United States v. Cruzin Cooler, LLC

• Decision Date: 09 July 2020
• Docket Number: Court No. 15-00333,Slip Op. 20-95
• Citation: 459 F.Supp.3d 1366
• Parties: UNITED STATES, Plaintiff, v. CRUZIN COOLER, LLC, Bad Lama LLC, and Kevin Beal, Defendants.
• Court: U.S. Court of International Trade

459 F.Supp.3d 1366

UNITED STATES, Plaintiff,

v.CRUZIN COOLER, LLC, Bad Lama LLC, and Kevin Beal, Defendants.

Slip Op. 20-95

Court No. 15-00333

United States Court of International Trade.

July 9, 2020

Nathanial B. Yale, Trial Attorney, Civil Division, Commercial Litigation Branch, U.S. Department of Justice of Washington, D.C., for plaintiff United States. With him on the motion were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of Counsel was Thomas A. Behe, Senior Attorney, U.S. Customs and Border Protection.

OPINION

Reif, Judge:

The United States of America ("Government" or "plaintiff") brings a motion for a default judgment against Cruzin Cooler, LLC and Bad Lama LLC ("Bad Lama") (together, "defaulted defendants") to recover civil penalties pursuant to 19 U.S.C. § 1592 (" Section 1592"). The Government requests that the United States Court of International Trade ("USCIT" or "CIT"), in accordance with USCIT Rule 55, order Cruzin Cooler, LLC and Bad Lama to pay civil penalties in the amounts of $14,332.64 and $852,088.45, respectively, in addition to post-judgment interest. See Pl.'s Mot. for Default J., ECF No. 56 ("Pl. Mot.").

On July 24, 2019, the Court entered an order of default against Cruzin Cooler, LLC and Bad Lama when they failed to "otherwise defend" this action as required by USCIT Rule 55(a). See Entry of Default, ECF No. 55 ("Entry of Default"). This court has jurisdiction pursuant to 28 U.S.C. § 1582(1) for the recovery of civil penalties and duties under Section 1592.

For the reasons set forth below, the court grants plaintiff's motion for a default judgment and awards the Government the amount of $14,332.64 against Cruzin Cooler, LLC for the violation of Section 1592 based on gross negligence in respect of three entries,¹ and awards the Government $852,088.45, against Bad Lama for the violation of Section 1592 based on fraud in respect of 12 entries.² The Government is also entitled to post-judgment interest computed in accordance with 28 U.S.C. § 1961, and costs in accordance with USCIT Rule 55(b).

BACKGROUND

In December 2008, Cruzin Cooler, LLC started importing Cruzin Coolers and certain parts. Compl., ECF No. 3 ("Compl.") ¶ 4. A finished Cruzin Cooler, LLC product "resembles a large cooler on wheels ...." Compl. ¶ 4. Defendant Kevin Beal at all relevant times was the owner of both Cruzin Cooler, LLC and Bad Lama. Compl. ¶ 3. Mr. Beal also owned a third company, CSUSA, that imported merchandise similar to Cruzin Coolers, but which is not a party to this action. Compl. ¶ 10.

In September 2010, Mr. Beal sought internal advice from U.S. Customs and Border Protection ("Customs") regarding the classification of fully assembled Cruzin Coolers³ after Customs reclassified certain entries of fully assembled Cruzin Coolers from subheading 8711.90.0000 with a duty-free rate to subheading 8704.90.0000 with a 25 percent duty rate.⁴ Pl. Mot. at 2. In the same month that Mr. Beal sought internal advice on the fully assembled Cruzin Coolers, Customs issued an Informed Compliance Notice to Cruzin Cooler, LLC, in which Customs notified Cruzin Cooler, LLC that it had been improperly importing certain parts for Cruzin Coolers duty-free. Compl. ¶ 5. The Informed Compliance Notice stated that some parts in the shipments required either a 3 percent or a 10 percent duty rate. Id. The Informed Compliance Notice explained that Cruzin Cooler, LLC was importing these parts under the wrong subheading because under Additional Rule of Interpretation 1(c), parts for Cruzin Coolers can be classified under the heading for fully assembled Cruzin Coolers only if there is no specific heading in the U.S. Harmonized Tariff Schedule that covers the parts. Id. Despite receiving the Informed Compliance Notice, Cruzin Cooler, LLC continued to import the same parts under the duty-free heading for entries 53102681284, 53102682886, and 53102683371 ("Cruzin Cooler, LLC entries"). Compl. ¶ 6.

In January 2011, Customs sent Cruzin Cooler, LLC a second Informed Compliance Notice "which contained information on marking and classification issues with [importations from Cruzin Cooler, LLC]."⁵ Compl. ¶ 10. In February 2011, Customs met with Mr. Beal and his attorney in person and told them that the classification by Cruzin Cooler, LLC of certain imported parts under the duty-free heading was improper. Compl. ¶ 10. That same month, Mr. Beal created Bad Lama, which took over the importation of the Cruzin Coolers and parts for Cruzin Coolers. Compl. ¶ 11. Mr. Beal "provided classification information to [Customs] and handled all customs-related business on behalf of Bad Lama." Id.

