United States v. Ford Motor Co.United States v. Ford Motor Co.
This is a waiver and issue preclusion case. The issues before us are whether the government was required to accept Ford Motor Company’s (“Ford”) waiver of a statute of limitations defense in order for the waiver to take effect and whether the government is barred by issue preclusion from pursuing its claims for civil penalties pursuant to 19 U.S.C. § 1592 for Ford’s alleged fraud. Because we find that the government’s claims are not barred by the statute of limitations in 19 U.S.C. § 1621 or by our decision in Ford IV, we vacate the Court of International Trade’s decision to dismiss Counts I, II, and III of the government’s complaint. However, because the government was not deprived of any lawful duties by Ford’s allegedly unlawful conduct as required by § 1592(d), we affirm the Court of Internationаl Trade’s dismissal of Count IV of the government’s complaint.
I. BACKGROUND
This appeal derives from a dispute involving import duties at Ford’s Foreign Trade Subzone (“FTSZ”)
1
in Louisville, Kentucky. The relevant facts are set forth in one of our previous opinions in this case,
Ford Motor Co. v. United States,
In 1985 and 1986, the duty rate for foreign-made engines аnd transmissions was 3.3% ad valorem, the duty rate on finished imported cars was 2.6% ad valo-rem, and the duty rate on finished imported trucks was 25% ad valorem. By establishing its Louisville FTSZ, Ford intended to take advantage of the duty differential
However, when Ford filled out Customs Form 214, it incorrectly designated that each transmission and engine imported into the Louisville FTSZ was a part for an assembled car product.' Consequently, for all eleven entries, Ford paid an estimated duty rate on the basis of the 2.6% ad valorem rate for car parts. Thus, tо the extent that it meant to treat any of its entries as unassembled truck parts in order to receive the benefit of the 3.3% duty rate as opposed to the 25% duty rate, Ford failed to pay duties for any truck parts, as required by the regulations. See 19 C.F.R. § 146.22.
Ford reported its error to Customs. In July of 1986, Customs concluded that the proper duty rate on the truck parts received at Ford’s FTSZ was the 25% ad valorem duty rate applicable to assembled trucks. As a result, Customs found that Ford owed approximately $5.3 million in additional duties. Customs also referred Ford’s error to its fraud investigation office.
In August of 1986, pursuant to 19 U.S.C. § 1592, Customs initiated a civil fraud investigation, which continued until at least March of 1990. On the basis of its ongoing fraud investigation, Customs issued three one-year extensions of the statutory one-year liquidation deadline as permitted under 19 U.S.C. § 1504(b). Pursuant to 19 U.S.C. § 1504(a), an entry of merchandise that Customs does not liquidate within one year of the date of entry is deemed liquidated by operation of law at the rate of duty asserted by the importer at the time of entry unless Customs properly extends the limitations period as provided by 19 U.S.C. § 1504(b). Almost four years after Ford’s eleventh entry, on December 1, 1989, Customs liquidated the merchandise designated by Ford as truck parts in its eleven entries at the duty rate of 25% ad valorem, applicable to assembled trucks.
Ford timely protested the liquidations, contending that because Customs’ three liquidation extensions were not “reason
In Ford IV, we reversed the Court of International Trade’s holding in favor of the government, which held that the government’s manner of conducting the fraud investigation and the length of the investigation were both reasonable. We reversed the Court of International Trade, holding that the liquidations were not properly extended under § 1504(b) because “Customs’ delay in pursuing the fraud investigation and its resulting delay in liquidating the entries were not reasonable.” Id. at 1341. We found that Customs’ fraud investigation had taken a total of 44 months (from August of 1986 until March of 1990). We concluded that the 44-month long investigation was unreasonable in this case because the government did almost no substantive work during the first 30 months of the 44 months and because there were two periods of inactivity totaling 22 months. Id. at 1343. Moreover, we found that it was during the 30-month period of almost no activity that Customs had issued all three extensions of liquidation under § 1504(b)(1). Id. For these reasons, we held that Customs’ delay was unreasonable and that Customs had not properly extended the liquidation of Ford’s eleven entries. Id. As a result, we held that Ford’s eleven entries were deemed liquidated under 19 U.S.C. § 1504(a) and that Customs was therefore required to return the $5.3 million of additional duties to Ford. Id. at 1343.
