U.S. v. Islip

• Decision Date: 26 August 1998
• Docket Number: Slip Op. 98-125.,Court No. 97-02-00357.
• Citation: 18 F.Supp.2d 1047
• Parties: UNITED STATES of America, Plaintiff, v. David ISLIP; Gerald Brown; Streamflo Strainers, Inc.; Great Lakes Customhouse Brokerage, Inc.; Washington International Insurance Company; and International Cargo and Surety Insurance Company, Defendants.
• Court: U.S. Court of International Trade

18 F.Supp.2d 1047

UNITED STATES of America, Plaintiff, v. David ISLIP; Gerald Brown; Streamflo Strainers, Inc.; Great Lakes Customhouse Brokerage, Inc.; Washington International Insurance Company; and International Cargo and Surety Insurance Company, Defendants.

Slip Op. 98-125.

Court No. 97-02-00357.

United States Court of International Trade.

August 26, 1998.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Frank W. Hunger, Assistant Attorney General; David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States Department of Justice; A. David Lafer, Assistant Director; John J. Hoffman, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, DC, for Plaintiff.

Joel Daniels, for Defendants David Islip and Streamflo Strainers, Inc.

Sidney N. Weiss, (Al J. Daniel, Jr.), New York City, for Defendant Gerald Brown.

Fitch, King & Caffentzis, (James Caffentzis), New York City, for Defendant Great Lakes Customhouse Brokerage, Inc.

Sandler, Travis & Rosenberg, P.A., (Kenneth N. Wolf), Washington, DC, for Defendant Washington Intern. Ins. Co.

Hodes & Pilon, (Wayne Jarvis), Chicago, IL, for Defendant Intern. Cargo and Surety Ins. Co.

OPINION

WALLACH, Judge.

I SUMMARY

The United States Customs Service ("Customs") commenced this action on February 28, 1997, against Gerald Brown ("Brown") and others to recover civil penalties for violation of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1988), alleging fraudulent, grossly negligent, and negligent conduct concerning exportation of strainers, pump connectors, and check valves from Canada into the United States. This matter is before the Court on Defendant Brown's Motion to Quash Service of Process and Dismiss for Lack of Personal Jurisdiction, Failure to Plead Fraud with Particularity, Failure to State Claims under 19 U.S.C. § 1592, and to Dismiss Time-barred Claims ("Motion to Dismiss" or "Motion"). The other defendant's have not joined in his Motion. This Court has jurisdiction pursuant to 28 U.S.C. § 1582 (1994).

Brown's Motion is based on allegations that (1) personal service upon him of a Summons and Complaint by Customs Canada agents did not comply with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters ("Hague Service Convention" or "Convention"), and that the Proof of Service filed with the Court is not legally adequate; (2) he did not have "minimum contacts" with the United States sufficient to allow this Court to exercise personal jurisdiction over him; (3) the Government's Complaint did not plead fraud with particularity, as required by USCIT Rule 9(b); (4) he was not given sufficient time to respond to a prepenalty notice; and (5) the statute of limitations bars the Government's Complaint on those claims based on gross or simple negligence which accrued more than five years prior to his first waiver of the limitations period.

For the reasons that follow, the Motion is denied as to Defendant's first four arguments, and is granted as to the fifth.

First, Defendant waived his defense of insufficiency of service of process by not including it in his first responsive pleading. Moreover, had the defense not been waived, service would still be upheld because it complied with Articles 10(b) and 10(c) of the Hague Service Convention and because the two declarations of service filed with the Court satisfactorily demonstrate that the Summons and Complaint were delivered to Defendant. They also comply with the requirements of 28 U.S.C. § 1746 for declarations in lieu of affidavits executed abroad.

Second, this Court may exercise personal jurisdiction over Defendant because the acts which he is alleged to have committed constitute "purposeful," "minimum contacts" with the United States, and the exercise of jurisdiction comports with "traditional notions of fair play and substantial justice."

Third, the Government's Complaint pleads fraud with sufficient particularity under CIT Rule 9(b). The Complaint specified the "time, place, and contents" of the alleged false representations.

Fourth, Defendant was, pursuant to 19 C.F.R. § 162.78(a), entitled to receive thirty, rather than seven, days to respond to his prepenalty notice. That shortened response time, however, did not deprive Defendant of due process at the administrative level. No harm accordingly, in this situation, means no foul.

