United States v. Am. Cas. Co. of Reading, Pa. , 2015 CIT 94 ( 2015 )

Slip Op. 15-94
UNITED STATES COURT OF INTERNATIONAL TRADE
________________________________
UNITED STATES, :
:
Plaintiff, : Before: Nicholas Tsoucalas,
: Senior Judge
v. :
: Consol. Court No.: 10-00119
AMERICAN CASUALTY CO. OF :
READING PENNSYLVANIA, and RUPARI: PUBLIC VERSION
FOOD SERVICES, INC. :
:
Defendants, :
_____________________ :
OPINION AND ORDER
[Plaintiff’s request for leave to amend the Complaint is granted
in part and denied in part. Defendant’s Motion to Dismiss is
denied.]
Dated:August 24, 2015
Mikki Cottet, Senior Trial Counsel, Commercial Litigation Branch,
Civil Division, U.S. Department of Justice, of Washington, DC,
argued for Plaintiff. With her on the brief were Benjamin C.
Mizer, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, and Patricia M. McCarthy, Assistant Director, of
Washington, DC. Of counsel on the brief was Brian J. Redar, Office
of Associate Chief Counsel, U.S. Customs and Border Protection, of
Long Beach, CA.
Lawrence M. Friedman, Barnes Richardson & Colburn, of Chicago, IL,
argued for Defendant. With him on the brief were Shama K. Patari,
Barnes Richardson & Colburn, of Chicago, IL, and Peter A. Quinter,
Gray Robinson, P.A., of Miami, FL.
Tsoucalas, Senior Judge: Plaintiff, United States
Customs and Border Protection, (“Customs”) brought this action to
recover civil penalties against Defendant, Rupari Food Services
Consol. Court No. 10-00119 Page 2
Inc., (“Rupari” or “Defendant”) 1 for violations of Section 592 of
the Tariff Act of 1930, 19 U.S.C. § 1592(a)(2012) 2, and Defendant
American Casualty Co. of Reading Pennsylvania, (“American
Casualty”) to recover, under bonds, unpaid customs duties. Rupari
moves for dismissal of this action, post-answer, on the grounds
that the Complaint fails to state a claim upon which relief can be
granted and Customs failed to plead fraud with particularity.
Customs opposes dismissal and requests leave to amend its
Complaint. For the following reasons, Customs’ request for leave
to amend the Complaint is granted in part and denied in part, and
Defendant’s Motion to Dismiss is denied.
JURISDICTION AND STANDARD OF REVIEW
The Court possesses jurisdiction to hear this action
under section 201 of the Customs Courts Act of 1980, 28 U.S.C. §
1582 (2012). 3
A motion to dismiss for a failure to state a claim may
be raised by motion under USCIT R. 12(c) after the pleadings are
1 Plaintiff also filed an action against William Vincent “Rick”
Stilwell (“Stilwell”) individually, however, all parties agreed to
dismiss all claims as to him with prejudice and without costs,
fees, and expenses on July 17, 2015. Stipulation of Partial
Dismissal, July 17, 2015, ECF No. 104.
2 Further citations to the Tariff Act of 1930 are to the
relevant portions of Title 19 of the U.S. Code, 2012 edition, and
all applicable amendments thereto, unless otherwise noted.
3 Further citations to the Customs Courts Act of 1980 are to
the relevant portions of Title 28 of the U.S. Code, 2012 edition,
and all applicable amendments thereto, unless otherwise noted.
Consol. Court No. 10-00119 Page 3
closed but early enough not to delay trial. USCIT R. 12 (h)(2)(B).
A Rule 12(c) motion is reviewed under the same standard as a motion
to dismiss under Rule 12(b)(6). Koyo Corp. of U.S.A. v. United
States, 37 CIT ____, 899 F. Supp. 2d 1367, 1370 (2013). When
reviewing a motion to dismiss for failure to state a claim, the
court must accept as true the complaint’s undisputed factual
allegations and should construe them in the light most favorable
to the plaintiff. Bank of Guam v. United States, 578 F.3d 1318,
1326 (Fed. Cir. 2009) (quoting Cambridge v. United States, 558
F.3d 1331, 1335 (Fed. Cir. 2009). To survive a motion to dismiss,
a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955,
1974, 167 L. Ed. 2d 929, 949 (2007). To be plausible, the complaint
need not show a probability of plaintiff’s success, but it must
evidence more than a mere possibility of a right to relief. Id. at
556-59, 127 S.Ct at 1965-66, 167 L. Ed. 2d at 940-41.
BACKGROUND
Rupari is a Florida corporation that purchased crawfish
from abroad and sold it to restaurants in the United States. Compl.
¶¶ 3, 12, June 20, 2011, ECF No. 2; Pl.’s Opp’n to Mot. to Dismiss
(“Pl.’s Br.”) Purchase Agreement Ex. 10, at 13, Mar. 7, 1997, ECF
No. 94-6. Rupari’s seafood sales team consisted of Mr. Larry
Floyd (“Floyd”), Vice President of Rupari’s Seafood Sales
Consol. Court No. 10-00119 Page 4
Division, and Stilwell, a commissioned seafood salesman. Pl.’s Br.
Tr. of Dep. of William Vincent Stilwell (“Stilwell Dep.”) Ex. 1,
at 13-14, Apr. 3, 2013, ECF No. 94-1; Pl.’s Br. Tr. of Dep. of
Rupari Food Services Inc. (“Rupari Dep.”) Ex. 2, at 15-16, 17,
Apr. 4, 2013, ECF No. 94-2.
In 1997 and 1998, Rupari sold crawfish to members of the
Popeye’s Operator’s Purchasing Cooperative Association (“POPCA”).
