US v. Toshoku America, Inc., Court No. 84-11-01590.

• Citation: 11 CIT 641,670 F. Supp. 1006
• Decision Date: 14 September 1987
• Docket Number: Court No. 84-11-01590.
• Parties: UNITED STATES of America, Plaintiff, v. TOSHOKU AMERICA, INC., and Federal Insurance Co., Defendants, TOSHOKU AMERICA, INC., Third-Party Plaintiff, v. CATZ INTERNATIONAL, INC., Third-Party Defendant and Fourth-Party Plaintiff, v. SOUTHERN COMMODITIES, INC., Fourth-Party Defendant.
• Court: U.S. Court of International Trade

670 F. Supp. 1006

11 CIT 641

UNITED STATES of America, Plaintiff, v. TOSHOKU AMERICA, INC., and Federal Insurance Co., Defendants, TOSHOKU AMERICA, INC., Third-Party Plaintiff, v. CATZ INTERNATIONAL, INC., Third-Party Defendant and Fourth-Party Plaintiff, v. SOUTHERN COMMODITIES, INC., Fourth-Party Defendant.

Court No. 84-11-01590.

United States Court of International Trade.

September 14, 1987.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, Kenneth N. Wolf, New York City, for plaintiff.

Fitch, King & Caffentzis, Peter J. Fitch, New York City, for defendants, Toshoku America, Inc. and Federal Ins. Co.

MEMORANDUM OPINION AND ORDER

TSOUCALAS, Judge:

The Government commenced this action in accordance with 28 U.S.C. § 1582(2) to recover unpaid liquidated damages assessed under defendants' entry bond for failure to export diseased tuna. Defendants claim that Customs failed to comport with the regulatory scheme and thus, the government is prevented from asserting this claim. The matter is before the Court on the parties' cross-motions for summary judgment.¹ Alternatively, defendants argue that summary judgment in plaintiff's favor cannot be granted as factual issues relate to plaintiff's claim.

BACKGROUND

On May 23, 1978, the importer, Toshoku, as principal, and Federal Insurance Co. (Federal) as surety, executed and delivered to Customs a GENERAL TERM BOND FOR ENTRY OF MERCHANDISE. The bond provided for the conditional release of the merchandise before its right of admission was determined by imposing certain obligations on the principal. In the case of merchandise found not to comply with the laws governing its admission, Toshoku guaranteed: (1) to redeliver to Customs upon demand any such merchandise (¶ 4 of the bond); and (2) after proper notice, inter alia, to export the merchandise, and perform any other act lawfully required (¶ 7 of the bond). In the event of default of any of these conditions, defendants guaranteed to be liable, jointly and severally, for liquidated damages equal to the value of the entered merchandise ($30,636.00) plus the amount of estimated duties ($1,838.16).

On October 10, 1978, Toshoku imported 1300 cartons of tuna which were covered by the aforementioned entry bond. Pursuant to § 801(a) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 381(a); the FDCA), the FDA sampled the merchandise. Since this examination revealed that the tuna appeared to be decomposed, a Notice of Detention and Hearing was issued by the FDA on October 31, 1978, informing Toshoku of the same. On December 12, 1978, a Notice of Refusal of Admission was sent stating that the tuna was in violation of § 801(a)(3) of the FDCA, as it appeared to be decomposed. That notice, which was signed for the District Director of Customs, directed Toshoku to export the merchandise under Customs supervision, within 90 days of the notice, or risk destruction of the goods. The entries covering these goods were liquidated on December 29, 1978.

Since Toshoku failed to export or destroy the goods, three months later, on March 16, 1979, Customs informed Toshoku that it was proceeding with a liquidated damage claim and on May 7, 1979, issued a notice of liquidated damages incurred and demand for payment. Customs based this claim on Toshoku's failure to redeliver the prohibited merchandise to Customs custody in violation of ¶ 4 of the bond. However, Customs had failed to timely issue a demand to redeliver, a condition precedent to enforcing this provision. Therefore, this claim was cancelled on March 19, 1981. Concurrent with the cancellation of that claim, Customs asserted a new claim for liquidated damages based on Toshoku's failure to export the goods in violation of ¶ 7 of the bond, accompanied by another demand for payment, dated March 9, 1981, which was also forwarded to the surety, Federal. Toshoku unsuccessfully petitioned for relief from this second claim and on August 9, 1984 a further demand for payment was made against the surety. To this date neither defendant has paid the liquidated damages and there has been no proof submitted that the merchandise was ever exported or destroyed.

