United States Court of Appeals for the Federal Circuit 

2008-1409 

UNITED STATES, 

 Plaintiff-Appellee, 

v. 

UPS CUSTOMHOUSE BROKERAGE, INC., 

 Defendant-Appellant. 

Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil 

Division, United States Department of Justice, of Washington, DC, argued for plaintiffappellee. With her on the brief was Jeanne E. Davidson, Director. Of counsel on the brief 

were Courtney E. Sheehan, Attorney, and Edward M. Greenwald, Attorney, Office of the 

Associate Chief Counsel, United States Customs & Border Protection, United States 

Department of Homeland Security, of Chicago, Illinois. 

Terence J. Lynam, Akin Gump Strauss Hauer & Feld LLP, of Washington, DC, 

argued for defendant-appellant. With him on the brief were Lars-Erik A. Hjelm, Tamer A. 

Soliman and Monica P. Sekhon. 

Joseph M. Spraragen, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of 

New York, New York, for amicus curiae. With him on the brief were Alan R. Klestadt and 

Robert B. Silverman. 

Appealed from: United States Court of International Trade 

Judge Gregory W. Carman 
United States Court of Appeals for the Federal Circuit 

 

2008-1409 

UNITED STATES, 

Plaintiff-Appellee, 

v. 

UPS CUSTOMHOUSE BROKERAGE, INC., 

Defendant-Appellant. 

Appeal from the United States Court of International Trade in case No. 04-00650, Judge 

Gregory W. Carman. 

_______________________ 

DECIDED: August 11, 2009 

_______________________ 

Before SCHALL, ARCHER, and MOORE, Circuit Judges. 

ARCHER, Circuit Judge. 

 UPS Customhouse Brokerage, Inc. (“UPS”) appeals the Court of International 

Trade’s judgment in favor of the United States. The Court of International Trade held 

1) UPS misclassified certain merchandise under subheading 8473.30.9000 of the 

Harmonized Tariff Schedule of the United States (“HTSUS”); 2) UPS’s misclassification 

established multiple violations of 19 U.S.C. § 1641, which requires brokers to exercise 

responsible supervision and control over their customs business; and 3) the United 

States is entitled to a judgment in the amount of $75,000 against UPS. United States v. 

UPS Customhouse Brokerage, Inc., 558 F. Supp. 2d 1331 (Ct. Int’l Trade May 28, 

2008). We affirm the court’s holding that UPS misclassified merchandise under 

subheading 8473.30.9000. Because the Court of International Trade erred in upholding 
the Bureau of Customs and Border Protection’s (“Customs”) determination that UPS did 

not exercise responsible supervision and control in violation of 19 U.S.C. § 1641, we 

vacate that portion of the court’s judgment and remand for further proceedings. 

I 

 Since 1985, UPS has been a licensed customs broker that prepares and files 

customs entry documents on behalf of its clients. This case arises from UPS’s 

classification entries under HTSUS heading 8473, which covers parts and accessories 

of automated data processing (“ADP”) machines. From January through May 2000, 

UPS classified the sixty entries at issue here under HTSUS subheading 8473.30.9000. 

Customs claimed that the entries were misclassified because HTSUS 8473.30.9000 

required the parts at issue to contain a cathode ray tube (“CRT”), rather than being part 

of a computer that contained a CRT. 

 Customs initiated eight penalty actions against UPS covering the sixty alleged 

misclassified entries as follows: three pre-penalty notices for $5,000 each on May 15, 

2000, with each notice consisting of five entries; three pre-penalty notices for $5,000 

each on July 11, 2000, with each notice consisting of five entries; and two pre-penalty 

notices for $30,000 each on August 15, 2000, with each notice consisting of fifteen 

entries. All eight of the pre-penalty notices alleged a failure to exercise responsible 

supervision and control in classifying ADP parts under HTSUS subheading 

8473.30.9000. On September 15, 2000, Customs issued three penalty notices for 

$5,000 each based on the May 15 pre-penalty notices. UPS paid these penalties. On 

September 26, 2000, Customs issued three more penalty notices for $5,000 each 

based on the July 11 pre-penalty notices, and on October 19, 2000, Customs issued 

2008-1409 2
two more penalty notices for $30,000 each based on the August 15 pre-penalty notices. 

