United States v. Tenacious Holdings, Inc.
| Decision Date | 15 May 2013 |
| Docket Number | Slip Op. 13–62.,Court No. 12–00173. |
| Citation | 917 F.Supp.2d 1322 |
| Parties | UNITED STATES of America, Plaintiff, v. TENACIOUS HOLDINGS, INC. (formerly known as Ergodyne Corporation), Defendant. |
| Court | U.S. Court of International Trade |
OPINION TEXT STARTS HERE
Joshua A. Mandlebaum, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., for Plaintiff. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of counsel on the brief was Philip J. Hiscock, Staff Attorney, Office of Associate Chief Counsel, U.S. Customs and Border Protection, of Chicago, IL.
John M. Peterson, Richard F. O'Neill, and Russell A. Semmel, Neville Peterson LLP, of New York, NY, for Defendant.
Before the Court is a motion to dismiss filed by Defendant Tenacious Holdings, Inc. (“Tenacious”), formerly known as Ergodyne Corporation (“Ergodyne”).1 Tenacious asks the Court to dismiss the case pursuant to USCIT Rule 12(b)(5) for failure to state a claim upon which relief can be granted. In brief, Tenacious argues that the claims underlying the suit of the United States were required to be brought, pursuant to USCIT Rule 13(a), as compulsory counterclaims in a separate case at the Court of International Trade (“CIT”)—the action Ergodyne, Inc. v. United States, Court No. 10–00200 (“the Ergodyne case”).2 Tenacious reasons that the government's failure to assert the penalty claims underlying this case as counterclaims in Ergodyne requires that the Court dismiss the present case.
The Court finds that USCIT Rule 13(a) does not prevent the government's penalty suit from going forward, and the motion to dismiss will therefore be denied.
To resolve Tenacious's motion to dismiss, it is first necessary to set forth the proceedings that have occurred in this case and the interrelated case of Ergodyne.
On July 14, 2010, Tenacious filed the Ergodyne case, naming the United States as defendant. See Summons, Court No. 10–00200, ECF No. 1. Tenacious initiated the Ergodyne case by the filing of a summons, but no complaint—an option permitted by USCIT Rule 3(a). Under USCIT Rule 83, cases initiated by the filing of a summons without a complaint may be placed on the Court of International Trade's (CIT) reserve calendar for a period of 18 months, or longer if the Court grants an extension, before a complaint must be filed. The Ergodyne case was permitted to remain on the reserve calendar without the filing of a complaint until July 30, 2012 on consent of the United States.3
On June 22, 2012, while the time for filing a complaint in the Ergodyne case was under extension, the government filed this penalty case as Court No. 12–00173 (the “ Tenacious case”). About one month after the government filed the Tenacious case, Tenacious sought an extension until the end of 2012 for the Ergodyne case to remain on the reserve calendar. The government opposed the motion. The Court nevertheless granted a partial extension in the Ergodyne case, delaying Tenacious's deadline for the filing of its complaint until November 13, 2012 (later extended until December 13, 2012 on the consent of the government).
During the second extension of time for the Ergodyne case to remain on the reserve calendar, Tenacious filed the motion to dismiss the Tenacious case that is currently before the Court. Tenacious argues by its motion that the penalty claims asserted by the government must be dismissed because they are actually counterclaims that may only be pleaded in the Ergodyne case.4 The government filed its opposition to Tenacious's motion to dismiss the Tenacious case on November 7, 2012, and Tenacious filed a reply in support of the motion on December 3, 2012. The motion has been under submission to the Court for decision since December 17, 2012.
