Old Republic Ins. Co. v. Hansa World Cargo Service, 92 Civ. 0119(DNE).

Decision Date01 June 1999
Docket NumberNo. 92 Civ. 0119(DNE).,92 Civ. 0119(DNE).
Citation51 F.Supp.2d 457
PartiesOLD REPUBLIC INSURANCE COMPANY, Plaintiff, v. HANSA WORLD CARGO SERVICE, INC.; Duferco Ltd. (U.S.A.); Ferco Intertrade, Inc.; Duferco, Inc.; Duferco Steel, Inc.; Duferco Trading Corp.; Duferco Steel Sales, Ltd.; Frank Fink; and John Cummings, Defendant.
CourtU.S. District Court — Southern District of New York

Thomas P. Lynch, Lynch Rowin Novack Burnbaum & Crystal, P.C., New York, NY, for Old Republic Ins. Co.


EDELSTEIN, District Judge.

In this diversity action, Plaintiff alleges that Defendants fraudulently schemed to import steel products into the United States without paying anti-dumping1 and countervailing2 duties that the United States Customs Service ("U.S. Customs" or "Customs") levied upon the steel. Presently before this Court are the Duferco Defendants', Defendant Fink's, and Defendant Cummings' objections to the Reports and Recommendations that Honorable Leonard Bernikow, United States Magistrate Judge, issued on March 31, 1998 and September 23, 1998. In those Reports, Magistrate Judge Bernikow addressed Defendants' motion to dismiss Plaintiff's claims pursuant to Federal Rules of Civil Procedure ("Rules") 12(b)(6) and 9(b).


This matter reaches the Court framed as a Rule 12(b)(6) motion. Accordingly, the facts recited herein are drawn predominantly from Plaintiff's amended complaint.

A. Parties:

Plaintiff Old Republic Insurance Company ("ORIC" or "Plaintiff"), a corporation organized under the laws of the Commonwealth of Pennsylvania, has its principal place of business in the Commonwealth of Pennsylvania and is licensed to transact business within the State of New York. See Am.Compl. at ¶ 1. The Secretary of the Treasury of the United States has authorized ORIC to issue United States Customs surety bonds. See id. Defendant Hansa World Cargo Service, Inc. ("Hansa") is incorporated in Michigan and, during the period relevant to this litigation, maintained its principal place of business in Ohio. See id. at ¶ 2.

Until 1982, Defendant Ferco Intertrade, Inc. ("Ferco") was a Delaware corporation authorized to do business in New York. See id. at ¶ 4. Plaintiff contends that on July 15, 1982, Ferco became known as Defendant Duferco Ltd. (USA) ("Duferco USA"). See id. Duferco USA also was a Delaware corporation authorized to do business in New York. See id. at ¶ 3. Plaintiff alleges, however, that in November 1989, Duferco USA filed a Certificate of Termination with the New York Secretary of State but "continued thereafter to conduct business in the County of New York, State of New York." See id.

Defendants Duferco, Inc.; Duferco Steel, Inc.; Duferco Properties, Inc.; Duferco Trading Corp.; and Duferco Steel Sales, Inc. all were Delaware corporations, with their respective principal places of business in New York. See id. at ¶¶ 5-9.3 Plaintiff alleges that "prior to April 22, 1988, defendant Duferco Trading Corp. was known as Duferco Properties, Inc." See id. at ¶ 8.

Defendant Frank Fink ("Fink") is alleged to have been a citizen of the State of Ohio at the time of commencement of this lawsuit, and "an officer, director and/or owner of defendant Hansa" at all times relevant to this litigation. Id. ¶ 13. Plaintiff contends that Fink "was also a licensed Customhouse Broker, with the authority to issue plaintiff's bonds for the benefit of his customers." Id. Defendant John Cummings ("Cummings") is alleged to have been a citizen of the State of California at the time of commencement of this lawsuit, and as "an attorney versed in custom matters," to have worked as "an officer, director and/or owner of defendant Hansa" during the time relevant to this litigation. Id. at ¶ 14.4

Plaintiff asserts that "one or more of the Duferco defendants are or were alter egos of, and/or successors in interest to, defendant Duferco Ltd. (USA)," and thereby, were the means by which Duferco USA continued to do business after its purported dissolution in 1989. See id. at ¶ 11-12. Specifically, Plaintiff asserts that (1) after its alleged termination, Duferco USA maintained offices and a telephone listing in New York, (2) before its own purported dissolution in 1989, Duferco Steel Sales, Inc. was an affiliate of Duferco USA and sold steel products purchased from Duferco USA, (3) Defendants Duferco Steel, Inc. and Duferco Trading Corp. carried on the business of Duferco USA and Duferco Steel Sales, Inc. after their dissolutions, (4) "the same persons acted as officers and/or employees in each of the Duferco defendants," and (5) discovery will reveal substantial additional evidence to support Plaintiff's contention. See id. at ¶ 12.