The penalties assessed totaled $90,000. 

 On December 17, 2004, the government brought suit in the Court of International 

Trade seeking to enforce the unpaid portion of the penalties—i.e., $75,000. UPS 

moved for summary judgment on the issue of whether 19 U.S.C. § 1641 limited 

Customs to assessing a single penalty for all alleged violations preceding issuance of 

the first pre-penalty notice or, alternatively, whether it limited Customs to an aggregate 

monetary penalty of $30,000 for all alleged violations preceding issuance of the first prepenalty notice.1

 The court denied the motion.2

 Following trial, the Court of International Trade held that the computer parts were 

misclassified and that the repeated misclassifications constituted multiple violations of 

the statutory duty to exercise responsible supervision and control. The court then 

concluded that Customs had demonstrated that UPS failed to exercise responsible 

supervision and control and that Customs established that UPS violated 

19 U.S.C. § 1641 on multiple occasions. The Court of International Trade further held 

 1

 These issues were briefed by the parties in this appeal, but we decline to 

consider them now because of our decision that the Court of International Trade erred 

in upholding the underlying determination by Customs that UPS did not exercise 

responsible supervision and control as required by 19 U.S.C. § 1641. 

2

 The Court of International Trade granted UPS’s motion to certify for 

interlocutory appeal the question of whether under 19 U.S.C. § 1641 Customs: 

may issue more than one penalty notice for a customs broker’s alleged 

failure to exercise responsible supervision and control based upon the 

customs broker’s alleged repeated misclassification of entered 

merchandise over a period of time and on multiple separate entry 

documents; and if so, whether the aggregate penalty sought from those 

multiple penalty notices may exceed $30,000. 

This court, however, denied the petition for permission to appeal. 

2008-1409 3
that the United States was entitled to a judgment in the amount of $75,000, plus any 

applicable interest that may be due. 

 UPS appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5). 

II 

 “The ultimate question in a classification case is whether the merchandise is 

properly classified under one or another classification heading. We have consistently 

viewed this as a question of law, see Sports Graphics, Inc. v. United States, 24 F.3d 

1390, 1391 (Fed. Cir. 1994), because what is at issue is the meaning of the terms set 

out in the statute . . . .” Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1365 

(Fed. Cir. 1998). Additionally, “[c]onstruction of a statute or regulation is a question of 

law we review de novo.” Summers v. Gober, 225 F.3d 1293, 1295 (Fed. Cir. 2000). 

“Despite our de novo review of interpretations of tariff provisions, classification 

decisions by Customs interpreting provisions of the HTSUS may receive some 

deference under the principles of Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 

161, 89 L. Ed. 124 (1944).” MetChem, Inc. v. United States, 513 F.3d 1342, 1345 (Fed. 

Cir. 2008) (citation omitted). Nevertheless, “Customs’ rulings are ‘not controlling upon 

the courts by reason of their authority,’ Skidmore, 323 U.S. at 140, 65 S. Ct. 161, and 

‘this court has an independent responsibility to decide the legal issue of the proper 

meaning and scope of HTSUS terms.’” Id. (quoting Warner-Lambert Co. v. United 

States, 407 F.3d 1207, 1209 (Fed. Cir. 2005)). 

2008-1409 4
A 

 The first issue here is whether UPS properly classified merchandise under 

HTSUS subheading 8473.30.9000. 

A classification decision has two underlying steps: “first, construe the relevant 

classification headings; and second, determine under which of the properly construed 

tariff terms the merchandise at issue falls.” Bausch & Lomb, Inc., 148 F.3d at 1364-65. 

