964 F.Supp. 344 (CIT. 1997), 93-06-00373, United States v. Hitachi America, Ltd.

Docket Nº:Court No. 93-06-00373.
Citation:964 F.Supp. 344
Party Name:UNITED STATES of America, Plaintiff, v. HITACHI AMERICA, LTD., and Hitachi, Ltd., Defendants. Slip Op. 97-46.
Case Date:April 15, 1997
Court:Court of International Trade
 
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Page 344

964 F.Supp. 344 (CIT. 1997)

UNITED STATES of America, Plaintiff,

v.

HITACHI AMERICA, LTD., and Hitachi, Ltd., Defendants.

Slip Op. 97-46.

Court No. 93-06-00373.

United States Court of International Trade.

April 15, 1997

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Frank W. Hunger, Assistant Attorney General; David M. Cohen, Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, (James W. Poirier, Cynthia B. Schultz, and Lesleyanne Kessler, Washington, DC); of counsel: Judith L. Altman, Carle Place, NY, Colleen M. Piccone, Newark, NJ, and Alan C. Cohen, United States Customs Service, Washington, DC, for plaintiff.

Weil, Gotshal & Manges, L.L.P. (John R. Wing, Lawrence E. Elder and Yoav M. Griver, New York City), for defendant Hitachi America, Ltd.

Kirkland & Ellis (William A. Streff, Chicago, IL, Eugene F. Assaf, Paul F. Brinkman, and David G. Norrell, Washington, DC), for defendant Hitachi, Ltd.

OPINION

MUSGRAVE, Judge.

The government brought this action against Hitachi America, Ltd. ("Hitachi America") and Hitachi, Ltd. ("Hitachi Japan") in a bid to recover penalties and lost duties under 19 U.S.C. § 1592. The government alleged in the alternative that Hitachi America and Hitachi Japan are liable for violating customs laws by committing fraud, gross negligence, or negligence in connection with imported merchandise, and that Hitachi Japan is also liable as an aider or abettor. The Court entertains jurisdiction under 28 U.S.C. § 1582. The trial was conducted de novo. 19 U.S.C. § 1592(e)(1). For reasons which follow, the Court holds that Hitachi America is liable for negligent violations of customs laws and that Hitachi Japan is liable for aiding or abetting Hitachi America in its tortious course of conduct. Pursuant to 19 U.S.C. § 1592, defendants are jointly and severally liable for the $1,545,970 penalty assessed by the Court, and Hitachi America must remit an additional $96,469, the remainder of lost duties it has not yet restored to the government.

BACKGROUND

This controversy concerns the importation of unfinished subway car components and parts delivered to the Metropolitan Atlanta Rapid Transit Authority (MARTA) during the 1980's. The MARTA project initially comprised the purchase of 30 subway cars (referred to as the "base buy") for use in the Atlanta, Georgia subway system. The project was subsequently extended by MARTA's exercise of 4 options for a total of 90 additional subway cars. MARTA's first request for bids did not contain the price adjustments at issue in this case. After MARTA rejected

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all the bidders' prices as too high, MARTA then revised the terms of the contract, which was entitled "Contract CQ-311", and incorporated two price adjustment clauses: an Economic Price Adjustment ("EPA") clause, by which MARTA assumed the risk of inflation on labor and material, and a Monetary Value Adjustment ("MVA") clause, by which MARTA guaranteed a fixed amount of yen for foreign-procured materials. Pursuant to the MVA clause, MARTA assumed the risk of a depreciation of the dollar but would also enjoy the benefit of any appreciation of the dollar. Hitachi Japan negotiated the contract with MARTA. A joint venture consisting of Hitachi America and C. Itoh America ("CIA") was awarded this revised contract on September 27, 1982. Contract CQ-311, which explicitly contained the EPA and MVA clauses, was publicly available. MARTA itself issued a press release indicating that the Contract included "$3.7 million for projected currency exchange rate and inflation."

The subway cars consisted mainly of domestic content, some of which was exported to Japan and incorporated into the vehicles at Hitachi Japan's Kasado Works factory. The partially completed subway cars and components were then sold to C. Itoh Ltd. ("CIJ"), a Japanese corporation. CIJ is one of the world's largest trading companies, specializing in the purchase and sale of various merchandise throughout the world. Transactions between CIJ and Hitachi Japan were in yen pursuant to separate purchase orders. CIJ then sold the merchandise to the Hitachi America-CIA joint venture. Hitachi America was the importer of record, and imported the partially completed subway cars principally through the port of Savannah, Georgia. Hitachi America issued purchase orders to CIJ in dollars which referenced the EPA clause. The cars were then sent to MARTA's Avondale Yards in Atlanta for final assembly by U.S. subcontractors. CIA was the banker for the MARTA transaction. CIA maintained an account for Hitachi America from which customs duties were paid, and CIA paid CIJ in yen. CIA also invoiced and received payments from MARTA. CIA was responsible for paying domestic and foreign vendors, including CIJ, for the merchandise incorporated into the subway cars.

