United States v. NYWL Enters. Inc.

• Decision Date: 30 October 2020
• Docket Number: Slip Op. 20-154,Court No. 16-00257
• Citation: 476 F.Supp.3d 1394
• Parties: UNITED STATES, Plaintiff, v. NYWL ENTERPRISES INC., Defendant.
• Court: U.S. Court of International Trade

476 F.Supp.3d 1394

UNITED STATES, Plaintiff,

v.NYWL ENTERPRISES INC., Defendant.

Slip Op. 20-154

Court No. 16-00257

United States Court of International Trade.

October 30, 2020

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 Ethan P. Davis, 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 AND ORDER

Barnett, Judge:

This matter is before the court following Plaintiff United States’ ("Plaintiff" or "the Government") motion for the entry of default judgment. See Pl.’s Mot. for Entry of Default J. ("Pl.’s Mot."), ECF No. 35. Plaintiff alleges that Defendant, NYWL Enterprises Inc. ("NYWL"), fraudulently misclassified 107 entries of imported Siamese coaxial cable in violation of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (2012).¹ See Compl. ¶¶ 1–23, 34–35, Ex. A, ECF No. 2. The Government seeks to recover unpaid duties and post-judgment interest and enforce a monetary penalty. See id. ¶¶ 19–23, 34–35; Pl.’s Mot. at 16. For the following reasons, the court denies Plaintiff's motion.

BACKGROUND

I. Plaintiff's Allegations

NYWL is a New York corporation. Compl. ¶ 4. During the events relevant to this action, Mr. Dian He was NYWL's Chief Executive Officer. Id.² Between March 4, 2011, and February 16, 2012, NYWL and Mr. He made 107 entries of merchandise consisting of Siamese coaxial cable through the Port of Chicago, Illinois. Id. ¶ 5, Ex. A. 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 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. ¶¶ 6–7. However, "[t]he subject Siamese coaxial cable was properly classifiable ... under subheading 8544.20.00, HTSUS, as coaxial cable and other coaxial electric conductors," id. ¶ 6, dutiable at the rate of 5.3 percent ad valorem , id. ¶ 7. NYWL and Mr. He "knew the merchandise consisted of Siamese coaxial cable" that NYWL's customer "was purchasing ... for use in closed-circuit television systems." Id. ¶ 6.

On December 5, 2011, U.S. Customs and Border Protection's ("CBP" or "Customs") computer system identified an NYWL entry for "a routine inquiry." Id. ¶ 8. 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 [closed circuit television] cable and not as cored wire of base metal for electric arc welding." Id. This information resulted in CBP's discovery of the extent 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. ¶ 13. 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 Siamese [coaxial] cable." Id. Relevant here, 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 Mr. He nor NYWL responded to the pre-penalty notice[s]." Id. ¶ 14. On March 4, 2016, CBP issued a duty demand for $379,665.83 and a penalty notice in the amount of $3,760,070.00 for fraudulent misclassification. Id. ¶ 15. "Neither Mr. He nor NYWL responded." Id. ¶ 16.

II. Procedural History

On December 7, 2016, Plaintiff commenced this action through the concurrent filing of the Summons and Complaint. See Summons; Compl. Plaintiff seeks, inter alia , $379,665.83 in unpaid duties, Compl. ¶ 35, and a penalty in the amount of $3,760,070.00 (equal to eight times the total lost revenue) plus interest, id. ¶ 21.

The Government effected service upon NYWL through the New York Secretary of State on March 7, 2017. Certificate of Service, ECF No. 4. As noted, on May 18, 2020, the Government dismissed its claims against Mr. He. See He Dismissal. On June 23, 2020, the Government requested, and the clerk entered, an entry of default against NYWL for its failure to respond to the Complaint. Request for Entry of Default, ECF No. 31; Entry of Default, ECF No. 32. On August 5, 2020, the Government filed the pending motion for the entry of default judgment. See Pl.’s Mot.

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).

U.S. Court of International Trade ("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).