Mr. Richard Porter (“Porter”), the POPCA director of purchasing
and distribution, communicated with Rupari through Floyd regarding
the sale of crawfish. Pl.’s Br. Decl. of Richard L. Porter (“Porter
Decl.”) Ex. 10, at ¶¶ 6, 7, Mar. 16, 2014, ECF No. 94-6.
On March 7, 1997, Porter and Floyd signed a Purchase
Agreement wherein Rupari would sell POPCA 148,000 lbs. of “Chinese
[c]rawfish [t]ail [m]eat.” Pl.’s Br. Purchase Agreement Ex. 10,
at 13, Mar. 7, 1997. The agreement also stated that a formal POPCA
supply agreement would be sent shortly thereafter. Id. Floyd and
Porter consummated the formal POPCA supply agreement on June 8,
1997. Id. at 14.
In August 1997, the United States Department of Commerce
(“Commerce”) conducted an antidumping investigation concerning
crawfish tail meat from China. Commerce published the final
determination of its antidumping investigation of freshwater
crawfish tail meat from China on August 1, 1997. Notice of Final
Determination of Sales at Less than Fair Value: Freshwater Crawfish
Consol. Court No. 10-00119 Page 5
Tail Meat From the People’s Republic of China, 62 Fed. Reg. 41,347
(Aug. 1, 1997) (subsequently amended to correct ministerial errors
at 62 Fed. Reg. 48,218 (Dep’t of Commerce Sept. 15, 1997) (“Final
Determination”).
Yupeng Fisheries Ltd., (“Yupeng”) a Chinese producer and
importer of crawfish tail meat, was among the firms investigated
by Commerce. Id. Yupeng did not receive a separate rate, and its
crawfish tail meat exports were subject to the China-wide rate of
201.63 percent. Id. at 41,358. Whole crawfish, however, were
excluded from the scope of the antidumping duty investigation.
Id. at 41,347. From 1996 to 1998, Yupeng sold Rupari whole cooked
frozen crawfish and cooked frozen crawfish tail meat. Pl.’s Br.
Stilwell Dep. Ex. 1, at 17-18.
Floyd and Stilwell mainly communicated with Mr. Tian
Wei, a Yupeng salesman, but also communicated with Mr. Wang Yon
Min, Yupeng’s owner, (“Wang”), regarding the sale of crawfish to
Rupari. Id. at 17, 21.
On October 17, 1997, POPCA sent Floyd and Rupari a letter
confirming that Popeye’s would purchase 1,500 cases of crawfish.
Pl.’s Br. Crawfish Confirmation Letter from James Brailey,
Purchasing Manager, POPCA, to Floyd Ex. 10, at 30, Oct. 17, 1997.
In November 1997, Wang, Yupeng’s owner, created
Seamaster Trading Company Ltd. (“Seamaster”) which was located in
Thailand. Compl. at ¶13. Yupeng shipped crawfish tail meat from
Consol. Court No. 10-00119 Page 6
China to Seamaster in Thailand. Pl.’s Br. Packing List, Bill of
Lading, Invoice, Manifest or Freight List Ex. 6, at 1-12, ECF No.
94-5. Rupari was aware that Wang created Seamaster and was the
principal owner of both Yupeng and Seamaster. Pl.’s Br. Rupari
Dep. Ex. 2, at 5.
Wang approached Mr. Somchai Sriviroj, (“Sriviroj”) the
owner and managing director of Sea Bonanza Foods Company, Ltd.,
(“Sea Bonanza”) a fish processing company in Thailand, and asked
if Sea Bonanza could repackage frozen crawfish tail meat. Pl.’s
Br. Tr. of Dep. of Sea Bonanza Foods Company, Ltd. Ex. 4, at 8,
July 8-9, 2013, ECF No. 94-3.
On November 8, 1997, Seamaster entered into a contract
with Sea Bonanza wherein Seamaster would ship crawfish tail meat
from China to Thailand, and Sea Bonanza would repackage the
crawfish tail meat in exchange for a processing fee. Pl.’s Br.
Contract between Sea Master and Sea Bonanza Ex. 5, at 2, Nov. 8,
1997, ECF No. 94-4.
In January and April 1998, Yupeng shipped from China to
Seamaster, in Thailand, product invoiced as “frozen crawfish.”
Pl.’s Br. Invoice Ex. 6, at 1, 3, Jan. 8, 1998, ECF No. 94-5.
Sea Bonanza repacked the frozen crawfish tail meat for
Seamaster and labelled the meat a “product of Thailand.” Pl.’s Br.
Tr. of Dep. of Sea Bonanza Foods Company, Ltd. Ex. 4, at 8, 22.
According to the Agricultural Affairs Office at the American
Consol. Court No. 10-00119 Page 7
Embassy in Bangkok, crawfish is not harvested in Thailand;
moreover, Sea Bonanza never processed live crawfish. Id. at 7,
12; see also Pl.’s Br. Packing List Ex. 6, at 1, Apr. 18, 1998;
Pl.’s Br. Facsimile from the Agricultural Affairs Office at the
American Embassy in Bangkok, Thailand to Roy Johnson, Louisiana
Dept. of Agriculture Ex. 8, at 1, Aug. 5, 1998, ECF No. 94-5.
Rupari assisted Seamaster with obtaining a customs
broker and Seamaster became a non-resident importer of crawfish to
the United States. Pl.’s Br. Rupari Dep. Ex. 2, at 4; Pl.’s Br.
Entry Summary Ex. 11A, at 1-42, Mar. 13, 1998, ECF No. 94-7.
