In re Apex Oil Co.
| Decision Date | 05 December 1990 |
| Docket Number | Bankruptcy No. 87-03804-BSS,Claim No. 1362,Claim Objection No. 1078. |
| Citation | 122 BR 559 |
| Parties | In re APEX OIL COMPANY, et al., Debtors. APEX OIL COMPANY, et al., Debtors, v. UNITED STATES CUSTOMS SERVICE, Claimant. |
| Court | U.S. Bankruptcy Court — Eastern District of Missouri |
Frederick J. Dana, Asst. U.S. Atty., St. Louis, Mo., Michele L. Kenney, Office of Asst. Chief Counsel, U.S. Customs Service, Indianapolis, Ind., for claimant.
John A. Moe, II, John P. Kreis, Gendel, Raskoff, Shapiro & Quittner, Los Angeles, Cal., for debtors.
Steven N. Cousins, David L. Going, Frederick H. Mayer, Armstrong, Teasdale, Schlafly, Davis & Dicus, St. Louis, Mo., for Unsecured Creditors Committee.
William H. Bode, William H. Bode & Associates, Washington, D.C.
Robert H. Brownlee, Thompson & Mitchell, St. Louis, Mo., for Chemical Bank.
This case arises from the objection of debtor Apex Oil Company ("Apex") to the claim of the United States Customs Service ("Customs"). The issues in this case are derived from the importation of petroleum products and a dispute as to their country of origin. This case presents two issues: 1) Whether this Court has and should exercise jurisdiction over the liquidation of prepetition claims of Customs, despite the exclusive jurisdiction granted the Court of International Trade ("CIT") in 28 U.S.C. § 1581(a); and 2) Whether Customs' post-petition liquidation of claims against Apex constituted a violation of the automatic stay.
This Court has jurisdiction over the subject matter of the proceeding pursuant to 28 U.S.C. §§ 151, 157, 1334, and Local Rule 29 of the United States District Court for the Eastern District of Missouri. The parties have stipulated that this is a "core proceeding" which this Court may hear and enter appropriate judgments pursuant to 28 U.S.C. § 157(b)(2)(B).
The parties do not dispute the key elements necessary to invoke the jurisdiction of the Court of International Trade ("CIT"). As provided by statute, Apex must prepay 100% of Customs' claim into the CIT in order to invoke that court's jurisdiction (the "Prepayment Requirement"). The pertinent statute states:
Accordingly, the CIT has construed prepayment of all amounts claimed by Customs to be a condition precedent to its subject matter jurisdiction. Glamorise Foundations, Inc. v. United States, 661 F.Supp. 630, 632 (Ct.Int'l. Trade 1987). Not even the Government can waive this prepayment requirement. American Parcel Forwarding v. United States, 718 F.2d 1546, 1550 (5th Cir.1983), cert. denied, 466 U.S. 937, 104 S.Ct. 1909, 80 L.Ed.2d 458 (1984). In addition, courts interpreting Section 2637(a) must construe its provisions strictly and may not imply exceptions through use of equitable principles. Glamorise, 661 F.Supp. at 632-33 ().
Courts have held that Congress intended the prepayment requirements in 28 U.S.C. § 2637(a) to be construed literally. See Penrod Drilling Co. v. United States, 727 F.Supp. 1463, 1465 (Ct.Int'l Trade 1989); Nature's Farm Products, Inc. v. United States, 819 F.2d 1127 (Fed.Cir.1987); Parcel Forwarding, 718 F.2d at 1551, Jerlian Watch Co. v. United States, 597 F.2d 687, 692 (9th Cir.1979). The sole exception to the prepayment rule is when, as of the initiation of CIT litigation, Customs already has on hand funds owing to an importer which are sufficient to cover the amounts claimed. Dynasty Footwear v. United States, 551 F.Supp. 1138 (Ct.Int'l Trade 1982). However, this exception is not applicable to the instant case.
