## United States Court of Appeals for the Federal Circuit

04-1269

CAROLINA TOBACCO COMPANY, Plaintiff-Appellant,

v.

BUREAU OF CUSTOMS AND BORDER PROTECTION (formerly known as United States Customs Service), Defendant-Appellee.

Paul G. Dodds , Brownstein, Rask, Sweeney, Kerr, Gr im, DeSylvia & Hay, LLP, of Portland, Oregon, argued for plaintiff-appellant. Stephen C. Tosini , Trial Attorney, Commercial Li tigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendantappellee. With him on the brief were Peter D. Keisler , Assistant Attorney General; David M. Cohen , Director; and Patricia M. McCarthy , Assistant Director. Appealed from: United States Court of International Trade Senior Judge R. Kenton Musgrave

## United States Court of Appeals for the Federal Circuit

04-1269

CAROLINA TOBACCO COMPANY, Plaintiff-Appellant,

v. BUREAU OF CUSTOMS AND BORDER PROTECTION, (formerly known as United States Customs Service), Defendant-Appellee.

______________________________ DECIDED: April 4, 2005

______________________________

Before NEWMAN, Circuit Judge , FRIEDMAN, Senior Circuit Judge , and BRYSON, Circuit Judge

. FRIEDMAN, Senior Circuit Judge

. An importer challenges the United St ates Customs Service’s (“Customs’”) increase in the amount of its import bond to reflect the importer’s substantial increase in its imports. The importer contends that in increasing its bond, Cu stoms did not comply with the applicable regulatory r equirements. The Court of International Trade upheld Customs’ action. Carolina Tobacco Co. v. United States Customs Serv. , No. 03-00123 (Ct. Int’l Trade Mar. 4, 2004) (“ Slip Op. ”). We affirm.I The underlying facts are simple and undis puted. The appellant Carolina Tobacco Company (“Carolina”) has been manufacturi ng and importing “value priced” cigarettes since 1998, and has had a continuous entry bond in place since early 1999. Slip Op. at 2-3. Such a bond permits an importer to continuously enter merchandise and pay the duties, taxes and fees owed upon a number of ent ries at a later date. The bond thus secures against revenue loss for what is, in e ffect, an interest-free line of credit the importer has with the gover nment during the period between entry and payment. (Appellee’s Br. at 11.) Carolina pays its customs duties and taxes w eekly by electronic funds transfer, and has never had any unpaid, underpaid, or incorrectly paid duties or taxes. Slip Op. at 3; Redmond Aff. at ¶ 10 (testimony of Carolina’s President and Managing Director). Customs originally set Carolina’s bond at $80,000, based on Carolina’s
statement that in 1999-2000 it expected to make dutiable ent ries totaling $500,000 and duty-free entries totaling $5, 000,000. Carolina’s imported tobacco products increased to $8.2 million in 2000-2001, and $13.8 million in 2001- 2002. Although Customs regulations require an importer to update it s continuous bond application within 30 days “whenever there is a significant change” in the information provided in its previous application, 19 C.F.R. § 113.12(b)(2), Carolina never updated its bond application to reflect the significantly increasing value of its imports and the corresponding increases in its duty and tax liability. Slip Op. at 3. In late 2002, Customs notified Carolina that its continuous entry bond of $80,000 had been “determined to be inadequate to ensur e compliance with Customs law and

04-1269 2regulations[,]” and that within six t y days Caroli na must either terminat e it and replace it with a $3,000,000 bond, or subm it a single transaction bond and deposit estimated duties with each entry. Letter from Cu stoms to Carolina (Sept. 17, 2002); Slip Op. at 3. Carolina then sought to negotiate a lower bond based on its particular circumstances including excellent payment history, week ly payment schedule, value of available inventory, and other factors that it c ontended reduced the risk of revenue loss. Carolina’s attempts to negotiate a lowe r bond with Customs were unsuccessful. In rejecting Carolina’s request for a reduced bond “after extensive deliberation of this issue,” Customs stated t hat it “bas[ed its] analysis on a num ber of factors, including, but not limited to the imported merchandise and associated risk assessment, industry standards, [Carolina’s] past and antici pated import values and the equitable expectations and treatment of all importers in this industry.” Letter from Customs to Carolina (Feb. 3, 2003) (“Letter of Feb. 3, 2003”), at 1; see also Letter from Customs to Carolina (Mar. 20, 2003) (“Lette r of Mar. 20, 2003”) (explaining increase in bond was required “due to the volume of [Carolina’s] business, the value and type of merchandise, pursuant to Customs Regulations 113.13 ( 19CFR 113.13) [sic] and the bond sufficiency guidelines”). Carolina then filed suit in the Court of International Trade to enjoin Customs from requiring it to replace its existing bond with a bond of more than $80,000 “without considering the factors specified in 19 C.F.R. § 113.13” (discussed below) and “from demanding that plaintiff procure a new cont inuous bond in an amount in excess of an amount reasonably necessary to ensure plaint iff’s compliance with applicable customs laws and regulations.” Complaint (Mar. 28, 2003) at ¶ 15. Carolina claimed that