Rupari stopped purchasing crawfish tail meat directly from Yupeng
and began purchasing crawfish tail meat from Seamaster. See Pl.’s
Br. Stilwell Dep. Ex. 1, at 18, 20. Rupari had never purchased
crawfish from a source in Thailand prior to purchasing crawfish
tail meat from Seamaster. Id. at 20.
On February 24, 1998, Porter sent a letter to Caro
Produce regarding POPCA’s Crawfish Etouffe promotion beginning
March 9, 1998, and ending April 11, 1998. Pl.’s Br. Letter from
Porter to Caro Produce-Angel Homan, Ex. 10, at 36, Feb. 24, 1998.
The letter recited that POPCA ordered 1,200 cases of crawfish in
24.1 lb. bags from Rupari. Id.
On March 13, 1998, Seamaster filed a consumption entry
describing the imported merchandise as 1,900 cartons of frozen
crawfish, classified under U.S. Harmonized Tariff Schedule
Consol. Court No. 10-00119 Page 8
(“HTSUS”) 0306.19.0010, free of duty, and marked as a product of
Thailand. Pl.’s Br. Entry Summary Ex. 11A, at 1.
American Casualty issued customs bonds to Seamaster for
the importation of crawfish tail meat. Compl. At ¶6, Customs Bonds
Ex. A, at 2-5, Apr. 15, 1998, ECF No. 2-1. American Casualty, as
surety, guaranteed payment for any duty, tax, or charge, or
compliance with law or regulation, as a result of Seamaster’s
imports. Id.
On April 18, 1998, Seamaster filed three consumption
entries that described the imported merchandise as 1,750 cartons
of cooked crawfish meat, classified under HTSUS 1605.40.1000, free
of duty, and marked as products of Thailand. Pl.’s Br. Entry
Summary Ex. 11A, at 10. Seamaster did not identify any of the
entries as being subject to antidumping orders as required by 19
C.F.R. § 141.61(c). See id. Rupari was listed as the notifying
party on certificates of origin that accompanied these four
entries. Pl.’s Br. Certificates of Origin Ex. 11A, at 7, 15, 26,
37. The entry summaries, entry documents, invoices, and
certificates of origin all stated that the crawfish meat originated
in Thailand. Id. at 1-42.
Seamaster, as the importer of record, entered four
containers of crawfish tail meat into the commerce of the United
States through the Los Angeles/Long Beach Seaport by means of
documents filed with Customs that claimed the merchandise
Consol. Court No. 10-00119 Page 9
originated in Thailand. Compl. at ¶17. The four entries were
released for consumption and Rupari sold some or all of the entries
to POPCA. Pl.’s Br. Porter Decl. Ex. 10, at ¶10. All four entries
were subject to a 201.63 percent antidumping duty margin under the
antidumping order. Final Determination, 62 Fed. Reg. at 41,358.
Seamaster did not classify the entries as subject to antidumping
duties, nor did it remit any amount of the applicable duties to
Customs. Compl. at ¶18.
On May 4, 1998, Porter had a telephone conversation with
Floyd, Rupari’s Vice President of seafood sales, regarding the
alleged crawfish tail meat purchased from Rupari and upcoming
shipments of frozen crawfish tail meat. Pl.’s Br. Ex. 10, at 3-4,
Porter Decl. at ¶10. According to Porter:
During that conversation, I asked Larry
[Floyd] how it was that Rupari could sell its
Chinese crawfish tail meat so cheaply. I also
commented that Rupari’s crawfish was cheaper
than all of the other Chinese crawfish tail
meat being sold in the United States at that
time. Larry responded that they, which I
understood to be Rupari, “can get it in where
it would not be known as Chinese crawfish.” I
asked Larry how and he explained that the
Chinese crawfish tail meat was shipped to
Thailand where it was “processed.” He said
that the country of origin could be the place
where the crawfish is packed. Larry also used
the word “tariff,” stating that Rupari’s
crawfish would not have to pay the same amount
in tariffs. I responded, “Is that on the up-
and-up?” I was uncomfortable with this
approach and shared my concern with Larry.
Id.
Consol. Court No. 10-00119 Page 10
Also on May 4, 1998, Floyd sent Porter a facsimile on
Rupari letterhead, in which he wrote the following:
As per our conversation on the telephone
earlier concerning cooked peeled crawfish meat
from Thialand, [sic] this product was cooked
in China and sent to Thialand [sic] in the
whole round and totally processed in Thialand
[sic] and packed under the Seamaster lable
[sic]. I really don’t understand what all the
comotion [sic] is all about because we could
bring in the whole cooked product into the
United States and peel and pack it here and it
would become product of the U.S.A.
Pl.’s Br. Fax from Floyd to Porter Ex. 20, at 1, May 4, 1998, ECF.
No. 94-11.
Seamaster, as the importer of record, attempted to enter
five more entries of crawfish tail meat into the United States
between approximately June 13, 1998, and June 20, 1998. Pl.’s Br.
Entry/Immediate Delivery Forms, Certificates of Origin, Bills of
Lading, Invoices, Ex. 11B, at 1-28 ECF No. 94-8. Seamaster
classified the crawfish tail meat in these five entries as duty
free under 1605.40.1000 HTSUS. Id. Seamaster labeled all five
entries as products of Thailand. Id. The crawfish tail meat was
subject to antidumping duties of 201.63 percent, because it
originated in China, but Seamaster did not classify the merchandise
properly. Id.; see also Final Determination, 62 Fed. Reg. at
41,358. Customs examined and seized the five entries of crawfish
tail meat under 19 U.S.C. § 1595a(c)(2)(E), because the cartons
Consol. Court No. 10-00119 Page 11
were intentionally marked as products of Thailand in violation of
19 U.S.C. § 1304. Compl. at ¶21.
On June 26, 1998, Customs issued a request for
information to Seamaster, as importer of record, asking them to
substantiate the claimed Thai origin of the five seized entries,
and asking for an explanation of Seamaster’s relationships with
Rupari and Sea Bonanza. Pl.’s Br. U.S. Customs Service Request for
Information, Ex. 13, at 1, June 26, 1998, ECF No. 94-10.