Defendant is correct in his statute of limitations argument. The Government's claims that are based upon grossly negligent or negligent acts which occurred more than five years before Defendant signed his first waiver of the statute of limitations are time-barred. Defendant signed a waiver of the statute of limitations on August 10, 1993, which expressly excluded any claims that were already barred at the time the waiver became effective. Since, under 19 U.S.C. § 1621, the limitations period for grossly negligent and negligent violations of 19 U.S.C. § 1592 is five years, the Government's claims that are based upon grossly negligent or negligent acts which occurred more than five years before August 10, 1993, are time-barred.

II STANDARD FOR DETERMINATION

In the context of a motion to dismiss, the Court assumes that "all well-pled factual allegations are true," construing "all reasonable inferences in favor of the nonmovant." Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.Cir.1991). See also United States v. KAB Trade Co., No. 96-06-01635, 1997 WL 155397(CIT) (motion to dismiss based on lack of personal jurisdiction, lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted); United States v. Jac Natori Co., 17 CIT 348, 821 F.Supp. 1514 (1993) (motion to dismiss alleging, inter alia, failure to plead fraud with particularity and failure to comply with the statute of limitations). Thus, "to the extent that factual questions are raised and are material to the result, dismissal is improper unless there is no reasonable view of the facts which could support the claim." Advanced Cardiovascular Sys., Inc. v. Scimed Life Sys., Inc., 988 F.2d 1157, 1161 (Fed.Cir.1993).

To determine the sufficiency of a motion to dismiss for failure to state a claim upon which relief can be granted (USCIT R. 12(b)(5)), consideration is limited to the facts stated on the face of the complaint, documents appended to the complaint and documents incorporated in the complaint by reference. Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991). In contrast, when other defenses are asserted under USCIT R. 12(b) (as under the corresponding Federal Rules), the Court may review evidence extrinsic to the pleadings. 5A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1364, at 468-69 (2d ed.1990). See, e.g., Land v. Dollar, 330 U.S. 731, 735 n. 4, 67 S.Ct. 1009, 91 L.Ed. 1209 (1947) ("when a question of the District Court's jurisdiction is raised ... the court may inquire by affidavits or otherwise, into the facts as they exist."); Marsden v. Federal B.O.P., 856 F.Supp. 832, 835 (S.D.N.Y. 1994) ("On a motion to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction, or insufficiency of service of process, consideration of matters outside the pleadings is permissible.")

Under these standards, the facts of this case are the following:

III

PERTINENT FACTS

As alleged in the Government's Complaint of February 28, 1997, Streamflo Strainers, Inc. ("Streamflo") is, and at all times relevant to this action was, a Canadian corporation located in Ontario, Canada. Compl. at ¶ 5. Brown was at all times relevant to this action General Manager of Streamflo and a resident of Canada. Compl. at ¶ 4. Customs alleges that on or about October 30, 1992, it discovered that Streamflo had submitted false statements and documents at the port of Buffalo, in violation of 19 U.S.C. § 1592. Compl. at ¶ 23, ¶ 24.

On March 15, 1993, Customs issued a prepenalty notice to Brown, stating that Brown had ordered his employees to falsely mark merchandise in Canada prior to importation into the United States; that he ordered employees to remove country of origin markings from merchandise which had already entered into the United States; and that he ordered employees to make false statements on entry documents regarding the country of origin and material of composition of merchandise imported into the United States. Defendant's Exhibit 2. The notice indicated a tentative culpability level of fraud, with a corresponding penalty of $ 6,674,462.50. Id.

The prepenalty notice stated that Brown had seven days from the date of the mailing of the notice to make a written and/or oral presentation as to why a claim for monetary penalty in the amount proposed should not be issued. Id. On March 19, 1993, Defendant mailed a written response to the prepenalty notice to Customs. Plaintiff's Exhibit I.

An amended penalty notice was issued to Defendant on April 5, 1993, assessing a penalty in the amount of $5,627,346.86. See Compl. at ¶ 25.¹ Brown sent a petition and amended petition seeking mitigation of the penalty to Customs on April 15, 1993; April 21, 1993; and July 13, 1993. See Plaintiff's Exhibit J.²

On July 26, 1993, Customs responded to Brown's petitions for mitigation.³ Brown was told that he could file a supplemental petition.⁴

Brown signed a waiver of the statute of limitations on August 6, 1993, to be effective through August 10, 1995. Defendant's Exhibit 3. On August 9, 1993, Brown requested a sixty day extension to file a supplemental petition protesting the proposed penalty. Plaintiff's Exhibit K. On August 13, 1993, Customs granted Brown's request, extending his supplemental petitioning period until October 11, 1993. Plaintiff's Exhibit L.

On October 6, 1993, Customs extended Brown's time to submit a supplemental petition to March 10, 1995 or to 30 days following resolution of the...