United States v. Ford Motor Company ( 2006 )

United States Court of Appeals for the Federal Circuit
05-1584
UNITED STATES,
Plaintiff-Appellee,
v.
FORD MOTOR COMPANY,
Defendant-Appellant.
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.
Appealed from: United States Court of International Trade
Senior Judge Nicholas Tsoucalas
United States Court of Appeals for the Federal Circuit
05-1584
UNITED STATES,
Plaintiff-Appellee,
v.
FORD MOTOR COMPANY,
Defendant-Appellant.
______________________
DECIDED: August 30, 2006
______________________
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
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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.
1
The United States Customs Service is now part of the Department of
Homeland Security, and is known as the Bureau of Customs and Border Protection.
05-1584 3
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
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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
05-1584 5
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 Ford failed to satisfy the Reconciliation Agreement's requirements for
reporting direct payments, thereby violating that agreement and, by extension, § 1485.
Id. at 1213-15. It also dismissed Ford's counterclaim for a refund of overpaid duties. Id.
at 1222. Finally, the court assessed the maximum penalty permitted by the statute in a
case involving negligence: double the amount of revenue lost to the government, for a
total of $17,151,923.60. Id. at 1221-22; see also 19 U.S.C. § 1592(c)(3) (setting forth
the maximum civil penalty for negligent violation of § 1592). In so doing, the court
considered various mitigating factors proposed by Ford but concluded that because
Ford "failed to make a good faith effort to meet its obligations," and "inexplicably" failed
to follow its own compliance procedures, the penalty did not warrant mitigation.
Negligence Decision, 395 F. Supp. 2d at 1221.
05-1584 6
On appeal, Ford challenges all of the trial court's legal rulings. It argues that 19
U.S.C. § 1484 does not require importers to disclose the existence of provisional
pricing, or, in the alternative, that such a requirement could not be imposed on Ford
consistently with due process of law. It argues that the Reconciliation Agreement
modified its obligation to disclose modified price information "at once" and that Ford
complied with all the requirements in that agreement. It also claims that even if it
violated §§ 1484 and 1485, the trial court erred in finding its conduct negligent for
purposes of liability under § 1592. Ford further asserts that several of its submissions
detailing direct payments constituted "prior disclosures" under 19 U.S.C. § 1592(c),
subjecting Ford to less rigorous penalties. Finally, Ford argues that the trial court erred
in its calculation of the final penalty of $17,151,923.60. Ford timely appealed to this
court, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).
STANDARD OF REVIEW
We review the Court of International Trade's legal determinations without
deference. United States v. Hitachi Am., Ltd., 172 F.3d 1319, 1326 (Fed. Cir. 1999)
("Hitachi II"). We review findings of fact, including findings relating to a party's intent, for
clear error. Id. at 1327. Where, as here, Congress has delegated to the judiciary
discretion to determine the amount of civil penalties under a statute, we review the trial
court's calculation of such penalties for abuse of discretion. See, e.g., Sierra Club v.
Cedar Point Oil Co., Inc., 73 F.3d 546, 573-74 (5th Cir. 1996) (reviewing district court's
penalty determination under 33 U.S.C. § 1319(d) for abuse of discretion); see also Atl.
States Found., Inc. v. Tyson Foods, Inc., 897 F.2d 1128, 1142 (11th Cir. 1990)
05-1584 7
(reviewing district court's penalty determination under 33 U.S.C. § 1319(d) for abuse of
discretion).
DISCUSSION
I. 19 U.S.C. § 1484Section 1484 of Title 19 sets forth the procedures for the entry of imported
merchandise. It requires, among other things, that importers file with the Customs
Service "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 United States alleges, and the trial court found, that Ford's omission of information
about assists and lump-sum direct payments from its entry documents constituted
"materially false" omissions of information required by § 1484.
On appeal, Ford raises two primary arguments challenging the trial court's
decision. First, it argues that the Court of International Trade misread this court's
decision in Hitachi II to require disclosure of provisional pricing information. Second, it
asserts that even if such a requirement existed, the 1988 Reconciliation Agreement
satisfied it. The government counters that the trial court correctly applied Hitachi II and
that the Reconciliation Agreement is inadequate to satisfy the § 1484 disclosure
obligation, because the agreement did not "identify specific entries, if any, to which it
applied," and therefore could not put Customs on notice of which entries were subject to
change.
In the Hitachi litigation, the Court of International Trade ruled that § 1484 requires
importers to disclose the existence of variable-pricing provisions that have "a potential
05-1584 8
impact on the correct duty" owed on an entry. United States v. Hitachi Am., Ltd., 964 F.
Supp. 344, 387 (Ct. Int'l Trade 1997) ("Hitachi I"). It also concluded, however, that it
could not penalize Hitachi for the violation "because the duty to report escalation
clauses on entry documents was rendered turbid" by the publication of conflicting
Customs Service guidance on the subject, which prevented importers from having
notice of the requirement. Id. In the absence of such notice, the trial court held, an
importer could not be penalized consistently with due process of law. Id. On appeal,
this court affirmed in part, reversed in part, and remanded. Hitachi II, 172 F.3d at 1338.
