Princess Cruises v. U.S.

• Decision Date: 05 January 2000
• Citation: 201 F.3d 1352
• Parties: (Fed. Cir. 2000) PRINCESS CRUISES, INC., Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant. 99-1014 REISSUED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1352

201 F.3d 1352 (Fed. Cir. 2000)

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

99-1014

United States Court of Appeals for the Federal Circuit

REISSUED: January 5, 2000

Appealed from: United States Court of International Trade Senior Judge R. Kenton Musgrave

[Copyrighted Material Omitted]

Judith A. Lee, Gibson, Dunn & Crutcher LLP, of Washington, DC, argued for plaintiff-appellee. Of counsel on the brief was Lisa A. Murray, Gibson, Dunn & Crutcher LLP.

Todd M. Hughes, Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were David W. Ogden, Acting Assistant Attorney General, and David M. Cohen, Director. Of counsel on the brief was Richard McManus, Attorney, Office of the Chief Counsel, United States Customs Service, of Washington, DC.

J. Kevin Horgan, DeKieffer & Horgan, of Washington, DC, for amicus curiae Thomson Consumer Electronics, Inc.

Lawrence M. Friedman, Barnes, Richardson & Colburn, of Chicago, Illinois, for amicus curiae Amoco Oil Company.

Before MICHEL, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and BRYSON, Circuit Judge.

MICHEL, Circuit Judge.

The United States appeals the summary judgment of the United States Court of International Trade, holding that the Harbor Maintenance Tax ("HMT"), 26 U.S.C. § 4461 (1994), is unconstitutional as applied to commercial passengers on cruise ships and that the Arriving Passenger Fee ("APF"), 19 U.S.C. § 58c(a)(5) (1994 & Supp. III 1997), was improperly assessed on certain of the appellee's cruises. See Princess Cruises v. United States, 15 F. Supp. 2d 801 (Ct. Int'l Trade 1998). Princess Cruises ("Princess") contested Customs's assessment of the HMT on cruises with "stopovers" or "layovers" in HMT-covered ports if the originating and terminating ports of the cruise were HMT-exempt. In addition, the cruise line challenged the inclusion of the full cost of the passenger ticket in the calculation of the HMT.¹ Princess also challenged the collection of APFs on cruises that originate in or arrive directly from an APF-exempt port. The Court of International Trade held that the HMT was unconstitutional and did not reach the issue of the application of the tax to layovers or stopovers, nor the issue of valuation of the cruise for purposes of calculating the HMT. The Court of International Trade also held that APF liability could only be determined based on the beginning and ending ports of a cruise, without regard to portions of the journey made on other modes of transportation, e.g., air travel. The Court of International Trade went on to hold that the APF was not due for passengers on cruises that begin in an exempt port and arrive directly in the United States, or begin in the United States and "arrive temporarily or end in [exempt ports]." This appeal was submitted for our decision following oral argument on October 5, 1999.

Because we hold that the HMT, as applied to passenger liners, is not unconstitutional and is severable from the unconstitutional application of the tax to exports, we reverse the decision of the Court of International Trade as to the constitutionality of the HMT. In addition, we hold that the HMT is properly assessed on stopovers or layovers at non-exempt ports, regardless of the origination or ultimate destination of the cruise. As to the APF, we hold that the Customs Service's interpretation of "journey" to include multiple stops and multiple forms of transportation, is not unreasonable, and therefore reverse the Court of International Trade's decision. We thus remand for a determination of Princess's HMT and APF liability that is consistent with this opinion.

Background

Princess operates cruises around the world. The Princess voyages of particular relevance to this appeal, however, are the "Transcanal" cruises and the "Vancouver/Wittier" cruises. The Transcanal route begins in either Acapulco, Mexico, or San Juan, Puerto Rico, traverses the Panama Canal, makes various other stops in Central or South America and terminates in either San Juan or Acapulco. The Vancouver/Wittier route begins in either Vancouver, Canada, or Wittier, Alaska,² makes brief stopovers during which passengers may leave the ship in ports that are subject to the HMT, such as Ketchikan, Alaska, and terminates in either Wittier or Vancouver. Passengers usually arrive from the United States at the port of cruise departure and return to the United States from the terminal port of the cruise by air. In some cases, the air and ship travel are sold as a package.

