US v. Commodities Export Co., Court No. 89-03-00144.

• Decision Date: 14 March 1990
• Docket Number: Court No. 89-03-00144.
• Citation: 733 F. Supp. 109
• Parties: UNITED STATES of America, Plaintiff, v. COMMODITIES EXPORT CO. and Old Republic Insurance Co., Defendants.
• Court: U.S. Court of International Trade

733 F. Supp. 109

UNITED STATES of America, Plaintiff, v. COMMODITIES EXPORT CO. and Old Republic Insurance Co., Defendants.

Court No. 89-03-00144.

United States Court of International Trade.

March 14, 1990.

Stuart M. Gerson, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, and Mark S. Sochaczewsky, New York City, for plaintiff.

Lubienski, Lubienski & Lubienski, Walter H. Lubienski, Detroit, Mich., and Roger E. Craig, Naples, Fla., for defendants.

OPINION

TSOUCALAS, Judge:

Plaintiff brings this action on behalf of the United States Customs Service to recover unpaid liquidated damages in the amount of $6,293.96, plus interest, from defendants, Commodities Export Co. ("Commodities") and its surety, Old Republic Insurance Co. ("Old Republic").

The issue at hand is whether this Court has subject matter jurisdiction over a dispute arising out of an alleged breach of a warehouse bond by defendant, a duty-free shop. Plaintiff maintains the court has jurisdiction based on 28 U.S.C. § 1582(2) (1982), which states in part:

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—

....

(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;

Defendants contest subject matter jurisdiction, claiming the transaction in question is not an "import transaction" within the meaning of the statute because duty-free shops are not importers and do not engage in "import transactions."

Background

Commodities is a duty-free store which operates a private, Class 2, bonded warehouse as an essential part of its business. Bonded warehouses are used by duty-free stores to expedite the exportation of goods from the United States. Duty-free stores place goods in these warehouses and sell in export from their retail stores. Commodities sells both foreign and domestic goods. According to its submissions, foreign-made goods account for two-thirds ( 2/3 ) of the goods Commodities sells.

Commodities operates from a location across from the Ambassador Bridge in Detroit, Michigan. The bridge leads directly into Canada and Commodities sells goods to consumers going directly into Canada. If the goods leave the warehouse but do not go directly into Canada, they have entered the stream of commerce of the United States without any import duties having been paid on them as required by the laws of the United States. Such goods are known as "runaways". Because of this potential problem, Customs keeps a close watch on duty-free shops and traditionally controlled their recordkeeping. However, in 1982, Customs put duty-free stores on an "honor system" whereby the owners of the bonded warehouses would henceforth be responsible for the recordkeeping, subject to "spot checks" by Customs officials. To insure payment of duties and other charges due to runaways and other infractions, the owners of the warehouses are required to post with Customs a warehouse bond pursuant to 19 U.S.C. § 1555 (1988).¹

On December 1, 1982, Commodities and its surety, Old Republic, executed and delivered to Customs a Proprietors Warehouse Bond for Storage and Manipulation of Merchandise, Class 2 ("bond"), in accordance with 19 U.S.C. § 1555, in the amount of $50,000. Under the terms of the bond, defendants promised that for each failure to comply with the terms of the bond they would pay liquidated damages of $100.00. Additionally, if any merchandise was removed from the warehouse without Customs' approval, defendants would pay liquidated damages equal to five (5) times the duty and tax due on the goods. Bond, Condition 5(g). Defendants further agreed to notify Customs in writing by the close of business the next business day if they discovered any discrepancy in their merchandise. Bond, Condition 5(f). Further, defendants, in accordance with the provisions of the bond, agreed to "mark each package with the correct general order number, warehouse entry number, or seizure number and the corresponding date" and to segregate them by such number. Bond, Conditions 2(b)(c) and (d).

On February 22, 1983, Customs officials conducted a "spot check" inspection of Commodities' warehouse and found a number of irregularities. The inspectors discovered that thirty seven (37) warehouse entries were not marked properly, and seven (7) entries contained shortages. These were held to constitute defaults under Conditions 2(b) and 5(g) of the bond, respectively.

