United States v. Active Frontier Int'l, Inc.

• Decision Date: 30 August 2012
• Citation: 867 F.Supp.2d 1312
• Parties: UNITED STATES, Plaintiff, v. ACTIVE FRONTIER INTERNATIONAL, INC., Defendant.
• Court: U.S. Court of International Trade

867 F.Supp.2d 1312

UNITED STATES, Plaintiff,

v.ACTIVE FRONTIER INTERNATIONAL, INC., Defendant.

United States Court of

International Trade.

Slip Op. 12–112.

Court No. 11–00167.

Aug. 30, 2012.

Melissa M. Devine, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, for defendant. With her on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Jean M. Del Colliano, Office of the Associate Chief Counsel, U.S. Customs and Border Protection, of New York, NY.

OPINION AND ORDER

STANCEU, Judge:

Plaintiff United States brought this action to recover a civil penalty under section 592 of the Tariff Act of 1930, 19 U.S.C. § 1592 (2006) ( “Section 592”), from Active Frontier International, Inc. (“AFI” or “Active Frontier”), a New York corporation, alleging that AFI falsely declared the country of origin of wearing apparel on seven entries made during 2006 and 2007. Compl. ¶¶ 1, 3, 16 (May 31, 2011), ECF No. 2. Plaintiff alleges that the wearing apparel on the seven entries was manufactured in the People's Republic of China (“China”) but that the documentation filed with U.S. Customs and Border Protection (“Customs” or “CBP”) for each of the entries showed one of three countries, specifically, Indonesia, South Korea or the Philippines, as the country of origin on the entry documentation. Id. ¶¶ 6, 8(a)-(b). After AFI failed to plead or otherwise defend itself, the Clerk of the Court entered AFI's default. Before the court is plaintiff's application for a judgment by default seeking a civil penalty of $80,596.40, an amount calculated as 20% of the aggregate dutiable value of the merchandise on the seven entries. Mot. for Default J. (Dec. 2, 2011), ECF No. 9 (“Pl.'s Mot.”). Because the complaint lacks well-pled facts establishing defendant's liability for a civil penalty, the court denies the application without prejudice.

I. Background

In August 2010, Customs issued a pre-penalty notice informing AFI that Customs was considering imposing a civil penalty under Section 592. Compl. ¶ 10. This notice calculated a proposed penalty of $80,596.40, based on a degree of culpability of negligence. Id. AFI did not respond to the pre-penalty notice. Id. In September 2010, Customs issued to AFI a notice of penalty demanding payment of $80,596.40. Id. ¶ 11. AFI did not respond to the notice of penalty. Id.

Plaintiff initiated this action to recover a civil penalty against AFI on May 31, 2011. After defendant failed to plead or otherwise defend itself, the Clerk of the Court, at plaintiff's request, entered AFI's default on August 4, 2011. Entry of Default (Aug. 4, 2011), ECF No. 7; Request for Entry of Default (Aug. 3, 2011), ECF No. 6. On December 2, 2011, plaintiff filed an applicationfor a judgment by default under USCIT Rule 55(b), seeking a civil penalty of $80,596.40, plus an award of post-judgment interest. Pl.'s Mot. In the application, plaintiff stated that “the well-pled facts demonstrate that the false country of origin statements prohibited CBP from effectively mak[ing] determinations as to the origin and admissibility of the merchandise entered by Active Frontier.” Id. at 3; see Compl. ¶ 9 (alleging that AFI's origin statements “influenced, among other things, CBP's determinations as to the origin and admissibility of the merchandise entered by AFI”). Plaintiff attached to the application a declaration by Raymond J. Irizarry, a CBP Import Specialist, stating that “all of the merchandise imported by Active Frontier through the seven entries ... were [ sic ] subject to quota.” Pl.'s Mot. 3 & Decl. of Irizarry ¶ 14 (“First Irizarry Declaration”).

