Court Opinion

ID: 5132252
Source: CourtListenerOpinion
Date Created: 2021-12-07 00:02:19.022636+00
Date Added: 2024-06-11T08:23:29.080199
License: Public Domain

Case: 21-1065    Document: 44     Page: 1   Filed: 11/03/2021

   United States Court of Appeals
       for the Federal Circuit
                  ______________________

            KENT INTERNATIONAL, INC.,
                  Plaintiff-Appellant

                             v.

                    UNITED STATES,
                    Defendant-Appellee
                  ______________________

                        2021-1065
                  ______________________

    Appeal from the United States Court of International
 Trade in No. 1:15-cv-00135-LMG, Senior Judge Leo M.
 Gordon.
                 ______________________

                Decided: November 3, 2021
                 ______________________

    PATRICK CRAIG REED, Simons & Wiskin, New York, NY,
 argued for plaintiff-appellant. Also represented by PHILIP
 YALE SIMONS, JERRY P. WISKIN, South Amboy, NJ.

     MONICA PERRETTE TRIANA, International Trade Field
 Office, United States Department of Justice, New York,
 NY, argued for defendant-appellee. Also represented by
 AIMEE LEE, JUSTIN REINHART MILLER; BRIAN M. BOYNTON,
 JEANNE DAVIDSON, Commercial Litigation Branch, Civil
 Division, United States Department of Justice, Washing-
 ton, DC.
                  ______________________
Case: 21-1065     Document: 44     Page: 2    Filed: 11/03/2021

 2                             KENT INTERNATIONAL, INC.   v. US

       Before LOURIE, LINN, and DYK, Circuit Judges.
 LINN, Circuit Judge.
      Kent International, Inc. (“Kent”) appeals the affir-
 mance by the Court of International Trade (“Trade Court”)
 of the decision by U.S. Customs and Border Protection
 (“Customs”) denying Kent’s claims that the classification of
 its imported merchandise under Harmonized Tariff Sched-
 ule of the United States (“HTSUS”) heading 8714 violated
 19 U.S.C. § 1625(c) by departing from a “treatment previ-
 ously accorded” and was contrary to a de facto “established
 and uniform practice” (“EUP”) under 19 U.S.C. § 1315(d).
 Because the Trade Court erred in approving Customs’ use
 of bypass entries to show the absence of a treatment previ-
 ously accorded, we reverse that ruling and remand. Be-
 cause the Trade Court did not err in finding no de facto
 EUP, we affirm that part of the Trade Court’s decision.
                        BACKGROUND
      Kent is an importer of bicycle-related products, includ-
 ing, as relevant here, children’s bicycle seats. In 2005, Cus-
 toms, in response to a request by Kent, issued a ruling
 letter (“2005 Ruling”) stating that Kent’s bicycle seats
 would be classified as “accessories of bicycles” under
 HTSUS heading 8714. Under that heading, Kent’s bicycle
 seats would be subject to a 10% ad valorem duty. See Kent
 Int’l. Inc. v. United States, 466 F. Supp. 3d 1361, 1363 (Ct.
 Int’l Trade 2020) (“Kent II”) (describing 2005 Ruling). The
 2005 Ruling thereafter obligated Kent to initially enter its
 bicycle seats through Customs under heading 8714.
     Between August 2008 and November 2010, Kent made
 44 entries of its bicycle seats through the Port of New
 York/Newark, each time listing the subject merchandise
 under heading 8714 (“New York entries”). Starting in April
 2008, after Customs classified a competitor’s children’s bi-
 cycle seats as “seats” under duty-free heading 9401, Kent
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 KENT INTERNATIONAL, INC.   v. US                           3

