U.S. v. Rockwell Automation Inc., Slip Op. 06-155. Court No. 04-00549.

• Decision Date: 18 October 2006
• Docket Number: Slip Op. 06-155. Court No. 04-00549.
• Parties: UNITED STATES, Plaintiff, v. ROCKWELL AUTOMATION INC., Defendant.
• Court: U.S. Court of International Trade

462 F.Supp.2d 1243

UNITED STATES, Plaintiff, v. ROCKWELL AUTOMATION INC., Defendant.

Slip Op. 06-155. Court No. 04-00549.

United States Court of International Trade.

October 18, 2006.

Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director; Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (Michael D. Panzera), Edward Greenwald, Bureau

of Customs and Border Protection, of counsel, for the Plaintiff. "

Neville Peterson, LLP (John M. Peterson and Curtis W. Knauss) for the Defendant.

OPINION

POGUE, Judge.

In this action, the United States Bureau of Customs and Border Protection ("Customs") seeks civil penalties from Rockwell Automation Incorporated ("Rockwell") because of Rockwell's alleged improper entry of merchandise into the U.S. Immediately before the court is Customs' motion for partial summary judgment; in response, Rockwell seeks dismissal, or, in the alternative, summary judgment in its favor. The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1582 and 19 U.S.C. § 1592. For the reasons explained below, the court grants Customs' motion for partial summary judgment and denies Rockwell's motion to dismiss and for summary judgment.

BACKGROUND

"For two centuries the standard liquidation and protest method characterized Customs practice. Under that system goods were evaluated by a Customs officer prior to release into the stream of commerce." Brother Int'l Corp. v. United States, 27 CIT ___, ___, 246 F.Supp.2d 1318, 1326 (2003) (citing United States v. G. Falk & Brother, 204 U.S. 143, 27 S.Ct. 191, 51 L.Ed. 411 (1907)). Over the past twenty years, in order to expedite and streamline the liquidation of entries, "Customs has moved away from this labor intensive method towards one of `automatic bypass' where [qualifying] goods are liquidated `as entered' by the importer." Brother Int'l., 27 CIT at ___, 246 F.Supp.2d at 1326. This system is designed to save both Customs, and qualifying importers, time and money in the process of liquidating entries. See G & R Produce Co. v. United States, 27 CIT ___, ___, 281 F.Supp.2d 1323, 1334 (2003).

To qualify for the automatic bypass system, importers must first submit entry summaries to Customs. Upon review of these summaries, import specialists at Customs designate the classification of the merchandise and approve the merchandise for immediate liquidation processing. Id. at 1333. Once the merchandise has been approved for the automatic bypass system, "Customs port directors may liquidate the goods as declared, without inspecting the goods or otherwise independently determining the proper duty to be paid." Motorola, Inc. v. United States, 436 F.3d 1357, 1362 (Fed.Cir.2006). Nevertheless, to ensure the integrity of this process, Customs conducts periodic audits of importers' entries. See Brother Int'l Corp., 27 CIT at ___, 246 F.Supp.2d at 1326.

Defendant, Rockwell Automation, Inc. ("Rockwell") is a manufacturer, importer and exporter of electrical equipment and supplies who has utilized the automatic bypass for numerous years. In addition to other products, Rockwell imports short body electric timing relays ("relays"). In 1991, in response to Rockwell's request, Customs issued a ruling classifying the relays. See Customs Letter Ruling, PC 861139 (April 9, 1991), App. Pl.'s Resp. Mot. Summ. J., Does. 13 ("Pl.'s App. Does."). Upon examination of Rockwell's description of its merchandise (but never examining a sample of the merchandise), Customs found that Rockwell's 700 HR, 700 HS and 700 HT series of relays were properly classifiable under subheading 8536.49.0075 of the Harmonized Tariff Schedule of the United States ("HTSUS"). The following year, the Customs Area Director at the New York Seaport issued an amended ruling reclassifying the series 700 HR and 700 HT relays under subheading 9107.00.8000, HTSUS. See N.Y 861139 (May 21, 1991), Pl.'s App. Does. 14, 19 ("May ruling").

Displeased with the May ruling, Rockwell contacted Customs to discuss the classification rulings. Believing its May ruling to be correct, Customs informed Rockwell via telephone in 1991 "that the May ruling was final and binding." Pl.'s Mot. Partial Summ. J. 4; Record of Telephone Conversation, Pl.'s App. Does. 21. Six years later, in October 1997, Rockwell submitted a request for reconsideration regarding the classification of the relays. Finding its prior decision to be correct, Customs reaffirmed the May ruling. See HQ 902138 (July 28, 1999)(available at http://rulings. cbp.gov). In November 2000, Rockwell again repeated its request for Customs to reconsider the classification of its relays, and Customs again sustained its prior ruling. HQ 984656 (July 23, 2002)(available at http://rulings.cbp.gov). Despite its displeasure with Customs classification of its 700 HR and 700 HT relays, Rockwell did not protest (in accordance with 19 U.S.C. § 1514) the classification until 2001.

