United States v. Lafidale, Inc. , 942 F. Supp. 2d 1362 ( 2013 )

Slip Op. 13-
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
.v. Before: Jane A. Restani, Judge
LAFIDALE, INC., Court No. 12-00397
Defendant.
OPINION AND ORDER
[Plaintiff’s motion for default judgment against defendant Lafidale, Inc. in Customs penalty
action denied with leave to refile.]
Dated: October , 2013
Carrie Dunsmore, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice, of Washington, DC, for plaintiff. With her on the brief were Stuart
F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E.
White, Jr., Assistant Director.
Restani, Judge: Before the court is plaintiff United States’ motion for default
judgment seeking $324,687.00 in civil penalties plus post-judgment interest against defendant
Lafidale, Inc. (“Lafidale”) for alleged grossly negligent violations of section 592(a) of the Tariff
Act of 1930, 19 U.S.C. § 1592(a) (2006). The complaint’s well-pled facts establish defendant’s
liability for a civil penalty. As explained below, however, the penalty calculation offered by
plaintiff appears to be internally inconsistent and to impose a penalty in excess of the statutory
maximum. Plaintiff’s motion for default judgment is therefore denied with leave for plaintiff to
Court No. 12-00397 Page 2
refile its motion for default judgment with a proper affidavit fully explaining plaintiff’s penalty
calculation.
BACKGROUND
Between June 20, 2006, and April 22, 2009, Lafidale entered or attempted to enter
handbags and wallets into the United States on 46 separate occasions. Compl. ¶ 4, ECF No. 2.
The handbags were classified under Harmonized Tariff Schedule of the United States
(“HTSUS”) 4202.29.10 and the wallets were classified under HTSUS 4202.39.50; these
classifications apply to plastic handbags and wallets that are “wholly or mainly covered with
paper.” Id. ¶ 6. None of the imported entries qualified as “wholly or mainly covered with
paper.” Id. Rather, the items should have been classified under different HTSUS subheadings,
primarily HTSUS 4202.22.15, covering, inter alia, handbags and wallets “[w]ith outer surface of
sheeting of plastic,” which would have imposed higher ad valorum duty rates than the
subheadings used by Lafidale. Id.U.S. Customs and Border Protection (“CBP”) determined the domestic value of
the 46 entries was $753,929.00 and that the misclassification caused an actual and potential loss
of revenue of $81,171.63. Id. ¶ 9. CBP issued a notice of penalty to Lafidale for $324,687.00,
an amount corresponding to four times the lost revenue, on September 30, 2010. Id. ¶ 10.
Lafidale has yet to pay any part of the penalty. Id. ¶ 12. Plaintiff filed a complaint against
Lafidale on December 3, 2012, seeking a civil penalty for gross negligence in the amount of
$324,687.00. Id. at 4. Default was entered against Lafidale on June 13, 2013, for failing to plead
or otherwise defend within 20 days of being served with the summons and complaint. Entry of
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Default, ECF No. 10. Plaintiff filed this motion for default judgment on July 11, 2013. Pl.’s
Mot. for Default J., ECF No. 11. Lafidale did not respond.
JURISDICTION
The court has jurisdiction pursuant to 28 U.S.C. § 1582(1), providing for
jurisdiction over cases initiated by the United States to recover civil penalties under, inter alia,
section 592 of the Tariff Act of 1930.
DISCUSSION
Plaintiff has moved for a default judgment. Under USCIT Rule 55(b), default
judgment is warranted when (1) the defendant has been defaulted, and (2) the claim is for a sum
certain, supported by an affidavit showing the amount due. Default was entered against Lafidale
on June 13, 2013. Entry of Default. Plaintiff seeks civil penalties in the amount of $324,687.00,
see Compl. at 4, and its motion for default judgment was supported by an affidavit purporting to
explain this figure. See Thierry Decl., ECF No. 11-1. Plaintiff therefore has met the
requirements for default judgment under USCIT Rule 55(b). The court, however, must ensure
that the pled facts amount to a legitimate cause of action before granting the relief requested.
