U.S. v. Priority Products, Inc., 86-735

• Decision Date: 16 June 1986
• Docket Number: No. 86-735,86-735
• Citation: 793 F.2d 296
• Parties: , 4 Fed. Cir. (T) 88 UNITED STATES of America, Appellee, v. PRIORITY PRODUCTS, INC., and Walter L. and Rosalie E. Huss, Appellants. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 296

793 F.2d 296

7 ITRD 2498, 4 Fed. Cir. (T) 88

UNITED STATES of America, Appellee, v. PRIORITY PRODUCTS, INC., and Walter L. and Rosalie E. Huss Appellants.

Appeal No. 86-735.

United States Court of Appeals Federal Circuit.

Decided June 16, 1986.

Stephen Delgiudice, Washington, D.C., for appellants. Michael R. Totaro and Maureen J. Shanahan, Totaro and Shanahan, Beverly Hills, Cal., were on brief for appellants.

Platte B. Moring, III, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., for appellee. With him on brief were Richard K. Willard, Asst. Atty. Gen. and David M. Cohen, Director. Patricia Olson Before MARKEY, Chief Judge, NEWMAN, Circuit Judge, and SWYGERT, Senior Circuit Judge. ^*

Dist. Counsel, U.S. Customs Service, Seattle, Wash., of counsel.

SWYGERT, Senior Circuit Judge.

The issue presented in this case is whether the United States Customs Service's failure to name corporate officers in their individual capacities in written administrative pre-penalty and penalty notices issued pursuant to 19 U.S.C. Sec. 1592(b) (1982) precludes suit against them in the Court of International Trade to recover a penalty originally assessed only against the corporation. The trial judge held that it did not, and we affirm.

OPINION

I

On October 1, 1982, pursuant to section 1592(b), the Portland, Oregon District Director of the United States Customs Service ("Customs Service") issued a pre-penalty notice regarding the allegedly fraudulent importation of bark tea from Brazil in September 1982. The notice was addressed and mailed to Priority Products, Inc. ("Priority"). On October 6, 1982 the Food and Drug Administration issued a notice of detention of the bark tea and hearing relating to the same transaction. At that time, Walter L. Huss and Jack Meligan each owned fifty percent of the shares of Priority. Walter Huss was chairman of the Board of Directors, Meligan was president, and Rosalie E. Huss (Walter's wife) acted as secretary. Priority had no other directors, officers, or employees.

On October 28, 1982 Walter and Rosalie Huss attended a meeting with the District Director of the Customs Service regarding the pre-penalty notice. By then Meligan had severed his relationship with Priority. Walter Huss became president, and the Husses were the sole shareholders of the corporation. After the October 28 meeting Walter Huss mailed a letter, which he signed as president of Priority, to the District Director acknowledging and summarizing the meeting and presenting his position.

On April 19, 1983 a summons to appear and produce records was issued addressed to "Mr. Walter Huss, Priority Products Corp." In response to the summons, on May 4, 1983, Walter Huss appeared at the offices of the Customs Service and submitted a written statement signed by "Walter Huss" to the special agent in charge of the investigation. In that statement, Huss wrote that he had hired an attorney as the special agent had advised, that the agent should contact Huss' attorney, and that Huss was aware that the agent had made a charge of "fraud" against him. He also stated that "my property" had been improperly seized and detained by the Customs Service. On May 17, 1983 the Customs Service issued a penalty notice to Priority, with a cover letter addressed to "Walter L. Huss, President," imposing a penalty of $61,301.

Mr. Huss' attorney filed a petition for relief on August 9, 1983 on behalf of Priority. In that petition Huss' attorney wrote that Huss had been informed by the United States Attorney that the Customs Service was recommending that Mr. and Mrs. Huss be prosecuted criminally for fraud in connection with the importation. Huss' attorney addressed the minimal role the Husses had played in Priority's operations prior to November 1, 1982, and the exculpatory nature of the Husses' involvement in the importation. On that same day Huss also submitted a petition for relief to the United States Attorney in Portland, Oregon; it is unclear in what capacity he signed that petition. In it he wrote first that the District Director of Customs has alleged that the "Defendant, Walter Huss," is guilty of fraud and second that the "administrative criminal charges of fraud ... brought by the Government ... are first against Walter Huss and only secondly ... against Priority Products."

