US v. UPS Customhouse Brokerage, Inc.

• Decision Date: 28 January 2010
• Docket Number: Slip Op. 10-11. Court No. 04-00650.
• Citation: 686 F. Supp.2d 1337
• Parties: UNITED STATES, Plaintiff, v. UPS CUSTOMHOUSE BROKERAGE, INC., Defendant.
• Court: U.S. Court of International Trade

686 F.Supp.2d 1337

UNITED STATES, Plaintiff, v. UPS CUSTOMHOUSE BROKERAGE, INC., Defendant.

Slip Op. 10-11. Court No. 04-00650.

United States Court of International Trade.

January 28, 2010.

Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (Jessica R. Toplin); Edward Greenwald, of counsel, U.S. Customs and Border Protection, Department of Homeland Security, for Plaintiff.

Akin, Gump, Strauss, Hauer & Feld, LLP, Washington, DC (Terence J. Lynam, Lars-Erik A. Hjelm, Natalya Daria Dobrowolsky, Lisa-Marie W. Ross, Thomas James McCarthy), for Defendant.

OPINION & ORDER

CARMAN, Judge.

This case comes before the Court on remand from the Court of Appeals for the Federal Circuit ("Court of Appeals"). The United States ("Plaintiff" or "government") brought this action pursuant to 28 U.S.C. § 1582(1) against Defendant, UPS Customhouse Brokerage, Inc. ("UPS"), seeking to recover monetary penalties of $75,000 imposed by the Bureau of Customs and Border Protection ("Customs") due to UPS's alleged failure to exercise responsible supervision and control over its customs brokerage business in violation of section 641(b)(4) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1641(b)(4) (2000).

This Court has issued four prior decisions regarding the instant litigation, and the Court of Appeals has issued two. First, the Court denied Defendant's motion for partial summary judgment and Plaintiff's motion to strike. United States v. UPS Customhouse Brokerage, Inc., 30 CIT 808, 442 F.Supp.2d 1290 (2006) ("UPS I"). The Court certified an interlocutory appeal by Defendant, but the Court of Appeals denied permission to appeal. United States v. UPS Customhouse Brokerage, Inc., 30 CIT 1612, 464 F.Supp.2d 1364 ("UPS II"), appeal denied, 213 Fed. Appx. 985, 986 (Fed.Cir.2006). Plaintiff subsequently filed a motion for summary judgment, which the Court denied. United States v. UPS Customhouse Brokerage, Inc., 31 CIT 1023, 2007 WL 1894211 (2007) ("UPS III"). The Court thereafter conducted a bench trial, at the conclusion of which the Court found UPS liable for failure to exercise responsible supervision and control of its customs business, and entered judgment for the United States and against UPS. United States v. UPS Customhouse Brokerage, Inc., 32 CIT ___, 558 F.Supp.2d 1331 (2008) ("UPS IV"). UPS successfully appealed, and the Court of Appeals issued an opinion affirming in part, vacating in part, and remanding in part. United States v. UPS Customhouse Brokerage, Inc., 575 F.3d 1376 (Fed.Cir. 2009) ("UPS V"). The Court of Appeals held that Customs was required to consider each of the ten factors specifically listed in 19 C.F.R. § 111.1 when determining that Defendant failed to exercise responsible supervision and control of its customs business as required by 19 U.S.C. § 1641(b)(4).¹ UPS V, 575 F.3d at 1382.

Because the Court of Appeals affirmed in part, vacated in part, and remanded in part this Court's post-trial opinion and judgment, the Court must now determine the appropriate action to be taken on remand. On November 5, 2009, the Court held a conference with counsel for the parties to discuss this question, and counsel submitted briefs to the Court on November 20, 2009.

In partially reversing this Court's judgment as to liability, the Court of Appeals stated: "Because Customs did not consider all ten factors listed in 19 C.F.R. § 111.1, its determination that UPS violated 19 U.S.C. § 1641 was improper." Id. at 1383. The decision of the Court of Appeals makes plain that "an agency must follow its own regulations," and "Customs failed to do so." Id. at 1382-83. This Court, in turn, "erred in upholding Customs's determination that UPS did not exercise responsible supervision and control in violation of 19 U.S.C. § 1641." Id. at 1378. The Court "upheld Customs's determination" by entering a judgment permitting Plaintiff to recover a civil penalty under 28 U.S.C. § 1582(1), despite Plaintiff's improper underlying determination.

