Court Opinion

ID: 1040854
Source: CourtListenerOpinion
Date Created: 2013-09-16 15:10:08.98498+00
Date Added: 2024-06-11T15:27:36.501590
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

           DEL MONTE CORPORATION,
                Plaintiff-Appellant,

                           v.

                  UNITED STATES,
                  Defendant-Appellee.
                ______________________

                      2013-1105
                ______________________

    Appeal from the United States Court of International
Trade in No. 07-CV-0109, Senior Judge Thomas J. Aquili-
no, Jr.
                ______________________

             Decided: September 16, 2013
               ______________________

    BRETT IAN HARRIS, Pisani & Roll PLLC, of Washing-
ton, DC, argued for plaintiff-appellant. With him on the
brief were ROBERT J. PISANI; and MICHAEL E. ROLLS, of
Los Angeles, California.

    ALEXANDER J. VANDERWEIDE, Trial Attorney, Civil Di-
vision, International Trade Field Office, United States
Department of Justice, of New York, New York, argued
for defendant-appellee. With him on the brief were
STUART F. DELERY, Acting Assistant Attorney General,
JEANNE E. DAVIDSON, Director, of Washington, DC; and
2                             DEL MONTE CORPORATION   v. US

BARBARA S. WILLIAMS, Attorney in Charge, of New York,
New York. Of counsel on the brief was YELENA SLEPAK,
Office of the Chief Counsel, United States Customs and
Border Protection, of New York, New York.
                 ______________________

    Before PROST, O’MALLEY, and TARANTO, Circuit Judges.
TARANTO, Circuit Judge.
    Del Monte Corporation imports tuna products consist-
ing of cooked tuna, together with sauce, in a package.
U.S. Customs and Border Protection classified two of
those products under subheading 1604.14.10 of the Har-
monized Tariff Schedule of the United States, which
covers tuna packed “in oil,” because their sauces include
some oil. In addition, Customs appraised the goods based
on the price that Del Monte paid its supplier at the time
of importation, without adjusting for approximately $1.5
million that Del Monte later received from its supplier
after negotiations over the accuracy of the amount origi-
nally paid. Del Monte brought suit in the Court of Inter-
national    Trade    contesting    those    two    agency
determinations. The trade court held that Del Monte’s
goods were properly classified and valued. We affirm.
                       BACKGROUND
     The imported merchandise at issue consists of tuna
fillets or strips in a sauce, packed in a sealed microwave-
able pouch. There are three varieties: Teriyaki, Albacore
Lemon & Cracked Pepper, and Yellowfin Lightly Sea-
soned. In all three, the tuna is not cooked or prepared in
oil and is processed separately from the sauce, which is
added after the tuna is placed into the pouch. The tuna
accounts for 80 percent of the total product weight, and
the sauce accounts for the remaining 20 percent. In the
Lemon Pepper and Lightly Seasoned products, the sauce
contains some sunflower oil (2.48 percent and 0.62 per-
DEL MONTE CORPORATION   v. US                            3

cent of the total weight of the pouch’s contents, or 12.4
percent and 3.1 percent of the sauce weight, respectively).
    In late 2004, Del Monte requested a ruling on the
proper classification of its goods under the Harmonized
Tariff Schedule. Customs issued a letter in March 2005
finding that those Del Monte products with oil in their
sauces should be classified as “in oil” under subheading
1604.14.10.     Del Monte requested reconsideration—
arguing that the goods should instead be classified as “not
in oil”—but the agency again found that subheading
1604.14.10 was the correct classification.
    Apart from deciding how to classify Del Monte’s
goods, Customs also had to determine how to value them.
Chotiwat Manufacturing Co., Ltd., packs the products in
Thailand and supplies them to Del Monte. Chotiwat and
Del Monte initially estimated that it would cost $1.67 per
case to convert the tuna and ingredients into a final
product (the “conversion cost”) and that Chotiwat would
be able to “recover” 40 percent of the tuna for other uses.
No formal agreement reflected the parties’ alleged under-
standing, but they did prepare “cost sheets” to use as the
basis for calculating the price that Del Monte would pay
to Chotiwat.
    In 2005, Chotiwat sent invoices to Del Monte that di-
verged from those estimates: conversion costs were
around $3.00 per case and the amount of tuna recovered
was lower than expected. Del Monte paid the invoiced
prices, and the goods were entered into the United States.
Del Monte then initiated discussions with Chotiwat about
the charges. After 10 months, the parties agreed that the
conversion costs were $1.87 per case and that 40 percent
of the tuna could in fact be recovered for other uses.
Accordingly, Chotiwat issued a “credit note” to Del Monte
for a little over $1.5 million. When Customs computed
the final duties owed, it used the invoiced amount that
4                             DEL MONTE CORPORATION    v. US

