UNITED STATES, Plаintiff, v. HORIZON PRODUCTS INTERNATIONAL, INC., Defendant.
Court No. 14-00104
United States Court of International Trade
July 24, 2015
Slip Op. 15-80
GORDON, Judge
1353
CONCLUSION
For the foregoing reasons, the court denies Tyco‘s motion for summary judgment, grants the government‘s cross-motion for summary judgment, and holds that the filled bulbs at issue are properly classified under subheading 7020.00.60.
Tyco, because of the importance of the liquid, the filled bulbs cannot have the essential character of glass. Pl.‘s Reply 4. The court has determined, however, that even where two component materials are indispensable to the functioning of a good, it is possible for the good‘s essential character to come from one of those component materials. See Alcan Food Packaging (Shelbyville) v. United States, 929 F.Supp.2d 1338, 1350 (CIT 2013) (holding that although both the plastic and aluminum foil that made up the product at issue were indispensable to its functioning, the plastic imparted its essential character because it imparted the qualities that made the product what it was).
Peter S. Herrick, Peter S. Herrick, P.A. of St. Petersburg, FL, for Defendant Horizon Products International, Inc.
OPINION AND ORDER
GORDON, Judge:
Before the court is Plaintiff United States’ (“the Government“) motion for summary judgment. Pl.‘s Mot. for Summ. J. (Nov. 14, 2014), ECF No. 14 (“Pl.‘s Mot.“); see also App‘x (Nov. 14, 2014), ECF No. 14 (“Pl.‘s App‘x I“); Defendant, Horizon Prods. Int‘l‘s Response to Plaintiff, United States’ Mot. for Summ. J. (Jan. 20, 2015), ECF No. 22 (“Def.‘s Resp.“); Pl.‘s Reply in Supp. of its Mot. for Summ. J. (Feb. 9, 2015), ECF No. 25 (“Pl.‘s Reply“); Remainder of Pl.‘s Summ. J. App‘x (Feb. 23, 2015), ECF No. 27 (“Pl.‘s App‘x II“); Def.‘s Proposed Sur-Reply to Pl.‘s Reply in Supp. of its Mot. for Summ. J. (Feb. 20, 2015), ECF No. 30; Nonconfidential App‘x-Redacted Version (Mar. 3, 2015), ECF No. 31 (“Def.‘s App‘x“). The Government seeks $394,794 in unpaid duties and penalties from Defendant Horizon Products International, Inc. (“Horizon“) under Section 592 of the Tariff Act of 1930, as amended,
For the reasons set forth below, the court grants the Government‘s motion with respect to the unpaid duties and pre-judgment interest, but denies the Government‘s motion in all other resрects.
I. Undisputed Facts
Between 2006 and 2007, Horizon entered or attempted to enter various types of plywood into the United States under inapplicable duty-free provisions of the Harmonized Tariff Schedule of the United States (“HTSUS“). The majority of Horizon‘s plywood contained at least one outer ply of non-coniferous wood other than birch, Spanish cedar, or walnut. As a consequence, the correct classification for this plywood was еither HTSUS 4412.14.31 or HTSUS 4412.32.31 (the latter becoming effective on February 3, 2007 after the reorganization of HTSUS heading 4412). The original and renumbered provisions are identical in substance, and both carry an 8% duty rate. Defendant‘s remaining plywood contained an outer ply of sapele, a tropical wood. The correct classification for that plywood was either HTSUS 4412.13.40 (2006) or 4412.31.40 (2007). Again, the substance of those provisions and the applicable 8% duty rate did not сhange between the 2006 and 2007 versions of the HTSUS. See generally Pl.‘s App‘x II at A528-661 (invoices, packing
In late 2007, U.S. Customs and Border Protection (“Customs“) issued several notices of action indicating that it would rate-advance (liquidate at a higher rate) 21 of Horizon‘s plywood entries. Horizon subsequently paid $42,016, representing the full rate-advanced 8% duty on those entries. Customs liquidated the remaining 43 entries at the inapplicable duty-free rate. Pl.‘s App‘x I at A1-8.
