United States v. Trek Leather, Inc.
| Decision Date | 16 September 2014 |
| Docket Number | No. 2011–1527.,2011–1527. |
| Parties | UNITED STATES, Plaintiff–Appellee, v. TREK LEATHER, INC., Defendant, and Harish Shadadpuri, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Federal Circuit |
Stephen C. Tosini, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With him on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director.
John J. Galvin, Galvin & Mlawski, of New York, New York, argued for defendant-appellant.
Before PROST, Chief Judge, NEWMAN, LOURIE, DYK, MOORE, O'MALLEY, REYNA, WALLACH, TARANTO, and CHEN, Circuit Judges.*
Harish Shadadpuri transferred ownership of merchandise, while it was in transit to the United States, to a company he chose to be the importer of record for its entry into United States commerce. He also furnished to the hired customs broker, for use in completing and submitting the entry documents required for clearance through the Bureau of Customs and Border Protection (CBP), commercial invoices that materially understated the value of the merchandise, thereby reducing the calculated customs duties. We hold that, by those actions, Mr. Shadadpuri “introduced” the merchandise into United States commerce by means of the undervaluation within the meaning of 19 U.S.C. § 1592(a)(1)(A). Because it is undisputed that he was grossly negligent in his actions, Mr. Shadadpuri violated section 1592(a)(1)(A). We affirm the judgment of the Court of International Trade holding him liable.
Section 1592(a)(1) of Title 19, U.S.Code, provides:
19 U.S.C. § 1592(a)(1). That provision was the same in 2004, when the merchandise at issue here was imported. Section 1592 goes on, among other things, to specify procedures for enforcement of the quoted prohibitions and to provide penalties for violations, the authorized penalties depending on whether a violation involves fraud, gross negligence, or negligence. Id. § 1592(b), (c).
This case began in 2009, when the government filed a complaint in the Court of International Trade, invoking that court's jurisdiction under 28 U.S.C. § 1582 and alleging a violation of section 1592(a)(1). The complaint names Trek Leather, Inc., and Mr. Shadadpuri as defendants, alleging that Mr. Shadadpuri was Trek's president, and directed its business, at the time at issue. It charges that, between February 2, 2004, and October 8, 2004, the two defendants “entered or introduced or attempted to enter or introduce men's suits into the commerce of the United States” by means of “false acts, statements and/or omissions” that “understated the dutiable value of the imported merchandise” for the 72 itemized entries, resulting in an underpayment of $133,605.08 in duties. Complaint, United States v. Trek Leather, Inc., Case No. 1:09–cv–00041–NT (Ct. Int'l Trade Jan. 28, 2009), at 1–2. According to the complaint, CBP had issued a penalty notice, and some of the properly calculated duties, and all of the penalties CBP sought to impose, remained unpaid. Id. at 2–3. The complaint includes separate counts alleging fraud, gross negligence, and negligence, and it seeks to recover penalties, unpaid duties, and interest. Id. at 3–5.
In late 2010, after discovery took place, the government filed a motion for summary judgment of liability. The defendants opposed the motion; they also moved to dismiss the fraud count and argued that Mr. Shadadpuri personally could not be liable without fraud. The filings and accompanying evidence establish the following facts beyond genuine dispute. We rely mainly on the government's statement of uncontested facts (“Gov't Facts”) and the defendants' response, which admits most of the government's stated facts (“Def. Facts”).
