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Ford Motor Co. v. United States

United States Court of Appeals, Federal Circuit

June 7, 2019

FORD MOTOR COMPANY, Plaintiff-Appellee
v.
UNITED STATES, Defendant-Appellant

          Appeal from the United States Court of International Trade in No. 1:13-cv-00291-MAB, Judge Mark A. Barnett.

          Peter D. Keisler, Sidley Austin LLP, Washington, DC, argued for plaintiff-appellee. Also represented by Richard M. Belanger, Barbara Guy Broussard, Daniel J. Feith, Erika Maley, Gordon D. Todd.

          Michael Shih, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Jeanne Davidson, Matthew James Glover, Joseph H. Hunt; Beverly A. Farrell, Jason M. Kenner, Amy Rubin, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice, New York, NY; Yelena Slepak, Office of the Assistant Chief Counsel, United States Bureau of Customs and Border Protection, United States Department of Homeland Security, New York, NY.

          Before Dyk, Wallach, and Hughes, Circuit Judges.

          Wallach, Circuit Judge.

         Appellee Ford Motor Company ("Ford") sued Appellant United States ("the Government") in the U.S. Court of International Trade ("CIT"), challenging U.S. Customs and Border Protection's ("Customs") classification of its model year ("MY") 2012 Transit Connect 6/7[1] vehicles under Harmonized Tariff Schedule of the United States ("HTSUS")[2]Subheading 8704.31.00, which bears a duty rate of 25% ad valorem. Ford and the Government filed cross-motions for summary judgment, with Ford contending that its subject merchandise is properly classified under HTSUS Subheading 8703.23.00, which bears a lower duty rate of 2.5% ad valorem. The CIT denied the Government's Cross-Motion and granted Ford's Cross-Motion, thereby holding that Ford's proposed classification under HTSUS Subheading 8703.23.00 is correct. Ford Motor Co. v. United States, 254 F.Supp.3d 1297, 1333 (Ct. Int'l Trade 2017); see J.A. 75- 76 (Judgment).

         The Government appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5) (2012). We reverse.

         Background

         I. The Subject Merchandise

         This appeal involves a single entry of subject merchandise, "which entered at the Port of Baltimore on December 26, 2011." Ford, 254 F.Supp.3d at 1303 (citation omitted).[3] Ford originally began importing its line of Transit Connect 6/7s into the United States in 2009. Id. at 1302. Ford also produces a similar vehicle called the Transit Connect 9. See id. at 1304 n.13.[4] Ford based the design of both types of Transit Connect vehicles on its then-existing European V227 line of vehicles and imported the Transit Connects from its factory in Turkey. See id. at 1305. Specifically, "Ford's European V227 line included" (1) "the double-cab-in-van (DCIV)" and (2) "the Cargo Van." Id. (internal quotation marks and citations omitted). "Ford based the subject merchandise on its European V227 DCIV, not its Cargo Van." Id. (citations omitted).

         Before importation into the United States, Ford avers that it "modified the European V227 DCIV to comply with all relevant U.S. safety standards," including the Federal Motor Vehicle Safety Standards ("FMVSS"). Id. (citations omitted). For instance, Ford redesigned the second row of seats' underbody support structure; added side-impact beams and foam blocks for protection; and changed the vehicle's lighting, labels, and turn signals. Id. at 1306. Moreover, "Ford designed the Transit Connect on the Ford Focus platform, which means that" the two vehicle lines share similar features, specifically, "[the Transit Connect] has the same chassis and drivetrain as the Ford Focus passenger vehicle." Id. (internal quotation marks, brackets, and citations omitted). Ford designated its Transit Connects in the United States as part of the V227N line, which includes the Transit Connect Van (i.e., the Transit Connect 6/7) and the Transit Connect Wagon (i.e., the Transit Connect 9). See id. at 1307 & n.18. Ford displayed its Transit Connect models at auto shows and advertised "in magazines and on auto shopping websites." Id. at 1306 (internal quotation marks and citations omitted). "Each Transit Connect was built to order," with all available customization options identified in an online brochure. Id. (internal quotation marks and citations omitted).

