Ford Motor Co. v. U.S., SLIP OP. 00-103.

• Decision Date: 21 August 2000
• Docket Number: No. 92-03-00164.,SLIP OP. 00-103.,92-03-00164.
• Citation: 116 F.Supp.2d 1214
• Parties: FORD MOTOR COMPANY, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

116 F.Supp.2d 1214

FORD MOTOR COMPANY, Plaintiff, v. UNITED STATES, Defendant.

SLIP OP. 00-103.

No. 92-03-00164.

United States Court of International Trade.

August 21, 2000.

COPYRIGHT MATERIAL OMITTED

Coudert Brothers (Steven H. Becker, Paul A. Horowitz, and Scott D. Shauf), New York, NY; Stein Shostak Shostak & O'Hara (S. Richard Shostak), Los Angeles, CA; Ford Motor Company (C. Harry Gibson), Dearborn, MI, for plaintiff.

David W. Ogden, Assistant Attorney General of the United States; Joseph I. Liebman, Attorney-in-Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice (Amy M. Rubin); Sheryl A. French, Office of the Assistant Chief Counsel, International Trade Litigation, United States Customs Service, for defendant, of counsel.

OPINION

CARMAN, Chief Judge.

Plaintiff, Ford Motor Company (Ford), challenges the U.S. Customs Service's (Customs) assessment of duties at the rate of 25% ad valorem on eleven entries of foreign engines and transmissions imported and installed in trucks by plaintiff in a Foreign Trade Subzone (FTSZ) in Louisville, Kentucky. Plaintiff seeks to recover $5,000,000 in allegedly excess duties paid to Customs, asserting clerical errors committed by plaintiff's employee in designating the status of the entries at issue as "Non-Privileged Foreign" (NPF) instead of "Privileged Domestic" (PD) and in failing to pay timely required duties owed caused plaintiff to pay more duties than were actually due. Plaintiff also asserts Customs abused its discretion in extending liquidation of the eleven entries at issue in this case on three separate occasions pursuant to 19 U.S.C. § 1504(b)(1) (1982), and, therefore, the eleven entries should be deemed liquidated by operation of law, "as entered," one year after the dates of entry. Alternatively, plaintiff maintains the entries should be deemed liquidated after the first extension expired, or, alternatively, after the second extension expired. Defendant, United States, maintains plaintiff's failure to designate appropriately the status of the entries at issue and to pay timely the required duties owed are not remediable as "clerical errors," and Customs did not abuse its discretion in extending the liquidations.

This case comes before this Court on remand from the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). See Ford Motor Co. v. United States, 157 F.3d 849 (Fed.Cir.1998) (Ford II). The Federal Circuit vacated this Court's grant of defendant's summary judgment motion and remanded the case for further proceedings because it found genuine issues of material fact prevented a determination on summary judgment of whether Customs abused its discretion in extending the time for liquidation and whether Ford committed correctable "clerical errors."¹ This Court has jurisdiction pursuant to 28 U.S.C. § 1581(a) (1988).

I. BACKGROUND²

A. Louisville Foreign Trade Subzone

In the early 1980s, Ford applied to establish a Foreign Trade Subzone at its Louisville, Kentucky assembly plant which manufactured cars (Bronco IIs) and trucks (Rangers). Ford informed Customs that it intended to use the FTSZ to assemble imported engines and transmissions into cars and trucks. Ford's rationale for establishing the FTSZ was to take advantage of Customs's laws and regulations that would enable Ford to minimize the duties paid on imported engines and transmissions assembled into cars and trucks. A FTSZ, though located in the United States, receives treatment under Customs's laws as a territory outside of the United States. See generally 15 C.F.R. § 400.1(c) (1992). At a FTSZ, an importer has the "choice of paying duties either at the rate applicable to the foreign material in its condition as admitted into a zone, or if used in manufacturing or processing, to the emerging product." Id. During the relevant times for this case, the duty rate for a completed car was only 2.6% ad valorem. The duty rate for imported engines and transmissions was 3.3% ad valorem. The duty rate for completed trucks was much higher-25% ad valorem. Thus, by locating its Louisville plant in a FTSZ, Ford could pay the duty rate of 2.6% ad valorem (for completed cars) on the imported engines and transmissions for cars and could continue to pay the duty rate of 3.3% ad valorem on the imported engines and transmissions for trucks.

