U.S. v. Toshoku America, Inc.

• Decision Date: 30 June 1989
• Docket Number: Nos. 88-1221,88-1222,s. 88-1221
• Citation: 879 F.2d 815
• Parties: UNITED STATES of America, Plaintiff/Appellant, v. TOSHOKU AMERICA, INC. and Federal Insurance Co., Defendants/Cross-Appellants. TOSHOKU AMERICA, INC., Third-party/Plaintiff, v. CATZ INTERNATIONAL, INC., Third-party/Defendant and Fourth-party/Plaintiff, v. SOUTHERN COMMODITIES, INC., Fourth-party/Defendant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 815

879 F.2d 815

11 ITRD 1289

UNITED STATES of America, Plaintiff/Appellant, v. TOSHOKU AMERICA, INC. and Federal Insurance Co.,

Defendants/Cross-Appellants.

TOSHOKU AMERICA, INC., Third-party/Plaintiff, v. CATZ INTERNATIONAL, INC., Third-party/Defendant and Fourth-party/Plaintiff, v. SOUTHERN COMMODITIES, INC., Fourth-party/Defendant.

Nos. 88-1221, 88-1222.

United States Court of Appeals Federal Circuit.

June 30, 1989.

Rehearing Denied Sept. 1, 1989.

Kenneth N. Wolf, Commercial Litigation Branch, Dept. of Justice, of New York City, argued for plaintiff/appellant. With him on the brief were John R. Bolton, Asst. Atty. Gen., David M. Cohen, Director and Joseph I. Liebman, Attorney in Charge, International Trade Field Office.

Peter J. Fitch, Fitch, King & Caffentzis, of New York City, argued for defendants/cross-appellants.

Before NEWMAN, Circuit Judge, COWEN, Senior Circuit Judge, and ARCHER, Circuit Judge.

ARCHER, Circuit Judge.

The United States (government or Customs), Toshoku America Inc. (Toshoku) and Federal Insurance Company (FIC) appeal from the decision of the United States Court of International Trade, 670 F.Supp. 1006 (CIT 1987), granting summary judgment in favor of the government, but limiting its damages, and denying summary judgment in favor of Toshoku and FIC. We reverse. ¹

BACKGROUND

In October of 1978, Toshoku imported 1300 cartons of tuna into the United States for general consumption. The tuna was conditionally released to Toshoku pending an admissibility determination by the Food and Drug Administration (FDA). The conditional entry was covered by a General Term Bond For Entry Of Merchandise, Customs Form 7595, executed by Toshoku as principal and FIC as surety. Upon finding that a sample of the tuna appeared to be decomposed, the FDA issued a Notice of Detention and Hearing and later, on December 12, 1978, a Notice of Refusal of Admission. The December notice was signed on behalf of the District Director of Customs and directed Toshoku to export the tuna within ninety days of the date of the Notice or risk its destruction. ² Notwithstanding the inadmissibility of the tuna, Customs liquidated its entry on December 29, 1978. The goods were not reliquidated. ³

On March 16, 1979, Customs notified Toshoku that unless it provided evidence that the tuna had been exported or destroyed it would be liable for liquidated damages under the redelivery provision, i.e., paragraph 4, of the entry bond. ⁴ When Toshoku did not respond, Customs issued a Notice of Penalty or Liquidated Damages Incurred And Demand For Payment, Customs Form 5955-A, to Toshoku on May 7, 1979. This notice demanded that Toshoku pay to Customs $32,474.16 in liquidated damages for its failure to return the tuna to Customs' Toshoku notified Customs that the Demand for Payment was premature because the required Notice to Redeliver had not been issued. See 19 C.F.R. Sec. 141.113(g) (1978). ⁶ Thereafter on March 19, 1981, Customs cancelled its original damage claim ⁷ but asserted a new and separate damage claim for the same amount. The basis of the new claim was that Toshoku had failed to export the tuna as directed in the December 12, 1978 notice and "as required under section 7 of your entry bond." ⁸ The new claim was accompanied by another Customs Form 5955-A demanding payment, and a copy was forwarded to FIC. After both Toshoku and FIC failed to pay, the government filed suit in the Court of International Trade under 28 U.S.C. Sec. 1582(2) (1982) for recovery on the bond.

custody. ⁵

In the proceeding before the trial court, the parties each moved for summary judgment. The government argued that Toshoku had breached paragraph 7 of its entry bond by failing to export the adulterated tuna as directed in the December 12, 1978 notice. While conceding that the tuna was neither exported nor destroyed, Toshoku and FIC argued that paragraph 4 of the entry bond had not been complied with because Customs never demanded redelivery and thus cannot enforce a claim for failure to export under that paragraph. They also contended that paragraph 7 of the entry bond was inapplicable unless Toshoku sought and failed to bring the shipment into compliance, a scenario the government admitted did not occur. Lastly, Toshoku and FIC argued that in any event proper notice, as contemplated by paragraph 7 of the bond, was not provided.