         At the time of importation, the subject merchandise had several relevant characteristics. Ford specified the subject merchandise's Gross Vehicle Weight Rating ("GVWR") as 5, 005 pounds. See id. at 1307; see also 49 C.F.R. § 523.2 (2011) (explaining that GVWR refers to "the value specified by the manufacturer as the loaded weight of a single vehicle"). The Transit Connect 9, by contrast, had a GVWR of 4, 965 pounds. See Ford, 253 F.Supp.3d at 1307.[5] The Transit Connect 6/7s had a "four cylinder gasoline engine, . . . a steel unibody construction[, ] . . . front-wheel drive[, ] rear passenger seats with seat anchors[, ] . . . underbody bracing[, ] . . . front suspension[, ] . . . and over [fifty] inches of space from floor to ceiling in the rear." Id. (citations omitted). The subject merchandise "had swing-out front doors with windows, second-row sliding doors with windows," and "swing-out rear doors, some of which had windows." Id. (internal quotation marks and citations omitted). "[N]o Transit Connect 6/7s had a panel or barrier between the first and second row of seats." Id. (internal quotation marks and citation omitted). When imported, the subject merchandise had "second row seats; seat belts for every seating position; permanent bracing in the side pillars of the car body," as well as "child-locks in the sliding side doors; dome lighting in the front, middle, and rear of the vehicle; a full length molded cloth headliner; coat hooks in the second row; and a map pocket attached to the front driver seat." Id. (citations omitted). The vehicles also had "front vents and front speakers," cup holders in the center and rear console, and "carpeted foot-wells in front of the second row seat." Id. at 1307, 1308 (internal quotation marks and citation omitted). However, the vehicles "did not have rear (behind the front seats) vents, speakers, . . . handholds"; "side airbags in the area behind the front seats"; or "a cargo mat." Id. at 1308 (citations omitted). "[T]he painted metal floor of the cargo area was left exposed." Id. (citations omitted).

         Central to the underlying dispute were the Transit Connect 6/7s' second row seats. "[T]he second row seats . . . did not include headrest[s], certain seatback wires, a tumble lock mechanism, or accompanying labels, and were wrapped in cost-reduced fabric." Id. (internal quotation marks, brackets, and citations omitted). When Ford began importing MY 2010 Transit Connect 6/7s (as opposed to the MY 2012 versions at issue here), it used rear seats similar to those that were eventually used in the MY 2012 Transit Connect 9s. See id. at 1308-09. To reduce costs, Ford created, "[i]n mid-MY[ ]2010," its "first cost-reduced seat ('CRSV-1')," which "resulted in the removal of the head restraints, torsion bar assembly and mount, tumble lock mechanism and associated labels, and backrest reinforcement pad from the MY[ ]2010 Transit Connect 6/7 rear seat." Id. at 1310 (citations omitted). Ford subsequently created its second cost-reduced seat ("CRSV-2"), which are the seats that were used in the subject merchandise. See id. at 1311. These seats "incorporated the following changes from CRSV-1": (1) "removal of four of the seven seatback wires," (2) "wrapping of the seat in a cost-reduced fire-resistant grey woven cover[, ] . . . which is not the same as the fabric used to cover the front seat," (3) "replacement of the front leg seat anchor cover, which was designed to attach to the tumble lock mechanism, with a cover that did not contain a space for the tumble lock mechanism," (4) "removal of the red indicator flags and housings associated with the tumble lock mechanism to leave a bare metal lever," (5) "removal of the small rubber pad from the rear seat leg intended to decrease noise and vibration from around the rear floor latches," (6) removal of "the fabric mesh covering the rear seat bottom," and (7) discontinuation of the application of the "black paint to the visible, metal portions of the [rear] seat frame." Id. (internal quotation marks, brackets, and citations omitted). Although Ford's "engineers concluded that the fabric change and removal of seatback wires did not affect the CRSV-2's FMVSS compliance," "Ford did not conduct consumer testing or surveys before implementing the CRSV-2." Id. (internal quotation marks and citations omitted).

         After importation, Ford made several changes to the subject merchandise once the merchandise cleared Customs, but while the imported merchandise "w[as] still within the confines of the port." Id. at 1312. For instance, all Transit Connects underwent processing, such as "removing . . . a protective covering," "disengaging Transportation Mode," and "checking for low fuel." Id. (internal quotation marks and citations omitted). The Transit Connect 6/7s underwent "additional" processing ("post-importation processing"). Id. Specifically, "the second-row seat[s were] unbolted and removed, along with the associated second row safety restraints. A steel panel was then bolted into the second row footwell to create a flat surface behind the first rows of seats." Id. (footnote and citations omitted). "A molded cargo mat was placed over the floor behind the first row," "[s]cuff plates were added inside the second-row doors," and "[i]n some vehicles the sliding door windows were replaced with a solid panel." Id. (citations omitted).