When, as here, the defendant has defaulted pursuant to USCIT Rule 55(a), "it admits all well-[pleaded] factual allegations contained in the complaint," Six Star , 359 F. Supp. 3d at 1318, "but it does not admit legal claims," United States v. Santos , 36 C.I.T. 1690, 1693, 883 F. Supp. 2d 1322, 1326 (2012) ; see also United States v. Scotia Pharms. Ltd. , 33 C.I.T. 638, 642, 2009 WL 1410437 (2009) ("[A] party in default does not admit mere conclusions of law.") (citation omitted). Thus, before entering judgment by default, the court must first ensure that the factual allegations in the Government's Complaint "establish [NYWL's] liability as a matter of law." Six Star , 359 F. Supp. 3d at 1319 ; see also Santos , 36 C.I.T. at 1693 n.4, 883 F. Supp. 2d at 1326 n.4 ("[T]he court will not grant default judgment on the basis of a complaint that is insufficiently [pleaded]."). Moreover, "a default does not concede the amount demanded," and the court must "ensure that there is an adequate evidentiary basis for any relief awarded." United States v. Puentes , 41 CIT ––––, ––––, 219 F. Supp. 3d 1352, 1358 (2017) (citation omitted).

The Government seeks judgment by default in connection with its fraudulent importation claim. Pl.’s Mot. at 16. Thus, the court's review of Plaintiff's complaint 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." See USCIT Rule 9(b) ; United States v. Greenlight Organic, Inc. , 466 F.Supp.3d 1260, 1263 (CIT July 14, 2020) (applying USCIT Rule 9(b) to a penalty enforcement action based on fraud). These circumstances include "the who, what, when, where, and how of the alleged fraud." Exergen Corp. v. Wal-Mart Stores, Inc. , 575 F.3d 1312, 1327 (Fed. Cir. 2009) (citation omitted) (examining the analogous Federal Rule of Civil Procedure ("FRCP") 9(b) ); see also United States v. Univar USA, Inc. , 40 CIT ––––, ––––, 195 F. Supp. 3d 1312, 1317 (2016) (noting that the court may refer to cases interpreting the analogous FRCP for guidance).³

DISCUSSION

In examining a penalty enforcement action, "the court must consider both whether the penalty imposed has a sufficient basis in law and fact, and whether Customs accorded the [importer] all the process to which [it] is entitled by statute and regulation." Puentes , 219 F. Supp. 3d at 1357.

Relevant here, section 1592 bars the fraudulent entry or introduction of merchandise into the commerce of the United States by means of a materially false statement or material omission. See 19 U.S.C. § 1592(a)(1)(A). A statement is considered material if it has the tendency to influence agency action including determination of the classification of merchandise. 19 C.F.R. pt. 171, app. B(B). Thus, the asserted classification of merchandise in entry paperwork "constitutes a material statement under the statute." United States v. Optrex Am., Inc. , 32 C.I.T. 620, 631, 560 F. Supp. 2d 1326, 1336 (2008). A violation is fraudulent when the "material false statement ... was committed ... knowingly, i.e., was done voluntarily and intentionally." 19 C.F.R. pt. 171, app. B(C)(3). Section 1592 further requires CBP to issue a pre-penalty notice and penalty notice before commencing any enforcement action. 19 U.S.C. § 1592(b) ; see also United States v. Int'l Trading Servs., LLC , 40 CIT ––––, ––––, 190 F. Supp. 3d 1263, 1269 (2016) (discussing the procedures required for CBP to perfect its penalty claim at the administrative level).

While the Government's Complaint states with particularity the facts regarding NYWL's materially false statements and adequately alleges compliance with administrative procedural requirements, the Complaint lacks sufficient factual allegations demonstrating NYWL's culpability for fraud.

With respect to the materially false statements, Plaintiff alleges that, from March 4, 2011, through February 16, 2012, NYWL made 107 entries of Siamese coaxial cable through the Port of Chicago, Illinois, that were accompanied by entry documentation reflecting incorrect HTSUS tariff provisions. Compl. ¶¶ 5–6. Exhibit A, attached to the Complaint and incorporated by reference, details, for each of the 107 entries at issue, the entry number and date, the classification declared by NYWL, and the correct classification. See id. ¶ 5, Ex. A; cf. Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (directing courts to consider "documents incorporated into the complaint by reference" when considering whether the complaint contains sufficient factual allegations to state a claim for...