United States v. American Home Assurance Co. , 2011 CIT 57 ( 2011 )

Slip Op. 11-57
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
UNITED STATES of AMERICA., :
:
Plaintiff, :
:
v. : Before: Richard K. Eaton, Judge
:
AMERICAN HOME ASSURANCE CO., : Court No. 09-00401
:
:
Defendant. :
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______________________________:
OPINION
[Plaintiff’s and defendant’s cross-motions to stay denied.]
Dated: May 17, 2011
Tony West, Assistant Attorney General; Barbara S. Williams,
Attorney in Charge, International Trade Field Office, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Edward F. Kenny); Office of Chief Counsel, International
Trade Litigation, United States Customs and Border Protection
(Brandon T. Rogers), of counsel, for plaintiff United States of
America.
Steptoe & Johnson LLP (Herbert C. Shelley and Mark F.
Horning) for defendant American Home Assurance Co.
Eaton, Judge: Before the court are the parties’ cross-
motions to stay these proceedings. Plaintiff the United States
of America (the “Government”), on behalf of United States Customs
and Border Protection (“Customs”), seeks to stay its response to
defendant American Home Assurance Co.’s (“AHAC”) motion for
summary judgment pending the completion of discovery. AHAC, in
turn, seeks to stay the completion of discovery pending the
Court No. 09-00401 Page 2
court’s decision on its motion for summary judgment.
Although the parties’ respective motions seek only to stay
parts of these proceedings, they raise a significant issue
concerning the effect, if any, of Customs’ failure to provide a
surety with notice of a suspension of liquidation. Specifically,
the issue presented is whether Customs’ failure to provide AHAC
with notice of the suspension of liquidation of the entries
subject to the surety’s bond, as required by 19 U.S.C. § 1504(c)
(2006), invalidates the suspension of liquidation. For the
reasons set forth below, the court holds that it does not. Based
on this holding, the court denies both parties’ motions to stay.
BACKGROUND
By its complaint, the Government seeks to recover in excess
of $3.5 million on bonds executed by AHAC to secure the payment
of antidumping duties by Pan Pacific Products, Inc. (“Pan
Pacific”) on 119 entries of merchandise imported into the United
States from the People’s Republic of China (“PRC”) between May
2001 and March 2002. The parties do not dispute the basic facts
relating to the entries at issue.
The first 103 of these entries were made between May 30,
2001 and January 23, 2002, and were subject to the Department of
Commerce’s (the “Department” or “Commerce”) third administrative
review of the antidumping duty orders of preserved mushrooms from
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the PRC for the period of review (“POR”) February 1, 2001 through
January 31, 2002. See Certain Preserved Mushrooms from the PRC,
68 Fed. Reg. 41,304 (Dep’t of Commerce July 11, 2003) (final
results of administrative review). The remaining sixteen entries
were made between February 1, 2002 and March 10, 2002, and were
subject to Commerce’s fourth administrative review of preserved
mushrooms from the PRC for the POR February 1, 2002 through
January 31, 2003. See Certain Preserved Mushrooms from the PRC,
69 Fed. Reg. 54,635 (Dep’t of Commerce Sept. 9, 2004) (final
results of administrative review).
Upon the request for an administrative review for each POR,
liquidation of the entries subject to each review, including Pan
Pacific’s, was suspended. See 19 U.S.C. § 1675(a)(2)(C);
Canadian Wheat Bd. v. United States, 33 CIT __, __, 637 F. Supp.
2d 1329, 1334 n.6 (2009), aff’d, No. 2010-1083, Slip Op. (Fed.
Cir. Apr. 19, 2011) (noting that a request for administrative
review suspends liquidation pending the outcome of the review);
19 C.F.R. § 351.212(c)(1) (2010). It is undisputed that Customs
failed to provide the statutory notice of those suspensions to
Pan Pacific’s surety, AHAC. See generally Pl.’s Mot. for Stay
(“Pl.’s Mot.”), ECF No. 27.. Some years later, when Customs was
unable to obtain payment of antidumping duties from Pan Pacific,
it demanded payment from AHAC. See Compl. at exhibits D, E, and
F, ECF No. 2. When AHAC refused to pay, the Government commenced
Court No. 09-00401 Page 4
this action. See Summons (Sept. 18, 2009), ECF 1.
