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Slip Op. 02-20

UNITED STATES COURT OF INTERNATIONAL TRADE

 

:

AMMEX, INC., : 

:

Plaintiff, :

: Before: WALLACH, Judge

v. : Court No.: 99-01-00013

:

:

UNITED STATES OF AMERICA, :

:

Defendant. :

:

 :

[Order to Show Cause; Denied.]

Decided: February 22, 2002

Steptoe & Johnson LLP (Herbert C. Shelley, Alice A. Kipel), for Plaintiff.

Robert D. McCallum, Jr., Assistant Attorney General; Joseph I. Liebman, Attorney in Charge,

International Trade Field Office, Commercial Litigation Branch, Civil Division, United States

Department of Justice (Amy M. Rubin), for Defendant.

WALLACH, Judge.

OPINION

I

PRELIMINARY STATEMENT

Plaintiff, Ammex, Inc. (“Ammex”), moves this court for an Order to Show Cause Why

Defendant Should Not be Held in Contempt, pursuant to Rules 7(e) and 63 of the Rules of this
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Court. Specifically, Ammex seeks to require defendant, the United States of America (the

“Government”), to explain why Customs’ revocation of Ammex’s authorization to sell duty-free

fuel is not in contempt of this court’s order and judgment of August 25, 2000. Ammex, Inc.’s

Motion for Order to Show Cause Why Defendant Should Not be Held in Contempt (“Ammex’s

Motion”) at 1. Familiarity with the court’s August 25, 2000 order and decision in Ammex, Inc.

v. United States, 116 F. Supp. 2d 1269 (CIT 2000) (“Ammex I”), is presumed. 

II

BACKGROUND

Ammex operates a duty-free store at the Ambassador Bridge between Detroit, Michigan

and Windsor, Canada. In a letter dated January 24, 1994, Ammex requested approval to sell

gasoline and diesel fuel on a duty-free basis. Letter from Barbeau to Morandini of 1/24/94 (Ex. 6

to Ammex’s Memorandum of Law in Support of Ammex, Inc.’s Motion for Order to Show

Cause Why Defendant Should Not be Held in Contempt (“Ammex’s Memo”)). On February 12,

1998, the United States Customs Service (“Customs”) ruled that gasoline and diesel fuel could

not be sold on a duty-free basis from Ammex’s facility. U.S. Customs Service Headquarters

Ruling (“HQ”) 227385, February 12, 1998. This ruling reaffirmed a 1994 headquarters ruling

which found that activities of duty-free stores should not be extended to cover “unidentifiable

fungibles,” such as gasoline and diesel fuel, when sold on a retail basis. HQ 225287, June 7,

1994. “[I]n both HQ 227385 and 225287, Customs accepted the requestor’s assertion that the

merchandise under consideration was duty-free but, . . . determined that such merchandise could
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not be sold as duty-free merchandise from a class 9 bonded warehouse.” Customs Bulletin and

Decisions, Vol. 35, No. 25, June 20, 2001, at 296.

In Ammex I, Ammex challenged the above Customs rulings. This court found that

“Customs acted unlawfully in prohibiting Ammex from selling duty-free gasoline and diesel

fuel.” Ammex I, 116 F. Supp. 2d at 1275-76. This court accordingly entered a judgment setting

aside HQ 227385 and “ORDERED ADJUDGED AND DECREED that 19 U.S.C. §§ 1555 and

1557 allow the duty-free sale of gasoline and diesel fuel from a duty-free enterprise.” Id. at 1276.

On September 5, 2000, in accordance with the court’s decision, Customs issued a letter to

Ammex granting its request to expand its “Class 9 duty free warehouse operation to include the

gasoline and diesel fuel tanks located at [Ammex’s] facility.” Letter from Ryan to Levesque of

9/5/00 (Ex. 2 to Ammex’s Memo) (“September 5 letter”). 

On October 23, 2002, Ammex wrote to Customs seeking a letter to certify that the fuel

sold at Ammex’s duty-free store was exempt from taxes. Letter from Levesque to Ryan of

10/23/00 (Ex. 1 to “Durant Declaration” of Defendant’s Opposition to Plaintiff’s Motion to

Show Cause Why Defendant Should Not be Held in Contempt) (“October 23 letter”). Customs

forwarded Ammex’s request to the Internal Revenue Service (“IRS”). On January 8, 2001, the

IRS issued an informational letter stating that section 4081 of the Internal Revenue Code (the

“Tax Code”) (26 U.S.C. § 4081) imposes a tax on the entry into the United States of any taxable

fuel, including gasoline and diesel fuel for consumption, use, or warehousing. Durant

Declaration ¶8. 