 filed several protests, post-entry amendments and a first
 application for further review (collectively “New York pro-
 tests”) for its previously liquidated New York entries. Be-
 tween August 2008 and November 2010, Customs
 approved the New York protests and reliquidated Kent’s
 merchandise under heading 9401. Based on the favorable
 grants by Customs of Kent’s New York protests, Kent, in
 April 2011, filed a second application for further review
 seeking to revoke the 2005 Ruling as inconsistent with
 Customs’ subsequent treatment of its New York entries.
 Kent continued to make entries of its bicycle seats through
 the Port of New York/Newark after December 2010 and
 again lodged protests for each. Customs, however, stopped
 granting those protests and instead suspended them pend-
 ing further review.
     During the pendency of the New York protests, Kent
 began to import the same merchandise through the Port of
 Long Beach (“Long Beach entries”). Between December 4,
 2008 and November 2010, Kent made eight entries of its
 bicycle seats through that port. Between November 2010
 and March 31, 2014, Kent made an additional 37 entries
 through that port. Acting in compliance with the 2005 Rul-
 ing, Kent listed all of these entries under heading 8714.
 Long Beach Customs treated these entries as bypass en-
 tries and liquidated them under heading 8714 without ex-
 amination or Customs officer review.
     Kent protested the treatment of its Long Beach entries
 at the Port of Long Beach (“Long Beach protests”), contest-
 ing the classification of the subject merchandise under
 heading 8714 and seeking reclassification under heading
 9401. Four of its protests were filed specifically for mer-
 chandise imported within the December 4, 2008, through
 November 2010 timeframe. At Kent’s request, these four
 protests were suspended pending resolution of its New
 York protests. Although the New York protests were
 granted, all of Kent’s Long Beach protests were denied af-
 ter November 2010. Kent II, 466 F.Supp.3d at 1363–64.
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 4                             KENT INTERNATIONAL, INC.   v. US

     In June 2014, Customs, through notice and comment,
 revoked its earlier decisions classifying three of Kent’s
 competitors’ merchandise under heading 9401, and con-
 cluded that the competitors’ merchandise would be classi-
 fied under heading 8714, effective September 22, 2014. Id.
 at 1364. On February 11, 2015, in response to Kent’s April
 2011 application for further review, Customs declined to
 revoke the 2005 Ruling and reaffirmed the classification of
 Kent’s bicycle seats under HTSUS heading 8714.
      Kent appealed the denial of its Long Beach protests to
 the Trade Court, alleging: (1) that the proper classification
 of its bicycle seats was under heading 9401; and (2) that
 the denials modified a treatment previously accorded by
 Customs and departed from a de facto EUP. The Trade
 Court bifurcated the classification issue from the treat-
 ment previously accorded and EUP issues. On the first is-
 sue, the Trade Court held that the merchandise was
 properly classified under heading 8714. Kent Int’l, Inc. v.
 United States, 393 F.Supp.3d 1218, 1225 (Ct. Int’l Trade
 2019) (Kent I). Kent does not appeal that determination.
      On the second issue, the Trade Court denied Kent’s
 treatment previously accorded and EUP claims, finding no
 consistent treatment of Kent’s bicycles seats under heading
 9401 on a national basis over any two-year period in light
 of the liquidation of the Long Beach bypass entries under
 heading 8714. Kent II, 466 F.Supp.3d at 1367. The Trade
 Court specifically noted that 19 C.F.R. § 177.12(c)(1)(i)
 “does not limit the consideration of the court to only ‘final
 Customs actions’” and held that Kent’s pending protests of
 its Long Beach entries did not make those entries ineligible
 for consideration in the treatment analysis. Kent II, 466
 F.Supp.3d at 1367–68. The Trade Court also considered
 and denied Kent’s claim of treatment based on the entries
 of third parties for the same reason—the liquidation of
 Kent’s Long Beach bypass entries under HTSUS 8714. The
 Trade Court did not directly address the propriety of con-
 sidering bypass entries not subjected to examination or
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 KENT INTERNATIONAL, INC.   v. US                           5