04-1269 3Customs “failed to consider the factors specified by 19 C.F.R. § 113.13 and appears to have applied general guidelines rather than consi der facts specific to [Carolina,]” that “[a] continuous bond of $3, 000,000 far exceeds the amount necessary to ensure [Carolina’s] compliance with applicable cust oms laws and regulations[,]” and that the bond increase was “unreasonable, arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law.” Id. at ¶¶ 10-12. The Court of International Trade granted Customs’ motion for judgment on the administrative record. As the court point ed out, Carolina’s basic argument was that Customs, by applying its inter nal directive (also discussed below) that bonds should be set to at least 10 percent of the amount of the duties, taxes and fees paid by the importer in the previous year, violated the requirement in t he regulatory guidelines that Customs should consider six specified factors when setting bond. Carolina argued that the regulation of 19 C.F.R. § 113.13(b) “mandate[d] an i ndividualized assessment of each importer and its activity rather t han application of a generalized formula.” Slip Op. at 5-6. In rejecting this argument, the court stated: Although the guidelines set forth by 19 C.F.R. § 113.13 and the instructions contained in Cust oms Directive 99-3510-04 appear to contemplate different schemes fo r establishing an importer’s bond requirement, the methodologies are not necessarily inconsistent. The Court is satisfied with Customs’ ex planation that, due to the lag time before it could stop an importer from withdrawing merchandise for consumption, a 10 percent bond is a necessary minimum amount of protection for the revenue. Moreover, the Court finds reasonable Customs’ explanation at oral argum ent of the interplay between the Directive and the Regulation, namely that the 10 percent bond is required when the importer has a favorable review under 19 C.F.R. § 113.13 and an even higher bond would be required if analysi s under these guidelines indicated that the importer posed a greater risk to the revenue. Slip Op. at 6-7 (internal citation omitted).

04-1269 4II Carolina’s case turns on the interpreta tion and interrelationship of two sets of “guidelines” promulgated by Customs covering its determi nation of the amount of importers’ bonds. The first, adopted as a formal regulation following notice and opportunity for comment, provides the following: (b) Guidelines for determining amount of bond. In determining whether the amount of a bond is sufficient, the port director . . . should at least consider: (1) The prior record of the principal in timely payment of duties, taxes, and charges with respect to the transac tion(s) involving such payments; (2) The prior record of the princi pal in complying with Customs demands for redelivery, the obligation to hol d unexamined merchandise intact, and other requirements relating to enforce ment and administrat ion of Customs and other laws and regulations; (3) The value and nature of the merchandi se involved in the transaction(s) to be secured; (4) The degree and type of supervision t hat Customs will exercise over the transaction(s); (5) The prior record of the pr incipal in honoring bond commitments, including the payment of liquidated damages; and (6) Any additional information contained in any application for a bond. 19 C.F.R. § 113.13(b) (1999). Prior to promulgating this regulation, Customs received requests during the notice and comment period that it codify a consistent bond formula, and explained that it would do so by issuing directives. Indeed, Customs noted that “[v]irtually every commenter expressed concern with the provisions of propos ed § 113.13(b) relating to guidelines for determining the amount of the bond. While they did not object to the proposed language of the section, it was the general consensus that specific monetary

04-1269 5amounts or a specific formula should be us ed to determine the bond amount. . . . Based upon the commenter’s concerns Customs will formula te specific guidelines to be used in conjunction with those set fort h in proposed § 113.13(b).” Customs Bond Structure; Revision , 49 Fed. Reg. 41152, 41154 (O ct. 19, 1984). Customs then issued an internal directive, Customs Directive 99-3510-004, Monetary Guidelines for Setting Bond Amounts (issued July 23, 1991) (the “Directive”), which stated, in pertinent part, the following “Guidelines for Determining Amounts of Bonds”: Activity 1 – Importer or Broker – Continuous The bond limit of liability amount shall be fixed in an amount the district director may deem necessary to a ccomplish the purpose for which the bond is given. The non-discretionar y bond amount minimum is $50,000. To assist the district director in fixing the limit of liability amount, the following formula shall be used. None to $1,000,000 duties and taxes – the bond limit of liability amount shall be fixed in multiples of $10,000 near est to 10 percent of duties, taxes and fees paid by the importer or broker acting as importer of record during the calendar year preceding the date of the application. Over $1,000,000 duties and taxes – the bond limit of liability amount shall be fixed in multiples of $100,000 neares t to 10 percent of duties, taxes and fees paid by an importer or broker acting as importer of record during the calendar year preceding the date of the application. In either of these two categorie s a bond may be demanded with a limit of liability amount greater t han that computed using this formula, provided sufficient evidence of high risk is on-hand to support the higher amount. Id. at 3-4. Carolina contends that by adopting the six specific “Guidelines for determining the amount of bond,” the Sect ion 113.13(b) regulation requi res Customs to base the amount of the bond upon “an individualized a ssessment” of the si tuation of each particular importer, and that Customs’ use of the 10 percent minimum specified in its internal Directive is invalid because it is inconsistent with the regulation’s guidelines.