The Customs Service responded by letter dated January 30, 1984 to "Priority Products, Inc., attention Mr. Walter Huss," stating that it was referring the matter to Customs Service's headquarters for review and determination. On April 10, 1984 the Customs Service sent another letter to "Priority Products Corporation" indicating that the assessed penalty had been mitigated to $16,260 and that Priority had sixty days within which to pay the penalty. Within that sixty-day period Huss filed a "criminal complaint" and affidavit of information on behalf of himself against, inter alia, agents of the United States Customs Service. It is unclear whether Priority or the Husses refused to pay the penalty. But because the penalty remained unpaid by the end of the sixty-day period, on September 21, 1984, the United States ("the Government") brought suit against Priority, and against Mr. and Mrs. Huss, individually, in the Court of International Trade pursuant to 28 U.S.C. Sec. 1582. At the time of the filing of the complaint, Priority was in involuntary dissolution. The Husses were each served with a copy of the complaint. Shortly thereafter, each of them signed their answer to the complaint "for Priority Products and themselves" in which they challenged the subject matter jurisdiction of the court.

The Husses subsequently filed a motion for summary judgment on the grounds, inter alia, that the court lacked subject matter jurisdiction over that part of the complaint against them because they had not been named in their individual capacities in the written pre-penalty and penalty notices. They also claimed that this failure violated their right to due process under the fifth amendment.

The Government responded, disputing these claims. However, it requested that, in the event the court found the Husses' arguments to be meritorious, the trial be delayed to permit the Customs Service to complete the administrative process with respect to the Husses.

The court denied the Husses' motion, holding that nothing in the statute, 28 U.S.C. Sec. 1582 (1982), compelled compliance with the written notice procedures in 19 U.S.C. Sec. 1592 as to every party that might ultimately be called upon to pay the penalty assessed against the corporation and that, in any event, the evidence demonstrated that the Husses had sufficient information from which a reasonable person would conclude that the Customs Service intended to pursue them in their personal capacities. The court further held that there had been no due process violation because the Husses had actual notice that they might be sued in their personal capacity and because they had taken advantage of every administrative remedy in their personal capacities that was available to them under section 1592 of Title 19.

The case proceeded to a trial before a jury, the first jury trial ever held in the Court of International Trade. In that case, the Government presented evidence that Rosalie Huss, with the consent of her husband but without Meligan's knowledge, attempted to import the bark tea into the United States. The Husses presented evidence that they were not personally responsible for the attempted importation. At the end of the presentation of all the evidence, the jury was instructed on the circumstances under which corporate officers such as the Husses could be held personally liable for actions taken in the name of a corporation. The jury found all three defendants, the Husses and Priority, jointly and severally liable for a penalty of $30,000.

II

On appeal the Husses do not complain about any errors in the conduct of the trial itself. They claim only that the judgment as to them must be reversed because the failure to name them individually in the written pre-penalty and penalty notices deprived the Court of International Trade of subject matter jurisdiction under 28 U.S.C Sec. 1582 and violated their right to due process.

A

The Husses' first argument is that the Court of International Trade lacked subject matter jurisdiction over the claim against them because the Customs Service failed to serve them individually with a written pre-penalty or penalty notice pursuant to 19 U.S.C. Sec. 1592. In essence their argument is as follows. Section 1582 of Title 28 provides that "[t]he Court of International Trade shall have exclusive jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United States--(1) to recover a civil penalty under [19 U.S.C. Sec. 1592]...." No "civil penalty" exists under 19 U.S.C. Sec. 1592 against a particular defendant unless the Custom Service has complied with all of the procedures of section 1592(b), including written pre-penalty and penalty notices with respect to that particular defendant. Because the Husses were never served at the administrative level with written notice of their potential individual liability for the penalty, no civil penalty exists as to them over which the Court of International Trade can exercise jurisdiction. Because compliance with the procedures of section 1592(b) is a prerequisite to the exercise of subject matter jurisdiction under 28 U.S.C. Sec. 1582, the fact that they may have had actual notice of their potential personal liability for the penalty is simply irrelevant.

We find this line of argument unpersuasive. The instant action falls within the literal terms of 28 U.S.C. Sec. 1582. It is one that "arises out of an import transaction" and that was commenced by the...