Among other affirmative defenses raised in its answer, AHAC
asserts that Customs’ claims are barred by the six year statute
of limitations set forth in 28 U.S.C. § 2415(a) (2006). On
January 11, 2011, AHAC moved for summary judgment on this basis.
See generally Def.’s Mem. of Law in Supp. Mot. Sum. J. (“SJ
Mot.”), ECF No. 26.
On February 9, 2011, the Government moved to stay its
response to AHAC’s motion for summary judgment, asserting that it
needed to conduct further discovery before it could adequately
respond. Pl.’s Mot. 5-6. The Government claims that it needs
additional time to address AHAC’s affirmative defense that it has
been materially prejudiced by Customs’ failure to provide notice
of the suspensions. Therefore, the Government maintains that it
“must complete discovery before we can satisfactorily address all
the relevant issues . . . that are implicated by AHAC’s motion
for summary judgment.” Pl.’s Mot. 6. The Government seeks to
stay the proceedings even though the affirmative defense of
prejudice, found in the answer, is not specifically referenced in
AHAC’s summary judgment motion. Pl.’s Mot. 5-6; Am. Ans. 11, ECF
No. 25; see generally SJ Mot.
On February 11, 2011, AHAC filed its own motion, seeking to
stay discovery pending the outcome of its motion for summary
judgment. Def.’s Mot. to Stay Disc. (“Def.’s Mot.”) 1, ECF No.
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28. Oral argument was held on April 19, 2011.
DISCUSSION
The Government argues that, if Customs’ failure to notify
AHAC can invalidate the suspensions at all, it can only be upon
AHAC showing that it was prejudiced by the lack of notice. The
Government, therefore, seeks to stay its response to AHAC’s
motion for summary judgment in order to complete discovery
regarding the prejudice, if any, suffered by AHAC as a result of
Customs’ failure to provide the required notice. Pl.’s Mot. 5-6.
AHAC counters that discovery should be stayed as a matter of
judicial economy because “[t]here are ‘substantial grounds’ and a
‘foundation in law’ for concluding that the Government’s claims
are barred by the statute of limitations.” Def.’s Mot. 5. The
theory underlying AHAC’s statute of limitations defense, and its
motion for summary judgment, is that Customs’ failure to notify
the surety that liquidation of the entries at issue was suspended
invalidated the suspensions as a matter of law. Based on this
contention, AHAC reasons “[t]hat lack of notice caused these
entries to be deemed liquidated one year after entry pursuant to
19 U.S.C. § 1504(a)(1)(A).” Def.’s Mot. 3. According to the
surety, this alleged deemed liquidation occurred more than six
years prior to the commencement of this action and, thus, the
Government’s claim is barred by the six year statute of
Court No. 09-00401 Page 6
limitations. See SJ Mot. 5-6; Def.’s Mot. 3.
I. Arguments of the Parties
The parties agree that the statute of limitations on the
Government’s claims runs from the date of liquidation. The
parties disagree, however, as to when liquidation occurred.
According to the Government, it occurred between September and
December 2003, following Commerce’s actual liquidation of the
entries upon the completion of its administrative reviews. Thus,
the Government argues that liquidation occurred less than six
years prior to the commencement of this action. See Compl.
¶¶ 12-15.
AHAC insists, however, that liquidation of the entries was
never suspended and that, as a result, the entries were deemed
liquidated pursuant to 19 U.S.C. § 1504(a) one year after the
date they entered the United States. According to AHAC, all of
the deemed liquidations would have occurred no later than March
2003 and, thus, beyond the six year statute of limitations.
Def.’s Mot. 3.
The Government disputes AHAC’s statute of limitations claim.
