US v. Thorson Chemical Corp., Court No. 88-11-00853.
| Decision Date | 28 May 1992 |
| Docket Number | Court No. 88-11-00853. |
| Citation | 795 F. Supp. 1190,16 CIT 441 |
| Parties | UNITED STATES of America, Plaintiff, v. THORSON CHEMICAL CORPORATION, Defendant. |
| Court | U.S. Court of International Trade |
Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, Jane E. Meehan, Amy Schwartz, Office of Regional Counsel, U.S. Customs Service, Washington, D.C., of counsel, for plaintiff.
Irving A. Mandel and Thomas J. Kovarcik, Jeffrey H. Pfeffer, New York City, of counsel, for defendant.
The Plaintiff United States government seeks to recover a civil penalty assessed against Defendant Thorson Chemical Corporation ("Thorson") in the amount of $150,000.00, plus interest, for allegedly declaring false entered values for the imported merchandise by means of fraud in violation of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1988).1 Defendant denies it committed any violation of section 1592 and counterclaims for restitution from the government in the amount of $7,356.12, the sum tendered for lost duties from the alleged violations. The Court has jurisdiction over the action pursuant to 28 U.S.C. § 1582 (1988).
Defendant Thorson (also referred to as "Thorson U.S.") is a corporation which was organized under the laws of New York State in February 1968 and was formed for the purpose of importing chemicals. Between October 22, 1980 and June 10, 1982, Thorson entered eleven shipments of chemical products from Europe into the commerce of the United States under the cover of the following consumption entries:
Approximate
Entry Number Date of Entry
XX-XXXX-XXXXXX October 22, 1980
XX-XXXX-XXXXXX January 1, 1981
XX-XXXX-XXXXXX March 16, 1981
XX-XXXX-XXXXXX July 10, 1981
XX-XXXX-XXXXXX July 9, 1981
XX-XXXX-XXXXXX September 15, 1981
XX-XXXX-XXXXXX September 24, 1981
XX-XXXX-XXXXXX December 22, 1981
XX-XXXX-XXXXXX March 4, 1981
XX-XXXX-XXXXXX March 4, 1982
XX-XXXX-XXXXXX June 10, 1982
On or about September 23, 1982, the United States Customs Service ("Customs") commenced an audit of Thorson's importation records. Trial Transcript ("Tr.") at 35. The purpose of the audit was to investigate whether the chemicals imported by Thorson originated from Belgium and therefore were subject to the possible assessment of antidumping duties. Tr. at 34.
Among the workpapers prepared in connection with the audit was a memorandum dated July 15, 1983, from Regulatory Audit Division Director Joseph C. Sparano addressed to the Deputy Assistant Regional Commissioner of the New York Region. Def. Exh. L. In the memorandum Sparano indicated that the auditors had discovered that Thorson was using a double-invoicing system. The memorandum stated that the auditors found that Thorson presented Customs with lower valued invoices than the relating invoices found in Thorson's files. The memorandum further stated that the two invoices for the same merchandise differed by $20.00 per metric ton and that higher value was paid to the exporter, Thorson Chemical GmbH of Germany ("Thorson Germany").2
The results of the completed Thorson audit were documented in an audit report dated December 29, 1983. Based on the findings contained in that report, Customs began an investigation which resulted in the issuance of a pre-penalty notice to Thorson on April 25, 1985 and an amended pre-penalty notice on November 14, 1985. The amended pre-penalty notice stated that Thorson's double-invoicing system was due to fraud, resulted in undervaluing of dutiable values and a loss of duties in the amount of $7,356.12; the proposed penalty was $2,582,406.00 (the domestic value of the merchandise). Pl. Exh. 33 at 4.
Thorson responded to the pre-penalty notice on May 17, 1985. Pl. Exh. 33 at 1. In its response, Thorson denied any allegation of fraud or negligence, but admitted using a double-invoicing scheme on certain entries as a way of granting a loan to Thorson Germany, in order "to assist its German affiliate to overcome temporary financial difficulty so that it could continue to enjoy 90 day open account terms as opposed to sight letter of credit." Id. Thorson further stated that "overpayments" made to Thorson Germany were returned. Id.