The HMT was enacted in 1986 as part of the Water Resources Development Act ("WRDA"), Pub. L. No. 99-622, §1402(a), 100 Stat. 4082, 4266, as a means of funding maintenance of the nation's seaports. The tax operates by imposing a user-fee on commercial vessels using the ports. The statute directs that the tax be assessed on importers, exporters, domestic shippers and commercial passenger transport (except ferries). See 26 U.S.C. § 4461, 4462 (1994 & Supp. III 1997).³ The revenues from the HMT are used to fund WRDA projects such as the dredging of harbors. Since the imposition of the HMT in 1987 Customs has been assessing the tax for all passengers aboard cruises that originate, layover or terminate in an HMT-covered port. Customs issued a regulation imposing this requirement in 1987. See 52 Fed. Reg. 10198, 10202 (1987) (interim regulations); 19 C.F.R. § 24.24 (1999)⁴.

The APF is a fee imposed for the "provision of customs services" on the arrival of passengers aboard commercial vessels or aircraft from a place outside the United States. See 19 U.S.C. § 58c(a)(5). The APF was part of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Pub. L. No. 99-272, § 13031, 100 Stat. 82, 308 (1986). The statute exempts from the APF passengers whose journey "originated" in Canada, Mexico, a territory of the U.S. or an adjacent island. Passengers whose journey originated in the U.S. and was limited to the above locations are also exempt.⁵

Customs defines the place where a journey "originated," for the purposes of the APF, as "the location where the person's travel begins under cover of a transaction which includes the issuance of a ticket or travel document for transportation into the customs territory of the United States." 19 C.F.R. § 24.22(g)(2)(i)(B).⁶ The regulation specifically recognizes that a "journey . . . may encompass multiple destinations and more than one mode of transportation." Id. Based on this regulation Customs would, for example, assess the fee on a passenger who flew from the continental United States to Puerto Rico, boarded a cruise ship, traveled to a non-exempt port, terminated the cruise in Mexico and returned by air to the United States.

After an audit of Princess's HMT and APF collections and remittances, Customs issued bills to Princess in 1992 for underpayment of those fees. Princess filed a protest challenging the assessment of the fees on March 23, 1993. On December 22, 1993, Customs denied the protest in part. Princess then filed a complaint with the Court of International Trade.

On cross motions for summary judgment, the trial court issued an opinion in 1998 holding that the application of the HMT to transportation services was unconstitutional in light of the Supreme Court decision in United States v. U.S. Shoe, 118 S. Ct. 1290 (1998) (holding that the application of the HMT to exports was a violation of the export clause of the Constitution). Because it found the statute to be unconstitutional, the trial court did not reach the issue of the applicability of the HMT to stopovers or layovers, or the issue of proper valuation of the cruise for purposes of calculating the HMT. See Princess Cruises, Inc., 15 F. Supp. 2d at 803.

The Court of International Trade also held that that the term "journey" in the APF statute referred to "travel from origination to termination of the cruise" and that "layover stops did not affect the administration of the APF statute." Id. Thus, under the Court of International Trade's holding, a passenger on a cruise originating in an APF-covered port and terminating in the United States would be subject to the APF. A passenger on a cruise originating in an APF-exempt port, such as Acapulco, and terminating in the United States would not be subject to the APF, regardless of any layovers in APF-covered ports. Likewise, a passenger on a cruise originating in a covered port and terminating in the United States would be subject to the fee, even if the last stop prior to arrival in the United States was an exempt port. Under the Court of International Trade's holding, air travel by the passenger would not be a factor in determining APF liability. The United States appealed.

We have jurisdiction over this appeal under 28 U.S.C. § 1295(a)(5).

DISCUSSION

The United States seeks a reversal of the Court of International Trade's decision that the HMT is unconstitutional as applied to passenger transport and that passengers on Princess cruises that originate and terminate in APF-exempt ports are exempt from the APF. Princess seeks to have the Court of International Trade decision affirmed on the grounds that the application of the HMT to passenger transport is not severable from its unconstitutional application to exports, or, in the alternative, on the statutory interpretation grounds originally argued before the Court of International Trade. We review the determination of the constitutionality of the HMT de novo. See Medline Indus., Inc. v. United States, 62 F.3d 1407, 1409 (Fed. Cir. 1995). Statutory interpretation by the Court of International Trade, including the question of severability, is also reviewed de novo. See id.; cf. Alaska Airlines v. Donovan, 766 F.2d 1550, 1555 (D.C. Cir. 1985) (finding that severability "reduces to a matter of statutory interpretation"). Like the Court of...