United States v. Millenium Lumber Distribution Co.

• Citation: 899 F.Supp.2d 1340
• Decision Date: 18 December 2012
• Docket Number: Court No. 06–00129.,Slip Op. 12–153.
• Parties: UNITED STATES of America, Plaintiff, v. MILLENIUM LUMBER DISTRIBUTION CO. LTD. and XL Specialty Insurance Company, Defendants. XL Specialty Insurance Company, Cross–Claimant, v. Millenium Lumber Distribution Co. Ltd., Cross–Defendant.
• Court: U.S. Court of International Trade

899 F.Supp.2d 1340

UNITED STATES of America, Plaintiff,

v.MILLENIUM LUMBER DISTRIBUTION CO. LTD. and XL Specialty Insurance Company, Defendants.

XL Specialty Insurance Company, Cross–Claimant,

v.Millenium Lumber Distribution Co. Ltd., Cross–Defendant.

Slip Op. 12–153. Court No. 06–00129.

United States Court of International Trade.

Dec. 18, 2012.

Aimee Lee, International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY, argued for Plaintiff. With her on the brief were Tony West, Assistant Attorney General, and Barbara S. Williams, Attorney in Charge, International Trade Field Office. Of counsel on the brief was Christopher Shaw, Office of the Assistant Chief Counsel, Bureau of Customs and Border Protection, U.S. Department of Homeland Security, of New York, NY.

Joel R. Junker, Joel R. Junker & Associates, of Seattle, WA, argued, for Defendant Millenium Lumber Distribution Co. Ltd. With him on the brief was William N. Baldwin.

OPINION

RIDGWAY, Judge:

The Government commenced this action against defendant Millenium Lumber Distribution Co. Ltd. and its surety, defendant XL Specialty Insurance Company, to collect more than $1.8 million in liquidated damages. See Complaint ¶¶ 1, 21, 31, 42, 44. According to the Government, Millenium breached the terms of its customs bonds by not providing required export permits to the Bureau of Customs and Border Protection.¹See id. ¶¶ 17–20, 28–31, 39–42. The Government claims that, as a consequence of this alleged breach, Millenium and XL are jointly and severally liable for liquidated damages. See id. ¶¶ 10–11.

Pending before the Court is Millenium's Motion for Judgment on the Pleadings, in which Millenium seeks to dismiss this action for failure to state a claim upon which relief can be granted. SeeUSCIT Rule 12(b)(5); Defendant Millenium Lumber Distribution Co., Ltd.'s Motion for Judgment on the Pleadings (“Def.'s Motion to Dismiss”) at 2, 13–14; Supplemental Submission of Defendant Millenium Lumber Distribution Co., Ltd.'s Motion for Judgment on the Pleadings (“Def.'s Supp. Brief”) at 1. According to Millenium, the Government “failed to exhaust administrative remedies” because it brought this action to collect liquidated damages “prior to the completion of” mitigation proceedings that Millenium maintains were “pending” at the agency level. Def.'s Motion to Dismiss at 2. Millenium contends that this action is therefore “premature,” and subject to dismissal. Id.; see also Defendant Millenium Lumber Distribution Co. Ltd.'s Reply to Plaintiff's Response to Motion to Dismiss (“Def.'s Reply Brief”) at 3 (explaining that Millenium “claims that this suit is premature and barred by the doctrine of exhaustion of administrative remedies”); Def.'s Supp. Brief at 1 (stating that “motion requests dismissal ... for failure to state a cause of action upon which relief can be [granted] based on the grounds that this action was commenced before the conclusion of related administrative proceedings and therefore is in violation of the doctrine of exhaustion of administrative remedies”).

The Government, in turn, argues that administrative mitigation proceedings are not a condition precedent to the Government's institution of a civil action to collect liquidated damages—particularly “in a situation such as this, where [tariff] classification is contested and the constraint of [the] statute of limitations would abrogate the Government's legal right to recover liquidated damages” if administrative mitigation proceedings were required. See Government's Opposition to Defendant's, Millenium Lumber Distribution Co. Ltd., Motion for Judgment on the Pleadings (“Pl.'s Response Brief”) at 2–3, 11; see also The Government's Response to Defendant's, Millenium Lumber Distribution Co. Ltd., Supplemental Submission (“Pl.'s Supp. Brief”) at 2, 4, 16. The Government contends that, in any event, Millenium should not be heard to complain, because—the Government argues—the company at no time took action to institute mitigation proceedings at the agency level. See Pl.'s Response Brief at 6, 9–11, 13; Pl.'s Supp. Brief at 14–15.

Jurisdiction lies under 28 U.S.C. § 1582(2) (2000).² For the reasons outlined below, Millenium's Motion for Judgment on the Pleadings must be denied.

I. Background

Between late April 2000 and early January 2001, Millenium entered 168 entries of certain softwood lumber products into the United States from Canada. See Complaint ¶¶ 9, 14, 25, 36. The entries were secured by three bonds issued by Millenium's surety (XL Specialty Insurance Company, or its predecessor, Intercargo Insurance Company). See id. ¶¶ 5, 10–11. As a condition of each bond, Millenium and its surety agreed that they would comply with all customs laws and regulations. Id. ¶ 11. They also agreed that they would be jointly and severally liable for liquidated damages in the event of a default. Id.