The parties disagree about the consequence of this court's ruling for the Court of
International Trade's analysis of § 1484: The government argues that our decision in
Hitachi II "expressly acknowledged that § 1484 includes the duty to disclose price
adjustment information that may be relevant to the final price." Ford submits that
Hitachi II upheld only the trial court's due process ruling, while "stressing that section
1484 itself contains no requirement to disclose that entered prices are subject to
change."
We conclude that Hitachi II neither affirmed nor reversed the trial court's
conclusion that § 1484 requires importers to disclose the existence of variable pricing
provisions relating to entries. Hitachi did not appeal that conclusion, and it was not
before this court.2 See Corrected Brief of Defendant/Cross Appellant Hitachi America,
Ltd., Hitachi II (Nos. 97-1431, -1437, -1452). Ford's position is based upon language in
2
In fact, it is not wholly clear that the trial court itself ever ruled on the
liability question. Its opinion declares that "importers are required to disclose escalation
clauses in entry documents," but makes no explicit finding either that Hitachi violated
that requirement or that it did so negligently. See Hitachi I, 964 F. Supp. at 388.
05-1584 9
Hitachi II that, read in isolation, can be construed to question the viability of the trial
court's ruling:
[I]t is not clear under section 1484 whether an [escalation] clause,
which represents payments that are not definitively known at the
time of importation, must be referred to at that time in order to
disclose the price accurately. After all, the statute never even
mentions escalation clauses or what should be done about
payments that cannot be precisely known at the time of importation.
Hitachi II, 172 F.3d at 1331. That language, however, occurs in the court's discussion
of the due process issue—not the liability issue, which was not before us—and was
directed to the government's argument that "[t]he statute alone is sufficient to provide
notice to an importer that it must declare millions of dollars of escalation payments,"
such that penalizing Hitachi would not violate due process. Brief of Plaintiff-Appellant
United States at 43, Hitachi II (Nos. 97-1431, -1437, -1452). This court's view that a
statute on its face does not provide notice of a legal obligation is not equivalent to a
decision that the statute imposes no obligation.
It appears, then, that this court has never ruled on the question presented by
Ford here: whether § 1484 imposes upon importers an obligation to disclose the
existence of variable pricing agreements relating to entries. We conclude that the
statute requires that importers disclose not only the "declared value" of entered
merchandise but also "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 duties owed on merchandise are in part a function of the value of that merchandise.
The proper assessment of duties, therefore, depends on the proper assessment of
merchandise's final entry value. A declared value that is non-final is one upon which
Customs cannot "properly assess duties." The existence of a contract provision
05-1584 10
rendering the declared value non-final, therefore, constitutes "information . . . necessary
to enable" Customs to assess such duties and thus must be disclosed by the importer
under § 1484.
Nevertheless, we also conclude—as we did in Hitachi II—that the Fifth
Amendment's due process clause precludes penalizing Ford for violating this
requirement. At the time of the entries at issue here, Ford was subject to the same
statutory and regulatory scheme that faced Hitachi.3 The government admits that, as of
2005, "Customs has not promulgated a regulation specifically addressing anticipated
price changes," and although it asserts that Customs "has always required that such
information be disclosed on entry records," it cites no evidence for that assertion. As
was true in Hitachi, the government introduced no evidence suggesting that the duty to
disclose was well known in the trade or that "actual Customs practice required
disclosure." Hitachi I, 964 F. Supp. at 361. The Court of International Trade, in ruling
that the due process clause did not preclude penalizing Ford, offered only the
conclusory statement that "Ford has failed to establish that its duties were nebulous in
the present case." Negligence Decision, 395 F. Supp. 2d at 1212. Neither the Court of
International Trade nor the government has offered any substantive basis for
distinguishing Ford's circumstances vis-a-vis notice from Hitachi's. To the extent that
the trial court’s decision rested on the notion that Ford’s internal compliance program—
3
Ford claims, falsely, that its entries "were made during the same
timeframe as the Hitachi entries." In fact, the entries at issue in Hitachi occurred from
June of 1984 through June of 1988. See Hitachi I, 964 F. Supp. at 376. The Ford
entries at issue occurred from January of 1987 through December of 1992. Negligence
Decision, 395 F. Supp. 2d at 1193. The government has not identified any relevant
changes in the statutory or regulatory scheme from 1988 to 1992 that would require a
different analysis.
05-1584 11
which appears to have required disclosure of provisional pricing at entry—constituted
evidence that Ford had actual knowledge that provisional pricing must be disclosed, we
disagree. To hold otherwise—at least in the absence of other evidence of actual
knowledge—would effectively require the courts to punish companies for establishing
internal procedures that are more robust than the law requires. If the existence of a
particular internal procedure creates an inference that the defendant knew the
procedure to be required by law, companies will have a strong disincentive to adopt
internal compliance procedures. In the circumstances presented here, there is no basis
for creating such a rule.
Our decision in Hitachi II governs our decision here, and due process
considerations preclude the imposition of penalties on Ford for violation of the duty to
disclose provisional pricing under § 1484.