Customs subsequently demanded payment of liquidated damages as provided for in the bond. The amount assessed against Commodities was $6,293.96, the amount at issue in this case. Customs repeatedly issued bills for the sum to Commodities and later to its surety, Old Republic. No payment was ever received for this amount, nor was a protest filed under 19 U.S.C. § 1514 (1988).²

On March 29, 1988, Commodities petitioned the United States District Court for the Eastern District of Michigan for injunctive relief against the liquidated damage claims assessed by Customs. The District Court granted Customs' motion to dismiss the case on the basis that the Court of International Trade has exclusive jurisdiction over the contested issues.³

On March 17, 1989, Customs commenced this action to recover unpaid liquidated damages in the amount of $6,293.96, plus interest. Defendants contest this Court's subject matter jurisdiction on the basis of their claim that, as a duty-free store, they are not importers, they do not engage in import transactions and thus they cannot be sued in this Court under 28 U.S.C. § 1582(2). They also assert that since the District Court may yet decide it has jurisdiction over the case brought by Commodities, this Court should refrain from exercising its jurisdiction.

Discussion

Defendants argue that this Court should await the outcome of the District Court case. The Court disagrees. The two cases, one brought by Commodities in the District Court and one brought by Customs in this Court, ask for separate and distinct relief. The Court of International Trade has exclusive jurisdiction for actions brought by the United States based on 28 U.S.C. § 1582(2) and need not defer its decision since the District Court cannot have jurisdiction where this Court does. Vivitar Corp. v. United States, 761 F.2d 1552, 1559 (Fed.Cir.1985), cert. denied, 474 U.S. 1055, 106 S.Ct. 791, 88 L.Ed.2d 769 (1986).

The jurisdiction of the Court of International Trade is exclusive and does not depend on the assertion of jurisdiction by the district courts. Id. Our appellate court has held that "it is faulty analysis to look first to the jurisdiction of the district courts to determine whether the CIT has jurisdiction." Id. Since the CIT's jurisdiction is narrower than the district courts', "the focus must be solely on whether the claim falls within the language and intent of the jurisdictional grant to the CIT." Id. at 1559-60 (emphasis in original). Otherwise, the district courts would always have jurisdiction, even where Congress clearly intended to give jurisdiction to the CIT. Id. at 1559.

Actions on bonds executed under United States laws generally are heard by the district courts or state courts. 28 U.S.C. § 1352 (1982). The sole exception to this rule is the exclusive jurisdiction of the Court of International Trade under 28 U.S.C. § 1582. That section provides for the CIT to hear civil actions which arise out of import transactions and which are commenced by the United States to, inter alia, "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." 28 U.S.C. § 1582(2). Hence, a number of statutory requirements must be satisfied for this Court to retain such jurisdiction.

First, the action must be a civil action that arises out of an import transaction. Second, the action must be commenced by the United States. Third, the action must be commenced to collect on a bond relating to the importation of merchandise. As the case before this Court was commenced by the United States, the second requirement is satisfied; defendants acknowledge this. Defendants' Special Appearance and Motion to Dismiss for Lack of Subject Matter Jurisdiction at 3 ("Defendants' Motion to Dismiss"). Thus, the only questions before this Court are whether the action arose out of an import transaction and whether the warehouse bond related to the importation of merchandise.⁴

Defendants argue that this action did not arise out of an import transaction and that the bond did not relate to the importation of merchandise. Defendants' Motion to Dismiss at 3. Though they stored foreign-made goods in their bonded warehouse, defendants claim that, as duty-free merchants, they cannot be classified as importers and their dealings cannot be characterized as "import transactions," since they operate "exclusively in export." Id. (emphasis in original).

The trade statutes provide no explicit definitions for "importation" and "import transaction." However, the regulations promulgated by the Treasury Department give two definitions for "date of importation" depending on whether the merchandise arrives in the United States by vessel or by other means. 19 C.F.R. § 101.1(h) (1989). If it arrives by vessel, the merchandise is deemed imported on "the date on which the vessel arrives within the limits of a port in the United States with intent then and there to unlade such merchandise." Id. If it arrives by another mode, the merchandise is considered imported on "the date on which the merchandise arrives within the Customs territory of the United States." Id.

In interpreting the trade laws, courts frequently have relied on the ordinary meaning of "importation." Cunard Steamship Co....