U.S. v. Optrex America, Inc.

• Decision Date: 09 June 2008
• Docket Number: Slip Op. 08-63. Court No. 02-00646.
• Citation: 560 F.Supp.2d 1326
• Parties: UNITED STATES, Plaintiff, v. OPTREX AMERICA, INC., Defendant.
• Court: U.S. Court of International Trade

Page 1326

560 F.Supp.2d 1326

UNITED STATES, Plaintiff, v. OPTREX AMERICA, INC., Defendant.

Slip Op. 08-63. Court No. 02-00646.

United States Court of International Trade.

June 9, 2008.

COPYRIGHT MATERIAL OMITTED

Gregory G. Katsas, Acting Assistant Attorney General; Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice; (Stephen C. Tosini), Commercial Litigation Branch, Civil Division, U.S. Department of Justice; Amy M. Rubin, International Trade Field Office, U.S. Department of Justice; Frederick B. Smith, Office of Assistant Chief Counsel, U.S. Customs and Border Protection, of counsel, for Plaintiff United States.

Sonnenberg & Anderson, (Steven P. Sonnenberg), Michael J. Cunningham, and Paul S. Anderson for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

BARZILAY, Judge.

These findings of fact and conclusions of law follow a bench trial held on June 5th and 6th, 2007, and represent the final chapter in a case that has endured more than its share of legal proceedings before the Court.¹ In this claim for penalties under 19 U.S.C. § 1592(a), Plaintiff United States (the "Government") contends that Defendant Optrex America, Inc. ("Optrex") failed to exercise reasonable care in classifying certain Liquid Crystal Display products ("LCDs") entered at various ports in the United States between October 12, 1997 and June 29, 1999. See § 1592(a); Compl. ¶¶ 1, 4. This court has jurisdiction over claims for civil penalties pursuant to 28 U.S.C. § 1582. See § 1582(1).

The majority of LCDs at issue in this case are "glass panels," and after years of disagreement between the parties, the Federal Circuit recently held that Optrex's LCD glass panels are properly classified under heading 9013 of the Harmonized Tariff Schedule of the United States ("HTSUS").² See Optrex Am., Inc. v United States, 475 F.3d 1367, 1371-72 (Fed.Cir.2007) ("Optrex II"). Prior to that decision, Optrex had classified its LCD glass panels under HTSUS heading 8531 as "[e]lectric sound or visual signaling apparatus," which carries a lower tariff rate than HTSUS heading 9013.³ Pl. Trial Ex. 7 at 2, 7-11; Pl. Trial Exs. 16-19. In 1997, however, the Federal Circuit affirmed this Court's decision to classify LCD glass panels with similar characteristics under HTSUS heading 9013. See Sharp Microelecs. Tech., Inc. v. United States, 122 F.3d 1446, 1452 (Fed.Cir.1997) ("Sharp"), aff'g 20 CIT 793, 932 F.Supp. 1499 (1996). After the issuance of Sharp, counsel for Optrex, Sonnenberg & Anderson ("Sonnenberg"), advised the company to seek a binding customs ruling concerning the proper classification of its LCD glass panels. Pl. Trial Ex. 1. Optrex never sought such a ruling from Customs. Because Optrex did not exercise reasonable care under the facts of this case, including the failure to follow the advice of counsel, the court holds that it is subject to penalties under § 1592(c).

Following a series of court decisions concerning discovery of privileged information, and another prohibiting Plaintiff from asserting higher levels of culpability, the court ultimately denied Defendant's motion for summary judgment, see U.S. v. Optrex Am., Inc., Slip Op. 06-73, 2006 WL 1330333, at *14, and referred this case to mediation, where the parties proved unable to reach a settlement. The case returned to this court and was ordered to trial after the denial of Plaintiffs motion for summary judgment. Pursuant to UCIT Rule 52(a), the court's findings of fact and conclusions of law are enumerated below. See USCIT R. 52(a).

I. FINDINGS OF FACT

1. Optrex is a Michigan corporation and wholly owned subsidiary of its Japanese parent company Optrex Corporation ("Optrex Japan"), and is the importer of record of the subject merchandise. Pl. Trial Ex. 4 at G000408; Pretrial Order, Schedule C-Uncontested Facts ¶¶ 1-2 ("P.O. Schedule C").

2. The subject merchandise consists of articles referred to as liquid crystal displays or LCDs. P.O. Schedule C ¶ 3.

3. LCDs are high technology products that use liquid crystals to respond to an electric field by twisting along their axes, thereby changing their optical qualities. The LCDs at issue enable visual character displays, dot matrix displays, and/or the display of information through permanently etched icons. LCD glass panels consist of two glass substrates adhered together with the polarizer materials on each side of the glass substrates; liquid crystal fluid inside those substrates; and sometimes a pin connection; a flexible interconnect; or some method of connecting that glass to a circuit board or some other electronic device. The incorporation of row and column drivers makes an LCD module distinct from an LCD panel. P.O. Schedule C ¶¶ 4-6; Trial Tr. I at 121-23.⁴

4. Optrex imported the subject LCDs from Japan for distribution and sale to its corporate customers in the United States. P.O. Schedule C ¶ 2.

