U.S. v. Frowein
| Decision Date | 27 January 1984 |
| Docket Number | No. 509,D,509 |
| Citation | 727 F.2d 227 |
| Parties | UNITED STATES of America and David J. Ripa, Special Agent in Charge (Cleveland District), United States Customs Service, Petitioners-Appellees, v. Michael C.W. FROWEIN, President, F.A.G. Bearings Corporation, Respondent-Appellant. UNITED STATES of America and David J. Ripa, Special Agent in Charge (Cleveland District), United States Customs Service, Petitioners-Appellees, v. Gino DiTOMASO, Vice President, F.A.G. Bearings Corporation, Respondent-Appellant. ocket 83-6274. |
| Court | U.S. Court of Appeals — Second Circuit |
Andrew L. Lipps, New York City (John M. Dowd, Peter K. Leisure, Michael C. Pelletier, Whitman & Ransom, New York City, of counsel), for respondents-appellants.
Frank H. Santoro, Asst. U.S. Atty., D.Conn., New Haven, Conn. (Alan H. Nevas, U.S. Atty. D.Conn., New Haven, Conn., of counsel), for petitioners-appellees.
Before MANSFIELD, PIERCE and McGOWAN *, Circuit Judges.
Michael C.W. Frowein, President for Finance of F.A.G. Bearings Corporation ["F.A.G."], and Gino DiTomaso, Vice President for Finance of F.A.G. [hereinafter collectively referred to as "appellants"], by expedited appeal, seek review of an order, entered September 9, 1983, in the United States District Court for the District of Connecticut, Warren W. Eginton, Judge, granting the enforcement of two Customs Service summonses served upon appellants.
For the reasons set forth below, we affirm with directions that the mandate issue forthwith.
F.A.G. is the exclusive United States importer of ball and roller bearings and anti-friction balls and rollers sold by its West German parent, F.A.G. Kugelfischer Georg Schaefer & Company ["Kugelfischer"]. The controversy between the Customs Service and F.A.G. arose on or about November 28, 1978, when a customs official in Ohio reportedly discovered that certain bearings imported by F.A.G. did not match either the description on the boxes containing the bearings or the description on the invoices issued to F.A.G. by Kugelfischer concerning the bearings. The matter was referred to the Office of Investigations of the Customs Service and a civil investigation was initiated in December, 1978. On April 26, 1979, the District Director of the Customs Service in Ohio issued a Pre-Penalty Notice alleging, inter alia, that F.A.G. had imported merchandise between 1972 and 1978 based on false documents, in violation of 19 U.S.C. Secs. 1481, 1484 and 1592.
Prior to the issuance of the Pre-Penalty Notice, the matter was referred to the United States Attorney for the Northern District of Ohio for criminal investigation. A federal grand jury conducted an investigation of F.A.G. from early 1979 to early 1982. By letter dated June 3, 1982, the United States Attorney notified F.A.G. that the grand jury investigation had been terminated and that he had declined criminal prosecution. Thereafter, the Customs Service, without the knowledge of F.A.G., asked the United States Attorney to reconsider his decision not to prosecute. The United States Attorney, however, reaffirmed his initial decision in a letter to the Customs Service dated December 14, 1982.
During the early part of 1983, Customs Service representatives interviewed several officers and employees of F.A.G. and Kugelfischer, and examined documents provided by F.A.G. According to the Customs Service, during the course of these interviews specific evidence was developed that the prices stated on certified invoices submitted to the Customs Service by F.A.G. were not necessarily the actual prices paid for the imported merchandise. As a result of this discovery, the Customs Service decided that additional information was required. On May 6, 1983, the Service notified F.A.G. that it wanted to audit the company's financial records to determine the extent of any lost revenue attributable to the alleged discrepancy between declared values and actual payments. Appellees assert that F.A.G., by letter dated May 27, 1983, refused to permit the audit. On June 14, 1983, the Customs Service informed F.A.G. that the auditors would arrive on June 16, 1983, and recommended cooperation. F.A.G. requested more time to consider the matter, but, not wishing to wait, the Customs Service served the two summonses that are the subject of this appeal--one on June 16, 1983, to Frowein, and one on June 23, 1983, to DiTomaso. The summonses call for the production of documents relating to F.A.G.'s importation, between 1972 and 1978, inclusive, of bearings manufactured by Kugelfischer.
