United States v. Ford Motor Company ( 2006 )

United States Court of Appeals for the Federal Circuit
05-1593
UNITED STATES,
Plaintiff-Appellee,
v.
FORD MOTOR COMPANY,
Defendant-Appellant.
David A. Levitt,Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With
him on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief were
Kathleen Bucholtz and Katherine F. Kramarich, Attorneys, Office of Associate Chief
Counsel, United States Customs and Border Protection, of Chicago, Illinois.
Vincent J. Colatriano, Cooper & Kirk, PLLC, of Washington, DC, argued for
defendant-appellant. With him on the brief were Charles J. Cooper, David H.
Thompson, Nicole Jo Moss, and Stefan Shibani. Of counsel on the brief were Robert B.
Silverman, David M. Murphy, and Frances P. Hadfield, Grunfeld, Desiderio, Lebowitz,
Silverman & Klestadt, LLP, New York, New York; and Paulsen K. Vandevert, Ford
Motor Company, of Deaborn, Michigan.
Appealed from: United States Court of International Trade
Senior Judge Nicholas Tsoucalas
United States Court of Appeals for the Federal Circuit
05-1593
UNITED STATES,
Plaintiff-Appellee,
v.
FORD MOTOR COMPANY,
Defendant-Appellant.
______________________
DECIDED: August 30, 2006
______________________
Before NEWMAN, RADER, and GAJARSA, Circuit Judges.
GAJARSA, Circuit Judge.
Ford Motor Company appeals from a decision of the United States Court of
International Trade holding Ford liable for grossly negligent misrepresentation of the
value of import entries and imposing a penalty of $3,000,000, plus interest. United
States v. Ford Motor Co., 387 F. Supp. 2d 1305 (Ct. Int'l Trade 2005) ("Gross
Negligence Decision"). Ford timely filed a notice of appeal on September 14, 2005. We
have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5). For the reasons stated herein, we
affirm in part and reverse in part.
BACKGROUND
This is the second of two similar appeals involving Ford's import practices. A
discussion of the general legal background appears in our decision, issued today, in
United States v. Ford Motor Co., No. 05-1584, (Fed. Cir. August 30, 2006) ("Ford I").
This action involves duties paid on manufacturing tooling and stamping dies for
the 1990 Lincoln Town car, known internally as the “FN-36” program. Ford imported
those dies from Ogihara America Corporation ("OAC"), the American subsidiary of a
Japanese company, Ogihara Iron Works ("OIW"). OIW built the dies in Japan and
shipped them to its subsidiary OAC’s Michigan plant. The initial "tooling purchase
order" between Ford and OAC, dated May 27, 1987, specified a total purchase value of
$42,544,884.
Over the following four years, as a result of design changes, Ford issued 17
amendments to the base tool order and more than 200 separate "engineering change
tool orders." The amendments raised the total price from $42,544,884 to $66,075,960.
Of the 17 amendments, 14 occurred prior to the first of the entries disputed in this case.
Those 14 amendments raised the total price from $42,544,884 to $69,884,962—an
increase of $21,340,078.1 Of the 200-plus engineering change orders, the great
majority—approximately 170—were issued after the last of the entries disputed this
case. The engineering change orders amounted, in the aggregate, to more than $20
million, most of which was paid to OIW for work performed while the dies were still in
Japan, that is, before importation.
1
Amendments 16 and 17 involved reductions in total cost, resulting in the
final order price of $66,075,960.
05-1593 2
The base tool order, the amendments, and most of the engineering change
orders included a legend that stated: "The price set forth in this purchase order . . . shall
be adjusted so as to credit the buyer in the amount, if any, by which such price exceeds
actual costs as verified."
Ford made eleven disputed entries of dies relating to the FN-36 program
between February 2, 1989, and March 12, 1989. The declared value of each of those
entries was the merchandise invoice price—a total of $63,078,426. Gross Negligence
Decision, 387 F. Supp. 2d at 1310. Ford paid $2,454,906 in duty on that declared
amount. Tool order amendment 14, dated January 16, 1989—the amendment closest
in time to the disputed entries—shows a total tooling price of $69,884,962. Including
amounts incurred via change order, the total value of the merchandise exceed $90
million. The agency then known as the United States Customs Service ("Customs")2
ultimately determined that the undeclared value of the entries amounted to
$21,314,111.