04-1269 6Except for this contention, Carolina does not challenge Customs’ authority to adopt a numerical formula for the minimum amount of bonds. Carolina’s argument has several fatal flaws: A. The Section 113.13(b) regulation provides “Guidelines for determining amount of bond.” Guidelines are just t hat. They provide suggested standards for government officials to use in performing t heir duties. They do not impose explicit requirements, but merely indicate appropriate courses for the officials to follow. This court dealt with a similar situation in reviewing a penalty imposed for employee misconduct. The employee contended that the sanction was unreasonable because it exceeded that specif ied in the agency’s table of penalties for the particular offense. In rejecting that contention, we pointed out that the table of penalties stated that it was a “guide,” and t herefore did not preclude the agency from imposing the more severe penalty that it deemed appropriate in the particular case. Weston v. United States Dep’t of Housing & Urban Dev. , 724 F.2d 943, 950 (Fed. Cir. 1983); see also Farrell v. Dep’t of Interior , 314 F.3d 584, 591-92 (Fed. Cir. 2002) (citing Daub v. United States , 292 F.2d 895, 897 (Ct. Cl. 1961)) (dea ling with tables of penalties); cf. Brehmer v. Fed. Aviation Admin. , 294 F.3d 1344, 1348 (Fed. Cir. 2002) (stating that an agency’s “policy” “indicates the standards an agency gener ally will follow” but “is not, however, a black letter rule that the agency is required to follow”). By the same reasoning, the Section 113.13(b) regulation does not require Customs to consider the six specified factors before setting an importer’s bond at the 10 percent level. B. Since both the Section 113.13(b) regulation and the Directive were promulgated by Customs, it is appropriate to consider t hat agency’s intent and purpose

04-1269 7in adopting them. There is not hing in the language or history of those provisions that even suggests, let alone establishes, that Cust oms intended them to require the kind of “individualized assessment” of a particular impor ter’s situation that Carolina interprets the regulation to require. In its brief and at oral ar gument, the government explained that Customs’ regular practice is to set the bond at 10 percent of the importer’s prior year’s activity, and then use the factors in the regul ation to determine whether a higher bond is required for a particular importer in order to pr otect the revenue. The Directive itself states that higher bonds than the formula would produce “may be demanded.” This approach is consistent with Customs’ indication, prior to promulgating the regulation, that it had been ask ed to provide a consistent b ond formula and that it would do so through directives. It also is consis tent with the language of the regulation that the port director should consi der the factors “[i]n determi ning whether the amount of a bond is sufficient.” As we recently st ated, “it is well settled that an agency’s interpretation of its own regulations is ent itled to broad deference from the courts.” Cathedral Candle Co. v. Unit ed States Int’l Trade Comm’n , No. 04-1083, 2005 WL 545190 (Fed. Cir. Mar. 9, 2005) (citing Thomas Jefferson Univ. v. Shalala , 512 U.S. 504, 512 (1994)). Customs’ interpretation of it s own regulation is ent itled to substantial weight. We see no reason to reject it. C. Even if the Section 113.13(b) r egulation required some individualized consideration by Customs of the six factors before setti ng the amount of the bond, Carolina has not shown that Customs failed to give such consideration in this case.

04-1269 8The regulation states that “[i]n determining whether the amount of a bond is sufficient,” the port director “should at least c onsider” the six factors. The statement that the director should “consider” the factors “impl[ies] wide areas of judgment and therefore of discretion.” Sec’y of Agric. v. Cent. Roig Refining Co. , 338 U.S. 604, 611- 14 (1950) (holding that Secr etary had wide discretion in making quota allotments where Congress directed him to “tak[e] into consideration” particular factors); see also Brehmer , 294 F.3d at 1348 (“The statement in the collective bargaining agreement that ‘consideration should be given’ to non-disci plinary measures did not require the Administration to eschew discipline in every si tuation.”). In consi dering the factors, the port director may give them whatever weight he deems appropriate; he may conclude that particular factors should be given no weight whatsoever. Cent. Roig , 338 U.S. at
613. Government officials are presumed to do their duty, and one who contends they have not done so must establish that defect by “clear evidence.” United States v. Armstrong , 517 U.S. 456, 464 (1996); United States v. Chem. Found., Inc. , 272 U.S. 1, 14-15 (1926). Carolina has not carried that burden. Just as a district court’s failure to discuss an issue does not necessarily establis h that the court di d not consider it, see, e.g. , Lab. Corp. of Am. Holdings v. Chiron Corp. , 384 F.3d 1326, 1332 (Fed. Cir. 2004), so the failure of Customs to explicitly discu ss the six factors when it initially increased Carolina’s bond does not establish t hat it did not consider them. Indeed, in its first letter explaining why it would not reduce the amount of the increased bond, Customs stated that it based its analysis “ on a number of factors,” several of which included the factors listed in the regulation. Custom s thus did consider

04-1269 9Carolina’s particular situation before its dec ision to increase the bond finally became operative. CONCLUSION The judgment of the Court of International Trade is
AFFIRMED

.

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