Interport Inc v. Magaw, John , 135 F.3d 826 ( 1998 )


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  •                         United States Court of Appeals
    FOR THE DISTRICT OF COLUMBIA CIRCUIT
    Argued October 7, 1997                                 Decided February 24, 1998
    No. 96-5150
    Interport Incorporated,
    Appellant
    v.
    John W. Magaw,
    Director, Bureau of Alcohol, Tobacco, and Firearms, and
    George Weise, Commissioner, U.S. Customs Service,
    Appellees
    Appeal from the United States District Court
    for the District of Columbia
    (No. 95cv01175)
    Richard E. Gardiner argued the cause and filed the briefs
    for appellant.
    Rudolph Contreras, Assistant U.S. Attorney, argued the
    cause for appellees, with whom Mary Lou Leary, U.S. Attor-
    ney, and R. Craig Lawrence, Assistant U.S. Attorney, were
    on the brief.
    Before:  Wald, Ginsburg, and Henderson, Circuit Judges.
    Opinion for the Court filed by Circuit Judge Ginsburg.
    Ginsburg, Circuit Judge:  Interport, Inc. challenges a rule
    of the Bureau of Alcohol, Tobacco, and Firearms prohibiting
    the importation of machine guns without a government pur-
    chase order.  Interport also challenges as unlawful, and
    alternatively as a denial of due process, the seizure of its
    firearms by the Customs Service.  The district court upheld
    the BATF rule as a valid interpretive rule but failed to
    address the validity of the seizure.  We affirm the district
    court's holding with regard to the rule but hold that the
    Customs Service acted unlawfully by seizing Interport's guns
    without adhering to the procedure provided by statute.
    I. Background
    The importation of a firearm into the United States is
    generally illegal unless the firearm is intended for govern-
    ment use (generally for law enforcement), is a sales sample,
    or meets other requirements not relevant here.  See 26
    U.S.C. s 5844;  27 C.F.R. s 179.111.  A would-be importer
    must file an application, including BATF "Form 6," which
    requires "a detailed explanation of why the importation of the
    firearm falls within" one of the permitted categories.  27
    C.F.R. s 179.111.  The BATF has a long-standing practice
    that an application based upon government use of the firearm
    will not be approved unless the applicant submits a govern-
    ment purchase order along with Form 6.
    An importer may bring a firearm (or any other good) into
    the territory of the United States without being deemed to
    have "imported" it if the importer stores the firearm in a
    Foreign Trade Zone (FTZ).  See 19 U.S.C. ss 81b-81c.  Cus-
    toms requires that any firearm in an FTZ be kept in a high-
    security area.
    The Customs Service itself may take and store "unentered
    merchandise" at the request of the carrier or consignee.  See
    
    id. s 1490(b);
     19 C.F.R. s 127.1(c).  Any such merchandise
    that remains in storage "for 6 months from the date of
    importation thereof, without all estimated taxes, duties, fees,
    interest, storage, or other charges thereon having been paid,
    [is] considered unclaimed and abandoned."  19 U.S.C.
    s 1491(a).  The Customs Service may sell or destroy un-
    claimed or abandoned merchandise.
    Customs may also take possession of any goods that do not
    have a proper import license;  the agency must then call upon
    the U.S. Attorney "for the institution of the proper proceed-
    ings for the condemnation of such property."  19 U.S.C.
    s 1610;  see also 19 U.S.C. s 1595a.  If after those proceed-
    ings the Government is awarded title to the unlicensed goods,
    then it may dispose of the goods;  firearms may be destroyed
    or given to a government unit.  See 26 U.S.C. s 5872(b).
    In June 1994 Interport stored several hundred machine
    guns in the high-security storage area of FTZ No. 3 in San
    Francisco.  That same month the Customs Service told the
    operator of FTZ No. 3 that its high-security area did not
    meet standards.  Rather than upgrade the facility, the opera-
    tor decided to close the high-security area.
