# United States Court of Appeals **for the Federal Circuit**

______________________
PLEASURE

- WAY INDUSTRIES, INC. , Plaintiff

- Appellant

v.
UNITED STATES, Defendant

- Appellee

______________________
2017

- 1190

______________________ Appeal from the United States Court of International Trade in No. 1:10

- cv

- 00173

- RKM, Senior Judge R. Kenton Musgrave.

______________________
Decided: January 5, 2018

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J OHN M ICHAEL P ETERSON , Neville Peterson LLP, New York, NY, argued for plaintiff

- appellant. Also represen ted by R ICHARD F. O’N EILL

.
M ARCELLA P OWELL , International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice, New York, NY, argued for defendant -appellee. Also represented by C HAD A. R EADLER , J EANNE E. D AVIDSON , A MY M. R UBIN ; M ICHAEL W. H EYDRICH , Office of the Assistant Chief Counsel, United States Bureau of Customs and Bo rder Protection,PLEASURE

- WAY INDUSTRIES , INC

. v. UNITED STATES 2

United States Department of Homeland Security, New York, NY.

______________________

Before T ARANTO , C LEVENGER , and S TOLL , Circuit Judges.

T ARANTO , Circuit Judge.
Pleasure

- Way Industries , Inc., is a manufacturer and seller of Class B motorhomes
, which it sells at dealerships in the United States and Canada

. Between January 2008 and September 2009, having bought 144 Daimler

Chrysler AG “ Sprinter ” vans in the United State s , Plea sure

- Way exported them to its manufacturing facility in Cana da, where it converted the m in to its Plateau TS and Ascent TS model motorhomes. The conversion include d installation of interior features such as fully plumbed kitchen and bathroom fixtures with freshwater and sewage tanks
, water heater s , sleeping quar ters, counter

tops with propane burners, microwave oven s , wall

mounted televi sion s , and refrigerators

. The conversion also included installation of e xterior features such as large picture windows and porch lights, awning s , running boards, and exterior showers

. When Pleasure

- Way imported the resulting m otorhomes in to the United States, it sought to avoid their being treated, for purposes of import duties, under the facially applicable provision of the Harmonized Tariff Schedule of the United States (HTSUS)
, namely, su bhea d ing 8703 .33.00. It requested a ruling from the Uni ted States Bureau of Customs and Border Protection that the motorhomes should instead be classified under HTSUS subheading 9802.00.50 , which provides favorable import

- duty treatment to certain articles that, as relevant here, meet the requirements set forth in 19 C.F.R. § 181.64 (2017) for favorable treatment of imported art icles that qualify as “[g]oods re

- entered after repair or alteration in Canada or Mexico” (e mphasis added)

. Cu s-PLEASURE

- WAY INDUSTRIES , INC

. v. UNITED STATES 3

toms initially gran ted Pleasure

- Way’s request , but it then changed its position

. Customs determined that the reg ulation does not apply to the motorhomes that resulted from Pleasure

- Way’s conversion in Canada of the vans it acquired in the United States. Customs therefore a ssessed a 2.5% ad valorem import duty in accordance with HTSUS subheading 8703.33.00

. The parties agree that the only issue before us is the applicability of the regulation. When Customs denied Pleasure

- Way’s protest, Pleasure

- Way sued the United States i n t he United States Court of International Trade pursuant to 28 U.S.C. § 1581(a) . The court held that the regulation is inapplicable and on that basis grant ed summary judgment against Pleasure

- Way

. Pleasure

- Way Indus., Inc. v. United States
, 38 I.T.R.D. (BNA) 1889, 2016 WL 6081818, at *6 (Ct. Int’ l Trade Oct. 18, 2016)

. Pleasure

- Way appeal s. We have jurisdiction under 28 U.S.C. § 1295(a)(5) . Pleasure

- Way agrees that “there are no material facts in dispute as to the nature of the me rchandise.” Appellant’s Br. 10. We review the interpret ation of the regulation and its application to the undisputed facts on summary judgment de novo. Millen ium Lumber Distr. Ltd. v. United States , 558 F.3d 1326, 1328 (Fed. Cir. 2009) ; Lynteq, Inc. v. United States , 976 F.2d 693, 696 (Fed. Cir. 1992). We affirm

