United States v. Adaptive Microsystems, LLC

• Citation: 914 F.Supp.2d 1331
• Decision Date: 10 April 2013
• Docket Number: Court No. 12–00122.,Slip Op. 13–50.
• Parties: UNITED STATES, Plaintiff, v. ADAPTIVE MICROSYSTEMS, LLC, AMS Chapter 128, LLC, and AMS Holdings Chapter 128, Inc., Defendants.
• Court: U.S. Court of International Trade

914 F.Supp.2d 1331

UNITED STATES, Plaintiff,

v.ADAPTIVE MICROSYSTEMS, LLC, AMS Chapter 128, LLC, and AMS Holdings Chapter 128, Inc., Defendants.

Slip Op. 13–50. Court No. 12–00122.

United States Court of International Trade.

April 10, 2013.

Stuart F. Delery, Principal Deputy Assistant Attorney General; Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, Civil Division, United States Department of Justice, Washington, DC, (Daniel B. Volk, J. Hunter Bennett, Philadelphia, PA, Nelson Ryan Richards, Palo Alto, CA); Brian M. Holt, Of Counsel, Office of the Associate Chief Counsel, United States Customs and Border Protection, for the United States, Plaintiff.

Reinhart Boerner Van Deuren, s.c., (David G. Peterson) for Adaptive MicroSystems, LLC, Defendant.

OPINION and ORDER

TSOUCALAS, Senior Judge:

Defendant Adaptive MicroSystems, LLC (“New AMS”) moves for summary judgment pursuant to USCIT Rule 56 on plaintiff United States Department of Homeland Security, Customs and Border Protection's (“Customs”) claim for unpaid import duties and penalties under sections 592(c) and (d) of the Tariff Act of 1930, as amended, 19 U.S.C. §§ 1592(c), (d) (2006). New AMS's Mem. Supp. Mot. Summ. J. 2 (“New AMS's Mem.”). New AMS also moves to impose sanctions under USCIT Rule 11, alleging Customs acted unreasonably in filing and continuing to pursue this action. New AMS's Mem. Supp. Mot. Sanctions 4 (“New AMS's Sanctions Mem.”). Customs opposes both motions, and no other party joins in the motions or opposition.

BACKGROUND

New AMS seeks summary judgment on Customs's allegation that it is responsible for the debts of a now-defunct Wisconsin company named Adaptive MicroSystems, LLC (“Old AMS”). Customs avers that Old AMS intentionally or negligently misclassified imports of light emitting diode display panels and related components (“LED panels”) from Malaysia under duty-free tarriff headings from July 2005 until April 2010. Pl.'s Compl. 2 & Ex. A; see Answer of Michael S. Polsky to Pl.'s Compl. 3. During all or some of that time, Thomas Mandler (“Mr. Mandler”) owned a 15.8% share of another Wisconsin company called Adaptive MicroSystems Holdings, Inc. (“Old AMS Holdings”), which in turn owned 95% of Old AMS. Thums Aff. 1st Ex. 6 at 2, 5. Mr. Mandler was also an Old AMS officer during that period, serving as its executive vice president. Thums Aff. 2d at 2.

On April 20, 2011, U.S. Bank National Association (“US Bank”) initiated a receivership action against Old AMS and Old AMS Holdings pursuant to Chapter 128 of the Wisconsin Statutes.¹ Complaint, US Bank Nat'l Assoc. v. AMS Chapter 128 LLC, 2011CV005894 (Wis. Cir. Ct. Milwaukee Cnty. Apr. 20, 2011). The Milwaukee County Circuit Court (the “Milwaukee Court”) appointed Michael S. Polsky (“the Receiver”) as the receiver for Old AMS and Old AMS Holdings six days later. Thums Aff. 2d Ex. 1 at 1–2. Customs acknowledges that the Receiver provided notice of his appointment and the existence of the receivership action on May 5, 2011. Pl.'s Resp. New AMS's Mem. Ex. A at 1 (“Pl.'s Resp.”).

Customs chose not intervene in the receivership action due to its priority creditor status under 31 U.S.C. § 3713, see Pl.'s Resp. Ex. A at 2, leaving U.S. Bank as the creditor with highest priority among those participating. Thums Aff. 2d Ex. 1 at 2. On June 9, 2011—more than one month after Old AMS entered receivership—Customs issued a pre-penalty notice of unpaid duties to Old AMS describing the same alleged misconduct at issue in this suit. Pl.'s Resp. Ex. A at 1. Having apparently received no response from Old AMS, Old AMS Holdings, or the Receiver, Customs issued a penalty notice on July 27, 2011 demanding payment of outstanding duties and penalties totaling about $6.8 million. Id. at 1–2.

At the Milwaukee Court's direction, the Receiver conducted an auction on August 2, 2011 in an attempt to sell Old AMS's assets. Thums Aff. 2d Ex. 1 at 2. The auction produced three bids inconsistent with the auction terms and no bids at or above the estimated liquidation value of the assets. Id. U.S. Bank refused to consent to any of the bids, leading the Receiver to decline acceptance of each. Id.

