83 F.Supp.2d 1307 (CIT. 1999), 95-10-01319, United States v. Complex Mach. Works Co.

Docket Nº:Court No. 95-10-01319.
Citation:83 F.Supp.2d 1307
Party Name:UNITED STATES of America, Plaintiff, v. COMPLEX MACHINE WORKS CO., Andras Nyakas, Andras Nyakas d/b/a Complex Machine Works Co. and Andras H. Nyakas, Defendants. Slip Op. 99-132.
Case Date:December 14, 1999
Court:Court of International Trade

Page 1307

83 F.Supp.2d 1307 (CIT. 1999)

UNITED STATES of America, Plaintiff,


COMPLEX MACHINE WORKS CO., Andras Nyakas, Andras Nyakas d/b/a Complex Machine Works Co. and Andras H. Nyakas, Defendants.

Slip Op. 99-132.

Court No. 95-10-01319.

United States Court of International Trade.

Dec. 14, 1999

Page 1308

David Ogden, Acting Assistant Attorney General; David M. Cohen, Director, Ming-Yuen Meyer-Fong, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, for Plaintiff.

Neville, Peterson & Williams, New York City (John M. Peterson and Curtiss W. Knauss) for Defendants.



This matter having come on for trial in New York, New York, on April 5, 1999, the parties having submitted it for decision and judgment after completion of the trial on April 5, 1999, the Court having considered the Defendants' Post-Trial Brief On Penalty Assessment ("Defendant's Brief") submitted on May 3, 1999, Plaintiff's Post-Trial Brief ("Plaintiff's Response") submitted on May 17, 1999 and the Joint Stipulations dated April 5, 1999, and having given due consideration to the testimony of all witnesses, together with due consideration of all stipulated facts and all evidence admitted at trial, and the Court having granted Plaintiff's Motion for Partial Summary Judgment per Order dated February 23, 1999, now the Court, pursuant to USCIT Rule 52(a), finds facts and sets forth its conclusions of law, and enters Judgment for Plaintiff pursuant to these Findings of Fact and Conclusions of Law.


Plaintiff, the United States Customs Service (hereinafter "Customs") filed this

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action on October 17, 1995 to recover civil monetary penalties1 under section 592 of the Trade Act, as amended, 19 U.S.C. § 1592 (1988) with respect to 64 separate entries of machine parts into the United States.

Defendant Andras Nyakas (hereinafter "Nyakas") was president of Defendant Complex Machine Works Co. ("Complex"), a Canadian corporation, which imported machinery parts from Canada into the United States. [2 Defendant Andras H. Nyakas (hereinafter "Andras H."), the son of Andras Nyakas, was employed by Complex.

On October 18, 1990, Senior Customs Inspector Dale Peterson ("Peterson") discovered that Andras H. attempted to enter machine parts into the United States without paying duties, by hiding those machine parts in the trunk of his car. Pretrial Order at 2; Tr. at 38. During the inspection on October 18, 1990, in response to questioning by Peterson, Andras H. made false statements about the contents of his automobile trunk, ownership of the automobile and how the merchandise found its way into the trunk. Tr. at 38-43. At that time, Customs seized the merchandise, but later that day, Andras H. paid a mitigated penalty of $500 and Customs released the merchandise. Pretrial Order at 2; Tr. at 48; Pl. Exh. 1 at 32.

The smuggling incident prompted an investigation [3 led by Customs Agent Nathan Lavoie ("Lavoie") into other entries of merchandise into the United States by Complex. Tr. at 54; Pretrial Order at 2-3. Lavoie discovered that on 35 separate occasions, Defendants failed to submit properly valued invoices to Customs for merchandise entries. Pretrial Order at 3. In addition, on 29 separate occasions, Defendants entered merchandise into the United States destined to two customers, Alpha Tube and Sterling Pipe, and failed to declare them to Customs. Id.

In interviews with Lavoie and Peterson, Andras H. and Nyakas provided inconsistent and misleading answers regarding the number of employees working at Complex, and the extent of Defendants' compliance with the Customs laws on prior occasions. Tr. at 38-42, 66, 68.

On November 4, 1992, the United States obtained a criminal indictment against Nyakas for 24 counts of violating 18 U.S.C. § 1001 (false statements) and 25 counts of violating 18 U.S.C. § 545 (smuggling). Pl. Exh. 2 at 1-4. Nyakas and Andras H. were also indicted for one count of smuggling. Pl. Exh. 2 at 4. Both Nyakas and Andras H. pled guilty to those charges. Pretrial Order at 3, 4; Pl. Exh. 3.