The plaintiff asserts that the lack of notice to AHAC did not
affect the validity of the suspensions because suspension happens
as a matter of law, regardless of whether notice is provided to
the surety. Pl.’s Mot. 3. The Government further argues that
Court No. 09-00401 Page 7
Customs’ failure to provide notice to AHAC did not thereafter
automatically invalidate the suspensions of liquidation because
§ 1504(c) does not provide for a consequence for failure to
comply with the notice requirement, making the statutory
directive to provide notice directory, not mandatory. Pl.’s Mot.
5; see also Alberta Gas Chems., Inc. v. United States, 1 CIT 312,
315-16, 515 F. Supp. 780, 785 (1981) (“It is settled that ‘[a]
statutory time period is not mandatory unless it both expressly
requires an agency or public official to act within a particular
time period and specifies a consequence for failure to comply
with the provisions.’”) (citations omitted).
In the alternative, the Government argues that, if lack of
notice could vitiate the suspensions, under the rule of
prejudicial error, the suspensions would only be invalid if AHAC
could demonstrate that it was prejudiced by notice not being
provided. Pl.’s Mot. 5-6. Accordingly, the Government argues
that it needs further discovery on the issue of prejudice to
adequately respond to AHAC’s summary judgment motion. Pl.’s Mot.
5-6.
AHAC counters that a stay is appropriate to avoid the undue
waste and expense that would result from conducting discovery
when it is likely that this matter will be resolved in AHAC’s
favor by summary judgment. The surety maintains that no showing
of prejudice is required for it to succeed on its summary
Court No. 09-00401 Page 8
judgment motion. For AHAC, the fact that it was not given notice
rendered the suspensions invalid, ab initio, resulting in deemed
liquidations one year after the entries were made. “Therefore,
irrespective of the reason for a suspension, once entries are
deemed liquidated, the statute of limitations begins to run if
the requisite notice has not been given to a relevant party.”
Def.’s Mot. 5. Thus, AHAC argues that it is appropriate for the
court to stay discovery pending resolution of its dispositive
motion because discovery will be shown to be unnecessary. Def.’s
Mot. 9-10.
II. Analysis
A. The effect of notice on the validity of suspension
As noted above, liquidation of the entries was suspended
when Commerce received the requests for administrative review for
the PORs covering those entries. This suspension was automatic,
upon Commerce’s receipt of the requests. See Tembec, Inc. v.
United States, 30 CIT 1519, 1525-26, 461 F. Supp. 2d 1355, 1361
(2006), and judgment vacated on other grounds, 31 CIT 241, 475 F.
Supp. 2d 1393 (2007); SSAB N. American Div. v. United States, 31
CIT __, __, 571 F. Supp. 2d 1347, 1351 (2008); Alden Leeds Inc.
v. United States, 34 CIT __, __, 721 F. Supp. 2d 1322, 1325-26
(2010). “The purpose of a periodic review is to provide an
opportunity to make adjustments to the duties provided in
Court No. 09-00401 Page 9
[antidumping and countervailing duty] orders, based on actual
experience.” Tembec, 30 CIT at 1525 n.14, 461 F. Supp. 2d at1361 n.14. Liquidation is suspended upon a request for
administrative review to “enable[] Commerce to calculate
assessment rates for the subject entries . . . , which are then
applied by Customs pursuant to liquidation instructions received
from Commerce” after it publishes the final results of the
review. SSAB, 31 CIT at __, 571 F. Supp. 2d at 1351. “Under
this framework Commerce performs the substantive role of
determining correct assessment rates, and Customs performs a
ministerial role in fulfilling Commerce’s liquidation
instructions.” Id. (citing Mitsubishi Elecs. Am., Inc. v. United
States, 44 F.3d 973, 977 (Fed. Cir. 1994)). It is against this
backdrop that the questions regarding the validity of the
suspensions, raised by the parties’ motions to stay, must be
answered.
Whether Customs’ failure to notify AHAC of these suspensions
rendered them invalid ab initio can be resolved by looking at the
plain language of 19 U.S.C. § 1504, which unambiguously provides
that notice of a suspension of liquidation is to be provided to a
surety after a suspension has come about by operation of law.