Customs filed its complaint on January 24, 2002, alleging that Ford undervalued
the eleven entries, resulting in a material omission in violation of 19 U.S.C. § 1592. It
asserted, first, that Ford's failure to state that its prices on entry were provisional and
subject to adjustment violated 19 U.S.C. § 1484; second, that Ford certified that its
declared entry values were true and correct when in fact they were not, also in violation
of § 1484; and third, that Ford failed to notify Customs "at once" of information received
after importation indicating that entered values were no longer correct, in violation of
§ 1485. Ford filed an answer denying liability and asserting that it had made "prior
2
The United States Customs Service is now part of the Department of
Homeland Security, and is known as the Bureau of Customs and Border Protection.
05-1593 3
disclosures" of the violations at issue that precluded liability under 19 U.S.C.
§ 1592(c)(4). It also filed a counterclaim for a refund of duties it alleged to have
overpaid because of valuation errors.
In September of 2004, Ford moved for leave to amend its answer to add a
counterclaim for equitable recoupment based on its alleged overpayment of duties
resulting from incorrect classifications of some of the entries at issue in the case. The
Court of International Trade denied the motion, despite finding that the government
would not be prejudiced by the amendment, noting that the amounts Ford sought to
recoup were paid to the government voluntarily and were not subject to recoupment,
and also that the motion to amend was untimely.
The Court of International Trade held a bench trial from February 28 through
March 10, 2005. On July 20, 2005, the court issued a decision rejecting Customs' claim
that Ford was guilty of fraud, but finding that Ford had committed gross negligence in
violating §§ 1484 and 1485. The trial court ordered Ford to pay $184,495 in unpaid
duties and $3 million in penalties. Gross Negligence Decision, 387 F. Supp. 2d at 1334.
Ford timely appealed to this court, and we have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(5).
On appeal, Ford argues that it had no legal duty to identify its entry values as
"provisional" under § 1484, and that even if it had such a duty, it could not be held liable
for violating it consistent with due process of law. It further argues that it fully complied
with the "at once" disclosure obligation of § 1485; that it made valid prior disclosures
that insulate it from full liability; that the trial court erred in calculating the penalties; and
05-1593 4
that the Court of International Trade erred in refusing to permit Ford to amend its
answer to include the classification-based counterclaim.
STANDARD OF REVIEW
We review the Court of International Trade's legal determinations without
deference. United States v. Hitachi Am., Ltd., 172 F.3d 1319, 1326 (Fed. Cir. 1999)
("Hitachi II"). We review findings of fact, including findings relating to a party's intent, for
clear error. Id. at 1327. Where, as here, Congress has delegated to the judiciary
discretion to determine the amount of civil penalties under a statute, we review the trial
court's calculation of such penalties for abuse of discretion. See, e.g., Sierra Club, Lone
Star Chapter v. Cedar Point Oil Co., Inc., 73 F.3d 546, 573-74 (5th Cir. 1996) (reviewing
district court's penalty determination under 33 U.S.C. § 1319(d) for abuse of discretion);
see also Atlantic States Found., Inc. v. Tyson Foods, Inc., 897 F.2d 1128, 1142
(reviewing district court's penalty determination under 33 U.S.C. § 1319(d) for abuse of
discretion).
DISCUSSION
I. 19 U.S.C. § 1484A.
In Ford I, we concluded that, pursuant to our decision in Hitachi II, the due
process clause prevents the courts from imposing upon Ford liability for failing to
disclose provisional pricing upon entry pursuant to 19 U.S.C. § 1484. The entries at
issue in this case occurred during essentially the same time period, and were subject to
the same statutory and regulatory scheme, as the entries in Ford I and in Hitachi II. The
same due process considerations therefore apply to Ford in the case at bar, absent
05-1593 5
some distinguishing factor. The government points to two potentially distinguishing
facts. First, it alleges that "Ford had actual knowledge that importers must advise
Customs when the price is not final." Second, it asserts that in this case, unlike the
others, "Customs' Import Specialists testified that the correct way to enter goods where
the final price was not known was to note that fact on the entry documents."
