United States v. Six Star Wholesale, Inc.

Decision Date18 January 2019
Docket NumberCourt No: 14-00252,Slip Op. 19-8
Citation359 F.Supp.3d 1314
Parties UNITED STATES, Plaintiff, v. SIX STAR WHOLESALE, INC., Defendant.
CourtU.S. Court of International Trade

Stephen C. Tosini, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, for Plaintiff United States. With him on the motion were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director.

Gordon, Judge:

Before the court is the motion of Plaintiff United States ("the Government"), pursuant to USCIT Rule 55, for a default judgment against Defendant Six Star Wholesale, Inc. ("Six Star"), for a civil penalty in the amount of $ 486,456.04, and unpaid duties in the amount of $ 143,228.02, plus pre- and post-judgment interest and costs. See Pl.'s Mot. for Default J., ECF No. 15 ("Pl.'s Mot."). Defendant failed to answer the complaint, respond to Plaintiff's motion for default judgment, or otherwise appear in this action. The court has jurisdiction pursuant to 28 U.S.C. § 1582(1) (2012) for the recovery of a civil penalty and duties under Section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (2012) ("§ 592").1

For the reasons set forth below, the court grants Plaintiff's motion for a default judgment, and awards the United States the amount of $ 529,684.06 (unpaid duties of $ 143,228.02, and civil penalties of $ 386,456.04). Additionally, the United States is entitled to pre-judgment interest on the unpaid duties, pursuant to 19 U.S.C. § 1677g, post-judgment interest computed in accordance with 28 U.S.C. § 1961, and costs.

I. Background

The United States commenced this action to collect a civil penalty under § 592 for Defendant's alleged negligent misclassification of certain wire hangers and polyethylene retail carrier bags ("PRCBs") (collectively with wire hangers, "subject merchandise") and to recover unpaid duties on the entries of the wire hangers.

A. Wire Hangers

From October 2009 to August 2010, Six Star imported 27 entries of wire hangers from China. See Declaration of Kemal Safadi ¶ 2, ECF No. 15-1 ("Safadi Decl."). Six Star's customs broker described the wire hangers as "clothing racks" and incorrectly classified them under HTSUS 9403.20.0020 with a 0% duty rate, instead of classifying the subject hangers under HTSUS 7326.20.0020 at a 3.9% duty rate. Id. ¶¶ 3, 5. Defendant also filed these entries as type 01 entries rather than as type 03, which is required when imported merchandise is subject to antidumping duties. Id. ¶ 7. In reviewing the entries, U.S. Customs and Border Protection ("Customs") found that the three companies that manufactured the subject hangers refer to themselves on their websites as sellers of wire hangers rather than manufacturers of "clothing racks." Id. ¶ 8. Customs subsequently issued a pre-penalty notice and penalty claim to which Six Star failed to respond. Id. ¶¶ 14, 18. Upon that failure, Customs demanded payment of the duties from Six Star's sureties on the entries of the subject hangers. Id. ¶¶ 16–17. The sureties then paid $ 38,864.06 in duties. Id. After deducting this amount from the calculations, the Government now seeks to recover $ 143,228.02 in lost revenue (unpaid duties) and $ 364,186.16 in a penalty based on Six Star's negligence. Pl.'s Mot. at 2. To date, Six Star has not paid any duties or penalty. Id. at 3–4.

B. Polyethylene Retail Carrier Bag Entries

From October 23, 2009 to July 18, 2010, Six Star imported 14 entries of PRCBs into the United States. Safadi Decl. ¶ 19. Six Star classified the PRCBs under HTSUS 3923.29.0000, dutiable at 3%, instead of classifying the subject PRCBs under HTSUS 3923.21.0085, at the same duty rate. Id. Additionally, Customs determined that the subject PRCBs were subject to antidumping duties in that a majority of the PRCBs were manufactured by a company in China with a company-specific antidumping duty rate of 25.69%, with the remaining PRCBs subject to the China-wide rate of 77.57%. Id. ¶¶ 20, 22. Customs issued a pre-penalty notice and penalty claim for negligence with a penalty of $ 122,271.88, as well as a demand for lost revenue of $ 61,135.94. Id. ¶¶ 23, 25. To date, Six Star has not responded administratively nor paid any duties or penalty; however, Six Star's sureties paid the outstanding duties. Id. ¶¶ 23, 26, 28–29. The Government now seeks a penalty of $ 122,271.88 against Six Star, again based on negligence.