. I
The first two subsections of the regulation at issue, 19 C.F.R. § 181.64
, provide: § 181.64 Goods re

- entered after repair or a lteration in Canada or Mexico

. (a) General. This section sets forth the rules which apply f or purposes of obtaining duty

- free or reduced

- duty treatment on goods returned after repair or alteration in Canada or Mexico as pr ovided for in subheadings 9802.00.40 andPLEASURE

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. v. UNITED STATES 4

9802.00.50, HTS US. Goods returned after having been repaired or altered in Mexico , whether or not pursuant to a warranty, and goods returned after having been repaired or altered in Canada purs uant to a warranty, are eligible for duty

- free trea tment, provided that the requirements of this section are met. Goods returned after having been repaire d or altered in Canada other than purs uant to a warranty are subject to duty upon the value of the repairs or alterations using the appl icable duty rate under the United States

- Canada Free

- Trade Agreement (see § 10.301 of this cha pter), provided that the requirements of this se ction are met. For purposes of this section, “repairs or alterations” means restoration, addition, ren ovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different g ood from, the good exported from the United States

.

Example

. Glass mugs produced in the United States are exported to Canada for etching and tempering operations, after which they are r eturned to the United States for sale. The foreign operations exceed the scope of an alteration b ecause they are manufacturing processes which create commercially different products with di stinct new characteristics. (b) Goods not eligible for duty

- free or reduced

duty treatment after repair or alteration. The d uty

- free or reduced

- duty treatment referr ed to in paragraph (a) of this section shall not apply to goods which, in their condition as exported from the United States to Canada or Mexico , are i ncomplete for their intende d use and for which the processing operation performed in Canada orPLEASURE

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Mexico c onstitutes an operation that is performed as a matter of course in the preparation or man ufacture of finished goods. Example

. Unflanged metal wheel rims are e xported to Canada for a flanging operation to strengthen them so as to conform to U.S. Army speci fications for wheel rims; although the goods when exported from the United States are ded icated for use in the making of wheel rims, they cannot be used for that purpose until flanged. The flanging operation does not constitute a repair or alteration becau se that operation is necessary for the completion of the wheel rims. 19 C.F.R. § 181.64(a)

– (b). Subsection (c) specifies r equirements of documentation and duty deposits upon entry. The language and structure of this regulation make clear several things of relevan ce here. S ubsection (a) establishes necessary requirements for eligibility for the favor able duty treatment —either duty

- free treatment or imposition of duties only on the value of the foreign i mprovements (rather than the overall value of the impo rted good). The provision makes the favorable treatment depend on whether the foreign activities constitut e “r epairs or alterations” as defined

. Id . § 181.64(a) (“‘repairs or alterations’ means

. . .”) . The definition itemizes exa mples (“ restoration, addition, renovation, redyeing, clea ning, resteriliz ing , or other treatment ”)
, id.
, and then states two necessary requirements. O ne is that the foreign activities “not

. . . create a new or commercially different good from [] the good exported from the Uni ted States.” Id. The other is that the foreign activities “not destroy the essential characteristics of

. . . the good e xported from the United States.” Id. These requirements are stated separately, but they obviously are related.PLEASURE

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The two necessary requirements must apply to all items in the full phrase

— “restoration, addition,

. . . or other treatment”

— not just to the last phrase, “other treatment .” Because the full phrase is an integrated series of parallel terms, and the two require ments are “applicable as much to the first and other words as to the last,” Paroline v. United States , 134 S. Ct. 1710, 1721 (2014), t his reading is “the natural construction,” id. , and also is supported by the general principle that “ a ‘postpo sitive modif ier’

— that is, one ‘positioned after’ multiple phrases or clauses . . . — modifies all the preceding clau ses, unless a ‘determiner’ is repeated earlier in the se ntence.” Disney Enters., Inc. v. VidAngel, Inc. , 869 F.3d 848, 858 (9 th Cir. 2017) ( quoting Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 148

– 49 (2012))

. And the language at issue here compels this reading for a particular reason: the presence of the item “addition” in the list . T hat item is so broad that the evi dent limiting function of the definition would be effe ctively negated if any “addition” gained the favorable duty treatment under subsection (a) , even one that created a new or commercially different good or destroyed the essential characteristics of the good exported from the United States. We note, too, that a predecessor version of this regulation, quoted in Press Wireless, Inc. v. United States , 6 Cust. Ct. 102, 104 (1941), made clear that the language, “does not destroy the identity of the article

ex ported or create a new or different article
, ” applied to the entirety of the covered “repairs.” 1 We have no reason

