US v. Modes, Inc.

• Decision Date: 05 October 1989
• Docket Number: Court No. 89-04-00206.
• Citation: 13 CIT 780,723 F. Supp. 811
• Parties: UNITED STATES of America, Plaintiff, v. MODES, INC., and Jaikishan C. Budhrani, Defendants.
• Court: U.S. Court of International Trade

723 F. Supp. 811

13 CIT 780

UNITED STATES of America, Plaintiff, v. MODES, INC., and Jaikishan C. Budhrani, Defendants.

Court No. 89-04-00206.

United States Court of International Trade.

October 5, 1989.

Stuart E. Schiffer, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, Platte B. Moring, III and Elizabeth C. Seastrum, Washington, D.C., for plaintiff.

Golden, Potts, Boeckman & Wilson, Claude R. Wilson, Jr., Dallas, Tex., William S. Lee and Alan J. Hostetter, for defendants.

OPINION AND ORDER

CARMAN, Judge:

Plaintiff United States of America (the government) initiated this suit pursuant to 28 U.S.C. § 1582 (1982) and 19 U.S.C. § 1592 (1982) to recover a civil penalty from defendants for misrepresenting the value of imported costume jewelry from Taiwan. The government in its complaint seeks recovery of a penalty against the defendants jointly and severally in the amount of the value of the imported merchandise with interest, or in the alternative in an amount appropriate to the level of culpability found by this Court after a trial. Defendants Modes, Inc. (Modes), and Jaikishan C. Budhrani, move to dismiss the complaint under Rule 12(b)(1) for lack of subject matter jurisdiction, or in the alternative to dismiss the complaint as premature. For the reasons set forth below, this Court denies the motion.

BACKGROUND

The complaint in this case alleges the defendants, through fraud, gross negligence or negligence, declared in their entry papers only approximately half of the true invoice value of seventy-four shipments of costume jewelry imported from Taiwan in 1984. The government in its response to Defendants' Motion to Dismiss contends that Modes, its president and sole shareholder Mr. Budhrani, and ITAI International Co., Ltd. of Taipei engaged in a dual invoicing scheme designed by ITAI to avoid income taxes in Taiwan.

After various administrative efforts to obtain pertinent documents from Modes relevant to the alleged dual invoicing scheme, the United States Customs Service (Customs) issued a pre-penalty notice to Modes in April of 1988 proposing a $3,867,856.00 penalty. Thereafter, in August of 1988, Customs issued a penalty notice which demanded payment of the same sum. Pursuant to 19 U.S.C. §§ 1592 and 1618 and pertinent federal regulations, Modes submitted a petition for remission or mitigation of the penalty on September 19, 1988. On February 15, 1989 an attorney with the Penalties Branch of the Office of Regulations and Rulings, Customs, met with Modes' attorney Claude R. Wilson, Jr., and a Modes investigator, Tim Millis, to discuss the case. On February 28, 1989 Customs Headquarters rendered a final written determination on the petition for remission or mitigation and forwarded the response to Modes. The determination advised Modes that Customs was willing to mitigate the $3,867,856.00 penalty to $966,964.00. Both the determination and the cover letter stated that Modes could submit a supplemental petition for remission or mitigation of penalty provided it was filed within ten days and included a waiver of the statute of limitations. The cover letter notified Modes that absent timely execution of the waiver, the case would be referred to the U.S. Attorney for prosecution.

Modes submitted a supplemental petition to the Secretary of the Treasury on March 10, 1989. However, the supplemental petition did not include a waiver of the statute of limitations. Consequently, on March 15, 1989, Customs forwarded the supplemental petition to the Department of Justice in conjunction with its formal referral of the matter for prosecution. The summons and complaint were filed on April 20, 1989.

CONTENTIONS OF THE PARTIES

Defendants primarily base this motion on the contention that subject matter jurisdiction is not properly in this Court because the government failed to exhaust its administrative remedies, and this Court does not have subject matter jurisdiction over Mr. Budhrani in his personal capacity.

Defendants claim jurisdiction does not lie in this Court because of Customs' failure to provide them a hearing and because Customs failed to issue a final determination on Modes' supplemental petition for remission or mitigation under 19 U.S.C. § 1592 and corresponding regulations before referral for prosecution. Defendants argue that "according to the administrative regulations, Modes is entitled to have the Department of Treasury consider its supplemental petition (19 C.F.R. § 171.32) and is entitled to an oral hearing (19 C.F.R. § 171.14) before the government may refer a case to the U.S. Attorney." Memorandum In Support Of Defendants' Motion To Dismiss Under Rule 12(b)(1) Or, In The Alternative, Motion To Dismiss The Complaint As Premature, (Defendants' Memorandum) at 4-5 (emphasis in original).¹ In effect, Defendants argue that exhaustive compliance with the administrative procedures is a condition precedent to a suit by the government for the penalty in this Court.

