U.S. v. Inn Foods, Inc.

• Decision Date: 27 March 2009
• Docket Number: No. 2008-1118.,2008-1118.
• Parties: UNITED STATES, Plaintiff-Appellee, v. INN FOODS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

560 F.3d 1338

UNITED STATES, Plaintiff-Appellee, v. INN FOODS, INC., Defendant-Appellant.

No. 2008-1118.

United States Court of Appeals, Federal Circuit.

March 27, 2009.

John M. Peterson, Neville Peterson LLP, of New York, New York, argued for plaintiff-appellee. With him on the brief were Maria E. Celis, Michael T. Cone; and George W. Thompson, of Washington, DC. Of counsel on the brief were Robert Scott Whiteley, Law Offices of Robert Scott Whiteley, of Oakland, California; and Craig A. Mitchell, Whitley & Cooper of Berkeley, California.

David S. Silverbrand, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. On the brief were Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, and J. Reid Prouty, Trial Attorney.

Before RADER, BRYSON, and DYK, Circuit Judges.

DYK, Circuit Judge.

The United States brought suit against Inn Foods, Inc. ("Inn Foods") to recover unpaid customs duties and civil penalties for the fraudulent entry of frozen vegetables by Inn Foods and its sister company, SeaVeg, Ltd. ("SeaVeg"). Following a bench trial, the Court of International Trade held that Inn Foods was liable for monetary penalties under 19 U.S.C. § 1592(a) and for unpaid duties under § 1592(d).¹ United States v. Inn Foods, Inc., 515 F.Supp.2d 1347 (Ct. Int'l Trade 2007). We affirm.

BACKGROUND

This is the second time this case has come before us. We previously held that the statute of limitations did not preclude the government's suit against Inn Foods. United States v. Inn Foods, Inc., 383 F.3d 1319, 1320 (Fed.Cir.2004). The relevant facts leading to this appeal are as follows.

Inn Foods, a California company established in the late 1970s, imported frozen fruits and vegetables into the United States. SeaVeg, now defunct, was a Cayman Islands corporation founded and operated by the same individuals as Inn Foods. SeaVeg was formed to facilitate sales to customers who did not want to buy from Inn Foods. Though separate legal entities, Inn Foods and SeaVeg shared employees, were subsidiaries of the same parent company ("The VPS Companies, Inc."), operated from the same physical location, had the same telephone number, commingled accounting books, imported the same type of merchandise, and were interchangeably listed on contracts with suppliers. In addition, Inn Foods handled invoices for SeaVeg and issued checks for invoiced merchandise regardless of which company was the importer of record on a particular entry. Due to its potential liability for duties and civil monetary penalties, SeaVeg filed for Chapter 7 bankruptcy and was dissolved on December 1, 1998.

This action concerns the companies' entries of frozen produce from six Mexican growers between January 22, 1987, and January 19, 1990. Inn Foods candidly stipulated that "[t]he prices declared to Customs for the entries that are the subject of [this action] . . . were undervalued and did not reflect the prices actually paid to the six Mexican growers/packers." J.A. 101. The amount of the undervaluation was approximately $3.5 million, resulting in a loss to the government of $624,602.55 in duty.²

The undervaluation of the entries stemmed from a double-invoicing system agreed upon by Inn Foods, SeaVeg, and the six Mexican growers. For each order of produce shipped, the Mexican growers would issue a "factura" or invoice to Inn Foods or SeaVeg containing a specific invoice number and description of produce. The factura, however, reflected neither the actual price to be paid to the grower by Inn Foods or SeaVeg nor the market value of the produce, but rather a substantially lower amount. The factura for each order was provided to the companies' customs brokers, B & D Customhouse Brokers Inc. ("B & D") and Achilles Customs Broker, who used it to enter the shipment of produce into the United States.

Upon receipt of the factura from the Mexican growers, Inn Foods would create a second invoice for the specific transaction and send it to the grower as an order confirmation. That second invoice would retain the original invoice number and produce description from the factura, but was revised to reflect the estimated market value of the produce, which was higher. Seventy percent of this higher invoiced amount was initially remitted to the Mexican grower. The balance, minus certain adjustments (such as customs duties, which were ultimately passed on to the Mexican growers) was remitted some months later after the final market price of the produce was determined.³

In 1988, United States Customs and Border Protection ("Customs") began examining Inn Foods and SeaVeg entries. In July and October of that year, Customs made formal requests for documentation of the payments to the growers for each subject entry. No response was made, and after a third formal request in March 1989, Customs obtained records indicating that the amount paid to the Mexican growers for the subject entries was much higher than the facturas that had been presented to Customs. On April 10, 1989, Customs informed Inn Foods that the case was being referred for formal investigation. That investigation began in June.