The government's arguments are not persuasive. The testimony it identifies as
establishing Ford's actual knowledge that the law required disclosure of provisional
pricing does not, in fact, do so. Ford's witness Gibson unequivocally stated that any
obligation to disclose provisional pricing was entirely based upon voluntary Ford
policies, not legal requirements. Neither does the cited deposition testimony of Ford's
witness Kruzich in any way support the existence of such knowledge.
With respect to testimony by Customs officers that the correct way to enter goods
subject to variable pricing was to disclose that fact on entry documents, none of the
testimony cited by the government establishes, or even purports to establish, that
"actual Customs practice required disclosure" of provisional pricing information. See
United States v. Hitachi Am., Ltd., 964 F. Supp. 344, 387 (Ct. Int'l Trade 1997)
("Hitachi I"). None of the witnesses relied on by the government states affirmatively that
importers were required by law to disclose provisional pricing information at the time of
entry; at most, their testimony suggests that importers often did so voluntarily.
This case, therefore, is indistinguishable from Ford I and from Hitachi II. The due
process clause of the Fifth Amendment prevents the imposition of liability on Ford for
failure to disclose provisional pricing information when neither the applicable statute nor
05-1593 6
regulations clearly requires it. We therefore reverse this portion of the trial court's
decision.
B.
The government also argues, however, that because most of the amendments to
the tooling work order occurred prior to the relevant entry dates, Ford violated § 1484 by
virtue of the fact that it knew with certainty that the correct prices were substantially
higher than the declared prices. As of January 16, 1989, for example—two weeks
before the first entry—Ford knew that the then-current total price based on amendments
alone was $69,884,962—about $6 million more than the declared value. If engineering
change orders are included, the true value of merchandise was about $87 million, or
$24 million more than the declared value. Testimony at trial indicated that, as of the
entry dates, "Ford could have ascertained" the true total price of the goods. Thus, the
government asserts, even if Ford had no obligation to state the provisional nature of its
entry values, it clearly misrepresented what the correct values were, to the extent they
were known.
Ford disputes the government's assertion that Ford could have ascertained the
costs of the engineering change orders and incorporated them into the prices declared
at entry. It asserts that it could not have known whether any particular change order
called for work to be done in the United States—in which case it would be non-
dutiable—or in Japan. In fact, Ford claims that because it froze all engineering changes
in Japan as of Thanksgiving, 1988, all change orders issued thereafter would result in
work being done in the United States, such that the company had a reasonable belief
that none of those change orders would result in an increase in dutiable amounts. Only
05-1593 7
years later, Ford claims, after the completion of its audit, could Ford know which
engineering changes involved dutiable, and which involved non-dutiable, charges. Ford
also points out that even in this litigation, Customs—having had access to all the
relevant records for many years—seems unable to identify the value that Ford should
have declared in its entries, variously suggesting that it is $69 million, $87 million, "in
excess of" $93 million, and "over" $84 million. If Customs cannot identify the correct
amount with the benefit of discovery and hindsight, Ford reasons, Ford itself could not
reasonably be expected to have done so at the time of entry. Ford further suggests that
Customs' inability to ascertain the correct amount casts considerable doubt on whether
it proved at trial that Ford's declared value of $63 million was incorrect.
The Court of International Trade, addressing these issues, concluded that Ford's
failure to notify Customs of the engineering change orders at entry constituted a
material omission, in violation of § 1484. Gross Negligence Decision, 387 F. Supp. 2d
at 1321. Because significant numbers of engineering changes were "known at the time
of importation," the trial court held that "the entry value of the FN-36 dies should have
included any engineering changes dated before February 2, 1989." Id. at 1322. It
further held that, based upon information in the purchase orders themselves, Ford had
sufficient data to "account for the engineering changes and convey the correct
information to its broker for entry." Id. at 1323. In short, the trial court concluded that
(a) the declared values omitted information relating to the engineering change orders,
and (b) Ford had in its possession information sufficient to give it knowledge of the true
value of the declared entries as of the date of entry.