Trek “is the importer of record for men's suits reflected in the 72 entry lines at issue in this case,” and Mr. Shadadpuri is the president and sole shareholder of Trek, whose activities he directed from January 2003 to December 2004. Gov't Facts at 1, 6.1 From February 2, 2004, to October 8, 2004, “Mr. Shadadpuri imported men's suits through one or more of his companies, including Trek.” Id. at 1. “Mr. Shadadpuri, through Trek and/or one of his other companies, provided” fabric to the manufacturer of the suits at issue free of charge or at reduced cost. Id.; see id.at 6. The statute labels such a subsidized component an “assist.”2
By providing the manufacturer free or subsidized components, like the “fabric assists” here, an importer reduces the manufacturer's costs, and the manufacturer may then reduce the price it charges for the merchandise once manufactured. A suit maker, if it obtains its fabric for free, might shave $100 off the price it charges for a suit. In this case, “[t]he material assists ... were not part of the price actually paid or payable to the foreign manufacturers of the imported apparel.” Def. Facts at 2. In such circumstances, the manufacturer's invoice price understates the actual value of the merchandise, and if the artificially low invoice price is used as the merchandise's value when calculating customs duties based on value, disregarding assists results in understating the duties owed. To address such an artificial reduction of customs duties, the statute and regulations expressly require that the value of an “assist” be incorporated in specified circumstances into the calculated value of imported merchandise used for determining the duties owed. 19 U.S.C. § 1401a(a)(1), (b)(1), (e)(1) ; 19 C.F.R. §§ 152.101(b)(1), 152.103(a), (b), (d) ; see generally 19 U.S.C. §§ 1401a (value), 1500 (appraisal), 1503 (dutiable value).
Initially, all of the 72 shipments at issue here “were invoiced and shipped to non-party Mercantile Electronics, LLC,” of which Mr. Shadadpuri was president and 40 shareholder. Gov't Facts at 1. But “[w]hile the subject men's suits were in-transit, Mr. Shadadpuri caused the shipments of the imported merchandise to be transferred from Mercantile Electronics to Trek.” Id. at 1–2. Mr. Shadadpuri did so after receiving the manufacturer's invoice and deciding “which of his various companies had the funds to pay for the shipment.” Id. at 4; Def. Facts at 3. “Once he determined that the shipments of the men's suits at issue here would be imported by Trek, he contacted his broker, non-party Vandegrift Forwarding Company, Inc. (‘Vandegrift’), and directed that the merchandise be transferred while in transit.” Gov't Facts at 4.
“The dutiable value of the men's suits imported by Trek and Mr. Shadadpuri did not include the value of the fabric assists.” Id. at 2; see id. at 6. It is undisputed that the omission of that value violated statutory and regulatory obligations to state a proper value when filing the “entry” documentation required “to secure the release of imported merchandise from [CBP] custody.” 19 C.F.R. § 141.0a (defining “entry”).3 Moreover, Mr. Shadadpuri has acknowledged that “[p]rior to importing the men's suits at issue in this case, [he] knew that fabric assists must be included on the import documentation.” Def. Facts at 2; see Gov't Facts at 6. Mr. Shadadpuri had been so informed by CBP (actually, by its predecessor, the U.S. Customs Service) during an investigation of similar undervalued importations in 2002. Gov't Facts at 2–3.
The CBP Form 7501 “entry summary” forms used for entry in this case list Trek as the importer of record, and they were prepared and submitted to CBP by Vandegrift, the customs broker “hired by Harish Shadadpuri,” and signed by a Vandegrift representative. See Decl. of Michael Toole (Vandegrift vice president), Gov't Summ. Jdgt. App. (“SJ App.”) A155; SJ App. A314–78 (corrected 7501s); Def. Summ. Jdgt. App. at CBP1203–2197 (). Vandegrift prepared the submissions based on papers he received from Mr. Shadadpuri and his aides. When the suit manufacturer was ready to ship completed suits, it sent Mr. Shadadpuri an invoice (SJ App. A419–20), and he and his aides sent it to Vandegrift: “I would fax, or my person who would help me would send a fax to the broker and the broker would file the entry.” SJ App. A409 (Shadadpuri testimony). See also Def. Facts at 3 (); SJ App. A422–23 ().
The “majority of invoices” sent to Vandegrift “did not contain any values or information reflecting the fact that fabric assists had been provided.” Gov't Facts at 4; Def. Facts at 3; see SJ App. A166–240 (invoices).4 When CBP began investigating, “Vandegrift determined that the majority of invoices and other information that had been provided by Mr. Shadadpuri did not disclose that any fabric assist had been provided.” Gov't Facts at 4. Mr. Shadadpuri then “obtained new invoices from the manufacturer that revealed the fact that a fabric assist was provided, and the amount of the fabric assist.” Id. Using the new invoices, Vandegrift prepared and submitted to CBP corrected entry documents showing the amount of duties...
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