US v. Menard, Inc., Court No. 89-05-00238.
| Decision Date | 21 May 1992 |
| Docket Number | Court No. 89-05-00238. |
| Citation | 795 F. Supp. 1182,16 CIT 410 |
| Parties | UNITED STATES of America, Plaintiff, v. MENARD, INC., Defendant. |
| Court | U.S. Court of International Trade |
Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Jane E. Meehan, Atty., Washington, D.C., for plaintiff U.S.
Irving A. Mandel, New York City (Thomas J. Kovarcik, of counsel), for defendant Menard, Inc.
This is an action in which the government seeks to enforce civil penalties and collect customs duties, pursuant to 19 U.S.C. § 1592 (Tariff Act of 1930, § 592). Jurisdiction is based on 19 U.S.C. § 1582. The matter is currently before the Court pursuant to defendant's motion for summary judgment and plaintiff's cross-motion for partial summary judgment.
Defendant is a closely held corporation with headquarters in Eau Claire, Wisconsin. It operates retail home centers in Wisconsin, Minnesota, Iowa, North Dakota and Illinois, and also builds and sells post frame buildings, and manufacturers building components. In the period from 1983 to 1986, Menard imported hardware and housewares from Taiwan, through several ports of entry.
On April 29, 1986, the Minneapolis region District Director of Customs was advised by certain customs brokers in Minneapolis that Menard, Inc. had submitted entry documents to Customs which contained undervalued prices on imported merchandise. As a result, Customs investigated the matter, and performed a regulatory audit upon Menard's books and records in Eau Claire for the period of October, 1983 through May, 1986.
Customs auditors reviewed 1,954 entries filed by Menard during that period.
The audit showed that Menard was taking credit for previously imported, allegedly defective merchandise by deducting a determined amount from the amount due on the current purchase orders. The vendor adjusted unit prices for items ordered to give Menard credit on previously imported items which were claimed to be defective.
Customs determined that this practice resulted in loss of revenue of $53,215.30 upon imported merchandise. The loss resulted from undervalued prices of merchandise declared upon one hundred and forty Customs consumption entries. Customs issued a prepenalty notice to Menard on December 5, 1988, stating that it proposed to assess a monetary penalty of more than $200,000 (four times the loss of revenue) for gross negligence pursuant to 19 U.S.C. § 1592. Menard officials attended an oral conference with Customs in Minneapolis, and Menard submitted prepenalty response on December 20, 1988. On January 12, 1989, Customs issued Menard a penalty notice in the amount of $106,209.90 (two times the amount of lost revenue), for negligent violation pursuant to 19 U.S.C. § 1592. Correspondence ensued, and the assessed penalty was not paid.
On May 4, 1989, the government instituted this action to collect the lost duties and civil penalty assessed against Menard. Its complaint alleges 1) "the violations of 19 U.S.C. § 1592 ... were the result of negligence and the penalty for negligence is $100,326.62, which amount represents two times the lawful duties of which the United States was deprived," and 2) "pursuant to 19 U.S.C. § 1592(d), defendant is liable for customs duties owed in the amount of $50,163.31 plus interest."
Section 1592 provides for "penalties for fraud, gross negligence, and negligence." It states:
19 U.S.C. § 1592(a)(1).
The penalty provision of the statute provides:
19 U.S.C. § 1592(c)(3). Under § 1592(e)(4), "if the monetary penalty is based on negligence, the United States shall have the burden of proof to establish the act or omission constituting the violation, and the alleged violator shall have the burden of proof that the act or omission did not occur as a result of negligence."
Defendant Menard has moved for summary judgment pursuant to Rule 56 of the Rules of the United States Court of International Trade, seeking to dismiss the government's case for three reasons. It claims that 1) evidence of a false statement or document, essential to a § 1592 penalty claim, does not exist; 2) that the statute of limitation for collecting duty on subject entries has expired, and 3) that it does not owe any money to the government, having not only paid the Customs duty owed, but having paid it earlier than the law required, so that "equitable recoupment" bars the government from collecting these duties twice.
Essentially, the parties do not dispute the facts regarding the importation. Both seem to agree that a previous importation of merchandise, on which duties were paid, turned out to be defective. They also agree that there was a later importation of merchandise, which is the subject of this case, and that Menard adjusted the declared value of the later merchandise in order to compensate itself for duties previously paid on merchandise later determined to be defective. What divides the parties is the question of the propriety of the manner in which Menard made those adjustments.
Menard's explanation of its position is relatively straightforward:
Menard's system of accounting for defective merchandise did not involve filing protests to receive duty refunds on the defective shipments. Instead, it negotiated price credits on later shipments from the same vendor. The auditors verified this practice.... The purchase orders for the subject merchandise did not reflect the negotiated credits, and therefore contained price quotations that were higher than the invoice prices.... Customs admits that Menard accepted and paid the invoice prices. Thus, the invoice prices, not the purchase orders, reflected the "price paid or payable" for the subject merchandise.
Defendant's Motion for Summary Judgment at 4.
Menard alleges that Customs is attempting to collect duty twice by seeking duty on the merchandise at its price prior to the price reductions negotiated to compensate for the previously imported defective merchandise. It assets that the requirements of § 1592(a)(1)(A)(i) for the presence of a statement or statements which are "material and false" have not been met because there are no such statements. Menard maintains that the "price actually paid or payable for the merchandise," under § 402 of the Tariff Act of 1930, was the invoice price. Since Menard agreed to and actually did pay duties on those prices, it claims that it declared the correct dutiable values and paid the proper amount to Customs.
Finally, Menard alleges that the Court has upheld a ninety day statute of limitations for actions to collect duties under § 1592 penalty cases which do not involve fraud. Menard interprets the statute as stating that in penalty cases not involving fraud, "a protest of a decision, order, or finding described in subsection (a) of this section shall be filed with such customs officer within ninety days after but not before — (A) notice of liquidation or reliquidation." 19 U.S.C. § 1514(c)(2)(A). The subject entries were made between 1984 and 1986, and the action was commenced on or about May 4, 1989. Thus, Menard claims that the government is barred from collecting additional duties on these entries.
Defendant Menard also asserts that under the theory of equitable recoupment, it is entitled to a refund for previous overpayment of duties on defective merchandise, despite the fact that the time to file protests has expired. Under this theory, there is no money owed for the government to collect, that is to say, previous overpayment established a sort of credit from which the government may theoretically deduct any balance it believes it is owed by Menard.
In its cross-motion for partial summary judgment, the government asks the Court to find that defendant-Menard negligently violated 19 U.S.C. § 1592 and enter partial summary judgment in its favor. In the alternative, the government asks the Court to specify those facts that appear without substantial controversy, pursuant to C.I.T. Rule 56(e).
The government alleges that the purchase orders, containing price quotations which did not include the defective merchandise credits, reflect the proper dutiable values. It claims that Menard caused statements to be made which represented the price or value of the entries to be lower than the actual purchase prices. The statements were material, inasmuch as they caused the government to lose customs duties. The government further argues that its claims are not time-barred, since there is no specified period within which the government must institute an action to collect lost duties pursuant to 19 U.S.C. § 1592(d).
In addition, the government asserts that Menard is not entitled to recoupment because 1) it failed to protest previous overpayment in a timely manner, and 2) the overpayment didn't arise from the same transactions or occurrences upon which the complaint is based. The government argues that Menard's conclusory statements are unsupported by affidavits or declarations setting forth specific facts regarding the overpayment of duties upon entries of merchandise which was allegedly defective.
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