Del Monte paid at importation, without taking into ac-
count the subsequent $1.5 million credit.
    In 2007, Del Monte filed suit in the Court of Interna-
tional Trade contesting the agency’s decisions to (1)
classify the Lemon Pepper and Lightly Seasoned products
as “in oil” and (2) assess the transaction value of all
entries based on the amount that Del Monte paid at the
time of importation. In October 2012, the trade court
granted summary judgment for the government on both
issues. Del Monte Corp. v. United States, 885 F. Supp. 2d
1315 (Ct. Int’l Trade 2012). Del Monte appeals, and we
have jurisdiction under 28 U.S.C. § 1295(a)(5).
                       DISCUSSION
                             A
    Goods imported into the United States are classified
under the Harmonized Tariff Schedule. Determining the
proper classification requires first construing the relevant
provisions of the schedule and then deciding which provi-
sion encompasses the merchandise at issue. Cummins
Inc. v. United States, 454 F.3d 1361, 1363 (Fed. Cir.
2006). “[W]hen the nature of the merchandise is undis-
puted,” however, that inquiry “collapses entirely into a
question of law” about the meaning and scope of the
relevant tariff provisions. Id.; see also Faus Grp., Inc. v.
United States, 581 F.3d 1369, 1372 (Fed. Cir. 2009).
    To identify the appropriate provision for particular
merchandise, we proceed hierarchically, first locating the
proper heading before choosing among the possible sub-
headings. Orlando Food Corp. v. United States, 140 F.3d
1437, 1440 (Fed. Cir. 1998). At each step, the schedule’s
text and any applicable section or chapter notes take
precedence in construing the provisions: when those
sources are enough to decide the classification question,
that is the end of the inquiry. See, e.g., CamelBak Prods.,
LLC v. United States, 649 F.3d 1361, 1364 (Fed. Cir.
DEL MONTE CORPORATION   v. US                             5

2011); Bauer Nike Hockey USA, Inc. v. United States, 393
F.3d 1246, 1250 (Fed. Cir. 2004) (stating that we first
“determine the applicable heading, if possible, by looking
to the terms of the headings and section or chapter
notes”). At the subheading level, General Rule of Inter-
pretation (GRI) 6 controls and gives priority to the “terms
of those subheadings and any related subheading notes”
as well as “the relevant section, chapter, and subchapter
notes.” Harmonized Tariff Schedule of the United States,
USITC Pub. 4368, at GN p.1 (2013), available at
http://hts.usitc.gov/. Included among the specified “notes”
are Additional U.S. Notes, which Customs describes as
“legal notes that provide definitions or information on the
scope of the pertinent provisions or set additional re-
quirements for classification purposes” and which are
“considered to be statutory provisions of law for all pur-
poses.” U.S. Customs & Border Prot., What Every Mem-
ber of the Trade Community Should Know About: Tariff
Classification 32 (2004); see also Harmonized Tariff
Schedule of the United States, USITC Pub. 4368, at
Preface p.1 (2013).
    To decide the classification issue in this case, we need
not look beyond the tariff schedule and the Additional
U.S. Notes as they read at all relevant times. There is no
dispute that Del Monte’s products fall under subheading
1604.14; they are prepared or preserved tuna fish packed
in an airtight container. The tariff schedule further
divides such goods into two groups: those “in oil” (sub-
heading 1604.14.10) and those “not in oil” (subheadings
1604.14.22 and 1604.14.30). Additional U.S. Note 1 to
Chapter 16 then explains that “the term ‘in oil’ means
packed in oil or fat, or in added oil or fat and other sub-
stances, whether such oil or fat was introduced at the
time of packing or prior thereto.” For fish products in
which the only oil is added as part of a liquid substance
introduced at the time of packing, this note makes clear
that the goods are considered “in oil” even if the liquid
6                             DEL MONTE CORPORATION    v. US