Section 1504 reads, in relevant part:
Court No. 09-00401 Page 10
(a) Liquidation . . .
Unless an entry of merchandise for consumption is . . .
suspended as required by statute or court order, . . .
an entry of merchandise for consumption not liquidated
within one year from –(A) the date of entry of such
merchandise . . . shall be deemed liquidated at the rate
of duty, value, quantity, and amount of duties asserted
at the time of entry by the importer of record.
. . . .
(c) Notice of suspension
If the liquidation of any entry is suspended, the
Secretary shall by regulation require that notice of the
suspension be provided, in such manner as the Secretary
considers appropriate, to the importer of record or
drawback claimant, as the case may be, and to any
authorized agent and surety of such importer of record
or drawback claimant.
(emphasis added).
As is demonstrated by the italicized language, suspension of
liquidation is a condition precedent to the notice requirement,
not vice versa.1 Accordingly, a surety is not entitled to
notice until after liquidation has been suspended. In other
words, notice is not a prerequisite to suspension, but is
provided as a consequence of a suspension having occurred.
This being the case, the failure to provide notice does not
automatically vitiate an otherwise valid suspension of
1
The Customs regulation promulgated to implement this
requirement similarly indicates that suspension is a condition
precedent to notice. See 19 C.F.R. § 159.12(c) (“If the
liquidation of an entry is suspended as required by statute or
court order, . . . the port director promptly shall notify the
importer . . . and his agent and surety . . . of the
suspension.”) (emphasis added).
Court No. 09-00401 Page 11
liquidation. In order for a procedural error to invalidate
agency action, it must involve a procedural condition precedent
to the agency action in question. See, e.g., Intercargo Ins. Co.
v. United States, 83 F.3d 391, 394-95 (Fed. Cir. 1996)
(considering whether “notification reciting a statutory reason
for the extension is a condition precedent to an extension of the
one-year liquidation period . . . .”); Guangdong Chems. Imp.&
Exp. Corp. v. United States, 30 CIT 85, 90, 414 F. Supp. 2d 1300,
1306 (2006) (citing Brock v. Pierce County, 476 U.S. 253, 260
(1986)) (“The Supreme Court has not held, however, that the
courts are required to reverse subsequent agency action on the
basis of any procedural misstep, no matter how minute or
inconsequential.”); American Nat’l Fire Ins. Co. v. United
States, 30 CIT 931, 941, 441 F. Supp. 2d 1275, 1286 (2006)
(“ANF”) (“[The] failure to give notice of a suspension does not
necessarily vitiate a suspension.”). As has been seen, the
suspension of liquidation following a request for a periodic
review occurs by operation of law and is not dependant on the
notice provision of § 1504(c). Because it is clear that the
giving of notice is not a condition precedent to a suspension of
liquidation, the failure to give notice does not prevent an
otherwise valid suspension.
As to AHAC’s deemed liquidation argument, this Court’s
holdings in LG Electronics U.S.A., Inc. v. United States, 21 CIT
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1421, 991 F. Supp. 668 (1997) and Alden Leeds Inc., 34 CIT __,
721 F. Supp. 2d 1322 are instructive. In both cases, Customs
published notice of deemed liquidation despite liquidation having
been suspended. The issue was whether the publication of
erroneous notice resulted in a deemed liquidation. In both
cases, the Court held that the erroneous notice had no effect on
whether a deemed liquidation had, in fact, taken place. See LG
Elecs., 21 CIT at 1429, 991 F. Supp. at 676 (“Liquidation is
deemed to have occurred by operation of law one year after entry.
Exceptions occur in cases of extension, suspension or court
order. Here liquidation was suspended. Thus, as a matter of
law, no deemed liquidation . . . occurred.”) (internal citations
omitted); Alden Leeds, 34 CIT at __, 721 F. Supp. 2d at 1329.