On June 29, 1998, Customs commenced a fraud
investigation against Rupari for the possible circumvention of
antidumping duties. Pl.’s Br. Tr. of Dep. of C. Vernon Francis,
Ex. 12, at 12, Sept. 24, 2013, ECF No. 94-9.
On July 1, 1998, Rupari, through its employee, Stilwell,
filed a letter with Customs on behalf of Seamaster, the importer
of record, wishing to clarify the origin of the crawfish meat.
Pl.’s Br. Letter from Stilwell to Mr. David Shaw, US Customs
Service, Ex. 15, at 1, July 1, 1998, ECF No. 94-11. Stilwell
stated in the letter that the crawfish tail meat in the five seized
entries was “cooked, peeled, and processed” by Sea Bonanza at its
plant in Thailand. Id.
On July 6, 1998, Customs issued a second request for
information to Seamaster asking for records from Sea Bonanza to
substantiate the facts in the letter referenced claiming that the
crawfish tail meat was processed in Thailand from raw crawfish
Consol. Court No. 10-00119 Page 12
harvested in Thailand. Pl.’s Br. Second Request for Information
Ex. 13, at 2-4.
On July 10, 1998, Rupari, through its employee Stilwell,
filed documents in response to this second request for information.
Compl. at ¶25. One of those documents was a letter written by
Seamaster that authorized Rupari to act as Seamaster’s
representative in all dealings with Customs related to the release
of the seized entries of Chinese crawfish tail meat. Pl.’s Br.
Letter of Authorization from Seamaster to U.S. Customs, Ex. 23, at
46, July 9, 1998.
On July 13, 1998, Customs issued a third request for
information to Seamaster again asking for further substantiation
of the claim that the crawfish originated in Thailand. Pl.’s Br.
Third Request for Information Ex. 13, at 5, July 13, 1998.
On July 13, 1998, Rupari, through its employee Stilwell,
filed a series of documents with Customs. Compl. at ¶27. Among
those documents was a purported letter from Mahyam Tingham
Fisheries Co. Ltd. stating that it cultivated crawfish in Bangkok,
Thailand, which it sold to Sea Bonanza, complete with invoices for
the sale of live crawfish. Pl.’s Br. Letter of Explanation from
Mahyam, Ex. 15, at 2-5, July 10, 1998. The Bureau of Business
Information of the Government Service Division in Thailand has
confirmed that they failed to find any business registration for
the name “Mahyam Tingham Fisheries Co., Ltd.” Pl.’s Br. Letter
Consol. Court No. 10-00119 Page 13
from the Bureau of Business Information of Thailand to Ms. Barry
Tang, Ex. 18, at 1, May 10, 2013.
There was also a letter from Sea Bonanza stating that it
purchased raw crawfish from Mahyam that it processed into tail
meat for sale to Seamaster, which Seamaster then imported into the
United States. Pl.’s Br. Letter of Confirmation from Sea Bonanza,
Ex. 23, at 47, July 10, 1998.
[[
Consol. Court No. 10-00119 Page 14
]]
On July 25, 1998, Wang, the owner of Yupeng, sent a
facsimile to Rupari and Stilwell which stated that Yupeng did not
have the money to pay the ocean freight to ship crawfish to
Thailand; however, Yupeng would fulfill Rupari’s order of “whole
crawfish” which would be mixed with “ten tons of crawfish meat.”
Pl.’s Br. Facsimile from Wang to Rupari Ex. 16, at 1, July 25,
1998, ECF No. 94-11.
On August 5, 1998, the Agricultural Affairs Office of
the American Embassy in Thailand confirmed that there was no
commercial production of indigenous freshwater crawfish in
Thailand. Pl.’s Br. Facsimile from Agricultural Affairs Office,
American Embassy, Bangkok, Thailand, to Roy Johnson, Louisiana
Dept. of Agriculture, Ex. 8, at 1, Aug. 5, 1998.
On April 9, 2001, Customs sent Rupari and Stilwell a
Pre-penalty Notice which set the tentative determination of
culpability at fraud, but also noted that “[i]nasmuch as the
Government may plead in the alternative in any de novo proceeding
before the Court of International Trade, Customs alternatively
alleges that the violation in question occurred as a result of
negligence or gross negligence.” Pl.’s Br. Pre-penalty Notice,
Consol. Court No. 10-00119 Page 15
Ex. 19, at 2, Apr. 9, 2001, ECF No. 94-11. On November 14, 2001,
Customs issued Rupari and Stilwell a Penalty Notice which included
the same language as the Pre-penalty notice mentioned above. Pl.’s
Br. Penalty Notice, Ex. 24, at 18-20, Nov. 14, 2001, ECF No. 94-
13.
On April 7, 2010, Customs filed a complaint against
American Casualty claiming that it owed the United States
$1,279,648.83 plus statutory interest for unpaid customs duties
under bonds pursuant to 19 U.S.C. § § 1505, 1592(d), 1505(c), and
580. Compl. at ¶1, April 7, 2010, ECF No. 2.
On June 20, 2011, Customs filed a Complaint against
Rupari for violations of 19 U.S.C. § 1592 (a). Compl. ¶1, June 20,
2011, ECF No. 2. The Complaint alleged that Defendant attempted
to enter five containers of Chinese crawfish tail meat by means of
documents falsely claiming that the crawfish tail meat originated
in Thailand. Id. at ¶8. Customs sought the domestic value of the
merchandise Rupari attempted to enter into the United States which
was $2,784,636.18, or in the alternative, the maximum amount for
grossly negligent or negligent violations of 19 U.S.C. § 1592.