 Customs officer review in the treatment analysis. The
 Trade Court also expressly declined to address the applica-
 ble two-year time period in the treatment analysis. Kent
 II, 466 F.Supp.3d at 1368 n.1.
      The Trade Court also rejected Kent’s argument that
 Customs’ liquidation of Kent’s New York entries and third-
 party entries under heading 9401 created a de facto EUP.
 The Trade Court held that Kent’s claim would have the
 court disregard the 2005 Ruling, which was never revoked,
 classifying Kent’s bicycles seats under heading 8714. It
 concluded that that ruling, as well as the classification of
 the Long Beach entries under 8714, “demonstrate[d] that
 Customs did not engage in an established and uniform
 practice of classifying child safety seats under heading
 9401.” Id. at 1369 (emphasis in original).
     Kent appeals. We have jurisdiction over a final deci-
 sion by the Trade Court under 28 U.S.C. § 1295(a)(5).
                         ANALYSIS
                               I.
                               A.
     “We review the [Trade Court’s] grant of summary judg-
 ment de novo, applying ‘the same standard used by the
 [Trade Court] in reviewing Customs’ classification deter-
 mination.’” Apple Inc. v. United States, 964 F.3d 1087,
 1092 (Fed. Cir. 2020) (quoting Otter Prods., LLC v. United
 States, 834 F.3d 1369, 1374–75 (Fed. Cir. 2016)). We re-
 view the Trade Court’s conclusions on legal issues de novo.
 Mid Continent Steel & Wire, Inc. v. United States, 940 F.3d
 662, 667 (Fed. Cir. 2019).
                               B.
     19 U.S.C. § 1625(c)(2) mandates that any duty classifi-
 cation decision that would “have the effect of modifying the
 treatment previously accorded by the Customs Service to
 substantially identical transactions,” (emphasis added)
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 6                             KENT INTERNATIONAL, INC.   v. US

 must be made by notice and comment. In explaining what
 is meant by “treatment previously accorded,” Customs reg-
 ulations provide:
     (1) . . . The following rules will apply for purposes
     of determining under this section whether a treat-
     ment was previously accorded by Customs to sub-
     stantially identical transactions of a person:
         (i) There must be evidence to establish
         that:
             (A) There was an actual determina-
             tion by a Customs officer regarding
             the facts and issues involved in the
             claimed treatment;
             (B) The Customs officer making the
             actual determination was responsi-
             ble for the subject matter on which
             the determination was made; and
             (C) Over a 2–year period immedi-
             ately preceding the claim of treat-
             ment,      Customs       consistently
             applied that determination on a na-
             tional basis as reflected in liquida-
             tions of entries or reconciliations or
             other Customs actions with respect
             to all or substantially all of that
             person's Customs transactions in-
             volving materially identical facts
             and issues.
         (ii) The determination of whether the req-
         uisite treatment occurred will be made by
         Customs on a case-by-case basis and will
         involve an assessment of all relevant fac-
         tors.
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 KENT INTERNATIONAL, INC.   v. US                           7

        In particular, Customs will focus on the
        past transactions to determine whether
        there was an examination of the merchan-
        dise (where applicable) by Customs or the
        extent to which those transactions were
        otherwise reviewed by Customs to deter-
        mine the proper application of the Customs
        laws and regulations.
        For purposes of establishing whether the
        requisite treatment occurred . . . Customs
        will give no weight whatsoever to informal
        entries and to other entries or transactions
        which Customs, in the interest of commer-
        cial facilitation and accommodation, pro-
        cesses     expeditiously    and     without
        examination or Customs officer review.
 37 C.F.R. § 177.12(c)(1) (emphases added).
     Kent argues that Customs’ denial of its Long Beach
 protests violated 19 U.S.C. § 1625(c)(2) by modifying the
 treatment previously accorded Kent’s New York entries
 without the necessary notice and comment. According to
 Kent, during the two-plus year period between August
 2008 and November 2010, the only determinations made
 by actual Customs officials—the approval of protests with
 respect to the New York entries—placed Kent’s merchan-
 dise under heading 9401. Kent argues that 37 C.F.R.
 § 177.12(c)(1)(ii) prohibits consideration of the automati-
 cally liquidated Long Beach entries in the determination of
 whether there was a treatment previously accorded. Kent
 further argues that the Long Beach entries could not be
 considered in determining whether there was a treatment
 previously accorded because they were subject to Kent’s
 protest, and were therefore non-final.
     The government responds that while Customs is pro-
 hibited under 19 C.F.R. § 177.12(c)(1)(ii) from considering
 bypass entries for purposes of determining whether an
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 8                             KENT INTERNATIONAL, INC.   v. US

