Court Opinion

ID: 819352
Source: CourtListenerOpinion
Date Created: 2013-02-05 02:37:36.417415+00
Date Added: 2024-06-11T12:55:56.834772
License: Public Domain

Slip Op. 01-43

                 UNITED STATES COURT OF INTERNATIONAL TRADE

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MITCHELL FOOD PRODUCTS, INC.        :
         formerly
SOUTHERN GOLD CITRUS PRODUCTS, INC.,:

                                  Plaintiff, :

                     v.                            :   Court No. 94-05-00296

UNITED STATES,                                  :

                                  Defendant. :

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                                         Opinion

[Upon trial of plaintiff's demand
 for return of drawback duties,
 judgment for the defendant.]

                                                       Decided:    April 12, 2001

       Donald F. Beach, Esq. for the plaintiff.

     Stuart E. Schiffer, Acting Assistant Attorney General; David
M. Cohen, Director, and Velta A. Melnbrencis, Assistant Director,
Commercial Litigation Branch, Civil Division, U.S. Department of
Justice (Cynthia B. Schultz and Matthew D. Lee); and Assistant
Chief Counsel, International Trade Litigation, U.S. Customs Serv-
ice (Karen P. Binder), of counsel, for the defendant.

                AQUILINO, Judge:        The drawback of duties on imports has

been       an   element   of   federal     governance    of   America    since   its

inception1, but the grant thereof has long been held to be a pri-

vilege, not a right, with doubt in regard thereto to be resolved in

favor of the government.              E.g., Swan & Finch Co. v. United States,

190 U.S. 143, 146 (1903); Nestle's Food Co. v. United States, 16

Ct.Cust.Appls.        451,     455,    T.D.   43199    (1929),    and   cases   cited

       1
           See Act of July 4, 1789, §3, 1 Stat. 24, 26-27.
Court No. 94-05-00296                                              Page 2

therein.   Moreover, the national Constitution, from the beginning,

has required an actual stake in a case or controversy asserted

under Article III, with the Supreme Court noting that it sometimes

remains to be seen whether the factual allegations of a complaint

necessary for standing will be supported adequately by the evidence

adduced at trial.     Gladstone, Realtors v. Village of Bellwood, 441

U.S. 91, 115 n. 31 (1979).

                                    I

           The trial of plaintiff's complaint herein has left doubt,

both as to standing to actually recover and with regard to the

merits of the claim for recovery.

                                    A

           Mitchell    Food   Products,   Inc.   is   introduced   by   the

complaint (at pages 2-3) as the putative plaintiff in the following

manner:

          Southern Gold Citrus Products, Inc. (SG . . .) was
     purchased in 1982 by the Seven-Up Company, a wholly owned
     subsidiary of Philip Morris, Inc. Later, when Seven-Up
     was sold by Philip Morris in 1986, its stock and assets
     were assigned to Packaged Food & Beverage Company, Inc.
     (PFB), a wholly owned corporate subsidiary of Philip
     Morris, Inc. SG continued operations until an unsea-
     sonable and severe frost forced it to cease production.
     After cessation of operations, SG filed drawback claims
     . . . to cover exportations which occurred prior to the
     permanent stoppage of production.

          Although ceasing operations, SG retained its cor-
     porate charter pending payment of drawback and until the
     Customs Service had completed Operation "Orange Squeeze."
     SG's affairs were and are being administered by PFB of
     Clayton, Missouri 63105.
Court No. 94-05-00296                                             Page 3

            Early in 1993, SG was asked to relinquish its
       tradename as another [] Philip Morris corporate sub-
       sidiary wished its use. SG through PFB did not object to
       its name transfer, and it was assigned the designation of
       Mitchell Food Products, Inc. . . .

       . . . [P]laintiff will be referred to as Southern Gold
       Citrus Products, Inc. or the abbreviated "SG" until this
       action is concluded, except for the formal, official case
       designation in the heading of papers submitted to this
       Court. The name "Mitchell Food Products, Inc." does not
       appear on any paper or document relevant to this action,
       except for the attached exhibit, to the best knowledge
       and belief of the plaintiff and its attorney.

The exhibit referred to, labelled "A" to the complaint, is simply

counsel's notification of Customs of the purported change of name

of Southern Gold Citrus Products, Inc. to Mitchell Food Products,

Inc.

