Kalle USA, Inc. v. United States , 923 F.3d 991 ( 2019 )

United States Court of Appeals
for the Federal Circuit
______________________
KALLE USA, INC.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2018-1378
______________________
Appeal from the United States Court of International
Trade in No. 1:13-cv-00003-GSK, Judge Gary S.
Katzmann.
______________________
Decided: May 2, 2019
______________________
FREDERIC VAN ARNAM, JR., Barnes, Richardson & Col-
burn, LLP, New York, NY, argued for plaintiff-appellant.
HARDEEP KAUR JOSAN, International Trade Field Of-
fice, Commercial Litigation Branch, Civil Division, United
States Department of Justice, New York, NY, argued for
defendant-appellee. Also represented by AMY RUBIN;
JEANNE DAVIDSON, JOSEPH H. HUNT, Washington, DC;
PAULA S. SMITH, Office of the Assistant Chief Counsel,
United States Bureau of Customs and Border Protection,
United States Department of Homeland Security, New
York, NY.
2 KALLE USA, INC. v. UNITED STATES
______________________
Before DYK, CHEN, and HUGHES, Circuit Judges.
Opinion for the court filed PER CURIAM.
Concurring opinion filed by Circuit Judge HUGHES.
PER CURIAM.
This is a tariff classification case involving imported
sausage casings. Kalle USA, Inc. appeals the Court of In-
ternational Trade’s summary judgment decision classify-
ing the casings as made-up textiles under subheading
6307.90.98 of the Harmonized Tariff Schedule of the
United States. Kalle USA, Inc. v. United States, 273 F.
Supp. 3d 1319, 1333 (Ct. Int’l Trade Nov. 2, 2017). Kalle
argues that the Trade Court erroneously interpreted the
phrase “completely embedded in plastics” as it is used in
HTSUS Chapter 59 Note 2(a)(3), and that the casings
should be classified as plastics under HTSUS Chapter 39.
Because we agree with the result reached by the Trade
Court, we affirm.
I
A.
Kalle imports its NaloProtex G1 and NaloProtex G2
casings 1 into the United States from Germany. The cas-
ings, which are used to encase processed food products,
such as sausage, ham, or cheese, are comprised of a woven
textile sheet that is coated with a layer of plastic on one
side. “The plastic coating is chosen to be appropriately
thin” and “only fills the interstitial spaces between the tex-
tile fibers” to ensure that the casing’s “textile character re-
mains recognizable even after a coating.” J.A. 81. The
1 The differences between the two types of casings
are immaterial for purposes of this appeal.
KALLE USA, INC. v. UNITED STATES 3
textile material gives the casing its strength and shape and
allows the casing to “absorb dyes and aroma substances
and transfer these substances into the encased product.”
Id. The plastic coating helps “prevent moisture transmis-
sion into or out of the casings.” Id. After the textile sheet
is coated in plastic, the sheet is trimmed, folded to form a
tube, and “fixed with a seam by gluing.” Id. The casings
are imported as flattened tubes wound around a cardboard
core.
B.
Kalle imported nine entries of the NaloProtex casings
between July and August of 2010. The casings were liqui-
dated by United States Customs and Border Protection in
June 2011 under HTSUS subheading 6307.90.98 (2010), 2
which covers “[o]ther made up articles, including dress pat-
terns: . . . [o]ther . . . [o]ther” and is subject to a duty of 7%.
Kalle filed a protest to Customs’ determination in Septem-
ber 2011, arguing that the casings should be classified un-
der HTSUS subheading 3917.39.0050, which covers
“[t]ubes, pipes and hoses and fittings therefor (for example,
joints, elbows, flanges), of plastics: . . . [o]ther . . . [o]ther”
and is subject to a duty of 3.1%. Kalle emphasized that the
“tubes, pipes, and hoses” of heading 3917 “include[] sau-
sage casings and other lay-flat tubing.” See HTSUS Chap-
ter 39 Note 8. Customs denied Kalle’s protest.
