Court Opinion

ID: 817941
Source: CourtListenerOpinion
Date Created: 2013-02-01 01:59:41.850127+00
Date Added: 2024-06-11T10:04:44.082547
License: Public Domain

Slip Op. 11-57

            UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
                               :
UNITED STATES of AMERICA.,    :
                               :
     Plaintiff,                :
                               :
          v.                   : Before: Richard K. Eaton, Judge
                               :
AMERICAN HOME ASSURANCE CO., : Court No. 09-00401
                               :
                               :
     Defendant.                :
                               :
______________________________:

                             OPINION

[Plaintiff’s and defendant’s cross-motions to stay denied.]

                                               Dated: May 17, 2011

     Tony West, Assistant Attorney General; Barbara S. Williams,
Attorney in Charge, International Trade Field Office, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Edward F. Kenny); Office of Chief Counsel, International
Trade Litigation, United States Customs and Border Protection
(Brandon T. Rogers), of counsel, for plaintiff United States of
America.

     Steptoe & Johnson LLP (Herbert C. Shelley and Mark F.
Horning) for defendant American Home Assurance Co.

     Eaton, Judge: Before the court are the parties’ cross-

motions to stay these proceedings.   Plaintiff the United States

of America (the “Government”), on behalf of United States Customs

and Border Protection (“Customs”), seeks to stay its response to

defendant American Home Assurance Co.’s (“AHAC”) motion for

summary judgment pending the completion of discovery.   AHAC, in

turn, seeks to stay the completion of discovery pending the
Court No. 09-00401                                             Page 2

court’s decision on its motion for summary judgment.

     Although the parties’ respective motions seek only to stay

parts of these proceedings, they raise a significant issue

concerning the effect, if any, of Customs’ failure to provide a

surety with notice of a suspension of liquidation.   Specifically,

the issue presented is whether Customs’ failure to provide AHAC

with notice of the suspension of liquidation of the entries

subject to the surety’s bond, as required by 19 U.S.C. § 1504(c)

(2006), invalidates the suspension of liquidation.   For the

reasons set forth below, the court holds that it does not.     Based

on this holding, the court denies both parties’ motions to stay.

                            BACKGROUND

     By its complaint, the Government seeks to recover in excess

of $3.5 million on bonds executed by AHAC to secure the payment

of antidumping duties by Pan Pacific Products, Inc. (“Pan

Pacific”) on 119 entries of merchandise imported into the United

States from the People’s Republic of China (“PRC”) between May

2001 and March 2002.   The parties do not dispute the basic facts

relating to the entries at issue.

     The first 103 of these entries were made between May 30,

2001 and January 23, 2002, and were subject to the Department of

Commerce’s (the “Department” or “Commerce”) third administrative

review of the antidumping duty orders of preserved mushrooms from
Court No. 09-00401                                             Page 3

the PRC for the period of review (“POR”) February 1, 2001 through

January 31, 2002.    See Certain Preserved Mushrooms from the PRC,

68 Fed. Reg. 41,304 (Dep’t of Commerce July 11, 2003) (final

results of administrative review).    The remaining sixteen entries

were made between February 1, 2002 and March 10, 2002, and were

subject to Commerce’s fourth administrative review of preserved

mushrooms from the PRC for the POR February 1, 2002 through

January 31, 2003.    See Certain Preserved Mushrooms from the PRC,

69 Fed. Reg. 54,635 (Dep’t of Commerce Sept. 9, 2004) (final

results of administrative review).

     Upon the request for an administrative review for each POR,

liquidation of the entries subject to each review, including Pan

Pacific’s, was suspended.     See 19 U.S.C. § 1675(a)(2)(C);

Canadian Wheat Bd. v. United States, 33 CIT __, __, 637 F. Supp.

2d 1329, 1334 n.6 (2009), aff’d, No. 2010-1083, Slip Op. (Fed.