When the appellants refused to produce the documents sought, the Customs Service commenced a separate enforcement proceeding against each appellant in the District Court for the District of Connecticut, which proceedings were consolidated before Judge Eginton on July 19, 1983. Between August 10 and August 17, 1983, the district judge devoted four days to an evidentiary hearing. At the outset of the hearing on August 10, the district court held that on the basis of affidavits and other documentation previously filed, the Customs Service had met its burden to justify enforcement of the summonses, but allowed F.A.G. a full opportunity to demonstrate why enforcement was not warranted. At the conclusion of the hearing, on August 17, 1983, Judge Eginton ruled that the summonses would be enforced.
Prior to the entry of the district court's order on September 9, 1983, the Customs Service, on August 23, 1983, issued a Notice of Penalty to F.A.G. in the amount of $451,915,104 as a civil penalty for the importation of goods based on false documentation in violation of 19 U.S.C. Secs. 1481, 1485 and 1592. F.A.G. promptly moved in the district court to reopen the record and admit the penalty notice, and also urged that the issuance of the penalty notice terminated the civil investigation and deprived the district court of jurisdiction to enforce the summonses. On September 9, 1983, the district court reopened the record to receive the evidence, but denied appellants' motion to dismiss, and signed the enforcement order. Thereafter, the Customs Service referred the penalty claim to the Department of Justice, and on September 14, 1983, the day before certain applicable statutes of limitations expired, the Department of Justice commenced an action against F.A.G. in the United States Court of International Trade to recover the penalties allegedly owed by the company.
Also on September 14, 1983, appellants filed a Notice of Appeal challenging the September 9, 1983 enforcement order. A panel of this court, on September 28, 1983, granted appellants' motion for a stay of Judge Eginton's order pending the outcome of this appeal.
In this appeal, appellants contend, inter alia, (1) that the documents summoned by the Customs Service are not relevant to any matters under investigation; (2) that the district court exceeded its jurisdiction in enforcing the summonses; and (3) that the Customs Service exceeded its statutory power in summoning the documents. These contentions will be discussed seriatim.
The Customs Service, pursuant to the powers given it by 19 U.S.C. Sec. 1509(a)(2) (1982), summoned appellants to appear and produce invoices and payment records relating to merchandise imported by F.A.G. between the years 1972 and 1978, inclusive. When the appellants failed to comply with the summonses, the Customs Service sought judicial enforcement thereof pursuant to 19 U.S.C. Sec. 1510 (1982). In making its determination to enforce the summonses, the district court found United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964), instructive. In Powell, the Supreme Court set forth preconditions to the judicial enforcement of Internal Revenue Service ["IRS"] summonses. The Powell Court stated that the agency "must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the [agency's] possession, and that the administrative steps required by the Code have been followed." Id. at 57-58, 85 S.Ct. at 254-55. Judge Eginton found that the Customs Service had satisfied the Powell conditions and, accordingly, ordered enforcement. On appeal, appellants contend that the district judge erred in finding that the Customs Service met the relevance criterion of the Powell test. We note that in addition to the penalty action under 19 U.S.C. Sec. 1592 currently pending in the United States Court of International Trade, another dispute exists between F.A.G. and the Customs Service. This dispute concerns the duty due and owing by F.A.G. for bearings imported between 1972 and 1978. According to appellants, the materials summoned are not relevant either to the determination of the amount of duties owed by F.A.G. or to the assessment of a penalty under Sec. 1592. We find this argument to be without merit.
The invoices and financial records summoned will enable the Customs Service to determine the prices paid by F.A.G. to Kugelfischer for the imported goods. The record below demonstrates that the prices paid by F.A.G. are clearly relevant to a determination of the duty owed, which in turn may have an effect on the amount of the penalty assessed. 1 Further, the summoned materials are independently relevant to the assessment of the penalty under Sec. 1592. The Customs Service reportedly has discovered information indicating that the invoices submitted to Customs by F.A.G. do not reflect the actual prices paid for the merchandise imported. Since a penalty action under Sec. 1592 is premised on inaccuracies regardless of whether there is a loss of revenue, 19 U.S.C. Sec. 1592(a), at the very least, the summoned material will shed light on the determination of whether inaccuracies exist. Accordingly, we hold that the district court correctly found that the...
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