In September 2009, Customs sent Horizon a pre-penalty notice and demand for payment. Customs identified a $162,270 total revenue loss. Of that, Customs specified $42,016 in potential revenue loss relating to the rate-advanced entries and $120,254 actual revenue loss relating to the entries liquidated at the inapplicable duty-free rate. Customs proposed a culpability level of negligence and a corresponding penalty of $324,540, twice the $162,270 total revenue loss. Customs thereafter issued a penalty notice demanding payment of $120,254 in outstanding duties and the $324,540 penalty. Customs eventually recovered $50,000 from Defendant‘s surety, leaving $70,254 in duties still owed. Pl.‘s App‘x I at A5-13. See generally Def.‘s App‘x at Hor. 85-Hor. 87 & n. 1 (describing administrative procedural history).
Horizon requested mitigation of the $324,540 penalty. Defendant argued it did not have the means to pay, and provided Customs with suppоrting documentation, including financial statements and tax filings. Def.‘s App‘x at Hor. 1-84. In finding that Horizon could not pay the full amount, Customs determined that Defendant had sufficient equity to pay up to $200,000 combined duties and penalty. As a result, Customs mitigated the penalty to $85,278 conditioned on full payment of the duties owed within 60 days. Def.‘s App‘x at Hor. 85-89.
Horizon countered with an offer in compromise requesting to pay the outstanding duties in two installments within 60 days as well as a mitigated penalty of $1,000. Id. at Hor. 101-19. Customs rejected Horizon‘s offer, along with each of Defendant‘s subsequent requests to pay a lower penalty. See id. at Hor. 120-21. On December 20, 2012, after the mitigated penalty‘s 60-day deadline passed without any payment from Horizon, Customs again demanded the outstanding duties and the full penalty amount. Id. at Hor. 124.
This enforcement action followed. The Government seeks $70,254 in duties plus equitable pre-judgment interest, as well as the full $324,540 penalty without any interest.
II. Standard of Review
The U.S. Cоurt of International Trade reviews all issues in actions brought for the recovery of a monetary penalty under
On materiality, “the substantive law will identify which facts are material.” Anderson, 477 U.S. at 248. On the question of genuineness, the standard for determining whether there is a genuine issue “mirrors the standard for a directed verdict[,] which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict.... In essence, the inquiry under each is the same: whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 248-52; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (Rule 56 “mandates the entry of summary judgment against a party who fails to make a showing sufficient to establish the existence of an element essential to that party‘s case, and on which that party will bear the burden of proof at trial.“). On a motion for summary judgment, “[t]he Court should credit the non-movant‘s evidence and must draw all justifiable inferences from the evidence in the nonmovant‘s favor.” Netscape Commc‘ns Corp. v. Konrad, 295 F.3d 1315, 1319 (Fed. Cir.2002) (citing Anderson, 477 U.S. at 255); see also Wanlass v. Fedders Corp., 145 F.3d 1461, 1463 (Fed. Cir.1998) (“In determining the propriety of summary judgment, credibility determinations may not be made....“).
III. Discussion
A. Duties
Horizon concedes that it misclassified the entries at issue in this action and that it is therefore liable to the Government for $70,254 in unpaid duties. Def.‘s Resp. at 16;
B. Interest
The Government also seeks an award of pre-judgment interest on the outstanding duty amount. This Court has discretion to award pre-judgment interest. United States v. Imperial Food Imps., 834 F.2d 1013, 1016 (Fed.Cir.1987). Pre-judgment interest “compensate[s] for the loss of use of money due as damages from the time the claim accrues until judgment is entered, thereby achieving full compensation for the injury those damages are intended tо redress.” West Virginia v. United States, 479 U.S. 305, 310 n. 2 (1987); see United States v. Goodman, 6 CIT 132, 140, 572 F.Supp. 1284, 1289 (1983) (Pre-judgment interest “is awarded to make the wronged party whole.“). Factors considered include “[1] the degree of personal wrongdoing on the part of the defendant, [2] the availability of alternative investment opportunities to the plaintiff, [3] whether the plaintiff delayed in bringing or prosecuting the action, and [4] other fundamental considerations of fairness.” United States v. Great Am. Ins. Co. of N.Y., 738 F.3d 1320, 1326 (Fed.Cir.2013) (quoting Osterneck v. Ernst & Whinney, 489 U.S. 169, 175-76 (1989)) (internal quotation marks omitted). In determining whether to award equitable prejudgment intеrest,
Pre-judgment interest is appropriate here on the outstanding duty amount. The Government did not unreasonably delay bringing or prosecuting this action. The Government filed its complaint roughly 16 months after the close of administrative proceedings and has not been the source of unreasonable delay during litigation. Horizon never paid the outstanding duties despite Customs’ numerous requests.
