17 Ct. Int'l Trade 348 | Ct. Intl. Trade | 1993
Memorandum and Order
In this action brought by the government pursuant to 28 U.S.C. § 1582 to recover penalties and duties under 19 U.S.C. § 1592, the defendant, citing CIT Rules 9(b), 12(b)(5), 12(f) and 12(h), has interposed a motion
(1) to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted because the Customs Service failed to perform the condition precedent, i. e., furnishing the decision in the underlying administrative penalty proceeding; (2) to dismiss the fraud claim for facial insufficiency because of failure to plead fraud with particularity; (3) to dismiss the fraud claim for facial insufficiency for failure to plead the proper intent required to establish fraud; (4) to dismiss the-duty claim for facial insufficiency and failure to comply with the statute of limitations; (5) to dismiss all penalty claims for failure to comply with the statute of limitations; (6) to dismiss the Complaint in its entirety because the evidence of alleged violations was illegally obtained; and (7) to strike irrelevant references to certain persons in the allegations of the complaint as slanderous.1
I
For the purposes of a motion such as this, the material allegations of the complaint are taken as admitted and are to be liberally construed in favor of the plaintiff. E.g., Jenkins v. McKeithen, 395 U.S. 411, 421-22, reh’g denied, 396 U.S. 869 (1969), and cases cited therein. With this rule in mind, the complaint herein alleges, among other things, that the defendant New York corporation is engaged in the business of importing wearing apparel into the United States from the Republic of the Philippines and that:
6. On September 4, 1985, defendant entered or * * * caused to be entered * * * various articles of wearing apparel * * * under*349 cover of five consumption entries: 85-500211-4; 85-500208-8; 85-500152-6; 85-500207-5; and 85-500234-7. On that same date, the U.S. Customs Service * * * examined the merchandise covered by these entries and determined that each entry (1) contained merchandise that was not declared on the entries and for which no visa had been obtained, and (2) did not contain merchandise that was declared on the entry documentation.
7. The documents, written or oral statements, acts and/or omissions made in connection with the entries referred to in paragraph 6 above were false because they misdeclared the merchandise that was actually covered by each entry and because all the merchandise was represented as being covered by a visa, when in fact, a visa had not been secured for some of the merchandise.
8. The false statements, acts, and/or omissions, referred to * * * were material because they had the potential to affect the liability for customs duties and to allow the importation of restricted merchandise without a proper visa.
The complaint further avers steps taken by Customs to investigate the specified entries, which allegedly led to discovery of some 91 other unlawful entries and issuance of pre-penalty and penalty, notices to the defendant. Asserting violations of 19 U.S.C. § 1592, the complaint prays in count I for $32,859.04 in penalties for gross negligence; for $16,429.52 in count II based on negligence; and for $5,284,000.00 in count III as a result of fraud. In addition, count IV prays for recovery of lost duties amounting to $1,054,779.00.
II
According to the plaintiff, penalty notices were issued to Jac Natori Co. on December 9, 1988 and March 3, 1989. Section 1592(b)(2) provides, in part, that, upon receipt of a written penalty claim from Customs, a person
shall have a reasonable opportunity under section 1618 * * * to make representations, both oral and written, seeking remission or mitigation of the monetary penalty. At the conclusion of any proceeding under such section 1618, the appropriate customs officer shall provide to the person concerned a written statement which sets forth the final determination and the findings of fact and conclusions of law on which such determination is based.
After receipt of those notices, Natori formally petitioned for relief. However, before disposing of the response(s), the Service issued another notice of penalty (in July 1989), from which the company also sought relief. Customs denied all the petitions in February 1990, notifying Natori on March 8, 1990 that it had seven days to file a supplemental petition for relief pursuant to 19 C.F.R. § 171.33.
Defendant’s reply memorandum indicates that a supplemental petition was filed, albeit on March 23, 1990, followed by a second supplemental petition on August 14, 1990. The former was denied by the Service, while the second remains undecided, leading the defendant to
Ill
CIT Rule 9(b) requires that in “all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” It is designed to provide defendants with adequate notice: “the rule assures that a defendant will be alerted to the particular transactions in question and be able to mount an effective and meaningful defense.” United States v. F.A.G. Bearings Corp., 7 CIT 8, 9 (1984). The rule, however, must be read in conjunction with Rule 8(a)(2), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Accordingly, Rule 9(b) does not require the pleading of detailed evidentiary matter. United States v. Scope Imports, Inc., 10 CIT 410 (1986), citing 2A Moore’s Federal Practice § 9.03, at 9-28 to 9-30 (1979). See also United States v. Priscilla Modes, Inc., 9 CIT 598, 599 (1985); 5 Wright & Miller, Federal Practice and Procedure § 1298, at 617-21 (1990). Finally, the
*351 sufficiency of a fraud pleading also varies with complexity of the transaction in question. When the issues are complicated or the transactions cover a long period of time, courts tend to require less of the pleader.
Id. at 646-47 (citations omitted).
