Salant Corp. v. U.S.

• Decision Date: 14 January 2000
• Docket Number: Slip Op. 00-5.,Court No. 97-06-00977.
• Citation: 86 F.Supp.2d 1301
• Parties: SALANT CORPORATION, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

86 F.Supp.2d 1301

SALANT CORPORATION, Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 00-5.

Court No. 97-06-00977.

United States Court of International Trade.

January 14, 2000.

Sandler, Travis & Rosenberg, P.A., Miami, FL (Edward M. Joffe, Beth C. Ring, Gerson M. Joseph) for Plaintiff.

David W. Ogden, Acting Assistant Attorney General; Joseph I. Liebman, Attorney in Change, International Trade Field Office, (John J. Mahon), Civil Division, Department of Justice, Commercial Litigation Branch; Beth C. Brotman, Office of Assistant Chief Counsel, United States Customs Service, of counsel, for Defendant.

OPINION

BARZILAY, Judge.

I. Introduction

This case was brought by Plaintiff Salant Corporation ("Salant"), to contest the valuation of certain men's shirts by the United States Customs Service ("Customs"). Plaintiff challenges Customs' inclusion of the value of material supplied by Plaintiff but scrapped or wasted during the manufacturing process, within the term assist as used in 19 U.S.C. § 1401a(h)(1)(A) (1994). The parties have cross-moved for summary judgment.

For the reasons set out in the following opinion, the Court holds that the fabric waste generated during the manufacturing process of imported shirts is an "assist" under 19 U.S.C. § 1401a(h)(1)(A), and thus its value is properly included in transaction value for appraisement purposes. Therefore, Customs' motion for summary judgment is granted.

II. Background

Salant supplies rolls of fabric free-of-charge to the manufacturers of men's shirts pursuant to contracts for the "cut, make, and trim" ("CMT") of the shirts. Mem. of Law in Support of Pl.'s Mot. for Summ. J. at 1 ("Pl.'s Mem."). During the manufacturing process, the portion of fabric falling outside the shape of the cut components is scrapped by the manufacturers as waste. Id. Following importation of the shirts, Customs appraised them under transaction value, 19 U.S.C. § 1401a(b)(1)(C), which defines that value as "the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to ... the value, apportioned as appropriate, of any assist." The term "assist" is defined by 19 U.S.C. § 1401a(h)(1)(A) as follows:

The term "assist" means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:

(i) Materials, components, parts, and similar items incorporated in the imported merchandise.

(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.

(iii) Merchandise consumed in the production of the imported merchandise.

(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.

Some background on Customs' past practices regarding assists is instructive. From 1984 to 1995, Customs consistently held that scrap or waste in a CMT operation was not considered an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A).¹ In 1995, after accepting public comment, Customs published notice revoking its earlier rulings and issued Headquarters Ruling Letters ("HRL") 543831 and 545909, which maintained that fabric waste generated in a CMT was part of an assist within the terms of the statute as "merchandise consumed in the production of imported merchandise."

Consistent with its recent inclusion of waste within the definition of an assist, Customs appraised the imported merchandise at its FOB value, and included as assists both the cost of the fabric waste which was scrapped during the CMT process as well as the cost of the fabric incorporated into the shirts in the manufacturing process. Thereafter, Plaintiff brought this suit, contending that it is entitled to summary judgment because fabric waste does not come within the definition of an assist. Pl.'s Mem. at 7. In support of its claim, Plaintiff asserts that the waste is neither "material incorporated" nor "merchandise consumed" within the plain meaning of the assist statute, as examined through its legislative history. Plaintiff contends further that even if doubt exists as to whether waste is included within the definition of an assist, that doubt should be resolved in favor of the importer. Defendant responded with a cross-motion for summary judgment, asserting that (1) Customs' decision to reevaluate whether fabric waste should be included as an assist is entitled to deference by the Court as a reasonable interpretation of an ambiguous statute; (2) Salant's interpretation of the plain meaning of the assist statute is simply incorrect; (3) Customs' construction of the plain meaning of the statute is reasonable and should be upheld; and (4) Salant's claim that ambiguity should be resolved in favor of the importer is meritless. Def.'s Opp'n to Pl.'s Mot. for Summ. J. and Def.'s Cross-Mot. For Summ. J. in its Favor at 8 ("Def.'s Opp'n").

