Intercargo Ins. Co. v. U.S.

• Decision Date: 02 May 1996
• Docket Number: No. 95-1344,95-1344
• Citation: 83 F.3d 391
• Parties: INTERCARGO INSURANCE COMPANY f/k/a International Cargo & Surety Co., (Surety for M. Genauer), Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 391

83 F.3d 391

18 ITRD 1166

INTERCARGO INSURANCE COMPANY f/k/a International Cargo & Surety Co., (Surety for M. Genauer), Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 95-1344.

United States Court of Appeals Federal Circuit.

May 2, 1996.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

July 25, 1996.

Appealed from: United States Court of International Trade; Judge Musgrave.

Wayne James Jarvis, Hodes & Pilon, Chicago, Illinois, argued for plaintiff-appellee. With him on the brief were Michael G. Hodes and James L. Sawyer.

Joseph I. Liebman, Civil Division, Department of Justice, International Trade Field Office, New York City, argued for defendant-appellant. With him on the brief were Frank W. Hunger, Assistant Attorney General, David M. Cohen, Director, and Amy M. Rubin, Civil Division, Department of Justice, International Trade Field Office. Of counsel was Sheryl A. French, Office of Assistant Chief Counsel, International Trade Litigation, United States Customs Service.

Before RADER, Circuit Judge, COWEN, Senior Circuit Judge, and BRYSON, Circuit Judge.

Opinion for the court filed by Circuit Judge BRYSON. Dissenting opinion filed by Circuit Judge RADER.

BRYSON, Circuit Judge.

This dispute over import duties turns on whether the Customs Service obtained a valid extension of time within which to liquidate an importer's entries. The Court of International Trade held that Customs' extension notices were defective, and that the importer's surety was therefore entitled to judgment with respect to the disputed duties that Customs sought to impose. Intercargo Ins. Co. v. United States, 879 F.Supp. 1338 (C.I.T.1995). We reverse and remand for further proceedings.

I

M. Genauer was the importer of a series of shipments of merchandise that entered this country at the Port of Seattle, Washington, between September and November of 1989. Appellee Intercargo Insurance Company served as Genauer's surety in connection with those imports. Upon the arrival of Genauer's merchandise, the Customs Service began its standard procedure for liquidating the entries, i.e., determining the duty to be assessed on the imported items. As part of the liquidation process, Customs sought information relating to the entries.

Under 19 U.S.C. § 1504(a), Customs is required to complete its liquidation of entries within one year unless it extends that period as provided in 19 U.S.C. § 1504(b). The liquidation period cannot be extended for a total of more than four years from the date of entry (or other statutory triggering date). 19 U.S.C. § 1504(d). If Customs fails to complete the liquidation within the statutory period, including any extensions, the entries "shall be deemed liquidated at the rate of duty, value, quantity and amount of duties asserted at the time of entry." 19 U.S.C. § 1504(a).

In July of 1990, Customs had not completed its liquidation of the entries at issue in this appeal. Therefore, in order to avoid liquidation by operation of law under section 1504(a), Customs extended the liquidation period for one year pursuant to section 1504(b). At the time, section 1504(b) provided:

The Secretary may extend the period in which to liquidate an entry by giving notice of such extension to the importer of record in such form and manner as the Secretary shall prescribe in regulations, if--

(1) information needed for the proper appraisement or classification of the merchandise is not available to the appropriate customs officer;

(2) liquidation is suspended as required by statute or court order; or

(3) the importer of record requests such an extension and shows good cause therefore.

19 U.S.C. § 1504(b) (1988). The statute has subsequently been amended, but the amendment does not affect the outcome of this case.

Under section 1504(b), Customs can extend the liquidation period unilaterally, simply by giving notice in the form and manner prescribed by regulation. The pertinent regulation provides that the district director of the Customs Service can extend the one-year period if "information needed by Customs for the proper appraisement or classification of the merchandise is not available." 19 C.F.R. § 159.12(a)(1). The regulation further provides that if the district director extends the time for liquidation, "he promptly shall notify [the importer and its surety], on Customs Form 4333-A, appropriately modified, that the time has been extended and the reasons for doing so." 19 C.F.R. § 159.12(b).