Id. at ¶52.
On December 22, 2011, this Court ordered that the case
against American Casualty be consolidated with that against
Rupari. Order, Dec. 22, 2011, ECF No. 22.
Consol. Court No. 10-00119 Page 16
On May 13, 2013, Stilwell died. Def.’s Mot. to Dismiss
Public Version, Death Certificate Ex. 5, at 1, July 19, 2013, ECF
No. 75-5. Additionally, Floyd died, however, his date of death is
not known by the court. On January 22, 2014, Customs conducted
the deposition of a confidential informant who recounted an alleged
conversation with Stilwell in which Stilwell stated that [[
]] Pl.’s
Br. Conf. Dep. of Confidential Informant Ex., 1 at 7, ECF No. 80.
Subsequently, Defendant filed a motion to dismiss
arguing that Customs failed to properly allege fraud with
particularity and Customs failed to exhaust its administrative
remedies for Counts II (gross negligence) and III (negligence).
Def.’s Br. at 4-5.
Customs opposes Defendant’s Motion to Dismiss, and it
also requests leave to amend its Complaint. Pl.’s Br. at 13.
DISCUSSION
There are three issues that the court must analyze in
addressing Defendant’s Motion to Dismiss: (1) whether the court
should allow Customs to amend its Complaint; (2) whether Customs
alleged fraud with particularity; (3) whether Customs failed to
exhaust its administrative remedies with respect to negligence and
gross negligence.
Consol. Court No. 10-00119 Page 17
1. Whether the court should allow Customs to amend its
Complaint.
Customs seeks leave to amend its Complaint, reasoning
that Defendant would not suffer any prejudice, because this action
has advanced significantly beyond discovery, Defendant answered
the complaint, and Defendant waited until the close of discovery
to file its Motion to Dismiss. Pl.’s Br. at 13-14. Customs also
notes that this is its first request to amend the complaint. Id.
Defendant opposes Customs’ request to amend, because it
argues that waiting years after the Complaint was filed to amend
by adding new information constitutes undue delay that prejudices
their case. Def.’s Reply to Pl.’s Resp. to Def.’s Mot. to Dismiss
Confidential Version at 5-6, Mar. 29, 2015, ECF No. 98 (“Def.’s
Reply”).
Rule 15 of the Rules of the U.S. Court of International
Trade provides that “[t]he court should freely give leave” to amend
a pleading “when justice so requires.” USCIT R. 15(a)(2). While
Rule 15 requires that leave to amend be freely given, the Court
must also consider whether there was undue delay, bad faith or
dilatory motive on the part of the Plaintiff, undue prejudice to
the opposing party, a repeated failure to cure deficiencies by
amendments previously allowed, and futility of amendment. Foman
v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222, 226
(1962).
Consol. Court No. 10-00119 Page 18
The view that delay becomes undue when it prejudices
the opposing party is generally accepted. Ford Motor Co. v. United
States, 19 CIT 946, 956, 896 F. Supp. 1224, 1231 (1995) (citing
United States v. Mex. Feed & Seed Co., 980 F.2d 478, 485 (8th Cir.
1992)). In turn, to demonstrate prejudice, Defendant “must show
that it was unfairly disadvantaged or deprived of the opportunity
to present facts or evidence which it would have offered had the
amendment been timely.” Id. (quoting Cuffy v. Getty Ref. & Mktg.
Co., 648 F. Supp. 802, 806 (D.Del. 1986)).
First, Defendant argues that the inclusion of the
Declaration of Porter would prejudice it, because the Declaration
details a phone conversation between Porter and Floyd, in which
Floyd allegedly stated that the crawfish tail meat was from China.
Def.’s Reply at 7. Floyd is now deceased, and Defendant contends
that as a result of his death, it has been deprived of an
opportunity to challenge Porter’s statements. Id.
Although Floyd is deceased, Defendant argues that the
May 4, 1998 fax from Floyd to Porter, occurring the same day as
the phone call, shows that the conversation was limited to whole
crawfish which are not within the scope of the antidumping order.
Specifically, Defendant points out that the fax refers to crawfish
“in the whole round” and “whole cooked product.” Id. at 8.
Defendant has not been deprived of an opportunity to
challenge Porter’s statements, because the contemporaneous fax to
Consol. Court No. 10-00119 Page 19
Porter could show that the conversation was limited to whole
crawfish which are not within the scope of the antidumping order.
Id. Defendant is not prejudiced by the inclusion of Porter’s
Declaration or the fax, because it has not been deprived of an
opportunity to challenge Porter’s statements. See Ford, 19 CIT at
956, 896 F. Supp. at 1231. The court will allow Customs to amend
its Complaint to include information relative to the Declaration
of Porter.
Defendant also argues that amending the Complaint to
include additional facts to support Count I, fraud, would be
futile. Def.’s Reply at 5. Specifically, Defendants argue that
including facts relating to the facsimile from Wang, Yupeng and
Seamaster’s owner, to Rupari and Stilwell would not survive a
motion to dismiss, because the government’s conclusion that the
goods were transshipped to the U.S. from China and that Rupari and
Stilwell were aware of the transshipment does not logically flow
from the facsimile. Id. at 8.