II. 19 U.S.C. § 1485The trial court ruled that Customs established, by a preponderance of the
evidence, that Ford had "made assists between 1987 through 1992, which it failed to
declare on its entry documents or 'at once' thereafter," and that the failure was
negligent. Negligence Decision, 395 F. Supp. 2d at 1208. It also ruled that Ford failed
to comply with the "at once" requirement with respect to lump-sum direct payments, or,
more precisely, with the filing requirements set forth in the Reconciliation Agreement
that modified its obligations under 19 U.S.C. § 1485. Id. at 1213-15. Ford challenges
both of these rulings, arguing that (a) the Reconciliation Agreement applies to both
assists and direct payments, and (b) it complied with the terms of the Reconciliation
05-1584 12
Agreement, which, it claims, specified the 60-day filing period as a "target," rather than
a deadline.
A. Assists
The Court of International Trade found that Ford violated § 1485 because it
"failed to 'at once' notify Customs that the entry values" relating to certain entries were
inaccurate because of "tooling assists provided for certain vehicles and vehicle
components," and that its failure was negligent. Id. at 1209-10. The trial court made no
express ruling that the Reconciliation Agreement did not apply to assists, but its
discussion of the issue implies that conclusion. Ford, in its initial brief, makes no
argument relating directly to the question of reporting the assists under § 1485. In its
reply brief, however, it argues that the Reconciliation Agreement did apply to assists,
and that its claimed compliance with the Reconciliation Agreement therefore constituted
compliance with § 1485 for assists as well as for direct payments.
Arguments raised for the first time in a reply brief are not properly before this
court. See, e.g., Novosteel SA v. United States, 284 F.3d 1261, 1274 (Fed. Cir. 2002)
("a party waives arguments based on what [does not] appear[] in its brief"); see also
United States v. Nealy, 232 F.3d 825, 830-31 (11th Cir. 2000) (stating the same
proposition and citing numerous cases). Ford therefore waived this argument by failing
to raise it in its opening brief. Ford's opening brief contains no argument asserting that
the Reconciliation Agreement is relevant to its compliance with § 1485. In fact, it is
devoid of any argument relating to the application of § 1485 to assists, except for its
contention that there was a complete failure of proof on that issue. Even its reply brief
raises the issue in cursory fashion, limiting its discussion to a single three-sentence
05-1584 13
footnote. It is unfair to consider an argument to which the government has been given
no opportunity to respond. We therefore affirm the trial court's conclusion that Ford's
failure to report assists "at once" negligently violated § 1485.
B. Direct Payments
Ford argues, and the trial court agreed, that an importer is not in violation of
§ 1485 if arrangements have been made with Customs to report changes in declared
entry values, and that the Reconciliation Agreement constituted such an arrangement.
Negligence Decision, 395 F. Supp. 2d at 1213. The trial court further concluded,
however, that Ford failed to comply with the terms of the Reconciliation Agreement, thus
effectively violating § 1485 itself. Id. On appeal, Ford challenges that conclusion.
The Reconciliation Agreement consists of two documents: a proposal letter sent
to Customs by Ford on October 14, 1988, and a response letter from Customs dated on
or about August 29, 1989. The Ford letter described a "lump sum billing proposal"
(modifying a previous agreement) in which Ford offered to "track all lump sum billings
throughout each model year . . . and report the dutiable expenses associated with each
import program." Under the proposal, "An annual reconciliation report will be prepared
for each import program and filed with the Detroit customs district within 60 days after
the close of each model year (July 30) to enable us to follow up and capture all relevant
model year expenses." (emphasis original). Customs' response letter stated that
Customs approved the proposal "with two modifications," one of which stated that "[t]his
policy applies to withheld duties on entry summaries which have been liquidated."
The Court of International Trade concluded that "[u]nder the plain language of the
Reconciliation Agreement, Ford was required to submit [reports of lump sum payments]
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within 60 days after the close of each model year," and that "Ford did not rebut with
credible evidence the specific language of the agreement which set the 60-day time-
frame as a fixed deadline." Negligence Decision, 395 F. Supp. 2d at 1213. Finding the
testimony of Ford's witnesses on this point "incredible" based upon their demeanor, and
further finding that with a single exception "Ford failed to submit its reconciliation reports
to Customs within the 60-day deadline," the court concluded that Ford had violated
§ 1485. Id. at 1214.
On appeal, Ford raises three arguments. It asserts, first, that Customs' response
letter implicitly eliminated the 60-day deadline in favor of a simple reasonableness
standard; second, that "[n]o one from Ford or Customs ever took the position that a
strict 60-day deadline applied to Ford's reconciliation obligations"; and third, that the
parties' course of practice establishes that Customs never treated the 60-day period as
a firm deadline.
First, Ford argues that Customs modified the agreement to eliminate the 60-day
requirement. It bases this argument on the fact that its initial proposal, which included
the 60-day requirement, applied to both liquidated and unliquidated entries. Customs'
modification of the proposal to apply only to liquidated entries, Ford maintains, is
incompatible with the existence of such a deadline, because regulations provided that
Customs had up to four years to liquidate entries, and Customs at that time was running
a 90-day liquidation cycle. In light of that evidence, Ford reasons, a 60-day reporting
deadline is nonsensical, because very few if any entries from the relevant model year
will have been liquidated within the 60 days.