    In late September, after trying without success to find
    another FTZ in which to store the machine guns, Interport
    applied for a permit to import them.  In January 1995 the
    BATF denied Interport's application on the ground that
    "stockpiling" of imported weapons was not permitted except
    in a Customs bonded warehouse or an FTZ.  Interport
    reapplied and the BATF in May again denied the application,
    this time explaining that the BATF "requires that a purchase
    order from the purchaser be submitted with the Form 6
    application."
    Meanwhile, Customs twice by letter notified Interport that
    any guns remaining in the FTZ after October 14, 1994 would
    be taken into the custody of the Government, and that after
    six months they would be transferred to Fort Benning,
    Georgia and destroyed.  The first letter did not cite any
    authority for the proposed action;  the second referred only to
    19 U.S.C. s 1490 and 19 C.F.R. s 127.1, which describe the
    authority of the Customs Service to keep merchandise in
    storage at the request of the carrier or the consignee.
    In October 1994 Customs moved the guns to its own
    storage facility in San Francisco.  In June 1995, after again
    notifying Interport of its intent to do so, Customs sent the
    guns to Fort Benning and informed Interport that it consid-
    ered the guns to have been abandoned by operation of law--
    presumably, s 1491(a)--as of April 1995.  Interport objected
    and Customs in a second letter confirmed its plan to proceed
    with immediate destruction of the guns.  Interport then sued,
    arguing that (1) the purchase-order requirement of the BATF
    is (a) an invalid legislative rule because it was not promulgat-
    ed pursuant to notice-and-comment procedures or, (b) if an
    interpretive rule, invalid because it is (i) unreasonable and (ii)
    violates the Tenth Amendment to the Constitution of the
    United States;  and (2) the procedures by which the Customs
    Service took possession of its guns (a) were without statutory
    authority and (b) denied Interport due process of law in
    violation of the Fifth Amendment to the Constitution of the
    United States.
    On cross motions for summary judgment the district court
    ruled in favor of the Government.  See Interport, Inc. v.
    Magaw, 
    923 F. Supp. 242
    (D.D.C. 1996).  The court held that
    the purchase order requirement is an interpretive rule, valid
    because it is a "reasonable way to implement the statute."
    
    Id. at 245.
     The court also held that the Government's order
    to destroy the guns was "too severe a remedy" because the
    "plaintiff had been put in a difficult position by virtue of the
    fact that Customs' determination that FTZ # 3 did not meet
    standards for secure storage came after plaintiff already had
    shipped its weapons to FTZ # 3."  Consequently, the court
    ordered the Government not to destroy the machine guns and
    helped the parties reach an agreement about storing them
    "pending appropriate disposition."  Interport appealed.
    II. Analysis
    We hold that the purchase-order requirement is an inter-
    pretive rule and that as such the rule is reasonable and
    therefore entitled to our deference.  We also hold that the
    Customs Service acted unlawfully when it took possession of
    the machine guns under the purported authority of an inap-
    plicable statute.  We reject without need of further comment
    Interport's argument that the purchase-order rule violates
    the tenth amendment in that it interferes with the ability of
    the States to purchase imported machine guns;  the tenth
    amendment protects the States from the federal Government
    acting in derogation of their rights as States, not from
    interference with their rights as consumers like any others.
    See Hodel v. Virginia Surface Min. & Reclam. Ass'n, 
    452 U.S. 264
    , 287-88 (1981).
    A.   Is the purchase-order requirement an interpretive
    rule?
    The Government argues that the requirement of a govern-
    ment purchase order for the importation of a firearm for
    government use is an interpretive rule and hence exempt
    from the notice-and-comment requirements applicable to leg-
    islative rules under the Administrative Procedure Act.  See 5
    U.S.C. s 553(b)(A), (d)(2).  The distinction between an inter-
    pretive rule and a legislative rule is fuzzy at best.  See
    American Hospital Assoc. v. Bowen, 
    834 F.2d 1037
    , 1045-46
    (D.C. Cir. 1987).  In one familiar formulation, the distinction
    is that an interpretive rule "simply states what the adminis-
    trative agency thinks the statute means, and only reminds
    affected parties of existing duties," whereas a legislative rule
    "intends to create new law, rights or duties."  General Mo-
    tors Corp. v. Ruckelshaus, 
    742 F.2d 1561
    , 1565 (D.C. Cir.
