Princess Cruises, Inc. v. U.S.

• Decision Date: 08 February 2005
• Docket Number: No. 03-1330.,No. 03-1345.,03-1330.,03-1345.
• Citation: 397 F.3d 1358
• Parties: PRINCESS CRUISES, INC., Plaintiff-Cross Appellant, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

397 F.3d 1358

PRINCESS CRUISES, INC., Plaintiff-Cross Appellant, v. UNITED STATES, Defendant-Appellant.

No. 03-1330.

No. 03-1345.

United States Court of Appeals, Federal Circuit.

Decided: February 8, 2005.

Judith A. Lee, Gibson, Dunn & Crutcher LLP, of Washington, DC, argued for plaintiff-cross appellant. Of counsel on the brief was Michael K. Stransky.

Todd M. Hughes, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Robert D. McCallum, Jr., Associate Attorney General; and David M. Cohen, Director. Of counsel on the brief was Richard McManus, Attorney, Office of the Chief Counsel, Bureau of Customs and Border Protection, of Washington, DC.

Before MICHEL^*, Chief Judge, NEWMAN, and BRYSON, Circuit Judges.

MICHEL, Chief Judge.

Princess Cruises, Inc. ("Princess") appeals from the final judgment of the Court of International Trade ("trial court"). The appeal was submitted for our decision after oral argument on October 4, 2004. We affirm the trial court's determination that liability for Harbor Maintenance Tax ("HMT") payments on cruises occurring prior to January 27, 1993, which used HMT-covered ports only for layover stops ("layover-only HMT liability"), is barred by the retroactivity doctrine. We also affirm the trial court's award of prejudgment interest to the government because the government was entitled to receive Arriving Passenger Fee ("APF") payments from Princess prior to the issuance of a bill from Customs.

I. Background

Princess owns and operates commercial cruise lines that use the ports of the United States. The Harbor Maintenance Revenue Act of 1986 ("HMRA"), as codified at 26 U.S.C. §§ 4461 et seq., made cruise lines liable for payments based on port use. The HMRA payments at issue in this case are HMT and APF payments. In 1991, Customs initiated an audit of Princess's HMT and APF payments. As a result of the audit, Customs determined that Princess was required to make further HMT and APF payments. During the process, Customs issued Headquarters Ruling 112511, 1993 U.S. CUSTOM HQ LEXIS 12 (Jan. 27, 1993) (the "January 1993 HQ ruling"). At issue in this case is Customs' determination under the January 1993 HQ ruling that Princess is subject to layover-only HMT liability and the related evidentiary presumption that all passengers on board the cruise are deemed to have disembarked and/or boarded at the layover port. Princess challenges the January 1993 HQ ruling, as well as Headquarters Ruling 112750, 1993 U.S. CUSTOM HQ LEXIS 2492 (Oct. 28, 1993) (the "October 1993 HQ ruling"), which provided further reasoning in support of the evidentiary presumption.

Princess brought an action in the trial court challenging Customs' assessment of Princess's HMT and APF liability. The court initially entered judgment in favor of Princess based on the Supreme Court's decision in United States v. United States Shoe Corp., 523 U.S. 360, 118 S.Ct. 1290, 140 L.Ed.2d 453 (1998), declaring the provisions of the HMRA related to exported goods unconstitutional under the Exports Clause. The trial court concluded that the provisions of the HMRA governing the transportation of passengers were likewise unconstitutional under the Exports Clause. See Princess Cruises, Inc. v. United States, 15 F.Supp.2d 801 (Ct. Int'l Trade 1998). This court reversed, determining that the provisions related to passengers were not themselves unconstitutional under the Exports Clause and that such provisions were severable from the provisions declared unconstitutional by the Supreme Court. Princess Cruises, Inc. v. United States, 201 F.3d 1352, 1358 (Fed.Cir.2000). On remand, the trial court held that layover-only HMT liability cannot be assessed against Princess for cruises occurring prior to January 27, 1993 (the date of the January 1993 HQ ruling). Princess Cruises, Inc. v. United States ("Summary judgment opinion"), 217 F.Supp.2d 1361, 1364-65 (Ct. Int'l Trade 2002). The trial court further addressed Princess's APF liability, holding that the government was entitled to prejudgment interest from the time that Princess should have made the APF payments in the ordinary course of business, not merely for the period after billing. Id. at 1367-68.

