Court Opinion

ID: 208293
Source: CourtListenerOpinion
Date Created: 2011-03-13 07:08:31+00
Date Added: 2024-06-11T17:27:53.992888
License: Public Domain

NOTE: This disposition is nonprecedential.

 United States Court of Appeals for the Federal Circuit
                                      2009-1075

                                 HORIZON LINES, LLC,

                                                      Plaintiff-Appellant,

                                           v.

                                  UNITED STATES,

                                                      Defendant-Appellee.

       Evelyn M. Suarez, Williams Mullen, PC, of Washington, DC, argued for plaintiff-
appellant. With her on the brief was Dean A. Barclay. Of counsel were George H.
Bowles, of Virginia Beach, Virginia, and Robert S. Zuckerman, Horizon Lines, LLC, of
Charlotte, North Carolina.

       Edward F. Kenny, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of New York, New York, argued for defendant-
appellee. With him on the brief were Michael F. Hertz, Deputy Assistant Attorney
General, Jeanne E. Davidson, Director, of Washington, DC, and Barbara S. Williams,
Attorney in Charge, of New York, New York. Of counsel was Michael W. Heydrich,
Office of Assistant Chief Counsel, International Trade Litigation, United States Customs
and Border Protection, of New York, New York.

Appealed from: United States Court of International Trade

Chief Judge Jane A. Restani
                     NOTE: This disposition is nonprecedential.

 United States Court of Appeals for the Federal Circuit
                                     2009-1075

                               HORIZON LINES, LLC,

                                                            Plaintiff-Appellant,

                                          v.

                                  UNITED STATES,

                                                            Defendant-Appellee.

      Appeal from the United States Court of International Trade in case no.
      05-00435, Chief Judge Jane A. Restani.

                           __________________________

                             DECIDED: August 4, 2009
                           __________________________

Before MICHEL, Chief Judge, BRYSON, Circuit Judge, and SPENCER, District Judge. ∗

MICHEL, Chief Judge.

      Plaintiff-Appellant Horizon Lines LLC ("Horizon") appeals from a grant of

summary judgment by the United States Court of International Trade in favor of

Defendant-Appellee United States ("the Government").      See Horizon Lines, LLC v.

United States, Slip Ops. 07-172 (Nov. 20, 2007), and 08-109 (Oct. 15, 2008). The trial

      ∗
              The Honorable James R. Spencer, District Judge, United States District
Court for the Eastern District of Virginia, sitting by designation.
court held that certain expenses incurred by Horizon to lay up its U.S. vessel in

Indonesia prior to the commencement of repairs were nevertheless dutiable expenses

of repair pursuant to 19 U.S.C. § 1466(a). We heard oral argument on July 8, 2009.

Because there are genuinely disputed issues of material fact regarding the causal

connection, if any, between costs of the lay-up in Indonesia and costs of subsequent

repair work that began eighty-three days later in Singapore, the trial court's grant of

summary judgment is reversed, and the case is remanded.

                                I.     BACKGROUND

      Horizon operates container ships, and has five that regularly travel between the

continental United States and Puerto Rico. In late 2001 Horizon pulled one of these five

ships, the Crusader, off Puerto Rico duty to work Horizon's trans-Pacific route for two

voyages. On July 5, 2001, Crusader picked up empty cargo containers from South

Carolina and Florida and on July 24, 2001, delivered them to Hong Kong. Crusader

then sailed to Tacoma, Washington, and returned with cargo to Hong Kong on

September 4, 2001.

      From September 7 through November 28, 2001, Horizon sent Crusader to lay up

in Indonesia at the Karimun Sembawang Shipyard ("KSS"). Horizon's decision to lay up

Crusader at KSS is discussed in an e-mail exchange. On August 21, 2001, Horizon's

Glen Moyer stated:

              Our plan is now to send [Crusader] to Singapore after stripping her
      of cargo in Hong Kong. We will take her to an anchorage at an island just
      off Singapore that has an anchorage and small shipyard under Jurong
      S[hipyard]'s management. We will then have Jurong move the ship under
      tow (few hours) to their yard to fit her into a schedule that fits them. This
      will reduce the time we need to lay at anchor. We have given them an
      absolute return to us date of Jan 4 . . . .