    1984) (en banc).  As a moment's reflection will show, this
    formulation of the distinction is much more easily stated than
    applied.  See Robert A. Anthony, "Interpretive" Rules, "Leg-
    islative" Rules and "Spurious" Rules:  Lifting the Smog, 8
    Admin.  L.J. Am. U. 1, n.10 & nn.13-14 (1994) (citing cases
    bemoaning difficulty of applying distinction).
    In this case, however, it is fairly clear that the purchase
    order requirement is an interpretive rule under the standards
    of General Motors.  The statute provides in relevant part
    that an importer must
    establish[ ] ... under regulations as may be prescribed
    by the Secretary [of the Treasury] ... that the firearm
    to be imported or brought in is (1) being imported ...
    for the use of [a government].
    26 U.S.C. s 5844.  The implementing regulation, which was
    promulgated by the BATF after notice and comment, pro-
    vides in turn that the importer has the burden of "estab-
    lish[ing] to the satisfaction of the Director" that the firearm
    will be used in accordance with the statute.  27 C.F.R.
    s 179.111(a).  Finally, the challenged rule--stating that a
    government purchase order is the only way to "satisf[y] the
    Director" on that score--interprets the government-use re-
    striction as a requirement that the importer have a present
    government purchaser rather than merely an intent to sell
    only to a government user.
    The purchase-order rule neither imposes a new require-
    ment upon nor determines the rights and obligations of the
    importer;  rather, it explains more specifically what is meant
    in the general rule which, as we said, was the subject of
    notice-and-comment rulemaking.  The purchase order re-
    quirement is therefore an interpretive rule and not invalid for
    want of notice-and-comment pursuant to the APA.
    B.   Is the purchase-order rule reasonable?
    We defer to an agency's reasonable interpretation of the
    laws and regulations it administers none the less because that
    interpretation appears in an interpretive rather than a legisla-
    tive rule.  See, e.g., Wagner Seed Co. v. Bush, 
    946 F.2d 918
    ,
    922 (D.C. Cir. 1991).1  Because the purchase-order require-
    ment is an eminently reasonable interpretation of the regula-
    tion interpreting 26 U.S.C. s 5844, we uphold the rule.
    __________
    1  But cf. Health Insurance Ass'n of America v. Shalala, 
    23 F.3d 412
    , 424 n.8 (D.C. Cir. 1994), which in a dictum suggests an
    inconsistency between Wagner Seed and National Latino Media
    Coalition v. FCC, 
    816 F.2d 785
    , 788 (D.C. Cir. 1987).  NLMC itself
    repeats in a dictum the statement of a pre-Chevron case that courts
    "are always free to choose" not to defer to an interpretive rule.
    The statutory scheme is clearly designed narrowly to re-
    strict the importation of machine guns to authorized users,
    including governments.  The purchase-order requirement
    makes clear to the importer that it must be importing for the
    use of a specific government buyer, not merely in the expec-
    tation of later being able to find a government buyer.  This
    requirement is certainly consistent with the statute.  Indeed,
    why would the Congress have separately allowed for the
    importation of sales samples if it had believed that the
    statutory scheme would permit an importer to import guns
    without a buyer already lined up and thus to use one or more
    of the guns as samples in its sale effort?  See 26 U.S.C.
    s 5844(3).  In addition, the rule is designed to minimize the
    burden placed upon both importers and buyers;  in particular,
    we are told that a "purchase order" is defined broadly enough
    to cover any written expression of present intent on the part
    of a government to purchase a firearm including, for example,
    a letter.
    Nonetheless, Interport argues that by preventing it from
    importing guns into the United States until it has found a
    government purchaser, the requirement of a purchase order
    increases both the delay and the cost facing a government
    agency that wants to buy machine guns, without providing
    any offsetting increase in safety.  Because the gun may
    lawfully be brought into an FTZ within the territory of the
    United States, Interport argues, it would be no more of a
    danger to the public if Interport could store the gun in its
    own high-security storage facility.  Even if Interport is cor-
    rect on that score, however, it matters not for the resolution
    of the present issue.  The measure of an interpretive rule is
    its fidelity to the congressional intent expressed in the statute
    it interprets, not whether the underlying statutory scheme is
    economically efficient.
