United States v. Sterling Islands, Inc.

• Citation: 391 F.Supp.3d 1027
• Decision Date: 20 May 2019
• Docket Number: No. CR 18-4176 JB,CR 18-4176 JB
• Parties: UNITED STATES of America, Plaintiff, v. STERLING ISLANDS, INC.; Al-Zuni Global Jewelry, Inc.; Jawad "Joe" Khalaf; Nader Khalaf; Nashat "Nash" Khalaf; Zaher Mostafa, and Taha "Tom" Shawar, Defendants.
• Court: U.S. District Court — District of New Mexico

391 F.Supp.3d 1027

UNITED STATES of America, Plaintiff,
v.
STERLING ISLANDS, INC.; Al-Zuni Global Jewelry, Inc.; Jawad "Joe" Khalaf; Nader Khalaf; Nashat "Nash" Khalaf; Zaher Mostafa, and Taha "Tom" Shawar, Defendants.

No. CR 18-4176 JB

United States District Court, D. New Mexico.

Filed May 20, 2019

391 F.Supp.3d 1029

John C. Anderson, United States Attorney, Sean J. Sullivan, Kristopher N. Houghton, Assistant United States Attorneys, United States Attorney's Office, Albuquerque, New Mexico, Attorneys for the Plaintiff.

Mark T. Baker, Carter B. Harrison, IV, Peifer, Hanson & Mullins, P.A., Albuquerque, New Mexico, Attorneys for Defendants Sterling Islands, Inc. and Jawad Khalaf.

Ahmad Assed, Richard J. Moran, Law Office of Ahmad Assed, Albuquerque, New Mexico, Attorneys for Defendant Nader Khalaf.

John W. Boyd, Marry (Molly) E. Schmidt-Nowara, Karen Grohman, Freedman, Boyd, Hollander, Goldberg, Urias & Ward, P.A., Albuquerque, New Mexico, Attorneys for Defendant Nashat Khalaf.

Matthew M. Beck, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, New Mexico, Attorney for Defendant Zaher Mostafa.

MEMORANDUM OPINION AND ORDER

James O. Browning, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on the Defendants' Joint Opposed Rule 12(b) Motion to Dismiss Counts 2 and 3, and to Partially Dismiss Count 1, of the Indictment, filed February 15, 2019 (Doc. 34)("Motion"). The primary issues are: (i) whether, under 18 U.S.C. § 545, a regulation promulgated by the United States Department of the Treasury (the "Treasury Department") constitutes a law for the purposes of 18 U.S.C. § 545's "contrary to law" element, 18 U.S.C. § 545 ; (ii) whether, if a regulation can constitute a law for the purposes of 18 U.S.C. § 545's contrary-to-law element, 19 C.F.R. § 134.43 constitutes such a law; and (iii) whether the Indictment, filed December 19, 2018 (Doc. 1), in Counts 2 and 3 and Count 1 to the extent it is based on a conspiracy to violate 18 U.S.C. § 545, fails to state an offense against Defendants Sterling Islands Inc., Al-Zuni Global Jewelry, Inc., Jawad Khalaf ("J. Khalaf"), Nader Khalaf, Nashat Khalaf, Zaher Mostafa, and Taha "Tom" Shawar (collectively, the "Defendants"), as required by rule 12(b)(3)(B)(v) of the Federal Rules of Criminal Procedure, because 19 C.F.R. § 134.43 fails to qualify as a law which the Defendants may be charged with violating. The Court concludes that (i) a Treasury Department regulation constitutes a law for the purposes of 18 U.S.C. § 545's contrary-to-law element, because the plain meaning of the word law in 18 U.S.C. § 545 includes both statutes and regulations; (ii) Treasury Department regulation 19 C.F.R. § 134.43 constitutes a law for 18 U.S.C. § 545's purposes; and (iii) the Indictment states an offense against the Defendants in Counts 1, 2, and 3. The Court denies the Motion.

FACTUAL BACKGROUND

The Court takes its facts from the Indictment. See generally Indictment. The Court does not set forth these facts as findings or the truth. The Court recognizes that the Indictment is largely the United States' version of events and that the Defendants are presumed innocent. Indictment at 1.

391 F.Supp.3d 1030

Sterling Islands is a corporation registered in the Commonwealth of Virginia, with its primary business office in Albuquerque, New Mexico. See Indictment ¶ 1, at 1. Sterling Islands imports Native American-style jewelry, arts, and crafts, from a factory in the Republic of the Philippines -- a manufacturer called Fashion Accessories 4 U ("Fashion Accessories") -- into the United States, and sells the imported merchandise to wholesale and retail businesses in the State of New Mexico and elsewhere. See Indictment ¶ 1, at 1. J. Khalaf is Sterling Islands' owner and president, and Nader Khalaf is a manager. See Indictment ¶ 1, at 1. Al-Zuni Global is a registered corporation in New Mexico, operating as a wholesale business in Gallup, New Mexico, "specializing in Native-American style jewelry, arts, and crafts." Indictment ¶ 2, at 1-2. Nashat Khalaf is Al-Zuni Global's owner and president, and Mostafa is its vice-president. See Indictment ¶ 2, at 2. Shawar owns Bullion Jewelers, Inc., "a retail store in Breckenridge, Colorado, specializing in the sale of Native American-style jewelry." Indictment ¶ 3, at 2.

