Opinion ID: 211493
Heading Depth: 2
Heading Rank: 3

Heading: Allowances For Latent Defects

Text: The United States argues that 19 C.F.R. § 158.12 does not provide relief for latent defects, because the regulation permits allowances only for such merchandise damage as is discovered or readily discoverable at importation. Because the allowances claimed by Saab relate to defects that were, in Saab's terms, latent, the government asserts that they were inherently not readily discoverable at the time of importation and therefore not eligible for allowances under § 158.12. The government's argument derives from the language of the regulation itself, which provides that [m]erchandise . . . which is found by the port director to be partially damaged at the time of importation shall be appraised in its condition as imported. 19 C.F.R. § 158.12(a). The government reads this language to require that the port director must be able to identify the damage 'at the time of importation.' 04-1268, -1416 16 The trial court found the government's argument in this regard to be anemic and advanced purely for litigation, and therefore declined to give any deference to Customs' purported interpretation of § 152.12. Saab I, 276 F. Supp. 2d at 1331. It then reviewed the language of the regulation itself, concluding that the plain language of the provision limits allowances not to damage ascertainable to the port director at the time of importation, but to goods partially damaged when imported, whenever that damage is discovered. Id. at 1331-32. We agree. The government's interpretation is unduly restrictive. The better reading is that the words at the time of importation modify the phrase partially damaged, not the verb found. Read thus, the regulation permits allowances for merchandise that the port director finds, at any time, to have been partially damaged at the time of importation. The government's interpretation would lead to absurdity: because importation occurs in a moment, United States v. Arnold Pickle & Olive Co., 659 F.2d 1049, 1053 (C.C.P.A. 1981), a requirement that defects be identified at the time of importation would preclude recovery for any defects not identifiable at a single glance. The government disclaims that literalist interpretation, as it must, and attempts to substitute a standard in which damage at the time of importation means damage which is not readily apparent at importation, but discoverable through minimal inspection within a brief period after importation. The government's interpretation of the regulation finds support neither in its plain language nor in our cases. The sole authority cited to support the interpretation, G. Cuccio Di G. & Co. v. United States, 172 F. 304 (C.C.S.D.N.Y. 1909), is less than persuasive. G. Cuccio involved a protest over the appraisal of lemons. The fruit arrived 04-1268, -1416 17 at the port of entry but was not examined for six days thereafter, by which time [m]uch loss by rotting had occurred. 172 F. at 304. The court recited the general principle that the duty attaches to the goods immediately upon their arrival within the limits of our ports, and affirmed the assessment of duty as of the date of entry, concluding that it would be a dangerous precedent to say that the loss discovered at the examination should serve as the basis of determining the condition of the fruit a week earlier. Id. G. Cuccio stands for no proposition broader than the obvious one that in the absence of evidence that the merchandise in question was defective at the time of entry, it will be assessed as if it were not. It does not support the government's argument here. The rulemaking history of § 158.12 also undermines the government's argument. It states that [s]ection 158.12 . . . has been added to show the treatment given to merchandise which is partially damaged . . . at the time of importation. Proposed Rule Making, 37 Fed. Reg. 7797 (April 20, 1972) (emphasis added). The proposed rulemaking describes the purposes of § 158.12 in terms of damage at the time of entry; it makes no reference to when the damage is actually discovered. The United States also argues that its interpretation of § 158.12 is supported by 19 U.S.C. § 1313(c), which provides for refunds of duties paid on merchandise not conforming to sample or specifications or determined to be defective as of the time of importation, which, within 3 years after the date of importation . . . has been exported or destroyed under the supervision of the Customs Service. 19 U.S.C. § 1313(c)(1). The government argues that Congress intended this section to deal with latent defects like those at issue here, quoting legislative history to the effect that the purpose of § 1313(c) was to extend the time for return to customs custody to a period reasonably 04-1268, -1416 18 adequate for discovery of latent defects or those which can only be ascertained by test or use (internal quotations omitted). Saab failed to respond to this argument in its reply brief. Nevertheless, we find it unconvincing. By its terms, § 1313(c) applies only to nonconforming or defective merchandise that, following importation, is re-exported or destroyed by the Customs Service. The drawback amount in each case is 99% of the duty originally paid. Section 1514(c) and its implementing regulations, by contrast, address a different circumstance, one that does not require the subsequent exportation or destruction of the defective merchandise and does not necessarily provide complete recovery of the duties paid. We agree with the trial court that [t]he plain language of §1313(c) does not include under its purview all instances of defects discovered after importation, and thus does not preclude §158.12 from applying in the present case. Saab I, 276 F. Supp. 2d at 1332. In short, the government's interpretation of § 158.12 finds support neither in the plain text of the regulation, nor in precedent, nor in the rulemaking history of the provision, nor in the structure of the Tariff Act itself. We therefore affirm the trial court's conclusion that § 158.12, by its terms, permits allowances for goods partially damaged when imported, whenever that damage is discovered. Id. at 1331-32.