United States v. Sterling Footwear, Inc.
2017 CIT 141
| Ct. Intl. Trade | 2017Background
- Sterling Footwear, Inc. (Sterling), founded and controlled by Alex Ryan Ng, imported and sold various shoes (sneakers, boots, sandals) made to Sterling specifications and sold under brand names like Ed Hardy. Sterling made hundreds of entries from 2007–2009.
- Of Sterling’s entries, 337 asserted classification under HTSUS 6402.91.40 ("rubber tennis shoes"); Customs examined samples and issued rate-advances and notices of action starting in 2009 after determining many entries were misclassified.
- Sterling’s production staff (Janet Huynh and Nancy Ng) communicated with customs brokers; Customs’ investigation shows brokers often used tariff provisions provided by Sterling or its broker Seattle Logistics.
- After a July 29, 2009 meeting with CBP where misclassification was discussed and Sterling agreed to file post-entry amendments, none were filed; CBP reliquidated many entries and assessed unpaid duties.
- The Government sued Sterling, Ng, and Ng Branding under 19 U.S.C. § 1592 to recover unpaid duties, penalties, and interest. Cross-motions for summary judgment were filed; the court decided liability and certain remedies at summary judgment for Sterling but denied summary judgment as to Ng and Ng Branding.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ng is individually liable under § 1592 ("introduce") | Ng exercised control over Sterling’s operations and instructed employees to use preprinted tariff numbers; Trek Leather allows individual liability where conduct brings goods to threshold of entry. | Ng says Trek Leather requires acts "at the threshold" (i.e., everything short of final entry) and he did not perform such acts; disputes Government facts about his involvement. | Denied for both sides: material facts about Ng’s role are disputed; summary judgment inappropriate for either party. |
| Whether Sterling made material false statements by classifying footwear as HTSUS 6402.91.40 | Customs samples, broker declarations, photographs, and reliquidations show the footwear lacked >90% rubber/plastic uppers and often had foxing — misclassification was false and material. | Defendants point to an HTS laboratory report allegedly showing correct classification and criticize photographs. | Granted for Government: unrebutted record (samples, CBP review, broker statements) demonstrates misclassification; classification statements were material. |
| Culpability: gross negligence vs. negligence for Sterling | Sterling knew footwear specs (designed and ordered by Sterling), instructed brokers to use 6402.91.40, ignored CBP notices and failed to amend entries — conduct shows gross negligence. | Defendants claim reliance on counsel/brokers, production staff, and professional testing. | Granted for Government: facts support finding Sterling grossly negligent as a matter of law. |
| Whether Ng Branding is successor/"mere continuation" liable for Sterling’s violations | Ng Branding shared officers, address, employees, business operations, and imported similar footwear; therefore it is Sterling’s successor or part of single enterprise. | No evidence of asset purchase/transfer, or full continuity of business; defendants did not respond substantively at summary judgment. | Denied for Government: disputed/insufficient evidence of an asset transfer or complete continuity; summary judgment not warranted on successor liability. |
| Remedies: unpaid duties, penalties, interest | Government seeks restoration of unpaid duties and civil penalty (max statutory amount for gross negligence), plus prejudgment interest. | Defendants contest classifications and some factual bases; dispute who is jointly liable for duties/penalties. | Court orders Sterling to pay $1,566,824.85 in unpaid duties plus prejudgment interest; civil penalty amount deferred pending trial resolution of Ng and Ng Branding liability. |
Key Cases Cited
- United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014) (individual may be liable under § 1592 when conduct "introduces" merchandise into US commerce; looks to Panama Hats for breadth of "introduce")
- United States v. 25 Packages of Panama Hats, 231 U.S. 358 (1913) (broad interpretation of "introduce" to reach actions bringing goods to the threshold of entry)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment requires viewing facts in light most favorable to nonmovant; credibility is for factfinder)
- Ford Motor Co. v. United States, 463 F.3d 1286 (Fed. Cir. 2006) (gross negligence standard under § 1592 involves willful or reckless disregard)
- Scott v. Harris, 550 U.S. 372 (2007) (court need not credit versions of facts that are blatantly contradicted by the record)