United States v. NYWL Enters. Inc.

• Decision Date: 16 April 2021
• Docket Number: Court No. 16-00257,Slip Op. 21-45
• Citation: 503 F.Supp.3d 1373
• Parties: UNITED STATES, Plaintiff, v. NYWL ENTERPRISES INC., Defendant.
• Court: U.S. Court of International Trade

503 F.Supp.3d 1373

UNITED STATES, Plaintiff,

v.NYWL ENTERPRISES INC., Defendant.

Slip Op. 21-45

Court No. 16-00257

United States Court of International Trade.

April 16, 2021

Jason M. Kenner, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY for Plaintiff United States. With him on the brief were Brian Boynton, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Steven J. Holtkamp, Staff Attorney, Office of Chief Counsel, U.S. Customs and Border Protection, of Chicago, IL.

OPINION

Barnett, Chief Judge:

This matter is before the court following Plaintiff United States’ ("Plaintiff" or "the Government") second motion for the entry of default judgment pursuant to U.S. Court of International Trade ("USCIT" or "CIT") Rule 55(b). See Pl.’s [Second] Mot. for Entry of Default J. ("Pl.’s Second Mot."), ECF No. 43. Plaintiff alleges that Defendant NYWL Enterprises Inc. ("NYWL") fraudulently misclassified 107 entries of imported Siamese coaxial cable ("coaxial cable") in violation of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (2012).¹ See Am. Compl. ¶¶ 1–7, 24, 36–40, Ex. A, ECF No. 39 (listing the 107 subject entries). The Government seeks $379,665.83 in unpaid duties, a civil penalty in the amount of $3,760,000.00, post-judgment interest, and costs. See id. ¶¶ 36–40, 51–52; id. p. 8 (Wherefore clause); Pl.’s Second Mot. at 17–18.

For the following reasons, the court grants Plaintiff's motion and will enter judgment for the requested amounts.

BACKGROUND

The following facts are taken from the Government's Amended Complaint. NYWL is a New York corporation. Am. Compl. ¶ 4. Mr. Dian He was NYWL's Chief Executive Officer during the events relevant to this action. Id. ¶ 4.² From March 4, 2011, to February 16, 2012, NYWL made 107 entries of merchandise consisting of coaxial cable through the Port of Chicago, Illinois. Id. ¶ 5, Ex. A. "The coaxial cable was imported on spools that were labeled ‘Applications, General Use, Surveillance and CCTV’ " and packed in boxes "labeled ‘CCTV & CATV Cable.’ " Id. ¶ 6.³ "[B]oth the spools and boxes showed that the cable had been produced for ... a known user of CCTV and CATV cable." Id.

Entry documentation listed the cable as either: (1) cored wire of base metal for electric arc welding pursuant to subheading 8311.20.00 of the Harmonized Tariff System of the United States ("HTSUS"), dutiable at zero percent; (2) winding wire pursuant to 8544.11.0050, HTSUS, dutiable at the rate of 3.5 percent ad valorem ; or (3) insulated wire of a kind used for telecommunications pursuant to 8544.49.10, HTSUS, dutiable at zero percent. Id. ¶ 24. The coaxial cable in question was properly classifiable under subheading 8544.20.00, HTSUS, as coaxial cable and other coaxial electric conductors, dutiable at the rate of 5.3 percent ad valorem. Id. ¶¶ 7, 24.

Prior to importing the coaxial cable at issue in this case, "NYWL's sole corporate executive, Dian He was aware" of the correct classification of the merchandise "based upon his experience with [two] other corporations for which he served as sole corporate officer." Id. ¶ 7; see also id. ¶ 24 (alleging that NYWL "knew that the merchandise consisted of Siamese coaxial cable[ ] that [NYWL's customer] was purchasing ... for use in closed-circuit television systems").

"Between 2003 and June 28, 2006, Dian He made 203 entries of coaxial cable into various ports through [Dony Industrial Corporation ("Dony")]." Id. ¶ 9. "All 203 of the Dony entries ... were made under subheading 8311.20.00, HTSUS, as cored wire of base metal for electric arc welding, duty-free." Id. ¶ 10. On June 28, 2006, U.S. Customs and Border Protection ("CBP" or "Customs") "examined one of the Dony entries at the Port of Pittsburg[h] and discovered that the entry included Siamese [coaxial] cable and not arc welding wire." Id. ¶ 11. When CBP "informed Dony's broker that the merchandise in the entry was improperly classified," id. ¶ 12, "Dony ceased importing through the Port of Pittsburg[h]," id. ¶ 13. Thereafter, "Dony made eight additional entries through the Port of Chicago and the Port of Everglades/Fort Lauderdale" under either subheading 8544.49.00, HTSUS, or subheading 8311.20.00, HTSUS, both of which incur zero duties. Id. ¶¶ 14–15. Dony made the last of these entries on August 24, 2006. Id. ¶ 14.

