U.S. v. Ford Motor Co.

• Decision Date: 30 August 2006
• Docket Number: No. 05-1584.,05-1584.
• Citation: 463 F.3d 1267
• Parties: UNITED STATES, Plaintiff-Appellee, v. FORD MOTOR COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

463 F.3d 1267

UNITED STATES, Plaintiff-Appellee, v. FORD MOTOR COMPANY, Defendant-Appellant.

No. 05-1584.

United States Court of Appeals, Federal Circuit.

August 30, 2006.

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David A. Levitt, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief were Kathleen Bucholtz and Katherine F. Kramarich, Attorneys, Office of Associate Chief Counsel, United States Customs and Border Protection, of Chicago, Illinois.

Charles J. Cooper, Cooper & Kirk, PLLC, of Washington, DC, argued for defendant-appellant. With him on the brief were Vincent J. Colatriano, David H. Thompson, and Nicole Jo Moss. Of counsel on the brief were Robert B. Silverman, David M. Murphy, and Frances P. Hadfield. Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP, New York, New York; and Paulsen K. Vandevert, Ford Motor Company, of Deaborn, Michigan.

Before NEWMAN, RADER, and GAJARSA, Circuit Judges.

GAJARSA, Circuit Judge.

Ford Motor Company appeals from a decision of the United States Court of International Trade holding Ford liable for negligent misrepresentation of the value of import entries and imposing a penalty of $17,151,923.60. United States v. Ford Motor Co., 395 F.Supp.2d 1190 (Ct. Int'l Trade 2005) ("Negligence Decision"). Ford timely filed a notice of appeal on September 16, 2005. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5). For the reasons stated herein, we affirm in part, reverse in part, and remand for further proceedings in accordance with this opinion.

BACKGROUND

Ford is a major importer of automobiles and automobile parts from all over the world. This case deals with Ford's importation practices, and specifically with its methods for handling the declaration of value for imported goods the price of which is subject to change after importation.

A. Assists and Direct Payments

Two concepts lie at the heart of the case. The first, "assist," is defined by statute as "materials, components, parts, and similar items incorporated in the imported merchandise" that is provided "free of charge or at a reduced cost, by the buyer of imported merchandise for use in connection with the production or sale for export to the United States of the imported merchandise." 19 U.S.C. § 1401a(h)(1). An "assist" might consist of, for example, design or engineering work provided overseas by the buyer/importer to the seller that is not factored into the invoice price. The value of the assists is subject to import duties pursuant to 19 U.S.C. § 1401a(b)(1)(C).

The trial court found, and Ford does not dispute, that assists relating to a particular model year vehicle or component typically occur long before entry of the actual merchandise. Negligence Decision, 395 F.Supp.2d at 1197. During the years at issue, Ford maintained an internal program "whereby it gathered information about assists at the time of importation and paid all duties related to such assists on the first entry" of the related merchandise. Id. Despite this program, it appears that Ford failed to report significant numbers of assists until years after the related merchandise entered the United States. In 1992, Ford disclosed to what was then the United States Customs Service ("Customs")¹ the existence of previously undisclosed assists relating to numerous entries in the years 1987-1991. Id. at 1197-200.

The second concept is "direct" or "lump-sum" payments, which are payments of money by the importer to the seller separate from — and usually subsequent to — the payment of the original price but that relate directly to the purchase price of the imported item. A typical lump-sum payment might represent amounts owed to the seller under a variable-pricing clause, pursuant to which the final cost of the item varies with some extrinsic index or factor, and requires a gross-up payment after the fact. Lump-sum payments, like assists, are dutiable under the import laws as part of the "the total payment ... for imported merchandise" for purposes of 19 U.S.C. § 1401a(b)(4).

Ford's supply agreements with many of its overseas vendors "contained post-importation price adjustments, which typically provided a per vehicle or vehicle component base price subject to possible modifications." Id. at 1196. Ford knew that the prices of imported merchandise although "fairly firm" upon importation, could change after importation pursuant to the supply agreements. During the years at issue, Ford's internal compliance procedures stated that upon entry "[t]he invoice must be priced so that the true value can be ascertained. In the event that the value is not completely and correctly shown, a `provisional' disclaimer is stated on the invoice, thereby advising [C]ustoms" of the possibility that the entry price was non-final. Id. at 1203. The record indicates, however, that despite this policy Ford invoices in the disputed period did not disclose the provisional nature of invoice prices.