The government appeals the trial court's determination related to pre-1993 layover-only HMT liability and Princess cross-appeals the trial court's determination related to prejudgment interest. We have jurisdiction under 28 U.S.C. § 1295(a)(5).

We note that this appeal is closely related to Carnival Cruise Lines, Inc. v. United States, Nos. 04-1110, 04-1219, also before this panel. These appeals share the common issue of whether layover-only HMT liability can be assessed against the cruise lines for pre-1993 cruises. As in this case, the trial court in Carnival Cruise Lines held that Carnival was not liable for layover-only HMT payments prior to the issuance of the January 1993 HQ ruling. Carnival Cruise Lines, Inc. v. United States, 246 F.Supp.2d 1296 (Ct. Int'l Trade 2002). Indeed, the trial court based its decision in this case on its reasoning in Carnival Cruise Lines. Accordingly, in addressing the reasoning of the trial court, we refer to its decisions in both this case and Carnival Cruise Lines.

II. Violation of Fed. R.App. P. 28(c)

Before turning to the merits of this case, we address a procedural matter. Under Fed. R.App. P. 28, the appellant is allowed an opening brief, the appellee is allowed a brief in response, and the appellant is allowed a reply brief. "An appellee who has cross-appealed may file a brief in reply to the appellant's response to the issues presented by the cross-appeal." Fed. R.App. P. at 28(c). The practice notes to Rule 28 in the Federal Circuit's Rules of Practice further state that "counsel are cautioned, in cases involving a proper cross-appeal, to limit the fourth brief to the issues presented by the cross-appeal."

In this case, the reply brief Princess filed as cross-appellant was not limited to issues concerning the cross-appeal. Indeed, the majority of Princess's reply brief addressed the government's appeal. After we raised Princess's failure to comply with Rule 28(c) during oral argument, Princess filed an unopposed motion to strike the offending portions of its reply brief, which we granted. We appreciate Princess's efforts to correct the problem it created, albeit belatedly.

We note a troubling trend for the counsel of cross-appellants to disregard the rule limiting their reply brief to issues concerning the cross-appeal. See, e.g., In re Violation of Rule 28(c), 388 F.3d 1383 (Fed.Cir.2004).¹ The filing of improper sur-reply arguments is unfair to appellants who bear the burden of demonstrating prejudicial error in the decision being appealed and, therefore, are entitled to the last word in both the briefs and at oral argument on their appeal.

We caution all counsel for cross-appellants who file improper sur-reply arguments that they may be subject to sanctions under Fed. R.App. P. 46(c), which provides that "[a] court of appeals may discipline an attorney who practices before it ... for failure to comply with any court rule." We further urge counsel for appellants to file timely motions to strike improper sur-reply arguments because the prejudice from improper sur-reply arguments is difficult to eliminate once such arguments have been read by the court.

III. Government's Appeal

The government appeals the trial court's conclusion that the January 1993 HQ ruling cannot be applied to conduct occurring prior to the ruling's issuance. Summary judgment opinion, 217 F.Supp.2d at 1364-65; Carnival Cruise Lines, 246 F.Supp.2d at 1301. The trial court's decision was based on the canon of construction pronounced in Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53, 62 L.Ed. 211 (1917), that ambiguities in tax statutes "are construed most strongly against the government and in favor of the citizen." Princess advances here an alternative argument from that adopted by the trial court, contending that application of the January 1993 HQ ruling to conduct preceding the ruling is barred under the retroactivity doctrine. The government argues that neither the trial court's rationale nor the alternative ground advanced by Princess justifies the result adopted by the trial court. As explained below, we agree with Princess that the retroactivity doctrine bars application of the January 1993 HQ ruling to pre-1993 conduct.

A.

"Retroactivity is not favored in the law" and, therefore, "congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result." Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988). In other words, a rule or regulation will not be applied retroactively unless the agency clearly intended that the rule have retroactive effect and Congress authorized retroactive rulemaking. See id.

The most cited definition of retroactivity is that given by Justice Story in Society for Propagation of the Gospel v. Wheeler, 22 F. Cas. 756, 767 (No. 13, 156) (C.C.D.N.H.1814), that "every statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past, must be deemed retrospective." The Supreme Court elaborated on this definition in Landgraf v. USI Film Products, stating:

A statute does not operate "retrospectively" merely because it is applied in a case arising from conduct antedating the statute's enactment or upsets expectations based in prior law. Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment. The conclusion that a particular rule operates "retroactively" comes at the end of a process of...