On June 18, 2012, the court issued an order inviting plaintiff to make an additional submission to identify the quota provision or provisions applicable to the merchandise on the seven entries. Order (June 18, 2012), ECF No. 11. In the order, the court noted that plaintiff's submissions failed to cite any quota provision and stated that the declaration of Mr. Irizarry did not suffice to resolve the issue. Id. The supplemental brief plaintiff filed on August 1, 2012 in response to the court's June 18, 2012 order acknowledged that some of the wearing apparel at issue was not subject to quota and that Mr. Irizarry's declaration that all of the merchandise was subject to quota was “a misstatement.” Pl.'s Supplemental Br. 4 (Aug. 1, 2012), ECF No. 15. The submission and exhibits, including a second declaration of Mr. Irizarry (“Second Irizarry Declaration”), cited a quota provision and stated that certain merchandise on each of the seven entries was subject to that quota provision; this merchandise was described as having an aggregate entered value of $190,900 out of a total aggregate entered value of $402,982 for all merchandise on the seven entries. Id. at 4 & exhibit C. The August 1, 2012 submission reiterated plaintiff's request that the court enter a judgment by default in the amount of $80,596.40, plus post-judgment interest.

II. Discussion

Section 201 of the Customs Courts Act of 1980, 28 U.S.C. § 1582(1) (2006), grants the court jurisdiction over this action to recover a civil penalty under Section 592. Under Section 592, the court determines all issues de novo, including the amount of any penalty. 19 U.S.C. § 1592(e)(1). In evaluating an application for judgment by default, the court accepts as true all well-pled facts in the complaint but must reach its own legal conclusions. 10A Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2688, at 63 (3d ed. 1998).

Section 592(a)(1) provides, in pertinent part, that

[N]o 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[.]

19 U.S.C. § 1592(a)(1)(A). For a negligent violation that did not result in a loss of revenue to the United States, the statute prescribes a maximum penalty of 20% of the dutiable value. Id. § 1592(c)(3)(B). In this case, plaintiff may obtain a judgment by default for a civil penalty under Section 592 if it presents well-pled facts from which the court can conclude that AFI entered merchandise by means of statements of country of origin that were “material and false.” Id. § 1592(a)(1)(A)(i). Where, as here, the United States seeks a penalty under Section 592 based on a culpability level of negligence, “the United States shall have the burden of proof to establish the act or omission constituting the violation, and the alleged violator shall have the burden of proof that the act or omission did not occur as a result of negligence.” Id. § 1592(e)(4). Because defendant has defaulted, plaintiff need not plead facts from which the court could conclude that statements alleged to be material and false occurred by negligence.

The complaint alleges that “[on] seven separate occasions, between June 5, 2006 and March 2, 2007, AFI entered and/or introduced, or caused to be entered and/or introduced, certain articles of wearing apparel manufactured in the People's Republic of China into the commerce of the United States....” Compl. ¶ 6. It further alleges that, for each of the seven entries, AFI declared on entry documentation that the country of origin of the goods was a country other than China. Id. ¶ 8. The complaint states that “AFI submitted to CBP bills of lading, entry summaries, and/or other entry documents stating that such articles of wearing apparel were ... manufactured in Indonesia, Korea, and/or the Philippines.” Id. ¶ 8(a). It also states that AFI submitted “Manufacturer's Identification Codes” that incorrectly indicated that the goods were manufactured in countries other than China. Id. ¶ 8(b). The complaint states that the violations alleged therein did not affect the assessment of duties. Id. ¶ 13.

By using the terms “material and false” in subparagraph (1)(A)(i) of subsection (a) of Section 592, Congress signified that not every false statement made in connection with the entry of merchandise will subject an importer to civil penalty liability. Section 592, however, does not define the term “material.” The purpose of Section 592, as stated in the Senate Report accompanying enactment of the 1978 amendments to the section, which introduced a general materiality requirement into the text of the statute, is “to encourage accurate completion of the entry documents upon which Customs must rely to assess duties and administer other customs laws.” SeeS.Rep. No. 95–778, at 17 (1978), 1978 U.S.C.C.A.N. 2211, 2229 (“ Senate Report ”). Black's Law Dictionary contains a definition of the word “material” relevant to this stated purpose: “[of] such a nature that knowledge of the item would affect a person's decision-making; significant; essential.” Black's Law Dictionary 998 (8th ed. 2004).

The government's complaint does not allege facts from which the court can conclude that the alleged false statements of country of origin made upon entry were “material” within the meaning of Section 592. Within the complaint, only one paragraph, paragraph nine, addresses the question of materiality. Paragraph nine reads as follows:

The documents, statements, acts, and/or omissions referenced in paragraphs six through eight were materially false because these documents, statements, acts, and/or omissions influenced, among other things, CBP's determinations as to the origin and admissibility of the merchandise entered by AFI.

Compl. ¶ 9. The first “fact” alleged in the paragraph—that the allegedly false origin statements affected CBP's determinations as to the origin of the merchandise—is circular and fails to inform the court of any relevant...