In the complaint at bar, the plaintiff identifies the defendant and its owners and alleges, with several exceptions
documents, written or oral statements, acts and/or omissions made in connection with the entries referred to * * * were false in that defendant understated the purchase price and/or value of the merchandise, did not declare assists (purchases of materials and services) provided to FFI [International], and did not reflect additional costs with respect to its purchases from FFI.
Paragraph 28 avers that the false statements, acts, or omissions were made knowingly by the defendant and identifies in Exhibit A the duties paid, the duties due, the revenue loss and the domestic forfeiture value of each entry.
These allegations lead the court to find that the plaintiff has pleaded with sufficient particularity to enable the defendant to respond. See, e.g., United States v. Valley Steel Products Co., 12 CIT 1161, 1162-63 (1988); United States v. Priscilla Modes, Inc., 9 CIT at 599-600. Indeed, unlike other actions in federal court where a party is first apprised of claims of fraud upon service of the pleadings thereon, actions like this one necessarily entail administrative proceedings beforehand.
A
The defendant claims the “defective allegations of fraud” as abasis for its request that references in the complaint to Natori family members be stricken, arguing, among other things, that they are “vague and totally irrelevant”
B
The defendant contests the sufficiency of the complaint regarding intent, arguingthat in order to state a claim under section 1592(a) the government is required to plead and prove that the defendant specifically intended to defraud the revenue of the United States.
The defendant also urges the court to dismiss the fraud claims as “based on a reduced standard of proof effectuated on October 6, 1989” in violation of the ex post facto clause of the U.S. Constitution. However, that clause “forbids * * * penal legislation which imposes or increases criminal punishment for conduct lawful previous to its enactment”
C
The defendant also challenges the fraud claims on the ground that the plaintiff fails to plead date(s) of discovery.
Section 1621 of Title 19, U.S.C. provides that actions for fraud under 1592 be instituted “within five years after the time when the alleged offense was discovered”.
IV
Defendant’s motion to dismiss plaintiffs claim for duties is based on the argument that the applicable statute of limitations is 19 U.S.C. § 1521, which provides:
If the appropriate customs officer finds probable cause to believe there is fraud in the case, he may reliquidate an entry within two years (exclusive of the time during which a protest is pending) after the date of liquidation or last reliquidation.
Under this section, the defendant contends plaintiffs duty claim because stale as of September 1987, two years after the date of of discovery of the alleged fraud.
The plaintiff responds that section 1521 is not applicable in actions for restoration of duties pursuant to 19 U.S.C. § 1592(d), arguing instead that no statute of limitations applies to such claims. The government took the same position in United States v. Blum, 11 CIT 316, 660 F.Supp. 975 (1987), in which this court was called upon to determine whether subsection (d)
Be that as it may, in regard to defendant’s instant position, section 1514(c)(2) provides that liquidation is final as to all parties unless a protest is filed within 90 days, with some exceptions: They include voluntary liquidation by a customs officer under section 1501, filing of a petition by a domestic interested party under 1516, reliquidation due to error under section 1520, and reliquidation under 1521 because of suspected fraud, which, as stated above, permits reliquidation within two
V
In view of the foregoing, defendant’s motion to dismiss the complaint or to strike portions thereof cannot be granted on any of the grounds posited. The motion must therefore be, and it hereby is, denied.
The defendant shall answer the complaint in accordance with CIT Rule 12(a), and the parties shall have until September 3,1993 to engage in discovery and to present a proposed pretrial order.
Defendant's Motion to Dismiss Complaint, pp. 1-2. This motion furthef postulates that “the prosecution of this action is itself a fraudulent violation of the Customs laws” and “justice demands that the defective complaint be dismissed and sanctions imposed against the Government pursuant to Rule 11 to prevent further harassment of Natori and other importers.” Id. at 2.
19 C.ER. § 171.24. See United States v. Modes, Inc., 13 CIT 780, 782 n. 1, 723 F.Supp. 811 n. 1 (1989). With regard to the March notice of seven days for any further request, section 171.12(e) of Title 19, C.F.R. provides that, if a penalty is assessed under section 1592, and fewer than 180 days remain oftheperiod of limitation, Customs may shorten the time for the filing of a petition for relief to as few as seven days.
Exhibit A to the complaint lists 93 entries, two of which do not indicate dates and entry numbers and another which lacks an entry date. These particular shortcomings, however, do not warrant dismissal of the entire pleading.
Defendant’s Motion, p. 27. It states at page 28 that these
allegations may initially appear to be relevant and innocuous. However, consideration of the vague language contained therein and of the defective allegations of fraud appearing elsewhere in the complaint reveal them to be another predicate act in the pattern of Customs’ continuous harassment of Natori throughout this matter. Read together with that branch of the instant motion to dismiss the fraud count of the complaint for legal insufficiency pursuant to Rule 9(b), it is obvious that the Government made the personal references sought to be stricken for the purpose of publicly slandering Natori. In short, the Government is insinuating that Natori family members committed wrongdoing by associating them with the baseless allegations of fraud contained in the complaint.
See, e.g., Beker Industries Corp. v. United States, 7 CIT 199, 200, 585 F.Supp. 663, 665 (1984).