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             This plan differs from what was originally agreed upon by not doing
       the quick and dirty dry-docking. We felt that the better impact on 2001
       P&L was to delay any docking until latest to meet Jan return date.

J. 203. Two hours later, Horizon's Joe Breglia confirmed this plan:

              After much debate and hard work we have come to the conclusion
       that the best location for [Crusader] is to have her lay idle at [KSS] in
       Indonesia. We have requested that the agreement for the protection and
       safety of the vessel be made between [Horizon] and [Jurong Shipyard],
       and have asked that they assist in the coordination of this lay up.

              ....

             Our current plan would be to lay the vessel idle at [KSS] for (2)
       months, with the vessel then shifting to [Jurong Shipyard] in early Nov to
       commence a longer than usual repair period. We would work towards
       having the [Crusader] depart the yard at or around the 1st week of Jan
       2002.

J. 205.

       On November 29, 2001, a tug towed Crusader from KSS to Jurong Shipyard in

Singapore ("Jurong"). From December 7 to December 15, 2001, Crusader was dry-

docked and underwent repairs and inspections at Jurong.         Repairs and mandatory

inspections were completed December 15, 2001, after which Crusader returned to

regular service.

       Documentary evidence indicates that Crusader was due for inspections by

August 31, 2001, or would have to be taken out of service pending completion of

inspections. At least by December 2000, Horizon was trying to schedule dry-docking to

meet this deadline. In June 2001, Horizon requested an extension to September 25,

2001, of the inspection deadline. Such extensions of up to six months are routinely

granted. The inspections, however, were held in abeyance due to Crusader's lay-up.

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        In January 2002, Crusader returned to the United States. Customs imposed

duties on the Jurong repair work (and Horizon does not contest the duties on this repair

work). Customs also considered part of the KSS lay-up cost a repair expense and

imposed a duty on that part. The duties totaled over $800,000.

        Horizon filed an administrative protest with Customs which resulted in the

reduction of Horizon's lay-up duties by about $300,000. Customs issued a decision

determining, item by item, which lay-up expenses were dual-purpose and therefore

subject to duties apportioned to the repair work. Horizon filed suit in the United States

Court of International Trade, seeking a full refund of all duties on the KSS lay-up.

Horizon's expert, James Dolan, examined the lay-up invoices and testified that none of

the lay-up work advanced the repair work done at Jurong.

        The trial court, however, granted the Government's motion for summary

judgment. Despite Horizon's evidence that inspection issues and seasonal decline in

trade were the considerations prompting the lay-up decision, the trial court held that

Horizon did not point to evidence suggesting that the lay-up was in no way prompted by

Horizon's desire to conduct repairs at Jurong. Without such evidence, the trial court

concluded "that there is no genuine issue of material fact that the Crusader was laid up

in KSS, at least in part in anticipation of a 'longer than usual repair period' at Jurong."

A. 7.

        Horizon appealed. We have jurisdiction under 28 U.S.C. § 1295(a)(5).

                                    II.       DISCUSSION

        We review the Court of International Trade's grant of summary judgment de

novo. Int'l Trading Co. v. United States, 412 F.3d 1303, 1307 (Fed. Cir. 2005). We

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review summary judgment for correctness as a matter of law, deciding de novo (i) the

proper interpretation of the governing statute and regulations; and (ii) whether genuine

issues of material fact were raised by the evidence offered to oppose summary

judgment. Id.

       At summary judgment, all facts and inferences must be construed in the light

most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). Summary judgment is only appropriate if no genuine issues of material fact

exist and the movant is entitled to judgment as a matter of law. Id. The sole issue in

this appeal is whether material issues of disputed fact were raised by Horizon's

witnesses as to whether the KSS lay-up expenses were "expenses of repairs" under 19

U.S.C. § 1466(a).

