US v. Chow, Court No. 93-03-00139. Slip Op. No. 93-239.
| Decision Date | 20 December 1993 |
| Docket Number | Court No. 93-03-00139. Slip Op. No. 93-239. |
| Citation | 841 F. Supp. 1286,17 CIT 1372 |
| Parties | UNITED STATES, Plaintiff, v. Kirk Koo CHOW, Defendant. |
| Court | U.S. Court of International Trade |
Frank W. Hunger, Asst. Atty. Gen., David M. Cohen, Director, Civ. Div., Commercial Litigation Branch, U.S. Dept. of Justice, Edmund W. Chapman, C. Parker-Harrison, U.S. Customs Service, Washington, DC, of counsel, for plaintiff.
Law Offices of Stephen M. Creskoff, Stephen M. Creskoff, Washington, DC, and Geary, Porter & West, Joseph W. Geary, Dallas, TX, for defendant.
Plaintiff commenced this action to recover civil penalties for violations of 19 U.S.C. § 1592 (1988) and to recover marking duties provided in 19 U.S.C. § 1304(f) (1988) pursuant to 19 U.S.C. § 1592(d). Defendant moves to dismiss the entire action pursuant to USCIT Rule 12(b)(1) for lack of subject matter jurisdiction; to dismiss Count II of the complaint pursuant to USCIT Rule 12(b)(5) for failure to state a claim upon which relief can be granted; and to dismiss the complaint pursuant to USCIT Rules 9(b) and 12(b)(5) for failure to state a claim upon which relief can be granted. In the alternative, defendant moves pursuant to USCIT Rules 12(e) and 9(b) for a more definite statement.
Defendant Kirk Koo Chow was the owner and Chief Executive Officer of National Hand Tool (NHT) from the time he established the company in 1978 until its sale to The Stanley Works (Stanley) on December 31, 1986. After the sale of NHT to Stanley, Mr. Chow was employed as a consultant by Stanley and was subsequently elected to Stanley's Board of Directors.
According to plaintiff, NHT engaged in the business of importing and distributing throughout the United States socket wrenches, sockets, socket drives and extensions, hammers, screwdrivers and iron or steel crowbars/pry bars. Defendant maintains NHT imported a small amount of finished hand tools for resale, manufactured sockets from imported CHQ steel, and imported forgings and semi-finished hand tool parts transforming them into finished ratchet wrenches and other hand tools.
Customs sent Mr. Chow a prepenalty notice on October 2, 1990 concerning entries of merchandise during the period from November 28, 1983 through August 10, 1988. The notice provided for a seven-day response period and defendant filed his response within this time frame on October 8, 1990.
On October 17, 1990, Customs issued a penalty notice to defendant setting forth the same allegations contained in the prepenalty notice. This notice also provided for a seven-day response period. Defendant responded timely by filing a petition for remission or mitigation on October 24, 1990.
Customs issued an administrative decision in this proceeding on January 2, 1991, and on January 9, 1991, defendant filed a supplemental petition. No action was taken upon the supplemental petition. Plaintiff subsequently referred the matter to the Department of Justice and a summons and complaint were filed on March 3, 1993.
Plaintiff alleges in Count I of its complaint that Mr. Chow aided and abetted NHT and Stanley in entering merchandise into the commerce of the United States by means of fraud and in violation of 19 U.S.C. § 1592(a). In Count II of its complaint, plaintiff claims defendant is liable for duties on the listed entries from which the country of origin markings were removed.
Defendant moves to dismiss the action on the following grounds: (1) this Court lacks jurisdiction over the subject matter of this case because of plaintiff's failure to comply with the required administrative procedures of 19 U.S.C. § 1592(b); (2) Count II of the complaint fails to state a claim upon which relief may be granted; and (3) plaintiff has not set forth the circumstances allegedly constituting defendant's aiding and abetting of fraud with the requisite particularity. Defendant has alternatively moved for a more definite statement.
Defendant first argues this Court lacks jurisdiction due to plaintiff's failure to follow the required administrative procedures of 19 U.S.C. § 1592(b). Specifically, defendant claims he was (1) not given an adequate description of the merchandise allegedly involved; (2) not informed regarding the facts and details as to how he allegedly aided and abetted the alleged fraud; (3) not given an opportunity to review entry and commercial documents relating to the case; and (4) not given sufficient time to respond to the charges.
Plaintiff, however, contends it complied with the administrative procedures of 19 U.S.C. § 1592 by (1) accurately describing the merchandise at issue; (2) disclosing the material facts establishing the alleged violation; (3) providing defendant with the opportunity to review entry documents relating to the case; and (4) affording defendant a seven-day time period pursuant to 19 C.F.R. § 162.78 (1990) and 19 C.F.R. § 171.12 (1990) for prepenalty and penalty responses.
In Count II of its complaint, plaintiff seeks to recover marking duties. According to Mr. Chow, however, the U.S. Customs Service has already held that he was not liable for marking duties because he was not the importer of record. Additionally, defendant argues marking duties accrue only at the time of importation and paragraphs 13 and 14 of plaintiff's complaint allege that all imports or their containers were properly marked at the time of importation.
Customs maintains it correctly assessed marking duties pursuant to 19 U.S.C. § 1304(f). According to plaintiff, the merchandise was not properly marked at the time of importation for purposes of 19 U.S.C. § 1304, because the merchandise did not reach the ultimate purchaser properly marked.
Defendant argues plaintiff has failed to satisfy USCIT Rule 9(b)'s requirement that "in all averments of fraud and mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Plaintiff rebuts this argument claiming the complaint "provides extremely detailed information concerning specific acts by defendant." Plaintiff's Brief at 23.
Customs alleges Kirk Koo Chow fraudulently violated 19 U.S.C. § 1592. This statute sets forth penalties for fraud, gross negligence, and negligence, as well as the procedures Customs must follow at the administrative level in pursuing its claims for monetary penalties. Defendant claims Customs failed to follow these procedures. Among other requirements, the statute states the defendant "shall have a reasonable opportunity to make representations, both oral and written, as to why a claim for monetary penalty should not be issued in the amount stated." 19 U.S.C. § 1592(b)(1)(A)(vii) (emphasis added). To this end, Customs is guided by 19 C.F.R. § 162.78, which provides the time period within which the defendant must respond to a prepenalty notice.
The relevant language of this regulation is as follows:
19 U.S.C. § 1621.
As plaintiff states in its brief, this action "only seeks a penalty for fraudulent violations of 19 U.S.C. § 1592." Plaintiff's Brief at 9; see also Prepenalty Notice and Penalty Notice. The statute of limitations therefore, runs until "five years after the time when the alleged offense was discovered." 19 U.S.C. § 1621. Because plaintiff did not allege in its complaint, prepenalty notice or penalty notice a violation arising out of gross negligence or negligence, the statute of limitations is not properly measured from "the date the alleged violation was committed." 19 U.S.C. § 1621.1
Customs states in its complaint it "had no knowledge of any of the false and material statements, acts and/or omissions, alleged in the above paragraphs, before March 3, 1988." Complaint at ¶ 18. At the time Customs commenced its administrative investigation on October 2, 1990, the statute of limitations would not have run for another two years and five months. As a result, Customs is unable to demonstrate less than one year remained before Mr. Chow could have asserted the statute of limitations as a defense. Pursuant to 19 C.F.R. § 162.78(a) and 19 C.F.R. § 171.12, therefore, Customs should have provided Mr. Chow with a thirty-day response period.
Defendant's counsel pointed out to Customs its obligation to provide defendant with a thirty-day response period. ...
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