         Therefore, "[a]ll Transit Connects are imported with second row seats, but the Transit Connect 6/7s are delivered to the customer as a two seat cargo van." Id. at 1307 (citations omitted). "The removed seats were recycled or otherwise disposed of." Id. at 1312 n.36 (citation omitted). Following this additional post-importation processing, the Transit Connect 6/7s maintained the following features: "underbody second-row seat support; anchors and fittings for the second-row seat[;] permanent bracing in the side pillars to support the removed safety restraints; and the beam and foam in the side sliding doors for rear passenger crash protection." Id. at 1312 (footnote and citations omitted). However, during the post-importation processing, "[t]he anchor holes for the second row seat are plugged and no longer readily accessible." Id. at 1312 n.38.

         II. Procedural History

         In February 2012, "the Port of Baltimore notified Ford that [Customs] had initiated an investigation into Ford . . . importations." Id. at 1314 (internal quotation marks and citations omitted). Following the investigation, in January 2013, Customs found that the subject merchandise was properly classified under HTSUS Heading 8704, specifically HTSUS Subheading 8704.31.00. Customs Ruling HQ H220856 (Jan. 30, 2013), 2013 WL 1793233, at *11. Accordingly, Customs liquidated the subject merchandise at the 25% duty rate associated with HTSUS Subheading 8704.31.00. Ford, 254 F.Supp.3d at 1303. "Ford timely and properly protested" this decision. Id. Customs denied Ford's protest. Id.

         Ford filed a complaint with the CIT, alleging Customs improperly denied its protest. J.A. 98. The CIT held that the subject merchandise should have been classified under HTSUS Subheading 8703.23.00. Ford, 254 F.Supp.3d at 1333. The CIT evaluated the subject merchandise's condition at the time of importation, see id. at 1316-17, and concluded "the Transit Connect 6/7's structural and auxiliary design features point to a principal design for the transport of persons," id. at 1328. The CIT explained that "because [HTSUS H]eading 8703 is not controlled by use, and an assessment of intended use is not necessary to distinguish [HTSUS Heading] 8703 from 8704," it found "it unnecessary to consider principal or intended use, or the [relevant use] factors, to define the tariff terms." Id. at 1332. Furthermore, the CIT rejected the argument that Ford's post-importation processing constituted a disguise or artifice, determining instead that Ford's removal of the rear seats "after importation is immaterial" and that Ford engaged in legitimate tariff engineering. Id. at 1324 (footnote omitted).

         Discussion

         I. Standard of Review and Legal Framework

         We review the CIT's decision to grant summary judgment de novo, applying the same standard used by the CIT to assess Customs' classification. See Otter Prods., LLC v. United States, 834 F.3d 1369, 1374-75 (Fed. Cir. 2016). "Although we review the decision of the CIT de novo, we give great weight to the informed opinion of the CIT and it is nearly always the starting point of our analysis." Schlumberger Tech. Corp. v. United States, 845 F.3d 1158, 1162 (Fed. Cir. 2017) (internal quotation marks, alterations, and citation omitted). Pursuant to U.S. Court of International Trade Rule 56(a), the CIT "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."

         "The classification of merchandise involves a two-step inquiry." ADC Telecomms., Inc. v. United States, 916 F.3d 1013, 1017 (Fed. Cir. 2019). First, we ascertain the meaning of the terms within the relevant tariff provision, which is a question of law, and, second, we determine whether the subject merchandise fits within those terms, which is a question of fact. See Sigma-Tau Health Sci., Inc. v. United States, 838 F.3d 1272, 1276 (Fed. Cir. 2016). "Where, as here, no genuine dispute exists as to the nature of the subject merchandise, the two-step inquiry collapses into a question of law we review de novo." ADC, 916 F.3d at 1017 (internal quotation marks and citation omitted).

         The HTSUS governs the classification of merchandise imported into the United States. See Wilton Indus., Inc. v. United States, 741 F.3d 1263, 1266 (Fed. Cir. 2013). The HTSUS "shall be considered . . . statutory provisions of law for all purposes." 19 U.S.C. § 3004(c)(1) (2012); see Chemtall, Inc. v. United States, 878 F.3d 1012, 1026 (Fed. Cir. 2017) (explaining that "the tenth-digit statistical suffixes . . . are not statutory," as those suffixes are not incorporated in the HTSUS's legal text). "The HTSUS scheme is organized by headings, each of which has one or more subheadings; the headings set forth general categories of merchandise, and the subheadings provide a more particularized segregation of the goods within each category." Wilton Indus., 741 F.3d at 1266. "The first four digits of an HTSUS provision constitute the heading, whereas the remaining digits reflect subheadings." Schlumberger, 845 F.3d at 1163 n.4. "[T]he headings and subheadings . . . are enumerated in chapters 1 through 99 of the HTSUS (each of which has its own section and chapter notes) . . . ." R.T. Foods, Inc. v. United States, 757 F.3d 1349, 1353 (Fed. Cir. 2014). The HTSUS "also ...


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