In March 2011, Customs issued Binding Ruling N151635 to Mr. Beal through his other company, CSUSA. Compl. ¶ 10. The Binding Ruling classified the unpowered, insulated, rectangular, four-wheeled ice chest made of plastic and polystyrene with a removable top as requiring a 3.2 percent duty rate. Id. ; Pl. Mot. at Appx154-155. From July 2011 through April 2013, Bad Lama continued to import parts under improper classifications for the following 12 entries: AJV00157141, UPS54096394, UPS54136000, UPS54136646, UPS54173839, UPS54173946, UPS54180479, UPS80804301, UPS82984036, UPS84687215, UPS91103677, EWM00008050 ("Bad Lama entries"). Compl. ¶ 13.

Two of the Bad Lama entries, UPS54173946 and UPS84687215, were in direct violation of Binding Ruling N151635.⁶ Compl. ¶ 15. The remaining Bad Lama entries failed to follow Binding Ruling N151635 by misclassifying the four-wheeled ice chest as "trailers" or "semi-trailers" that needed to be coupled to another vehicle rather than having the option of pushing or pulling the chest manually, and these Bad Lama entries also "contained false statements and/or omissions that violated Additional U.S. Rule of Interpretation 1(c)."⁷ Compl. ¶ 16; See also Pl. Mot. at Appx154.

Additionally, the Bad Lama entries contained false statements on the Customs 7501 forms. Compl. ¶ 19. Bad Lama erroneously stated that it was "not related" to the company that manufactured the goods, when, in fact, Mr. Beal had an ownership interest in the manufacturing company and an employee of Bad Lama was on the payroll of the manufacturing company. Id.

Further, during Customs' investigation into Cruzin Cooler, LLC and Bad Lama, Mr. Beal revealed to Customs that he created Bad Lama to avoid scrutiny by Customs. Compl. ¶ 12. Mr. Beal relayed the same message to employees of Cruzin Cooler, LLC and one of his customs brokers. Id.

On November 25, 2013, Customs issued a pre-penalty notice to Cruzin Cooler, LLC regarding the Cruzin Cooler, LLC entries. Compl. ¶ 22. The pre-penalty notice identified a culpability level of gross negligence, and, in the alternative, negligence, and the actual loss of revenue identified was $3,583.16. Id. Cruzin Cooler, LLC did not respond, and on January 7, 2014, Customs issued the penalty notice in the amount of $14,332.64, assessing a penalty for gross negligence, and in the alternative, negligence. Id. The amount of $14,332.64, is four times the Government's loss of revenue, the lesser of the two maximum statutory penalties for gross negligence. Id. See also 19 U.S.C. § 1592(c)(2) (culpability level of gross negligence is punishable by a civil penalty in an amount not to exceed the lesser of the domestic value of the merchandise or four times the lawful duties, taxes, and fees deprived by the United States). Cruzin Cooler, LLC did not respond to the penalty notice and has not paid the $14,332.64 penalty. Compl. ¶ 24.

On December 4, 2013, Customs issued pre-penalty notices to Bad Lama and Mr. Beal identifying the Government's actual loss of revenue as $16,030.11.⁸ Compl. ¶ 25. In the pre-penalty notices, Customs identified the culpability level of fraud, with gross negligence and negligence in the alternative, and a proposed penalty amount of $852,365.28.⁹ Id. This penalty amount is equal to the domestic value of the Bad Lama merchandise, the maximum statutory penalty for fraud. Id . See also 19 U.S.C. § 1592(c)(2) (culpability level of fraud is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise).

Bad Lama and Mr. Beal failed to respond to the pre-penalty notices and, therefore, on January 10, 2014, Customs issued the penalty notices with the same culpability and penalty amount. Id. Bad Lama and Mr. Beal did not respond to the penalty notices, nor have they made payment on the $852,365.28 penalty. Compl. ¶ 27.

STANDARD OF REVIEW

Section 1592 governs the assessment of a civil penalty for the fraudulent, grossly negligent or negligent entry of merchandise into the United States. 19 U.S.C. § 1592. "[A]ll issues, including the amount of the penalty, shall be tried de novo. " 19 U.S.C. § 1592(e)(1). "To bring a penalty claim before the court, Customs must perfect its penalty claim in the administrative process according to the procedures that Congress established in subsection (b) of 19 U.S.C. § 1592." United States v. CTS Holding, LLC, Slip Op. 2015-70, 2015 WL 3960890 at *6, 2015 Ct. Int'l Trade LEXIS 71 at *19 (CIT June 30, 2015) (internal citations and quotations omitted). The administrative process consists of a pre-penalty notice and a penalty notice. 19 U.S.C. § 1592(b)(1)–(2). If Customs has reasonable cause to believe that there has been fraudulent, grossly negligent or negligent entry of merchandise into the United States, and determines that further proceedings are needed, Customs will issue a pre-penalty notice regarding the alleged violation. 19 U.S.C. § 1592(b)(1)(A). In the pre-penalty notice, Customs states the alleged violation, discloses the material facts, identifies the culpability level, estimates the Government's loss of revenue and proposes a monetary penalty. Id. The purpose of the pre-penalty notice is to inform and provide the importer with a reasonable opportunity to respond before the issuance of a penalty notice....