 importer has established the requisite treatment, a sepa-
 rate part of the regulation, 19 C.F.R. § 177.12(c)(1)(i)(C),
 authorizes Customs to consider “liquidations” generally,
 for purposes of analyzing whether the agency consistently
 applied a determination on a nationwide basis over a two-
 year period. Appellee’s Br. at 14 and 22. The government
 notes that in subparagraph (c)(1)(ii) the regulation uses the
 word “establishing” when prohibiting the use of bypass en-
 tries, but in subparagraph (c)(1)(i)(C) the regulation uses
 the word “determining” when requiring Customs to take
 into account “liquidations” without limitation.
     A plain reading of the regulation supports Kent’s posi-
 tion. The touchstone of the treatment previously accorded
 inquiry is the consistency of Customs decisions with respect
 to the subject merchandise. 37 C.F.R. § 177.12(c)(1)(ii)
 (“Customs will focus on the past transactions to determine
 whether there was an examination of the merchandise
 (where applicable) by Customs or the extent to which those
 transactions were otherwise reviewed by Customs.”). The
 requirement for examination or Customs officer review is
 wholly consistent with the limitation in § 177.12(c)(1)(ii)
 that “Customs will give no weight” to unexamined entries,
 without regard to whether those unexamined entries are
 used as positive or negative evidence of treatment.
      In Motorola, we deferred to Customs’ position that by-
 pass entries “do[] not constitute ‘treatment’ within the
 meaning of section 1625(c)(2).” Motorola, Inc. v. United
 States, 436 F.3d 1357, 1366–67 (Fed. Cir. 2006). We ex-
 plained that “[i]t is reasonable to conclude that goods which
 are admitted pursuant to representations by the importer
 and are not independently examined or reviewed by the im-
 porter are not ‘treated’ by Customs.” Id. at 1366. Motorola
 addressed the circumstance where an importer was citing
 its bypass entries as affirmative evidence of a treatment,
 unlike here, where Customs is citing bypass entries to deny
 a claim of treatment. But that is a distinction without a
 difference. The bypass entries in both circumstances are
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 KENT INTERNATIONAL, INC.   v. US                           9

 made without examination or Customs officer review and
 do not reflect “treatment” by Customs.
     The government argues that a Federal Register notice
 in 2002 makes clear that the regulation only limits the use
 of bypass entries as affirmative evidence of a treatment.
 See 67 Fed. Reg. 53483, 53491 (Aug. 16, 2002) (“Therefore,
 the proposed regulatory text stands for the proposition
 that, in order for a person to be eligible for the protection
 afforded under 19 U.S.C. 1625(c)(2), that person must be
 able to make a showing that Customs took a conscious, in-
 tentional and knowledgeable action that created an im-
 pression that could give rise to an expectation as regards
 future action by Customs.” (emphasis added)). The govern-
 ment’s reliance on the Federal Registrar notice, however,
 is misplaced and begs the question. Determining whether
 an importer is “eligible for protection” is most naturally
 read to limit the use of bypass entries as both positive and
 negative evidence of a treatment previously accorded.
     The government also argues that the regulations re-
 quire consistent treatment of “all or substantially all of
 that person’s Customs transactions,” meaning that bypass
 entries inconsistent with that treatment can and should in-
 form that determination. This argument fails for the same
 reason as noted above: the regulation expressly assigns
 zero weight to bypass entries liquidated without Customs
 review.
     Finally, the government argues that consideration of
 the Long Beach entries was proper because their liquida-
 tion under HTSUS 8714 merely implemented Customs’
 2005 Ruling. The fact of the 2005 Ruling, however, does
 not render the bypass entries any more appropriate for con-
 sideration than if the 2005 Ruling had never been made.
 Nor does it undermine Kent’s assertion of a treatment pre-
 viously accorded. The Long Beach entries were not the
 only entries in play. The New York entries, which were
 also liquidated initially under HTSUS 8714 pursuant to
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 10                            KENT INTERNATIONAL, INC.   v. US