If an amendment would not survive a motion to dismiss
pursuant to USCIT Rule 12(b)(6), it is deemed futile. United
States v. Active Frontier Int’l, Inc., 37 CIT ___, Slip Op. 13-8
(Jan. 16, 2013). To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face. Twombly, 550 U.S.
at 570, 127 S. Ct. at 1974, 167 L. Ed. 2d at 949. To be plausible,
Consol. Court No. 10-00119 Page 20
the complaint need not show a probability of plaintiff’s success,
but it must evidence more than a mere possibility of a right to
relief. Id. at 556-57, 127 S. Ct. at 1965-66, 167 L. Ed. 2d at
940-41.
The court finds that amending the Complaint to include
the information discussed in the facsimile would not be futile,
because the amendment would survive a motion to dismiss. See Active
Frontier Int’l, Inc., 37 CIT ___, Slip Op. 13-8 (Jan. 16, 2013).
The amendment would survive a motion to dismiss, because it
evidences a more than a mere possibility of a right to relief, as
one could reasonably interpret the fax to show that Rupari was
aware of the transshipment of crawfish tail meat. See Twombly,
550 U.S. at 570, 127 S. Ct. at 1974, 167 L. Ed. 2d at 949; see
also Pl.’s Br. Facsimile from Wang to Rupari Ex. 16, at 1.
Next, Defendant argues that the inclusion of the
deposition testimony of a confidential informant who recalled a
verbal, unrecorded, conversation with the now deceased Stilwell
will prejudice its case. Def.’s Reply at 10. Customs seeks to
amend the Complaint to include the deposition testimony, because
[[
]]
The Defendant has been deprived of an opportunity to present
Consol. Court No. 10-00119 Page 21
evidence it would have offered had the amendment been timely,
specifically Stilwell’s testimony, to rebut the confidential
informant’s account of the purported conversation with Stilwell,
because Stilwell died on May 13, 2013, and the deposition of the
confidential informant occurred afterwards on January 22, 2014.
See Ford, 19 CIT at 956, 896 F.Supp. at 1231; Def.’s Br. Stilwell
Death Certificate Ex. 5 at 1, ECF No. 75-5; Pl.’s Br. Dep. of Conf.
Informant Ex. 1, at 1. Consequently, inclusion of this deposition
will prejudice Defendant, and the court will not permit Customs to
amend its complaint to add this information.
2. Customs alleged fraud with particularity.
The Defendant argues that Customs’ Complaint fails to
contain sufficient underlying facts creating a plausible inference
that Rupari knew the statements contained in letters and other
documents to Customs were false and that they intended to deceive
Customs. Def.’s Br. at 5-6. The Court disagrees.
Rule 9(b) of the Rules of the Court of International
Trade requires that Customs “state with particularity the
circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be alleged
generally.” USCIT R. 9(b). Even though knowledge and intent may
be alleged generally, the pleadings must “allege sufficient
underlying facts from which a court may reasonably infer that party
acted with the requisite state of mind.” Exergen Corp. v. Wal-
Consol. Court No. 10-00119 Page 22
Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009). “A fraud
pleading must include informational elements of ‘who, what, when,
where, and how: the first paragraph of any newspaper story.’”
United States v. Islip, 22 CIT 852, 869, 18 F. Supp. 2d 1047, 1063
(1998) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th
Cir. 1990)). “Most courts have required the claimant to allege at
a minimum the identity of the person who made the fraudulent
statement; the time, place, and content of the misrepresentation;
the resulting injury; and the method by which the misrepresentation
was communicated.” Islip, 22 CIT at 869, 18 F.Supp.2d at 1063
(citing 2 Moore's Federal Practice § 9.03, at 9–18 n.12 (3d
ed.1998)).
Defendant contends that the bare fact that Rupari had
done business with Seamaster’s Chinese parent company, Yupeng,
prior to the imposition of antidumping duties does not permit the
inference that Rupari knew that the crawfish originated in China.
Def.’s Br. at 7. Defendant is correct that this fact alone does
not permit the inference that Rupari definitively knew the origin
of the crawfish to be China, but this individual fact cannot be
viewed in a vacuum as suggested by Defendant. Rather, this fact
must be viewed in light of the other facts mentioned in the
Complaint, as discussed below.
[[
Consol. Court No. 10-00119 Page 23
]]
Customs argues that the Declaration of Porter shows that
Rupari knew that the crawfish tail meat was from China, and thus
Customs pled fraud and intent with particularity. Pl.’s Br. 17-
18. In his Declaration, Porter recounts a conversation on May 4,
1998, with Floyd, in which Floyd allegedly told him that Rupari’s
“Chinese crawfish tail meat” was cheaper than all of the others,
because the meat was shipped to Thailand where it was processed
and then it “would not be known as Chinese crawfish.” Pl.’s Br.
Porter Decl. Ex. 10, at ¶10.
Consol. Court No. 10-00119 Page 24
In contrast, Defendant claims that the facsimile from
Floyd to Porter on May 4, 1998, sent the same day as the
conversation, shows that the conversation was limited to whole
crawfish, which is not within the scope of the antidumping order,
as the fax referred to crawfish “in the whole round” and as “whole
cooked product.” Pl.’s Br. Fax from Floyd to Porter Ex. 20, at 1.
Nevertheless, given that POPCA and Rupari previously
signed a contract for the supply of “Chinese [c]rawfish [t]ail
[m]eat,” and that the court construes the facts in the light most
favorable to the plaintiff in reviewing a motion to dismiss, the
court finds that Customs pled knowledge and intent with enough
particularity that its fraud claim survives the Motion to Dismiss.
See Pl.’s Br. Purchase Agreement between POPCA and Rupari, Ex. 10,
at 13; see also Bank of Guam, 578 F.3d at 1326.
