Slip Op. 01-105

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: HONORABLE NICHOLAS TSOUCALAS

___________________________________

:

AMERICAN SHIP MANAGEMENT, LLC, :

:

Plaintiff, :

:

v. :

:

UNITED STATES, :

:

Defendant, :

: Consolidated

and : Court No. 99-03-00151

:

SL SERVICE, INC., :

:

Plaintiff, :

:

v. :

:

UNITED STATES, :

:

Defendant. :

___________________________________:

Plaintiffs, American Ship Management, LLC and SL Service,

Inc., move for summary judgment pursuant to R. 12(c) of the Rules

of the United States Court of International Trade alleging that the

undisputed material facts in the case show that United States

Customs Service misapplied 19 U.S.C. § 1466, as interpreted by

Texaco Marine Servs., Inc. v. United States, 44 F.3d 1539 (Fed.

Cir. 1994), by assessing duties on the plaintiffs’ dry-docking

expenses on a pro-rata basis. Customs has filed a cross-motion for

summary judgment contending that Customs acted legally by

apportioning the dry-docking expenses on a pro-rata basis in a

fashion mimicking the methodology used by Customs for apportionment

of expenses between dutiable and non-dutiable foreign work. 

Held: For the reasons stated below, the plaintiffs’ motion and

Customs’ cross-motion are denied on the ground that there remain

triable issues of fact.
Consol. Court No. 99-03-00151 Page 2

[The plaintiffs’ motion and Customs’ cross-motion are denied. The

parties are to proceed with the litigation on merits.]

Dated: August 17, 2001

Garvey, Schubert & Barer (Charles Routh) for plaintiff

American Ship Management, LLC.

Sonnenschein Nath & Rosenthal (Evelyn M. Suarez and Alexander

H. Schaefer) and Robert S. Zuckerman, General Counsel, for

plaintiff SL Service, Inc.

Stuart E. Schiffer, Acting Assistant Attorney General; Joseph

I. Liebman, Attorney in Charge, International Trade Field Office,

Commercial Litigation Branch, Civil Division, United States

Department of Justice (Barbara M. Epstein); of counsel: Karen P.

Binder, Assistant Chief Counsel, International Trade Litigation,

United States Customs Service, for defendant.

Collier Shannon Scott, PLLC (Lauren R. Howard) for

Shipbuilders Council of America, Inc., amicus curiae in support of

defendant’s cross-motion for summary judgment.

MEMORANDUM OPINION AND ORDER

TSOUCALAS, Senior Judge: Plaintiffs, American Ship Management,

LLC and SL Service, Inc. (“plaintiffs”), pursuant to R. 12(c) of

the Rules of the United States Court of International Trade, move

for summary judgment alleging that the undisputed material facts in

the case show that, as a matter of law, United States Customs

Service (“Customs”) misapplied and misinterpreted the vessel repair

statute, 19 U.S.C. § 1466 (1994), by assessing duties on the

plaintiffs’ dry-docking expenses on a pro-rata basis irrespective

of the inspection required by the United States Coast Guard and
Consol. Court No. 99-03-00151 Page 3

American Bureau of Shipping and performed during the dry-docking.

Customs has filed a cross-motion for summary judgment contending

that Customs acted legally by apportioning the dry-docking expenses

incurred by the plaintiffs in a fashion mimicking the methodology

used by Customs for apportionment of expenses between dutiable and

non-dutiable foreign work. For the reasons stated below, the

plaintiffs’ motion and Customs’ cross-motion are denied on the

ground that there remain triable issues of fact.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28

U.S.C. § 1581(a) (1994).

DISCUSSION

I. Undisputed Facts

The case concerns dry-docking duties imposed by Customs on two

vessels, specifically, M/V President Truman, a vessel belonging to

American Ship Management, LLC, and Sea-Land Pacific, a vessel

belonging to SL Service, Inc. M/V President Truman underwent drydocking at the Hongkong United Dockyard Ltd., and Sea-Land Pacific

was dry-docked in the Hyundai Mipo Dockyard. Both vessels were put

into their scheduled dry-docks to comply with mandatory United

States Coast Guard and American Bureau of Shipping regulations
Consol. Court No. 99-03-00151 Page 4

requiring certain inspections and modifications. During the drydocking, the vessels, in addition to the mandatory inspections,

underwent non-dutiable modifications as well as dutiable repairs.