1 Press Wireless quotes the Tariff Act of 1930, para. 1615, as providing that “articles exported from the United States for repairs may be returned upon payment of a duty upon the value of the repairs at the rate at which the article itself would be subject if imported, under con d itions and regulations to be prescribed.” Press Wireless , 6 Cust. Ct. at 104. It then quotes a Customs regulation asPLEASURE

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to think that Customs was changing the rule in this critical respect through the rewording embodied in 19 C.F.R. § 181.64(a). Subsection (b) states an additional limitation on elig ibility for the favorable duty treatment authorized in subsection (a)

. It declares certain “[g]oods not eligible for duty

- free or reduced

- duty treat ment after repair or alte ration. ” 19 C.F.R. § 181.64(b) (subsectio n title)

. The goods removed from eligibility
, i.e.
, to which the favorable treatm e nt of subsection (a) “shall not apply,” are those

“ which, in their condition as exported from the United States to Canada or Mexico , are incomplete for their intended use and for which the processing operati on performed in Canada or Mexico constitutes an operation that is performed as a matter of course in the preparation or manufacture of finished goods. ” Id

. This subsection focuses on the goods “in their cond ition as exported” (before the foreign processing) and on whether they are “incomplete for their intended use” in that condition and whether the foreign processing oper ation is “performed as a matter of course in the preparation

or manu factur e of finished goods.” Id. The provision has roots in United States v. J.D. Richardson Co. , 36 CCPA 15 (1948), which involved the flange situation now given as an example in subsection (b). The court in J.D. Richar dson held that favorable treatment of alterations (under regulatory language similar to what is now in 19 C.F .R. § 181.64(a)) was unavailable where a U.S. manufacturer

providing that “‘repairs’ as used in paragraph 1615 is hereby defined to mean any change, renovation, cleaning, redyeing, etc., which is necessary to restore an article to its original condition after decay, injury, deterioration, or partial destruction, when such change, renovation, etc., does not destroy the identity of the article exported or create a new or different article.” Id.PLEASURE

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. v. UNITED STATES 8

exported its “uncompleted articles,” which “could not be used in their condition as exported,” to be “manufactured into completed articles” that were then return ed to the U.S. manufacturer to be us ed as parts. J.D. Richardson
, 36 CCPA at 16

– 17. The same basis for exclusion was also relied on in Dolliff & Co. v. United States , 599 F.2d 1015, 1019 (CCPA 1979) ( “[R]epairs and alterations are made to completed articles and do not include intermediate pr ocessing operations which are performed as a matter of course in the preparation or the manufacture of finished articles.”).

II
A
The parties in this case have discussed three issues bearing on possible exclusion fro m favorable duty trea tment under the regulation: (1) whether Pleasure

- Way ’s conversion activities in Canada “create[d] a new or co mmercially different good from ” the exported vans ; (2) whether the conversion activities “destroy[ed] the essential characteri stics” of the exported vans ; and (3) whether the vans, “in their condition as exported from the United States to Canada,” were “incomplete for their intended use.” 19 C.F.R. § 181.64(a), (b). The Court of International Trade resolved all three of those i ssues against Pleasure

- Way. Pleasure

- Way
, 2016 WL 6081818, at * 3–6. We think it preferable, and here it suffices, to decide only the first issue —m ore precisely, whether Pleasure

- Way, in changing the vans into motorhomes, created a commercially different good.
That issue calls for a focus on relativel y familiar co nsiderations concerning differentiation in the marketplace

. That differentiation may be reflected in various kinds of evidence. Some kinds of evidence direct ly focus on what happens in the marke tplace

— such as consumer uses and how products are marketed and sold. Some kinds of evidence are more indirect

— such as legal treatment , as inPLEASURE

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HTSUS, that is substantively related to commercial differences

. T he other two inquiries discussed by the parties i n this case present greater challenges : at least in this case, they are less tractable than the “commercially different good” inquiry . T he inquiry into “ the essential characteri stics
, ” if taken on its own terms and not translated into a marketplace inquiry, requires the assessment of different characteristics of a vehicle for their essentiality. Here, for example, the parties argue about the comparative esse ntiality of the ability to move down the road and the veh icle parts enabling that function versus the func tion s made possible by th os e interior space s not used for controlling vehicle motion

