United States v. CTS Holding, LLC
| Decision Date | 30 June 2015 |
| Docket Number | Court No. 12-00327,Slip Op. 15-70 |
| Parties | UNITED STATES, Plaintiff, v. CTS HOLDING, LLC, Defendant. |
| Court | U.S. Court of International Trade |
Before: Mark A. Barnett, Judge
OPINION[The court denies Defendant's motion for summary judgment.]
Paul D. Oliver, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., argued for plaintiff. With him on the brief were Joyce R. Branda, Acting Assistant Attorney General, Jeanne E. Davidson, Director, Claudia M. Burke, Assistant Director, and Antonia R. Soares, Trial Attorney.
Jason P. Wapiennik, Great Lakes Custom Law, of Livonia, MI, argued for defendant.
Barnett, Judge: Defendant,1 CTS Holding, LLC ("CTS"), moves, pursuant to USCIT Rule 56, for summary judgment against Plaintiff, United States, in this duty recovery and penalty action. (See generally Mot. Summ. J. ("Mot.") (ECF No. 27).) Defendant contends that the court lacks subject matter jurisdiction over the penalty claim because U.S. Customs and Border Protection ("Customs") did not perfect its claim at the administrative level. (Mot. 7.) Defendant also asserts that Plaintiff may not seek recovery from it as successor in interest to TJ Ceramic Tile & Sales Import, Inc. ("TJ"),the entity that imported the subject merchandise. (Mot. 7-8.)2 Plaintiff opposes the motion. (See generally Opp'n (ECF No. 34).) For the reasons provided below, the court denies Defendant's motion.
This case arises from TJ's importation of forty entries of granite and stone polishing machines between August 6, 2004, and September 14, 2006.
TJ, a family business, sold ceramic, tile, marble, granite, and other related products from the time of its incorporation on January 2, 1962, through January 2011. (Philip Mularoni Dep. ("PM Dep.") 16:14-17, 24:4-6, Aug. 1, 2014; Kathleen Mularoni Dep. ("KM Dep.") 31:5, July 31, 2014.) Around 1975, Philip Mularoni ("Mr. Mularoni") and his brother, Richard Mularoni, purchased TJ from their parents, and, in 1991, Mr. Mularoni became the company's sole owner and president. (PM Dep. 13:7-18, 14:7-13.) In 1996, TJ began importing Italian straight edge polishing machinery with cut and polish capabilities, which accounted for 60% to 75% of the company's sales. At the time of its dissolution, TJ operated under the following assumed names: Ceramic Tile Sales Inc., T.J. Imports Inc., TJ Marble & Granite Shop, Marmo Meccanica U.S.A., Sileston of Michigan, Inc., Delta Diamond Tools, and Marble & Granite Gallery.
On June 20, 2006, TJ secured a loan from Huntington National Bank ("Huntington"). (PApp. 202.) From 2007 to 2008, TJ's gross sales fell steeply. (PApp. 400, 412.) On June 18, 2010, Huntington filed suit against TJ and Mr. Mularoni in Michigan state court, claiming that they owed Huntington over four million dollars. (PApp. 202.) In the fall of 2010, TJ's assets were appraised at $335,000. (PM Dep. 93:17-22, 94:1-7.) On January 20, 2011, Huntington entered into a settlement agreement with TJ and agreed to dismiss the litigation, with prejudice and without costs, in exchange for $500,000. (PApp. 203-04.) Due to its continuing deterioration, TJ lacked the revenue to fund the settlement. (PM Dep. 104:10-13, 114:13-20.) To pay off Huntington, TJ relied on a $500,000 loan that it obtained from Tile Holding, LLC in exchange for rights, title, and interest in any and all of TJ's assets. See infra. On the last Friday of January 2011, Mr. Mularoni held an office meeting and announced TJ's closure.3 (Michelle Wurst Dep. ("MW Dep.") 12:5-8, 21-23, July 31, 2014.) On July 15, 2011, six months after the company ceased operations, TJ entered into automatic dissolution. (DApp. Tab G.)
On January 6, 2011, Tile Holding, LLC ("Tile Holding") was organized, with Mr. Mularoni as its resident agent. (PApp. 197, 199 (Tile Holding Articles of Organization).) John Moran, Mr. Mularoni's son-in-law, who had worked at TJ for eight years, served asits president. (KM Dep. 39:16-20, 106:17-25.) On January 20, 2011, the day of the aforementioned settlement agreement between TJ and Huntington, TJ secured a loan from Tile Holding to pay off Huntington. (PApp. 197.) Tile Holding received a security interest conveying all rights, title, and interest in any and all of TJ's assets, in return for a loan of $500,000. (DApp. Tab H.)
CTS also was organized on January 6, 2011. Its articles of organization list Kathleen Mularoni ("Ms. Mularoni"), Mr. Mularoni's wife, as 99% owner of the company, and Meghan Moran, the Mularonis' daughter, and wife of John Moran, Tile Holding's president, as owner of the remaining 1%. (PApp. 121-22; KM Dep. 59:10-21, 98:12-23.) A 2013 Dun & Bradstreet, Inc. report lists Mr. Mularoni as a member of CTS. (PApp. 244.)