The Indictment charges that the Defendants imported Native American-style jewelry, arts, and crafts from the Philippines into the United States without legally required indelible markings, and sold the imported merchandise to customers, falsely representing that Native Americans made the merchandise. See Indictment ¶ 4, at 2. According to the Indictment, from approximately 2009, to October, 2015, Sterling Islands, Al-Zuni Global, J. Khalaf, Nader Khalaf, Nashat Khalaf, Mostafa, and Shawar

knowingly, unlawfully, and willfully combined, conspired, confederated, agreed, and acted interdependently with one another and with others known and unknown to the Grand Jury to commit the offenses of smuggling goods into the United States, contrary to 18 U.S.C. § 545, and violating the Indian Arts and Crafts Act, contrary to 18 U.S.C. § 1159.

Indictment ¶ 5, at 2.

Sterling Islands allegedly purchased and received large shipments of Native American-style jewelry, arts, and crafts from Fashion Accessories and imported them into the United States. See Indictment ¶ 6a, at 3. Al-Zuni Global received and distributed wholesale large quantities of the imported merchandise. See Indictment ¶ 6b, at 3. The imported merchandise bore no permanent country-of-origin markings, and the Defendants sold the imported merchandise to wholesale and retail customers in New Mexico and elsewhere, including to customers who placed orders to "copy and reproduce jewelry, arts, and crafts made by Indian artists." Indictment ¶¶ 6c-e, at 3. The Defendants provided wholesale customers with Native American-style jewelry, arts, and crafts "with removable stickers indicating the items were made in the Philippines," but not with permanent country-of-origin markings, and the Defendants deceived retail customers by "misrepresenting Native American-style jewelry, arts, and crafts imported from the Philippines as made by Native Americans in the United States." Indictment ¶¶ 6f-g, at 3. The Defendants received millions of dollars in revenue from their sales of the imported merchandise. See Indictment ¶ 6h, at 3.

Regarding the Indictment's Count 1, charging the Defendants with violation of 18 U.S.C. § 371, Conspiracy to Defraud the United States, by committing the offenses of smuggling goods into the United States in violation of 18 U.S.C. § 545 and violating the Indian Arts and Crafts Act contrary to 18 U.S.C. § 1159, the Indictment charges that the Defendants "committed and caused to be committed" several overt acts, which the Indictment's paragraphs 7-31

391 F.Supp.3d 1031

outline. Indictment ¶¶ 7-31, at 4-7. On or about August 30, 2009, Shawar signed a check from his store, Bullion Jewelers, to J. Khalaf for $10,000.00. See Indictment ¶ 8, at 4. On or about March 16, 2012, Shawar sent Nader Khalaf an email about a jewelry order, in which he asked him, "If I send you some samples do you think you could make them for us in the Philippines?" and told him, "I don't want the guy I get them from to freak" because "they are ‘his designs.’ " Indictment ¶ 9, at 4 (internal quotation marks for emphasis and not for quotation). On or about May 29, 2012, Sterling Islands received from Fashion Accessories a shipment of Native American-style jewelry, including silver bracelets, without any permanent country-of-origin markings, which were "engraved with the letters ‘CR.’ " Indictment ¶ 10, at 4. On or about July 23, 2013, Shawar emailed Nader Khalaf regarding a jewelry order, and asking Nader Khalaf to "make sure they ship the item with the letters E.Y." Indictment ¶ 16, at 6. Then, on or about July 23, 2013, Nader Khalaf emailed Fashion Accessories, stating in the message, "please make but be sure to make initials E.Y. Not urgent, just send with next shipment." Indictment ¶ 17, at 5. Shawar then displayed imported, Native American-style necklaces, rings, and bracelets for sale at Bullion Jewelers, and, on or about August 5, 2014, in Breckenridge, Shawar sold a necklace engraved with the letters "E.Y.," but bearing no permanent country-of-origin markings, to undercover investigators posing as customers. Indictment ¶¶ 19-20, at 5. Shawar "falsely stated to the customer, in sum and substance, that ‘Edison Yazzie,’ a Navajo artist, made the necklace in the United States." Indictment ¶ 20, at 6. On the same day, Shawar sold a bracelet lacking permanent country-of-origin markings to undercover investigators posing as customers and falsely stated that a Zuni artist in the United States made the bracelet. See Indictment ¶ 21, at 6.

Sterling Islands received another shipment from Fashion Accessories on or about July 30, 2012, containing a pendant and ring, both without permanent country-of-origin markings, inside packaging labeled "Al-Zuni Sample." Indictment ¶ 11, at 4. On or about August 3, 2012, Mostafa sent a note to Nader Khalaf, requesting that Nader Khalaf ask "Uncle Joe" to make some silver canteens for Al-Zuni Global. Indictment ¶ 12, at 4. On or about August 3, 2012, Nader Khalaf sent an email...