International Business Machines Corp. v. U.S.

• Citation: 968 F.Supp. 736
• Decision Date: 18 June 1997
• Docket Number: Slip Op. 97-78.,Court No. 94-04-00215.
• Parties: INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. Court of International Trade

968 F.Supp. 736

INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff, v. The UNITED STATES of America, Defendant.

Slip Op. 97-78.

Court No. 94-04-00215.

United States Court of International Trade.

June 18, 1997.

COPYRIGHT MATERIAL OMITTED

Baker & McKenzie, Washington, DC (William D. Outman, II), for plaintiff.

Frank W. Hunger, Assistant Attorney General, Washington, DC; Joseph I. Liebman, Attorney-in-Charge, New York City, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice (John J. Mahon); Office of the Assistant Chief Counsel, International Trade Litigation, United States Customs Service (Mark G. Nackman), of counsel, for defendant.

MEMORANDUM AND ORDER

GOLDBERG, Judge:

This matter is before the Court on the parties' cross-motions for summary judgment. Plaintiff, International Business Machines Corporation ("IBM"), challenges the classification by the United States Customs Service ("Customs") of imported Device Function Controllers ("Controllers") and Direct Access Storage Drives ("Drives") as "office machines not specially provided for," under Item 676.30 of the Tariff Schedules of the United States ("TSUS"), with a duty rate of 3.7% ad valorem.

IBM claims that Customs had an established and uniform practice of classifying the subject goods as "parts of automatic data-processing machines and units thereof, other than parts incorporating a cathode ray tube," under Item 676.54, TSUS, and was therefore required to provide notice before it reclassified them under 676.30, TSUS. See 19 U.S.C. § 1315(d) (1988). In the alternative, IBM argues that the goods cannot be classified under 676.30, TSUS, and that they should therefore be allowed to enter duty-free under Item 676.54, TSUS.

The Court finds that Customs was not required to provide notice to IBM before it reclassified the subject Controllers and Drives because there was no established and uniform practice. The Court further finds that, through the application of General Rule of Interpretation 10(h), Customs correctly classified the subject Controllers and Drives as unfinished "office machines not specially provided for" under 676.30, TSUS.

The Court exercises jurisdiction pursuant to 28 U.S.C. § 1581(a) (1988).

BACKGROUND

The subject merchandise consists of Device Function Controllers, model nos. 7777-A01, 9335-A01, 9335-A02, and Direct Access Storage Drives, model nos. 7777-B01 and 9335-B01, that entered the United States between July 1, 1986 and December 28, 1988. Pl.'s Stmt. of Facts No. 2 at 1, No. 18 at 4; Def.'s Resp. to Pl.'s Stmt. of Facts No. 2 at 1, No. 18 at 3. Both the Controllers and the Drives are designed for, and are used in, an IBM model 9335 Direct Access Storage System ("DASS"). The DASS provides fixed-disk storage for an automatic data-processing system, IBM model 9370, IBM A/S 400. Pl.'s Stmt. of Facts No. 7 at 2; Def.'s Resp. to Pl.'s Stmt. of Facts No. 7 at 1-2. The DASS consists of one Controller and from one to four Drives, housed in an IBM model 9309 Rack Enclosure. Id.

Both parties agree that the subject Controllers and Drives are designed to be ultimately mounted in a rack enclosure, and that they are imported without this rack. Pl.'s Stmt. of Facts Nos. 8-10 at 2; Def.'s Resp. to Pl.'s Stmt. of Facts Nos. 8-10 at 2. The parties also agree that, in the condition in which they are imported, the Controllers and Drives contain all of their main components, lacking only cable carriers, slide assemblies required for the rack-mounting, and a base for fixing or placing them on a table, desk, wall, floor, or similar place. Pl.'s Stmt. of Facts No. 5 at 2, No. 16 at 4; Def.'s Resp. to Pl.'s Stmt. of Facts No. 5 at 1, No. 16 at 2.

From approximately April, 1985 until December, 1986, Customs liquidated the Controllers and Drives imported by IBM at the Port of Minneapolis, Minnesota as "parts of automatic data-processing machines," duty-free under Item 676.54, TSUS. Pl.'s Stmt. of Facts No. 12 at 3; Def.'s Resp. to Pl.'s Stmt. of Facts No. 12 at 2. Thereafter, however, Customs liquidated entries of the subject Controllers and Drives as "office machines," at a duty rate of 3.7% ad valorum under Item 676.30, TSUS. Pl.'s Stmt. of Facts No. 14 at 3; Def.'s Resp. to Pl.'s Stmt. of Facts No. 14 at 2. Opposing this change in classification, plaintiff filed forty-eight protests with Customs. Customs denied their protests, and plaintiff subsequently filed this action to contest these denials. Pl.'s Stmt. of Facts No. 18 at 4; Def.'s Resp. to Pl.'s Stmt. of Facts No. 18 at 3.