Meanwhile, following issuance of the May ruling, Rockwell began importing 700. HR and 700 HT relays. During the years in question in this proceeding, Rockwell maintained computerized classification databases which it would submit to its Customhouse broker. Rockwell's Customshouse broker would, in turn, use the information provided therein to complete entry procedures on Rockwell's behalf. Although Rockwell claims that it successfully implemented Customs' preentry classification ruling (as amended by the May ruling) for all other products (including 700 HS relays), Rockwell did not implement the May ruling for its 700 HR and 700 HT relays.

In 2000-2001, Customs performed a Customs Compliance Audit of Rockwell. During that audit, Customs discovered that Rockwell had designated that certain 700 HR and 700 FIT series relays were classifiable under subheadings 8536.49, 8536.41 and 8538.90, HTSUS (rather than subheading 9107.00.80, HTSUS — the subheading set-forth in Customs' May ruling) in entry documents covering 166 entries between April 16, 1996 and January 13, 2000. In addition, Customs discovered that Rockwell did not reference or include a copy of the May ruling with all but two of these entries. During the relevant time periods, the tariff rate of the subheading set forth in the May ruling was higher than the subheadings Rockwell indicated on its entry documents.

Believing that Rockwell's actions violated its entry procedures, Customs initiated administrative proceedings against Rockwell for payment of withheld duties. On August 20, 2002, finding its suspicions confirmed, Customs issued a Penalty Notice to Rockwell. Subsequently, Customs filed a complaint in this court alleging Rockwell violated § 592(a)(1) of the Tariff Act of 1930, as codified 19 U.S.C. § 1592(a)(1). Customs claims that Rockwell was grossly negligent or, in the alternative, negligent in its completion of Customs' entry procedures.

Discussion

In order for Customs "to properly estimate customs duties and otherwise enforce the customs law," the Tariff Act of 1930 ("the Statute"). requires importers to disclose certain information upon importation of merchandise into the Commerce of the United States. United States v. R.I.T.A. Organics Inc., 487 F.Supp. 75, 76 (N.D.Ill. 1980); see, e.g., 19 U.S.C. §§ 1481, 1484-87, 1490 (2000); 19 C.F.R. pts. 141-42 (1996).¹ "[T]o encourage the accurate completion of the entry documents upon which Customs must rely to assess duties and administer other customs laws," United States v. F.A.G. Bearings, Ltd., 8 CIT 294, 296, 598 F.Supp. 401, 403-04 (1984) (quoting S.Rep. No. 778, 95th Cong., 2d Sess. 17, as reprinted in 1978 U.S.C.C.A.N. 2211, 2229), the Statute imposes a duty on importers to present true and correct information at entry. See United States v. Ford Motor Co., 29 CIT ___, ___, 387 F.Supp.2d 1305, 1321 (2005) (citing 19 U.S.C. § 1484(a) & 1485 (1988)). In the event that Customs believes an importer failed to meet its obligations under the Statute, Customs may seek civil penalties under Section 592 of the Statute, as codified at 19 U.S.C. § 1592 (2000) ("Section 592").

Specifically, Section 592 entitles Customs to commence a civil penalty action against any importer who, by "fraud, gross negligence, or negligence,"

[e]nter[s], introduce[s], or attempt[s] to enter or introduce any merchandise into the commerce of the United States by means of —

(i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or

(ii) any omission which is material .. .

19 U.S.C. § 1592(a)(1) — (a)(1)(A); see also United States v. Pentax Corp., 23 CIT 668, 670 n. 6, 69 F.Supp.2d 1361, 1364 n. 6 (1999). If an importer is found to violate the Statute, Customs may recoup the difference between the duties paid and the "lawful duties, taxes, and fees." 19 U.S.C. § 1592(d). in addition, the court may award additional penalties depending on the level of scienter (fraud, gross negligence or negligence) proved, but not to exceed the domestic value of the merchandise, the amount Customs seeks in its initial pleadings, or the amount the court deems proper and just. See 19 U.S.C. § 1592(c); 28 U.S.C. 2643(e).

Here, the government alleges that Rockwell (a) made false statements in its entry papers and (b) omitted the pre-entry classification ruling it was required to attach on its entry papers. To establish the former count, the government must prove five elements: (1) that Rockwell is among the class of persons subject to liability under section 592; (2) that Rockwell entered, introduced or attempted to introduce merchandise into the commerce of the United States; (3) that Rockwell made a "false" statement when entering, introducing or attempting to introduce such merchandise into the commerce of the United States; (4) this statement was "material"; and (5) some level of scienter.² To prove the latter count, the government must prove: (i) that Rockwell is among...