       U.S.-flag vessels repaired in a foreign country are, under § 1466(a), subject to a

duty on the value of such repairs upon return to the United States. The statute states,

in relevant part:

       The equipments, or any part thereof, including boats, purchased for, or the
       repair parts or materials to be used, or the expenses of repairs made in a
       foreign country upon a vessel documented under the laws of the United
       States to engage in the foreign or coasting trade, or a vessel intended to
       be employed in such trade, shall, on the first arrival of such vessel in any
       port of the United States, be liable to entry and the payment of an ad
       valorem duty of 50 per centum on the cost thereof in such foreign country.

§ 1466(a) (emphasis added).

       The parties agree that in Texaco Marine Services v. United States we held that

the proper analysis for whether an item of work is an "expense of repair" under

§ 1466(a) is a "but for" test; i.e., "expenses of repairs" includes "all expenses (not

specifically excepted in the statute) which, but for dutiable repair work, would not have

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been incurred."    44 F.3d 1539, 1544 (Fed. Cir. 1994).          The "but for" test has an

admittedly broad sweep, but this is as Congress intended. Id. However, this "but for"

test applies only to "single-purpose" expenses. SL Serv. v. United States, 357 F.3d

1358, 1360-61 (Fed. Cir. 2004). For a "dual-purpose" expense—an expense necessary

to both dutiable repair work and other non-dutiable work—the portion of the expense

"that is fairly attributable to the dutiable repairs" is subject to duties under § 1466(a). SL

Serv., 357 F.3d at 1362.

       The Government argued that the two e-mails referenced above conclusively

show that the anticipated repairs at Jurong caused the KSS lay-up.              The e-mails,

however, are ambiguous and do not conclusively establish a causal connection

between the decision to lay-up at KSS and the repairs that started eighty-three days

later at Jurong, aside from the fact that Horizon was scheduling these two events

around the same time and both through Jurong (which owned the lay-up site). Nothing

in the e-mails indicates that lay-up at KSS was necessary to or facilitated repairs at

Jurong. The Government's case rests on speculation that Crusader had to stand by

near the Jurong repair yard.      But the actual stand-by time was one week in early

December, not the nearly three months of the lay-up period. Secondly, if laid up at a

US site, Crusader would have been relocated to Jurong in certainly less than eighty-

three days.

       Conversely, Horizon presented evidence of three witnesses that the lay-up at

KSS was caused entirely by factors other than the scheduled Jurong repairs. James

Dolan explained in his deposition that "any lay-up . . . I have been involved with has

been simply a commercial decision . . . the market goes bad for some reason and

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vessels lay-up. . . . So, it is just a commercial thing. If you don't have work for the

vessel, then you lay it up." J. 132. Horizon's port engineer, Joseph Walla's testimony

that a lay-up "always depends on the cargo" supports Horizon's argument that Crusader

had to be taken out of service simply due to a lack of cargo.

       Horizon thus presented the trial court with considerable testimony that directly

contradicted the Government's theory based solely on its reading of two ambiguous e-

mails. Horizon's employee, Walcott Becker testified,

       The lay-up was necessary because we were going to lay [Crusader] up
       anyhow. It wasn't sent out there just [to await a scheduled slot to dry-dock
       the vessel at the Jurong Shipyard]. We were planning on going to the
       Jurong Shipyard, but, I mean, we could have just as well laid the ship up
       on the East Coast as out in Asia.

J. 177. Similarly, Joseph Walla stated, "The timing of Horizon's selection of a repair

contractor did not causally, logically or temporally relate to the timing of Horizon's

selection of a lay-up facility." In addition, he said that, "[t]he timing of the CRUSADER's

lay-up did not causally, logically or temporally relate to the ability of Jurong's schedule to

accept the CRUSADER for repairs" or "relate to Horizon's receipt of a dry-dock survey

extension." J. 931. Horizon requested a survey extension in June 2001, approximately

two months before Horizon decided to lay up Crusader at KSS, and the Government

has shown no evidence of a connection between the extension and lay-up.