II. Legal Framework

Section 592 governs the assessment of a civil penalty for the negligent entry of imported merchandise into the United States. 19 U.S.C. § 1592. "[N]o person, by ... negligence[,] ... may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of ... any document or electronically transmitted data or information, written or oral statement, or act which is material and false." 19 U.S.C. § 1592(a)(1). "A document, statement, act, or omission is material if it has the natural tendency to influence or is capable of influencing .... [Customs'] determination of an importer's liability for duty ...." 19 C.F.R. Pt. 171, App. B(B) (2009) (emphasis added).

The maximum penalty under § 592 for negligence is the lesser of "(i) the domestic value of the [subject] merchandise, or (ii) two times the lawful duties, taxes, and fees of which the United States is, or may be deprived." 19 U.S.C. § 1592(c)(3). The United States also may recover any unpaid lawful duties regardless of whether a monetary penalty is assessed. Id. § 1592(d).

The burden of proof for recovery of a civil penalty for negligence is initially on the United States "to establish the act or omission constituting the violation." Id. § 1592(e)(4). The burden then shifts to the alleged violator to prove that "the act or omission did not occur as a result of negligence." Id. The alleged violator must "affirmatively demonstrate that it exercised reasonable care under the circumstances." United States v. Ford Motor Co., 463 F.3d 1267, 1279 (Fed. Cir. 2009).

III. Discussion

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. See USCIT R. 55(a), (b) ; see also 10A C. Wright & A. Miller, Federal Practice & Procedure § 2682 (4th ed. 2018). Once the clerk of court has entered a default, the party seeking the default then must apply to the court for entry of a default judgment. See USCIT R. 55(b)(2).

Six Star failed to enter an appearance, file an answer to Plaintiff's complaint, or otherwise defend this action. The Government moved for entry of default, ECF No. 10, which the court granted, ECF No. 11. The Government then filed its motion for a default judgment.

The mere fact that a defendant is in default does not entitle a plaintiff to a default judgment as a matter of right. See City of New York v. Adventure Outdoors, Inc., 644 F.Supp.2d 201, 212 (E.D.N.Y. 2009). Therefore, determining whether to grant a motion for a default judgment lies within the sound discretion of the court. Id. In exercising its discretion, the court considers whether (1) denial of the motion will prejudice plaintiff; (2) defendant has a meritorious defense; and (3) defendant's culpable conduct contributed to the default. See Eastern Elec. Corp. v. Shoemaker Const. Co., 657 F.Supp.2d 545, 551 (E.D. Pa. 2009) (quotation omitted).

On a very basic level, denial of the motion prejudices the Government because Defendant's failure to respond has prevented the Government's collection of lost revenue and penalties. As to the second consideration, Six Star had the opportunity to present a meritorious defense, but chose not to defend this action. Lastly, Six Star's actions (or lack thereof) via its default reflects a conscious disregard for the laws governing the importation of merchandise. Accordingly, the entry of a default judgment is appropriate.

The court now turns to the issues of liability and damages (the amount of the penalty). The entry of a default generally has the effect of establishing liability on the part of the defaulting party. See Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). When a defendant defaults, it admits all well-pled factual allegations contained in the complaint. Although the factual basis for liability is established by the default, the default does not serve as an admission of the claim of liability. Id. Similarly, a party's failure to defend does not operate as an admission of the amount of damages claimed in the complaint. See Cement & Concrete Workers Dist. Council Welfare Fund v. Metro Founds. Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012). The court will enter a default judgement against Six Star if (1) Plaintiff's allegations in its complaint establish liability as a matter of law, and (2) Plaintiff's claim is for a sum certain or for a sum that can be made certain by computation. USCIT R. 55(b).

A. Liability

As discussed above § 592 prohibits the entry of merchandise by means of "any document or electronically transmitted data or information, written or oral statement, or act, which is material and false" when the person acted with fraud, gross negligence, or negligence. 19 U.S.C § 1592(a)(1)(A)(i). In this action the Government alleges that Six Star made material misstatements on its CF-7501 entry summaries by (1) falsely classifying 27 entries of wire hangers as "clothes racks" and (2) failing to declare that those hangers were subject to antidumping duties. Compl. ¶¶ 6–9; Pl.'s Mot. at 6. The Government further alleges that Six Star misclassified its PRCBs and failed to declare that they were subject to antidumping duties. Compl. ¶¶ 14–16; Pl.'s Mot. at 6. The false information that Six Star submitted is material because it influenced Customs' collection of the proper amount of duties on the entries of the subject merchandise. Compl. ¶¶ 10,...

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    ...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 w......
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    ...of merchandise on Customs' entry documentation establishes a false statement."); United States v. Six Star Wholesale, Inc., 43 CIT —, —, 359 F. Supp. 3d 1314, 1317, 1319-21 (2019) (the defendant "falsely classif[ied] 27 entries of wire hangers as 'clothes racks,' " "falsely indicat[ed] that......
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    ...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......
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