US v. Jac Natori Co., Ltd., Court No. 90-08-00445.

• Decision Date: 12 May 1993
• Docket Number: Court No. 90-08-00445.
• Citation: 821 F. Supp. 1514,17 CIT 348
• Parties: UNITED STATES of America, Plaintiff, v. JAC NATORI CO., LTD., Defendant.
• Court: U.S. Court of International Trade

821 F. Supp. 1514

17 CIT 348

UNITED STATES of America, Plaintiff, v. JAC NATORI CO., LTD., Defendant.

Court No. 90-08-00445.

United States Court of International Trade.

May 12, 1993.

Stuart E. Schiffer, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civil Div., U.S. Dept. of Justice, Velta A. Melnbrencis, and Office of Regional Counsel, U.S. Customs Service, I. David Krawet, of counsel, for plaintiff.

Irving A. Mandel and Thomas J. Kovarcik, for defendant.

MEMORANDUM AND ORDER

AQUILINO, Judge:

In this action brought by the government pursuant to 28 U.S.C. § 1582 to recover penalties and duties under 19 U.S.C. § 1592, the defendant, citing CIT Rules 9(b), 12(b)(5), 12(f) and 12(h), has interposed a motion

(1) to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted because the Customs Service failed to perform the condition precedent, i.e., furnishing the decision in the underlying administrative penalty proceeding; (2) to dismiss the fraud claim for facial insufficiency because of failure to plead fraud with particularity; (3) to dismiss the fraud claim for facial insufficiency for failure to plead the proper intent required to establish fraud; (4) to dismiss the duty claim for facial insufficiency and failure to comply with the statute of limitations; (5) to dismiss all penalty claims for failure to comply with the statute of limitations; (6) to dismiss the Complaint in its entirety because the evidence of alleged violations was illegally obtained; and (7) to strike irrelevant references to certain persons in the allegations of the complaint as slanderous.¹

I

For the purposes of a motion such as this, the material allegations of the complaint are taken as admitted and are to be liberally construed in favor of the plaintiff. E.g., Jenkins v. McKeithen, 395 U.S. 411, 421-22, 89 S.Ct. 1843, 1848-49, 23 L.Ed.2d 404, reh'g denied, 396 U.S. 869, 90 S.Ct. 35, 24 L.Ed.2d 123 (1969), and cases cited therein. With this rule in mind, the complaint herein alleges, among other things, that the defendant New York corporation is engaged in the business of importing wearing apparel into the United States from the Republic of the Philippines and that:

6. On September 4, 1985, defendant entered or ... caused to be entered ... various articles of wearing apparel ... under cover of five consumption entries: XX-XXXXXX-X; XX-XXXXXX-X; XX-XXXXXX-X; XX-XXXXXX-X; and XX-XXXXXX-X. On that same date, the U.S. Customs Service ... examined the merchandise covered by these entries and determined that each entry (1) contained merchandise that was not declared on the entries and for which no visa had been obtained, and (2) did not contain merchandise that was declared on the entry documentation.

7. The documents, written or oral statements, acts and/or omissions made in connection with the entries referred to in paragraph 6 above were false because they misdeclared the merchandise that was actually covered by each entry and because all the merchandise was represented as being covered by a visa, when in fact, a visa had not been secured for some of the merchandise.

8. The false statements, acts, and/or omissions, referred to ... were material because they had the potential to affect the liability for customs duties and to allow the importation of restricted merchandise without a proper visa.

The complaint further avers steps taken by Customs to investigate the specified entries, which allegedly led to discovery of some 91 other unlawful entries and issuance of prepenalty and penalty notices to the defendant. Asserting violations of 19 U.S.C. § 1592, the complaint prays in count I for $32,859.04 in penalties for gross negligence; for $16,429.52 in count II based on negligence; and for $5,284,000.00 in count III as a result of fraud. In addition, count IV prays for recovery of lost duties amounting to $1,054,779.00.

II

According to the plaintiff, penalty notices were issued to Jac Natori Co. on December 9, 1988 and March 3, 1989. Section 1592(b)(2) provides, in part, that, upon receipt of a written penalty claim from Customs, a person

shall have a reasonable opportunity under section 1618 ... to make representations, both oral and written, seeking remission or mitigation of the monetary penalty. At the conclusion of any proceeding under such section 1618, the appropriate customs officer shall provide to the person concerned a written statement which sets forth the final determination and the findings of fact and conclusions of law on which such determination is based.