B. Facts:

At all times pertinent to this litigation, Plaintiff ORIC was authorized by U.S. Customs to issue bonds in connection with the importation, entry, and release of goods into United States commerce. See id. at ¶ 17. The bonds, in turn, guaranteed the payment of assessed duties if the importer failed to pay once the entries passed Customs and Customs demanded payment from the importer. See id. Beginning in approximately 1980, ORIC authorized Defendant Fink, a duly licensed customhouse broker, to post ORIC's bonds, including bonds that covered anti-dumping and countervailing duties. See id. at ¶ 19, 22. Shortly thereafter, Fink and Defendant Cummings organized Defendant Hansa to act as importer of record on behalf of foreign steel manufacturers and/or exporters, including Duferco USA. See id. at ¶ 20, 27. ORIC alleges that Fink was aware that it was ORIC's practice to require the posting of collateral to secure anti-dumping and countervailing duty bonds. See id. at ¶ 23. In fact, beginning in the middle of 1982 and then again in March 1983, ORIC's agents reminded Fink that ORIC required that their bonds be fully collateralized before posting. See id.

In late 1983 and early 1984, the United States Commerce Department's International Trade Administration ("ITA") publicly announced a preliminary assessment of anti-dumping and countervailing duties on certain Brazilian steel products. See id. at ¶ 24-25. Almost immediately after the ITA' 1983 determination, on September 12, 1983, Hansa and Duferco USA entered into a contract ("Hansa/Duferco contract" or the "contract")5 agreeing that Hansa would serve as importer of record and, in exchange for a fixed fee per metric ton of steel, assume the risk of liability for the possible increased Customs duties on Duferco USA's imported Brazilian steel. See id. at ¶ 27-29. The contract indicated that while in the past Duferco USA had reimbursed Hansa for all incurred costs and usually paid Hansa in enough time to permit payment to U.S. Customs, because both Hansa and Duferco USA recognized that anti-dumping or countervailing duties may ultimately be assessed on Brazilian steel, Duferco USA wished to avoid any liability for any imposed duties. See id. at ¶ 28-29. The contract, thereby, significantly increased the risk Hansa assumed by acting as Duferco USA's importer of record because Hansa relinquished any right to seek reimbursement from Duferco USA. See id. at ¶ 31.

Despite its increased liability for payment of Customs duties, in each posted bond, Hansa represented to ORIC that it would pay any attached duties for which it served as importer of record. See id. at ¶ 36. Additionally, Defendant Cummings "specifically represented to [ORIC] that its unnamed `clients' had sufficient funds to cover the full amount of any anti-dumping or countervailing duties which might ultimately be assessed." See id. at ¶ 64. Yet, in 1983 and thereafter, Fink, Hansa's alleged co-owner, posted at least fifty six (56) ORIC bonds without collateral for the importation of Brazilian steel on behalf of Duferco USA, contrary to ORIC's underwriting guidelines and explicit instructions. See id. at ¶¶ 34-35. Furthermore, Hansa, although named importer of record on the bonds, had no interest in the imported goods, allegedly had insufficient assets to pay any potentially imposed duties and under the contract, could not look to Duferco USA for reimbursement. See id. at ¶¶ 33, 35.

Plaintiff asserts that all parties to the Hansa/Duferco contract, being experienced in customs matters,6 "knew or should have known that the party that would ultimately pay any duties assessed would be Hansa's bonding company (Old Republic), and not Hansa," because "it was virtually certain that Hansa would default on its obligations to Old Republic and U.S. Customs." Id. at ¶ 32, 36. ORIC explains that the fee that Hansa was to receive under the Hansa/Duferco contract was insufficient for Hansa to pay any anti-dumping or countervailing fees ultimately assessed. See id.7 ORIC further argues that no bonding company aware of the Hansa/Duferco contract

would have permitted its bonds to be posted on behalf of Hansa, which had no financial stake in the imported merchandise, which had insufficient assets to pay the duties which might be assessed, and which, under its contract with Duferco was excluded from looking to its customer for reimbursement.

Id. at ¶ 33. Indeed, ORIC states that it did not discover the existence of the Hansa/Duferco contract until after the initiation of this lawsuit in 1992. See id. at ¶ 33.

Between February and October 1988 and between June and September 1989, the United States Department of Commerce assessed anti-dumping and countervailing duties respectively on the imported Brazilian steel. See id. at ¶¶ 41-42. U.S. Customs sent a bill for these increased duties to Defendant Hansa, and when Hansa failed to pay these assessed duties, Customs demanded payment from ORIC as surety on the bonds. See id. at ¶ 43. ORIC paid the majority of these demands, and as of the date of the amended complaint, March 25, 1997, ORIC paid $2,066,244.91 and claimed it may have to pay an additional $31,388.27 in liquidated anti-dumping and/or countervailing duties under its bonds for the...

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