Pursuant to CQ-311, MARTA paid the joint venture of Hitachi America and CIA according to various progress points, called "milestones", which were based on the completion and delivery of the subway cars. The 250 milestone payments by MARTA were not and could not be directly correlated to the forty-one entries at issue in this case. The amount of EPA paid by MARTA was derived quarterly following the publication of various indices. The amount of EPA paid by MARTA could not be determined at the time of entry. The amount of MVA paid by MARTA was derived pursuant to a formula based upon the timing of various milestone payments. The amount of MVA paid by MARTA similarly could not be determined at the time of entry or correlated to specific entries of merchandise. Thus, at the time of each entry, neither the importer nor the U.S. Customs Service ("Customs") could determine the amount of future additional duties owed on any EPA and MVA payments.

A cost engineer at Hitachi Japan's Kasado Works factory computed detailed budgets for various costs attributable to the MARTA project, including import duties. The amount of $607,050 was allocated for Hitachi America's payment of import duties for the base buy of the first 30 cars. This duty budget included an estimate for duties on both EPA and MVA payments. The formula used to estimate EPA and MVA duty payments in the original budget was also utilized to calculate subsequent duty budgets for the 1st, 2nd, 3rd and 4th options, and the formula remained unchanged throughout the project. The total duty budget, including payments for EPA and MVA, was approximately $2,000,000, and was allegedly held by CIA. At the end of the project in 1988, Hitachi America had approximately $298,000 left over in this $2,000,000 duty budget after the payment of approximately $1,700,000 for import duties incurred on the base price of the imported merchandise. As the shipments began in 1984 and 1985, defendants discussed how to allocate EPA money that would eventually be received from MARTA. Hitachi America successfully negotiated to receive

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approximately 2.7% of the domestic EPA for additional duty on EPA payments. The defendants also agreed that if there were a budgetary shortfall in duties owed on the MARTA contract, Hitachi Japan would be responsible for the shortfall.

At the time of the first shipment of unfinished subway cars in 1984, Hitachi America and Hitachi Japan understood that EPA payments were dutiable. However, neither Hitachi America nor Hitachi Japan had prior experience with MVA adjustments. Whether such payments were subject to duty was apparently unclear to defendants at the time of the first shipment. The defendants observed that at the time of shipment, EPA and MVA amounts were not yet fixed, and thus the amounts of EPA and MVA payments could not be known at the time of shipment. Based on this fact and on their alleged past practice in previous long-term projects subject to escalation, the defendants decided that only the base price needed to be reported on the invoice submitted to Customs, and the escalation payments could be reported to Customs and tendered at the end of the project. Many of the witnesses from Hitachi America and Hitachi Japan attested to their belief that the amount of duties could be finalized and paid after the ultimate liquidation at the end of the project. Some of the witnesses also testified that they expected Customs to request information from Hitachi America throughout the course of the project regarding the amount of escalation received from MARTA. Customs never issue any such requests to Hitachi America. In any event, the shipping invoice declaring the base price in dollars without reference to escalation clauses was presented to Customs by Hitachi America and was prepared with assistance from Hitachi Japan and CIJ. Hitachi America referenced "CQ-311" ninety-two times on entry documents over the course of the project.

On April 19, 1984, the Hitachi America official in charge of the MARTA project at that time accompanied by an official from Hitachi Japan visited Customs' office in Savannah, Georgia in order to discuss the MARTA importations. At trial, neither of these gentlemen could recall whether they discussed the EPA and MVA clauses or whether they provided a copy of the MARTA contract and the Hitachi America-CIJ purchase order to the Import Specialist. It is routine for National Import Specialists to request copies of contracts on long-term projects and to inquire about any escalation provisions contained therein. Hitachi America's customs brokers also held meetings with Customs in Savannah to discuss invoicing issues. It is unknown whether the customs brokers discussed invoicing or reporting requirements for EPA or MVA with the Savannah Import Specialist. After these...

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