05-1593 8
We agree with the trial court. Although there is conflicting evidence in the record,
the Court of International Trade's factual conclusions regarding the engineering change
orders and Ford's knowledge of them are not clearly erroneous. The record offers
sufficient, if not unequivocal, evidence supporting the findings that change orders
occurred that increased the value of the declared entries; that Ford knew of those
change orders and their effect on the value of the merchandise; and that Ford failed to
use that knowledge to submit true and correct declared values to Customs upon entry.
Ford's certification that its entry values were "true and correct" at the time of entry was
therefore false, in violation of § 1484.
The next question is whether that violation reflected "gross negligence" on Ford's
part. An importer is guilty of gross negligence if it behaved willfully, wantonly, or with
reckless disregard in its failure to ascertain both the relevant facts and the statutory
obligation, or acted with an utter lack of care. Hitachi II, 172 F.3d at 1328. Because a
determination of gross negligence involves a determination of intent, it is an issue of
fact, not law. Id. at 1326. As such, we review the trial court's finding of gross
negligence for clear error.
Ford's opening brief devotes very little argument to the gross negligence issue,
noting only that "it cannot be the case that the failure to provide Customs with
information [i.e., the engineering change orders] that would not allow it to calculate
duties somehow amounted to a gross negligence." In its reply brief, Ford provides a
more comprehensive argument, asserting that "most of the engineering orders were
issued after the date of the last entry, which Ford believed meant that the work would be
performed in the United States"; that "as to engineering orders issued prior to
05-1593 9
importation, Ford did not know what portion of the work would be allocated to U.S., and
what portion to foreign, goods and services"; and that "the prices listed were subject to
an audit and reconciliation that was not completed until well after entry." These
"uncertainties," Ford asserts, "had to be resolved before Ford could properly report
adjustments to the dutiable value of the goods." The Court of International Trade,
however, found that Ford could have identified the dutiable portions of the pre-entry
engineering orders, but failed to do so, and further failed to offer any evidence
explaining why. Gross Negligence Decision, 387 F. Supp. 2d at 1322-23. Ford has not
offered arguments sufficient to lead us to believe that the trial court's decision in this
regard was clearly erroneous. We therefore affirm the CIT's finding of gross negligence.
II. 19 U.S.C. § 1485Section 1485 of Title 19 requires an importer to notify Customs "at once" of post-
entry payments affecting dutiable value, unless other arrangements have been made
with Customs. The trial court found that Ford violated § 1485 in two ways: first, by
failing "to fully answer Customs' CF 28s," which are forms submitted to importers by
Customs seeking additional information about an entry; and second, by failing "to
promptly disclose the information contained in its internal audit of the FN-36 program."
Gross Negligence Decision, 387 F. Supp. 2d at 1325. Customs issued CF 28s for
seven of the eleven disputed entries; the trial court found that "Ford substantively
responded only to two" of the seven, and of those two, one was submitted eight months,
and the other 26 months, after the CF-28s were initially issued. Id. Both "substantive"
CF-28 responses, the trial court found, "failed to disclose the engineering changes and
their affect [sic] on the dutiable value of the FN-36 dies." Id. Because Ford had all the
05-1593 10
necessary information to make those disclosures at the time the CF-28s were issued,
the trial court concluded, its failure to do so violated the "at once" requirement of
§ 1485.
Similarly, the Court of International Trade found that Ford's 1991 internal audit
was completed on April 30 of that year and contained a breakdown of all 204
engineering orders and the allocation of work between Japan and the United States.
That information—as well as information about amendment 17 to the base tool order,
which was dated January of 1991—was not disclosed to Customs until August 6, 1991.
Id. at 1314-15, 1327. In fact, portions of the audit information—including information
about which engineering change orders involved work in Japan and which did not—
were not disclosed to Customs until 1994. Id. at 1327.
The repeated failures to disclose information about the engineering orders and
the internal audit, the trial court held, violated § 1485 and constituted "indifference and
an utter lack of care" regarding Ford's disclosure obligations, resulting in a finding of
gross negligence.