Based on the IRS letter, Customs determined that it could not lawfully permit Ammex to

sell gasoline and diesel fuel duty-free. On June 20, 2001, Customs issued a notice proposing to
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revoke the September 5 letter. Customs Bulletin and Decisions, Vol. 35, No. 25, June 20, 2001.

On November 21, 2001, after a notice and comment period, Customs advised that it was

“revoking a ruling letter pertaining to gasoline and diesel fuel from a [sic] class 9 bonded

warehouses and revoking any treatment previously accorded by the Customs Service to

substantially identical transactions.” Id., Vol. 35, No. 47 (November 21, 2001) at 5 (“Revocation

Decision”). Customs announced that the revocation would become effective on January 21, 2002. 

Id. Ammex thereafter filed its Motion to Show Cause Why Defendant Should Not be Held in

Contempt.

III

STANDARD

To establish that a party is liable for civil contempt a plaintiff must prove three elements:

“(1) that a valid order of the court existed; (2) that the defendants had knowledge of the order;

and (3) that the defendants disobeyed the order.” Roe v. Operation Rescue, 54 F.3d 133, 137 (3d

Cir. 1995). Civil contempt must be proven by clear and convincing evidence, Glaxo, Inc. v.

Novopharm, Ltd., 110 F.3d 1562, 1572 (Fed. Cir. 1997), and a court cannot hold a party in

contempt if there is a “fair ground of doubt as to the wrongfulness of the [party’s] actions,”

Preemption Devices, Inc. v. Minn. Mining & Mfg. Co., 803 F.2d 1170, 1173 (Fed. Cir. 1986). 
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IV

ARGUMENTS

Ammex argues that Customs’ revocation is “plainly inconsistent with this Court’s Order

permitting the sale of duty-free gasoline and diesel fuel from a duty-free sales enterprise.” 

Ammex’s Memo at 3. Ammex requests, among other things, that this court issue an order to

show cause why Customs’ revocation is not in contempt of this court’s judgment of August 25,

2000 and determine that section 4081 of the Tax Code, as it applies to entries into Class 9

bonded warehouses, is unconstitutional. 

“The agency decision challenged in Ammex I was based exclusively on a perceived

‘unidentifiable fungibles’ exception to the statute relating to bonded warehouses, particularly

Class 9 bonded warehouses, and the holding in Ammex I was simply that that decision, as

memorialized in HQ 225287 and affirmed in HQ 227385, was contrary to law.” Defendant’s

Opposition to Plaintiff’s Motion for an Order to Show Cause Why Defendant Should not be Held

in Contempt (“Defendant’s Opposition”) at 8. The Government argues, “Neither the challenged

ruling letters nor this Court’s holding addressed or involved any other potential basis for

prohibiting the duty-free sale of gasoline and diesel fuel, including whether the fuel which

Ammex intended to sell is encompassed by the statutory definition of ‘duty-free merchandise.’”

Id. Because the issues presently raised by Ammex’s motion “are not relevant to a determination

of whether Customs’ revocation decision violates the Ammex I decision,” id. at 17, the

Government argues that this court should decline to consider them. 
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V

ANALYSIS

A

Jurisdiction to Entertain Present Challenge

The United States Court of International Trade, like all Federal courts established under

Article III of the Constitution, is a court of limited jurisdiction. United States v. Gold Mountain

Coffee, Ltd., 8 C.I.T. 247, 248, 597 F. Supp. 510, 513 (1984). The party asserting jurisdiction

“has the burden of proving that jurisdiction in this court is proper.” Id. at 249. Jurisdiction for

this court to entertain the challenge in Ammex I fell under 28 U.S.C. § 1581(i), which provides

the court with jurisdiction over “any civil action commenced against the United States . . . that

arises out of any law of the United States providing for revenue from imports or tonnage, tariffs,

duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of

revenue or administration and enforcement with respect to these matters.” 28 U.S.C. § 1581(i). 