            In their answer on behalf of the defendant, government

counsel    deny   the   foregoing   material   averments   "for   lack   of

information" and thus knowing whether either of the encaptioned

entities is a proper party plaintiff herein.       Issue having been so

joined by the pleadings, and not having been resolved before

trial2, the burden was then on the plaintiff to adduce evidence to

substantiate standing to recover on the complaint.         No attempt to

do so was made, which failure necessarily invokes the admonition of

the Supreme Court that the

       requirements of Art. III are not satisfied merely be-
       cause a party requests a court of the United States to
       declare its legal rights, and has couched that request
       for forms of relief historically associated with courts
       of law in terms that have a familiar ring to those
       trained in the legal process.

       2
       Cf. defendant's first proposed pretrial order, Schedules
B, F-2.
Court No. 94-05-00296                                       Page 4

Valley Forge Christian College v. Americans United for Separation

of Church and State, Inc., 454 U.S. 464, 471 (1982).

                                B

          Of course, this court was not at liberty to guide counsel

in the prosecution of plaintiff's action. Hence, corporate standing

was still an open question when the parties determined to rest at

the trial, which focused on the demand for return of $828,186.97 in

drawback duties and $90,324.19 in interest. Those amounts had been

repaid to Customs following an audit by the Service of a contract

with Southern Gold Citrus Products, Inc., which the court will

refer to hereinafter as "SGCP", for accelerated payment by the

government of substitution manufacturing drawback based upon 19

U.S.C. §1313(b) and (i) and 19 C.F.R. Part 22 (1983).   That part of

the Tariff Act of 1930, as amended, provided:

     (b) Substitution for drawback purposes

          If imported duty-paid merchandise and duty-free or
     domestic merchandise of the same kind and quality are
     used in the manufacture or production of articles within
     a period not to exceed three years from the receipt of
     such imported merchandise by the manufacturer or producer
     of such articles, there shall be allowed upon the
     exportation of any such articles, notwithstanding the
     fact that none of the imported merchandise may actually
     have been used in the manufacture or production of the
     exported articles, an amount of drawback equal to that
     which would have been allowable had the merchandise used
     therein been imported; but the total amount of drawback
     allowed upon the exportation of such articles, together
     with the total amount of drawback allowed in respect of
     such imported merchandise under any other provision of
     law, shall not exceed 99 per centum of the duty paid on
     such imported merchandise.
Court No. 94-05-00296                                                  Page 5

                                *   *      *
     (i) Time limitation on exportation

          No drawback shall be allowed under the provisions of
     this section unless the completed article is exported
     within five years after importation of the imported
     merchandise.

The contract, a synopsis of which was duly reported at T.D. 84-2(V)

(1983), 18 Cust.Bull. & Dec. 7, 123, was based upon a lengthy
written undertaking by SGCP, copies of which were introduced at

trial.   The exported products for which drawback was authorized by

Customs were specified to be (1) orange juice from concentrate

(reconstituted juice), (2) frozen concentrated orange juice, (3)

bulk concentrated orange juice, and (4) drink base containing

orange solids, all derived from concentrated orange juice for

manufacturing.     That basic substance, either imported, or duty-

paid, duty-free or domestic, was specified to be as defined in the

U.S. Food & Drug Administration standard of identity, 21 C.F.R.

§146.153, of not less than 55o Brix4, and to meet the Grade A

standard   of    the   U.S.   Department       of   Agriculture,   7   C.F.R.

§2852.2221-2231. See Plaintiff's Exhibit 1 and Defendant's Exhibit

E, Attach. 2, third page. Among other things, the SGCP undertaking

     3
       Cf. T.D. 85-110, 19 Cust.Bull. & Dec. 255 (1985), super-
seding T.D. 80-227(A), 14 Cust.Bull. & Dec. 533, 534-36 (1980).
     4
       According to Webster's Third New International Dictionary
of the English Language Unabridged 279 (1981), this is "a hydro-
meter scale for sugar solutions so graduated that its readings in
degrees Brix at a specified temperature represent percentages by
weight of sugar in the solution". The proper noun is that of its
inventor, Adolf F. Brix.
Court No. 94-05-00296                                                  Page 6

described its contemplated production of the four articles.                 It

also made the following commitments:
     PROCEDURES AND RECORDS MAINTAINED

     We will maintain records to establish:

     1. The identity and specifications of the merchandise we designate;

     2. The quantity of merchandise of the same kind and quality as the
        designated merchandise we used to produce the exported article;

     3. That, within 3 years after receiving it at our factory, we used
        the designated merchandise to produce articles. During the same
        3 year period, we produced the exported articles.

     We realize that to obtain drawback the claimant must establish that
     the completed articles were exported within 5 years after
     importation of the imported merchandise.

