Archer Daniels Midland Co. v. United States

Citations: 561 F.3d 1308; 30 I.T.R.D. (BNA) 2345; 2009 U.S. App. LEXIS 6390; 2009 WL 777459Docket: 2008-1342

Court: Court of Appeals for the Federal Circuit; March 26, 2009; Federal Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Archer Daniels Midland Company (ADM) imported deodorizer distillate in July 2003, classified by United States Customs and Border Protection (Customs) under HTSUS subheading 3824.90.28, subject to a 7.9% duty. ADM protested, arguing it should be classified under subheading 3825.90, which is duty-free. The Court of International Trade upheld Customs' classification as a chemical product under 3824.90.28. However, the Federal Circuit, led by Circuit Judge Dyk, reversed this decision, agreeing with ADM that deodorizer distillate qualifies as a 'residual product' under subheading 3825.90. The distillate, a byproduct of soybean oil distillation, has a foul odor and is valuable for recovering tocopherols and phytosterols. Its chemical composition is variable, primarily consisting of organic constituents, including at least 5% aromatic substances, but is not specified by name in the HTSUS. The case, decided on March 26, 2009, involved arguments from various legal representatives, including amicus curiae Cargill Nutri-Products, Inc.

ADM imported a substance referred to as DOD, which Customs classified under HTSUS subheading 3824.90.28, a catchall provision for unspecified chemical products. ADM filed a suit in the Court of International Trade for reliquidation and proposed that DOD should be classified under other, more specific headings, particularly subheading 3825, which pertains to residual products of the chemical industry. ADM argued that DOD is a residual product resulting from the distillation of soybean oil, fitting under subheading 3825.90. Alternatively, ADM claimed DOD could be classified as a waste under subheading 3825.61 or as a 'vegetable pitch' under heading 3807. 

The government contested ADM’s arguments, leading to cross-motions for summary judgment. On April 11, 2008, the court granted the government’s motion, rejecting ADM’s classification claims. The court determined that subheading 3825.90 was not a true catchall and was limited to specific substances listed in the Explanatory Note, which did not include DOD. It also ruled that DOD did not qualify as a waste under subheading 3825.61, as it was not considered a useless manufactured product. Furthermore, the court concluded that DOD did not meet the common or commercial definition of 'vegetable pitch' under heading 3807. Consequently, the court upheld Customs's classification of DOD under HTSUS subheading 3824.90.28, and ADM subsequently filed an appeal. Jurisdiction for the appeal is established under 28 U.S.C. 1295(a)(5).

The appeal focuses on the classification of DOD under the HTSUS, specifically whether it qualifies as 'vegetable pitch' under heading 3807. It is acknowledged that DOD is not commercially recognized as 'vegetable pitch.' Despite this, ADM argues for its classification under this term, which requires interpreting undefined tariff terms based on common or dictionary meanings. The court agrees that 'vegetable pitch' refers to pitch derived from a vegetable source. The trade court's analysis indicates that 'pitch' generally refers to thick, sticky substances used in applications like waterproofing and roofing, as evidenced by dictionary definitions. The court concluded that DOD does not fit this definition as it lacks the specified uses. ADM contends that use limitations should not be imposed unless the term suggests a specific use. However, the court finds that the ordinary meaning of 'pitch' may imply certain uses, complicating its interpretation. The ambiguity in definitions led the trade court to consult Explanatory Notes for clarification, which, while non-binding, can aid in understanding tariff provisions.

Explanatory Note 38.07(c) specifies that 'vegetable pitches' under heading 3807 are designated for specific uses such as caulking ships and waterproofing. Deodorizer distillate (DOD) shares some physical traits with vegetable pitch but is not utilized for these traditional applications. The inclusion of 'etc.' in the Explanatory Note does not broaden the classification to include DOD, as established by the principle of ejusdem generis, which limits the scope of general terms to items of the same nature as those listed. The Court of International Trade correctly determined that DOD does not qualify as 'vegetable pitch' under heading 3807.

