U.S. v. Commodities Export Co.

• Decision Date: 11 August 1992
• Docket Number: Nos. 91-1470,91-1482,s. 91-1470
• Citation: 972 F.2d 1266
• Parties: The UNITED STATES, Plaintiff-Appellee, v. COMMODITIES EXPORT CO., Defendant-Appellant, and Old Republic Insurance Co., Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1266

972 F.2d 1266

14 ITRD 1369

The UNITED STATES, Plaintiff-Appellee, v. COMMODITIES EXPORT CO., Defendant-Appellant, and Old Republic Insurance Co., Defendant-Appellant.

Nos. 91-1470, 91-1482.

United States Court of Appeals, Federal Circuit.

Aug. 11, 1992.

Mark S. Sochaczewsky, Atty., Commercial Litigation Branch, Dept. of Justice, New York City, argued, for plaintiff-appellee. With him on the brief, were Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director and Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office. Also on the brief was Michele L. Kenney, U.S. Customs Service, of counsel.

Roger E. Craig, Naples, Fla., argued, for defendant-appellant, Commodities Export Co. With him on the brief, was Walter H. Lubienski, Lubienski & Lubienski, Detroit, Mich. Wayne James Jarvis, Wayne Jarvis, Ltd., Chicago, Ill., argued, for defendant-appellant, Old Republic Ins. Co. With him on the brief was Michael G. Hodes, Hodes & Pilon, Chicago, Ill., of counsel.

Before ARCHER, Circuit Judge, BENNETT, Senior Circuit Judge, and RADER, Circuit Judge.

RADER, Circuit Judge.

The United States sued Commodities Export Company and Old Republic Insurance Company in the United States Court of International Trade to recover unpaid liquidated damages under a customs warehouse bond. The trial court entered judgment in favor of the United States. United States v. Commodities Export Co. & Old Republic Ins. Co., CIT No. 89-03-00144, May 14, 1991. Because the United States did not file its action within the six year statute of

limitation, 28 U.S.C. § 2415(a) (1988), this court reverses.

BACKGROUND

Section 1557(a) of Title 19 (1988) allows an importer to store imported foreign merchandise in a bonded warehouse for up to five years from the date of importation without paying duties. An importer must pay duties on merchandise removed from storage for consumption within this country. Id. An importer pays no duties, however, on merchandise withdrawn from storage for export. Id.

Commodities sells both domestic and foreign goods from its duty-free store. This store lies directly adjacent to the Canadian border in Detroit. Commodities stores its merchandise in a bonded warehouse under 19 U.S.C. § 1557(a). As a duty-free sales enterprise, Commodities sells its merchandise in export only. See 19 U.S.C. § 1555(b) (1988). Thus, Commodities sells its merchandise to persons immediately leaving the United States to enter Canada. In the event of a sale to persons remaining in the United States, Commodities must collect duties. See United States v. Commodities Export Co., 733 F.Supp. 109, 110 (Ct.Int'l Trade 1990) (Commodities I ).

"To insure payment of duties and other charges due to runaways and other infractions," the United States entered into a warehouse bond agreement with Commodities, as principal, and Old Republic Insurance, as surety. Id. Under the agreement, Commodities and Old Republic jointly and severally promised to pay liquidated damages of $100 for each violation of the bond's terms. Moreover, they agreed to pay liquidated damages of five times the duty and tax on any dutiable merchandise removed from the warehouse without the Customs Service's approval. The bond required Commodities to mark its merchandise correctly and to notify Customs of any inventory discrepancies.

On February 22, 1983, Customs conducted a spot check of Commodities' warehouse. The investigation revealed that Commodities had not properly marked 37 warehouse entries and had not notified Customs of inventory shortages in seven entries. On March 21, 1983, Customs sent Commodities a demand for payment of liquidated damages for breach of the bond. See 19 C.F.R. 172.1(a) (1982). The demand required Commodities to pay $6,293.96 or petition for relief within 60 days. On May 19, 1983, Commodities objected to the assessment of liquidated damages. Customs denied Commodities' petition on November 4, 1987. On November 20, 1987, Customs formally demanded payment by Old Republic within 30 days. On February 20, 1988, March 5, 1988, and March 19, 1988, Customs issued bills to Commodities and Old Republic for payment of the liquidated damages. Neither defendant paid Customs.

On March 17, 1989, the United States brought this action against Commodities and Old Republic to recover the unpaid liquidated damages. The trial court denied defendants' motion to dismiss for lack of subject matter jurisdiction. Commodities I. Defendants then moved to dismiss because the statute of limitations had run and because Customs had actually liquidated the goods duty-free. The trial court denied this motion also. United States v. Commodities Export Co., 755 F.Supp. 418 (Ct.Int'l Trade 1991) (Commodities II ).

