminary injunction that the court denied because it requested the ultimate relief. See Slip Op. & Order, ECF No. 30. Plaintiff subsequently moved to compel depositions of two Government officials, as well as to compel the production of any notes or reports made by those officials regarding their July 23, 2020 inspection of the Cyber Power Philippines plant. See Pl.’s Mot. to Compel, ECF No. 31. In response, the Government moved for a protective order based on the investigatory files privilege to prevent disclosure of the materials and depositions. See Def.’s Resp. to Mot. to Compel & Cross-Mot. for Protective Order, ECF No. 36. Finding no basis for the Government's assertion of an investigatory files privilege, the court summarily denied the Government's motion for a protective order and granted Cyber Power's motion to compel. See Mem. & Order, ECF No. 46. Presently before the court are the parties’ cross-motions for summary judgment. See Pl.’s Mot. for Summ. J., ECF No. 48 ("Pl.’s MSJ"); Pl.’s R. 56.3 Stmt. of Material Facts Not in Dispute, ECF No. 48-5 ("Pl.’s 56.3 Stmt."); Def.’s Cross-Mot. for Summ. J. & Mot. to Strike, ECF No. 60 ("Def.’s XMSJ"); Def.’s R. 56.3 Stmt. of Material Facts as to Which There Are No Genuine Issues to be Tried, ECF No. 60-1 ("Def.’s 56.3 Stmt."); see also Def.’s Resp. to Pl.’s R. 56.3 Stmt., ECF No. 60-2; Pl.’s Reply & Resp. in Opp'n to Def.’s Cross-Mot. for Summ. J. & Mot. to Strike, ECF No. 67 ("Pl.’s Reply"); Pl.’s Resp. to Def.’s R. 56.3 Stmt., ECF No. 67-5; Def.’s Revised Reply, ECF No. 87 ("Def.’s Reply").

I. Standard of Review

USCIT Rule 56 permits summary judgment when "there is no genuine issue as to any material fact." USCIT R. 56(c) ; see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). On the question of genuineness, the standard for determining a genuine issue "mirrors the standard for a directed verdict[,] ... which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict.... In essence, ... the inquiry under each is the same: whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 248–52, 106 S.Ct. 2505 ; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ( Rule 56 "mandates the entry of summary judgment ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."). In considering whether material facts are genuinely in dispute, the evidence must be considered in the light most favorable to the non-moving party, drawing all reasonable inferences in its favor. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) ; Anderson, 477 U.S. at 261 n.2, 106 S.Ct. 2505.

II. Discussion

A. Background

In this action involving country of origin marking, Plaintiff must establish by a preponderance of the evidence that its subject merchandise is substantially transformed in the Philippines and not made in China. See 28 U.S.C. § 2639(a)(1) ; Universal Elecs., Inc. v. United States, 112 F.3d 488, 492 n.2 (Fed. Cir. 1997) (plaintiff bears burden of proof on contested factual issues arising from underlying protest decision).

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." Torrington, Co. v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985) (citing Texas Instruments, Inc. v. United States, 681 F.2d 778, 782 (C.C.P.A. 1982) ); see also Gibson-Thomsen Co., Inc. v. United States, 27 C.C.P.A. 267, 273 (1940) (clarifying that marking statute did not "require that an imported article, which is to be used in the United States as material in the manufacture of a new article having a new name, character, and use, and which, when so used, becomes an integral part of the new article, be so marked as to indicate to the retail purchaser of the new article that such imported article or material was produced in a foreign country"). "Substantial transformation" determinations are fact-specific and made on a case-by-case basis. It is a disjunctive test; only a change in one of the three criteria—name, character, or use—is required. See Koru N. Am. v. United States, 12 C.I.T. 1120, 1126, 701 F. Supp. 229, 234 (1988). However, a change in name is generally considered the least persuasive factor. See id. (citing Nat'l Juice Prods. Ass'n v. United States, 10 C.I.T. 48, 59–60, 628 F. Supp. 978, 989 (1986) ).

In the most recent iterations of the substantial transformation test, the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") has required that there be a "new and different" article which emerges from a manufacturing process. See, e.g., Acetris Health LLC v. United States, 949 F.3d 719 (Fed. Cir. 2020) ; Zuniga v. United States, 996 F.2d 1203 (Fed. Cir. 1993) ; Azteca Milling Co. v. United States, 890 F.2d 1150 (Fed. Cir. 1989). Some courts have also considered additional factors in evaluating whether a change in name, character, or use has occurred, such as the cost or value added by specified processes, see, e.g., Ferrostaal Metals Corp. v. United States, 11 C.I.T. 470, 664 F. Supp. 535 (1987) ; Superior Wire Inc. v. United States, 11 C.I.T. 608, 669 F. Supp. 472 (1987) ; Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982) ; or whether there has been a transformation from a "producer's good" to a "consumer good," see, e.g., SDI Techs. Inc. v. United States, 21 C.I.T. 895, 977 F. Supp. 1235, 1240 (1997) ; Midwood Indus. Inc. v. United States, 64 Cust. Ct. 499, 313 F. Supp. 951 (1970), appeal dismissed, 57 C.C.P.A. 141 (1970).

As the court noted previously and as this brief summary of relevant precedent illustrates, the substantial transformation test is not straightforward to apply. See Slip Op. & Order at 9–11, ECF No. 30. To facilitate the application of that test in this matter, the court encouraged the parties to focus their arguments regarding substantial transformation in light of the "underlying statutory and regulatory purposes" at issue, and whether those purposes would be served by a finding of substantial transformation. Id. at 11.

B. Analysis

1. Marking Statute

The parties dispute the underlying statutory purpose of the marking statute at issue. The court must resolve this dispute before turning to whether Plaintiff has demonstrated that the subject merchandise has undergone a "substantial transformation" in the Philippines. Section 304(a) of the Tariff Act of 1930, as amended, 19 U.S.C....