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We disagree. First, we note that there is no discussion of this argument in the
trial court's decision, and it is not clear that it was raised at trial. If it was not raised at
trial, it is waived. In addition, it is not clear that—contrary to Ford's argument—Ford's
original proposal was intended to apply to both liquidated and unliquidated entries. The
letter makes no explicit statement to that effect, and Customs' response—"This policy
applies to withheld duties on entry summaries which have been liquidated"—does not
unambiguously demonstrate that Ford's proposal would have applied to unliquidated
entries. If, in fact, Ford's initial proposal was itself intended to be limited to "withheld
duties on entry summaries which have been liquidated," Ford's argument about the
consequence of Customs' modification loses force.
In any case, we find Ford's argument unpersuasive. Customs' letter makes no
reference to the 60-day deadline, and Ford's argument of repeal-by-implication is, at
best, strained. Ford's argument rests heavily on the implication that the parties knew
that Customs was then running a 90-day liquidation cycle, and that they therefore
understood that Customs' modification necessarily eliminated the 60-day deadline. That
implication, however, conflicts with the testimony of Ford employee P.B. Kruzich, who
proposed the 60-day deadline, and who testified that it was just a "target," but one that
he "thought . . . was reasonable at the time." If, in fact, Ford was aware that the
liquidation cycle took 90 days, and if Ford intended its proposal to apply to both
liquidated and unliquidated entries, it seems unlikely that it would have proposed—and
underlined for emphasis—a 60-day "target" for filing its reconciliations.
Finally, Ford's primary evidence for its position is the testimony of former
Customs officer and later Ford employee Manns—testimony that the trial court found to
05-1584 16
be "incredible" for demeanor-related reasons, a credibility determination that this court
will not second-guess. Negligence Decision, 395 F. Supp. 2d at 1213-14.
Ford's second and third arguments present a more difficult question. Ford points
to considerable evidence in the record suggesting that, although Ford consistently failed
to file its reconciliation reports within the 60-day time-frame, "Customs never
complained that any of Ford's numerous reconciliation submissions filed after the
supposed 60-day deadline were 'late.'" Indeed, the trial court accepted this as fact.
See id. at 1197. Nevertheless, the parties' course of performance is insufficient either to
read out the 60-day deadline from the Reconciliation Agreement or to estop the
government from enforcing that deadline. Course of performance evidence in most
circumstances is relevant to interpretation of an instrument only if the terms of that
instrument are ambiguous. See, e.g., Barron Bancshares, Inc. v. United States, 366
F.3d 1360, 1375-76 (Fed. Cir. 2004) (noting that evidence of course of dealing is parol
evidence, and therefore inadmissible in the absence of contractual ambiguity); see also
Restatement (Second) of Contracts § 203(b) (1981) (stating that "express terms are
given greater weight than course of performance"). The Court of International Trade
held that the Reconciliation Agreement was not ambiguous on this issue, and we agree.
We will not address whether they may be a circumstance in which course of
performance may override an unambiguous term in the contract. See Cruz-Martinez v.
Dep't of Homeland Sec., 410 F.3d 1366, 1371 (Fed. Cir. 2005). We are satisfied that no
such circumstance exists here.
As for estoppel, the government correctly points out that estoppel is available
against government actors only in cases involving "affirmative misconduct." Rumsfeld
05-1584 17
v. United Techs. Corp., 315 F.3d 1361, 1377 (Fed. Cir. 2003); Henry v. United States,
870 F.2d 634, 637 (Fed. Cir. 1987). Ford has not alleged any affirmative misconduct
here, and indeed has not pled the elements of an equitable estoppel case at all.
Therefore, there is no basis on which estoppel might prevent the government from
enforcing § 1485 against Ford.
There remains the question of negligence. Statutory negligence under § 1592,
unlike common-law negligence, shifts the burden of persuasion to the defendant to
demonstrate lack of negligence. 19 U.S.C. § 1592(e)(4). That is, Customs has the
burden merely to show that a materially false statement or omission occurred; once it
has done so, the defendant must affirmatively demonstrate that it exercised reasonable
care under the circumstances. The trial court concluded that Ford failed to rebut the
prima facie case of negligence, although it did not explain in detail why. Negligence
Decision, 395 F. Supp. 2d at 1215. Ford argues that Customs’ consistent acceptance
of late filings suggests the reasonableness of Ford’s conduct. It also points to Customs’
new “Reconciliation Prototype” program, which allows importation up to 21 months after
entry to file reconciliations. Ford’s reliance on Customs’ pattern of accepting its late
filings is simply a reiteration of its estoppel argument, rejected above. The fact that
Customs today—fifteen years after the events in dispute here—may regard twenty-one
months to be a reasonable reconciliation period has little bearing on what constituted
reasonable care for Ford, which was subject to a requirement that it file its
reconciliations within 60 days.