Invoking section 1504(b), Customs sought to extend the time by one year for liquidating each of the entries. As part of the extension process, Customs advised Intercargo that the liquidation period had been extended. The notice that Customs sent to Intercargo with respect to each entry read as follows:

THIS IS A COURTESY NOTICE. THE LIQUIDATION OF THIS ENTRY HAS BEEN EXTENDED; ADDITIONAL TIME IS REQUIRED BY CUSTOMS TO PROCESS THIS TRANSACTION. NO ACTION IS NECESSARY ON YOUR PART UNLESS INFORMATION IS SPECIFICALLY REQUESTED BY CUSTOMS.

A year later, in July of 1991, Customs liquidated the entries at a higher duty than that claimed by Genauer upon entry. Intercargo, as Genauer's surety, paid the liquidated duties for the entries and protested Customs' decision, but its protest was denied.

In December of 1992, Intercargo filed suit in the Court of International Trade challenging the assessed duties. Intercargo claimed that the liquidation extensions were invalid and that the entries therefore should be deemed liquidated by operation of law, which would result in a reduction of the duties to the rates claimed by the importer at the time of entry.

The Court of International Trade agreed that the one-year extensions for liquidating Genauer's entries were invalid. In the court's view, the extension notices were not effective to extend the statutory liquidation period unless they recited one of the three statutory reasons for obtaining additional time for the liquidations. The reason given in the extension notices at issue in this case--that "additional time is required by Customs to process this transaction"--was not one of the listed statutory reasons for an extension. Accordingly, the court held that the extension notices did not extend the time to complete the liquidations; the court therefore granted summary judgment to Intercargo on its challenge to the assessed duties.

II

A

Our analysis begins with this court's decision in St. Paul Fire & Marine Ins. Co. v. United States, 6 F.3d 763 (Fed.Cir.1993). The St. Paul court held that under section 1504 the Customs Service had one year within which to liquidate entries unless "properly noticed extensions" were granted "for statutory reasons." 6 F.3d at 770. The applicable regulation, according to the court, required "that Customs notif[y] the importer of the extension and articulate[ ] one of three statutory reasons for the extension." 6 F.3d at 767. If notice of an extension was given in the proper manner, the court held, the decision to extend the liquidation period would be upheld unless the importer or the surety "eliminated all reasonable bases for making that decision." Id. at 768.

Intercargo's argument in this case is based on St. Paul and is straightforward. The argument proceeds as follows: (1) St. Paul requires that Customs' extension notices articulate one of the three statutory reasons for the extensions; (2) the only applicable statutory ground for obtaining extensions in this case is that "information needed for the proper appraisement or classification of the merchandise is not available to the appropriate customs officer"; (3) the notices in this case did not articulate that statutory ground, but merely stated that Customs needed "additional time" to process the transaction; therefore (4) the extension notices were invalid; and (5) each entry was liquidated by operation of law one year after the date of entry of that merchandise, at the duty rate claimed by Genauer at the time of entry.

The government argues at length that the extension notices were legally sufficient to satisfy the requirement in the Customs regulation that Customs notify the importer and surety "that the time has been extended and the reasons for doing so." While it is true that the notices advised Intercargo that the time had been extended and gave a reason for the extensions, the reason given was not one of the statutorily authorized reasons. The statutory reason that Customs intended to invoke was that "information needed for the appraisement or classification of the merchandise is not available to the appropriate customs officer." 19 U.S.C. § 1504(b)(1) (1988). The notices, however, made no reference to the need for information. We thus agree with Intercargo that the reason given in the extension notices was not one of the reasons set forth in the statute, and that the notices therefore did not satisfy the requirement of the regulation as interpreted by the St. Paul court.

That conclusion, however, does not decide this case. There remains the question of what consequence should flow from the defect in the notices, to which we now turn.

B

It is well settled that principles of harmless error apply to the review of agency proceedings. The harmless error rule is incorporated in the judicial review section of the Administrative Procedure Act, which governs the review of the Customs Service's decision in this case. Thus, Section 10(e) of the Administrative Procedure Act, 5 U.S.C. § 706, provides that in applying the rules governing the review of agency action, "due account shall be taken of the rule of prejudicial error." That statute requires courts to apply conventional principles of harmless error when reviewing agency action. See Kolek v. Engen, 869 F.2d 1281, 1286 (9th Cir.1989); Braniff Airways, Inc. v. CAB, 379 F.2d 453, 465-66 (D.C.Cir.1967); Kerner v. Celebrezze, 340 F.2d 736, 740 (2d Cir.), cert. denied, 382 U.S. 861, 86 S.Ct. 121, 15 L.Ed.2d 99 (1965...