    C.   Did Customs act pursuant to lawful authority in
    seizing the machine guns?
    Interport argues that Customs acted unlawfully when it
    seized Interport's machine guns.  We agree.  The statute
    upon which Customs relied, 19 U.S.C. s 1490, does not in fact
    provide it with the authority claimed.  That section permits
    Customs to take possession of merchandise only at the re-
    quest of the carrier or the consignee thereof.  See s 1490(b).
    Customs acknowledges that no such request was made in this
    case.  The statute also provides a process under which mer-
    chandise that cannot enter the United States is to be trans-
    ferred to a bonded warehouse, after notification of the ware-
    house by the carrier.  See s 1490(a).  But here there is no
    evidence that the facility at which the machine guns were
    stored, if it was a bonded warehouse, received notification of
    any kind.  Customs argues nonetheless that either s 1490(a)
    or s 1490(b) somehow permitted it to take custody of the
    guns because "the machineguns could not remain where they
    were without endangering the public" and the prior version of
    the statute had authorized Customs to "take custody" of
    items without prior notification by the carrier.  Under s 1490
    as amended, however, Customs clearly does not have the
    authority to take custody of the guns.2  It follows that
    Customs did not succeed to ownership of the goods under
    s 1491.
    Another provision of title 19, section 1595a, does provide
    Customs with the authority to seize merchandise "attempted
    to be introduced into the United States" without a required
    import license.  As Interport points out, however, a seizure
    under s 1595a must be accomplished pursuant to the proce-
    dures set forth in ss 1600-1619, including notice to the U.S.
    Attorney to initiate condemnation proceedings.  In taking
    possession of Interport's machine guns, Customs neither in-
    __________
    2  Under the former version of s 1490 if merchandise could not
    enter the United States a Customs official could "take [it] into his
    custody and send it to a bonded warehouse or public store."  When
    the Congress amended s 1490 in 1993 the requirement that Cus-
    toms officials take merchandise into "custody" had become a "legal
    fiction" inasmuch as third parties generally effected the transfer
    without the intervention of the Customs Service.  H.R. Rep. No.
    103-361(I), at 148 (1993), reprinted in 1993 U.S.C.C.A.N. 2552,
    2698.  In the course of eliminating the fiction, the Congress also
    eliminated whatever authority the Customs Service had under
    s 1490 to move goods on its own initiative.
    voked this provision nor complied with its requirements.
    Indeed, Customs continues to assert that s 1595a does not
    even apply to the current situation because Interport did not
    attempt to introduce the guns without the required permit;
    rather, it was Customs that initiated the controversy by
    removing them from the FTZ and thereby subjecting them to
    the import laws.
    We do not decide now whether the Customs Service would
    have had authority to seize the machine guns under s 1595a
    (or indeed whether some other statute would have permitted
    Customs to take custody of the weapons).  The Service has
    relied solely upon s 1490 as authority for taking custody of
    the guns, and we hold that statute inapplicable in this case.
    Customs must now either move immediately to perfect its
    present possession of the guns by some other means or do its
    best to restore the status quo ante by returning the guns to
    Interport in an appropriately secure FTZ or bonded ware-
    house.
    Because we conclude that Customs did not have statutory
    authority for its actions, we need not reach Interport's due
    process claim.
    III. Conclusion
    The requirement that an importer of firearms have a
    government purchase order is a valid and reasonable inter-
    pretive rule.  Therefore the BATF properly denied Interport
    permission to import its machine guns.  The Customs Service
    overstepped its authority, however, when it purported to take
    possession of the machine guns pursuant to 19 U.S.C. s 1490.
    The Customs Service must therefore either initiate at once
    lawful proceedings to perfect its custody of the machine guns
    or return them forthwith to the custody of Interport.
    So ordered.