We therefore affirm the trial court’s conclusion that Ford negligently violated
§ 1485.
05-1584 18
III. Prior Disclosures
Section 1592(c)(4) of title 19 provides a safe harbor for "prior disclosures"—
disclosing import law violations "before, or without knowledge of, the commencement of
a formal investigation" of the violation. Making such a prior disclosure limits the
available penalty to interest on the amount of duties, taxes, and fees of which the
government was deprived by the violation. 19 U.S.C. § 1592(c)(4)(B). A formal
investigation is considered to have commenced "with regard to the disclosing party and
the disclosed information on the date recorded in writing by the Customs Service as the
date on which facts and circumstances were discovered or information was received
which caused the Customs Service to believe that a possibility of a violation" existed.
19 U.S.C. § 1592(c)(4). The importer has the burden of proof in establishing lack of
knowledge of commencement of the investigation.
Ford claims that it made valid prior disclosures of "all of Ford's post-entry direct
payments to foreign vendors," because "direct payments were not part of Operation Hat
Trick." It points out that the report of investigation ("ROI") commencing the operation
stated that it was "a special operation targeted at undeclared assists and indirect
payments"; that internal Customs correspondence announcing the start of the
investigation described it as "targeted at undeclared assists and indirect payments"; that
Customs' initial notice of investigation to Ford referred only to "assists and indirect
payments"; that four of the five attendees at a meeting scheduled to clarify the meaning
of "indirect payments" testified that the parties left the meeting without a clearer
understanding of how the investigation used the term; and that the other witness's
contrary testimony is contradicted by the ROI he wrote to memorialize the meeting.
05-1584 19
The Court of International Trade, faced with these same arguments, concluded
that "Ford knew or should have known that the term 'indirect payment,' as used by
Customs in its notification to Ford of the investigation, included all payments that
impacted the final price paid for the merchandise in question," whether direct or indirect.
Negligence Decision, 395 F. Supp. 2d at 1216. In so concluding the court relied
primarily on testimony about a meeting that occurred on June 7, 1991, between
representatives of both Customs and Ford to clarify the scope of the term "indirect
payments" as used in the investigation. Gibson, a Ford witness, testified that at the
meeting, when asked to clarify their understanding of what "indirect payments" meant,
Customs employees Turner and Neckel provided Ford with a summons regarding
entries relating to the Mercury Capri and said "Here, this is what it means." Gibson also
stated that the Capri summons asked for records relating to "all payments," and that this
defined Customs' understanding of what "indirect payments" meant. Neckel testified
that at the meeting Customs "advised Ford that [the investigation] included the entire full
scope of their importations relative to certain vehicles and vehicle components."
Based on this evidence, one could reasonably conclude that, at the meeting,
Ford's representatives asked Customs to define the scope of payments included in the
category "indirect payments," and that Customs responded by indicating that the
payments referred to in the Capri summons—which, it is undisputed, sought information
with respect to "assists and payments," rather than to "indirect payments"—were the
kinds of payments at issue in the investigation. One could also reasonably conclude
that Ford's representative Gibson left the meeting with knowledge of Customs'
interpretation. Thus, the trial court's conclusion that after that meeting Ford "knew or
05-1584 20
should have known" that the investigation included all payments was not clearly
erroneous.
The question, then, is whether the scope of an investigation which, by its terms,
is limited to "assists and indirect payments," may be broadened by such informal
communications to include direct payments. Ford argues that it may not, because
under applicable regulations, "if Customs wished to expand the scope of its
investigation beyond the topics identified in the May 23, 1991 letter to Ford, it had to do
so expressly." It points to applicable regulations that, it claims, require that "in order to
commence a formal investigation, the circumstances and facts about a possible
violation had to be recorded in the investigatory record or the importer under
investigation had to be informed about the specific type or circumstances of the
suspected violation." The information provided to Ford, the company argues, "lacked
the level of specificity required by the regulations to put Ford on notice that Customs'
investigation also encompassed direct payments."
There is no question that, under the 1991 regulations, a formal investigation
relating to "assists and indirect payments" was commenced no later than May 23, 1991.
See 19 C.F.R. § 162.74(d) (1991). It also seems clear that, as of that date, Ford must
be presumed to have knowledge of that investigation. 19 C.F.R. § 162.74(f) (1991).
The question is thus whether the meeting of June 7, 1991, or other events served to
expand the scope of the investigation to include direct payments under 19 C.F.R. §
162.74(e), which in 1991 provided that:
A formal investigation is deemed to have commenced as to
additional violations (outside the scope of the original investigation
but committed by the same party) on the earliest of the following:
05-1584 21
(1) The date recorded in writing by the Office of Investigations in
the investigatory record (including contemporaneous notes)
as the date on which facts and circumstances were
discovered or information was received which caused an
investigating agent to believe that the possibility of a
violation of 19 U.S.C. 1592 existed with respect to the
additional violations;
(2) The date on which an investigation agent, having property
identified himself and the nature of his inquiry, had, either in
person or in writing, made an inquiry of the person
concerning the type of or circumstances of additional
violations; or
(3) The date on which an investigating agent, having properly
identified himself and the nature of his inquiry, requested
specific books and records of the person relating to the
additional violations.