Regarding classification under heading 3825 as a 'residual product,' the ordinary meaning of 'residual products' encompasses substances remaining after a manufacturing process. DOD qualifies as such a product, being the residue from soybean oil refinement. Although the government does not dispute DOD's status as a residual product, it argues that heading 3825 should be interpreted narrowly to include only specific products listed in the Explanatory Note. The Court of International Trade concluded that the lack of provisions for other residual products in the Explanatory Notes suggests that DOD is not covered under this heading.

DOD was not classified as a 'residual product' under subheading 3825.90 because it was not listed in the Explanatory Notes. The court noted that while the Explanatory Note does not explicitly indicate that the four named products are exhaustive, it also does not restrict the classification to only those items. Even if the Note were considered a complete list of 'residual products,' it would not exclude DOD from subheading 3825.90. This reasoning aligns with prior case law in Airflow Technology, where the classification of 'straining cloth' was limited by its specific definition despite broader Explanatory Notes. The court emphasized that Explanatory Notes are not legally binding and carry no weight when the tariff provision's language is clear. The term 'residual products' should not be narrowly defined by the Explanatory Notes, which means subheading 3825.90 encompasses more than the few products listed. 

The government argued that DOD cannot be classified as 'residual products' because it fits the definition of 'chemical products' or a 'by-product' under heading 3824. Additionally, they contended that the Court of International Trade should defer to Customs’s interpretation that heading 3825 only applies to environmentally sensitive substances. However, the trade court rejected this, finding no language in the HTSUS heading or Explanatory Notes to support such a limitation. The government's theory that headings 3824 and 3825 are mutually exclusive did not hold, as it would imply products should be classified under heading 3825 instead of 3824. Furthermore, there is no evidence that these headings are indeed mutually exclusive, and the reference to the language from prior heading 3824 was deemed irrelevant to the current classification.

The government argues that each clause of former heading 3824 had a distinct scope, asserting that DOD's classification as a by-product under the 'chemical products and preparations' clause precludes it from being classified under the 'residual products' clause that transitioned to current heading 3825. However, the court is not convinced by this argument, emphasizing that goods can be classified under multiple subheadings within a single heading, as established in prior case law. The separation of clauses into headings 3824 and 3825 in 2002 does not imply a lack of overlap, as tariff provisions can overlap, and the General Rules of Interpretation (GRI) allow for multiple classifications. The government fails to provide legislative history supporting its stance against overlap. Consequently, the court agrees that DOD, as a residue from the deodorization of edible soybean oil, is prima facie classifiable under heading 3825 as a residual product. To determine the most appropriate classification, GRI 3(a) directs preference to the heading with the most specific description. In this case, 'residual products' in heading 3825 is deemed more specific than the general term 'chemical products' in heading 3824. Thus, DOD is more appropriately classified under heading 3825.

Heading 3825 is determined to be the more specific classification for the product DOD under GRI 3(a), leading to the conclusion that the Court of International Trade incorrectly denied ADM's motion for summary judgment in favor of the government. The appellate court finds no genuine issues of material fact regarding DOD's classification under HSTUS subheading 3825.90, as opposed to subheading 3824.90.28, resulting in a reversal of the lower court's decision and an order for summary judgment to be granted to ADM upon remand. The court chose not to address ADM's arguments regarding the classification of DOD as 'waste' under heading 3825.61. Costs are to be borne by each party. 

In a dissenting opinion, Circuit Judge Gajarsa argues that the terms in Heading 3825 are ambiguous and presents a classification conundrum. DOD, which can be classified under Heading 3824 as a chemical product, raises questions about its classification as a residual product under Heading 3825, particularly since both headings previously included overlapping categories. Gajarsa suggests that the Explanatory Notes for both headings should be consulted for interpretation, emphasizing that while the ENs can provide guidance, they are not legally binding. He notes that the EN for Heading 3825 lists specific residual products, while the EN for Heading 3824 includes broader categories that cover DOD. Gajarsa concludes that ADM did not sufficiently demonstrate that DOD classifies under Heading 3825 and supports affirming the lower court's decision, giving deference to the well-reasoned opinions of Customs and the Court of International Trade.