5. The terms "glass panel," "LCD panel" "glass sandwich," and "LCD glass panel" are interchangeable. P.O. Schedule C ¶ 7.

6. Between October 12, 1997 and June 29, 1999, Optrex imported 535 entries of LCD glass panels and a small number of character display modules through ports in Detroit, Michigan and Chicago, Illinois.⁵ P.O. Schedule C ¶ 10.

7. Optrex represented to Customs in entry documentation including entry summaries, customs invoices, and other documents, that its LCD glass panels were properly classifiable under HTSUS heading 8531 as "Electric sound and visual signaling apparatus." Pl. Trial Exs. 16-19.

8. On April 7, 1999, Customs formally notified Optrex that it was under investigation for "alleged misclassification of imported merchandise, and failure to report indirect tooling payments and assists to [Customs]." Among other things, the notification alerted Optrex that a formal examination of its books and records was forthcoming. Def. Trial Ex. A; P.O. Schedule C ¶¶ 11-12.

9. On May 13, 1999, Sonnenberg provided Optrex with a document called the "decision tree," which formally summarized the company's classification methodology. Pl. Trial Ex. 3.

10. On November 12, 1999, Sonnenberg presented Customs with the "decision tree" for the first time. Pl. Trial Ex. 7. On November 19, 1999, Sonnenberg sent a letter to Customs explaining the company's process of classification, as reflected in the "decision tree." Def. Trial Ex. 0 at 01525-39. In the letter, Sonnenberg stated that the "procedure developed by Optrex entailed massive data analysis of engineering diagrams, product specifications, and end-use indicators such as product brochures for the thousands of part numbers it imports." Def. Trial Ex. 0 at 01528.

11. Between 1997 and 1999, Optrex used Nippon Express ("Nippon") as a customs broker. Pl. Trial Ex. 4 at G000413. During that period, Ms. Ann Fitzpatrick was the only licensed customs broker at Nippon. She testified that Optrex did not seek advice concerning classification; rather it provided Nippon with all classification information for its LCDs. Trial Tr. I at 127, 140, 143. Nippon made no decisions with regard to classification of the subject merchandise. Trial Tr. I at 129. The court finds Ms. Fitzpatrick's testimony credible.

12. On November 15, 1999, Customs issued a summons to Nippon requesting production of "entry summary packages for every importation handled by [Nippon] for [Optrex] for the time period January 1, 1995 to present." Pl. Trial Ex. 5 at E000181.

13. On November 15, 1999, Customs issued a summons to Optrex requesting production of a "complete list of individuals, whether former or current employees, who are/were responsible for making classification determinations for the Liquid Crystal Display glass panels imported by [Optrex] between January 1, 1995 to present." Pl. Trial Ex. 5 at E000184. Customs also requested "the names of all individuals who have been responsible for working with Optrex'[s] broker, [Nippon] during this same time period." Pl. Trial Ex. 5 at E000184. The deadline for producing the names of these individuals was November 29, 1999. Pl. Trial Ex. 5 at E000184.

14. On September 21, 2001, Customs issued another summons to Optrex requesting production of "all records connected to Optrex's classification of LCD products imported by or on behalf of Optrex during the period January 1, 1994 to date." Pl. Trial Ex. 5 at E000171. Specifically, Customs requested "all records reviewed in connection with the statement contained in the [letter dated] November 24, 1999," which stated that "`the procedure developed by Optrex (to classify LCD's) entailed massive data analysis of engineering diagrams, product specifications, and end-use indicators such as product brochures for the thousands of part numbers it imports.'" Pl. Trial Ex. 5 at E000171.

15. On September 21, 2001, Customs issued a corresponding summons requesting that Optrex produce "for testimony ... the current Optrex employee or employees who can provide an explanation for Optrex classification decisions related to LCD products imported by or on behalf of Optrex between January 1, 1994 to date." Pl. Trial Ex. 5 at E000173.

16. Optrex designated Mr. Alan Houck, the Engineering Manager, as the witness to respond to this summons. Trial Tr. II at 60-62.

17. Sonnenberg represented that Optrex would be unable to comply with the requested record production until 2002. Pl. Trial Ex. 8 at G000392.

18. On November 2, 2001, following a meeting held at Optrex on October 22, 2001, Customs granted Optrex an extension of time in which to comply with the summonses provided that "Optrex Engineering Manager, Alan Houck, will be made available to give testimony in connection with specified Optrex products and classification decisions connected to them...." Pl. Trial Ex. 8 at G000392-93. Customs set a deadline of November 14, 2001 to question Mr. Houck. Second, Optrex was required to "provide copies of the master part number files that...