In order to determine conclusively an importer's financial liability for imported goods, Customs must liquidate its entries against the importer. However, upon paying the liquidated amount, the importer may apply for a drawback, which essentially is a refund of any overpayment it has made.
Apex asserts that Customs' post-petition liquidation of some of its claims (against Apex) constituted a violation of the automatic stay. The term "liquidation", as it is used in the Customs context, is defined in Customs Regulations as "the final computation or ascertainment of the duties or drawback accruing on an entry". 19 CFR § 159.1. Liquidation becomes final only upon the expiration of specific time periods during which the entry can be reliquidated:
Additionally, finality of liquidation is subject to judicial review upon timely application from the denial of a valid protest. 19 CFR § 174.31.
If Customs fails to liquidate entries within specified time limits, those entries are deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record. 19 U.S.C. § 1504. The general time limit for liquidation is one year from the date of entry. However, Section 1504 permits Customs to extend that period in one year increments (not to exceed three additional years) if, among other things, information is needed for proper appraisement or classification of the merchandise is not available to the appropriate customs officer. Section 1504(d) provides that any entry not liquidated at the expiration of four years from the date of entry is deemed liquidated at the initially asserted amount of duty, unless liquidation is suspended by court order or statute.
A "drawback" is a refund of duties paid on an entry because of the use made of the entered merchandise. The process of liquidation for drawback entries is different than with usual entries of merchandise. Normally in a situation where a drawback is claimed an importer will import merchandise that may be used in manufacturing other goods, which are then exported, or the imported goods are exported in the same condition. However, in the case of drawback entries Customs' regulations allow the importer to claim a refund on the duties paid on the imported merchandise to the extent it is exported and not used within the United States before such exportation. 19 CFR § 191.1-191.166.
Pursuant to 19 CFR § 191.72, a drawback claimant is eligible for accelerated payment of its drawback on claims which are properly prepared and submitted pursuant to Customs regulations. To obtain accelerated payment the claimant must file with the drawback claim a computation of the refund amount due and submit a bond covering the amount of potential drawback due. After a brief review, the regional commissioner certifies the claim for payment within three weeks after filing. After liquidation, the regional commissioner will certify payment of any additional amount due to the claimant or demand payment of any excess amount refunded to the claimant.
In liquidating a drawback claim, the drawback specialist may sometimes be called upon to audit the drawback claim. The audit will culminate in a report which will contain a recommendation with respect to the liquidation of the specific drawback entry and also may contain recommendations with respect to future drawback claims by the same claimant. Where an audit is conducted on a drawback claim for any of the above reasons, liquidation on the entry is suspended until the audit is completed and the audit report in issued. When the drawback specialist receives a copy of the audit report, she will liquidate the drawback entry according to the recommendation in the audit report. There is no discretion given to the drawback specialist in such a situation, the results of the audit are controlling for the purposes of liquidation. In addition to liquidation of the drawback claim, the audit report may also recommend that future information submitted by the respective claimant is not to be considered reliable.
In its Seventh Amended Proof of Claim, filed on January 11, 1990, Customs claimed the following amounts:
Amount Categorization
$1,388,925.89 Drawbacks (2)
76,791.89 Interest
23,576.64 Supplemental Duties
1,414,193.24 Penalties
329,971.67 Loss of Duties Due to Fraud
_____________
$3,233,459.331
Customs' claim arises from the following facts. In 1984, Clark Oil and Refining Corporation ("Clark") submitted a drawback claim on behalf of Apex. Accelerated payment was applied for and received by Apex. Customs conducted an audit on this claim and suspended liquidation pending issuance of the audit report. The audit report concluded that the transactions included in the drawback were conducted neither as reported to Customs nor as required by pertinent Customs regulations. Therefore, the report recommended both that the drawback should not be allowed and that information submitted by Clark or Apex in future drawback entries should not be considered reliable.
On the basis of the audit report, which was issued in September 1986, the drawback specialist liquidated the entry, with the drawback disallowed, on November 7, 1986. The drawback claim was stamped with this notation and Apex was...
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