19 C.F.R. § 162.74(e) (1991).
The trial court performed no analysis under § 162.74(e) to determine whether an
enlargement had taken place, concluding instead that Ford had notice of the full scope
of the investigation when it received Customs' letter—referring only to "assists and
indirect payments"—on May 23, 1991. Negligence Decision, 395 F. Supp. 2d at 1216-
17. This was error. The trial court's own analysis states that Ford did not understand,
as of May 23, 1991, what "indirect payments" included, and came to that understanding
only after the meeting of June 7, 1991. Id. at 1216. We agree with Ford that the
evidence does not support a conclusion that, as of May 23, 1991, the investigation
applied to direct payments.
As we have discussed, however, the evidence does support the conclusion that
the June 7, 1991 meeting served to expand the scope of the investigation under
§ 162.74(e)(2) (1991), which states that the expanded investigation "commences" when
an investigating agent makes an inquiry of the importer "concerning the type of or
05-1584 22
circumstances of additional violations." The same meeting served to create a
presumption of Ford's knowledge of the investigation under § 162.74(f)(2) and 19
U.S.C. § 1592(c)(4). Ford has presented no evidence sufficient to rebut that
presumption. We conclude, therefore, that as of June 7, 1991, Customs' investigation
had been broadened to include not only assists and indirect payments but also direct
payments, and that Ford had knowledge of the broadened investigative scope. Any
violations disclosed after that date cannot constitute prior disclosures under
§ 1592(c)(4). We therefore affirm the Court of International Trade's conclusion that
none of the tenders cited by Ford constituted prior disclosures.
IV. Scope of Investigation
The trial court found as fact that "[i]mportations related to the 1992 model year
and thereafter were not within the scope of Customs' investigation." Negligence
Decision, 395 F. Supp. 2d at 1196. It based that finding entirely on the testimony of
Customs' own witness, Inspector Turner, who testified in his deposition that "[w]e told
Ford we were looking five years backward," and that importations occurring in 1992
"would be outside the scope" of the investigation. Id. He further testified at trial that the
investigation had to be "cut off" at some point because "the scope of the investigation
would only extend that far—we knew we couldn't extend the investigation forever."4
Despite that finding, in calculating Ford's penalty, the trial court appears to have
included tenders related to the 1992 and 1993 model years, including engines for the
1993 Taurus SHO (payment of $404,100); V-6 engines for the 1992 model year
4
Turner's trial testimony suggested that the cut-off could have been in 1992
or 1993, but he retreated from that position when presented with his deposition
testimony, which stated that the investigation did not include importations occurring in
1992 or later.
05-1584 23
(payment of $695,874); and transmissions for the 1992 model year (payment of
$458,893). See id. at 1201-03. These tenders were outside the scope of the
investigation, Ford argues, and therefore should not have been included in the penalty.
Ford further alleges that the trial court included in its calculation of tenders for
which "it was unclear to which model year the tenders related." Several tenders
included within the calculations related to both in-scope model years and out-of-scope
model years. See, e.g., id. at 1200 ¶ 54 (tender relating to "undeclared engineering and
tooling cost prior to 1993 model"); id. at 1200 ¶ 61 (tender relating to lump-sum
payments "for the 1991 and 1992 model year Festiva"); id. at 1203 ¶ 80 (tender relating
to transmissions imported "for the 1989 through 1992 model year"); id. at 1201 ¶ 67
(tender relating to 1993 Taurus SHO engines); id. at 1197-98 (tenders relating to tooling
assists and payments for model years 1987-1992). Ford asserts that "Customs' failure
to prove the extent to which the duties at issue under these disclosures related to
matters within the scope of Customs' investigation means that these tenders must be
excluded from any penalty calculations."
The government contends that the trial court's finding 18—which states that
entries relating to the 1992 model year were outside the scope of the investigation—
was "taken out of context and pertained only to the scope of the investigation at its
inception in mid-1991." It offers no support for this assertion, however, save citation to
the very pages of the transcript relied upon by the trial court in rendering its fact-finding.
The government also asserts that various documents in the record
"demonstrate[] the [Customs] agents' understanding that the scope of the investigation
included model year 1992 vehicles and parts even if the entries relating to the
05-1584 24
merchandise post-dated the June [7, 1991] meeting." We reject this attempt to overturn
the trial court's fact-findings, which the government has not appealed. The trial court
found, as fact, that importations related to the 1992 model year "were not within the
scope of Customs' investigation." Negligence Decision, 395 F. Supp. 2d at 1196. That
finding appears in a section of the opinion titled "Findings of Fact Relevant to the
Commencement and Scope of Customs' Investigation." Id. at 1193. The statement's
context and plain meaning are both unmistakeable: the scope of the investigation did
not include entries relating to any model year after 1991. The Court of International
Trade therefore erred when it included tenders relating to model years 1992 and later in
its penalty calculations. The tenders relating to post-1991 model years in paragraphs
67, 75, and 79 of the trial court's opinion should have been excluded from those
calculations.
