United States v. Nitek Elecs., Inc.

• Decision Date: 01 December 2015
• Docket Number: No. 2015–1166.,2015–1166.
• Citation: 806 F.3d 1376
• Parties: UNITED STATES, Plaintiff–Appellant v. NITEK ELECTRONICS, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

806 F.3d 1376

UNITED STATES, Plaintiff–Appellant

v.NITEK ELECTRONICS, INC., Defendant–Appellee.

No. 2015–1166.

United States Court of Appeals, Federal Circuit.

Dec. 1, 2015.

Stephen Carl Tosini, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for appellant. Also represented by Jeanne E. Davidson, Patricia M. McCarthy, Benjamin C. Mizer; Eric Paul Delmar, Office of the Assistant Chief Counsel, United States Customs and Border Protection, El Paso, TX.

Robert Clifton Burns, Bryan Cave LLP, Washington, DC, argued for appellee. Also represented by Michael Zara, Santa Monica, CA.

Opinion

CLEVENGER, Circuit Judge.

The United States appeals from a decision of the United States Court of International Trade dismissing the Government's penalty claim based on negligence for failure to exhaust the administrative remedies under 19 U.S.C. § 1592. United States v. Nitek Elecs., Inc.,844 F.Supp.2d 1298 (Ct. Int'l Trade 2012), recons. denied,2012 WL 3195084 (Ct. Int'l Trade Aug. 7, 2012). Specifically, the Government argues that it should not be barred from seeking a penalty claim in court at a culpability level that is lower than that administratively asserted by U.S. Customs and Border Protection (“Customs”). Because the statutory framework of § 1592does not allow the Government to change the culpability level that Customs alleged in the penalty claim, we affirm.

Background

Between June 14, 2001 and March 22, 2004, Nitek Electronics, Inc. (“Nitek”) entered thirty-six shipments of pipe fitting components used for gas meters, which included gas meter swivels and gas meter nuts, into the United States from China. Customs issued a letter to Nitek on April 1, 2004, claiming that the merchandise was misclassified under the U.S. Harmonized Tariff Schedule (“HTSUS”). Accordingly, Customs demanded payment for lost duties under 19 U.S.C. § 1592(d)that resulted from the alleged misclassification. Customs further alleged that the misclassification was also subject to antidumping duties. On March 21, 2005, Customs issued a pre-penalty notice to Nitek alleging that Nitek “entered or attempted to enter pipe fittings into the commerce of the United States by means of material false statements and documents, and/or omissions.” The notice stated that the tentative culpability was gross negligence.

Concurrently, other importers of gas meter swivels and gas meter nuts challenged the antidumping duty order in the Court of International Trade. See Sango Int'l L.P. v. United States,429 F.Supp.2d 1356 (Ct. Int'l Trade 2006). Customs agreed to stay the penalty proceedings pending resolution of Sango International's challenge in exchange for Nitek subsequently waiving the statute of limitations. This Court later issued a final decision in Sango Internationalon June 4, 2009, which sustained the anti-dumping duty order. Sango Int'l L.P. v. United States,567 F.3d 1356 (Fed.Cir.2009).

On February 24, 2011, Customs issued Nitek a final penalty claim and again stated that the tentative culpability was gross negligence. Nitek responded by letter opposing the penalty claim for gross negligence stating that it had not acted with wanton disregard for the law when dealing with the classification issues. Nitek also offered to pay all duties owed. Customs then referred the matter to the United States Department of Justice (“United States” or “Government”) to bring a claim against Nitek in the Court of International Trade to enforce the penalty under its jurisdiction in 28 U.S.C. § 1582. The United States then brought suit against Nitek to recover lost duties, antidumping duties, and a penalty based on negligence under 19 U.S.C. § 1592in connection with the Nitek's misclassification of gas meter parts.

Nitek filed a motion to dismiss the case under two theories. First, Nitek moved to dismiss for lack of subject matter jurisdiction under USCIT Rule 12(b)(1)because the Government failed to exhaust all administrative remedies before filing suit in the Court of International Trade. The court denied dismissal on this ground because it found that exhaustion was not a jurisdictional matter and can be waived. Alternatively, Nitek moved to dismiss for failure to state a claim for which relief may be granted under USCIT Rule 12(b)(5)(now 12(b)(6)). The court denied dismissal of the claims to recover lost duties and antidumping duties. However, the court did dismiss the Government's claim for a penalty based on negligence. The court reasoned that since Customs had only issued a penalty based on gross negligence, the Government could not bring a penalty claim in court based on negligence. The negligence claim was “an entirely new claim” that had not been pursued by Customs at the administrative level. Thus, the court found that the penalty claim was not properly before the court because the Government had failed to exhaust all administrative remedies by not having Customs demand a penalty based on negligence, instead of gross negligence.