 “The HTSUS scheme is organized by headings, each of which has one or more 

subheadings; the headings set forth general categories of merchandise, and the 

subheadings provide a more particularized segregation of the goods within each 

category.” Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed. Cir. 1998). 

“The proper classification of merchandise entering the United States is directed by the 

General Rules of Interpretation (‘GRIs’) of the HTSUS and the Additional United States 

Rules of Interpretation.” Id. GRI 1 states that “classification shall be determined 

according to the terms of the headings and any relative section or chapter notes.” 

GRI 1, HTSUS (2000). Accordingly, “[a] classification analysis begins . . . with the 

language of the headings.” Orlando Food Corp., 140 F.3d at 1440. 

 UPS asserts that the subheadings of 8473.30 are properly read as dividing items 

based on whether the machine of which they are a part contains a CRT. Thus, the 

parts and accessories imported under subheadings 8473.30.6000 and 8473.30.9000 

need not themselves contain CRTs, but merely the assembled machines must contain 

CRTs. The government argues that such a position does not make sense since 

subheadings under 8471 are divided according to whether the machines contain CRTs 

2008-1409 5
(among other things),3

 and subheadings under 8473 are divided according to whether 

the parts or accessories (of the machines of heading 8471) contain CRTs. 

 Heading 8471 is entitled “[a]utomatic data processing machines . . . ; magnetic or 

optical readers, machines for transcribing data onto data media in coded form and 

machines for processing such data.” HTSUS 8471 (2000). Heading 8473 is entitled 

“[p]arts and accessories (other than covers, carrying cases and the like) suitable for use 

solely or principally with machines of headings 8469 to 8472.” HTSUS 8473 (2000). 

 3

 The beginning of heading 8471 is as follows: 

8471 Automatic data processing machines and units thereof; 

magnetic or optical readers, machines for transcribing 

data onto data media in coded form and machines for 

processing such data, not elsewhere specified or included: 

8471.10.0000 Analog or hybrid automatic data processing machines 

8471.30.0000 Portable digital automatic data processing machines, 

weighing not more than 10 kg, consisting of at least a 

central processing unit, a key board and a display 

 

Other digital automatic data processing machines: 

8471.41.00 Comprising in the same housing at least a 

central processing unit and an input and output 

unit, whether or not combined 

With cathode-ray tube (CRT) 

8471.41.0035 Color 

8471.41.0065 Other 

8471.41.0095 Other 

8471.49 Other, entered in the form of systems: 

8471.49.10 Digital processing units entered with the 

rest of a system, whether or not 

containing in the same housing one or 

two of the following types of unit: 

storage units, input units, output units 

With cathode-ray tube (CRT): 

8471.49.1035 Color 

8471.49.1065 Other 

8471.49.1095 Other . . . . 

2008-1409 6
Subheading 8473.30 is entitled “[p]arts and accessories of the machines of heading 

8471.” HTSUS 8473.30 (2000). Subheading 8473.30 breaks out further into additional 

differentiated subcategories: 

8473.30 Parts and accessories of the machines of heading 8471: 

Not incorporating a cathode ray tube: 

8473.30.1000 Printed circuit assemblies 

8473.30.2000 Parts and accessories, including face 

plates and lock latches, or printed circuit 

assemblies 

8473.30.3000 Other parts for printers, specified in 

additional U.S. note 2 to this chapter 

8473.30.5000 Other 

 Other 

8473.30.6000 Other parts for printers, specified in 

additional U.S. note 2 to this chapter 

8473.30.9000 Other 

Subheading 8473.30 is specifically reserved for “[p]arts and accessories of the 

machines of heading 8471.” HTSUS 8473.30 (2000). Thus, subheading 8473.30 is a 

parts provision. The subheading does not include the machines themselves, as posited 

by UPS. The machines themselves would fall under heading 8471. This, by itself, 

undermines UPS’s argument. 

