Volkswagen of Am., Inc. v. United States

2009 CIT 31

Opinion

Slip Op. 09-31

UNITED STATES COURT OF INTERNATIONAL TRADE

VOLKSWAGEN OF AMERICA, INC., Before: Richard W. Goldberg, Senior Judge Plaintiff,

v. Court No. 96-00132

UNITED STATES,

Defendant.

OPINION

[Judgment for Defendant.]

Dated: April 15, 2009

Law Offices of Thomas J. Kovarcik (Thomas J. Kovarcik), for Plaintiff Volkswagen of America, Inc.

Michael F. Hertz, Acting Assistant Attorney General; Barbara S. Williams, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department of Justice.

GOLDBERG, Senior Judge: This matter is before the Court

following the Federal Circuit’s remand in Volkswagen of America,

Inc. v. United States, 540 F.3d 1324 (Fed. Cir. 2008). The

narrow issue left before the court is whether repairs made

pursuant to federal emissions recalls establish that these

defects existed at the time of importation, and in turn, entitle

Volkswagen of America, Inc. (“Volkswagen”) to an allowance for Court No. 96-000132 Page 2

the value of these repairs. For the foregoing reasons, we find

that Volkswagen is entitled to an allowance for the value of its

repairs made in response to federal emissions recalls.

I. DISCUSSION

Our decision in Volkswagen of America, Inc. v. United

States addressed the company’s entitlement to reductions in the

appraised values of its imported merchandise for repairs made to

latent defects under 19 C.F.R. § 158.12, which permits an

allowance for damage existing at the time of importation. 31

CIT __, 484 F. Supp. 2d 1314 (2007). In this case, we held that

Volkswagen’s evidence was insufficient to establish that its

various repair claims related to defects existing at the time of

importation. Id. at 1321-22. The Federal Circuit affirmed

this decision in-part, and reversed-in-part—finding that

Volkswagen was entitled to an allowance for warranty repairs

made in response to government-mandated safety recalls. In the

Federal Circuit’s view, the “very nature of a government

mandated safety recall establish[ed] the high likelihood that

any defects repaired pursuant to the recall existed at the time

of importation.” Volkswagen, 540 F.3d at 1336. The Federal

Circuit further ordered this Court to examine whether “state law Court No. 96-000132 Page 3

1 recalls and the FTC recall exhibit [this] same reliability.”

Id. For the foregoing reasons, we find that Volkswagen is

entitled to an allowance because the nature of the federal

emissions recalls similarly establishes a high likelihood that

the defects existed at the time of importation.

In Volkswagen, the Federal Circuit based its conclusion

that the applicable defects existed at the time of importation

on the fact that federal law prohibits the importation of

automobiles not in compliance with federal safety standards.

540 F.3d at 1335-36. Federal law similarly prohibits “the

importation into the United States, of any new motor vehicle or

new motor vehicle engine . . . unless such vehicle or engine is

covered by a certificate of conformity [with federal emissions

laws].” 42 U.S.C. § 7522(a)(1) (2000). Further, the similarity

of federal safety and emissions-based recalls is demonstrated by

the fact that the reporting provisions for emissions-based

recalls grafts on to the reporting system utilized for safety-

recalls - requiring a manufacturer to file a report “in

1 Volkswagen concedes that the only recalls that need to be analyzed on remand are federal emissions recalls for two reasons. First, Volkswagen’s FTC “claim” does not reflect a “recall”, but rather a “claim” for a warranty repair outside the scope of the Federal Circuit’s holding. Second, only California had the right to regulate its automobile emissions at the time of these entries, and thus, “state recalls” or “state law emissions recalls” could refer only to California emissions recalls, and Volkswagen made no allowance claims pursuant to emissions recalls issued by California. Court No. 96-000132 Page 4

accordance with procedures established by the manufacturer to

identify safety related defects that a specific emissions-

related defect exists.” 40 C.F.R. § 85.1903. The required

content of the reports are also very similar. Compare 40 C.F.R.

§ 85.1903, with 49 C.F.R. § 573.6.

United States Customs and Border Protection (“Customs”),

maintains that repairs made pursuant to a federal emissions

recall do not establish that the defects existed at importation.

To support its argument, Customs relies on an EPA report on

emissions-based recalls and voluntary service repairs.

Compliance & Innovative Strategies Div., Office of Transp. & Air

Quality, EPA, Annual Summary of Emissions-Related Recall and

Voluntary Service Campaigns Performed on Light-Duty Vehicles and

Light-Duty Trucks (2008), http://www.epa.gov/otaq/cert/recall/

420b08012.pdf. Customs cites a 2007 service action for the New

Beetle, GTI, Golf, and Jetta models (EPA # 2814, Manufacturer

Recall 2007/04/10), which states that “[a]n incorrect

interpretation of information in the electronic parts catalogue

directed dealership technicians to install the wrong catalyst on

these particular vehicles.” Id. at 8. In Customs’ view, the

fact that Volkswagen had to initiate a service action to fix

mistakes made by its dealers demonstrates that not all repairs

due to federal emissions-based recalls relate to defects

existing at the time of importation. This example, however, is Court No. 96-000132 Page 5

misplaced as the service action Customs is citing is not an

emissions-based recall, but instead a voluntary service action

to fix a repair, which has no bearing on the emissions-based

recalls at issue in this case. Accordingly, this Court finds

that there is a similarly high likelihood that any repairs due

to federal emissions recalls relate to defects existing at

importation, and in turn, that Volkswagen is entitled to its

claimed allowance.

II. CONCLUSION

In light of the foregoing, this Court grants final judgment

to Volkswagen in favor of its claims for an allowance for

repairs made pursuant to federal emissions-based recalls.

/s/ Richard W. Goldberg Richard W. Goldberg Senior Judge

Date: April 15, 2009 New York, New York ERRATA

On Slip Op. 09-31:

On Page 1: in the caption, “[Judgment for Defendant.]” should be replaced with “[Judgment for Plaintiff.]”

Dated: April 16, 2009