     Our records establishing our compliance with these requirements
     will be available for audit by Customs during business hours.     We
     understand that drawback is not payable without proof of com-
     pliance.

     INVENTORY PROCEDURES

     Our inventory procedures described below will provide all of the
     information necessary to satisfy the legal requirements included in
     the above heading of "Procedures and Records Maintained".

     RECEIPT AND STORAGE OF DESIGNATED MERCHANDISE

     The containers of imported frozen concentrated orange juice or
     concentrated orange juice for manufacturing are stored separate- ly
     upon receipt. Our receiving records will show:

           1. Date of receipt

           2. From whom received

           3. Quantity received

           4. Quality received (degree Brix)

           5. Container numbers

           6. Import entry number and date of entry

           7. When imported and domestic materials are
              comingled [sic] in storage prior to use,
              our accounting method will be on a first-
              in-first-out basis.
Court No. 94-05-00296                                                   Page 7

     PRODUCTION OF EXPORTED ARTICLES

     Our production records will reflect the following information:

           1. What was produced and date or period of production.

           2. What was used to produce the exported article.
              Our records will indicate the kind and quality
              of the material used to produce the exported
              article.

     USE OF DESIGNATED ARTICLE

     Our records will reflect the date we used the designated merchan-
     dise to produce articles.

     SHIPPING RECORDS

     Our shipping records will indicate the date the exported product
     was shipped, to whom, the name of the exporting carrier, and the
     quantity and identity of all products shipped.

     BASIS OF CLAIM FOR DRAWBACK

     Our claim for drawback will be based on the quantity of concen-
     trated orange juice for manufacturing used to produce the export-ed
     articles.

     AGREEMENTS

     The corporation specifically agrees that it will:

           1. Comply fully with the terms of this statement when
              claiming drawback;

           2. Open its factory and records for examination at all
              reasonable hours by authorized government officers;

           3. Keep its drawback-related records and supporting data
              for at least 3 years from the date of liquidation of
              any drawback claim predicated in whole or in part upon
              this statement;

           4. Keep this statement current by reporting promptly to
              the Regional Commissioner who liquidates its claims
              any changes in the number of locations of its offices
              or factories, the corporate name, or the corporate or-
              ganization by secession or reincorporation;

           5. Keep this statement current by reporting promptly to
              the Headquarters, U.S. Customs Service all other
              changes affecting information contained in this state-
              ment;
Court No. 94-05-00296                                                  Page 8

           6. Keep a copy of this statement o[n] file for ready re-
              ference by employees and require all officials and
              employees concerned to familiarize th[e]mselves with
              the provisions of this statement; and

           7. Issue instructions to insure proper compliance with
              Title 19, United States Code, Section 1313 (a) & (b),
              Part 22 of the Customs Regulations and this statement.

Id., fifth to seventh pages.         Pursuant to this agreement, SGCP

applied for and received drawback on numerous shipments, including

those at issue herein, which are described on Customs Forms 7575-B,

Drawback Entry Nos. 84-410909, 85-509909, 85-521807 and 85-521808.

See Defendant's Exhibits A, B, C, D.

           Subsequent    to    accelerated    payments   thereon,      Customs

undertook to audit those shipments, by which time the Service had

revised its regulations which govern drawback per part 191 of 19

C.F.R.   See T.D. 83-212, 17 Cust.Bull. & Dec. 465 (1983).              Each of

the resultant audit reports recommended recovery from SGCP of the

drawback   paid   on   the    aforenumbered   entries.       See      generally

Defendant's Exhibits E, F, G, H.       The recommendation(s) were based

upon the following negative conclusions:

     1. The 1984 production records were not available. As
        a result, we could not determine the manufacturing
        time frame of the designated imports, use in pro-
        duction, quantity and quality of the substituted
        materials, CR 191.32(a)(1)(2)(4).

     2. The records tracing the transfer of the designated
        import from the receiving department to the produc-
        tion department were not available. Southern Gold
        used internally designated drums for the production
        of the exported products. The drum numbers indicated
        on the production records were different from the
        drum numbers identified in the receiving records.
        Compliance with Section 191.32(a)(1)(3) of Customs
        Regulations was not met.
Court No. 94-05-00296                                             Page 9

                              *   *      *

       4. The manufacturing time frame of the designated
          import could not be determined because the pro-
          duction records were not available. Compliance
          with Section 191.32(a)(3) of the Customs Regula-
          tions could not be established.