Millenium entered all of the merchandise at issue under heading 4418 of the Harmonized Tariff Schedule of the United States (“HTSUS”) (2000).³See Complaint ¶¶ 15, 26, 37. Following entry, Customs classified the merchandise under HTSUS heading 4407. See id. ¶¶ 16, 27, 38.⁴ Merchandise falling within heading 4407 is subject to the U.S.-Canada Softwood Lumber Agreement, and requires export permits issued by the government of Canada for entry into the United States. See id. ¶¶ 16, 27, 38; 19 C.F.R. § 12.140; 19 C.F.R. § 113.62(k).

Customs issued Notices of Action informing Millenium that the Softwood Lumber Agreement required the company to provide proof of issuance of the requisite export permits and stating that, absent Millenium's submission of the necessary documentation, liquidated damages would be assessed. See Complaint ¶¶ 17–18, 28–29, 39–40; id., Exhs. 5, 11 (Notices of Action, or “CF–29s”).

Millenium failed to provide Customs with proof of the required permits. Customs therefore issued Liquidated Damages Notices to Millenium covering all 168 entries. See19 C.F.R. § 172.1(a)⁵; Complaint¶¶ 19–20, 30–31, 41–42; id., Exhs. 6, 9, 12 (three Notices of Penalty or Liquidated Damages Incurred and Demand for Payment) (“Liquidated Damages Notices,” or “CF–5955As”). The Liquidated Damages Notices informed Millenium of the amount of liquidated damages assessed. See Complaint, Exhs. 6, 9, 12. In addition, the Liquidated Damages Notices advised Millenium of the company's right to petition Customs for mitigation of the liquidated damages assessments, as well as the procedure for the filing of such petitions. See id., Exhs. 6, 9, 12. In particular, the Liquidated Damages Notices specified that Millenium had 60 days to pay the liquidated damages assessments or to file a petition for mitigation with Customs. See id., Exhs. 6, 9, 12.

No petition for mitigation proceedings was ever filed; nor did either Millenium or its surety make any payment on the liquidated damages assessments. See Complaint ¶¶ 22, 33, 44.

In the meantime, Millenium filed protests with Customs contesting the agency's classification of the company's merchandise under HTSUS heading 4407. See Def.'s Motion to Dismiss at 5 n. 1. In two letters (dated August 24, 2001 and October 9, 2001), Customs agreed—at Millenium's request—to defer action on the agency's liquidated damages claims against Millenium (which arose out of Customs' classification determination) while the company pursued its challenge to that determination. See id. at 5–6; id. at Exhs. 1, 3 (Customs letters dated August 24, 2001 and October 9, 2001).

Customs denied Millenium's protests, and Millenium brought suit in this court challenging that denial. See Def.'s Motion to Dismiss at 6; Millenium Lumber Distrib. Ltd. v. United States, Court No. 02–00595 (filed Sept. 12, 2002). In light of Millenium's litigation challenging Customs' classification determination, Customs continued to defer action on the agency's liquidated damages claims. However, in late May 2005, with the six-year statute of limitations soon to expire, Customs notified Millenium and its surety that—although Customs was aware that the classification issue had not yet been finally resolved, and although the agency would be willing to allow the classification litigation to run its course—Customs would need to take appropriate action to preserve the agency's liquidated damages claims, unless Millenium and/or its surety made full payment or the two executed waivers of the statute of limitations within 30 days. See Complaint ¶¶ 21, 32, 43; id., Exh. 7 (letters to Millenium and surety, dated May 23, 2005).⁶

Both Millenium and its surety declined to execute waivers of the statute of limitations. Similarly, neither made payment of the liquidated damages assessed. See Complaint ¶¶ 22, 33, 44; Pl.'s Response Brief at 10. Roughly one year later, the Government commenced this action against Millenium and the surety, to collect the liquidated damages assessed.

In the meantime, Customs' classification determination has been sustained by this court, which, in turn, was affirmed on appeal. See Millenium Lumber Distrib. Ltd. v. United States, 31 CIT 575, 2007 WL 1116148 (2007), aff'd,558 F.3d 1326 (Fed.Cir.2009) (holding that Millenium's merchandise is properly classified under HTSUS heading 4407). Thus, there is no longer any dispute that Millenium's merchandise is properly classified under heading4407, and, as such, is subject to the Softwood Lumber Agreement.

II. Standard of Review

In reviewing a motion to dismiss for failure to state a claim, “any factual allegations in the complaint are assumed to be true and all inferences are drawn in favor of the plaintiff.” Amoco Oil Co. v. United States, 234 F.3d 1374, 1376 (Fed.Cir.2000); see generallyUSCIT Rule 12(b)(5). “Dismissal for failure to state a claim is proper only when it is beyond doubt that the plaintiff can prove no set of facts that would entitle it to relief.” Amoco Oil, 234 F.3d at 1376. Dismissal under Rule 12(b)(5) is thus proper...