Cir. Apr. 19, 2011) (noting that a request for administrative

review suspends liquidation pending the outcome of the review);

19 C.F.R. § 351.212(c)(1) (2010). It is undisputed that Customs

failed to provide the statutory notice of those suspensions to

Pan Pacific’s surety, AHAC.     See generally Pl.’s Mot. for Stay

(“Pl.’s Mot.”), ECF No. 27..    Some years later, when Customs was

unable to obtain payment of antidumping duties from Pan Pacific,

it demanded payment from AHAC.     See Compl. at exhibits D, E, and

F, ECF No. 2.   When AHAC refused to pay, the Government commenced
Court No. 09-00401                                              Page 4

this action.    See Summons (Sept. 18, 2009), ECF 1.

     Among other affirmative defenses raised in its answer, AHAC

asserts that Customs’ claims are barred by the six year statute

of limitations set forth in 28 U.S.C. § 2415(a) (2006).    On

January 11, 2011, AHAC moved for summary judgment on this basis.

See generally Def.’s Mem. of Law in Supp. Mot. Sum. J. (“SJ

Mot.”), ECF No. 26.

     On February 9, 2011, the Government moved to stay its

response to AHAC’s motion for summary judgment, asserting that it

needed to conduct further discovery before it could adequately

respond.    Pl.’s Mot. 5-6.   The Government claims that it needs

additional time to address AHAC’s affirmative defense that it has

been materially prejudiced by Customs’ failure to provide notice

of the suspensions.   Therefore, the Government maintains that it

“must complete discovery before we can satisfactorily address all

the relevant issues . . . that are implicated by AHAC’s motion

for summary judgment.”   Pl.’s Mot. 6.   The Government seeks to

stay the proceedings even though the affirmative defense of

prejudice, found in the answer, is not specifically referenced in

AHAC’s summary judgment motion.    Pl.’s Mot. 5-6; Am. Ans. 11, ECF

No. 25; see generally SJ Mot.

     On February 11, 2011, AHAC filed its own motion, seeking to

stay discovery pending the outcome of its motion for summary

judgment.   Def.’s Mot. to Stay Disc. (“Def.’s Mot.”) 1, ECF No.
Court No. 09-00401                                               Page 5

28.   Oral argument was held on April 19, 2011.

                              DISCUSSION

      The Government argues that, if Customs’ failure to notify

AHAC can invalidate the suspensions at all, it can only be upon

AHAC showing that it was prejudiced by the lack of notice. The

Government, therefore, seeks to stay its response to AHAC’s

motion for summary judgment in order to complete discovery

regarding the prejudice, if any, suffered by AHAC as a result of

Customs’ failure to provide the required notice.     Pl.’s Mot. 5-6.

      AHAC counters that discovery should be stayed as a matter of

judicial economy because “[t]here are ‘substantial grounds’ and a

‘foundation in law’ for concluding that the Government’s claims

are barred by the statute of limitations.”      Def.’s Mot. 5.   The

theory underlying AHAC’s statute of limitations defense, and its

motion for summary judgment, is that Customs’ failure to notify

the surety that liquidation of the entries at issue was suspended

invalidated the suspensions as a matter of law.     Based on this

contention, AHAC reasons “[t]hat lack of notice caused these

entries to be deemed liquidated one year after entry pursuant to

19 U.S.C. § 1504(a)(1)(A).”    Def.’s Mot. 3.   According to the

surety, this alleged deemed liquidation occurred more than six

years prior to the commencement of this action and, thus, the

Government’s claim is barred by the six year statute of
Court No. 09-00401                                               Page 6

limitations.     See SJ Mot. 5-6; Def.’s Mot. 3.

I.   Arguments of the Parties

      The parties agree that the statute of limitations on the

Government’s claims runs from the date of liquidation.     The

parties disagree, however, as to when liquidation occurred.

According to the Government, it occurred between September and

December 2003, following Commerce’s actual liquidation of the

entries upon the completion of its administrative reviews.        Thus,

the Government argues that liquidation occurred less than six

years prior to the commencement of this action.      See Compl.

¶¶ 12-15.

      AHAC insists, however, that liquidation of the entries was

never suspended and that, as a result, the entries were deemed

liquidated pursuant to 19 U.S.C. § 1504(a) one year after the

date they entered the United States.     According to AHAC, all of

the deemed liquidations would have occurred no later than March

2003 and, thus, beyond the six year statute of limitations.

Def.’s Mot. 3.