Kalle then filed a complaint with the Trade Court in
January 2013. The Trade Court granted summary judg-
ment in favor of the government after determining that
“the casings are made up articles of textile fabric, [so] they
are properly classified under heading 6307.” Kalle, 273 F.
Supp. 3d at 1336. The court noted that heading 6307 is
within HTSUS Section XI and that Chapter 39 expressly
2 All references to section notes, chapter notes, head-
ings, or subheadings contained herein are to 2010 HTSUS.
4 KALLE USA, INC. v. UNITED STATES
excludes goods of Section XI from its scope. See HTSUS
Chapter 39 Note 2(p) (noting that “[t]his chapter does not
cover . . . [g]oods of section XI (textiles and textile arti-
cles)”). Therefore, the court concluded that the casings
“cannot be classified under heading 3917” as Kalle argued.
Kalle, 273 F. Supp. 3d at 1336.
The Trade Court rejected Kalle’s argument that the
casings are “completely embedded in plastics” and are thus
excluded from Section XI pursuant to HTSUS Chapter 59
Note 2(a)(3). Citing dictionary definitions of the words
“completely” and “embedded,” the court determined that
“for a textile to be completely embedded in plastic, it must
be entirely firmly fixed in the plastic.” Id. at 1333. Because
the “casings are only coated on one side and . . . the coating
material only fills the interstitial spaces between the tex-
tile fibers,” the Trade Court found that the casing’s “textile
is not embedded in the plastic for purposes of [Chapter 59
Note] 2(a)(3).” Id.
Kalle now appeals. We have jurisdiction under 28
U.S.C. § 1295(a)(5).
II
A.
The parties agree that this case turns on the interpre-
tation of the phrase “completely embedded in plastics” as it
is used in HTSUS Chapter 59 Note 2(a)(3). An overview of
the relevant tariff provisions illustrates why that issue is
determinative.
The HTSUS is organized by headings, which cover
“general categories of merchandise,” and each heading con-
tains one or more subheadings, which “provide a more par-
ticularized segregation of the goods within each category.”
Orlando Food Corp. v. United States, 140 F.3d 1437, 1439
(Fed. Cir. 1998). “[T]ariff classification of merchandise un-
der the HTSUS is governed by the principles set forth in
the General Rules of Interpretation (‘GRIs’).” Deckers
KALLE USA, INC. v. UNITED STATES 5
Outdoor Corp. v. United States, 714 F.3d 1363, 1366 (Fed.
Cir. 2013). The GRIs are applied in numerical order. Id.Under GRI 1, “the HTSUS headings, as well as relative sec-
tion or chapter notes, govern the classification of a prod-
uct.” Orlando Food Corp., 140 F.3d at 1440. Section and
chapter notes “are not optional interpretive rules, but are
statutory law, codified at 19 U.S.C. § 1202.” Park B. Smith,
Ltd. v. United States, 347 F.3d 922, 926 (Fed. Cir. 2003).
The government argues that under GRI 1, the casings
are classifiable as made-up textiles under Chapter 63 of the
HTSUS, subheading 6307.90.98. For an article to fall un-
der Chapter 63, it must be an article “of any textile fabric.”
HTSUS Chapter 63 Note 1. Kalle argues that the casings
are not articles “of any textile fabric” and are instead plas-
tic articles classifiable under Chapter 39, subheading
3917.39.0050.
Because of two mutually exclusive exclusionary notes,
an article cannot be classifiable under both Chapter 63 and
Chapter 39. First, Note 1(h) of Section XI states that Sec-
tion XI, which includes Chapter 63, “does not cover: . . .
[w]oven, knitted, or crocheted fabrics, felt or nonwovens,
impregnated, coated, covered or laminated with plastics, or
articles thereof, of chapter 39.” Second, Note 2(p) of Chap-
ter 39 excludes “[g]oods of section XI (textiles and textile
articles)” from the scope of Chapter 39. Thus, if the casings
are textile articles of Section XI, then they are not classifi-
able under Chapter 39; and if the casings are plastic arti-
cles of Chapter 39, then they are not classifiable under
Section XI.