The government claims that as a legal matter the alleged failure of Customs to provide Modes with an opportunity to participate at the administrative level does not bar a penalty enforcement action by Customs in this Court. Additionally, as a factual matter, the government contends Modes was in fact given both an oral hearing and a final determination in accordance with the statutes and regulations.

As to the lack of subject matter jurisdiction over Mr. Budhrani, Defendants argue that since Mr. Budhrani was not named personally in any of the documents or proceedings at the administrative level, the prerequisites of 19 U.S.C. § 1592 were not satisfied making subject matter jurisdiction over him improper. Additionally, defendants argue in one sentence of their brief that subjecting Mr. Budhrani to suit in this Court would deprive him of due process since the pre-penalty notice, the penalty notice and the February 28, 1989 letter only named Modes, nowhere mentioning Mr. Budhrani in his individual capacity.

The government, relying on United States v. Priority Products Inc., 4 Fed.Cir. (T) 88, 793 F.2d 296 (1986), aff'g 9 CIT 383, 615 F.Supp. 591 (1985), claims that as a statutory matter, failure of Customs to name Mr. Budhrani in his individual capacity in the penalty and pre-penalty notices does not divest this Court of jurisdiction over him pursuant to 19 U.S.C. § 1592. The government further argues that following the principle articulated in Nickey v. Mississippi, 292 U.S. 393, 396, 54 S.Ct. 743, 744, 78 L.Ed. 1323 (1934),² trial de novo in this Court would provide Mr. Budhrani with all the due process protection he is entitled to under the constitution. Since Mr. Budhrani was not actually deprived of property or otherwise prejudiced by the administrative process, the government contends, he should not be dismissed from this law suit where he will have an opportunity for a de novo trial on all issues.

DISCUSSION

This Court determines the decision by the Court of Appeals for the Federal Circuit in Priority Products mandates denial of defendants' motion in all aspects, as its facts are virtually identical to the case at bar. The Court will examine Mr. Budhrani's individual claims first.

Priority Products involved an action under 19 U.S.C. § 1952 against Priority Products, Inc. and Mr. and Mrs. Walter L. Huss (sole shareholders of Priority Products, Inc.). Prior to institution of the suit, Customs had not sent pre-penalty or penalty notices to Mr. and Mrs. Huss, in their individual capacities. The pre-penalty notice was sent to "Priority Products" alone. The penalty notice was issued to Priority Products and a cover letter mailed to "Walter L. Huss, President." 4 Fed.Cir (T) at 89, 793 F.2d at 297. In response to these and other contacts Mr. Huss appeared in person before Customs and submitted a statement signed "Walter Huss." Id. After the penalty had been mitigated the government instituted suit in this Court against Priority Products, Inc., and Mr. and Mrs. Huss individually.

The Husses filed a motion for summary judgment arguing that Customs' failure to name them individually in the pre-penalty and penalty notices precluded the Court from exercising subject matter jurisdiction over them and deprived them of due process under the fifth amendment. The Court of Appeals, affirming Judge Restani's decision finding subject matter jurisdiction, presented the issue as

whether the United States Customs Service's failure to name corporate officers in their individual capacities in written administrative pre-penalty and penalty notices issued pursuant to 19 U.S.C. § 1592(b) (1982) precludes suit against them in the Court of International Trade to recover a penalty originally assessed only against the corporation.

Id. at 88, 793 F.2d at 297. The Court found narrowly, on the basis of the facts of the case, that jurisdiction was properly maintained over both Mr. and Mrs. Huss, as well as Priority Products. Additionally, the Court found that the Husses' due process claims were meritless. Id. at 93, 793 F.2d at 300.

In a thorough examination of the statutory and regulatory scheme, the Court found nothing in the statute or its legislative history to demonstrate that Congress intended to narrowly circumscribe the subject matter jurisdiction of this Court to encompass only those suits brought by the government against parties expressly named in the administrative proceeding. Id. at 91, 793 F.2d at 299. The Court noted the language of the statute appeared to suggest otherwise. The Court stated "it appears that so long as some `civil penalty exists' the Court of International Trade can assume jurisdiction over any complaint to recover that penalty, and the issue of who is ultimately responsible for payment of the penalty is subject to de novo consideration." Id. at 91-92, 793 F.2d at 299. The Court also noted other considerations which compelled the conclusion that "Congress did...