During the lengthy liquidation proceedings, Ford drafted ten consecutive letters waiving the statute of limitations period in 19 U.S.C. § 1621, which applies to government actions under 19 U.S.C. § 1592. The first nine waiver letters were dated between November 5, 1990 and February 15, 2002. Each waiver letter contained a signature line for Customs to “acknowledge receipt and acceptance” of the waiver pursuant to Treasury Decision 90-11. Customs signed the first nine waivers. In the tenth waiver letter, however, Customs crossed out the words “and acceptance” and sent Ford a follow-up letter explaining its new procedure to “only acknowledge receipt of waivers.” Ford’s tenth waiver letter extended the statute of limitations for 24 months until April 7, 2005.
On April 6, 2005, the government filed a § 1592 action against Ford in the Court of International Trade. Counts I through III of the government’s complaint sought civil penalties based on fraud, gross negligence, and negligence pursuant to § 1592(c). Count IV sought “the restoration of lawful duties of which the United States has been deprived, in the amount of $5,275,329” pursuant to § 1592(d). Ford filed a Rule 12(b) motion to dismiss the government’s complaint for failure to stаte a claim upon which relief can be granted based on: 1) the government’s failure to accept Ford’s tenth waiver thereby letting the statute of limitations expire; and 2) issue preclusion in light of our decision in Ford IV.
The Court of International Trade granted Ford’s motion to dismiss, agreeing with Ford on both grounds.
United States v. Ford Motor Co.,
The Court of International Trade entered final judgment on January 13, 2006, dismissing the government’s complaint for failure to state a claim upon which relief may be granted. On April 18, 2006, the Court of International Trade denied the government’s motion for reconsideration. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).
II. ANALYSIS
We review de novо the Court of International Trade’s decision to dismiss a complaint for failure to state a claim upon which relief may be granted.
Cf. N.Z. Lamb Co. v. United States,
A. Waiver
Ford argues that the government’s complaint should be dismissed because the statute of limitations has run on both claims for penalties and for duties. Ford asserts that Customs refused to accept its tenth waiver by striking the words “and accepted” from the waiver. Because Ford’s tenth waiver was not effective and because Ford’s ninth waiver expired on April 7, 2003, two years before the government filed its § 1592 complaint, Ford contends that the government’s complaint is barred by the statute of limitations.
Ford’s argument is based on the assumption that its waiver letter was an offer that had to be “accepted” by the government. The Supreme Court, however, has clearly stated, “a waiver is not a contract.”
Stange v. United States,
Ford stated in its tenth waiver letter that it “knowingly and voluntarily” “waive[d] the period of limitations contained in title 19, United States Code, section 1621 ... with respect to the eleven (11) Customs entries ... for a period of twenty-four (24) months, commencing April 7, 2003, or until April 7, 2005.” JA
We hold that Ford’s tenth waiver was an express, voluntary, and unilateral act that alone was sufficient to extend the § 1621 statute of limitations period until April 7, 2005. The government’s acknowledgement or acceptance of Ford’s waiver was not required to give effect to Ford’s waiver of the statute of limitations defense. Accordingly, we reverse the Court of International Trade and hold that the statute of limitations does not bar the government from proрerly pursuing its § 1592 claims.
B. Issue Preclusion
Ford’s second argument is based on issue preclusion. More specifically, Ford contends that the government is barred from pursuing its § 1592 claims because of the preclusive effect of this court’s decision in Ford IV. Ford argues that even though the government’s complaint arises under 19 U.S.C. § 1592 as a claim for penalties and duties and does not arise as an importer’s claim for duty refunds under 19 U.S.C. § 1514 as was Ford’s action in Ford IV, the operative facts between both the prior and the current actions are essentially the same. Ford concludes that the government is therefore barred by issue preclusion because the present case would entail relitigating prior findings and holdings. Ford argues that if this court supposed that Customs’ § 1592 сlaims had merit, we would not have ordered a duty refund in Ford IV. Ford speculates that the only reasonable conclusion to be drawn from Ford IV is that this court intended not only to award Ford a duty refund, but to preclude the present penalty action. We disagree.
In
Ford IV,
our holding was limited to the issue in that case — whether the government had properly extended the one-yeаr liquidation deadline pursuant to § 1504(b). We found that because the government had extensively delayed its investigation of Ford’s alleged fraud, both the manner and length of time of the government’s fraud investigation were unreasonable.
Ford IV,
Nowhere in
Ford IV
did this court address the merits of the government’s § 1592 claims.
See id.
at 1335-43.
Ford IV
simply decided that because of the government’s unreasonable delay, Ford’s eleven entries were deemed liquidated by operation of law under § 1504. As an appeals court, “this court does not review that which was not presented to the [trial] court.”