UPS argues that the last antecedent rule supports its interpretation. This is 

incorrect. Under the last antecedent rule, “a limiting clause or phrase . . . should 

ordinarily be read as modifying only the noun or phrase that it immediate follows.” 

Barnhart v. Thomas, 540 U.S. 20, 26 (2003). Applying this rule in the manner UPS 

suggests strains logic and grammar. The main clause of subheading 8473.30 provides 

“[p]arts and accessories of the machines of heading 8471.” Immediately following this 

2008-1409 7
phrase, on the next line, and indented, is the text “[n]ot incorporating a cathode ray 

tube.” This phrase does not, as UPS asserts, modify the phrase “the machines of 

heading 8471.” The indentation of the phrase demonstrates that “[n]ot incorporating a 

cathode ray tube” is a subset of the higher-level subheading of “[p]arts and accessories 

. . . .” It is not a continuation of the phrase “machines of heading 8471.” Rather, the 

prepositional phrase “of the machines of heading 8471” modifies “[p]arts and 

accessories.” 

The paragraph structure of subheading 8473.30 demonstrates that there are two 

types of “parts and accessories”: those “not incorporating a cathode ray tube” and 

“other.” The articles described in subheadings 8473.30.1000 through 8473.30.5000 

cannot contain CRTs, as CRTs are explicitly excluded by the language “[n]ot 

incorporating a cathode ray tube.” The articles described in subheadings 8473.30.6000 

and 8473.30.9000 must contain a CRT, as that is the only classification possibility of 

“other.” 

Accordingly, in order to be classified in subheading 8473.30.9000, the 

merchandise must be a part or accessory of the machines of heading 8471 and that 

part or accessory must incorporate a CRT. Because the merchandise at issue did not 

incorporate a CRT, we affirm the Court of International Trade’s holding that UPS 

misclassified certain merchandise under subheading HTSUS 8473.30.9000. 

 B 

Section 1641 of Title 19 is drawn to customs brokers. Subsection (b)(4) of 

§ 1641 is entitled “[d]uties” and states “[a] customs broker shall exercise responsible 

2008-1409 8
supervision and control over the customs business that it conducts.” “Responsible 

supervision and control” is defined in 19 C.F.R. § 111.1: 

Responsible supervision and control. “Responsible supervision and 

control” means that degree of supervision and control necessary to ensure 

the proper transaction of the customs business of a broker, including 

actions necessary to ensure that an employee of a broker provides 

substantially the same quality of service in handling customs transactions 

that the broker is required to provide. While the determination of what is 

necessary to perform and maintain responsible supervision and control 

will vary depending upon the circumstances in each instance, factors 

which CBP [Customs & Border Protection] will consider include, but are 

not limited to: The training required of employees of the broker; the 

issuance of written instructions and guidelines to employees of the broker; 

the volume and type of business of the broker; the reject rate for the 

various customs transactions; the maintenance of current editions of CBP 

Regulations, the Harmonized Tariff Schedule of the United States, and 

CBP issuances; the availability of an individually licensed broker for 

necessary consultation with employees of the broker; the frequency of 

supervisory visits of an individually licensed broker to another office of the 

broker that does not have a resident individually licensed broker; the 

frequency of audits and reviews by an individually licensed broker of the 

customs transactions handled by employees of the broker; the extent to 

which the individually licensed broker who qualifies the district permit is 

involved in the operation of the brokerage; and any circumstance which 

indicates that an individually licensed broker has a real interest in the 

operations of a broker. 

(emphasis added). 

 UPS argues that Customs is required to consider all of the factors set forth in 

19 C.F.R. § 111.1 when determining whether a broker exercised responsible 

supervision and control. The government contends that deference is due Customs’ 

interpretation of its own regulation and that where a regulation consists of possible 

factors, it is left to Customs’ discretion to weight the factors as deemed appropriate. 