Here, the casings are comprised of both textile and
plastic materials. Where an article is comprised of both
textile and plastic, we must look to Chapter 59 to deter-
mine whether the article should be classified as a textile
under Section XI or a plastic under Chapter 39. Chapter
59 falls within Section XI, and it covers “impregnated,
coated, covered or laminated textile fabrics.” Heading 5903
6 KALLE USA, INC. v. UNITED STATES
of Chapter 59 specifically applies to “[t]extile fabrics, im-
pregnated, coated, covered or laminated with plastics.”
(emphasis added). But, heading 5903 does not cover
“[p]roducts in which the textile fabric is either completely
embedded in plastics or entirely coated or covered on both
sides with such material.” HTSUS Chapter 59 Note 2(a)(3)
(emphasis added). Instead, those products fall under
Chapter 39. Id.Therefore, the controlling question here is whether the
casings’ textile fabric is “completely embedded in plastics.”
Id. If the casings are “completely embedded,” the govern-
ment agrees that they should be classified under Kalle’s
proposed subheading, 3917.39.0050. If the casings are not
“completely embedded,” Kalle does not dispute that they
should be classified under subheading 6307.90.98.
B.
Classification of goods under the HTSUS is a two-step
process that involves: (1) determining the proper meaning
of terms in the tariff provisions; and (2) determining
whether the goods fall within those terms. Sigma-Tau
HealthScience, Inc. v. United States, 838 F.3d 1272, 1276
(Fed. Cir. 2016). We review interpretation of terms in the
HTSUS de novo, and we review the factual findings of the
Trade Court for clear error. Id. Typically, “whether the
goods come within the description of [the] terms” in the
HTSUS is a factual question. Kahrs Int’l, Inc. v. United
States, 713 F.3d 640, 644 (Fed. Cir. 2013). However, “when
the nature of the merchandise is undisputed, . . . the clas-
sification issue collapses entirely into a question of law.”
Cummins Inc. v. United States, 454 F.3d 1361, 1363 (Fed.
Cir. 2006).
Although decisions by Customs interpreting provisions
of the HTSUS may receive some deference under the prin-
ciples of Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944),
Customs’ decisions are not controlling upon this court, and
“this court has an independent responsibility to decide the
KALLE USA, INC. v. UNITED STATES 7
legal issue of the proper meaning and scope of HTSUS
terms.” MetChem, Inc. v. United States, 513 F.3d 1342,
1345 (Fed. Cir. 2008) (quoting Warner-Lambert Co. v.
United States, 407 F.3d 1207, 1209 (Fed. Cir. 2005)); see
also Rubie’s Costume Co. v. United States, 337 F.3d 1350,
1355–56 (Fed. Cir. 2003).
“Absent contrary legislative intent, HTSUS terms are
to be construed according to their common and commercial
meanings.” La Crosse Tech., Ltd. v. United States, 723 F.3d
1353, 1358 (Fed. Cir. 2013) (quoting Carl Zeiss, Inc. v.
United States, 195 F.3d 1375, 1379 (Fed. Cir. 1999)). When
determining common and commercial meaning, “the court
may rely upon its own understanding of the terms used [or]
consult lexicographic and scientific authorities, dictionar-
ies, and other reliable information.” Baxter Healthcare
Corp. v. United States, 182 F.3d 1333, 1337–38 (Fed. Cir.
1999).
C.
It is undisputed that “completely embedded” is not de-
fined by statute or legislative history, so its common and
commercial meaning should be applied. The parties gener-
ally agree on the common definitions of the words “com-
pletely” and “embedded.” The common definition of
“embedded” is “set or fix[ed] firmly in a surrounding mass.”
