U.S. v. Inn Foods, Inc.
| Decision Date | 25 September 2007 |
| Docket Number | Court No. 01-01106.,Slip Op. 07-142. |
| Citation | 515 F.Supp.2d 1347 |
| Parties | UNITED STATES, Plaintiff, v. INN FOODS, INC., Defendant. |
| Court | U.S. Court of International Trade |
Peter D. Keisler, Assistant Attorney General, Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice (Michael S. Dufault and David S. Silverbrand) for Bureau of Customs and Border Protection, for the United States, Plaintiff.
Horton, Whiteley & Cooper (Robert Scott Whiteley; Michael Jon Horton) for Inn Foods, Inc., Defendant.
The Bureau of Customs and Border Protection of the Department of Homeland Security ("Customs" or "Plaintiff")1 commenced this action against Inn Foods, Inc. ("Inn Foods" or "Defendant") to recover civil penalties and collect customs duties for fraudulent, grossly negligent or negligent violations of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1988).2 This case is before this Court on remand from the United States Court of Appeals for the Federal Circuit. See United States v. Inn Foods ("Inn Foods CAFC"), 383 F.3d 1319 (2004).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1582 (2000). For the reasons explained below, the Court finds in favor of Plaintiff, that Inn Foods' entry into the United States of the merchandise subject to this action constituted a fraudulent violation of § 1592.3
Inn Foods, a California company established in 1976, is a "source of frozen fruits and vegetables for food services, industrial and private label markets."4 Inn Foods and Seaveg, Ltd., a Cayman Islands corporation, were founded by Jack Randle and Fred Haas as subsidiaries of the same parent company. See Trial Transcript ("Tr.") vol. 3, 366-71, Feb. 23, 2007. This case involves the importation of frozen produce into the United States by Inn Foods and Seaveg from six Mexican growers, from a period commencing on or about January 22, 1987 to on or about January 19, 1990. See Complaint ("Compl.") ¶ 6.
On December 14, 2001, the United States filed a Complaint against Inn Foods "to enforce a claim for civil penalties, and to collect lawful Customs duties and fees of which the United States was deprived as a result of violations of 19 U.S.C. § 1592(a)."5 Compl. ¶ 2.
This case is before the Court on remand from Inn Foods CAFC, 383 F.3d 1319. A three day bench trial was held February 21 through February 23, 2007. Parties submitted post-trial briefs on March 14, 2007. Pursuant to USCIT Rule 52(a), [i]n all actions tried upon the facts without a jury ..., the court shall find the facts specially and state separately its conclusions of law thereon." USCIT R. 52(a).
Inn Foods stipulated, regarding the subject entries, that "[t]he prices declared to Customs for the entries that are the subject of the complaint filed in this matter which are represented in Plaintiff's Exhibit 1, were undervalued and did not reflect the prices actually paid to the six Mexican growers/packers." Joint Stipulation of Undisputed Material Facts ¶ 1. Inn Foods also stipulated that the "dutiable values, and loss of revenue for each of the entries represented in Plaintiff's Exhibits 1 and 2, are correct." Id. at ¶ 2; Exhibit ("Ex.") 1 and 2.6 The lost duties were stipulated to be in the amount of $624,602.55, plus interest.7 See id.
Since Inn Foods has acknowledged "erroneous compliance" in entering the produce described herein into the United States, the central question for this Court is the level of culpability attributable to Inn Foods (i.e., fraud, gross negligence or negligence) and the penalties to be imposed. See Def.'s post-trial Br. ("Def.'s Br.") at i.
The Inn Foods contracts with the Mexican growers at the heart of this case are easily summarized. Seaveg, the exclusive broker on most of the agreements, established an initial market price for the merchandise. Seventy percent of the initially set sales price would be paid upon Inn Foods receiving the produce in cold storage in the U.S., with the remaining thirty percent paid within sixty days of entry (subject to certain adjustments).8 See Pl.'s post-trial Br. ("Pl.'s Br.") at 4; Ex. 52-58. The final price, therefore, would not be known until the goods were resold by Inn Foods. See id.
Customs claims that the produce that is the subject of this action was "entered, introduced or caused to be entered or introduced, into the United States by means of material and false documents, statements, acts and/or omissions, in that Inn Foods knowingly, intentionally, and fraudulently filed or caused to be filed, and/or aided or abetted Seaveg in the filing of entry documents that contained materially false statements or omissions" in violation of 19 U.S.C. §§ 1481, 1484 and 1592.
Compl. ¶ 11. Inn Foods responds that "its good faith, but erroneous compliance in this case was the result of ordinary negligence borne out of inexperience in Customs matters." Def.'s Br. at i.