      The Government disputes AHAC’s statute of limitations claim.

The plaintiff asserts that the lack of notice to AHAC did not

affect the validity of the suspensions because suspension happens

as a matter of law, regardless of whether notice is provided to

the surety.    Pl.’s Mot. 3.    The Government further argues that
Court No. 09-00401                                            Page 7

Customs’ failure to provide notice to AHAC did not thereafter

automatically invalidate the suspensions of liquidation because

§ 1504(c) does not provide for a consequence for failure to

comply with the notice requirement, making the statutory

directive to provide notice directory, not mandatory.   Pl.’s Mot.

5; see also Alberta Gas Chems., Inc. v. United States, 1 CIT 312,

315-16, 515 F. Supp. 780, 785 (1981) (“It is settled that ‘[a]

statutory time period is not mandatory unless it both expressly

requires an agency or public official to act within a particular

time period and specifies a consequence for failure to comply

with the provisions.’”) (citations omitted).

       In the alternative, the Government argues that, if lack of

notice could vitiate the suspensions, under the rule of

prejudicial error, the suspensions would only be invalid if AHAC

could demonstrate that it was prejudiced by notice not being

provided.   Pl.’s Mot. 5-6.   Accordingly, the Government argues

that it needs further discovery on the issue of prejudice to

adequately respond to AHAC’s summary judgment motion.   Pl.’s Mot.

5-6.

       AHAC counters that a stay is appropriate to avoid the undue

waste and expense that would result from conducting discovery

when it is likely that this matter will be resolved in AHAC’s

favor by summary judgment.    The surety maintains that no showing

of prejudice is required for it to succeed on its summary
Court No. 09-00401                                              Page 8

judgment motion.   For AHAC, the fact that it was not given notice

rendered the suspensions invalid, ab initio, resulting in deemed

liquidations one year after the entries were made.   “Therefore,

irrespective of the reason for a suspension, once entries are

deemed liquidated, the statute of limitations begins to run if

the requisite notice has not been given to a relevant party.”

Def.’s Mot. 5.   Thus, AHAC argues that it is appropriate for the

court to stay discovery pending resolution of its dispositive

motion because discovery will be shown to be unnecessary.   Def.’s

Mot. 9-10.

II.   Analysis

      A.   The effect of notice on the validity of suspension

      As noted above, liquidation of the entries was suspended

when Commerce received the requests for administrative review for

the PORs covering those entries.   This suspension was automatic,

upon Commerce’s receipt of the requests.    See Tembec, Inc. v.

United States, 30 CIT 1519, 1525-26, 461 F. Supp. 2d 1355, 1361

(2006), and judgment vacated on other grounds, 31 CIT 241, 475 F.

Supp. 2d 1393 (2007); SSAB N. American Div. v. United States, 31

CIT __, __, 571 F. Supp. 2d 1347, 1351 (2008); Alden Leeds Inc.

v. United States, 34 CIT __, __, 721 F. Supp. 2d 1322, 1325-26

(2010).    “The purpose of a periodic review is to provide an

opportunity to make adjustments to the duties provided in
Court No. 09-00401                                              Page 9

[antidumping and countervailing duty] orders, based on actual

experience.”     Tembec, 30 CIT at 1525 n.14, 461 F. Supp. 2d at

1361 n.14.    Liquidation is suspended upon a request for

administrative review to “enable[] Commerce to calculate

assessment rates for the subject entries . . . , which are then

applied by Customs pursuant to liquidation instructions received

from Commerce” after it publishes the final results of the

review.     SSAB, 31 CIT at __, 571 F. Supp. 2d at 1351.    “Under

this framework Commerce performs the substantive role of

determining correct assessment rates, and Customs performs a

ministerial role in fulfilling Commerce’s liquidation

instructions.”     Id. (citing Mitsubishi Elecs. Am., Inc. v. United

States, 44 F.3d 973, 977 (Fed. Cir. 1994)).    It is against this

backdrop that the questions regarding the validity of the

suspensions, raised by the parties’ motions to stay, must be

answered.

     Whether Customs’ failure to notify AHAC of these suspensions

rendered them invalid ab initio can be resolved by looking at the

plain language of 19 U.S.C. § 1504, which unambiguously provides

that notice of a suspension of liquidation is to be provided to a

surety after a suspension has come about by operation of law.