The dry-docking and general service expenses incurred by the

vessels were apportioned by Customs in the following manner: (1)

the expenses for dutiable repairs were added to the expenses for

non-dutiable modifications and inspection; (2) the percentage of

this total was calculated representing the expenses ensuing from

the dutiable repairs; and (3) the same percentage of the total drydocking expenses incurred by each vessel was deemed to be a

dutiable expense. See Def.’s Mem. Law Opp’n Pl.s’ Mot. Summ. J.

Supp Def.’s Cross-Mot. Summ. J. (“Def.’s Mem.”) at 22. 

II. Contentions of the Parties

The plaintiffs assert that the liquidation of dry-docking

expenses as dutiable is illegal, even on a pro-rata basis, in view

of the following: (1) the fact that the vessels were undergoing a

mandatory inspection; and (2) the test posed by Texaco Marine

Servs., Inc. v. United States (“Texaco”), 44 F.3d 1539 (Fed. Cir.

1994) prohibits the imposition of duties on the dry-docking

undetaken for “mixed purpose.” See Pl.s’ Joint Mem. Law Supp. Mot.

Summ. J. (“Pl.s’ Mem.”) at 2. The plaintiffs also contend that any

imposition of duties on a pro-rata basis is per se illegal under
Consol. Court No. 99-03-00151 Page 5

the Texaco test. See id.

Customs maintains that where dry-docking expenses were

incurred for more than one purpose, e.g., both dutiable repairs and

a mandatory inspection, such “mixed-purpose” expenses are subject

to the imposition of apportioned duties. See Def.’s Mem. at 7. 

IV. Analysis

A. Statutory Background and the Texaco Test

Section 1466(a) of United States Code, Title 19, provides that

[t]he equipments, or any part thereof, including boats,

purchased for, or the repair parts or materials to be

used, or the expenses of repairs made in a foreign

country upon a vessel documented under the laws of the

United States . . . shall . . . be liable to entry and

the payment of an ad valorem duty . . . on the cost

thereof in such foreign country. 

19 U.S.C. § 1466(a) (emphasis supplied).

The case at bar involves the interpretation of the term

“expenses of repairs” used in 19 U.S.C. § 1466(a). Prior to the

Federal Circuit decision in Texaco, 44 F.3d 1539, Customs used a

restrictive interpretation of the term. For example, Customs did

not treat the dry-docking as an “expense of repairs” making drydocking expenses non-dutiable. See Texaco, 44 F.3d 1539. Customs’

pre-Texaco treatment was based upon the premise that dry-docking

expenses were not “part of” and/or “directly involved” in a
Consol. Court No. 99-03-00151 Page 6

dutiable repair. See id. 

The court in Texaco examined the statutory language,

determined the language to be clear and unambiguous, and concluded

that it is proper to 

interpret [the term] “expenses of repairs” as covering

all expenses (not specifically excepted in the statute)

which, but for dutiable repair work, would not have been

incurred. Conversely, [the term] “expenses of repairs”

does not cover expenses that would have been incurred

even without the occurrence of dutiable repair work. [In

sum,] the “but for” interpretation accords with what is

commonly understood to be an expense of a repair. 

Texaco, 44 F.3d at 1544 (citations omitted).

The court in Texaco also specified that

[t]he mere drawing up of a vessel on a dry dock is not a

part of her repairs, but is rather a method of making an

inspection of her to determine whether any repairs are

necessary. The examination might show the hull to be in

perfect condition, requiring no attention of any kind.

Id. at 1546 (citing United States v. George Hall Coal Co., 142 F.

1039 (2d Cir. 1906).

In light of Texaco, 44 F.3d 1539, Customs started assessing

duty on the dry-docking expenses which would not have been incurred

“but for” dutiable repairs even if the expenses were not “part of”

and/or “directly involved” in the repair itself. See Def.’s Mem.

at 7.
Consol. Court No. 99-03-00151 Page 7

B. Apportionment Under the Texaco Test

The plaintiffs assert that any imposition of duties on drydocking expenses on a pro-rata basis is per se illegal under the

Texaco test. See Pl.s’ Mem. at 2. The plaintiffs point out that

“the Federal Circuit has specifically ruled” that “‘mixed purpose’

dry-docking . . . do[es] not qualify as ‘expenses of repairs.’”

Id. While the Court agrees with the plaintiffs’ reading of Texaco

with regard to “mixed purpose” dry-docking expenses, the Court

disagrees with the plaintiffs’ unreasonable expansion of the Texaco

holding.