Ammex now argues that this court “possesses jurisdiction to hear this motion by virtue of the

Court’s jurisdiction over the underlying proceeding in this case.” Plaintiff’s Memo at 3 (citing 

United States v. Hanover Ins. Co., 82 F.3d 1052, 1054 (Fed. Cir. 1996) (“[T]he Court of

International Trade has the inherent power to determine the effect of its judgments and issue

injunctions to protect against attempts to attack or evade those judgments.”)).

Were Customs’ revocation an attempt to attack or evade Ammex I and the court’s August

25, 2000 judgment, then no doubt this court could readily exercise jurisdiction over such

behavior under its inherent enforcement powers and as an extension of its jurisdiction to hear

Ammex’s original complaint in Ammex I. However, the issue underlying Ammex’s Complaint
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in the present motion is distinct from the issue raised in Ammex I. While both issues call upon

the court to determine the validity of Customs’ refusal to allow Ammex to sell fuel from its dutyfree store, the stated bases for Customs’ refusal to allow Ammex’s sales differ in each case. 

Ammex’s contention that “there can be no dispute that the transaction and matter at issue

in this second action are the same as the first–the matter now, as before, is Ammex’s right to sell

gasoline and diesel fuel duty-free from its duty-free store in Detroit, Michigan,” Plaintiff’s Memo

at 16, is specious. Ammex states the issue too broadly. The issue in Ammex I was not simply

whether Ammex is entitled “to sell gasoline and diesel fuel from its duty-free store in Detroit,

Michigan.” Id. Rather, the court was called upon to consider whether the explanation Customs

provided for denying Ammex’s request to sell gasoline and diesel fuel duty-free was arbitrary,

capricious, or contrary to law. 

The Government more accurately states the case thus: 

The only issue that the Court had to decide in [Ammex I] was whether the denial of

Ammex’s proposal to sell gasoline and diesel fuel free of duty at its duty-free store in

Detroit, Michigan, for the reasons provided in HQ 225287 and then affirmed in HQ 227385,

was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.

Based on the nature of the complaint, the Court was constrained to consider only that stated

basis for the challenged decision and review only the agency’s record underlying its

decision.” 

Defendant’s Opposition at 4 (emphasis added). 

This court accordingly reviewed Customs’ stated reason for denying Ammex’s request to

sell duty-free fuel, namely, its rationale that such fuel falls under an “unidentifiable fungibles”

exception to merchandise that can lawfully be entered and withdrawn for exportation from dutyfree stores. Customs reasoned that, because duty-free merchandise purchased in the United

States, if reimported, had to be declared and the duties and taxes paid, the lack of any practical
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means of enforcing this requirement with respect to unidentifiable fuel in gas tanks rendered the

sale of duty-free fuel contrary to law. 

In resolving the issue raised in Ammex I, the court stated, “§ 1557(a)(1) is dispositive of

Plaintiff’s claim.” Ammex I, 116 F. Supp. 2d at 1275. “On its face, the plain language of §

1557(a)(1) shows Congress’ intent that there be only two restrictions on the type of dutiable

merchandise that may be stored or withdrawn from a bonded warehouse: (1) perishable articles

and (2) explosive substances other than firecrackers.” Id. at 1273. This court determined that

diesel fuel and gasoline did not fall within either of these exceptions, and thus it was error for the

government to read into the governing statute “an exception beyond those specifically stated in §

1557(a)(1).” Id. at 1275. “In view of 1557(a)(1)’s instruction that ‘any merchandise subject to

duty’ may be entered and withdrawn from a bonded warehouse, the court finds that Customs

violated this provision in promulgating HQ 227385.” Id.

Implicit in both parties’ briefings in Ammex I and the court’s opinion was the

presumption that the gasoline and diesel fuel at issue qualified as “duty-free merchandise” within

the meaning of 19 U.S.C. § 1555(b)(8)(E). Neither party questioned this assumption, and

because neither party raised a challenge, the court did not consider or rule on such an issue.

Because of subsequent events, however, the issue has arisen as to whether gasoline and diesel

fuel can qualify as “duty-free merchandise” under 19 U.S.C. § 1555(b)(8)(E), in light of

information from the IRS that such fuel may be subject to tax and therefore unable to qualify as

“duty-free merchandise” under the statutory definition. 