Moreover, Plaintiff pled fraud with particularity,
because the complaint detailed the identity of the person who made
the fraudulent statement; the time, place, and content of the
misrepresentation; the resulting injury; and the method by which
the misrepresentation was communicated. See Islip, 22 CIT at 869,
18 F.Supp.2d at 1063. Specifically, the complaint alleged that
Stilwell, an employee of Rupari, fraudulently stated in a letter
dated July 1, 1998, to Customs on behalf of Seamaster, the importer
of record, that the crawfish tail meat in the five seized entries
was processed and packed by Sea Bonanza in Thailand from raw
Consol. Court No. 10-00119 Page 25
crawfish harvested by Mahyam in Thailand. Compl. ¶23; see id.
Customs further alleged that these statements had the potential to
influence its assessment of antidumping duties. Compl. at ¶35.
Moreover, the complaint alleged that Rupari, through its employee
Stilwell, filed on July 13, 1998, a series of documents with
Customs which it knew to contain false representations that
Thailand was the country of origin of the crawfish tail meat. Id.
at ¶27. The documents included the following: a purported letter
from Mahyam stating that it cultivated live crawfish which it sold
to Sea Bonanza, invoices for the sale of live crawfish, and a
letter purportedly from Sea Bonanza stating that it purchased
crawfish from Mahyam that it processed into tail meat for sale to
Seamaster. Id.
Finally, Defendant contends that Customs failed to plead
fraud with particularity, because the fax from Yupeng to Rupari
does not demonstrate that Rupari knew that the crawfish tail meat
was from China at the time it responded to Customs. Def.’s Br. at
8. The fax was sent on July 25, 1998, after Stilwell made
representations and submitted documentation to Customs on July 1,
10, and 13, 1998. Pl.’s Br. Facsimile from Wang to Rupari Ex. 16.
Although the fax, in and of itself, may not show that
Rupari knew that the statements were false at the time they were
made to Customs, as the statements occurred before the fax, the
fax could plausibly show that Rupari discovered that its statements
Consol. Court No. 10-00119 Page 26
were false after it sent its last response to Customs on July 13,
1998, and that it failed to inform Customs that its previous
statements, made just days before, were untrue. Thus, Plaintiff
pled fraud with enough particularity to survive Defendant’s motion
to dismiss.
3. Exhaustion of Administrative Remedies
28 U.S.C. § 2637(d) provides that “[i]n any civil action
not specified in this section, the Court of International Trade
shall, where appropriate, require the exhaustion of administrative
remedies.” 28 U.S.C. § 2637(d). If a new level of culpability is
first introduced in Court and not at the administrative level, the
party against whom the claim is alleged has been prevented from
seeking mitigation of the monetary penalty at the administrative
level as contemplated by 19 U.S.C. § 1592(b) and 19 U.S.C. § 1618.
United States v. Optrex, 29 CIT 1494, 1500 (2005) (not reported in
federal supplement); see also Def.’s Br. at 12.
Defendants charge that Commerce failed to exhaust its
administrative remedies for Count II, gross negligence, and Count
III, negligence, because, although the penalty letters indicated
that Customs alleged negligent and gross negligent violations in
the alternative, Customs did not pursue such claims. Def.’s Br.
at 11, 14. The court disagrees.
Defendants rely on Optrex to support their position.
See Optrex, 29 CIT at 1500. In Optrex, Customs issued a pre-
Consol. Court No. 10-00119 Page 27
penalty notice which alleged that Optrex was negligent in providing
insufficient information in the entry documents to enable Customs
to determine the correct classification of its products. Id. at
1495. The final penalty claim against Optrex was based on
negligence. Id. Customs then filed suit on a negligence theory.
Id. at 1495-96. Subsequently, Customs sought leave of the court
to amend its complaint to include penalties for fraud and gross
negligence. Id. at 1496. The court in Optrex denied Customs’ motion
reasoning that “the statute was designed to give an importer an
opportunity to fully resolve a penalty proceeding before Customs,
before any action in this Court.” Id. at 1500-03. In other words,
Optrex was denied an opportunity to resolve the fraud and gross
negligence claims before the action was filed in this Court, as
these claims were not mentioned in the pre-penalty and penalty
notices. Id. at 1495-1503.
The facts in the instant case are not analogous to those
in Optrex. See id. Unlike in Optrex, here, Customs alleged
negligence and gross negligence in the alternative in both the
pre-penalty and penalty notices:
Inasmuch as the Government may plead in the
alternative in any de novo proceeding before
the Court of International Trade, Customs
alternatively alleges that the violation in
question occurred as a result of negligence or
gross negligence. (Emphasis added).
Consol. Court No. 10-00119 Page 28
Pl.’s Br. Pre-penalty Notice, Ex. 19, at 2; Pl.’s Br. Penalty
Notice, Ex. 24, at 18-20. Here, by listing the negligence and
gross negligence claims in the notices, Customs put the Defendant
on notice that they were pursuing penalties for negligence and
gross negligence in the event they could not prove fraud. Customs
thereby presented Defendant with the opportunity to resolve the
negligence and gross negligence claims at the administrative
level.
Defendant cannot say that it was deprived of a chance to
mitigate the gross negligence and negligence penalties before
Customs commenced this action. Defendant responded to the Pre-
penalty notice by letter dated June 8, 2001, in which it argued
that it acted in a commercially reasonable manner under the common
law standard of care, and that there were several mitigating
factors in favor of cancelling the penalties for gross negligence
and negligence. Pl.’s Br. Letter from Becker & Poliakoff to
Customs, Ex. 23, at 1-19, June 8, 2001; see United States v. CTS
Holding, LLC, 39 CIT ____, Slip Op. 15-70 (June 30, 2015) (finding
that “Defendant’s attempts to resolve the penalty claim before
Customs, prior to Plaintiff’s bringing this action, demonstrate
that Defendant received sufficient, actual notice that the claim
sounded in negligence.”) Accordingly, Customs afforded Defendant
an opportunity to resolve the negligence and gross negligence
claims at the administrative level before the action was commenced
Consol. Court No. 10-00119 Page 29
in this Court. Defendant’s own arguments show that it believed
Customs pursued penalties for gross negligence and negligence in
the event that fraud could not be proven.
