U.S. v. Hitachi America, Ltd., 97-1431

• Decision Date: 25 March 1999
• Docket Number: No. 97-1431,97-1447 and 97-1452,97-1431
• Citation: 172 F.3d 1319
• Parties: UNITED STATES, Plaintiff-Appellant, v. HITACHI AMERICA, LTD., Defendant/Cross-Appellant, and Hitachi, Ltd., Defendant/Cross-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1319

172 F.3d 1319

UNITED STATES, Plaintiff-Appellant, v. HITACHI AMERICA, LTD., Defendant/Cross-Appellant and Hitachi, Ltd., Defendant/Cross-Appellant.

No. 97-1431, 97-1447 and 97-1452.

United States Court of Appeals Federal Circuit.

March 25, 1999.

James W. Poirier, Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for Plaintiff-Appellant. With him on the brief was David M. Cohen, Director.

John R. Wing, Weil, Gotshal & Manges LLP, of New York, New York, argued for Defendant/Cross-Appellant Hitachi America, Ltd. With him on the brief was Yoav M. Griver. Of counsel was Stuart M. Rosen.

William A. Streff, Jr., Kirkland & Ellis, of Chicago, Illinois, argued for Defendant/Cross-Appellant Hitachi, Ltd. With him on the brief were David G. Norrell, Eugene F. Assaf and Paul F. Brinkman of Washington, DC.

Before MICHEL, LOURIE, and GAJARSA, Circuit Judges.

MICHEL, Circuit Judge.

In this customs duties case, the United States, Hitachi America, Ltd. ("HAL") and its parent, Hitachi, Ltd. ("Hitachi Japan") each appeals from a portion of the judgment of the United States Court of International Trade in United States v. Hitachi America, Ltd., 964 F.Supp. 344 (CIT 1997). The government brought an enforcement action against HAL and Hitachi Japan pursuant to 19 U.S.C. § 1592 ¹ to recover penalties and additional duties stemming from HAL's alleged violations of reporting statutes governing importers and the United States Customs Service ("Customs"). After a lengthy trial, the Court of International Trade found HAL liable for negligent violations of those statutes, which finding HAL does not here contest. HAL concedes it failed to disclose or inaccurately disclosed certain required information and supporting documentation. The government appeals the court's grant of HAL's motion to dismiss the government's complaint as to its alternative counts of reporting violations by fraud and gross negligence, which would have authorized far higher penalties than mere negligent non-reporting or false reporting. HAL cross-appeals the amount of the penalty the Court of International Trade imposed (twice the duty due on the unreported amounts) as based on the wrong valuation of the importation, namely, the domestic, retail re-sale price instead of the international, import sales price as required by statute. In addition to holding HAL liable for negligent false reporting, the Court of International Trade also held Hitachi Japan separately and fully liable for the same penalty for aiding or abetting HAL's negligent violations. Hitachi Japan cross-appeals this aspect of the On the government's appeal, we affirm the dismissal of the fraud and gross negligence claims as based on the finding, not shown to be clearly erroneous, that the requisite state of mind had not been proven by clear and convincing evidence. On the cross-appeals, we vacate the amount of the penalty assessed against HAL as based on the wrong sales transaction, reverse as legally incorrect the determination of liability of Hitachi Japan for aiding or abetting negligent false reporting and remand the case for a re-determination of the penalty to be imposed against HAL consistent with this opinion.

judgment of the Court of International Trade on the ground that aiding or abetting requires intent which, it is clear, was not shown here. The appeal and the two cross-appeals were submitted for our decision following oral argument on January 4, 1999.

BACKGROUND

In the transactions at issue, Hitachi Japan manufactured subway cars in Japan, which were imported into the United States pursuant to a contract its subsidiary HAL had with the Metropolitan Atlanta Rapid Transit Authority ("MARTA"). Hitachi Japan also enlisted the help of C. Itoh & Co., Ltd. (Japan) ("CIJ"), a Japanese trading company, to assist in contract negotiations and logistics. In addition, a joint venture was formed between HAL and C. Itoh & Co. (America) ("CIA") to import the merchandise. HAL alone was the importer of record while CIA acted primarily as a banker. In general, the payments flowed from MARTA to the HAL/CIA joint venture domestically, to CIJ internationally, and then to Hitachi Japan within Japan. A total of 120 subway cars were imported through forty-two customs entries between June 16, 1984 and June 29, 1988. ²