With respect to tenders involving multiple model years, the question is more
complicated. Ford asserts that Customs had the burden of proving the extent to which
those disclosures related to matters within the scope of the investigation; the
government argues that Ford's tenders failed to satisfy the specific requirements for
prior disclosures set forth in 19 C.F.R. § 162.71(e) and § 162.74, and therefore cannot
claim the prior disclosure safe harbor from violations of 19 U.S.C. § 1592.
We agree that whether Ford's tenders relating to multiple model years qualified
as prior disclosures is irrelevant to whether the trial court properly included those
tenders in its penalty calculations. To the extent that those tenders included amounts
relating to model years outside the scope of the investigation, no "violation" was ever
alleged or proved with respect to them, and they have no need of the prior disclosure
05-1584 25
safe harbor. The appropriate remedy for this error is to remand the case to the Court of
International Trade for additional fact-finding as to which portion of the multi-year
tenders related to model years within the scope of the investigation.
V. Dutiability of Shortfall Payments
In 1988, Ford entered into a contract with Mazda Motor Corporation for the
purchase by Ford of Festiva cars for importation into the United States. Negligence
Decision, 395 F. Supp. 2d at 1217. That contract provided that Ford was committed to
purchasing 85,000 cars each year (the "Annual Volume Commitment"). The contract
also included a section 2.3, "Volume Price Adjustment," which stated that so long as the
Annual Volume Commitment remained unchanged, the purchase price for those cars
would be determined by a formula based on the percentage of the commitment total for
which Ford actually placed orders in a given year. The Volume Price Adjustment
section provided for different pricing if Ford ordered (A) more than 50%, but less than
90%, of the annual commitment; (B) less than 50% of the annual commitment; and (C)
more than 110% of the annual commitment. The contract also included an entirely
separate section 3, "Prices," which set forth "[t]he initial purchase price for each model
of Ford Vehicles" and a method for making annual adjustments to that price for new
model years. It appears that the formulas for Volume Price Adjustments in section 2.3
represent a function, in part, of the initial prices set in section 3.3.
Ford reported several direct payments resulting from Festiva orders of less than
85,000 units for the 1990, 1991, and 1992 model years. Id. at 1200 ¶¶ 55, 61. The
Court of International Trade concluded that "the lump sum payments made by Ford
pursuant to the Festiva Agreement are dutiable," reasoning that the payments "did not
05-1584 26
constitute a penalty," but "were related to the price actually paid or payable and,
therefore, were dutiable." Id. at 1219. It relied, in particular, on its conclusion that
"Ford's payments under the Festiva Agreement were not triggered by or based on a
purchase commitment or quota. Rather, the purchase price or transaction value of each
vehicle was adjusted depending on changing market conditions." Id. at 1218-19.
Therefore, the trial court included tenders relating to the Festiva contract in its penalty
calculations.
On appeal, Ford relies on the Court of International Trade's decision in Chrysler
Corp. v. United States, 17 C.I.T. 1049, 1053-55 (1993), in which that court concluded
that fees paid by the importer for its failure to purchase a minimum number of car
engines were not dutiable, because "[a]n expense arising from the failure to purchase
certain merchandise is not a component of the price paid for the acquisition of other
products," but is "a form of liquidated damages." The same reasoning, Ford asserts, is
applicable here: "Ford incurred expenses stemming from its failure to purchase enough
Festivas to fulfill its volume commitments. Under Chrysler, these fees simply cannot be
included as a component of the price paid for the Festivas that Ford did purchase."
The government counters, and the trial court ruled, that because the Volume
Price Adjustment is structured to "penalize" Ford for purchasing less than its
commitment not by imposing a direct penalty but by increasing the price of each car that
Ford does purchase, the holding in Chrysler does not apply.
It is clear on the face of the contract that the price actually payable for Festiva
vehicles is a function, in part, of the number of such vehicles purchased by Ford in a
given model year. As the number of vehicles purchased rises, the price per vehicle
05-1584 27
drops. Payments made pursuant to the shortfall provision, therefore, are part of the true
economic cost to Ford of purchasing the vehicles, and are thus part of the "total
payment . . . made, or to be made, for imported merchandise" for purposes of
§ 1401a(b)(4)(A). The payments made by Ford pursuant to the shortfall provision were
dutiable under 19 U.S.C. § 1401a(b)(1) as part of the price "actually paid or payable" for
the cars.
This conclusion is supported by our precedent, which has emphasized that the
price "paid or payable" for imported merchandise includes all payments "made to the
seller in exchange for merchandise sold for export to the United States," even where
such payments "represent[ ] something other than the per se value of the goods."
Generra Sportswear Co. v. United States, 905 F.2d 377, 380 (Fed. Cir. 1990). The key
inquiry in determining whether a particular payment should be included in transaction
value is "the actual transaction between the buyer and the seller; if [the payments] were
transferred by the buyer to the seller, they are part of transaction value." Id.; see also
Luigi Bormioli Corp., Inc. v. United States, 304 F.3d 1362, 1367 (Fed. Cir. 2002) (citing
Generra Sportswear and noting that the "price actually paid or payable" should be
construed broadly). Our conclusion is also supported by section (b)(4)(B) of the statute,
which provides that "[a]ny rebate of, or other decrease in, the price actually paid or
payable that is made or otherwise effected between the buyer and seller after the date
of the importation of the merchandise into the United States shall be disregard in
determining the transaction value" of the merchandise. 19 U.S.C. § 1401a(b)(4)(B).