The Court holds in Defendant's favor and hereby grants Defendant's motion for summary judgment because there is no genuine issue of material fact, and because under the plain meaning of the statute read with the facts and circumstances of this case, the definition of assist properly includes fabric waste.

III. Standard of Review

Plaintiff has invoked this Court's jurisdiction under 28 U.S.C. § 1581(a), contesting Customs' appraisal of men's shirts. "Customs' appraisal value is presumed to be correct and the burden of proof is upon the party challenging the decision." Chrysler Corp. v. United States, 17 CIT 1049, 1053 (1993) (citing 28 U.S.C. § 2639(a)(1)). Yet, the issue before this Court is one of statutory construction: whether Customs correctly determined that scrap or waste is included within the meaning of "assist" as defined by 19 U.S.C. § 1401a(h)(1)(A). The standard of review for such questions of law is de novo. Intel Singapore, Ltd. v. United States, 83 F.3d 1416, 1417-18 (Fed.Cir.1996). As the Court of Appeals for the Federal Circuit has explained, "although the presumption of correctness applies to the ultimate classification decision, ... the presumption carries no force as to questions of law." Universal Electronics, Inc. v. United States, 112 F.3d 488, 492 (Fed.Cir.1997). On a motion for summary judgment, the court must determine whether there is any factual dispute as to which there is "a genuine issue for trial...." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

As the parties agree that there are no genuine issues of material fact, the presumption of correctness does not factor into the Court's analysis. The Court's remaining task is to determine, based upon the legislative intent and statutory language, whether or not Customs' interpretation of the assist statute was correct, and whether either party is entitled to judgment as a matter of law. See USCIT R. 56(d); See also Texas Apparel Co. v. United States, 12 CIT 1002, 1004, 698 F.Supp. 932, 934 (1988), aff'd per curiam, 883 F.2d 66 (Fed.Cir.1989).

Within the de novo standard, Customs asserts that its ruling was reasonable and that it is therefore entitled to deference in accordance with Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The Court notes the teaching of the Supreme Court that "[d]eference can be given ... without impairing the authority of the court to make factual determinations, and to apply those determinations to the law, de novo." United States v. Haggar Apparel Co., 526 U.S. 380, ___, 119 S.Ct. 1392, 1399, 143 L.Ed.2d 480 (1999).

The language of Chevron sets up a two-pronged test for according deference to an agency's statutory interpretation. In essence, if Congress' intent is clear, no deference is given the agency's construction; however, if Congress' intent is unclear, the court must defer to the agency's interpretation if it is a reasonable construction of the statute.² Chevron deference has been expanded from statutory interpretation to administrative regulations. Haggar, 526 U.S. at ___, 119 S.Ct. 1392, 1400. "Like other courts, the Court of International Trade must, when appropriate, give regulations Chevron deference." Id. (citing Atlantic Mut. Ins. Co. v. Commissioner, 523 U.S. 382, 389, 118 S.Ct. 1413, 140 L.Ed.2d 542 (1998)).

The Court notes the Federal Circuit's decisions in Generra Sportswear Co. v. United States, 905 F.2d 377 (1990) and Mead Corp. v. United States, 185 F.3d 1304 (1999). In Generra, the Federal Circuit upheld Customs' inclusion of the value of quota payments in transaction value as part of the price paid or payable. See 905 F.2d at 379. The value statute at issue in Generra did not explicitly set out quota payments as one of the enumerated items making up the price. See 19 U.S.C. § 1401a(b)(4)(A). The Federal Circuit held that the agency's interpretation was sufficiently reasonable under Chevron. See 905 F.2d at 379. In Mead, however, the Federal Circuit declined to extend Chevron deference to Customs' classification rulings: "Haggar, and thus Chevron deference, does not extend to ordinary classification rulings." 185 F.3d at 1307.³ Defendant contends that deference is appropriate in this case because "the ruling was subject to notice and comment by the interested public which submitted its views to the agency before the ruling was published." Def.'s Reply to Pl.'s Reply to Def.'s Resp. to Pl.'s Mot. for Summ. J. at 7 ("Def.'s Reply Br.").

Plaintiff counters, however, that Customs rulings are not necessarily entitled to deference, and that this ruling should not be afforded deference in particular because it reversed a long standing agency interpretation and failed to articulate a policy reason for doing so. Pl.'s Mem. of Law in Reply to Def.'s Resp. to Pl.'s Mot. for...