At issue is the customs reporting treatment of certain payments made by MARTA based on two price adjustment clauses in the contract, the first known as "Economic Price Adjustment" ("EPA") and the second as "Monetary Value Adjustment" ("MVA"). Payments under these clauses were in addition to payments towards the base price due for the subway cars. EPA was designed to allow MARTA to assume the risk (for better or worse) of price changes on labor and materials, while MVA allowed MARTA to assume the risk (for better or worse) of changes in the yen/dollar exchange rate. Both of these contingent price adjustment clauses were pegged to published indices and progress milestones that would be fully known only after all importations were completed. EPA and MVA payments are sometimes referred to by the parties as "escalation payments," because in the time frame at issue here, the total price paid by MARTA increased under both clauses. The EPA and MVA clauses were expressly set forth in the publicized and publicly available contract between MARTA and HAL/CIA, the contract being termed "CQ-311."

HAL/CIA paid Hitachi Japan, via CIJ, almost $63 million for the subway cars, but HAL declared only $40 million to Customs. The nearly $23 million gap consisted of EPA and MVA payments that were not declared to Customs at the time of the respective entries or soon thereafter, with the MVA payments making up about $20 million of the unreported payments and the EPA payments about $3 million.

In April 1984, before the first importations began, officials from HAL and Hitachi Japan met with representatives from Customs to discuss the MARTA project. Although it is the normal practice for Customs officials to request copies of the underlying contract and to inquire into escalation provisions, there is no record of whether they did so at the meeting. Moreover, at the 1996 trial the HAL and Hitachi Japan officials who were at the Throughout the four-year period of the forty-one importations, HAL made efforts to discover whether MVA was dutiable and how to calculate the additional duties it would eventually owe to Customs under the EPA and perhaps the MVA clauses. In Spring 1988, shortly before the final entries, HAL engaged outside counsel to determine whether MVA was dutiable. Outside counsel advised HAL not to pay either EPA or MVA duties until the exact amount of "potentially reportable" MVA duties were known. In addition, HAL had difficulty making the calculations because its joint venture partner, CIA, refused to turn over documents necessary to determine the appropriate amount of MVA payments. HAL claims that it was in the process of determining how much it owed when Customs officers executed a criminal search warrant for documents related to suspected customs fraud in April 1989, some nine months after the last entry.

meeting could not recall what was discussed twelve years earlier. After the meeting, HAL decided not to report the escalation clauses on contemporaneous import entry documents, apparently under the assumption that the additional duties arising from the payments under the clauses could be reported and the derivative additional duties paid at the end of the project. Although not referring to the escalation clauses, the entry documents referred to CQ-311 ninety-two times but neither the contract nor the text of the escalation clauses was attached. At this point, HAL knew that EPA was dutiable, but was unsure whether MVA was dutiable at all, even at a later date. ³

A grand jury declined to indict on charges of criminal fraud. In December 1990, the government estimated the lost duties to be $851,455 based on the EPA and MVA payments made by MARTA to the HAL/CIA joint venture. After a supplementary audit in 1994, the government added another $96,399 in duties, bringing the total to $947,854. ⁴ Later, during the civil trial, the government proposed another amount of lost duties, $632,102, based on payments in yen from HAL/CIA to CIJ. However, the government contended below, as it does here, that the higher $947,854 figure is the correct amount that should be used.

The government filed suit in the Court of International Trade on June 29, 1993. After substantial discovery was taken, trial began on May 7, 1996 and lasted nearly six full weeks. The government submitted sixty-eight binders of pre-trial exhibits and called eighteen witnesses. HAL and Hitachi Japan moved to dismiss the complaint after the close of the government's case-in-chief. Their motion was granted on the counts alleging fraudulent and grossly negligent false reporting, but denied on the count of negligent false reporting. HAL and Hitachi Japan elected not to put on a case, and HAL was found liable on the count alleging negligence, while Hitachi Japan, not the importer of record, was found liable solely for aiding or abetting HAL's negligence.

At trial, the government alleged that four material and false statements were made on the entry documents:

(1) the price reported on entry documents did not include EPA clauses reflecting payments that would be made thereunder, violating 19 U.S.C. § 1484; ⁵(2) the price reported on entry documents did not include MVA clauses reflecting payments that would be made thereunder, violating 19 U.S.C. § 1484;

(3) the price was declared in dollars, instead of yen, violating 19 U.S.C. § 1481 (requiring the currency of payment to be reported on entry documents); and

(4) the sworn statements on the entry documents that HAL did not know of any document indicating that the declared price was inaccurate, and that HAL would disclose...