Protest No. 2002-09-100092; Vessel Repair Entry No. C20-0063206-0; M/V 2ND LT. JOHN P. BOBO; 19 U.S.C. § 1466(d)(1); Casualty

HQ H071920 July 8, 2010 VES-13-18-RR:BSTC:CCI H071920 CK CATEGORY: Carriers Supervisory Import Specialist U.S. Customs and Border Protection 1515 Poydras St., Suite 1700 New Orleans, LA 70112 Re: Protest No. 2002-09-100092; Vessel Repair Entry No. C20-0063206-0; M/V 2ND LT. JOHN P. BOBO; 19 U.S.C. § 1466(d)(1); Casualty Dear Sir: This is in response to your memorandum dated August 3, 2009, forwarding for our review the above-referenced protest. Our ruling on this matter is set forth below. FACTS: The M/V 2ND LT. JOHN P. BOBO is a U.S.-flagged Roll-On-/Roll-Off (Ro/Ro) vessel that incurred foreign repair expenditures. On March 16, 2003, the vessel arrived at the Port of Jacksonville, Florida, where Vessel Repair Entry C20-0063206-0 was filed. An application for relief was timely filed. A determination of duty was issued in the amount of $1,167,906.61 on May 29, 2009, which is the subject of this protest dated July 9, 2009. Protestant, American Overseas Marine, states that the vessel’s port main diesel engine sustained damages on January 9, 2002 at approximately 1000 hours as a result of the No. 4 main bearing failure while the vessel was enroute from Rota, Spain, to Souda Bay (Crete), Greece. ISSUE: Whether the vessel repair costs incurred by the Protestant are dutiable under 19 U.S.C. § 1466? LAW AND ANALYSIS: Title 19, United States Code, § 1466(a), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...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...". Section 1466(d)(1) authorizes a remission of such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. The statute sets forth the following three-part test that must be met in order to qualify for remission under the subsection: 1. The establishment of a casualty occurrence; 2. The establishment of unsafe and unseaworthy conditions; and The inability to reach the port of destination without obtaining foreign repairs. In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs necessary to "...secure the safety and seaworthiness of the vessel in order to enable it to reach its port of destination in the United States." (19 CFR 4.14(h)(2)(i)). Duties on repair costs beyond that minimal amount are not subject to remission. The term "casualty" as it is used in the statute, has been interpreted as something which, like stress of weather, comes with unexpected force or violence, such as fire, spontaneous explosion of such dimensions as to be immediately obvious to ship's personnel, or collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust. Ct. 28-29, C.D. 362 (1940)). We note that the term “casualty” has been further defined as, “a serious or fatal accident. . . a disastrous occurrence due to sudden, unexpected or unusual cause. Accident; misfortune or mishap; that which comes by chance or without design. A loss from such an event or cause; as by fire, shipwreck, lightning, etc.” Black’s Law Dictionary (5th ed., 1979). In this sense, a "casualty" arises from an identifiable event. Section 4.14(h)(2)(i), CBP Regulations (19 CFR 4.14(h)(2)(i)) provides in pertinent part that “… a ‘casualty’ does not include any purchase or repair made necessary by ordinary wear or tear …” In the absence of evidence of any such casualty event, we must consider a repair to have been necessitated by normal wear and tear. HQ 106159 (September 8, 1983). Protestant states that on January 9, 2002, while transiting the Mediterranean the port main engine automatically shut down. Upon inspection it was noted that the no. 4L bearing shifted on the pin and this bearing failure resulted in catastrophic damage to the crankshaft. Protestant argues that the cause of the damage to the main engine was that a connecting rod bearing failed at such a magnitude that the adjacent #4 main bearing failed and the bed plate overheated. It was not possible to perform on-site repairs since the #4 main bearing pocket needed to be line bored so that the crankshaft could be renewed. The crankshaft was deflected beyond repair. Protestant states that the damage was caused by such force that it warrants designation as a “casualty” for purposes of 19 U.S.C. §1466(d)(1). In support of its claim the Protestant has submitted a copy of an U.S. Coast Guard Form 2692, “Report of Marine Accident, Injury, or Death” (in Block No. 21, the Box for “Machinery or Equipment Failure” is checked). We note that the USCG indicated on the attached form, dated January 9, 2002, the cause of the casualty is “machinery or equipment failure.” The narrative states, “vessel underway in normal operation, journal bearing on port main engine, number 4 cylinder, on the right bank was displaced one half inch forward. One of two main engines out of commission. Limited to 10 kts. Transiting to nearest safe port to anchor and arrange tech. Assist to trouble shoot [sic] and repair damaged bearing and investigate additional possible damage to port main engine.