Defendant's Exhibits G, H, seventh, eighth pages. See Defendant's

Exhibit F, eighth page. In addition to the first two conclusions,

which were the same for entry No. 84-410909, the report of its

audit concluded:

       3. The total single strength gallons of orange juice
          concentrate for manufacturing used to produce orange
          drink base, super succo orange and citrus punch drink
          was overstated by 10,614.87 single strength gallons
          and overstated the duty refund by $3,715.19. The
          overstatement was due to the mixture of orange wash
          pulp in the exported products.

Defendant's Exhibit E, eighth page.          Thus, with the exception of

this     one    substantive   negative        conclusion,   the     audit

recommendation(s) were based on lack of the proof required by the

SGCP agreement, supra, and the governing Customs regulations.

            Some three and a half years later, company counsel un-

dertook to locate the records claimed to support the contested

drawback.      See, e.g., Defendant's Exhibits I, J.        That effort

proved only minimally successful, with the Service's "follow-up

verification" affirming denial of drawback, save $17,598 on entry

No. 84-410909.    Defendant's Exhibit L.       According to plaintiff's
Court No. 94-05-00296                                             Page 10

summons herein, the SGCP entries were finally liquidated in ac-

cordance with the audit recommendation(s), modified as indicated

with regard to that particular entry.          The protest thereof duly

filed with Customs was denied "because of certain missing rec-

ords", and this action commenced pursuant to 28 U.S.C. §1581(a).

                                    (1)

          The    trial   herein     afforded   the   plaintiff     another

opportunity to establish its entitlement to drawback on the entries

in question.    It relies on Aurea Jewelry Creations, Inc. v. United

States, 13 CIT 712, 720 F.Supp. 189 (1989), aff'd, 932 F.2d 943

(Fed.Cir. 1991), to the effect that testimonial evidence can

supplant missing documentation in an action such as this.            That

case involved a claim for drawback under 19 U.S.C. §1313(a) on

imported gold chain and bracelets which were melted into gold

ingots by JMS Manufacturing Co., a wholly owned subsidiary of

Aurea, and were then exported. Customs rejected the drawback claim

"on the ground that Aurea failed to maintain records".           13 CIT at

713, 720 F.Supp. at 190.          At trial, Aurea explained that the

records were lost when JMS went out of business, whereupon it

called the company's former plant manager and former controller to

testify with regard to the maintenance of those records, as well as

their specific contents.    The court accepted their testimony as
Court No. 94-05-00296                                                 Page 11

"dispel[ling] Customs' underlying doubts in denying drawback"5 and

thereby    held   that   the   plaintiff   had   made   a   valid   claim   for

drawback.    The court of appeals affirmed, noting that a

     claimant's testimonial evidence thus could be used to
     satisfy a two-pronged inquiry -- 1) whether appropriate
     documentation was maintained as required; and 2) whether
     the contents of that documentation adequately established
     claimant's right to the drawback.

Aurea Jewelry Creations, Inc. v. United States, 932 F.2d 943, 946

(Fed.Cir. 1991).

            The plaintiff in the action at bar presents little

conclusive evidence.      Customs denied drawback after audit because

the inventory and production records, required to show the transfer

of imports from one department to the other, were unavailable.               In

lieu thereof, the plaintiff called one witness to the stand,

Rosaria M. Wills, former controller of SGCP, who was competent to

testify regarding the required recordation6, but who was, at best,

tangentially familiar with the production process7, e.g.:

          Q When you were preparing a drawback claim, what
     did you first do?

          A I would . . . receive a bill of lading from the
     warehouse, telling me that [a] shipment was going over-

     5
       Aurea Jewelry Creations, Inc. v. United States, 13 CIT
712, 715, 720 F.Supp. 189, 192 (1989), aff'd, 932 F.2d 943
(Fed.Cir. 1991).
     6
       See, e.g., trial transcript ("Tr."), pp. 50, 67-75, 77-88,
90-124, 133-34.
     7
         See, e.g., id. at 36-39.
Court No. 94-05-00296                                                       Page 12

     seas.       And then, [I] would receive a seventy-five-eleven,
     which      is a blue form, notice of exportation. Then, I
     would      get a copy of the invoice, and . . . the manifest
     . . .      show[ing] the drums that left with that shipment.
     . . .

          And, [I] would combine all this information
     together, as far as the manifest, the bill of lading,
     notice of exportation, and the vessel. []

                                    *    *    *

          Then, I would match up all this information . . .
     and make up all the forms. Then, . . . with . . . the
     president of the company, [who] had been a production
     manager,[] we w[ould] go to the drums from the manifest,
     to see -- and he would go to his other score sheet, which
     was different. . . .