Thе court will award pre-judgment interest on the outstanding duty amount from the date of Customs’ final demand for payment, December 20, 2012, to the date of judgment, see United States v. Yuchius Morality Co., 26 CIT 1224, 1240, 2002 WL 31357050 (2002), at the rate provided in
C. Negligence
Under
Horizon‘s entry documentation misstates that the imported plywood contains at least one outer ply made from a species of tree that would entitle it to duty-free importation. The invoices associated with those entries demonstrate that the plywoоd contained outer ply made from species of trees that are instead subject to an 8% duty rate. See Pl.‘s App‘x II at A528-A661 (invoices, packing lists, entry forms, and other materials). For example, among the 64 misclassified entries, Horizon selected a duty-free classification indicating that its plywood had at least one outer ply made of birch when the plywood actually had an outer ply made of non-birch species, like maple, red oak, white ash, hickory, and cherry, subject to an 8% duty. E.g., id. at A530-A622. Horizon‘s entry documents therefore made a false written statement that altered Customs’ assessment of Horizon‘s liability for duties. See United States v. Optrex Am., Inc., 32 CIT 620, 631, 560 F.Supp.2d 1326, 1336 (2008) (“[T]he classification of merchandise as presented in customs entry documenta-
Horizon concedes that it misclassified the entriеs at issue, but argues that there remains a genuine factual issue as to whether it exercised reasonable care. The court agrees. Horizon offers the declaration of Kelsey Quintana, Horizon‘s co-owner and manager, in which Ms. Quintana states that the “64 entries were filed by an authorized custom[s] broker using the best possible tariff classification to his knowledge.” See Decl. of Kelsey Quintana ¶¶ 1, 4. Horizon also offers documents from the underlying administrative proceeding in which Horizon‘s counsel noted that Horizon had used a customs broker. See Def.‘s App‘x at Hor. 10. “Consult[ation] with a customs broker” is one possible “aid[] to establish evidence of proper compliance.” H.R.Rep. No. 103-361, at 120 (1993), reprinted in 1993 U.S.C.C.A.N. 2552, 2670.
The Government argues that the involvement of a customs broker does not shield Horizon because it has “not offer[ed] a shred of documentary evidence to demonstrate that it actually consulted with its broker in a good faith effort to ascertain the correct classification.” Pl.‘s Reply at 6. Horizon has, however, offered the declaration of Ms. Quintana, who states that Horizon used a customs broker to file the entries. The Government argues that “the only communications between Horizon and its broker evidenced in the record are facsimiles from Horizon to its broker in which Horizon instructed the broker to use one of the inаpplicable, duty-free classifications.” Id. (citing Pl.‘s App‘x II at A636, A653-54).
These facsimiles, however, raise more questions than they answer, especially about the extent of the customs broker‘s involvement with the entries. The facsimiles are terse, covering a small set (not all) of the subject entries. They direct somebody named “Henry” to classify Horizon‘s merchandise under an incorrect duty-free heading. See Pl.‘s App‘x at A636, A653-54. Ms. Quintana‘s declaration states that a customs brоker was used to file Horizon‘s entries, which contained misclassifications. The facsimiles do appear to indicate that, at least for a portion of the entries, Horizon requested that its customs broker use an incorrect duty-free classification. What is not clear is why the customs broker went ahead with the incorrect classifications.
The Government would like the court to infer that all the responsibility for the erroneous entries rests on the shoulders of Horizon, but the court could just as easily infer that the customs broker shares a portion (if not all) of the responsibility. Customs brokers, after all, have statutory and regulatory responsibilities to classify merchandise correctly. E.g.,
Drawing all reasonable inferences in Horizon‘s favor, the court determines that
D. Penalty
The maximum penalty for negligent misclassifications of imported merchandise under
In the event that the Government prevails on the negligence issue at trial, the Government seeks a $324,540 penalty, representing twice the $162,270 in total duties Horizon should have paid on entry of thе subject merchandise. Horizon argues that there is a genuine issue of material fact as to whether the court should waive the penalty entirely, or in the alternative, impose a penalty lower than the maximum.