As discussed fully below, Plaintiff did not establish at trial that Customs properly considered all ten § 111.1 factors. While the Court of Appeals' opinion made clear that Customs is required to consider the ten factors when imposing a monetary penalty upon a broker for lack of responsible supervision and control, the opinion did not identify which Customs official bears this responsibility. The Court concludes that the statute authorizing Customs to impose a monetary penalty for a § 1641(b)(4) violation requires that "the appropriate ... customs officer shall" perform the consideration of the ten factors. See § 1641(d)(2)(A). Customs regulations indicate that the "appropriate customs officer" is usually the Fines, Penalties, and Forfeitures Officer ("FP & F Officer") for the relevant port. See 19 C.F.R. §§ 111.94, 171.31.² The trial record establishes that the FP & F Officer required to consider the ten factors in imposing the penalties at issue was Mr. Bert Webster. See infra, Analysis § II.C. Plaintiff, despite ample opportunity, did not present any evidence that Mr. Webster considered the ten § 111.1 factors. Nor did Plaintiff adduce evidence upon which the Court could have independently considered the ten factors. Therefore, Plaintiff failed to prove at trial that Customs complied with 19 C.F.R. § 111.1 when imposing the penalties at issue, and it is not entitled to recovery.

Plaintiff has not shown grounds for the granting of a further evidentiary hearing. Moreover, the evidence it has offered to present at such a proceeding could not, in any event, demonstrate proper consideration of the ten factors. For these reasons, Plaintiff's request to enter further evidence is denied. Contrary to Defendant's position, remand to Customs for further administrative proceedings is not required, because the Court is designated by statute to decide the issues in this case. Additionally, discretionary remand under 28 U.S.C. § 2643 would inappropriately permit Plaintiff to create—after the conclusion of the trial—a factual basis for recovery, rendering Plaintiff's burden of proof meaningless. The Court therefore denies the request for remand. Judgment will issue for Defendant.

BACKGROUND

I. Post-Trial Opinion and Court of Appeals Opinion

A. Relevant Issues in the Court's Post-trial Opinion and Judgment

Following trial de novo, the Court issued an opinion finding that Plaintiff had proven by a preponderance of the evidence that UPS misclassified 42 specific entries of merchandise under subheading 8473.30.9000 of the Harmonized Tariff Schedule of the United States ("HTSUS"). UPS IV, 558 F.Supp.2d at 1349. The Court further found that, under the circumstances proven at trial, the misclassifications constituted a failure by UPS to comply with 19 U.S.C. § 1641(b)(4). See UPS IV, 558 F.Supp.2d at 1352-54. Section 1641(b)(4) states in full that "a customs broker shall exercise responsible supervision and control over the customs business that it conducts." 19 U.S.C. § 1641(b)(4) (2000).

Core to this holding was this Court's interpretation of 19 C.F.R. § 111.1, the Customs regulation which defines the term "responsible supervision and control" as it appears in § 1641(b)(4). The operative definition is given as follows:

"Responsible supervision and control" means that degree of supervision and control necessary to ensure the proper transaction of the customs business of a broker, including actions necessary to ensure that an employee of a broker provides substantially the same quality of service in handling customs transactions that the broker is required to provide.

19 C.F.R. § 111.1 (2000). Describing how that definition will be employed by Customs, the regulation states that "the determination... will vary depending upon the circumstances in each instance," and "factors which Customs will consider include, but are not limited to" a list of ten factors specifically set forth:

1. The training required of employees of the broker; 2. the issuance of written instructions and guidelines to employees of the broker; 3. the volume and type of business of the broker; 4. the reject rate for the various customs transactions; 5. the maintenance of current editions of the Customs Regulations, the Harmonized Tariff Schedule of the United States, and Customs issuances; 6. the availability of an individually licensed broker for necessary consultation with employees of the broker; 7. the frequency of supervisory visits of an individually licensed broker to another office of the broker that does not have a resident individually licensed broker; 8. the frequency of audits and reviews by an individually licensed broker of the customs transactions handled by employees of the broker; 9. the extent to which the individually licensed broker who qualifies the district permit is involved in the operation of the brokerage; and 10. any circumstance which indicates that an individually licensed broker has a real interest in the operations of a broker.

Id.

The trial Court held that the language of § 111.1 stating that Customs "will consider" the ten factors did not mandate that Customs weigh each and every one of the ten factors in every case, but rather permitted Customs to "consider the listed factors in section 111.1 or look beyond the factors and consider the totality of the circumstances, on a case-by-case basis as it did in this matter." UPS IV, 558 F.Supp.2d at 1353. In accordance with this interpretation of the broker regulation, the Court found UPS liable for failure to exercise responsible supervision and control of its customs business without discussing the proof regarding Customs' consideration of the ten factors, focusing instead on the operative definition of responsible supervision and control given by § 111.1. Id. at 1352-54. The Court then upheld the amount of fines sought by Plaintif...