Section 1504 reads, in relevant part:
Court No. 09-00401                                           Page 10

         (a)   Liquidation . . .

     Unless an entry of merchandise for consumption is . . .
     suspended as required by statute or court order, . . .
     an entry of merchandise for consumption not liquidated
     within one year from –(A) the date of entry of such
     merchandise . . . shall be deemed liquidated at the rate
     of duty, value, quantity, and amount of duties asserted
     at the time of entry by the importer of record.

                                   . . . .

         (c) Notice of suspension

     If the liquidation of any entry is suspended, the
     Secretary shall by regulation require that notice of the
     suspension be provided, in such manner as the Secretary
     considers appropriate, to the importer of record or
     drawback claimant, as the case may be, and to any
     authorized agent and surety of such importer of record
     or drawback claimant.

(emphasis added).

     As is demonstrated by the italicized language, suspension of

liquidation is a condition precedent to the notice requirement,

not vice versa.1      Accordingly, a surety is not entitled to

notice until after liquidation has been suspended.     In other

words, notice is not a prerequisite to suspension, but is

provided as a consequence of a suspension having occurred.

     This being the case, the failure to provide notice does not

automatically vitiate an otherwise valid suspension of

     1
          The Customs regulation promulgated to implement this
requirement similarly indicates that suspension is a condition
precedent to notice. See 19 C.F.R. § 159.12(c) (“If the
liquidation of an entry is suspended as required by statute or
court order, . . . the port director promptly shall notify the
importer . . . and his agent and surety . . . of the
suspension.”) (emphasis added).
Court No. 09-00401                                           Page 11

liquidation.   In order for a procedural error to invalidate

agency action, it must involve a procedural condition precedent

to the agency action in question.   See, e.g., Intercargo Ins. Co.

v. United States, 83 F.3d 391, 394-95 (Fed. Cir. 1996)

(considering whether “notification reciting a statutory reason

for the extension is a condition precedent to an extension of the

one-year liquidation period . . . .”); Guangdong Chems. Imp.&

Exp. Corp. v. United States, 30 CIT 85, 90, 414 F. Supp. 2d 1300,

1306 (2006) (citing Brock v. Pierce County, 476 U.S. 253, 260

(1986)) (“The Supreme Court has not held, however, that the

courts are required to reverse subsequent agency action on the

basis of any procedural misstep, no matter how minute or

inconsequential.”); American Nat’l Fire Ins. Co. v. United

States, 30 CIT 931, 941, 441 F. Supp. 2d 1275, 1286 (2006)

(“ANF”) (“[The] failure to give notice of a suspension does not

necessarily vitiate a suspension.”).   As has been seen, the

suspension of liquidation following a request for a periodic

review occurs by operation of law and is not dependant on the

notice provision of § 1504(c).   Because it is clear that the

giving of notice is not a condition precedent to a suspension of

liquidation, the failure to give notice does not prevent an

otherwise valid suspension.

     As to AHAC’s deemed liquidation argument, this Court’s

holdings in LG Electronics U.S.A., Inc. v. United States, 21 CIT
Court No. 09-00401                                            Page 12

1421, 991 F. Supp. 668 (1997) and Alden Leeds Inc., 34 CIT __,

721 F. Supp. 2d 1322 are instructive.    In both cases, Customs

published notice of deemed liquidation despite liquidation having

been suspended.    The issue was whether the publication of

erroneous notice resulted in a deemed liquidation.    In both

cases, the Court held that the erroneous notice had no effect on

whether a deemed liquidation had, in fact, taken place.       See LG

Elecs., 21 CIT at 1429, 991 F. Supp. at 676 (“Liquidation is

deemed to have occurred by operation of law one year after entry.

Exceptions occur in cases of extension, suspension or court

order.   Here liquidation was suspended.   Thus, as a matter of

law, no deemed liquidation . . . occurred.”) (internal citations

omitted); Alden Leeds, 34 CIT at __, 721 F. Supp. 2d at 1329.