The government claims that Toshoku failed to export the prohibited merchandise as directed, which constitutes a breach of ¶ 7 of the bond, thus obligating the defendants to pay liquidated damages. Defendants concede that the merchandise was never exported or destroyed but by way of affirmative defenses, maintain that they are not in breach of the bond. Defendants contend that if goods have been released by Customs, and are later found to be inadmissible, Customs must reacquire control or custody over the goods, by demanding redelivery; absent this demand, Customs cannot enforce a claim for failure to export. Defendants allege that there is no bond obligation under ¶ 7 to export prohibited merchandise, unless the importer seeks to bring the goods into compliance by exporting the nonconforming part of the shipment; and furthermore, proper notice as contemplated by ¶ 7 of the bond was not provided.

DISCUSSION

In accordance with 21 U.S.C. § 381(a), the Secretary of Health and Human Services (FDA) shall sample all food offered for importation and if it appears from such examination that the food is adulterated, it shall be refused admission. The Secretary of the Treasury (Customs) shall cause the destruction of any such merchandise unless exported under Customs regulations within 90 days of the date of the notice of refusal or within such additional time that may be permitted. Under § 381(b), pending the decision on admissibility by the FDA, the merchandise may be delivered to the importer, if he has executed a bond providing for the payment of liquidated damages in the event of default. This subsection further allows for the reconditioning of merchandise to rectify any non-compliance.

It is clear that any adulterated food refused admission must be exported or destroyed, S.Rep. No. 890, 81st Cong., 1st Sess. (1949) reprinted in, 1949 U.S.Code Cong. Service, 2147; although, it is the importer who exercises the option to export rather than have the goods destroyed. Carl Borchsenius Co. v. Gardner, 282 F.Supp. 396, 402 (E.D.La.1968). Nevertheless, when the defendants executed the bond in question, they entered into a contract with the government thereby agreeing to perform the conditions enumerated therein. See United States v. Atkinson, 6 CIT 257, 260, 575 F.Supp. 791, 794 (1983). One of these conditions was to export (or destroy) merchandise found not to comply with the laws governing its admission. The question is whether this obligation may not be enforced against defendants because Customs conditionally released the goods, and whether the only method Customs has to enforce the FDA decision is to first demand redelivery and then require exportation.

Defendants stress that both the FDA and Customs regulations require redelivery of prohibited goods. 19 C.F.R. §§ 12.1-12.5 specifically apply to the importation of food, drugs, and cosmetics, which is governed by 21 U.S.C. § 381. 19 C.F.R. § 12.4 provides that any such merchandise refused admission shall be exported under Customs supervision in accordance with 19 C.F.R. §§ 18.25 and 18.26. However, neither regulation makes any mention of redelivery to Customs custody. Section 18.25² provides:

(a) ... when no entry has been made or completed for merchandise in Customs custody, or when the merchandise is covered by an unliquidated consumption entry, or when merchandise which has been entered in good faith is found to be prohibited under any law of the United States, and such merchandise is to be exported ... emphasis added.

The remainder of § 18.25(a) outlines the actions necessary for direct exportation of the merchandise. The above quoted language does not support defendants' conclusion that this provision presumes that the merchandise has already been returned to Customs custody before those procedures are undertaken. The term in Customs custody is not used to modify the last clause in that sentence and demonstrates that exportation shall be effected under this regulation when the merchandise is prohibited, or when it is in Customs custody. Further, under § 18.25(e) the principal on any bond who guaranteed exportation shall cause the merchandise to be exported, and as required under § 113.55 (which authorizes the cancellation of the bond upon proof of exportation such as: listing the merchandise on the outward manifest or bill of lading), shall provide such evidence of exportation to Customs.

Defendants emphasize that under 19 C.F. R. § 141.113 the District Director shall demand the return of merchandise refused admission to Customs custody, before liquidation of the entry has become final.³ It is argued that if the importer could just be ordered to export or destroy, what is the purpose of including the requirement of redelivery. While redelivery is not explicitly defined in the regulations, Congress has stated that:

... a demand for redelivery (or a "constructive seizure") to Customs custody is in reality no different than a decision to exclude merchandise from entry or delivery — a decision which the Customs Court may now review. The only difference ... is the time when the decision is made by the Customs Service. The decision to exclude is made at the time an entry is attempted. A demand for redelivery is made after the goods have already entered but the Customs Service subsequently decides that the goods should not have been allowed into the commerce of the United States in the first instance.

S.Rep. No. 466, 96th Cong., 1st Sess. 7 (1979).

Therefore, the demand for redelivery in its primary focus, is necessarily used when Customs subsequently determines that goods should be excluded. As this Court iterated in United States v. Utex Int'l...