 Deference is indeed due an agency’s interpretation of its own regulation. In fact, 

such an interpretation will be upheld “unless it is plainly erroneous or inconsistent with 

the regulation.” Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945); see 

2008-1409 9
also Auer v. Robbins, 519 U.S. 452, 461-62 (1997); Arbor Foods Inc. v. United States, 

97 F.3d 534, 540 (Fed. Cir. 1996). Here, however, Customs’ interpretation of 

19 C.F.R. § 111.1 was inconsistent with the regulation itself. 

 The regulation explains that what meets the “responsible supervision and control” 

standard will vary in each case. However, § 111.1 lists ten “factors which [Customs] will 

consider.” (emphasis added). “Will” is a mandatory term, not a discretionary one. See

New England Tank Indus. of N.H., Inc. v. United States, 861 F.2d 685, 694 (Fed. Cir. 

1988) (noting the difference between the mandatory terms “will” and “will not” and 

discretionary terms such as “should”). Thus, any interpretation of § 111.1 that does not 

require consideration of the listed factors is clearly inconsistent with the plain language 

of the regulation. 

 Customs, of course, has discretion in how it weighs each of the factors listed in 

§ 111.1. Additionally, the regulation makes clear that Customs is free to consider other 

factors in addition to those listed. See 19 § C.F.R. § 111.1 (listing “factors which 

[Customs] will consider include, but are not limited to . . . .”). However, this discretion 

does not absolve Customs of its obligation under the regulation to consider at the least

the ten listed factors. 

The government argues that such an interpretation is unreasonable given that 

not all of the factors listed in § 111.1 would apply in every instance. The applicability of 

each of the factors to a particular situation is irrelevant. Customs can simply explain 

that a particular factor does not apply and move on from there. Nothing in the 

regulation suggests that such treatment is improper. 

2008-1409 10
 An agency must follow its own regulations. See Fort Stewart Sch. v. Fed. Labor 

Relations Auth., 495 U.S. 641, 654 (1990) (“It is a familiar rule of administrative law that 

an agency must abide by its own regulations.”). Here, Customs failed to do so. The 

government argues that Customs did in fact consider the factors listed in § 111.1. As 

evidence of this, the government points to a three-page excerpt in the record which 

includes testimony by Supervisory Import Specialist Lydia Goldsmith. However, we do 

not see where all ten factors were even mentioned in the testimony. Additionally, where 

specific factors are discussed in the testimony, it is difficult to determine if those factors 

were actually considered by Customs. 

 Because Customs did not consider all ten factors listed in 19 C.F.R. § 111.1, its 

determination that UPS violated 19 U.S.C. § 1641 was improper. Accordingly, we 

vacate that portion of the Court of International Trade’s judgment and remand for further 

proceedings. 

C 

Our holding that Customs improperly concluded that UPS violated 

19 U.S.C. § 1641 moots the remaining issues briefed by the parties, and we decline to 

reach them. See United States v. Alaska S.S. Co., 253 U.S. 113, 116 (1920) (“[I]t is a 

settled principle in this court that it will determine only actual matters in controversy 

essential to the decision of the particular case before it.”); see also Elkem Metals Co. v. 

United States, 468 F.3d 795, 803 (Fed. Cir. 2006) (concluding that because an amount 

was properly excluded from constructed value, the issue of whether the party correctly 

reported that amount was moot and need not be decided). These issues are whether 

there were in fact multiple violations of § 1641 and whether Customs can impose 

2008-1409 11
2008-1409 12

penalties aggregating more than $30,000, see 19 C.F.R. § 111.91 (“Customs may 

assess a monetary penalty or penalties as follows: (a) In the case of a broker in an 

amount not to exceed an aggregate of $30,000 . . . .”). Although these issues are 

important to the parties and the industry, deciding them would be premature. 

Accordingly, those portions of the Court of International Trade’s judgment addressing 

these issues are vacated. 

AFFIRMED-IN-PART, VACATED-IN-PART, AND REMANDED-IN-PART

COSTS 

No costs.