On appeal, Ford does not dispute the basic facts as found by the trial court but
asserts, instead, that "Ford complied with its section 1485 obligations when it informed
Customs on several occasions, beginning no later than November 1989, that entered
values were provisional and that Ford would not be able to determine final values until it
concluded its audit and reconciled with its vendor." Appellant's Br. at 30. It points to
evidence in the record that "Customs' own witnesses . . . knew, or were aware, of the
provisional nature of die and tooling entries." With respect to the engineering change
orders, Ford asserts that those orders did not "necessarily and instantly determine the
05-1593 11
dutiable value of the goods," because it could not be known until the audit was complete
"the extent to which the goods or services were to be sourced in the United States or
abroad." With regard to the internal audit, Ford asserts that the Court of International
Trade misunderstood "the nature of that audit," which "was conducted by Ford's finance
division to permit Ford to conclusively demonstrate how much it owed OAC," and "was
only the beginning of the process by which Ford would determine how much the FN-36
tool order price changes had affected dutiable value." Ford points to evidence that OAC
was working on segregating the dutiable and non-dutiable values until June 28, 1991,
such that "the most that can be said is that Ford took about 40 days . . . to finalize its
reconciliation and inform Customs of the impact on duties of the engineering orders."
Finally, Ford argues that this court reversed a finding of gross negligence in much more
egregious circumstances in Hitachi II, and that by that standard Ford's conduct here
could have amounted, at worst, to simple negligence.
Ford's explanation regarding the failure to timely report the audit results is
unpersuasive. The evidence demonstrates that Ford issued amendment number 17 to
the tool order in January of 1991—three months before the April 30 audit was ostensibly
complete—and that amendment 17 reduced the total tool order price by $1.7 million
based upon an "audit reduction." The trial court found, and Ford does not here contest,
that the existence of amendment 17 demonstrates that Ford had knowledge of the
contents of the audit long before April 30, 1991, but did not disclose any of those
contents until August 6, 1991. Moreover, Ford asserts that it was unable to provide the
audit results to Customs before August 6, 1991, because it needed time for OAC to
"segregate the final price paid between dutiable and nondutiable goods and services,"
05-1593 12
that is, goods and services provided in Japan and in the United States. The August 6,
1991 letter, however, does not even provide that information, merely stating conclusorily
that "the estimated undeclared value" of the change orders was "$16.7 million," without
providing any breakout of those numbers indicating which change orders related to work
occurring in Japan. In fact, the trial court found, and Ford does not here dispute, that
the audit information used to produce those numbers was not provided to Customs until
1994. Gross Negligence Decision, 387 F. Supp. 2d at 1327.
Finally, with respect to Ford's argument that our decision in Hitachi II compels a
reversal of the trial court's finding of gross negligence, we conclude that it is without
merit. A finding of gross negligence is a question of fact and may be overturned only if
clearly erroneous. Hitachi II, 172 F.3d at 1329. In Hitachi II, we reviewed a Court of
International Trade finding that the defendant's conduct was not grossly negligent.
Relying upon the trial court's findings regarding witness credibility, a legal opinion
obtained in good faith, and the restricted standard of review of factual questions, we
concluded that "we cannot say that the Court of International Trade clearly erred in
failing to find that gross negligence was proven by clear and convincing evidence." Id.
at 1330.
The posture of this case is the opposite of that presented in Hitachi II, and the
standard of review this time favors the government. The trial court found that Ford
acted with gross negligence, and we may overturn that finding only if it was clearly
erroneous. For all the reasons set forth above, we conclude that the trial court's finding
of gross negligence was not clearly erroneous.
05-1593 13
III. Prior Disclosures
Section 1592(c)(4) of Title 19 provides a safe harbor for "prior disclosures"—
disclosing of import law violations before, or without knowledge of, the commencement
of a formal investigation of the violation. Making such a prior disclosure limits the
available penalty to interest on the amount of duties, taxes, and fees of which the
government was deprived by the violation. 19 U.S.C. § 1592(c)(4)(B). A formal
investigation is considered to have commenced "with regard to the disclosing party and
the disclosed information on the date recorded in writing by the Customs Service as the
date on which facts and circumstances were discovered or information was received
which caused the Customs Service to believe that a possibility of a violation" existed.
The importer has the burden of proof in establishing lack of knowledge of
commencement of the investigation.