On December 22, 2012, five days after Tenacious filed its motion to dismiss the Tenacious case, Tenacious moved for a stay of all proceedings in the Ergodyne case until such time as its motion to dismiss the Tenacious case was decided. The government opposed. The court denied Tenacious's request for a stay and set February 22, 2013 as the deadline by which Tenacious was required to file its complaint in the Ergodyne case. Tenacious timely filed its Ergodyne complaint and the United States answered on May 9, 2013.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1582 (2006).5 Tenacious's motion to dismiss is brought pursuant to USCIT Rule 12(b)(5), which permitsa party to assert, in motion form, the defense of “failure to state a claim upon which relief can be granted.” In deciding such a motion, “the Court assumes that all well-pled factual allegations are true, construing all reasonable inferences in favor of the nonmovant.” Cisco Systems, Inc. v. United States, 804 F.Supp.2d 1326, 1330, 35 CIT ––––, –––– (2011) (internal quotations and citations omitted). The Supreme Court has indicated that, “[t]o 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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
Tenacious starts from the premise that, as to the 35 entries whose classification is disputed in the Ergodyne case and upon which the United States also seeks to impose penalties in the current case, the government can only seek to recover civil penalties for negligent misclassification by filing its penalty claim as a counterclaim in the Ergodyne case. Def.'s Mem. of Law in Supp. of Def.'s Mot. to Dismiss (“Def. Mem.”) at 3–4, ECF No. 10–2. Tenacious claims this despite the fact that (as of the time Tenacious filed this motion) it had not yet filed a complaint in the Ergodyne case; in Tenacious's view, the absence of a complaint in the Ergodyne case was a difficulty that the government was obliged to overcome by forcing Tenacious to file its complaint. Def. Mem. at 4.
As statutory support for this theory, Tenacious invokes 28 U.S.C. § 1583, which vests exclusive jurisdiction in the CIT to enter judgment on “any counterclaim” in a civil action filed at the CIT, if the counterclaim “involves the imported merchandise that is the subject matter of such civil action” or “is to recover upon a bond or customs duties relating to such merchandise.” Id. at 4. Tenacious also cites USCIT Rule 13(a), which states: “A pleading must state as a counterclaim any claim that—at the time of its service—the pleader has against an opposing party if the claim (1) involves the imported merchandise that is the subject matter of the civil action, or (2) is to recover on a bond or customs duties relating to such merchandise.” Tenacious suggests that § 1583, taken in conjunction with Rule 13(a), requires that “a claim must be pleaded as a counterclaim in the CIT if it involves the imported merchandise that is the subject matter of [the] civil action.” Def.'s Reply in Supp. of Def.'s Mot. to Dismiss (“Reply”) at 3, ECF No. 19 (emphasis added, internal quotations omitted). Tenacious reasons that the government's penalty claims in the Tenacious case involve “the imported merchandise that is the subject” of the Ergodyne case because they stem in large part from the classifications Tenacious gave to entries that are the focus of the Ergodyne classification case. Def. Mem. at 6–7 (internal quotations omitted). It was therefore mandatory, according to Tenacious, for the government to bring those claims as counterclaims in the Ergodyne case, and to avoid initiating a separate penalty case as the government did in commencing the Tenacious case. Id. at 7.
Tenacious urges the Court to dismiss the government's complaint as to the 35 entries that overlap with the Ergodyne case, claiming that such a consequence is required for violation of the compulsory counterclaim rule. Id. at 9–11. Tenacious gets to this conclusion by claiming that, “[b]ecause the Government's claims are barred, the Court cannot grant relief thereupon” and that “[t]he principles of judicial economy, expediency, and fairness weigh heavily in favor of dismissing this action, rather than allowing two duplicative lawsuits ... to move forward on separate tracks.” Id. at 10.
The penalty claims in the Tenacious case are based on allegedly negligent misclassification of the 35 entries underlying the Ergodyne case, as well as 16 other entries. Id. at 11. Tenacious suggests that the complaint in the Tenacious case should be dismissed in its entirety, and not just as to the 35 entries that overlap, “without prejudice to the filing of a new, properly-pleaded action,” apparently as a punishment “because there was no reasonably [sic] excuse for the government's disregard of the applicable rules.” Id.
Tenacious supports this aspect of its argument by citing USCIT Rules 3(a) and 13(h), along with case law. Since the Ergodyne case was formally “commenced,” within the meaning of USCIT Rule 3(a), by the filing of a summons, argues Tenacious, the government should have known that it had to file any penalty claims in that action. Id. at 12. And while Tenacious admits that it filed no complaint in the Ergodyne case, and therefore the government could not yet file a counterclaim, Tenacious insists that the government was nevertheless barred from filing a separate penalty action. Id. Instead, Tenacious suggests that the government should have subjected Tenacious to motion practice in order to force Tenacious to file its complaint in the Ergodyne case,...
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