     As the Government points out, these cases establish that a

deemed liquidation cannot occur while a suspension of liquidation

is in place, and that Customs has no authority to effect a deemed

liquidation.     See Pl.’s Mot. 4 (“As acknowledged in ANF,

suspension occurs by operation of law, not becasue Customs sends

out CF 4333A notices advising importers and/or sureties of

suspension.”)    “Deemed liquidation results from operation of law,

and Customs makes no decision and performs no act in order to

bring about a deemed liquidation.    A suspension of liquidation

acts to stop liquidation, including a deemed liquidation, from

occurring.”     Alden Leeds, 34 CIT at __, 721 F. Supp. 2d at 1329;
Court No. 09-00401                                           Page 13

see also Fujitsu Gen. Am., Inc. v. United States, 283 F.3d 1364,

1376 (Fed. Cir. 2002) (noting that “in order for liquidation to

occur . . . the suspension of liquidation that was in place must

have been removed”).   Thus, it is clear that AHAC’s arguments

about the legal consequences of Customs’ failure to give the

statutorily required notice of suspension are unconvincing.

     That is not to say, however, that Customs’ failure to

provide notice to a surety is necessarily of no consequence.

“If, as is often the case, no law or regulation specifies the

consequence of non-compliance with a regulation, the court must

determine what remedy, if any, should be imposed.”    Guangdong

Chems., 30 CIT at 90, 414 F. Supp. 2d at 1306.   In other words,

although Customs’ failure to provide notice does not invalidate

the suspensions, if AHAC was actually harmed as a result of

Customs’ omission, it would be entitled to appropriate relief.

     It is for the court to determine the consequence, if any, of

an agency’s procedural errors by applying principles of “harmless

error” or the “rule of prejudicial error.”   See Intercargo Ins.

Co., 83 F.3d at 394 (“It is well settled that principles of

harmless error apply to the review of agency proceedings.”);

Belton Indus., Inc. v. United States, 6 F.3d 756, 761 (Fed. Cir.

1993) (“Because appellees’ counsel received actual notice,

Commerce’s violation did not prejudice appellees.    Accordingly,

Commerce’s violation was harmless error.”); see also 5 U.S.C. §
Court No. 09-00401                                           Page 14

706 (judicial review of agency action is conducted with “due

account . . . of the rule of prejudicial error”).

     Under the rule of prejudicial error, procedural errors are

regarded as harmless unless they are prejudicial to the

complaining party.   See ANF, 30 CIT at 942, 441 F. Supp. 2d at

1287 (quoting Sea-Land Serv., Inc. v. United States, 14 CIT 253,

257 (1990)).   “A party is not ‘prejudiced’ by a technical defect

simply because that party will lose its case if the defect is

disregarded.   Prejudice, as used in this setting, means injury to

an interest that the statute, regulation, or rule in question was

designed to protect.”    Intercargo, 83 F.3d at 396.

     Whether an error is prejudicial or harmless depends on the

facts of a given case.    See Shinseki v. Sanders, 129 S. Ct. 1696,

1704-05 (2009) (finding that courts are to determine whether an

agency error is harmless by “case-specific application of

judgment, based upon examination of the record.”).     In the event

that AHAC was prejudiced by Customs’ failure to provide notice as

required by § 1504(c), it may be that it has an affirmative

defense to the Government’s claims.    See Am. Ans. 11.   Therefore,

because allegations of prejudice are not the subject of AHAC’s

summary judgment motion, but are the subject of the Government’s

discovery requests, discovery should continue.
Court No. 09-00401                                          Page 15

     B.   The parties’ respective motions to stay

     Based on the foregoing, the parties’ respective motions to

stay these proceedings are denied.   The Government’s motion to

stay its response to AHAC’s motion for summary judgment is denied

because AHAC’s motion for summary judgment can be readily decided

based on the factual record before the court and, therefore, the

Government does not require any additional discovery in order to

oppose the motion.

     AHAC’s motion to stay discovery is denied because AHAC is

not likely to succeed on the merits of its summary judgment

motion and, thus, the facts relating to prejudice will be

important to the outcome of this litigation.

     A separate order shall be issued.

                                           /s/Richard K. Eaton
                                           Richard K. Eaton

Dated: May 17, 2011
       New York, New York