CTS raised capital by obtaining loans from Ms. Mularoni and friends of the Mularoni family (the "lenders"), totaling $500,000. (DApp. Tab H (documenting the source of $400,000 of the $500,000; the source of the remainder has not been addressed, but is immaterial for purposes of this motion).) As a condition for providing the loans, the lenders insisted that a new company be formed "that had no attachments to the old company [TJ] whatsoever" and that Ms. Mularoni serve as its manager. (KM Dep. 59:10-21; CTS Corp. Rep. Dep. ("CTS Dep.") 73:19-23, Aug. 1, 2014.) CTS subsequently lent this money to Tile Holding in exchange for the right, title, and interest in any and all assets of TJ. (DApp. Tab H; PApp. 208.)
CTS occupies the same location that TJ occupied, at 23455 Telegraph Road, Southfield, MI, 48033. (DApp. Tab J.) On December 1, 2010, thirty-seven days before CTS was organized, Ms. Mularoni signed a lease agreement, on behalf of CTS, with Mr. Mularoni, on behalf of Phil Mularoni Investments, for the building location. (PApp. 108, 113-20 (Lease Agreement).) CTS uses TJ's website address because the address "was pre-paid at the time CTS acquired it as an asset, and because CTS makes no internet sales and generally does not update its website to even accurately reflect store hours." (DApp. Tab F.) CTS's telephone number also is the same as TJ's. (MW Dep. 60:3-5.) When CTS initially received phone calls asking for TJ, Michelle Wurst, CTS's showroom manager, who answers the phones, would respond, "This is Ceramic Tile & Stone," and not claim to be TJ. (MW Dep. 60:21-22.) In addition, CTS possesses the TJ customer list, which contains information about past costumers and their purchases. (CTS Dep. 45:10-15.) CTS asserts that it does not solicit business from the list and that most of the company's sales come from one-time customers. (CTS Dep. 90:5.) CTS does not use any contractual relationships entered into by TJ, but does share common vendors for certain commodity items. (DApp. Tab F; CTS Dep. 54:2-19.)
On January 18, 2011, prior to TJ's entering into the security agreement with Tile Holding, and before Tile Holding entered into the security agreement with CTS, TJ placed an order with Jan Signs II to change the store's sign. (DApp. Tabs F, H, L.) The new sign reads "Ceramic Tile and Stone / T.J. Granite and Stone." (CTS Dep. 64:10-22.)
CTS imports Italian tile, marble, granite, and stone and sells Italian straight edge polishing machinery with cut and polish capabilities. (MW Dep. 31:22-25.) CTS primarily markets itself through a local newspaper. (CTS Dep. 45:22-23.) The company's name is written as "Ceramic Tile and Stone/ T.J. Granite and Stone" on various advertising fliers, company forms, and business cards. (DApp. Tabs M, N.) CTS conducts business under multiple assumed names: T.J. Granite & Stone, T&J Marble & Stone, Delta Diamond Tooling, Ceramic Tile & Stone, and Marmomachinery. (PApp. 105.)
After TJ closed its business in January 2011, its eight employees began working at CTS the following week. (MW Dep. 13:11-16, 15:3-4, 52:10-11.) Ms. Wurst, TJ's office manager, became the manager of the CTS Showroom. (KM Dep. 95:5-19.) Her showroom manager duties are similar to her office manager duties at TJ, which included paying bills, payroll, invoicing, and purchase orders. (MW Dep. 15:17-25, 16:18-21; KM Dep. 99:14-19.)
Ms. Mularoni had begun working for TJ in 2006. (KM Dep. 23:1-6.) She conducted outside sales for TJ and worked with "interior designers, architects, [and] friends selling granite for countertops." (KM Dep. 15:3-5.) Although employed by TJ, Ms. Mularoni said that she was unaware of the products the company sold and the litigation stemming from disputes with Plaintiff and Huntington. (KM Dep. 23:19-24, 30:2-12.)
As manager of CTS, she signs all legal documents, deals with the company's insurance, pays taxes, and conducts outside sales. (KM Dep. 99:2-5.) Despite being the manager, Ms. Mularoni said that she lacks knowledge of certain of the company's decisions. (KM Dep. 69:1-3, 6-9.) For example, she said that she did not know who decided that CTS would obtain all of TJ's assets, but thought she might have made the decision. (KM Dep. 71:3-10, 19-23.) She also said that she knew that CTS gave Tile Holdings $500,000 to pay a debt, but was unsure what the debt was for. (KM Dep. 72:8-12.) Ms. Mularoni seeks advice and counsel from Mr. Mularoni on how to run the company. (KM Dep. 99:24-25, 100:1.)
Mr. Mularoni was president of TJ and now directs CTS's operations and business activities. (DApp. Tab F; PM Dep. 10:14-24, 11:2-11, 12-17; MW Dep. 30:3-6; KM Dep. 94:1-4, 7-9.) By no later than 2013, Mr. Mularoni had become CEO of CTS. (PApp. 244.)
TJ imported Italian straight edge polishing machinery with cut and polish capabilities between August 6, 2004, and September 14, 2006, and classified them under HTSUS 8464.20.1000, "polishing machines: for processing of semi-conductor...
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