At trial the Court heard testimony from ten witnesses. Customs produced eight witnesses who testified, among other things, to factual matters concerning: (i) the import operations of Inn Foods and Seaveg, including the nature of the agreements between Inn Foods and Seaveg and the Mexican growers; and (ii) Customs' investigation of Inn Foods and Customs' factual findings resulting from the investigation.9 Inn Foods produced two witnesses who testified, among other things, to factual matters concerning the import operations of Inn Food and Seaveg, including the nature of the agreements between Inn Foods and Seaveg and the Mexican growers.10
At trial Customs introduced documents relating to its investigation (including (i) the contractual agreements between Inn Foods and Seaveg and the Mexican growers, and (ii) the factura invoices upon which Customs duties were paid along with the corresponding Inn Foods invoices) and the Court admitted such documents into evidence.
The Court finds the documentary evidence introduced by Customs coupled with the testimonial evidence obtained by Customs highly probative.
In accordance with USCIT R. 52(a) and having given due consideration to the testimony of all ten witnesses and numerous exhibits presented at trial and admitted by the Court, the Court enters judgment in favor of Plaintiff pursuant to the following findings of fact and conclusions of law.
1. Inn Foods and Seaveg, Ltd. ("Seaveg") were founded by Jack Randle and Fred Haas as subsidiaries of the same parent company. See Trial Tr. vol. 3, 369-71, Feb. 23, 2007. Inn Foods was founded in the 1970's. See id. at 368.
2. Seaveg, a Cayman Islands corporation, was formed as a shell company to facilitate sales to customers who did not want to buy from Inn Foods (i.e., by using a different corporate name that would not necessarily be associated with Inn Foods). See id. at 371; Compl. ¶ 4.
3. Inn Foods and Seaveg were located and operated in the same building in Watsonville, California. See Ex. 46-49. Inn Foods and Seaveg had the same phone number and the same address. See Trial Tr. vol. 1, 65, Feb. 21, 2007.
4. Inn Food and Seaveg had the same principals (Mr. Randle and Mr. Haas) and shared employees. See Trial Tr. vol. 2, 243-44, 246, Feb. 22, 2007. Mr. Randle and Mr. Haas were the final authority for all business decisions involving both Inn Foods and Seaveg. See Trial Tr. vol. 3, 373, Feb. 23, 2007.
5. Ms. Olivarez, who worked for both Inn Foods and Seaveg, considered Seaveg to be a department of Inn Foods. See Trial Tr. vol. 2, 243-44, Feb. 22, 2007.
6. The books of accounting for Inn Foods and Seaveg were organized as if they were for one corporate entity. See id. at 173, 228.
7. In the Seaveg sales agreement dated March 30, 1989 with one of the Mexican packers (La Esperanza of Miranda, S.P.R.R.L.) "Seaveg Limited/Inn Foods, Inc." is listed as the entity with whom the agreement is made. Ex. 54 8. Checks for merchandise were issued from Inn Foods regardless of whether Seaveg or Inn Foods was the importer of record. See Trial Tr. vol. 1, 65," Feb. 21, 2007; Ex. 73,
9. Mr. Randle and Mr. Haas appointed Lou Colon as President of Seaveg. See Trial Tr. vol. 3, 374-75, Feb. 23, 2007. Mr. Colon reported directly to them and did not have any final authority in any decisions involving Seaveg. See id. at 375.
10, Mr. Colon initiated import orders for the subject entries by calling the particular Mexican grower and placing an order at a particular price. See Trial Tr. vol. 2, 284-85, Feb. 22, 2007.
11. Seaveg filed for Chapter 7 bankruptcy and was dissolved on December 1, 1998, in order to avoid the possible payment of Customs duties and penalties. See id. at 306; Trial Tr. vol. 3, 384, Feb. 23, 2007; Compl. ¶ 4.
12. Inn Foods was a participant on some level in all the Seaveg actions described herein.
13. Inn Foods and Seaveg entered into sales agreements with six Mexican growers to purchase frozen produce for importation into the United States (the "Sales Agreements"). See Ex. 52-58; Trial Tr. vol. 2, 201-04, Feb. 22, 2007. These Sales Agreements contained nearly identical language and structure, and each was signed by either Mr. Haas or Mr. Colon. See id.
14. Seaveg was the exclusive broker on most of the Sales Agreements and established the initial market price of the frozen produce. See Ex. 52-58.
15. Pursuant to the Sales Agreements, seventy percent of the purchase price would be paid upon Inn Foods' and Seaveg's receipt of the produce at designated cold storage locations in the Unites States. See Ex. 52-58. The remaining thirty percent would be paid within sixty days of delivery into storage after certain adjustments were made. See id.
16. For each order, the Mexican growers issued an invoice (a "factura"),...
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