— spaces for carrying cargo from place to place for use when off -loaded or , instead, for provi ding comforts for use as a residence inside the vehicle. The guides for resolving that debate to determine “ the esse ntial characteristics ” in this context are not bright. The “intended use” inquiry presents its own challen ges— even aside from uncertainties in the regulatory text

. Whose intent counts ? A t what time ? In this case, the participants in the cycle may include a van manufacturer, one or more van sellers in the U.S., one or more van buyer s in the U.S., the exporter from the U.S., one or

more buyers in Canada, the Canadian van alterer, the importer of the altered vehicle
, and the U.S. buyer of the altered vehicle

. The van maker at issue advertises the

vans to potential customers both as suitable for use as sold ( e.g. , as a familiar cargo haule r ) and as suitable for modification for another use ( e.g. , as a motorhome). A U.S. firm might buy a group of vans and export them with the plan to sell some of them for use as is and others for modification (and re

- import) , but not knowing which possibili ty will ripen into reality for any particular van. We do not say that there exist no sound ways to meet the challenges seemingly presented by the “intended use”PLEASURE

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inquiry , even in complicated situations. Certainly there

are simple situation s , like th e one involved in J.D. Ric hardson (quite unlike the present case ) , where , as already noted, a U.S. manufacturer exported its “un completed articles,” which “ could not be used in their condition as exported,” to be “manufactured into completed articles” for return to the U.S. manufacturer to be use d as parts. 36 CCPA at 16, 17 (emphasis added)

. But the apparent challenges presented by the “intended use” language of subsection (b) are on their face greater for a case like this

one

— where the exported article is in fact a completed article for consumer use for some purposes ( traditional
cargo carrying)

— than those presented by the “comme rcially different” inquiry

. B In this case, t he undisputed facts make the answer to th e “commercially different” question straightforward

. The Court of International Trade, i n concluding that the imported motorhomes were commercially different from the exported Sprinter vans, relied on “changes to the pricing, the applicable tariff heading, the use, and the name of the vans. ” Pleasure

- Way
, 2016 WL 6081818, at *5. It determined that t he motorhomes “no longer rese mbled the exported cargo vans
, ” were “no longer classifiable as motor vehicles for the transport of goods
, ” and were sold at “different price points than the exporte d vehicles

. ” Id. Those determinations were proper on this summary

judgment record, and so was the conclusion that the Pleasure

- Way motorhomes were commercially different from the Sprinter vans.
Pleasure

- Way g ave the converted motorhomes new

names

— the Ascent TS or Plateau TS. It sold them at a price significantly higher than

— even double or triple

— the market price for Sprinter vans. It marketed t he motorhomes as upscale leisure vehicles to be used for vacationing and recreation, while the Sprinter vans we rePLEASURE

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marketed primarily as cargo vans , with the potential for other uses if they were modified by purchasers. Overall, then, the likely use and consumer base for the Sprinter vans as exported were broadly different from those for the motorhomes imported into the U .S. after leaving Plea sure

- Way’s Canadian conversion facility. Not surprisingly, t he applicable HTSUS tariff classifications are also diffe rent for the motorhomes and the Sprinter vans

— the m otorhomes come u nder subheading 8703 as vehicles designed for the transport of persons
, while the Sprinter

van s come under subheading 8704 as vehicles for the transport of goods or cargo. Th e se differences, taken in combination, make the imported motorhomes commercia lly different goods from the exported Sprinter vans.
Pleasure

- Way argues against this conclusion by co ntend ing that what constitutes a “ commercially different good” should depend on whether the altered good is “identifiable” as the pre

- alteration good and that a m otorhome is identifiable as the van from which it emerged because the vehicle identification number (VIN) remains. Appellant’s Br. at 43 –47 ( relying on Press Wireless ). We reject t his view . It does not fit the regulation , a nd it is not supp orted by Press Wireless

. The regulat ion addresses a universe of situations in which an exported good has been modified to become the later imported good, and it distinguishes some such modifications from others based (as relevant here) on whether the r esul ting good is commercially different from the original. If so, the favorable duty treatment is un avail able. The basis of distinction