United States v. Scotia Pharms. Ltd., Slip Op. 09-49, 2009 WL 1410437, at *3 (CIT May 20,
2009). The court accepts as true all well-pled facts in the complaint other than those pertaining
to the amount of damages. Id.I. Plaintiff’s Complaint Sufficiently Establishes a Legitimate Cause of Action
Plaintiff seeks civil penalties for grossly negligent violations of section 592 of the
Tariff Act of 1930. Section 592(a) provides in part that “no person, by fraud, gross negligence,
or negligence–(A) may enter, introduce, or attempt to enter or introduce any merchandise into the
Court No. 12-00397 Page 4
commerce of the United States by means of (i) any document or electronically transmitted data or
information, written or oral statement, or act which is material and false, or (ii) any omission
which is material.” 19 U.S.C. § 1592(a)(1)(A). The well-pled facts in plaintiff’s complaint must
demonstrate that Lafidale entered or attempted to enter merchandise into the commerce of the
United States by means of false information that was material and that Lafidale’s representations
in its documents were grossly negligent.
A material statement is one that has a natural tendency to influence or can
influence the decisions made by CBP. See United States v. Rockwell Int’l Corp., 10 CIT 38, 42,
628 F. Supp. 206, 210 (1986); see also 19 C.F.R. pt. 171, App. B(B) (2013) (“A document,
statement, act, or omission is material if it has the natural tendency to influence or is capable of
influencing . . . a Customs action regarding: (1) Determination of the classification,
appraisement, or admissibility of merchandise [or] (2) determination of an importer’s liability for
duty . . . .”). Plaintiff alleges that because of the incorrect classifications represented by Lafidale,
CBP collected duties at an ad valorem rate that was lower than the rate that should have applied.
Compl. ¶¶ 6–7. The complaint thus demonstrates that the false classifications influenced CBP’s
classification of merchandise and its determination of an importer’s liability for duty, and the
statements therefore were material.
Gross negligence, for purposes of section 592, is behavior that is willful, wanton,
or reckless, or demonstrates an “utter lack of care.” United States v. Ford Motor Co., 29 CIT
827, 845, 395 F. Supp. 2d 1190, 1206 (2005), aff’d in part, rev’d in part on other grounds, 463
F.3d 1267 (Fed. Cir. 2006). Here, plaintiff has met its burden, pleading sufficient facts that
illustrate an “utter lack of care” by Lafidale. Lafidale classified its merchandise in 46 separate
Court No. 12-00397 Page 5
entries as “wholly or mainly covered with paper,” and every entry lacked this obvious
characteristic. Compl. ¶ 6. Rather, the handbags and wallets were covered in plastic. Id.Plaintiff’s complaint is sufficient to establish liability for a grossly negligent
violation of section 592.
II. Plaintiff Has Not Shown That It Is Entitled to the Civil Penalties Requested
Under the penalty scheme of section 592, when gross negligence affects the
assessment of duties, importers are subject to penalties in an amount up to “the lesser of–(i) the
domestic value of the merchandise, or (ii) four times the lawful duties, taxes, and fees of which
the United States is or may be deprived.” 19 U.S.C. § 1592(c)(2)(A).
The court has doubts that plaintiff is entitled to the sum it seeks in civil penalties.
Plaintiff’s motion for default judgment is supported by the declaration of Robert P. Thierry and
an accompanying chart to explain the basis for the penalties calculation. Thierry Decl. The
declaration and accompanying chart fail to provide a consistent and coherent explanation for how
the civil penalties sought were calculated.