STANDARD OF REVIEW

When faced with a motion for summary judgment, the Court first determines whether the case presents any genuine issues of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). If the Court finds that the case lacks genuine issues of material fact, and that the moving party is entitled to judgment as a matter of law, then the Court may grant summary judgment. USCIT R. 56(d).

The two issues that IBM raises do not challenge the factual basis underlying Customs' actions, but instead challenge how Customs interpreted 19 U.S.C. § 1315(d) and the relevant headings and General Rules of Interpretation of the TSUS. These issues, therefore, do not present any genuine issues of material fact, and the Court may grant summary judgment. USCIT R. 56(d). See also Thomas Equip. Ltd. v. United States 881 F.Supp. 611 (CIT 1995) (granting summary judgment in an established and uniform practice case); and IKO Indus. Ltd. v. United States, ___ Fed. Cir. (T) ___, 105 F.3d 624 (1997) (granting summary judgment when the sole issue is whether Customs properly interpreted tariff schedule).

To decide the present cross-motions for summary judgment, the Court first considers whether the classification applied by Customs accurately describes the subject Controllers and Drives. Jarvis Clark Co. v. United States, 2 Fed. Cir. (T) 70, 75, 733 F.2d 873, 878 (1984). The Court then considers whether the classification proposed by IBM better describes the Controllers and Drives. Id.

The Court notes that Customs' chosen classification is not entitled to a presumption of correctness because the issues are legal, not factual. Universal Elect. Inc. v. United States, ___ Fed. Cir. (T) ___, ___, 112 F.3d 488, 493 (1997); Goodman Mfg. L.P. v. United States, ___ Fed. Cir. (T) ___, ___, 69 F.3d 505, 508 (1995); IKO, ___ Fed. Cir. (T) at ___, 105 F.3d at 626-27.

DISCUSSION

IBM challenges Customs' classification on two levels. First, IBM argues that Customs lacked the statutory authority to reclassify the subject imports without first providing notice because Customs' prior actions created an established and uniform practice ("EUP") under 19 U.S.C. § 1315(d). Second, and in the alternative, IBM argues that even if Customs had the authority to reclassify the subject Controllers and Drives, Customs nevertheless improperly classified them under 676.30, TSUS. According to IBM, Customs should have continued to classify the subject Controllers and Drives under 676.54, TSUS, because that classification better describes these imports. The Court is unpersuaded by either of IBM's arguments, and addresses each in turn below.

I. Under 19 U.S.C. § 1315(d), Customs Was Not Required To Provide Notice Before It Reclassified The Subject Controllers And Drives Under Item 676.30, TSUS, Because There Was No Established And Uniform Practice.

IBM argues that before Customs reclassified the subject Controllers and Drives as "office machines," under Item 676.30, TSUS, Customs had an established and uniform practice of classifying the same Controllers and Drives as "parts of automatic data-processing machines," under Item 676.54, TSUS. As a result, IBM claims that pursuant to 19 U.S.C. § 1315(d), Customs was required to provide notice before it changed how it classified the subject Controllers and Drives.

An EUP may be created either by a finding of the Secretary of the Treasury ("Secretary") or by a finding of a court.¹ Heraeus-Amersil, Inc. v. United States, 4 Fed. Cir. (T) 95, 98-99, 795 F.2d 1575, 1580-81 (1986). IBM concedes that the Secretary has not made such a finding, thus the Court focuses only on whether the facts here support a judicial finding of an EUP.

IBM offers three grounds upon which this Court could make a judicial finding of an EUP for the classification of the subject Controllers and Drives. First, IBM asserts the existence of an EUP by pointing to the length of time during which Customs classified the subject merchandise under Item 676.54, TSUS. Second, IBM asserts that the existence of an EUP is substantiated by a statement of a National Import Specialist, noting that Customs has consistently classified the subject merchandise as parts of office machines. Third, IBM claims that there was an EUP due to the length of time that elapsed from the moment when Customs first considered classifying the subject merchandise under Item 676.30, TSUS, instead of Item 676.54, TSUS, until there was a final ruling supporting the new classification.

Although these factors are germane, they do not constitute an EUP because they do not evidence a uniform classification and liquidation of the subject imports at various ports over an extended period of time. The Controllers and Drives at issue in this case were uniformly classified and liquidated for only twenty months, April, 1985 to December, 1986, and only at one port, Minneapolis, Minnesota. See Washington Handle Co. v. United States, 34 C.C.P.A. 80 (1946) (finding that the uniform classification and liquidation of merchandise at two ports during the period of two years was insufficient to prove the existence of an EUP); Siemens America, Inc. v. United States, 1 Fed. Cir. (T) 9, 692 F.2d 1382 (1982) (finding that the uniform classification and liquidation of one hundred entries at one port over two years was insufficient to...