Customs issued a penalty notice in the amount of $2,582,406.00 on May 19, 1986. Pl. Exh. 34 at 3. On June 12, 1986, Thorson filed a petition for relief from the penalty and tendered a check for $7,356.12 to the Customs Service. Id. In the petition Thorson again explained that the double-invoicing scheme was a method of granting a loan to its German affiliate without a promissory note because the note would have to be shown to the German banks and this would, in turn, threaten the affiliate's line of credit. Id. at 1. Thorson restated that the loans were repaid. Lastly, Thorson explained that in actuality there was no lower entered value for the two invoices because Thorson paid the German affiliate 1.5 percent above cost, as it had done for many years. Id.
On February 18, 1987, the Customs Service advised Thorson that the amount of the penalty would be remitted to $58,848.96 if payment were made within seven days. Pl. Exh. 35. Thorson tendered no additional monies to Customs and filed a supplemental petition for relief from the penalty.
Customs, calculating the five-year period for instituting the instant action from the date of entry of the subject merchandise, requested a waiver of the statute of limitations from Thorson.3 In total, Thorson submitted four waivers of the statute of limitations, each waiving the statute for a one-year period. The instant action was filed on November 16, 1988.
Defendant Thorson then moved pursuant to Rule 56 of the Rules of this Court for summary judgment on the grounds that the instant action was barred by the statute of limitations. Because of certain factual contentions concerning the validity of certain waivers of the statute of limitations and other factual issues raised by the pleadings, the Court denied Defendant's motion. United States v. Thorson Chem. Corp., 14 CIT ___, 742 F.Supp. 1170 (1990).
A four day trial of this action included several witnesses and approximately 800 pages of testimony. At the close of trial, the Court directed that the parties submit post-trial briefs for the purpose of clarifying certain matters raised at trial surrounding the eleven entries in this case.
The applicable limitations period for a penalty collection action is set forth at 19 U.S.C. § 1621. That section provides in pertinent part:
No suit or action to recover any pecuniary penalty or forfeiture of property accruing under the customs laws shall be instituted unless such suit or action is commenced within five years after the time when the alleged offense was discovered: Provided, That in the case of an alleged violation of section 1592 of this title arising out of gross negligence or negligence, such suit or action shall not be instituted more than five years after the date the alleged violation was committed.
19 U.S.C. § 1621 (1988).
The so-called "discovery rule" of section 1621 applies to fraudulent violations of section 1592. Customs' "knowledge of the falsity of import documents is a means to discovery of a section 592 violation and, therefore, causes the statute of limitations to begin to run." United States v. R.I.T.A. Organics, Inc., 487 F.Supp. 75, 78 (N.D.Ill. 1980).
The statute of limitations is an affirmative defense. See USCIT Rule 8(d). The party asserting this defense must first establish a prima facie case that the claim is time barred. If a prima facie case is established, the burden then shifts to the plaintiff to show that some exception to the statute of limitations existed. See 51 Am. Jur.2d Licenses and Permits §§ 483-485 (1970). In the instant case, therefore, the burden is on the government to prove that the time for bringing the action was tolled by the waivers in question.
The Customs Service has the authority to accept a waiver of the statute of limitations prescribed under 19 U.S.C. § 1621 "if it appears that further administrative consideration would promote final disposition of the matter." T.D. 76-33, 10 Cust.B. & Dec. 69 (1976). Customs' own rules provide that where the party requesting acceptance of the waiver is a corporation or other business entity, the waiver must "be signed by an officer authorized to act for the corporation or other business entity, and proof or such authorization must be included with the request." Id. at 70-71.
Within five years from the date of the earliest of the eleven subject entries, October 22, 1980, Customs requested that Thorson provide a waiver of the statute of limitations.4 A waiver was executed by Thorson's president, Mr. Ernest Abrahamson, on September 11, 1985, within the applicable statute of limitations period for a fraudulent, negligent, or grossly negligent violation of 19 U.S.C. § 1592. Pl. Exh. 43. Accompanying the waiver was a letter from the corporation's secretary confirming that Mr. Abrahamson was the president of Thorson, he was duly authorized to endorse the waiver, and that his signature was authentic. Id. at 2. Customs accepted the waiver, which was for a one-year period. Pl. Exh. 44. This waiver therefore was clearly valid and tolled the statute of limitations period for one year, until October 1986.
Three subsequent waivers were submitted for one-year periods on May 21, 1986 (Pl. Exh. 45), February 19, 1987 (Pl. Exh. 48), and November 17, 1987 (Pl. Exh. 50). The May 21, 1986 waiver was accompanied by a corporate resolution authorizing the waiver. Pl. Exh. 47. The February 19, 1987 waiver was not accompanied by a corporate resolution, but was signed by an officer of the...
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