At trial, the jury affirmed the validity of the bond agreement and found that Commodities had breached the bond. On May 14, 1991, the court entered judgment in favor of the United States.

DISCUSSION

I.

Section 1582 of Title 28 (1988) sets forth exclusive jurisdiction for the Court of International Trade:

The Court of International Trade shall have exclusive jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United States--

(1) to recover a civil penalty under section 592, 641(b)(6), 641(d)(2)(A), 704(i)(2), or 734(i)(2) of the Tariff Act of 1930 (2) to recover upon a bond relating to the importation of merchandise required by the laws of the United States or by the Secretary of the Treasury; or

(3) to recover customs duties.

Thus, to fall within the exclusive jurisdiction of the Court of International Trade, this action to recover on a bond must be "commenced by the United States," "arise[ ] out of an import transaction," and "relat[e] to the importation of merchandise required by the laws of the United States or by the Secretary of the Treasury." Id.

The United States' commencement of this action satisfies the first element. The second and third elements require this court to construe the terms "import transaction" and "importation." Specifically this court must determine whether foreign goods in a bonded warehouse are "imported" within the meaning of 28 U.S.C. § 1582(2). The statutes governing bonded warehouses repeatedly refer to warehouse goods as imports. For instance, 19 U.S.C. § 1557(a) permits an importer to store merchandise in a bonded warehouse without payment of duties for up to five years from the date of "importation." Section 1557 thus considers goods imported upon their entry into this country, rather than upon payment of duties before merchandise enters domestic commerce.

Similarly, section 1555(a) of Title 19--the statute authorizing Commodities' and Old Republic's bond--refers to "imported" merchandise in customs bonded warehouses. Thus, goods in bonded warehouses are "imported" upon entry into this country and storage in a bonded warehouse. The importer need pay no duties to "import" merchandise stored in its warehouse. The Supreme Court has adopted the language of Title 19 in referring to goods in bonded warehouses. R.J. Reynolds Tobacco Co. v. Durham County, 479 U.S. 130, 134 n. 3, 107 S.Ct. 499, 503 n. 3, 93 L.Ed.2d 449 (1986) ("Goods may remain in a customs-bonded warehouse for up to five years from the date of importation...."); see also Xerox Corp. v. County of Harris, 459 U.S. 145, 150, 103 S.Ct. 523, 526, 74 L.Ed.2d 323 (1982) ("Congress established a comprehensive customs system which includes provisions for Government-supervised bonded warehouses where imports may be stored duty free for prescribed periods."); Cunard S.S. Co. v. Mellon, 262 U.S. 100, 122, 43 S.Ct. 504, 507, 67 L.Ed. 894 (1923) ("If there be an actual bringing in it is importation regardless of the mode in which it is effected. Entry through a custom house is not of the essence of the act.").

In Stone & Downer Co. v. United States, 19 CCPA 259, 264 (1931), cert. denied, 287 U.S. 619, 53 S.Ct. 20, 77 L.Ed. 538 (1932), this court's predecessor noted that "importation" has a different meaning for the timing of duty payments. Stone & Downer clarified that Title 19 requires Customs to assess duties at the time foreign goods in a bonded warehouse enter into domestic commerce, rather than at the time these goods enter the warehouse. Id. In that context, Customs collects duties on "imported" goods upon entry into domestic commerce. Because this appeal does not concern the timing of duty assessments, Stone & Downer is not applicable.

By referring to "import transaction" or "importation of merchandise," 28 U.S.C. § 1582 gave the Court of International Trade jurisdiction over bonded warehouses. The phraseology of section 1582 underscores the breadth of this jurisdictional grant. A civil action need only arise out of an import transaction to fall within the court's jurisdiction. Moreover a bond need only relate to importation. This broad language commits a wide spectrum of controversies concerning the importation process to the Court of International Trade.

The legislative history of section 1582 also supports the breadth of the jurisdictional grant to the Court of International Trade. The House report accompanying the 1980 rewrite of this provision described the court's jurisdiction as "a comprehensive system of judicial review of civil actions arising from import transactions." H.R.Rep. No. 1235, 96th Cong., 2d Sess. 20 (1980), reprinted in 1980 U.S.C.C.A.N. 3729, 3731.

Under the terms of 28 U.S.C. § 1582(2), this action against Commodities falls within the jurisdiction of the Court of International Trade. The United States brought the action. Two-thirds of the merchandise in Commodities' warehouse is foreign. By bringing this merchandise into the United States, Commodities conducted an "import transaction." This civil action thus "arises out of an import transaction," satisfying the second jurisdictional requirement of 28 U.S.C. § 1582(2).

Finally, the bond in this case relates to importation in at least...