The trial court found that Ford's August 6, 1991 letter to Customs disclosing the
engineering changes and amendments was "the only communication that could qualify
as a prior disclosure." Gross Negligence Decision, 387 F. Supp. 2d at 1329. It
concluded, however, that Customs' investigation of Ford began much earlier—no later
than March 8, 1991—and that Ford "had knowledge of the investigation by June 7,
1991," precluding Ford from taking advantage of the prior disclosure rule under
§ 1592(c)(4). Id. In reaching those conclusions, it relied primarily on the provisions of
19 C.F.R. § 162.71(d), which set forth the criteria for determining the start of a formal
investigation. That section states that an investigation is deemed to have commenced
on the earliest of the following: (1) "the date recorded in writing in the investigatory
record, including contemporaneous notes, as the date upon which an agent believed
05-1593 14
the possibility of a violation existed"; (2) the date an investigating agent properly
identified herself or himself and the nature of her or his inquiry, in writing or in person
and inquired about the disclosed violation"; or (3) "the date an investigating agent, after
properly identifying herself or himself, and the nature of her or his inquiry, requested
specific books and records relating to the disclosed violation." Relying on
§ 162.74(d)(4)(i), the trial court concluded that on March 8, 1991, Customs agent Turner
"suspected a violation regarding Ford" and took contemporaneous notes indicating that
suspicion. Id. Further, the trial court held, "the arrival of a Customs summons on June
7, 1991, should have alerted Ford an investigation was underway." Id.
On appeal, Ford asserts that the Customs investigation could not have begun
before August 21, 1991, and that it could not have known it was under investigation
prior to that date. It points to the first Report of Investigation ("ROI") specifically relating
to the Ford investigation, which is dated August 21, 1991, and which states that "[t]his
report initiates formal investigation of this matter." The ROI later states that "this issue
was previously investigated as part of the OAC case . . . . This report initiates a
separate, formal investigation of FORD's failure to declare the full value of the stamping
dies purchased from OAC and OIW." Another Customs document, this one dated
August 27, 1991, states that Ford's August 6, 1991, letter was provided "[i]n response
to" the June 7, 1991, summons, and that "[a]s a result" of that August 6 letter, Customs
"has opened a separate, formal investigation related to FORD's imports."
Ford's arguments are without merit. We note, first, that the district court made no
finding that Ford's submission of August 6, 1991, qualified as a prior disclosure. The
court said merely that was "the only communication that could qualify as a prior
05-1593 15
disclosure," and went on to conclude that Ford was under investigation and had
knowledge of that investigation prior to August 6, 1991. Gross Negligence Decision,
387 F. Supp. 2d at 1329. The trial court never reached the question of whether Ford's
submission qualified as a prior disclosure or not. More important, although the terms of
the August 21, 1991, Report of Investigation indicate that the investigation did not begin
until that date, Customs' regulations clearly permit a finding that a formal investigation
has commenced with much less evidence than a formal ROI. Those regulations permit
a finding that a formal investigation has begun as of "the date upon which an agent
believed the possibility of a violation existed," if that date is recorded in writing in
"contemporaneous notes." Agent Turner's notes of March 8, 1991, may be ambiguous
in this regard—although they focus on Ford and die-related issues, they do not make
any specific reference to an investigation of Ford—but Turner himself testified that he
was investigating Ford's FN-36 program at that point.
Ford's knowledge of the investigation is a question of fact, reviewable for clear
error. There is evidence in the record that Ford itself understood the June 7 summons
to constitute "notice that it (Ford) was under investigation for the importation of stamping
dies from Ogihara." In light of this evidence, we cannot conclude that the CIT's finding
that Ford had knowledge of the investigation as of June 7, 1991, was clearly erroneous.
IV. Ford's Motion to Amend the Complaint
The Rules of the Court of International Trade permit the court to grant a motion
for leave to amend a pleading "only by leave of the court or by written consent of the
adverse party," but specifies that "leave shall be freely given when justice so requires."
R. Ct. Int'l Trade 15(a). The Court of International Trade has stated that it considers
05-1593 16
such motions "on a case-by-case basis, considering a variety of factors," including
timeliness, potential prejudice, whether additional discovery will be necessary, and the
procedural posture of the litigation. United States v. Optrex, 2005 WL 3447611 at *2
(Ct. Int'l Trade Dec. 15, 2005). We review the denial of such a motion for abuse of
discretion. Saarstahl AG v. United States, 177 F.3d 1314, 1320 (Fed. Cir. 1999).