The Court of International Trade granted summary judgment in favor of the government, but limited the awarded damages to the value of the merchandise, $30,636.00, because the "entry has been liquidated and the duty has been tendered." Both sides appeal. ⁹

DISCUSSION

A. Summary judgment is appropriate when there is no genuine issue regarding any material fact and when the movant is entitled to judgment as a matter of law. Rule 56(d) of the Rules of the United States Court of International Trade; Hi-Life Prods., Inc. v. American Nat'l Water-Mattress Corp., 842 F.2d 323, 325 (Fed.Cir.1988); SRI Int'l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107, 1116 (Fed.Cir.1985). Neither side to this dispute suggests that any material fact remains in issue. Each side, however, argues that it is entitled to judgment as a matter of law. As the issue before us is one of law, we are free to decide the issue de novo.

B. As a preliminary matter, we reject the government's contention that Toshoku and FIC have waived their right to challenge the legality of Customs' demand for liquidated damages. According to the government, an assessment of liquidated damages against an importer and its surety is a "charge or exaction" within the meaning of 19 U.S.C. Sec. 1514 (1982) and therefore, unless timely protested, is final and conclusive on the parties. Under the government's approach, Toshoku and FIC could have challenged the legality of the assessment only by filing a protest under 19 U.S.C. Sec. 1514 followed by a suit under 28 U.S.C. Sec. 1581(a) (1982) if their protest was denied.

We do not agree. In United States v. Utex Int'l, Inc., 857 F.2d 1408, 1413-14 (Fed.Cir.1988), this court recently held, inter alia, that an assessment of liquidated damages is not a "charge or exaction" that must be challenged by protest under 19 U.S.C. Sec. 1514 (1982). Proof that the importer has complied with the conditions of the bond has traditionally been and still remains a complete defense to a collection suit brought on the bond. See id.; 1 P. Feller, U.S. Customs and International Trade Guide, Sec. 13.06, 13-31 (1988).

C. Before turning to the merits of the defenses raised by Toshoku and FIC, we need generally to survey the statutory and regulatory framework under which foodstuffs are imported into the United States. The basic statutory provision governing the importation of foodstuffs is 21 U.S.C. Sec. 381 (1982). ¹⁰

The statutory scheme is enforced by the joint cooperation of the Secretary of the Treasury, through the Customs Service, and the Secretary of Health and Human Services, through the FDA. See 19 C.F.R. Sec. 12.1(a). The interplay between these two agencies was partially described by this court in United States v. Imperial Food Imports, 834 F.2d 1013 (Fed.Cir.1987), as follows:

When importing foodstuffs the importer or its broker must notify the FDA, which may issue a 'may proceed notice.' However, the FDA may determine that the merchandise should not be permitted to enter the country without proof of compliance with 21 U.S.C. Sec. 381(a)(3) (1982), which concerns adulterated food. In such a case, the FDA will issue a Notice of Sampling, 21 C.F.R. Sec. 1.90, and often a Notice of Detention and Hearing, 21 C.F.R. Sec. 1.94. If the importer does not respond to the Notice of Detention within ten days, a Notice of Refusal of Admission is issued, 21 C.F.R. Sec. 1.94. The importer then has ninety days to either export or destroy the foodstuffs. If the importer has not acted after ninety days, Customs issues a Notice of Redelivery, 19 C.F.R. Sec. 141.111 [sic Sec. 141.113]. If the importer fails to comply by redelivering the goods, the importer breaches its bond with Customs.

Id. at 1014. Not discussed in Imperial Food, however, is the exception in section 381(b) to the requirement in section 381(a) that the Secretary of Treasury is to destroy inadmissible foodstuffs that are not voluntarily exported by the importer.

Under 381(b), if the FDA is satisfied, upon request of the importer, see 21 C.F.R. Sec. 1.94(b), that articles refused admission may be brought into compliance by "relabeling or other action specified in such authorization (including destruction or export of rejected articles or portions thereof ...)," the shipment may be relabeled, etc. under the supervision of an officer or employee of the FDA or the Customs Service. More specifically, in order to avoid the harsh consequences dictated by section 381(a), ¹¹ an importer whose shipment is denied entry solely under clause (3) of section 381(a) (due to adulteration, misbranding, or a violation of 21 U.S.C. Sec. 355) may request authorization to recondition the shipment in order to bring the same into compliance with U.S. law. 21 C.F.R. Secs. 1.94-1.96.

The burden to seek authorization to recondition the goods is upon the importer. An importer's failure to do so leaves him only with a choice of voluntary exportation (or destruction, see 19 C.F.R. Secs. 158.41, 45(c)) or redelivery to Customs. If the importer seeks authorization, however, and successfully satisfies the FDA that relabeling, etc. the goods will lead to compliance, final determination on the admissibility of the goods will be deferred pending such relabeling or other action. The execution of a bond by the importer is required to secure the government's interests in assuring that the goods are properly reconditioned. 21 C.F.R. Sec. 1.97.

D. Having considered the framework of section 381, the parallel between section 381(a) and paragraph 4 of the appended entry bond is clear. Paragraph 4 protects the...