United States v. Farhan Khan
2017 CIT 85
| Ct. Intl. Trade | 2017Background
- Defendant Farhan Khan, doing business as Artistic Creations, imported three types of PVC liquid‑filled chill wraps (CoolSack, CanCooler, Wine Bottle Wrap) from China between Sept. 2010 and May 2012 and entered them under HTSUS 4202.92.1000 ("insulated food or beverage bags").
- CBP issued Proposed Notices of Action (Apr. 2012) and later Notices of Action and a pre‑penalty/penalty notice, reclassifying CoolSack items to 4202.92.90 (higher duty) and CanCooler/Wine Bottle Wrap to 3824.90.92; CBP assessed unpaid duties and proposed penalties.
- Defendant consulted a customs broker (Priority One) pre‑importation; the broker gave multiple, conflicting classification recommendations in short order and Defendant did not seek a binding ruling, consult CROSS rulings, or otherwise further investigate before importing.
- CBP calculated actual unpaid duties of $8,228.20 (after surety payments) and proposed civil penalties; Defendant did not file a timely protest or pay the outstanding duties.
- The United States sued under 19 U.S.C. § 1592 to recover unpaid duties, interest, and civil penalties for negligent, materially false entries; Defendant cross‑moved claiming proper classification and reasonable care.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether merchandise qualifies as "insulated food or beverage bags" under 4202.92.1000 | Items are not insulated within the tariff meaning (must retard heat for hot and cold items); classification was false | Products are designed to keep beverages chilled and thus are insulated | Held: merchandise are not "insulated food or beverage bags" as a matter of law; Defendant's classification was materially false |
| Materiality of misclassification under § 1592 | Misclassification affected duty rate and therefore was material | If classification was correct, no falsehood or materiality | Held: classification was material and false because it changed duty liability |
| Whether Defendant exercised reasonable care (negligence) | Defendant failed to exercise reasonable care by not further investigating conflicting broker advice or obtaining rulings | Reliance on customs broker and certain rulings justified classification | Held: Defendant failed as a matter of law to exercise reasonable care; negligent violation established |
| Appropriate penalty amount and factors | Government sought one‑quarter of maximum penalty (or proposed amounts) | Defendant contended no penalty warranted or lower penalty due to reliance | Held: Liability for a penalty established, but factual record insufficient to fix penalty amount on summary judgment — denied as to amount |
| Unpaid duties and prejudgment interest; effect of protest requirement | CBP's classification final absent timely protest; unpaid duties of $8,228.20 and prejudgment interest are recoverable | Defendant argued classification was correct and referenced broker letter as protest | Held: Plaintiff entitled to unpaid duties ($8,228.20) and prejudgment interest; purported broker letter not a compliant/timely protest, so CBP decision is final |
Key Cases Cited
- JVC Co. of Am. v. United States, 234 F.3d 1348 (Fed. Cir. 2000) (summary judgment evaluation when both parties move)
- Link Snacks, Inc. v. United States, 742 F.3d 962 (Fed. Cir. 2014) (classification is question of law; tariff construction)
- BenQ Am. Corp. v. United States, 646 F.3d 1371 (Fed. Cir. 2011) (HTSUS terms construed by common commercial meaning)
- Carl Zeiss, Inc. v. United States, 195 F.3d 1375 (Fed. Cir. 1999) (courts may consult dictionaries and ENs in tariff interpretation)
- StoreWALL, LLC v. United States, 644 F.3d 1358 (Fed. Cir. 2011) (persuasive value of Explanatory Notes)
- GRK Canada, Ltd. v. United States, 761 F.3d 1354 (Fed. Cir. 2014) (when use may control eo nomine classification)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (summary judgment standard on genuine dispute)
- Processed Plastics Co. v. United States, 473 F.3d 1164 (Fed. Cir. 2006) (summary judgment and classification context)
- United States v. Ford Motor Co., 463 F.3d 1267 (Fed. Cir. 2006) (de novo review in § 1592 and penalties discretion)
- United States v. Imperial Food Imports, 834 F.2d 1013 (Fed. Cir. 1987) (prejudgment interest on unpaid duties equitable basis)
- United States v. Great Am. Ins. Co. of N.Y., 783 F.3d 1320 (Fed. Cir. 2013) (factors for awarding prejudgment interest)
- Complex Mach. Works Co. v. United States, 83 F. Supp. 2d 1307 (Ct. Int'l Trade 1999) (non‑exclusive fourteen factors to guide penalty assessment)