On December 31, 1992, Customs issued a pre-penalty notice to Defendants and gave them an opportunity to submit information to Customs for mitigation. Defendants did not respond. On October 17, 1995, Customs filed a Summons and Complaint in this Court for collection of civil penalties for these violations.

By Order dated August 23, 1996, the Court denied Defendants' motion to dismiss, rejecting their Statute of Limitations and Double Jeopardy arguments. United States v. Complex Machine Works Co., 937 F.Supp. 943, 945 (CIT 1996). On August 23, 1996, the Court entered an Order denying Defendants' Motion To Dismiss Plaintiff's Complaint. On March 31, 1998, Plaintiff filed a Motion For Partial Summary Judgment seeking liability as to all but a few of the entries allegedly fraudulently made by Defendants.

On June 25, 1998, in light of representations by counsel for Defendants, the Court

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entered an Order memorializing those representations and specifically holding that:

... settlement, if any, shall be completed and the appropriate paperwork filed with the Court on or before August 25, 1998; and [that] if no settlement is reached Defendant's Response to Plaintiff's Motion ... if any, shall be filed on or before August 25, 1998; and [that] if no settlement is reached and Defendant has not filed a Response to Plaintiff's Motion For Partial Summary Judgment, the Court will grant Plaintiff's Motion for Partial Summary Judgment sua sponte and without further notice.

Thereafter, the parties requested and received a number of additional extensions of time within which to seek to settle this case. During several status conferences held during that period, the Court specifically reminded Defendants' counsel that the June 25, 1998 Order was still in effect, and that Defendants would not be permitted to file any Response to Plaintiff's pending Motion if settlement was not reached.

On February 23, 1999, the parties informed the Court that they had reached an impasse regarding settlement. The Court entered an Order granting Plaintiff's pending motion for summary judgment, specifically finding that:

... Defendants fraudulently violated 19 U.S.C. § 1592(a) with respect to the 49 entries described in exhibit 1 attached to Plaintiff's Memorandum in Support of Its Motion For Partial Summary Judgment ....

The Order covered Entries 1-25 of Exhibit A and Entries 1-24 of Exhibit B attached to Plaintiff's Complaint.4]

Page 1311

Following the Court's determination of partial liability, the parties then stipulated that Defendants Complex and Andras Nyakas, by intentional fraud, violated 19 U.S.C. § 1592 in connection with Entries 26-35 of Exhibit A to the Complaint, and Entries 25-29 of Exhibit B. [5 Under the terms of that Stipulation, Plaintiff does not seek a final judgment against Defendant Andras H. as to these Entries. However, Andras H. remains liable for the Entries covered by the Court's earlier grant of partial summary judgment and Plaintiff seeks to recover a monetary penalty against Andras H. for these Entries.

At trial, the parties stipulated that the total domestic true value of the merchandise covered by Entries 1-25 of Exhibit A and Entries 1-24 of Exhibit B is $499,547.00, and that the total domestic true value of the merchandise covered by Entries 26-35 of Exhibit A and Entries 25-29 of Exhibit B is $187,222.00. Plaintiff seeks the maximum penalty allowed under 19 U.S.C. 1592 for these violations, for a total of $686,769.00. Defendants have paid no part of the penalties demanded by Customs.

At trial, Defendants called no witnesses, but submitted into evidence their tax returns and unaudited financial statements, asserting an inability to pay the maximum penalty sought by Plaintiff. Defendants seek a penalty of less than $30,000.00.

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The Standards Governing Penalties Under § 1592 Need To Be Clarified

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1581. The only issue before the Court is the amount of the penalty due under 19 U.S.C. § 1592. 19 U.S.C. § 1592(a)(1) states:

Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence--

(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of--

(i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or

(ii) any omission which is material ....

In actions brought for the recovery of any monetary penalty claimed under 19 U.S.C. § 1592, all issues are tried de novo, including the amount of the penalty. 19 U.S.C. § 1592(e)(1). "[T]he law requires the court to begin its reasoning on a clean state. It does not start from any presumption that the maximum penalty is the most appropriate or that the penalty assessed or sought by the government has any special weight." United States v. Menard, Inc., 17 CIT 1229, 1229, 838 F.Supp. 615, 616 (1993), aff'd in part, vacated and remanded in part on other grounds, 64 F.3d 678 (Fed.Cir. 1995). The maximum penalty for a fraudulent violation of § 1592 is "an amount not to exceed the domestic value of the merchandise." 19 U.S.C. § 1592(c).

Prior to the enactment of the Customs Procedural Reform and Simplification Act of 1978 ("Customs Reform Act"), monetary penalties under § 1592 were imposed without regard to the degree of culpability. The statute required forfeiture of the...

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