CAFC Overturns CIT on Waiver of Statute of Limitations; Still Rules Against 1592 Claim
In Ford Motor Company v. U.S., the Court of Appeals for the Federal Circuit agreed with Customs and reversed the Court of International Trade's decision on waiver procedures and Customs' ability to pursue civil penalties under 19 USC 1592.
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However, the CAFC ruled that Customs was not entitled to the repayment of any additional duties pursuant to 19 USC 1592.
Ford had imported engines and transmissions between November of 1985 and February of 1986 to be incorporated into finished cars and trucks at their Foreign Trade Subzone in Louisville, Kentucky. According to the CAFC, Ford filed eleven entries incorrectly claiming treatment as "non-privileged foreign" status, when they should have claimed "privileged domestic" status. As a result, the wrong duty rates were applied to the entries.
Ford reported their error to Customs and in July 1986, Customs concluded that Ford owed approximately $5.3 million in additional duties. The final liquidation of Ford's entries was suspended, with Customs issuing three one-year extensions of the statutory one-year liquidation deadlines. Almost four years later, Customs liquidated the eleven entries at the duty rate of 25 percent, which resulted in a little over $5 million in additional duty, which Ford paid.
Customs also opened a civil fraud investigation in August 1986, which continued for 44 months until March 1990. The CAFC ruled (in Ford IV) that Customs delayed this civil fraud investigation for a total of 44 months, performing almost no substantive work in the first 30 months. The CAFC ruled that this delay was not reasonable, that the entries were deemed liquidated at the original duty rate, and Customs refunded the over $5 million in additional duty it collected.
Despite the Ford IV decision, on April 12, 2002, Customs filed a claim for civil penalties pursuant to 19 USC 1592 with a demand that Ford repay the additional duties of approximately $5.3 million on the eleven entries. Ford appealed this action and moved for dismissal on the grounds that Customs disregarded the court findings in Ford IV and further, that the statute of limitations barred Customs from seeking penalties and duties as no valid waiver was in place.
(During the civil fraud investigation, Ford had drafted ten consecutive letters extending the statute of limitation. Each of the first nine waiver letters had been counter-signed by Customs acknowledging the receipt and accepting the waiver. Customs changed its procedure on the tenth waiver letter, (which extended the statute of limitations for 24 months until April 7, 2005), only acknowledging the letter, but not counter-signing to indicate acceptance.)
In January 2006 (Ford V), the CIT ruled in Ford's favor stating that the ninth and last valid waiver ended on April 7, 2003, and dismissed the 1592 claims.
In the present case, the CAFC reverses the CIT's January 2006 ruling, determining that Ford's tenth waiver actually extended the statute of limitation period until April 7, 2005.
The CAFC states that Customs was not required to acknowledge or counter-sign acceptance of Ford's waiver in order for it to be valid.
Further, the CAFC rules that Customs was not barred from pursuing its 1592 claims because of the court's decision in Ford IV. The CAFC states that the Ford IV decision had not addressed the merits of Customs' 1592 claims, as that issue was not presented to the court.
While the CAFC stated that Customs was not barred by the statute of limitations or by the court's decision in Ford IV from pursuing its 1592 claims, it ruled that Customs was barred from recovering the $5.3 million in additional duties under 19 USC 1592, as the entries had been deemed liquidated prior to the 1592 penalty claim.
(See ITT's Online Archives or 10/26/00, 08/05/02, and 03/13/06, news, (Ref:00102566E), 02080520 and 06031325, for BP summaries of earlier CIT and CAFC rulings in this case.
In 2000, the CIT found that Customs did not abuse its discretion in extending liquidation on the entries of truck parts; however, the CAFC reversed this ruling in 2002 (Ford IV) ruling that delays by CBP in pursuing this civil fraud investigation were not legally permissible.In 2006, the CIT ruled against CBP assessing 1592 claims as it had not process the waiver of statute of limitations correctly. See ITT's Online Archives or 09/19/01 news, 01091920, for BP summary of T.D 01-65 regarding the statute of limitations.)
CAFC decision 06-1479 (Ford VI, dated 08/17/07) available at http://www.fedcir.gov/opinions/06-1479.pdf