       The Government also argues that many lay-up costs should be considered repair

expenses because without having Crusader inspected, Horizon would have had to

remove Crusader from service by September 25, 2001. Horizon, however, was entitled

to a six-month dry-docking survey extension, and could have requested three more

months from late September, which would have covered the entire lay-up period.

2009-1075                                 7
Horizon presented evidence that requesting an additional extension was unnecessary

due to commercial inactivity. There is also evidence suggesting that the lay-up was

inevitable and, as Walcott Becker explained, Crusader was "laid up for a long time . . .

we weren't waiting 83 days to get into the dry dock." J. 177.

      Horizon's evidence suggests that Crusader laid up at KSS because of a variety of

reasons, including seasonal considerations and the company's contractual obligation to

transport empty containers to Hong Kong. Joseph Walla testified that cargo volume

cycles in the Puerto Rican trade were down in September 2001 when Crusader laid up.

James Dolan's affidavit explains the particulars of the Puerto Rican market stating,

"Horizon Lines will lay-up one of these vessels [when all five vessels are not required by

the trade] either in the United States or in a foreign location, depending upon a number

of considerations, such as a pre or post-positioning or available safe anchorage or

berths." J. 938.

      James Dolan's opinion that because of the Hong Kong voyage, "[o]nce the

vessel was located in the Far East . . . it was commercially reasonable and logical for

the company to lay-up the vessel at a nearby location" provides evidence of an

alternative to the Government's supposition of a causal relationship between the lay-up

at KSS and repairs at Jurong. See J. 939. In addition, James Dolan stated that "[the

lay-up] charges are not repair-related but necessitated by the 'Guide' or normal practice

in putting a vessel in lay-up." J. 941. The Guide for Lay-up and for Reactivation of

Laid-up Ships ("Guide") is published by the American Bureau of Shipping to assist ship

owners in effectively and properly laying up and reactivating their vessels. In short,

2009-1075                               8
Horizon presented evidence which put into genuine evidence-based dispute the factual

predicate for the Government's summary judgment motion.

           The Government erroneously implies that the two ambiguous e-mails referenced

above conclusively prove a causal connection between Crusader's lay-up in Indonesia

and Crusader's repairs in Singapore. As evidenced in Glen Moyer's e-mail, Crusader

was to anchor at an island off of Singapore under Jurong's management. Jurong would

then move the ship to its yard. Horizon made a business decision to delay docking at

Jurong until Crusader's January return date. Joe Bregalia's e-mail further delineates the

plan "to lay the vessel idle at [KSS] for (2) months, with the vessel then shifting to

[Jurong] in early Nov to commence a longer than usual repair period." J. 205. This

evidence shows that Horizon scheduled the lay-up and repair work together, but it does

not conclusively establish that the repairs caused the lay-up or that the lay-up furthered

the repairs.

           Horizon laid Crusader up for approximately three months. Crusader was then

towed to Jurong's shipyard for one week of dry-docking and repairs.         It cannot be

implied that Crusader laid up for eighty-three days in anticipation of repairs at Jurong.

The e-mails can be read as providing only evidence of scheduling and logistics. The

mere coordination of Crusader's lay-up and repairs does not mean one furthers the

other. 1       To imply such a connection on this record violates the standard that on

summary judgment, all inferences are to be drawn in favor of the non-movant.

           1
              X may be efficient to coordinate lunch plans with Y and a trip to the dry
cleaner so that X only has to leave work once in the middle of the day. However, if X e-
mails Y at noon so that X can drop off trousers at the dry cleaner, that would not
conclusively prove that the lunch at half past noon caused the trip to the dry cleaner.

2009-1075                                 9
                                   CONCLUSION

      Horizon's evidence suggesting that the KSS lay-up was entirely unrelated to the

Jurong repairs makes improper the trial court's grant of summary judgment in favor of

the Government. We therefore reverse the summary judgment grant and remand for

further proceedings.

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