United States v. International Trading Services, LLC
2017 CIT 55
| Ct. Intl. Trade | 2017Background
- In May–June 2007, International Trading Services, LLC (ITS), through its president Julio Lorza, imported eight sugar shipments into the U.S.; ITS declared them under HTSUS 1701.99.05.00 (low duty) though GN 15 exclusions did not apply.
- Each shipment exceeded 5 kg, entered U.S. commerce, and did not qualify for GN 15 categories (not government imports, not personal samples, not blended syrups or cotton).
- CBP reclassified seven of the eight entries to higher-duty subheadings (duty rate difference ~$0.3208/kg), rate‑advanced seven entries, and assessed lost revenue totaling $345,655.77 (net unpaid duties sought: $295,655.77 after $50,000 surety recovery).
- The United States sued under 19 U.S.C. § 1592 for negligent misclassification and sought unpaid duties, penalties (up to twice the lawful duties or domestic value), and interest; defendants did not oppose the Government’s partial summary judgment motion.
- The court treated the material facts as undisputed, found the classification a material false statement, found no evidence of reasonable care by defendants, and concluded negligence. The court entered judgment for unpaid duties, awarded the maximum penalty, and granted prejudgment and postjudgment interest as authorized.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ITS/Lorza made a material false statement by classifying sugar under HTSUS 1701.99.05.00 | The declared classification was false because GN 15 exclusions did not apply; misclassification affected duty liability | Defendants did not contest the motion or proffer contrary facts | Held: Yes. Classification was material and false. |
| Whether defendants were negligent or exercised reasonable care under §1592 | United States: negligence established by misclassification and lack of evidence of reasonable care; burden shifts to defendants to show reasonable care | Defendants offered no evidence of reasonable care or mitigation | Held: Negligent; defendants failed to demonstrate reasonable care; jointly and severally liable. |
| Amount of duties owed and recovery | Government sought restoration of lawful duties ($345,655.77 less $50,000 surety = $295,655.77) | No opposition disputing amount | Held: Ordered to pay $295,655.77 in unpaid duties. |
| Penalty amount under §1592(c)(3) | Government sought two times unpaid duties ($691,311.54), within statutory limits and justified by aggravating factors and lack of mitigation | Defendants presented no mitigating evidence | Held: Court exercised discretion and imposed maximum penalty $691,311.54. |
Key Cases Cited
- United States v. Ford Motor Co., 463 F.3d 1267 (Fed. Cir. 2006) (burden-shifting rule: government proves violation, then defendant must show reasonable care)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment standard)
- United States v. Optrex Am., Inc., 560 F. Supp. 2d 1326 (CIT 2008) (classification statements are material to Customs’ duty assessment)
- Complex Machine Works Co. v. United States, 83 F. Supp. 2d 1307 (CIT 1999) (lists non-exclusive factors for assessing §1592 penalties)
- United States v. Nat'l Semiconductor Corp., 547 F.3d 1364 (Fed. Cir. 2008) (upholding maximum penalty for negligent violation when justified)
- United States v. Great Am. Ins. Co. of N.Y., 738 F.3d 1320 (Fed. Cir. 2013) (factors for awarding prejudgment interest)