As the Government points out, these cases establish that a
deemed liquidation cannot occur while a suspension of liquidation
is in place, and that Customs has no authority to effect a deemed
liquidation. See Pl.’s Mot. 4 (“As acknowledged in ANF,
suspension occurs by operation of law, not becasue Customs sends
out CF 4333A notices advising importers and/or sureties of
suspension.”) “Deemed liquidation results from operation of law,
and Customs makes no decision and performs no act in order to
bring about a deemed liquidation. A suspension of liquidation
acts to stop liquidation, including a deemed liquidation, from
occurring.” Alden Leeds, 34 CIT at __, 721 F. Supp. 2d at 1329;
Court No. 09-00401 Page 13
see also Fujitsu Gen. Am., Inc. v. United States, 283 F.3d 1364,
1376 (Fed. Cir. 2002) (noting that “in order for liquidation to
occur . . . the suspension of liquidation that was in place must
have been removed”). Thus, it is clear that AHAC’s arguments
about the legal consequences of Customs’ failure to give the
statutorily required notice of suspension are unconvincing.
That is not to say, however, that Customs’ failure to
provide notice to a surety is necessarily of no consequence.
“If, as is often the case, no law or regulation specifies the
consequence of non-compliance with a regulation, the court must
determine what remedy, if any, should be imposed.” Guangdong
Chems., 30 CIT at 90, 414 F. Supp. 2d at 1306. In other words,
although Customs’ failure to provide notice does not invalidate
the suspensions, if AHAC was actually harmed as a result of
Customs’ omission, it would be entitled to appropriate relief.
It is for the court to determine the consequence, if any, of
an agency’s procedural errors by applying principles of “harmless
error” or the “rule of prejudicial error.” See Intercargo Ins.
Co., 83 F.3d at 394 (“It is well settled that principles of
harmless error apply to the review of agency proceedings.”);
Belton Indus., Inc. v. United States, 6 F.3d 756, 761 (Fed. Cir.
1993) (“Because appellees’ counsel received actual notice,
Commerce’s violation did not prejudice appellees. Accordingly,
Commerce’s violation was harmless error.”); see also 5 U.S.C. §
Court No. 09-00401 Page 14
706 (judicial review of agency action is conducted with “due
account . . . of the rule of prejudicial error”).
Under the rule of prejudicial error, procedural errors are
regarded as harmless unless they are prejudicial to the
complaining party. See ANF, 30 CIT at 942, 441 F. Supp. 2d at
1287 (quoting Sea-Land Serv., Inc. v. United States, 14 CIT 253,
257 (1990)). “A party is not ‘prejudiced’ by a technical defect
simply because that party will lose its case if the defect is
disregarded. Prejudice, as used in this setting, means injury to
an interest that the statute, regulation, or rule in question was
designed to protect.” Intercargo, 83 F.3d at 396.
Whether an error is prejudicial or harmless depends on the
facts of a given case. See Shinseki v. Sanders, 129 S. Ct. 1696,
1704-05 (2009) (finding that courts are to determine whether an
agency error is harmless by “case-specific application of
judgment, based upon examination of the record.”). In the event
that AHAC was prejudiced by Customs’ failure to provide notice as
required by § 1504(c), it may be that it has an affirmative
defense to the Government’s claims. See Am. Ans. 11. Therefore,
because allegations of prejudice are not the subject of AHAC’s
summary judgment motion, but are the subject of the Government’s
discovery requests, discovery should continue.
Court No. 09-00401 Page 15
B. The parties’ respective motions to stay
Based on the foregoing, the parties’ respective motions to
stay these proceedings are denied. The Government’s motion to
stay its response to AHAC’s motion for summary judgment is denied
because AHAC’s motion for summary judgment can be readily decided
based on the factual record before the court and, therefore, the
Government does not require any additional discovery in order to
oppose the motion.
AHAC’s motion to stay discovery is denied because AHAC is
not likely to succeed on the merits of its summary judgment
motion and, thus, the facts relating to prejudice will be
important to the outcome of this litigation.
A separate order shall be issued.
/s/Richard K. Eaton
Richard K. Eaton
Dated: May 17, 2011
New York, New York