On August 9, 2011, the Receiver entered into a purchase agreement with a Wisconsin company named AMS Acquisition, LLC (“AMS Acquisition”), id. at 2–3, whereby AMS Acquisition would “operate the business of [Old AMS] and its affiliates.” Id. Ex. 3 at § 1.1. The court-approved sale transferred most of Old AMS's assets ² to AMS Acquisition at a price above their estimated liquidation value. Id. Ex. 1 at 2–3. The deal also required AMS Acquisition to hire a substantial number of Old AMS's employees in their old positions, including the appointment of Mr. Mandler as executive vice president. Thums Aff. 1st Ex. 3 at 10. The record is unclear as to whether any officers besides Mr. Mandler retained their positions. See id.; Thums Aff. 2d Ex. 3 at §§ 6.9(a), (g).

The Milwaukee Court described the sale as “the product of good faith negotiations at arm's length and without collusion.” Thums Aff. 2d Ex. 1 at 3. However, the Milwaukee Court did not address Customs's potential claim in its order, providing no indication as to whether it was aware of the penalty notice when it approved the sale.³See id. Exs. 1, 2. In this context, the court approved of a provision exonerating AMS Acquisition from all liability, “whether absolute or contingent, known or unknown” that may be looming against Old AMS, and held specifically that the sale transferred the assets “free and clear of all security interest, liens, claims, encumbrances, or interests of any kind or nature.” Id. Ex. 1 at 4 (emphasis and strikethrough omitted).

Old AMS, Old AMS Holdings, and AMS Acquisition all changed their corporate names after completing the sale. Thums Aff. 1st at 1–2. Old AMS and Old AMS Holdings became AMS Chapter 128, LLC and AMS Holdings Chapter 128, Inc., respectively, while AMS Acquisition assumed the “Adaptive MicroSystems, LLC” trade name to become New AMS. Id. New AMS is owned by a Wisconsin company named AMS Holdings, LLC, which at the time of the receivership sale had no relationship whatsoever with Old AMS or Old AMS Holdings. Id. at 2–4.

After the sale, however, New AMS transferred 400 shares of class B stock to Mr. Mandler, entitling him to 2% of New AMS's profits but no voting rights. Thums Aff. 2d Ex. 4 at 1–2. The stock vests 100 shares at a time for each year Mr. Mandler remains employed with New AMS, beginning on October 1, 2011. At present, 200 of Mr. Mandler's 400 shares have vested. Id. at 5.

On May 3, 2012, Customs initiated the present action against New AMS, Old AMS, and Old AMS Holdings, alleging that “[u]pon information and belief, New [AMS] purchased some portion of Old [AMS] out of receivership and is liable for Old [AMS]'s debts.” Pl.'s Compl. 2. New AMS now moves for summary judgment and sanctions, arguing that it “did not succeed to Old [AMS]'s alleged liability for unpaid duties and penalties” and that “[t]he facts ... are undisputed as they relate to New [AMS]'s purchase of Old [AMS]'s assets and non-assumption of liabilities.” New AMS's Mem. at 7; see New AMS's Sanctions Mem. at 4. In response, Customs insists that the facts demonstrate, “at the very least,” the existence of a genuine issue of material fact as to whether New AMS falls into one of the four common law exceptions to the Wisconsin general rule against successor liability.⁴ Pl.'s Resp. at 4–5.

JURISDICTION and STANDARD OF REVIEW

When reviewing a motion for summary judgment, “the Court evaluates ‘the pleadings, the discovery and disclosure materials on file, and any affidavits' in order to determine whether there is any ‘genuine issue as to any material fact’ and, if none exists, whether the ‘movant is entitled to judgment as a matter of law.’ ” United States v. Trek Leather, Inc., 35 CIT ––––, ––––, 781 F.Supp.2d 1306, 1310 (2011) (quoting USCIT R. 56(c)); see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue of fact is material “if it could affect the outcome of the suit under the governing law.” Trek Leather, Inc., 35 CIT at ––––, 781 F.Supp.2d at 1310 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). “The non-moving party is ‘entitled to have both the evidence viewed in the light most favorable to it and all doubts resolved in its favor.’ ” Mazak Corp. v. United States, 33 CIT ––––, ––––, 659 F.Supp.2d 1352, 1356 (2009) (quoting Guess? Inc. v. United States, 944 F.2d 855, 858 (Fed.Cir.1991)).

ANALYSIS

I. Comity

As a preliminary matter, New AMS argues that the court “should respect the Order from the Chapter 128 proceedings under the principle of comity.” New AMS's Mem. at 7 n. 5. New AMS is presumably referring to the Milwaukee Court's “conclusion[ ] of law” that New AMS “shall not be liable for any of the Receiver's, [Old AMS Holdings]'s or [Old AMS]'s debts, liabilities or obligations, except those expressly assumed” in the asset purchase agreement. Thums Aff. 2d Ex. 1 at 4 (emphasis omitted).

“When there is parallel state and federal litigation ... [c]omity or abstention doctrines may, in various circumstances, permit or require the federal court to stay or dismiss the federal action in favor of the state-court litigation.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 281–82, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). Other than cursory references to the interest of comity, New AMS does not articulate any legal standard that counsels or obliges the court to defer judgment in this matter. See New AMS's Mem. at 7 n. 5, 11; New AMS's Reply Supp. M. Summ. J. 7 (“New AMS's Reply”).⁵ The Milwaukee Court did not have an opportunity to consider the transfer of New AMS shares to Mr. Mandler because the shares did not change hands until after it issued the order. Thums Aff. 2d Ex. 4 at 1–2. Furthermore, the Milwaukee Court...