On August 29, 2006, "Dian He began entering coaxial cable through Win Long Enterprises Inc. (["]Win Long["]) utilizing the same customs broker as used with Dony." Id. ¶ 16. "Dian He was [Win Long's] sole corporate officer." Id. ¶ 17. From August 29, 2006, to February 25, 2011, "Win Long made 341 entries of coaxial cable." Id. ¶ 18. Win Long classified each entry "as arc welding wire, duty free." Id. ¶ 19. Several of the entries contained a commercial invoice stating that "the correct classification was under subheading 8544.40.00, HTSUS, as coaxial cable." Id. ¶ 20. "In 18 of the Win Long entries, the correct classification for [coaxial] cable was crossed-out and the incorrect classification for arc welding wire was handwritten in." Id. ¶ 21. Following CBP's "examination of a Win Long entry on February 25, 2011, ... Win Long ceased importing coaxial cable." Id. ¶ 22. Thereafter, on March 4, 2011, Mr. He began entering coaxial cable "through NYWL utilizing the same customs broker as used to make the Dony and Win Long entries." Id. ¶ 23.

On December 5, 2011, CBP identified an NYWL entry for "a routine inquiry." Id. ¶ 25. On December 8, 2011, "in response to a request from CBP, NYWL's customs broker provided an entry with attached commercial invoice describing the merchandise as CCTV cable and not as cored wire of base metal for electric arc welding." Id. This information resulted in CBP's discovery of NYWL's classification violations. See id.

On February 22 and 23 of 2016, "CBP issued pre-penalty notices to NYWL and Mr. He." Id. ¶ 30. These notices "identified a total loss of revenue of $470,008.75 and an actual loss of revenue of $379,665.83 relating to the misclassification of the [coaxial] cable." Id. The notices further "proposed a culpability level of fraud and a corresponding penalty, jointly and severally against NYWL and Mr. He in the amount of $3,760,070.00[,] equal to eight times the loss of revenue." Id. "Neither NYWL nor Mr. He responded to the pre-penalty notice[s]." Id. ¶ 31. "On March 4, 2016, CBP issued a duty demand in the amount of $379,665.83 and a penalty notice in the amount of $3,760,070.00 to NYWL and Mr. He jointly and severally" for fraudulent misclassification. Id. ¶ 32. Again, "[n]either NYWL nor Mr. He responded." Id. ¶ 33. The duties and penalty remain unpaid. Id. ¶ 35.⁴

On December 7, 2016, Plaintiff timely⁵ commenced this action through the concurrent filing of the Summons and Complaint. See Summons; Compl. The Government first effected service upon NYWL through the New York Secretary of State on March 7, 2017. Certificate of Service, ECF No. 4. On June 23, 2020, the Government obtained an entry of default against NYWL for its failure to respond to the original Complaint. Entry of Default, ECF No. 32. On October 30, 2020, the court denied the Government's first motion for the entry of default judgment based on the insufficiency of the factual allegations concerning NYWL's fraudulent misclassification. See generally United States v. NYWL Enters. Inc. ("NYWL I "), 44 CIT ––––, 476 F. Supp. 3d 1394 (2020).

On December 29, 2020, the Government filed its Amended Complaint. That day, the Government effected service upon NYWL through the New York Secretary of State. Aff. of Service, ECF No. 40. On January 20, 2021, the Government obtained an entry of default against NYWL for its failure to respond to the Amended Complaint. Entry of Default, ECF No. 42. On February 19, 2021, the Government filed the pending motion for the entry of default judgment. See Pl.’s Second Mot. Appended to the motion are several declarations and supporting exhibits. See id. , Ex. 2 (Decl. of Int'l Trade Analyst Jeffrey Kiekenbush) ("Kiekenbush Decl."), ECF No. 43-2; id. , Ex. 3 (Decl. of Import Specialist Janice Vercillo) ("Vercillo Decl."), ECF No. 43-3; id. , Ex. 4 (Decl. of CBP Officer John Brothers, Retired) ("Brothers Decl."), ECF No. 43-4.⁶

JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction pursuant to 28 U.S.C. § 1582. A case arising pursuant to 28 U.S.C. § 1582 is reviewed de novo. 28 U.S.C. § 2640(a)(6).

USCIT Rule 55 "provides a two-step process for obtaining judgment when a party fails to plead or otherwise defend—(1) entry of default followed by (2) entry of a default judgment." United States v. Six Star Wholesale, Inc. , 43 CIT ––––, ––––, 359 F. Supp. 3d 1314, 1318 (2019) ; see also USCIT Rule 55(a)–(b). A defendant in default pursuant to USCIT Rule 55(a) "admits all well-[pleaded] factual allegations contained in the complaint." Six Star , 359 F. Supp. 3d at 1318. Default does not, however, serve as an admission of legal claims or damages. See, e.g. , United States v. Puentes , 41 CIT ––––, ––––, 219 F. Supp. 3d 1352, 1358 (2017). Thus, before entering judgment by default, the court must ensure that the factual allegations in the Government's Amended Complaint "establish [NYWL's] liability as a matter of law," Six Star , 359 F. Supp. 3d at 1319, and "that there is an adequate evidentiary basis for any relief awarded," Puentes , 219 F. Supp. 3d at 1358 (citation omitted).

The Government seeks judgment by default in connection with its fraudulent importation claim. Pl.’s Second Mot. at 17–18. The court's review of Plaintiff's Amended Complaint therefore implicates USCIT Rule 9(b), which requires a party alleging fraud to state the circumstances constituting the fraud with particularity, while intent or knowledge "may be alleged generally." USCIT Rule 9(b) ; see also NYWL I , 476 F. Supp. 3d at 1398 n.3 (fi...