See Embedded, Webster’s New World Dictionary, 442–43
(3d coll. ed. 1988); see also Embedded, New Oxford Ameri-
can Dictionary, 565 (3d ed. 2010) (defining “embedded” as
“to fix (an object) firmly and deeply in a surrounding
mass”). The common definition of “completely” is “full[y],
whole[ly], entire[ly].” See Completely, Webster’s New
World Dictionary, 285 (3d coll. ed. 1988).
Given these definitions, we agree with the Trade Court
that “for a textile to be completely embedded in plastic, it
must be entirely firmly fixed in the plastic.” Kalle, 273 F.
Supp. 3d at 1333. The primary dispute between the parties
is whether “completely embedded” requires the textile to be
8 KALLE USA, INC. v. UNITED STATES
surrounded by plastic on all sides. Kalle argues that it does
not. According to Kalle, its casings are “completely embed-
ded” because the fabric is fixed to the plastic coating on
three sides and does not delaminate from it. We agree with
Kalle that “completely embedded” does not require all sides
of the fabric to be covered with plastic. But the fact that
the fabric is securely attached to the plastic does not mean
that it satisfies the requirement that it is “firmly fixed” or
“embedded.” As the dictionary definitions above make
clear, for a textile to be “embedded,” it must be “fix[ed]
firmly in a surrounding mass” of plastic. Webster’s, supra,
at 442–43; see also New Oxford, supra, at 565. Kalle’s cas-
ings do not fix the fabric in a surrounding mass of plastic.
Rather, the casings have a plastic coating on one side.
Accordingly, we hold that to be “completely embedded,”
the fabric must be “completely” or entirely fixed in a sur-
rounding mass of plastic. We disagree with the govern-
ment that this requires every surface of the fiber to be fixed
and surrounded by a mass of plastic. However, because
Kalle’s casings are not fixed in a surrounding mass of plas-
tic, they are not “completely embedded in plastics.”
Our interpretation of “completely embedded” is con-
sistent with the context in which it is used. See Rubie’s
Costume Co., 337 F.3d at 1357 (declining to interpret terms
in an HTSUS exclusionary note “in disregard of the context
of the exclusion as a whole”). The purpose of Note 2(a)(3)
is to exclude certain articles from the scope of heading
5903, including articles where the fabric is “completely em-
bedded in plastics.” Heading 5903 of the HTSUS prima fa-
cie covers “[t]extile fabrics, impregnated, coated, covered or
laminated with plastics.” An “impregnated” fabric is one
in which “the [plastic] applied penetrates into the fabric
and even into the yarn and fibres of which it is composed.”
See, Technical Report of the Chemists’ Committee to the
Customs Cooperation Council, 11th Session (Nov. 1964),
quoted in “Possible Amendment of Note 2(a) to Chapter 59
and the Explanatory Notes to Heading 59.03 (Requested by
KALLE USA, INC. v. UNITED STATES 9
the EU),” Harmonized System Review Sub-Committee,
World Customs Organization, Doc. No. NR1019Ela (Oct.
20, 2014) at p. 4, Annex II 2 [hereinafter Technical Report].
Because “impregnated” fabrics plainly fall within the scope
of heading 5903, but “completely embedded” fabrics are ex-
cluded, there must be a distinction between a fabric that is
“impregnated” with plastic and a fabric that is “completely
embedded in plastics.”
Our interpretation provides such a distinction because
we find that “completely embedded” requires the fabric to
be fixed in a surrounding mass of plastic, while “impreg-
nated” does not. Kalle’s position, however, lacks this dis-
tinction and would read many “impregnated” fabrics to be
“completely embedded in plastics” and excluded from head-
ing 5903.
Our interpretation also does not render any of the lan-
guage of Note 2(a)(3) superfluous. Note 2(a)(3) excludes
products with textile fabric that is “either completely em-
bedded in plastics or entirely coated or covered on both
sides with such material.” (emphasis added). Our inter-
pretation distinguishes between “completely embedded”
and “entirely coated or covered on both sides.”