“ Included in the supporting documentation is a report from the American Bureau of Shipping (“ABS”) dated January 28, 2002. A surveyor attended the vessel on January 16, 2002 and reported that the vessel was fit to proceed from Palma de Mallorca, Spain to a repair yard in the Mediterranean Sea or Northern Europe, as long as the speed did not exceed 330 rpm and a suitable tug escort was provided. It was recommended that the port main diesel engine be further examined and dealt with in accordance with engine manufacturer’s recommendations. Also included is a report by The Salvage Association, dated June 14, 2002, concerning a survey performed on January 15, 2002 on behalf of the insurance underwriters concerned with the “loss of hire” of the vessel. The portion of the report regarding the cause of the damage to the port main engine first states that the crankshaft would be removed and sent to the manufacturer for full analysis and investigation. However, the crankshaft was subsequently determined to be useless as the damage sustained was too severe for a meaningful investigation to be held. The Salvage Association subsequently states that the “cause of damage was unlikely to have been normal and tear or crew negligence.” The report further provides, “[w]e also made agreement, through correspondence with Average Adjusters that in the absence of any evidence to the contrary, the damage could reasonably have been sustained as a result of a defect, not normally discoverable in the operation of the engine.” (Emphasis added) We find these statements to be inconclusive and unpersuasive in establishing a “casualty” occurrence. Furthermore, in contrast to Protestant providing evidence that the bearing failure, which resulted in the damage to the crankshaft, was a result of stress of weather or an unexpected event, there are references in Attachment (D) to the Application of Relief (CASREP 02-002) that “all required main engine parts are available due to prior preps for required main engine overhaul.” Thus, based on the statements in the documents submitted by Protestant, the main engine had already been determined to be in need of an overhaul, and preparatory steps such as having all replacement parts on board the ship had already been taken. This documentary evidence contradicts any claim that the damage in question was not due to wear and tear. After a careful consideration of this matter, we find that the Protestant has not met the statutory standard of furnishing good and sufficient evidence that the vessel was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. Instead, statements are made in Protestant’s documentation that the main engine was in need of an overhaul, and the parts for the overhaul were on board the vessel at the time of the bearing failure. Thus wear and tear of the main engine is apparent. The Protestant has not met its burden in establishing the occurrence of a casualty, the first part of the three-part test stated above. Because, the Protestant has not satisfied the first requirement of the three part test, we make no finding with respect to the second and third requirements. The second portion of the protest concerns General Expenses and Services (42.1), including charges for tugs, linehandlers for docking, garbage disposal, telephone/fax, and security guards. Protestant avers that these charges should not be dutiable, however, the VRU disagrees and argues they are charges that were incurred as part of the repair work on the main engine and are subject to the “but for” test. In Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F.Supp. 1484 (Ct. Int’l Trade 1993), the court stated in pertinent part as follows with respect to the reach of section 1466: Texaco urges to reject the Court of International Trade’s “but for” approach and to interpret “expenses of repairs” so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language “expenses of repairs” is broad and unqualified. As such, we interpret “expenses of repairs” as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. In SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), rev’g 244 F. Supp. 1359 (Ct. Int’l Trade 2002), cert. denied December 13, 2004, the Court of Appeals for the Federal Circuit upheld CBP’s proration of certain shipyard expenses. The court stated in pertinent part as follows: . . . apportionment is consistent with section 1466(a) and the “but for” test. In the context of dual-purpose expenses, it is rational to impose the duty on only that portion of the expense that is fairly attributable to the dutiable repairs. Indeed, to impose the 50% ad valorem duty on the entire costs of dry-docking in this case would exceed the mandate of the statute. The logical appeal of apportionment has been recognized in other areas of the law. . . . . . Customs’ long-standing practice of apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications comports with both the statute and common sense. We agree with the VRU that these expenses are subject to the Texaco “but for” test and as such are dutiable. These expenses would not have been incurred but for the dutiable main engine repair work which, as discussed above, were not the result of a “casualty” per 19 U.S.C. §1466(d)(1). These general expenses should therefore be held dutiable on a prorated basis. HOLDING: The Protestant’s claim for relief under 19 U.S.C. 1466(d)(1) is denied. You are instructed to deny the protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the Customs Form 19, to the Protestant no later than 60 days from the date of this letter. Any final duty determination of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Glen E. Vereb Chief Cargo Security, Carriers and Immigration Branch