In essence, the court in Texaco delineated two categories of

expenses under 19 U.S.C. § 1466(a), specifically: (1) dutiable

expenses that would not be undertaken “but for” the need to repair;

and (2) non-dutiable expenses undertaken for a purpose either

unrelated to repair or for a “mixed purpose” related to a dutiable

repair as well as to a non-dutiable activity, e.g., an inspection

or modification. The Texaco classification, however, does not make

an apportionment of dry-docking expenses per se illegal if there is

a clear identification of the dutiable dry-docking expenses

undertaken solely for the purpose of repair and the non-dutiable

dry-docking expenses undertaken for a purpose either unrelated to

repair or for a “mixed purpose.” See generally, Texaco, 44 F.3d

1539. Therefore, the Court holds that Customs correctly concluded
Consol. Court No. 99-03-00151 Page 8

1 The latter usually comprises the main expense of the drydocking process.

that it could apportion dry-docking expenses under the mandate of

19 U.S.C. § 1466(a), as clarified by Texaco, 44 F.3d 1539.

C. Pro-Rata Apportionment Used by Customs

In the case at bar, the dutiable and non-dutiable dry-docking

expenses were apportioned by Customs according to the percentage

corresponding to the value of dutiable repairs and non-dutiable

expenses incurred by each vessel. See Def.’s Mem. at 22. While

the general concept of apportionment of dry-docking expenses does

not contradict the holding of Texaco, 44 F.3d 1539, see supra, the

particular apportionment used by Customs was arbitrary, capricious

and in violation of the classification designated by Texaco, 44

F.3d 1539.

Dry-docking expenses include, among other things, maintenance

expenses and the cost of tugs to put the vessel into and out of dry

dock.1 See, e.g., Dahlia Maritime Co. v. M/S Nordic Challenger,

1993 U.S. Dist. LEXIS 10170 (E.D. La. 1993). Consequently, the

cost of tugs is an inevitable expense of a mandatory inspection

and, thus, is non-dutiable. See Texaco, 44 F.3d 1539. Similarly,

all maintenance charges (along with all other charges related to
Consol. Court No. 99-03-00151 Page 9

2 The term “maintenance” in the context of dry-docking

usually associates with utilities and analogous services, the

related charges could include, for example, the procedures and

tools necessary to bring and keep the vessel in a stable position.

3 Customs asserts that the plaintiffs failed to satisfy the

plaintiffs’ “burden” because, according to Customs, there is no

pertinent information in the plaintiffs’ brief. This Court

presumes that Customs was referring to the term “burden of

production.” The term “burden of production” defines the burden on

one party to introduce sufficient evidence to avoid judgment

against that party as a matter of law. Specifically, the plaintiff

shall go forward with the evidence on the issue, thus, shifting the

burden to the defendant to produce evidence showing otherwise.

the maintenance)2 associated with the dry-docking during the period

of mandatory inspection and/or modifications are non-dutiable

expenses under the test posed by Texaco notwithstanding whether or

not the vessel undergoes any repair during this period. See id.

Therefore, only the maintenance expense of dry-docking for the

period of time in excess of that necessary for a mandatory

inspection and/or modifications are dutiable under the Texaco test.

See id.

While, under an unlikely scenario, such calculation may create

a result accidently corresponding to that reached by Customs in the

given case, this possibility is irrelevant to the validity of

Customs’ method of calculation because the method violates, as a

matter of law, the test offered by Texaco, 44 F.3d 1539. Customs

shall obtain from the plaintiffs the information necessary to make

a calculation supported by logic rather than random guessing.3
Court No. 98-03-00620 Page 10

See, e.g., Environmental Defense Fund, Inc. v. EPA, 548 F.2d 998,

1013 (D.C. Cir. 1976) (noting that the burden of production does

not necessarily lay with the same party carrying the burden of

persuasion). In the case at bar, the plaintiffs provided a series

of affidavits stating that “the dry-docking expenses would have

been incurred regardless of whether or not any repair work took

place.” See Pl.s’ Mem., Ex. 1. Consequently, the plaintiffs came

forward with the evidence sufficient to shift the burden to Customs

to show otherwise and justify the apportionment method used by

Customs. 

V. CONCLUSION

This Court finds that there are genuine issues of material

fact as to what dry-docking maintenance charges (along with all

other charges related to the maintenance) were undertaken by the

plaintiffs during the dry-docking in excess of that necessary for

the mandatory inspections and/or modifications. Because triable

issues of fact remain, the plaintiffs’ motion and Customs’ crossmotion for summary judgment are denied, and it is hereby

ORDERED that parties proceed with the litigation on merits. 

______________________________

NICHOLAS TSOUCALAS

SENIOR JUDGE

DATED: August 17, 2001

New York, New York