Beginning on April 17, 1989, after receiving notice of the referral for investigation, Inn Foods began including a disclaimer on entries from the Mexican growers. This disclaimer is further discussed below.

On December 14, 2001, the government filed suit against Inn Foods under 19 U.S.C. § 1592, contending that the company had unlawfully deprived the government of duties through the fraudulent use of false importation documents.⁴ Although Inn Foods had executed a series of two-year waivers of the relevant statute of limitations, the Court of International Trade held that the complaint was time-barred. United States v. Inn Foods, Inc., 264 F.Supp.2d 1333, 1334 (Ct. Int'l Trade 2003). This court reversed. Inn Foods, 383 F.3d at 1320.

On remand, the trade court held a three-day bench trial where ten witnesses were heard. On September 25, 2007, the trade court ruled against Inn Foods. First, the court determined that the government had shown by clear and convincing evidence that the facturas used to enter the produce were material and false, and that Inn Foods acted with intent to defraud. Inn Foods, 515 F.Supp.2d at 1357-59. The trade court determined that in addition to violating § 1592(a) with its own fraudulent entries, Inn Foods also aided and abetted SeaVeg's violations. Id. at 1357 ("[T]he Inn Foods corporate entity itself was involved . . . in the [SeaVeg] transactions that are at issue. . . ."). Second, the court determined that the appropriate civil monetary penalty under 19 U.S.C. § 1592(c)(1) was approximately $7.5 million, and that the amount of unpaid duty owed to the government under 19 U.S.C. § 1592(d) was $624,602.55. Inn Foods, 515 F.Supp.2d at 1361-62. Finally, the court concluded that Inn Foods was liable for the entire amount, either as an alter ego of SeaVeg or as an aider and abettor. Id. at 1357.

Inn Foods timely appealed from the final judgment of the Court of International Trade, and we have jurisdiction under 28 U.S.C. § 1295(a)(5). We review questions of law de novo and the Court of International Trade's factual findings for clear error. United States v. Ford Motor Co., 463 F.3d 1267, 1274 (Fed.Cir.2006); United States v. Hitachi Am., Ltd., 172 F.3d 1319, 1326 (Fed.Cir.1999).

DISCUSSION

I

On appeal, Inn Foods does not seriously dispute that it violated 19 U.S.C. § 1592(a) by entering its own merchandise and aiding and abetting SeaVeg's entry of its merchandise by use of documents that were material and false, nor could it plausibly do so.⁵ In other words, Inn Foods does not dispute the trade court's finding that "Inn Foods was a participant on some level in all the SeaVeg actions discussed herein." Inn Foods, 515 F.Supp.2d at 1353. Instead, Inn Foods primarily contends that the trade court erred in finding that Inn Foods acted with fraudulent intent, as opposed to merely acting negligently. In this context, showing the requisite fraudulent intent required the government to prove by clear and convincing evidence that Inn Foods "knowingly entered goods by means of a material false statement." Hitachi, 172 F.3d at 1326 (internal quotation marks omitted); see 19 U.S.C. § 1592(e)(2). The record amply supports the trade court's factual finding that the government established such intent.

Initially we note that the record fully supports the trade court's determination that Inn Foods knew that the invoice for each shipment of produce was grossly undervalued, and hence false. The Mexican grower sent Inn Foods a copy of the undervalued factura invoice; that factura invoice was used to value the entries for Customs purposes.⁶ There was evidence that the growers specifically informed Inn Foods of the undervaluation. As the trade court noted, for example, a letter addressed to SeaVeg from one of the Mexican growers stated that "[w]e ship . . . Broccoli Spears at 0.50/lb" but that "[m]y invoice [to SeaVeg] will read . . . 0.28/lb." Inn Foods, 515 F.Supp.2d at 1354 n. 12 (emphases added). Moreover, upon receipt of the undervalued factura, a SeaVeg manager (who reported to the principals of Inn Foods) adjusted the prices to reflect the true and higher estimate.⁷ This higher amount was entered into Inn Foods's accounting system. Inn Foods then sent an order confirmation to the Mexican grower with the higher price, retaining a copy of both the undervalued and true invoices for its files. Thus, "[o]ne invoice served to bring the produce into the United States at a reduced cost and . . . the second to keep accurate accounting records." Inn Foods, 515 F.Supp.2d at 1359. Inferring fraudulent intent from the knowing use of false invoices is hardly unique to the customs context. As the First Circuit has noted in an analogous area, "[t]he use of false invoices is so...