In 1988, Ford and Customs entered into an agreement that altered Ford's reporting obligations relating to direct payments (the "Reconciliation Agreement"). The Reconciliation Agreement permitted Ford to report all lump-sum post-importation payments relating to a particular model year in a single disclosure filed at the end of the model year in question. The exact scope of the Reconciliation Agreement, and the timing of disclosures made pursuant to it, are the subject of dispute between the parties, and are discussed in detail below.

B. Customs' Investigation and Complaint

Customs initiated "Operation Hat Trick" in the early 1990s "to identify undeclared assists and indirect payments" made by the Big Three automakers, to "determine the level of culpability of parties responsible for the failure to declare the assists/payments," and to "refer cases for criminal and civil action as appropriate." Negligence Decision, 395 F.Supp.2d at 1193. On May 23, 1991, Customs notified Ford by letter that a formal investigation was underway "concerning the proper declaration of assists and indirect payments in imports of vehicles and vehicle component assemblies." Id. at 1194. On June 7, 1991, at Ford's request, the parties met to clarify the meaning of "indirect payments" as it was used in the notice of investigation. Id. The substance of the discussions held at the meeting are the subject of dispute in this appeal. The trial court concluded that, following the meeting, "Ford knew or should have known that the term `indirect payment' ... included all payments that impacted the final price paid by Ford for the merchandise in question," including payments made directly by Ford to foreign suppliers. Id. at 1195. The trial court also found as fact that "Ford was advised by Customs that the investigation would encompass entries made between 1987 through the 1991 model year," but would not include entries for model years 1992 or later. Id. at 1196. Both of these findings are discussed in detail below.

The government filed its complaint in the Court of International Trade on January 29, 2002, charging Ford with violation of 19 U.S.C. § 1592, which provides that "no person, by fraud, gross negligence, or negligence," may enter any merchandise into the commerce of the United States by means of any document, information, statement, act, or omission which is "material and false." 19 U.S.C. § 1592(a)(1). The government's allegations center on alleged omissions from Ford's entry documents under 19 U.S.C. § 1484, which requires importers to file with Customs information about entered merchandise, including "the declared value, classification and rate of duty applicable to the merchandise, and... such other information as is necessary to enable the Customs Service to ... properly assess duties on the merchandise." 19 U.S.C. § 1484(a)(1)(B). The government alleges that Ford's entry documents were materially false to the extent that they assigned to merchandise a concrete value that Ford knew was likely to change pursuant to variable-pricing provisions in the sale contracts. The government further alleges that, regardless of whether Ford had an affirmative duty to disclose the provisional nature of its pricing, it had an affirmative obligation to inform Customs "at once" when it became aware that the declared values were incorrect, but failed to do so. 19 U.S.C. § 1485(a) (stating that every importer making an entry under § 1484 shall make "a declaration under oath," stating, inter alia, "[t]hat the prices set forth in the invoice are true," that "all other statements in the invoice or other documents filed with the entry, or in the entry itself, are true and correct," and that "he will produce at once to the appropriate customs officer any invoice, paper, letter, document, or information received showing that any such prices or statements are not true or correct") Ford denied the allegations and counterclaimed for a refund of duties it allegedly overpaid.

The Court of International Trade conducted a bench trial, after which it found that Ford was guilty of negligent (but not grossly negligent) violation of both § 1484 and § 1485 and assessed a penalty of more than $17 million — the maximum penalty permitted by statute in the circumstances. In reaching that decision, the trial court concluded that § 1484 included an affirmative requirement that entry prices indicate the existence of any provisional pricing arrangements that might render the invoice price non-final; that Ford violated that requirement; and that because Ford had knowledge of the requirement, it could be held liable for the violation consistent with due process. Negligence Decision, 395 F.Supp.2d at 1208-13. The Court of International Trade further held that...