 the 2005 Ruling, were subject to approved protests and
 Amendments that reliquidated those entries under HTSUS
 9401. The approved protests and Amendments were “ac-
 tual determinations” that are proper for consideration in
 assessing the treatment previously accorded.
      In conclusion, the Trade Court erred in its construction
 of § 177.12(c)(1)(ii) as allowing consideration of bypass en-
 tries in the determination of whether there was a treat-
 ment previously accorded. 1 Because Customs improperly
 gave weight to the Long Beach entries in determining
 whether there was a treatment previously accorded, we va-
 cate that part of the Trade Court decision and remand for
 consideration of whether there was a treatment previously
 accorded without considering those entries. 2
                              C.
     The government also argues that the two-year period
 Kent identifies, August 2008 through November 2010, is
 not the correct time period, because that is not the “2-year
 period immediately preceding the claim of treatment” as
 required by the regulation.                 See 37 C.F.R.
 § 177.12(c)(1)(i)(C). The government argues that the date
 of the “claim of treatment” is the date of Kent’s first af-
 fected entry, i.e., “the first entry that does not receive the
 anticipated, relied on treatment.” See Am. Fiber & Finish-
 ing v. United States, 121 F.Supp.3d 1273, 187 (Ct. Int’l

      1 Because we conclude that the Long Beach entries,
 as bypass entries, should not have been considered in de-
 termining treatment previously accorded, we need not and
 do not consider whether Customs properly may consider
 determinations subject to protest or suspended protest.
     2  We also leave to the Trade Court to determine
 whether Customs may or should consider Customs’ treat-
 ment of the third-party importers here in determining
 whether there was a treatment previously accorded.
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 KENT INTERNATIONAL, INC.   v. US                           11

 Trade 2015). The government thus identifies the applica-
 ble period as the two years preceding December 4, 2008,
 the date of the first Long Beach entries. Kent argues that
 its Long Beach entries were under a suspended protest,
 and that the grant of the New York protests gave Kent the
 right for a disposition of the Long Beach protests in accord-
 ance with the New York protest. In other words, Kent ar-
 gues that, unlike American Fiber & Finishing, where the
 claim of treatment was based on a consistent treatment of
 entries, Kent’s claim of treatment is based on the New York
 protest approvals, and that the “claim of treatment” date is
 thus November 2010, when the New York protests were ap-
 proved and the merchandise reliquidated under heading
 9401.
    We leave this question to the Trade Court for its deter-
 mination in the first instance on remand.
                              III.
     Kent also argues that the Trade Court erred in finding
 no de facto established and uniform practice (“EUP”) under
 19 U.S.C. § 1315(d) and Heraeus-Amersil, Inc. v. United
 States, 795 F.2d 1575 (Fed. Cir. 1986). We may overturn
 Customs’ determination that an EUP did not exist only for
 “a clear abuse of discretion.” Heraeus-Amersil, 795 F.2d at
 1580 n.7. There was no clear abuse of discretion here.
      A so-called de facto EUP arises when Customs consist-
 ently classifies a particular type of merchandise under a
 specific HTSUS heading prior to some distinct point in
 time. Kent II, 466 F.Supp.3d. at 1368. The requirements
 for establishing a de facto EUP are stringent. See Jewelpak
 Corp. v. United States, 297 F.3d 1326, 1332 (Fed. Cir.
 2002). In denying Kent’s claim that the agency violated a
 de facto EUP, Customs relied on the fact that the 2005 Rul-
 ing was never revoked, that the Long Beach entries were
 classified under heading 8714, that hundreds of entries at
 14 ports of entry over a 10-year period classified the same
 goods under heading 9401 and that similar goods imported
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 12                           KENT INTERNATIONAL, INC.   v. US

 by three of Kent’s competitors were initially classified un-
 der heading 9401 and later reclassified under heading
 8714. Kent II, 466 F.Supp.3d at 1369. The Trade Court
 ultimately decided that under these facts, it could not rea-
 sonably conclude that Customs engaged in a uniform prac-
 tice of classifying these goods or that there was a lack of
 uncertainty regarding classification.
    Kent has failed to show a clear abuse of discretion in
 denying its claim of a de facto EUP.
                        CONCLUSION
     For the foregoing reasons, we vacate-in-part the Trade
 Court’s determination of no treatment previously accorded
 and remand for a determination of whether there was such
 a treatment, excluding consideration of the bypass entries.
 We also remand for a determination in the first instance of
 the proper time period in which to consider the treatment
 previously accorded question. Finally, we affirm-in-part
 the Trade Court’s determination that there was no de facto
 EUP.
   AFFIRMED-IN-PART, VACATED-IN-PART, AND
                REMANDED.
                           COSTS
 Costs are awarded to Kent.