substance does not consist entirely of oil, and it sets no
minimum threshold for the amount of oil that must be
present.
     Del Monte’s products were properly classified as “in
oil” under subheading 1604.14.10 according to Additional
U.S. Note 1. It is undisputed that the tuna is not cooked
in oil, that the tuna is placed in the packaging after being
prepared without using any oil, and that a sauce contain-
ing some oil is then added to the pouch. That is sufficient
to describe the Lemon Pepper and Lightly Seasoned
varieties as tuna “packed . . . in added oil . . . and other
substances” and thus to bring the goods within the scope
of subheading 1604.14.10.
    Del Monte’s argument on appeal is premised on one
case, Richter Bros. Inc. v. United States, 44 C.C.P.A. 128
(1957). Del Monte contends that Richter Bros. dictates
the meaning of “packed in oil” for the relevant tariff
provisions, and that the classification of its products was
erroneously based on an earlier case, Strohmeyer & Arpe
Co. v. United States, 5 Ct. Cust. 527 (Ct. Cust. App. 1915),
which was overruled by Richter Bros. Those two cases,
however, concern products that differ from Del Monte’s in
a critical respect: in both, the fish was cooked in oil,
which was then partially but not entirely drained off
before the fish was packed in a liquid substance, such that
some oil from the cooking process subsequently made its
way into the liquid introduced at packaging. See Richter
Bros., 44 C.C.P.A. at 129; Strohmeyer, 5 Ct. Cust. at 527-
28. On those facts, Strohmeyer held that the fish was
“packed in oil and other substances” because that lan-
guage was “intended to reach any case in which oil is part
of the substance in which the fish is found packed when
offered for importation.” 5 Ct. Cust. at 528. Over 40
years later, citing revised language in the tariff provi-
sions, Richter Bros. found that fish that was fried in oil,
drained, and then packed in a liquid without oil was not
“packed in oil” because “no oil whatever was used in the
DEL MONTE CORPORATION    v. US                             7

actual packing process.” 44 C.C.P.A. at 131. The only oil
in Del Monte’s products, by contrast, arrives in a separate
sauce that is added during packaging, after the fish is
already in the pouch. Accordingly, although Richter Bros.
does appear to undermine the broader declaration in
Strohmeyer, there is no disagreement between those two
decisions as to the circumstances present in this case.
                             B
     Imported merchandise must be appraised, when pos-
sible, based on its “transaction value.”          19 U.S.C.
§ 1401a(a)(1). The “transaction value” is defined by
statute as “the price actually paid or payable for the
merchandise when sold for exportation to the United
States” (plus some additional amounts), id. § 1401a(b)(1),
and “[a]ny rebate of, or other decrease in, the price actual-
ly paid or payable that is made or otherwise effected
between the buyer and seller after the date of the impor-
tation of the merchandise into the United States shall be
disregarded in determining the transaction value,” id.
§ 1401a(b)(4)(B). A regulation concerning transaction
value provides that “the price actually paid or payable
will be considered without regard to its method of deriva-
tion [and] may be arrived at by the application of a formu-
la, such as the price in effect on the date of export in the
London Commodity Market.” 19 C.F.R. § 152.103(a)(1).
The same regulation also states that “[t]he word ‘payable’
refers to a situation in which the price has been agreed
upon, but actual payment has not been made at the time
of importation.” Id.
    Del Monte argues that it had agreed to a “formula”
with its supplier, Chotiwat, pursuant to which actual and
estimated costs would be reconciled after importation, and
that the trade court erred in failing to consider 19 C.F.R.
§ 152.103(a)(1) in order to account for this “formula” in
determining transaction value. We see at least two
problems with Del Monte’s position. First, Del Monte
8                             DEL MONTE CORPORATION   v. US

never cited that regulation to the trade court or argued
that its arrangement with Chotiwat constituted a “formu-
la” under § 152.103(a)(1) for purposes of calculating
transaction value. Yet the issue that Del Monte asks us
to decide is “whether the [trade] court . . . erred in not
applying 19 C.F.R. § 152.103(a)(1).”
    Second, and in any event, we are not persuaded that
the arrangement between Del Monte and Chotiwat quali-
fies as a “formula” under § 152.103(a)(1). In order for
recognition of a “formula” to avoid swallowing the other-
wise-strong statutory prohibition on using payments post-
dating importation to alter the tariffs owed, 19 U.S.C.
§ 1401a(b)(4)(B), we think that an agreed-upon, pre-
importation “formula” must be clear and definite. Each of
the Customs decisions cited by Del Monte, in which the
transaction value calculation included some post-
importation adjustments based on actual costs, involved
at least that much. We find nothing like that here. There
was no written contract, formal policy, or other hallmarks
of a formal agreement between Del Monte and Chotiwat
setting out a “formula” to be applied. Rather, the parties
estimated costs, Chotiwat sent invoices for more, Del
Monte paid the full invoiced amount, and the parties then
negotiated for months before Chotiwat credited roughly
$1.5 million to Del Monte. On those undisputed facts,
there is not enough to overcome the statutory mandate to
“disregard[]” any post-importation “decrease in[] the price
actually paid.” 19 U.S.C. § 1401a(b)(4)(B).
                       CONCLUSION
    Del Monte focuses its appeal on one legal authority for
each of the two issues raised—the Richter Bros. case for
the classification issue, and the “formula” provision of 19
C.F.R. § 152.103(a)(1) for the valuation question. Con-
cluding that neither authority applies to the facts of this
case, we affirm the trade court’s determination that the
imported merchandise was properly classified and valued.
DEL MONTE CORPORATION   v. US   9

                    AFFIRMED