“[F]or the Court to consider Ammex’s Motion, it must also consider whether the federal

excise tax issue now framed by Customs was directly or indirectly part and parcel of Ammex I.” 
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Reply of Ammex, Inc. In Support of its Motion for Order to Show Cause (“Ammex’s Reply”) at

12. Revelations by Ammex at oral argument confirm that the issue now raised was neither part

and parcel, nor conclusively determined in Ammex I. Ammex previously maintained that this

court’s decision in Ammex I foreclosed all issues relevant to Customs’ denial of Ammex’s right

to sell gasoline and diesel fuel duty-free, yet Ammex’s October 23, 2000 letter to Customs states

the following:

Subsequent to the decision by the U.S. Court of International Trade, Ammex has commenced

the sale of tax and duty free gasoline and diesel fuel, following U.S. Customs requirements

and procedures. In conjunction with this operation, Ammex requires a letter from U.S.

Customs stating that there are no taxes due at the time of bonded entry into the U.S. of

gasoline and diesel fuel. 

October 23 letter. Ammex explained at oral argument that the October 23 letter was an attempt

by Ammex to obtain, and use in unrelated litigation, a certification from Customs that excise

taxes were not applicable to certain fuel sold by Ammex. However, in addition, because it shows

that Ammex itself would not rely on Ammex I on the excise tax question, the letter now serves to

foreclose Ammex’s res judicata and contempt arguments. 

Having determined that the issue of federal taxes as applied to gasoline and diesel fuel

and the concurrent consideration of whether such application preempts such fuel from qualifying

as “duty-free merchandise” was neither part nor parcel of Ammex I, Ammex’s Motion cannot be

considered by the court under the present procedural posture. Ammex’s Motion asks the court 

“to interpret § 1555(b)(8)(E) of Title 19–a Customs statute.” Ammex’s Reply at 12-13. This

constitutes a new matter, one which was not contemplated in Ammex I. It therefore cannot be

said that the revocation constitutes an attack on the court’s prior judgment or order in this case. 

While the court does possess inherent power to determine the effect of its judgments and protect
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against attempts to attack or evade those judgments, in this case, the issue before the court is not

encompassed by the prior order.

Customs did not violate this court’s order in Ammex I by either determining, based on

newly acquired information, that the fuel Ammex desires to sell can not qualify as “duty-free

merchandise,” and its subsequent revocation of Ammex’s entitlement to sell gasoline and diesel

fuel from its duty-free store, does not violate the decision in Ammex I. Ammex is entitled to

challenge the basis for Customs’ decision to revoke its September 5 letter. If, however, Ammex

wishes to challenge this new, distinct basis for Customs’ disallowance of Ammex’s sale of

gasoline and diesel fuel from its duty-free store, Ammex must raise this issue anew in the proper

procedural manner. It cannot, as the Government contends, “thwart proper procedure and

bootstrap a new grievance onto a dispute that has already been resolved.” Defendant’s

Opposition at 20. 

B

Res Judicata Argument

Ammex also argues that Customs’ “attempt to relitigate the matter of Ammex’s duty-free

fuel sales with a previously-available argument is precluded under the long-standing doctrine of

res judicata,” a term “used broadly to refer to concepts of merger, bar, and direct and collateral

estoppel [i.e., issue preclusion].” Plaintiff’s Memo at 15. Two “major limitations” to such

preclusion, however, are (1) “a requirement that at the time of the first litigation the parties be

able to foresee the later litigation that came to present the same issue” and “a requirement that the

issue have played an important role in the abstract hierarchy of legal rules controlling the first or
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the second litigation.” 18 Wright, Miller & Cooper, Federal Practice and Procedure § 4424 at

226-227 (1981); see also Hyman v. Regenstein, 258 F.2d 502, 510-11, cert. denied, 79 S.Ct. 589,

359 U.S. 913, 3 L.Ed.2d 575 (5th Cir. 1958) (“[C]ollateral estoppel by judgment is applicable

only when it is evident from the pleadings and record that determination of the fact in question

was necessary to the final judgment and it was foreseeable that the fact would be of importance

in possible future litigation.”). The court finds that the narrow tax issue now raised was too far

outside the ambit of the Ammex I proceedings either to be foreseeable or to play a crucial role in

the final judgment of that case. Issue preclusion should thus not operate to bar either party from

raising this issue in the correct procedural posture. 

VI

CONCLUSION

For the foregoing reasons, Ammex’s Motion for Order to Show Cause Why Defendant

Should Not be Held in Contempt is denied. 

__________________________

Evan J. Wallach, Judge

Dated: February 22, 2002

New York, New York