In September of 2004, after the close of discovery in this case, Ford filed a
motion for leave to amend its answer to add a counterclaim for "equitable recoupment of
any overpayments made on the eleven entries" listed in its complaint. It alleged that its
November 22, 1991, tender of $689,775 was based on "an overstated calculation of the
undervaluation," because of a classification error. The trial court denied the motion on
grounds of "futility" and untimeliness, ruling that the counterclaim was "futile because
the duty paid in 1991 on the subject entries was voluntarily tendered under 19 U.S.C. §
1514(c) and § 1592(c)(4) (2000)." Section 1514 provides that Customs Service
decisions regarding "the classification and rate and amount of duties chargeable . . .
shall be final and conclusive . . . unless a protest is filed in accordance with this
section." 19 U.S.C. § 1514(a). Section 1514(b)(2) states that "protests may be filed . . .
by . . . any person paying any charge or exaction." A voluntary tender of duties is not a
"charge or exaction," and therefore cannot be the subject of a protest; and since it
cannot be the subject of a protest, it is "final and conclusive upon all persons" under
§ 1514(a). Therefore, the trial court ruled, the counterclaim lacked any statutory basis.
The Court of International Trade also ruled that the motion to amend was
untimely, noting that although Ford was aware of "the relevant information" by February
of 2004, it "dawdled until the end of September 2004, to file its motion." Given that
05-1593 17
discovery had closed the previous month, the trial court concluded that the timing of
Ford's motion was "selective," and denied it despite its finding that Customs would not
be prejudiced by the amendment.
On motion for reconsideration, the trial court again denied Ford's motion, stating
that "the government's present penalty case for loss of revenue is limited to Ford's
alleged failure to declare the full value of the entries, and not any classification issue,"
and that "[t]he issue of whether the subject entries are properly classified . . . is not
before the Court."
On appeal, Ford argues that the district court erred as a matter of law in
concluding that the counterclaim was futile and abused its discretion in denying the
motion as untimely. It relies on 19 U.S.C. § 1592(e), which provides that
"[n]otwithstanding any other provision of law . . . all issues, including the amount of the
penalty, shall be tried de novo." Ford claims that de novo review under § 1592 applies
to all matters relevant to the determination of the penalty, and that because the penalty
is a function of the duties owed, classification of the goods is properly within the scope
of any § 1592 trial. The trial court, responding to that argument, ruled that "[t]he Court's
de novo review under 19 U.S.C. § 1592(e) does not open the door to every aspect of
the subject entries, but only over the valuation issues associated with the amount of the
penalty." The central issue on appeal is whether the de novo review provision of
§ 1592(e) requires the Court of International Trade to consider arguments relating to the
calculation of the penalty but not directly relating to the violations at issue in the
litigation.
05-1593 18
The government points to several decisions of this court that, it claims, limit the
scope of a § 1592 proceeding to those duties "resulting from" the alleged § 1592
violation. See, e.g., Pentax Corp. v. Robinson, 125 F.3d 1457, 1462 (Fed. Cir. 1997);
United States v. Blum, 858 F.2d 1556, 1569 (Fed. Cir. 1988). Both Pentax Corp. and
Blum, however, deal with actions for the recovery of unpaid duties by Customs under
§ 1592(d)—not with actions for penalties under § 1592(e). Section 1592(d) expressly
provides that "if the United States has been deprived of lawful duties . . . as a result of a
violation of [§ 1592(a)], the Customs Service shall require that such lawful duties. . . be
restored, whether or not a monetary penalty is assessed." Section 1592(e) makes no
reference to amounts lost "as a result of" the § 1592 violation. Pentax Corp. and Blum
are therefore inapposite to the case at bar. In fact, the only decision of this court to
construe § 1592(e)(1)—albeit in a very different context—appears to have construed it
broadly, to permit the Court of International Trade to determine de novo not only the
amount of the penalty, but what party is ultimately responsible for paying it, even if that
party is not the party initially charged by Customs. See United States v. Priority Prods.,
793 F.2d 296, 299 (Fed. Cir. 1986) (holding 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 is subject to de
novo consideration"); see also Tikal Dist. Corp. v. United States, 970 F. Supp 1056,
1061 (Ct. Int'l Trade 1997) (stating that § 1592 "provide[s] a complete judicial remedy
for those who believe that Customs has wrongfully assessed a penalty," because "the
statute allows a party to obtain de novo review of a government claim from the Court of
International Trade before paying any penalty").