Sage Prod., Inc. v. Devon Indus. Inc.,
C. Statutory Construction
Even though the government is not barred by the statute of limitations or by this court’s decision in Ford IV from pursuing its § 1592 claims, the government is bаrred from recovering the $5.3 million in additional duties alleged in Count IV of its complaint pursuant to § 1592(d).
To understand why the government is barred from recovering duties under § 1592(d), it is helpful to look at the statutory provisions set forth in 19 U.S.C. § 1592. Subsection (a) prohibits entry of merchandise into the United States “by fraud, gross negligence, or negligence” by submission of materially false information regardless of whether the gоvernment is deprived of duties. Subsections (c)(1), (c)(2), and (c)(3) set out the maximum civil penalties imposed on an importer based upon fraud, gross negligence, or negligence. Subsection (d) mandates:
Notwithstanding section 1514 of this title, if the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of subsection (a) of this section, the Customs Service shall require that such lawful duties, taxes, and fees be restored, whether or not a monetary penalty is assessed.
19 U.S.C. § 1592(d) (emphasis added). Thus, if the court finds a violation of § 1592(a), the government can seek two types of money damages: 1) civil penalties pursuant to § 1592(c); and 2) a restoration of any lawful duties pursuant to § 1592(d).
The government’s complaint includes four counts all basеd on the allegation that Ford violated § 1592(a) by acting fraudulently, grossly negligently, and negligently with respect to the eleven entries. See Complaint at ¶¶ 20-30. Counts I — III request civil -penalties as set forth in §§ 1592(c)(1), (c)(2), and (c)(3). Id. at ¶¶ 20-28. Count IV requests a restoration of the approximately $5.3 million in additional duties, which the government alleges it was deprived of by Ford’s allegedly unlawful conduct. Id. at ¶¶ 29-30.
However, because Ford’s eleven entries were deemed liquidated by oрeration of law, the government is precluded from recovering any duties beyond the duties it is permitted to recover pursuant to § 1504. Section 1592(d) limits the government’s recovery of lawful duties to those duties that it was deprived of “as a result of’ a violation of § 1592(a). In this case, however, the $5.3 million in duties the government claims it is entitled to collect pursuant to § 1592(d) are the duties that this court determined were unlawful by operation of § 1504.
See Ford IV,
In
Ford IV,
we held that the $5.3 million that Ford had paid to Customs in additional duties were unlawful duties because Ford’s entries had been deemed liquidated by operation of law pursuant to § 1504. As a result, we concluded that Customs was only permitted to collect the amount of duties asserted upon Ford’s merchandise at the time of entry into the United States. We held that Ford’s entries had been deemed liquidated despite Customs’ attempt to extend the one-year liquidation deadline because Customs’ had improperly
Thus, under § 1592(d), the government has not been “deprived of lawful duties, taxes, or fees as a result of a violation of subsection (a).” 19 U.S.C. § 1592(d) (emphasis added). Rather, the government has been deprived of the $5.3 million in duties it seeks by operation of § 1504. If anything, the government’s own delay in pursuing its fraud investigation against Ford has deprived it of a claim under § 1592(d).
III. CONCLUSION
For the foregoing reasons, we hold that the government’s § 1592 claims are not barred by the statute of limitations in § 1621 or by our decision in Ford TV. Thus, we vacate the Court of International Trade’s decision to dismiss Counts I, II, and III of the government’s complaint, and we remand these Counts to the Court of International Trade for a determination of the merits. However, because the government was not deprived of any lawful duties by Ford’s allegedly unlawful conduct as required by § 1592(d), we affirm the Court of International Trade’s dismissal of Count IV of the governmеnt’s complaint.
VACATED-IN-PART, AFFIRMED-IN-PART, and REMANDED
No costs.
Notes
. A FTSZ is an area inside the United States that may receive treatment under the Customs laws as a territory outside the United States. At the FTSZ, importers can choose to pay duties on goods either at the rate applicable to the foreign merchandise in its condition as admitted into a zone, or if used in manufacturing or processing, the rate аpplicable to the emerging product.
See Ford Motor Co. v. United States,
. For example, if an engine with a value of $1000 is treated as a truck part, Ford would pay a duty of $33 when the engine entered the FTSZ; if the engine is treated as a "completed car” Ford would pay a duty of $26 when the finished car entered domestic commerce.
See Ford Motor Co. v. United States,