Jimlar Corp. v. United States, 10 CIT 671, 673, 647 F. Supp. 932, 934 (1986).
See Defendant’s Reply Memorandum in Further Support of Motion to Dismiss Action, p. 8: It attempts to rely on guidelines to “be applied by Customs officers in pre-penalty proceedings and in determining the monetary penalty assessed in the penalty notice.” 19 C.F.R. Part 171, App. B. But they are “intended to provide internal guidance to Customs employees, and are not a part of the Customs Service Regulations.” T.D. 89-83, 23 Cust. Bull. & Dec. 395, 396 (1989). furthermore, effective October 6, 1989, the Service revised the definition of fraud in its guidelines
by removing the requirement that intent to defraud the revenue of the United States be proven as an element of the violation. This cnange brings the Customs guidelines into conformity with the current legal requirements applicable to the Government’s burden of proof in civil fraud cases. Under the new definition, the critical element necessary to prove the violation is the intent to commit the fraudulent act or omission.
Id. at 395. In response to a comment on this revision, it stated:
Since section 1592 is a civil statute, the elements of fraud that must be established for penalties thereunder differ in some respects from those relating to criminal fraud. The required element of intent in civil fraud cases is intent that a representation be made, that it be directed to a particular person or class of persons, that it convey a certain meaning, that it be believed and that it shall be acted upon in a certain way.
By amending the definition of fraud under the guidelines, Customs merely is adhering to the general principle applied in civil fraud cases that “the intent which becomes important is the intent to deceive, to mislead, to convey a false impression. ” Thus, the intent under the new definition is directed to the making of the false representation or omission, as opposed to causing the consequences of such representation or omission (e.g., duty loss, quota violation, etc.).
Id. at 397.
Be that as it may, even under the earlier standard, that an accused “did knowingly, willfully, and unlawfully make and cause to be made a material false and fraudulent statement” was held to be sufficient to establish the requisite fraudulent intent. United States v. Daewoo Int’l (America) Corp., 12 CIT 889, 896, 696 F.Supp. 1534, 1541 (1988), modified, 13 CIT 76, 704 F. Supp. 1067 (1989).
19 U.S.C. § 1592(a). Earlier versions of the statute included such phrases as “with design to evade the duties”, 1 Stat. 677, § 66 (1799), and “intent to defraud the revenue”, 18 Stat. 186, § 12 (1874). The defendant refers to United States v. Ven-Fuel, Inc., 758 F.2d 741 (1st Cir. 1985), arguingthat it “supports the proposition that Congress intended to utilize the intent factors already built into the pre-1978 version of 1592.” Defendant’s Reply Memorandum, p. 9.
At issue in that case was whether simple negligence could be the basis of a violation of the 1970 version of section 1592. In holding that the defendants could be found liable, the court of appeals traced the intent requirement, concluding that as long ago as 1799 “something less than specific intent” was required. 758 F.2d at 754. See also United States v. Five Casks of Files, 25 F.Cas. 1095, 1096 (S.D.N.Y. 1840) (No. 15,112) (“if, without mistake of fact, they make an entry in their invoice contrary to the law, it must be regarded as intentional; and, if tending to defraud the revenue that intent must be ascribed to the false invoice”); United States v. Wagner, 434 F.2d 627, 628 (9th Cir. 1970) (“knowing intent” not required for forfeiture under 19 U.S.C. § 1592 (1970)). In short, the defendant cannot support its contention that “fu]nder the old definition of fraud, the Government was obliged to plead and prove that the importer knowingly deprived Customs of revenue.” Defendant’s Reply Memorandum, p. 8.
Complaint, para. 28.
Id., para. 16.
Id., para. 17.
Harisiades v. Shaughnessy, 342 U.S. 580, 594 (footnote omitted), reh’gs denied, 343 U.S. 936 (1952).
See, e.g., O.C.O.D. 90-1 (Dec. 5, 1989).
In causes of action based on negligence or gross negligence, time runs from the date on which such occurs.
Cf. United States v. Gordon, 7 CIT 350, 352 (1984).
Id. at 351, citing United States v. R.I.T.A. Organics, Inc,, 487 F.Supp. 75, 78 (N.D. Ill. 1980).
The defendant seemingly confuses section 1521 with the discovery rule of section 1621. The former delimits the liquidator while the latter restricts the seeking of relief in court. Furthermore, the pleadings do not indicate when the entries at issue were last reliquidated, if at all. Therefore, even if the court were to hold that section 1521 applies to restoration of duties under section 1592(d), the court could not dismiss this action on the papers at hand. Cf. United States v. Appendagez, Inc., 5 CIT 74, 81, 560 F.Supp. 50, 55-56 (1983).
The language of this subsection is as follows:
Deprivation of lawful duties. — Notwithstanding section 1514 of this title, if the United States has been deprived of lawful duties as a result of a violation of subsection (a) of this section, the appropriate customs officer shall require that such lawful duties be restored, whether or not a monetary penalty is assessed.
E.g., E.I. DuPont de Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924), and cases cited therein.