— whether the resulting good is “commercially” different from the original

— has very little to do with whether it is possible to recognize the original embedded in the altered good. And such identifiability certainly is not a decisive fact, as Pleasure

Way urges

— even in the specific situation where there happens to be an unrelated regulatory regime that en a-PLEASURE

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ble s recogni t ion of origins through assign ed informationencoding numbers, such as VINs

. Th e conclusion th at identifiability of the exported good in the re

- imported good does not equat e to lack of commercial difference is confirmed by the regulation ’s illustrative exam ple

— involving glass mugs tempered and etched abroad that thereby became “commercially diffe rent products with distinct new characteristics.” 19 C.F.R. § 181.64(a). There is no mention of whether or not the exported mugs could be readily identified in the re

import ed products

. T he example focuses solely on whet her the “distinct new characteristics” conferred by tempe ring and etching changed the commercial nature of the good
, id. , which depend s on the commercial characteri stics of the original and resulting good s, not whether one is still discernible in the other.
Press Wireless , which involved radio tubes exported for repairs and then reimported into the U nited S tates , does not support Pleasure

- Way’s position. The Customs Court in Pre ss Wireless did observe that , while the rei mported tubes had a new marking ( “ T.X. 10

- 3000 ” ), the original markings of the exported tubes (“ S. W.7 ” ) could be discerned on the reimported tubes. 6 Cust. Ct. at 104. But the Customs Court hardly stopped at th at fact , which merely rebutted the Government’s contention that the imported tubes were not the same tubes as the exported ones. The court held that the tubes qualif ied for favorable duty treatment under the precursor to current subsection (a) because of the limited nature of the foreign processing: “[w]hile abroad the worn

- out tubes were restored to a condition which prolonged the use for which they were originally designed ,” no more, except for some greater efficiency from an improved material for the fi lament. Id. at 105. For the reasons indicated, the change at issue in the present case is quite different as a commercial matter.PLEASURE

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Pleasure

- Way further suggests that this court’s pr edecessor , in the Doll iff case, held that changes in name, price, and classification may not be taken into account when determining whether a n imported good is comme rcially different from its exported precursor. We reject t hat suggestion . It overstates what Dolliff stands for.
As relevant to Pleasure

- Way’s point, th e furthest Do ll iff goes is one statement that some changes in the “name, appearance, size, shape and use” of a good could be “alte rations” within the meaning of a regulation similar to 19 C.F.R. § 181.64(a). Do l liff
, 599 F.2d at 1018. 2 That statement hardly precludes reliance on the totality of circumstances relevant to commercial differences, inclu ding those mentioned in Dolliff . Moreover, e ven th e li mited statement in Dolliff was unnecessary to the court’s holding there, which was tha t the changes at issue were not “alterations.” Id. at 1021. And the court drew that conclusion, as we have noted, on the ground now embo died in 19 C.F.R. § 181.64(b), based on J.D. Richardson : t he foreign processing at issue in Dolliff , the court held,

2 Dolliff quotes a regulation, which defined “repairs or alterations” in Tariff Schedules of the United States (TSUS) item 806.20, as follows: “The term ‘repairs or alterations’ shall be held to mean restoration, change, addition, renovation, cleaning, or ot her treatment which does not destroy the identity of the article exported or create a new or different article.” See 599 F.2d at 1018. The court in Dolliff then said the following about TSUS item 806.20: “ Appellant correctly contends that simply because intermediate foreign processing of articles of U.S. origin that are subsequently reimported into the United States results in differences in name, value, appearance, size, shape and use for the articles does not require a conclusion that the foreign processing does not comprise ‘alterations’ under TSUS item 806.20.” Id.PLEASURE

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w as processing “performed on unfinished goods” and led “to completed articles,” so “the processing cannot be considered alterations.” Id. at 1019. T he actual decision in Dolliff , rejecting the “alteration” characterization, could not aid Pleasure

- Way even if it applied to the exported Sprint er vans. We conclude that Pleasure

- Way’s motorhome s flunk a necessary requirement for favorable duty treatment under 19 C.F.R. § 181.64 and, therefore, are not properly classifiable under subheading 9802.00.50 of the HT SUS.

III For the foregoing reasons, we affirm the judgment of the Court of International Trade

. AFFIRMED