To qualify for FTSZ treatment, the regulations required Ford to conduct its operations in a specific manner. To take advantage of the lower rate applicable to completed cars, Ford had to select "Non-Privileged Foreign" status on a Customs Form 214 (CF 214) when the engines and transmissions to be assembled into cars entered the FTSZ. When NPF status was selected for the engines and transmissions for cars, Ford could defer payment of duties on the car parts until it had assembled them into completed cars and thereby capture the rate for completed cars, rather than for car parts. On the other hand, because the duty rate applicable to completed trucks was substantially higher than the duty rate applicable to engines and transmissions for trucks which entered as parts, to take advantage of the lower duty rate applicable to engines and transmissions for trucks, Ford had to select "Privileged Domestic" status on a CF 214 when the parts destined for use in trucks entered the FTSZ. By selecting PD status, Ford was to pay the lower component duty rate before the engines and transmissions entered the FTSZ and, thus, reduce the duties paid on finished trucks. For either of these two designations, payment needed to accompany Customs Form 7501 (CF 7501), which identifies merchandise entering the commerce of the United States. Thus, to successfully operate the FTSZ, Ford had to identify each part entering the FTSZ as either a car part or a truck part, and then, based on that identification, select the correct FTSZ status and pay duty at the appropriate time and rate.

Ford appointed Elma D. (Moe) Tullock, one of Ford's traffic expediters (also known as parts chasers), to be the Louisville FTSZ Coordinator (also referred to as the FTSZ Agent and/or FTSZ Representative). As part of his duties as the FTSZ Coordinator, Tullock was responsible for completing the Customs's forms necessary for the daily operations of the FTSZ.

B. Entries Made Between December 1985 and February 1986

Ford's Louisville FTSZ operated for less than three months. In the beginning of January 1986, Tullock began to experience difficulty handling certain Customs aspects of the Louisville FTSZ. From December 30, 1985, to February 7, 1986, Ford incorrectly entered NPF-designated engines and transmissions contained in completed trucks at the parts rate instead of the rate applicable to completed trucks. For the entries at issue, Tullock checked the NPF box on all the CF 214s and paid no duty up front. Tullock described each entering part as "transmissions for trucks," "transmissions for autos," "engines for trucks," or "engines for autos." Each Customs's form set forth a 2.6% rate for the car parts and a 3.3% rate for the truck parts. The eleven entries were replete with errors. Product descriptions, duty rates, and tariff item numbers were incorrect. In mid-February 1986, Ford ceased operations of the FTSZ. In that time, only the subject eleven entries were entered from the Lousiville FTSZ into the commerce of the United States.

At some point in late January or early February 1986, Ford met with Customs Import Specialist Richard McNally in Ohio and disclosed the errors made. Ford representatives requested that McNally permit Ford to change the zone status of the truck parts to PD. In June 1986, McNally informed Ford that he could not change the zone status of the truck parts.

In June or July 1986, McNally re-computed the duties due by changing the duty rate applicable to the engines and transmissions in trucks, which had been entered at a 3.3% ad valorem rate, to the truck rate of 25% ad valorem. In July 1986, McNally prepared an Importer's Premises Visit-Significant Importation Report. During the same month, McNally also prepared a Memorandum of Information Received for the Customs Office of Enforcement/Investigation. Customs began a civil fraud investigation of the entries at issue under 19 U.S.C. § 1592 (1982) in August 1986. The investigation continued through at least March 1990.

C. Customs's Extensions and Liquidations and Ford's Protest

The eleven entries at issue were liquidated on December 1, 1989, after three one-year extensions³ at the 25% duty rate for finished trucks.⁴ In response to plaintiff's interrogatories, defendant stated the basis for the issuance of the three successive one-year extensions was that "`there was an ongoing investigation regarding an alleged violation under 19 U.S.C. § 1592.'" (Pretrial Order, Sched. C, Undisputed Facts, ¶ 48.) Defendant also advised in response to plaintiff's interrogatories there were two outstanding appraisement and classification issues: (1) a memorandum from Customs Headquarters requested that liquidation of entries containing Tariff Schedules of the United States (TSUS) 807.00 claims from all Ford FTSZ which received electrical products manufactured in a certain location be extended;⁵ and (2) Customs was concerned specifically that Ford had improperly classified cars as trucks.

The final additional duty assessed on the eleven entries was more than $5,000,000. Two of the eleven entries were reliquidated in February 1990 to make technical corrections. In the liquidations, Customs accepted Ford's 807.00 claims. Ford timely protested the liquidations and paid the additional duties assessed.

With this background in place, the Court now turns to the parties' contentions and the Court's discussion of the issues. The factual determinations appearing in the discussion section constitute findings of fact by the Court but have been deferred in order to achieve an orderly...