05-1593 19
The most complete analysis of the de novo review provision of § 1592(e)
occurred in a Court of International Trade decision that issued on December 15, 2005—
the day Ford's opening brief was filed. In United States v. Optrex, No. 05-160 (Dec. 15,
2005), 2005 WL 3447611, the Court of International Trade considered the government's
motion to amend its complaint to allege higher levels of culpability than it originally
alleged, citing newly available information indicating a basis for claims of fraud and
gross negligence, rather than simple negligence. It cited § 1592(e) for the proposition
that "as long as the United States commenced a section 1592 action, there is no
limitation upon the 'issues' addressed or the 'amount of the penalty.'" Id. at *4.
The trial court denied the motion, concluding that "the de novo standard [in
§ 1592(e)] refers to the issues in the context of a specific claim based on one of the
three types of section 1592 violations and does not allow the court to review entirely
new penalty claims." Id. In so concluding, it relied on its understanding of the statute's
"basic purpose," which, it stated, was "to give an importer an opportunity to fully resolve
a penalty proceeding before Customs, before any action in [the Court of International
Trade]." Id. It read the legislative history of § 1592(e) as "support[ing] the analysis that
the administrative penalty claim underlies the suit brought by the United States under
section 1592(e)." Id. (citing S. Rep. 95-778 at 19-20 (1978)). In other words, the Court
of International Trade in Optrex effectively limited the de novo review provided for in
§ 1592(e) to those issues considered in the proceedings before Customs.
Although we are not bound by the Court of International Trade's decision in
Optrex, we conclude that it correctly defines the proper scope of § 1592(e). The
legislative history suggests that one purpose of § 1592(e)'s de novo review provision
05-1593 20
was to permit judicial review of the amount of the assessed penalty—something that the
old version of § 1592 did not permit. See S. Rep. 95-778 at *2, *20 (1978). Its intended
function appears to have been not to throw open the litigation to any issue conceivably
relevant to the determination of the penalty, but simply to "emphasize[ ] lack of
deference to Customs' final determination, including its findings of fact under § 1592(b)."
Optrex, 2005 WL 344761 at *4. There is no basis, either in the legislative history or in
common sense, for Ford's contention that § 1592(e) was intended to permit an importer
to end-run the protest provisions of § 1514 and litigate, in a penalty proceeding, issues
unrelated to the investigation that identified the violation and that would otherwise have
been long foreclosed. Neither can this court's decision in Priority Productions be
construed to permit such a result.
Because we conclude that the district court did not abuse its discretion in denying
the motion to amend based upon futility, we need not reach the timeliness issue. Were
we to reach it, however, we would be very reluctant to disturb the trial court's finding of
untimeliness, especially in light of its conclusion that the timing of Ford's motion was
"selective."
V. The Penalty
Ford's argument that the trial court abused its discretion in assessing a penalty
just slightly lower than the statutory maximum is based almost entirely on its contention
that Ford's existing compliance measures somehow should have required mitigation of
the penalty. The district court's conclusion that those compliance measures failed
repeatedly in this case is sufficient to rebut Ford's argument.
05-1593 21
In addition, our reversal in part of the Court of International Trade's judgment of
liability for violations of 19 U.S.C. § 1484 requires no adjustment to the assessed
penalty. Although Ford cannot constitutionally be held liable for failing to report the
provisional nature of its entries, its failure to report the true and complete value of those
entries at the time of entry constituted an independent violation of § 1484. There is thus
no basis for any reduction in the penalty based upon the partial reversal of the trial
court's judgment.
CONCLUSION
The trial court's judgment is hereby affirmed in part and reversed in part.
AFFIRMED IN PART and REVERSED IN PART.
No costs.
05-1593 22