                                    *    *    *

     . . . I would check against the score sheet to see if
     those drums were the ones produced. But we went another
     step further, and went back and check[ed] each drum, to
     be sure that it fit the requirement of the U.S. Customs,
     as far as [] full drawback . . ..

Tr. at 83-85. In other words per the record, the witness was "not

in production"8 and thus did not have direct knowledge of the

makeup of the product.          In fact, all of the drawback claims were

filled    out    with   the    assistance     of   the   president    and   former

production      manager   of    SGCP.9       Hence,   the   court    cannot,    and

therefore does not, find that Mrs. Wills was sufficiently familiar

with production or otherwise satisfied the second prong of Aurea

Jewelry, 932 F.2d at 946, supra.

     8
         Id. at 157.
     9
         See id. at 157-58, 160-61.
Court No. 94-05-00296                                               Page 13

                                      (2)

              On its part, the defendant adduced evidence at trial

which engenders doubt as to whether the exported goods conformed

with    SGCP's    drawback    contract.     That   contract   committed   the

exported bulk concentrated orange juice to           "a minimum USDA Grade

A score of 94"10, but that grade apparently was not always achieved.
For example, ungraded navel oranges were used in the manufacture of

product on occasion:          On September 14, 1983, 36 drums of such

oranges were sent to the plant.           See Defendant’s Exhibit T24, pp.

1, 2; Tr. at 149-51.         Drink base produced on that date was shipped

out on the 28th of that same month.          See Defendant’s Exhibit A, p.

4; Tr. at 149-51.      On December 21, 1983, one bin of navels went to

the plant, additional drums were sent three days later, and on

December 28th 48 drums were delivered. See Defendant’s Exhibit T4,

p. 1; Tr. at 140-43.         Product from those dates was included in a

drawback claim in which 23,022 gallons were cleared on December 30,

1983. See Defendant’s Exhibit A, p. 3; Tr. at 140-43.                 Navel

oranges were delivered to the plant for processing on January 4,

1984.       See Defendant’s Exhibit T9, p. 1; Tr. at 145-47.              Some

18,590 gallons of product processed on that day cleared Customs

three days later.      See Defendant’s Exhibit A, p. 3; Tr. at 145-47.

Twenty four drums of navels were delivered to the plant on February

28, 1984.      See Defendant’s Exhibit T21, pp. 1, 4; Tr. at 148-49.

       10
            Defendant's Exhibit E, Attach. 2, fourth page.
Court No. 94-05-00296                                                            Page 14

              The drawback contract also required the use of essential

oils    and    flavoring      components      in    the    manufacture          of    bulk

concentrated orange juice.           See Defendant’s Exhibit E, Attach. 2,

p. 4; Tr. at 164-65.              On at least three occasions, the record

reflects      that   such    required    additives        were    left    out    of   the

manufacturing process.            On October 27, 1983, neither essence nor

oil was transferred to production, and the natural aroma was

returned to stock.          See Defendant’s Exhibit T1, p. 1; Tr. at 167-

68.    Product created on that date was shipped on the Great West and

Alliance V-156 on the 28th and 30th of October, respectively.                         See

Defendant’s Exhibit A, p. 3.            On December 26, 1983, again no oils

or essences were transferred to the plant, the product of which was

exported on the Aime Enterprise that same month.                       See Defendant’s

Exhibit T7, pp. 1, 2 and Exhibit A, p. 3; Tr. at 169-70.                         No oils

or    essences   were    transferred     to   the    plant       for    production     on

February 24, 1984.          See   Defendant’s Exhibit T5, p. 1; Tr. at 168-

69.    The product manufactured that day was exported on the Pacer V-

84 and the Lindsey Transport on February 27th and on March 5th,

respectively.        See Defendant’s Exhibit A, p. 3.

              Given such shortcomings, the court finds that Customs was

on sustainable ground after audit in denying SGCP drawback. Cf. 19

C.F.R. §191.23(d) (1987).
Court No. 94-05-00296                                              Page 15

                                       II

            In sum, the burden of proving that either Mitchell Food

Products, Inc. or Southern Gold Citrus Products, Inc. is entitled

to the return of the drawback duties ceded to the U.S. Customs

Service    after   audit   has   not   been   met.   Judgment   will   enter

accordingly.

Decided:    New York, New York
            April 12, 2001

                                            _____________________________
                                                         Judge