As with Optrex, Defendant also mistakenly relies on
United States v. Nitek Electronics, Inc., 844 F. Supp. 2d 1298, 1298
(2012) (Not reported in Court of International Trade Reports),
appeal filed and docketed, Appeal No. 15-1166 (Fed. Cir. ____).
In Nitek, the court barred a penalty claim and held that Customs
failed to perfect its penalty claim where it sought to recover a
penalty “based upon a degree of culpability (negligence) that
differs from that alleged at the administrative level (gross
negligence).” Id. at 1305. In Nitek the court also found that
“nothing prevented Customs from bringing penalty claims for both
negligence and gross negligence in the alternative, as it has done
in the past.” Id. at 1308.
By contrast, in this case, the degrees of culpability
alleged in the complaint, (fraud, or in the alternative gross
negligence, or negligence) were exactly the same as those alleged
at the administrative level (fraud or in the alternative gross
negligence, or negligence). Id. at 1305. Unlike in Nitek, here,
Customs brought the negligence and gross negligence claims in the
alternative. See id. It cannot be said that Customs did not perfect
its penalty claim or that Defendants were robbed of an opportunity
Consol. Court No. 10-00119 Page 30
to resolve the negligence and gross negligence claims at the
administrative level. See id.
Defendant also contends that the gross-negligence and
negligence claims must be dismissed, because Customs failed to
disclose all material facts establishing those violations in its
Pre-Penalty notice. Def.’s Br. at 14.
In order to bring a section 1592 claim in this Court,
several statutory requirements must be met at the administrative
level. 19 U.S.C. § 1592 (b)(1). When Customs has reasonable cause
to believe there has been a violation of section 1592 it must issue
a pre-penalty notice which “disclose[s] all the material facts
which establish the alleged violation.” Id. at (b)(1)(A)(iv).
A violation is grossly negligent where it results from
an act or omission done with actual knowledge of or wanton
disregard for the relevant facts and with indifference to or
disregard for the offender’s obligations under the statute. 19
C.F.R. Pt. 171, App. B (C)(2). In the Pre-penalty Notice, Customs
wrote that Rupari purchased crawfish from Yupeng Fishery Ltd. in
China, knowing that the crawfish originated in China, and prepared
invoices and entry documents falsely stating that the crawfish
originated in Thailand. Pl.’s Br. Pre-penalty Notice, Ex. 19, at
3. The notice further alleged that this was done to avoid paying
antidumping duties in contravention of Rupari’s obligations under
the statute. Id. The court finds that Customs disclosed all
Consol. Court No. 10-00119 Page 31
material facts which establish gross negligence and it denies
Defendant’s motion to dismiss the gross negligence claim.
Negligence requires facts that establish that a duty of
reasonable care and competence existed and that Defendant failed
to exercise reasonable care and competence in making statements or
providing information to Customs. 19 C.F.R. Pt. 171, App. B
(C)(1). Here, although Customs did not explicitly state that
Rupari owed a duty and breached that duty in the Pre-penalty and
Penalty notices, clearly, Rupari was adequately apprised of the
fact that this negligence claim involved allegations that Rupari
breached a duty of reasonable care, as evidenced by Rupari’s own
arguments against a finding of negligence by Customs at the
administrative level:
Rupari conducted itself in a commercially
reasonable manner . . . . [A] general custom,
use, or practice by those in the same business
or trade may be considered some evidence of
what constitutes reasonable conduct in that
trade or business . . . . Other domestic buyers
of crawfish and other seafood will, if
necessary, testify that Rupari’s actions were
no different than most such other domestic
buyers in similar situations.
Pl.’s Br. Letter from Becker & Poliakof to Customs, Ex. 23, at 4-
5, June 8, 2001; see also United States v. Dantzler Lumber & Export
Co., 16 CIT 1050, 1059, 810 F. Supp. 1277, 1285 (1992) (finding
that as long as Defendants were adequately apprised of the scenario
of the action, Customs has met the requirement of disclosing all
Consol. Court No. 10-00119 Page 32
material facts establishing the violation). Thus, the court
declines to dismiss the negligence count.
CONCLUSION
For the reasons stated above, Plaintiff’s request for
leave to amend the Complaint is granted in part and denied in part
consistent with this opinion. It is further
ORDERED that Defendant’s Motion to Dismiss is DENIED; it
is further
ORDERED that Plaintiff’s Request for Leave to Amend the
Complaint is GRANTED IN PART AND DENIED IN PART, consistent with
the court’s opinion; it is further
ORDERED that Plaintiff shall file an Amended Complaint,
consistent with this opinion, no later than August 31, 2015; it is
further
ORDERED that Defendants must submit their Amended Answer
no later than September 21, 2015; and it is further
ORDERED that Plaintiff and Defendants must submit a
joint proposed scheduling order no later than September 28, 2015.
SO ORDERED.
/s/ Nicholas Tsoucalas
Nicholas Tsoucalas
Senior Judge
Dated: August 24, 2015
New York, New York
ERRATA
Please make the following changes to United States v. American
Casualty Co. of Reading Pennsylvania, Consol. Court No.: 10-00119,
Slip Op. 15-94:
• On page 16, Lines 4-5: change “Customs conducted the
deposition of a confidential informant who recounted” to “a
confidential informant was deposed who recounted.”
• On page 26, Line 17: change “Commerce” to “Customs.”
August 26, 2015