Heading 5903 covers fabrics that are treated with plas-
tic through a variety of processes. See HTSUS Heading
5903 (applying to textile fabrics that have been “impreg-
nated, coated, covered or laminated” with plastic). Given
this context, we read Note 2(a)(3) to exclude products that
are treated with plastic via different processes––“em-
bedd[ing],” “coat[ing],” or “cover[ing].” For example, a fab-
ric may be “completely embedded” in plastic by applying
plastic to one side of the fabric such that plastic fixes the
fabric in a surrounding mass, even if not on all sides. In
contrast, a fabric may be “covered on both sides” with plas-
tic by applying a sheet of plastic to each side of the fabric,
even though the fabric is not fixed in a surrounding mass
of plastic. See Technical Report at 4 (“A covered fabric
10 KALLE USA, INC. v. UNITED STATES
consists of a fabric to which a sheet of another material has
been fixed.”). Although both fabrics have plastic fixed to
their outer surfaces, they achieve this result through dif-
ferent processes. We read Note 2(a)(3) to exclude both final
products, no matter the process used to create them.
Because Kalle’s proposed interpretation fails to give
meaningful effect to the inclusion of “completely embed-
ded” and fails to distinguish between an “impregnated” fab-
ric and a “completely embedded” fabric, we decline to adopt
it. Instead, we find that our reading of “completely embed-
ded in plastics” is necessary to give effect to all of the lan-
guage of both heading 5903 and Note 2(a)(3). See Reiter v.
Sonotone Corp., 442 U.S. 330, 339 (1979) (“In construing a
statute [courts] are obliged to give effect, if possible, to
every word Congress used.”).
III
We have considered Kalle’s remaining arguments and
find them unpersuasive. We conclude that Kalle’s Nalo-
Protex G1 and G2 casings are not “completely embedded in
plastics” as that phrase is used in HTSUS Chapter 59 Note
2(a)(3). Accordingly, we affirm the Trade Court’s decision
to classify the casings under HTSUS subheading
6307.90.98.
AFFIRMED
COSTS
No costs.
United States Court of Appeals
for the Federal Circuit
______________________
KALLE USA, INC.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2018-1378
______________________
Appeal from the United States Court of International
Trade in No. 1:13-cv-00003-GSK, Judge Gary S.
Katzmann.
______________________
HUGHES, Circuit Judge, concurring.
I agree with the panel opinion’s conclusion that Kalle’s
casings are not “completely embedded in plastics” under
HTSUS Chapter 59 Note 2(a)(3) but write separately be-
cause I reach that conclusion through different reasoning.
I would find that the phrase “completely embedded in plas-
tics” requires every surface of a fabric’s fibers to be sur-
rounded by plastic. Thus, because the inner surface of
Kalle’s casings is free of plastic, I agree with the panel opin-
ion that they are not “completely embedded in plastics.”
I agree that the common definition of “embedded” is
“set or fix[ed] firmly in a surrounding mass,” Maj. Op. at 7,
and the common definition of “completely” is “full[y],
2 KALLE USA, INC. v. UNITED STATES
whole[y], entire[ly],” id. at 7–8. And by including the ad-
verb “completely” in Note 2(a)(3), I presume that Congress
intended to distinguish between fabrics that are “embed-
ded” in plastics and those that are “completely embedded.”
See Reiter, 442 U.S. at 339 (“In construing a statute [courts]
are obliged to give effect, if possible, to every word Congress
used.”). Accordingly, to give full effect to the inclusion of
“completely,” I would find that “completely embedded” re-
quires that every fiber of the fabric is entirely fixed in a
surrounding mass of plastic, meaning that every surface of
the fiber must be surrounded by plastic.
Here, although Kalle’s casings may be “embedded” in
plastic because the plastic coating is fixed to the fabric and
fills the fabric’s interstices, the casings are not “completely
embedded” because their inner surfaces are free of plastic.
Therefore, I agree with the panel opinion’s affirmance of
the Trade Court’s decision to classify the casings under
HTSUS subheading 6307.90.98.