The first issue pertains to CBP’s valuation of the merchandise. Plaintiff’s
complaint and motion for default judgment state that the “domestic value”of the 46 entries was
$753,929.00. Compl. ¶ 9; Pl.’s Mot. for Default J. at 5. Thierry’s declaration, however, states
that the “dutiable value” of the merchandise was $753,929.00. Thierry Decl. ¶ 3. “Domestic
value” and “dutiable value” are not the same. Compare 19 U.S.C. § 1592(c)(2)(A)(i) (referring
to “the domestic value of the merchandise”) with 19 U.S.C. § 1592(c)(2)(B) (referring to “the
dutiable value of the merchandise”); see also United States v. Pan Pac. Textile Grp, Inc., 30 CIT
138, 140 & n.2 (2006) (“Dutiable value and domestic value are not equivalent measures of
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entered merchandise.”). The loss in revenue calculation underlying the penalty calculation
should have been based on the “dutiable value” of the merchandise, but the court cannot be sure
that CBP used the proper value because of the conflicting terminology in the plaintiff’s filings.1
The second issue is whether CBP used the correct tariff rates to calculate the loss
in revenue. Thierry declares that:
Lafidale classified its handbags and wallets under Harmonized Tariff Schedule
(HTS) No. 4202.29.1000, which applies to plastic handbags that are “wholly or
mainly covered with paper,” and/or HTS No. 4202.39.500, which applies to plastic
wallets that are “wholly or mainly covered with paper” at ad valorem duty rates of
5.3% and 7.8% respectively.
Id. ¶ 5. The chart containing the actual calculation for the loss of revenue, however, only lists
entries coming in under 4202.29.10. Id. at 4. Additionally, it appears that the loss in revenue for
almost every entry roughly corresponds2 to the difference between the duty applicable for
4202.29.10 (5.3%) and the rate that should have been applied had the items been properly
classified under 4202.22.15 (16%).3 This raises two problems. First, the declaration’s
1
The court also notes that 19 U.S.C. § 1592(c)(2)(A) caps the maximum civil penalty at
the lesser of the domestic value of the merchandise or four times the loss in revenue. CBP’s
correct usage of the different valuations is essential to ensuring compliance with this statutory
requirement as well.
2
The court notes that the chart does not contain sufficient information to understand
clearly how CBP arrived at its loss of revenue for each entry. For example, there is no
breakdown as to the value of the different commodities within each entry, nor are the HTSUS
subheadings for each entry fully and/or correctly listed.
3
Thierry states that this is the proper classification and rate for most entries. Thierry
Decl. ¶ 6. He notes that several entries contained merchandise that should have been classified
under other subheadings with different corresponding tariff rates. Id. The chart fails to show
adequately how the loss of revenue resulting from the entry of this other merchandise was
calculated.
Court No. 12-00397 Page 7
description of the calculation methodology for the penalties and the methodology reflected in the
chart are inconsistent. Second, if the loss of revenue calculation is based only on rates for
HTSUS 4202.29.10 (5.3%) and 4202.22.15 (16%), a difference of 10.7%, this would overstate
plaintiff’s loss for the wallets entered under 4202.39.50, which is a difference of only 8.2% (16%
- 7.8%). Plaintiff may only recover a multiple of the duties of which it was or may be deprived.
19 U.S.C. § 1592(c)(2). Because the loss of revenue calculation in the chart appears to inflate the
duties of which plaintiff was or may be deprived, at least for any entries of the wallets, the use of
this calculation would result in a penalty above the statutory maximum.
Because the court is unable to determine the actual and potential loss of revenue
suffered by plaintiff, it cannot determine whether the sum requested by plaintiff would result in a
penalty in excess of the statutory maximum. For this reason, plaintiff’s motion for default
judgment is denied. Plaintiff will be given leave to refile its motion so that it may provide an
explanation for its penalty calculation that the court can assess properly.
Court No. 12-00397 Page 8
CONCLUSION AND ORDER
Plaintiff’s complaint sufficiently establishes that Lafidale was grossly negligent in
violating section 592 of the Tariff Act of 1930, 19 U.S.C. § 1592. Plaintiff, however, has failed
to show that it is entitled to the civil penalty requested in its motion for default judgment. It is
therefore hereby
ORDERED that plaintiff’s motion for default judgment be and is DENIED; it is further
ORDERED that plaintiff shall have sixty days from the date of this Opinion and Order in
which to refile its motion for default judgment with adequate support for its penalty calculation.
/s/ Jane A. Restani
Jane A. Restani
Judge
Dated: October , 2013
New York, New York