1. Waiver of the Entire Penalty
Horizon argues that there is a genuine issue as to whether the penalty should be waived in accordance with the Small Business Regulatory Enforcement Fairness Act (“SBREFA“). As a matter of policy adopted in conformance with the SBREFA, Customs allоws small businesses to request waiver of a penalty assessed under
[A]n alleged violator which has been issued a pre-penalty notice under
19 U.S.C. § 1592(b)(1) may assert in its response to the pre-penalty notice that it is a small business entity ... and that all of the following circumstances are present: (1) The small entity has taken corrective action within a reasonable correction period, including the payment of all duties, fees and taxes owed as a result of the violation within 30 days of the determination of the amount owed; (2) the small entity has not been subject to other enforcement actions by Customs; (3) the violation did not involve criminal or willful conduct, and did not involve fraud or gross negligence; (4) the violation did not pose a serious health, safety or environmental threat, and (5) the violation occurred despite the small entity‘s good faith effort to comply with the law.
Policy Statement Regarding Violation of
The court does not agree that waiver under the SBREFA applies here.
2. Mitigation of the Penalty
- the defendant‘s good faith effort to comply with the statute,
- the defendant‘s degree of culpability,
- the defendant‘s history of previous violations,
- the nature of the public interest in ensuring compliance with the regulations involved,
- the nature and circumstances of the violation at issue,
- the gravity of the violation,
- the defendant‘s ability to pay,
- the appropriateness of the size of the penalty to the defendant‘s business and the effect of a penalty on the defendant‘s ability to continue doing business,
- that the penalty not otherwise be shocking to the conscience of the Court,
- the еconomic benefit gained by the defendant through the violation,
- the degree of harm to the public,
- the value of vindicating the agency authority,
- whether the party sought to be protected by the statute had been adequately compensated for the harm, and
- such other matters as justice may require.
Id. at 947-50, 83 F.Supp.2d at 1312-15 (footnote omitted); see, e.g., Optrex, 32 CIT at 639-42, 560 F.Supp.2d at 1342-44 (applying Complex Machine factors).
Horizon argues that there is a genuine question of material fact as to the amount of the penalty under the Complex Machine factors. The court agrees. Specifically, Horizon offers a statement from Ms. Quintana indicating that Horizon “has carried almost no profit for these past years” and that imposition of the full penalty amount will require it “to cease operations and file for bankruptcy.” Decl. ¶ 9, 12. Horizon also provides financial exhibits it submitted to Customs to corroborate these statements. See Def.‘s App‘x at Hor. 14-84. Additionally, Customs itself cited Horizon‘s lack of prior violations as a mitigating factor in assessing Horizon‘s initial request for a reduced penalty. Sеe id. at Hor. 88-89. This evidence, as Horizon argues, raises a genuine issue as to whether a lower penalty is appropriate.
The ultimate determination on the amount of a penalty is a question committed to the court‘s discretion.
As a final note, the Government argues that Horizon improperly relies on certain exhibits that Horizon failed to disclose during discovery or the administrative proceeding below, including recent tax returns, financial statements, and a letter from an accounting firm regarding Horizon‘s financial condition. Pl.‘s Reply at 10. That may well be the case. See USCIT R. 26(a)(1)(A)(i)-(ii) (requiring disclosure of certain materials a party “may use to support its defenses“); id. 37(c)(1) (If a party fails to comply with USCIT R. 26(a), “the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.“); see also United States v. Horizon Prods. Int‘l Inc., Court No. 14-00104, 2-6 (CIT Dec. 24, 2014), ECF No. 21 (order denying Defendant‘s out of time motion to amend the scheduling order) (describing Defendant‘s “inaction ... in the discovery process“). Nevertheless, at this stage of litigation, other evidence on the record presents a genuine factual issue as to the appropriate penalty, if any, to be assessed after full cоnsideration of the Complex Machine factors. See Def.‘s App‘x at Hor. 14-84.
IV. Conclusion
For the foregoing reasons, the Government‘s motion for summary judgment is granted with respect to the unpaid duties and pre-judgment interest, but is denied in all other respects.