The Government then moved for reconsideration, but the court reaffirmed its reading of the statute and denied reconsideration. The court explained that “for the Court to have any role, there must exist a claim for a specified violation of § 1592(a)—namely, a material false statement or omission amounting to ‘fraud, gross negligence, or negligence’—for which the government is seeking recovery, thereby limiting the scope of the government's § 1592action to the administrative claim Customs imposed below.”

On September 23, 2014, the parties stipulated that the United States is entitled to recover $47,884.27 from Nitek for the lost duties and antidumping duties. The parties also stipulated that they could not appeal their agreement on these counts. Accordingly, the court ordered a final judgment on October 1, 2014, for the United States for the above amount.

The United States then timely appealed the dismissal of the penalty claim based on negligence to this Court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).

Discussion

We review the Court of International Trade's legal determinations de novo, including the court's dismissal for failure to state a claim for which relief can be granted.

Bell/Heery v. United States,739 F.3d 1324, 1330 (Fed.Cir.2014). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)(quoting Bell Atl. Corp. v. Twombly,550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The trade court's finding on exhaustion of administrative remedies is reviewed for abuse of discretion. Itochu Bldg. Prods. v. United States,733 F.3d 1140, 1145 (Fed.Cir.2013)(reviewing the district court's dismissal for failure to exhaust for abuse of discretion); Corus Staal BV v. United States,502 F.3d 1370, 1381 (Fed.Cir.2007)(reviewing the trade court's finding of no exhaustion of administrative remedies for abuse of discretion).

The issue in this case is whether the court properly dismissed the Government's penalty claim for failure to state a claim because the underlying administrative penalty was based on gross negligence, not negligence. This requires a close examination of the statutory scheme in 19 U.S.C. § 1592, which governs this penalty claim.

First, § 1592(a)states that no one may enter merchandise into the United States by presenting material and false information by means of fraud, gross negligence, or negligence. 19 U.S.C. § 1592(a)(1). If Customs believes that there has been a violation of subsection (a), § 1592(b)provides that Customs must first issue a pre-penalty notice to the importer. The pre-penalty notice must “specify all laws and regulations allegedly violated” and “state whether the alleged violation occurred as a result of fraud, gross negligence, or negligence.” § 1592(b)(1)(A)(iii), (v). Customs must also inform the accused importer “that he shall have a reasonable opportunity to make representations, both oral and written, as to why a claim for a monetary penalty should not be issued in the amount stated.” § 1592(b)(1)(A)(vii). Next, if Customs determines that there was a violation after considering any representations made by the accused importer, Customs must issue a written penalty claim under § 1592(b)(2). The penalty claim must specify any changes in the information provided in the pre-penalty notice, including the level of culpability that was initially stated. The importer may then follow the procedures under 19 U.S.C. § 1618to seek remission or mitigation of the penalty. At the conclusion of any such proceedings, Customs “shall provide to the person concerned a written statement which sets forth the final determination and the findings of fact and conclusions of law on which such determination is based.” § 1592(b)(2).

Under § 1592(e), the United States can bring a claim in the Court of International Trade “for the recovery of any monetary penalty claimed under this section.” The statute also states that “all issues, including the amount of the penalty, shall be tried de novo,” § 1592(e)(1), and sets out the burden of proof for each culpability level. For fraud, the United States has to prove the violation by clear and convincing evidence. § 1592(e)(2). For gross negligence, the United States has the burden to prove the elements of the violation. § 1592(e)(3). For negligence, the United States has the burden to prove the act or omission that caused the violation and the alleged violator has the burden to prove that their actions were not negligent. § 1592(e)(4).

From the statutory framework, it is clear that § 1592(e)creates a cause of action for the United States to recover penalty claims. Subsection 1592(b) states the procedures that Customs must follow when making penalty claims, including specifying the level of culpability (fraud, gross negligence, or negligence). In contrast, ...