U.S. v. Ups Customhouse Brokerage, Inc., No. 2008-1409.

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Archer
• Citation: 575 F.3d 1376
• Parties: UNITED STATES, Plaintiff-Appellee, v. UPS CUSTOMHOUSE BROKERAGE, INC., Defendant-Appellant.
• Docket Number: No. 2008-1409.
• Decision Date: 11 August 2009

575 F.3d 1376 UNITED STATES, Plaintiff-Appellee,
v.
UPS CUSTOMHOUSE BROKERAGE, INC., Defendant-Appellant. No. 2008-1409. United States Court of Appeals, Federal Circuit. August 11, 2009.

[575 F.3d 1377]

Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With her on the brief was Jeanne E. Davidson, Director. Of counsel on the brief were Courtney E. Sheehan, Attorney, and Edward M. Greenwald, Attorney, Office of the Associate Chief Counsel, United States Customs & Border Protection, United States Department of Homeland Security, of Chicago, Illinois.

Terence J. Lynam, Akin Gump Strauss Hauer & Feld LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Lars-Erik A. Hjelm, Tamer A. Soliman and Monica P. Sekhon.

Joseph M. Spraragen, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of New York, NY, for amicus curiae. With him on the brief were Alan R. Klestadt and Robert B. Silverman.

Before SCHALL, ARCHER, and MOORE, Circuit Judges.

ARCHER, Circuit Judge.

UPS Customhouse Brokerage, Inc. ("UPS") appeals the Court of International Trade's judgment in favor of the United States. The Court of International Trade held 1) UPS misclassified certain merchandise under subheading 8473.30.9000 of the Harmonized Tariff Schedule of the United States ("HTSUS"); 2) UPS's misclassification established multiple violations of 19 U.S.C. § 1641, which requires brokers to exercise responsible supervision and control over their customs business; and 3) the United States is entitled to a judgment in the amount of $75,000 against UPS. United States v. UPS Customhouse Brokerage, Inc., 558 F.Supp.2d 1331 (Ct. Int'l Trade May 28, 2008). We affirm the court's holding that UPS misclassified

575 F.3d 1378

merchandise under subheading 8473.30.9000. Because the Court of International Trade erred in upholding the Bureau of Customs and Border Protection's ("Customs") determination that UPS did not exercise responsible supervision and control in violation of 19 U.S.C. § 1641, we vacate that portion of the court's judgment and remand for further proceedings.

I

Since 1985, UPS has been a licensed customs broker that prepares and files customs entry documents on behalf of its clients. This case arises from UPS's classification entries under HTSUS heading 8473, which covers parts and accessories of automated data processing ("ADP") machines. From January through May 2000, UPS classified the sixty entries at issue here under HTSUS subheading 8473.30.9000. Customs claimed that the entries were misclassified because HTSUS 8473.30.9000 required the parts at issue to contain a cathode ray tube ("CRT"), rather than being part of a computer that contained a CRT.

Customs initiated eight penalty actions against UPS covering the sixty alleged misclassified entries as follows: three pre-penalty notices for $5,000 each on May 15, 2000, with each notice consisting of five entries; three pre-penalty notices for $5,000 each on July 11, 2000, with each notice consisting of five entries; and two pre-penalty notices for $30,000 each on August 15, 2000, with each notice consisting of fifteen entries. All eight of the pre-penalty notices alleged a failure to exercise responsible supervision and control in classifying ADP parts under HTSUS subheading 8473.30.9000. On September 15, 2000, Customs issued three penalty notices for $5,000 each based on the May 15 pre-penalty notices. UPS paid these penalties. On September 26, 2000, Customs issued three more penalty notices for $5,000 each based on the July 11 pre-penalty notices, and on October 19, 2000, Customs issued two more penalty notices for $30,000 each based on the August 15 pre-penalty notices. The penalties assessed totaled $90,000.

On December 17, 2004, the government brought suit in the Court of International Trade seeking to enforce the unpaid portion of the penalties — i.e., $75,000. UPS moved for summary judgment on the issue of whether 19 U.S.C. § 1641 limited Customs to assessing a single penalty for all alleged violations preceding issuance of the first pre-penalty notice or, alternatively, whether it limited Customs to an aggregate monetary penalty of $30,000 for all alleged violations preceding issuance of the first pre-penalty notice.¹ The court denied the motion.²

575 F.3d 1379

Following trial, the Court of International Trade held that the computer parts were misclassified and that the repeated misclassifications constituted multiple violations of the statutory duty to exercise responsible supervision and control. The court then concluded that Customs had demonstrated that UPS failed to exercise responsible supervision and control and that Customs established that UPS violated 19 U.S.C. § 1641 on multiple occasions. The Court of International Trade further held that the United States was entitled to a judgment in the amount of $75,000, plus any applicable interest that may be due.

UPS appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).

II

"The ultimate question in a classification case is whether the merchandise is properly classified under one or another classification heading. We have consistently viewed this as a question of law, see Sports Graphics, Inc. v. United States, 24 F.3d 1390, 1391 (Fed.Cir.1994), because what is at issue is the meaning of the terms set out in the statute...." Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1365 (Fed.Cir.1998). Additionally, "[c]onstruction of a statute or regulation is a question of law we review de novo." Summers v. Gober, 225 F.3d 1293, 1295 (Fed.Cir.2000).

"Despite our de novo review of interpretations of tariff provisions, classification decisions by Customs interpreting provisions of the HTSUS may receive some deference under the principles of Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)." MetChem, Inc. v. United States, 513 F.3d 1342, 1345 (Fed.Cir.2008) (citation omitted). Nevertheless, "Customs' rulings are `not controlling upon the courts by reason of their authority,' Skidmore, 323 U.S. at 140, 65 S.Ct. 161, 89 L.Ed. 124, and `this court has an independent responsibility to decide the legal issue of the proper meaning and scope of HTSUS terms.'" Id. (quoting Warner-Lambert Co. v. United States, 407 F.3d 1207, 1209 (Fed.Cir.2005)).

A

The first issue here is whether UPS properly classified merchandise under HTSUS subheading 8473.30.9000.

A classification decision has two underlying steps: "first, construe the relevant classification headings; and second, determine under which of the properly construed tariff terms the merchandise at issue falls." Bausch & Lomb, Inc., 148 F.3d at 1364-65.

"The HTSUS scheme is organized by headings, each of which has one or more subheadings; the headings set forth general categories of merchandise, and the subheadings provide a more particularized segregation of the goods within each category." Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed.Cir.1998). "The proper classification of merchandise entering the United States is directed by the General Rules of Interpretation (`GRIs') of the HTSUS and the Additional United States Rules of Interpretation." Id. GRI 1 states that "classification shall be determined according to the terms of the headings and any relative section or chapter notes." GRI 1, HTSUS (2000). Accordingly, "[a] classification analysis begins ... with the language of the headings." Orlando Food Corp., 140 F.3d at 1440.

575 F.3d 1380

UPS asserts that the subheadings of 8473.30 are properly read as dividing items based on whether the machine of which they are a part contains a CRT. Thus, the parts and accessories imported under subheadings 8473.30.6000 and 8473.30.9000 need not themselves contain CRTs, but merely the assembled machines must contain CRTs. The government argues that such a position does not make sense since subheadings under 8471 are divided according to whether the machines contain CRTs (among other things),³ and subheadings under 8473 are divided...