After receipt of those notices, Natori formally petitioned for relief. However, before disposing of the response(s), the Service issued another notice of penalty (in July 1989), from which the company also sought relief. Customs denied all the petitions in February 1990, notifying Natori on March 8, 1990 that it had seven days to file a supplemental petition for relief pursuant to 19 C.F.R. § 171.33.

Defendant's reply memorandum indicates that a supplemental petition was filed, albeit on March 23, 1990, followed by a second supplemental petition on August 14, 1990. The former was denied by the Service, while the second remains undecided, leading the defendant to argue that this lawsuit is premature and should be dismissed. It cites United States v. One Red Lamborghini, 10 CIT 7, 9, 625 F.Supp. 986, 988, vacated as moot, 10 CIT 654 (1986), in which the court refers to grant of a motion to dismiss a counterclaim because "the United States may not bring an action under section 592 against an importer who has pending a petition for mitigation or remission under 19 U.S.C. § 1618 before a final determination is provided to the importer pursuant to section 592(b)(2)". In that case, however, the original request for remission or mitigation pursuant to section 1618 was pending when the government brought suit. See 10 CIT at 8-9, 625 F.Supp. at 988. In this action, there has been administrative resolution of such requests, and this court cannot conclude on the motion presented that petitioner Jac Natori Co. did not have a reasonable opportunity to be heard within the meaning of the above statute. Cf. United States v. Modes, Inc., 13 CIT 780, 723 F.Supp. 811 (1989); United States v. Ross, 6 CIT 270, 574 F.Supp. 1067 (1983). Moreover, if defendant's characterization of the August 13 request as a "second supplemental petition" is well-taken, it failed to pay all penalties and duties claimed to be due and therefore did not meet the condition precedent to decision of such a petition under 19 C.F.R. § 171.33(c)(1). Finally, "no action shall be taken on any petition if the civil liability has been referred to the Department of Justice for institution of legal proceedings"², and, in any event, "failure to provide adequate notice or opportunity to participate at the administrative level is generally not perceived as a jurisdictional prerequisite to an enforcement action brought by the agency." United States v. Priority Products, Inc., 793 F.2d 296, 300 (Fed.Cir.1986).

III

CIT Rule 9(b) requires that in "all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." It is designed to provide defendants with adequate notice: "the rule assures that a defendant will be alerted to the particular transactions in question and be able to mount an effective and meaningful defense." United States v. F.A.G. Bearings Corp., 7 CIT 8, 9, 1984 WL 3699 (1984). The rule, however, must be read in conjunction with Rule 8(a)(2), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Accordingly, Rule 9(b) does not require the pleading of detailed evidentiary matter. United States v. Scope Imports, Inc., 10 CIT 410, 1986 WL 30006 (1986), citing 2A Moore's Federal Practice § 9.03, at 9-28 to 9-30 (1979). See also United States v. Priscilla Modes, Inc., 9 CIT 598, 599, 1985 WL 25788 (1985); 5 Wright & Miller, Federal Practice and Procedure § 1298, at 617-21 (1990). Finally, the

sufficiency of a fraud pleading also varies with the complexity of the transaction in question. When the issues are complicated or the transactions cover a long period of time, courts tend to require less of the pleader.

Id. at 646-47 (citations omitted).

In the complaint at bar, the plaintiff identifies the defendant and its owners and alleges, with several exceptions³, "the time, place and contents" of the alleged misrepresentations, to wit, the dates of entry, entry numbers, port of entry, entered value and appraised value. The complaint further alleges in paragraph 15 that the

documents, written or oral statements, acts and/or omissions made in connection with the entries referred to ... were false in that defendant understated the purchase price and/or value of the merchandise, did not declare assists (purchases of materials and services) provided to FFInternational, and did not reflect additional costs with respect to its purchases from FFI.

Paragraph 28 avers that the false statements, acts, or omissions were made knowingly by the defendant and identifies in Exhibit A the duties paid, the duties due, the revenue loss and the domestic forfeiture value of each entry.

These allegations lead the court to find that the plaintiff has pleaded with sufficient particularity to enable the defendant to respond. See, e.g., United States v. Valley Steel Products Co., 12 CIT 1161, 1162-63, 1988 WL 142564 (1988); United States v. Priscilla Modes, Inc., 9 CIT at 599-600. Indeed, unlike other actions in federal court where a party is first apprised of claims of fraud upon service of the pleadings thereon, actions like this one necessarily entail administrative proceedings beforehand.

A

The defendant claims the "defective allegations of fraud" as a basis for its request that references in the complaint to Natori family members be stricken,...