The statute's exclusion from transaction value post-importation decreases in the price
paid or payable suggests, by negative implication, that post-importation increases in the
05-1584 28
price paid or payable are presumptively includible in transaction value. Cf. Century
Imps., Inc. v. United States, 205 F.3d 1308, 1311-12 (Fed. Cir. 2000) (excluding from
transaction value post-importation reimbursements that decreased the actual price paid,
pursuant to § 1401a(b)(4)(B)).
Here, the disputed payments reflect the true economic cost of the merchandise
sold to Ford, and are therefore dutiable as part of the "actual transaction between the
buyer and the seller." Generra Sportswear, 905 F.2d at 380. The Court of International
Trade properly included the unpaid duties on such payments in calculating the penalty.
VI. Amount of Penalty
The Court of International Trade imposed the maximum penalty permitted by the
applicable statute—double the revenue lost to the government, for a total of
$17,151,923.60. Negligence Decision, 395 F. Supp. 2d at 1222; see 19 U.S.C.
§ 1592(c)(3). On appeal, Ford claims that the trial court’s action constituted "clear
error," both because it was not consistent with the court’s own findings of fact and
because the trial court failed to properly consider mitigating factors.
Ford’s allegation with regard to abuse of discretion is without merit. A trial court
has considerable discretion to award civil penalties within the statutory range. See
United States v. Valley Steel Prods. Co., 729 F. Supp. 1356, 1359 (Ct. Int'l Trade 1990).
We may overturn the trial court's determination only if it represents an abuse of
discretion, that is, if its decision was "clearly unreasonable, arbitrary, or fanciful," "based
upon an erroneous construction of the law," based upon fact findings that are "clearly
erroneous," or if the record contains no evidence upon which the trial court could have
rationally based its decision. Hughes Commc'ns Galaxy, Inc. v. United States, 271 F.3d
05-1584 29
1060, 1065-66 (Fed. Cir. 2001). Ford has identified no basis for a conclusion that the
trial court abused its discretion in awarding the maximum penalty.
With regard to mitigation, Ford asserts that the trial court failed to consider the
fourteen factors to be weighed in determining whether mitigation is warranted under the
Court of International Trade's decision in United States v. Complex Machine Works Co.,
83 F. Supp. 2d 1307 (Ct. Int’l Trade 1999). It points in particular to three factors: Ford's
"good faith efforts to comply with customs statutes and regulations," its history of
previous violations, and the relatively small benefit derived by Ford from the violations
relative to its total import volume.
Ford’s argument is without merit. The Complex Machine Works decision lists
fourteen non-exclusive factors that a trial court may consider relevant to mitigation. On
appeal, Ford makes specific reference to only three such factors that, it argues, run in
its favor. We cannot imagine a case in which the defendant could not find refuge in at
least one potentially mitigating factor. Ford’s position seems to be that if it can
demonstrate the applicability of any potentially mitigating factor, the trial court is
precluded from imposing a maximum penalty. We find no basis for that conclusion in
Complex Machine Works, the applicable statute, or our own precedent. Cf. Law v. U.S.
Postal Serv., 852 F.2d 1278, 1280 (Fed. Cir. 1988) (sustaining maximum penalty of
removal from employment despite existence of mitigating factors). We therefore
conclude that the trial court’s decision to impose the maximum penalty was within its
discretion.
We agree, however, that in adding up the lost revenues used to calculate that
penalty the trial court made several significant errors. Based on the record before us, it
05-1584 30
appears that the trial court incorrectly or inadvertently included in its damages
calculations tenders that did not violate § 1592. Specifically, the lump-sum payment
relating to the 1991 Capri reported on August 26, 1991, appears to have been disclosed
to Customs within the period allowed by the Reconciliation Agreement, and therefore
did not violate § 1485. Negligence Decision, 395 F. Supp. 2d at 1199 ¶ 50. The same
appears to be true for the payment relating to the 1993 Taurus SHO reported on
November 18, 1992. Id. at 1201 ¶ 70. The government does not dispute this. There
appears to be no basis, therefore, for the inclusion of these tenders in the penalty
determination.
In addition, as discussed in part IV above, the trial court appears to have
included in its calculations tenders that occurred outside the scope of the
investigation—specifically, tenders relating to model years 1992 and 1993. Those
tenders should have been excluded from the penalty calculation.
Finally, the penalty must be recalculated to reflect the absence of § 1484 liability
and any other adjustments required by parts I through VI of this opinion.
CONCLUSION
The trial court's judgment is hereby affirmed in part, reversed in part, and
remanded to the Court of International Trade for further consideration in light of this
opinion.
AFFIRMED-IN-PART, REVERSED-IN-PART and REMANDED.
No costs.
05-1584 31