UNITED STATES, Plaintiff, v. AEGIS SECURITY INSURANCE COMPANY, Defendant, and TRICOTS LIESSE 1983, INC., Third-Party Defendant.
Consol. Court No. 11-00388
UNITED STATES COURT OF INTERNATIONAL TRADE
December 17, 2019
Slip Op. 19–162
Before: Richard K. Eaton, Judge
Case 1:16-cv-00066-RKE Document 15 Filed 12/17/19 Page 1 of 39
[Granting summary judgment for Plaintiff and denying summary judgment for Defendant and Third-Party Defendant.]
Dated: December 17, 2019
Stephen C. Tosini, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for Plaintiff. With him on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director, of Washington, DC. Of counsel on the brief was Matthew C. Landreth, Office of the Assistant Chief Counsel, U.S. Customs and Border Protection, of Buffalo, NY.
T. Randolph Ferguson, Sandler, Travis & Rosenburg, PA, of San Francisco, CA, argued for Defendant.
John B. Brew, Crowell & Moring LLP, of Washington, DC, argued for Third-Party Defendant. With him on the brief was Frances P. Hadfield.
The Government contends that there is no genuine issue of material fact that would preclude judgment in its favor for unpaid duties and fees, pursuant to
After liquidation of the subject entries became final, Tricots sought to make a prior disclosure under
Additionally, Defendants argue that they do not owe duties on any of the entries in question because, notwithstanding the timing of its prior disclosure, the subject entries were eligible to enter duty-free under the Tariff Preference Levels Program. Defendants also argue that the Government is not entitled to summary judgment because genuine issues of fact exist as to whether Tricots acted with reasonable care when it made erroneous preference claims in its entry paperwork, and whether its statements were materially false with respect to a subset of unidentified entries. Finally, Defendants contend that they have a valid equitable recoupment counterclaim against the Government.
Jurisdiction is found under
I. Overview of Preferential Tariff Treatment Under NAFTA
NAFTA was implemented into U.S. law on December 8, 1993, for the purpose of promoting the free flow of goods among the United States, Canada, and Mexico. See
A. Claiming Preferential Tariff Treatment Under NAFTA Rules of Origin
Preferential tariff treatment under NAFTA is not automatic—it must be claimed. For originating goods, preferential tariff treatment can mean the elimination of not only duties, but also merchandise processing fees.6 See
§ 181.21 Filing of claim for preferential tariff treatment upon importation
(a) Declaration. In connection with a claim for preferential tariff treatment, or for the exemption from the merchandise processing fee, for a good under the NAFTA, the U.S. importer must make a formal declaration that the good qualifies
for such treatment. The declaration may be made by including on the entry summary, or equivalent documentation, including electronic submissions, the symbol CA for a good of Canada, or the symbol MX for a good of Mexico, as a prefix to the subheading of the HTSUS under which each qualifying good is classified. Except . . . in the case of a good to which Appendix 6.B to Annex 300–B of the NAFTA applies7 (see also
19 CFR 102.25 ), the declaration must be based on a complete and properly executed original Certificate of Origin,8 or copy thereof, which is in the possession of the importer and which covers the good being imported.
Normally, a formal declaration is made upon importation, as provided in
§ 10.112 Filing free entry documents or reduced duty documents after entry
Whenever a free entry or a reduced duty document, form, or statement required to be filed in connection with the entry is not filed at the time of the entry or within the period for which a bond was filed for its production, but failure to file it was not due to willful negligence or fraudulent intent, such document, form, or
statement may be filed at any time prior to liquidation of the entry or, if the entry was liquidated, before the liquidation becomes final.
In the event that an importer erroneously claims preferential tariff treatment under the NAFTA Rules of Origin, to avoid penalties, the importer may make a prior disclosure to self-report the error to Customs by filing a corrected declaration and paying any duties owing:
(5) Prior disclosure regarding NAFTA claims
An importer shall not be subject to penalties under [
19 U.S.C. § 1592(a) ] for making an incorrect claim for preferential tariff treatment under [19 U.S.C. § 3332 (Rules of Origin)] if the importer—(A) has reason to believe that the NAFTA Certificate of Origin . . . on which the claim was based contains incorrect information; and
(B) in accordance with regulations issued by the Secretary, voluntarily and promptly makes a corrected declaration and pays any duties owing.
(b) Corrected declaration. If, after making the declaration required under paragraph (a) of this section . . . , the U.S. importer has reason to believe that a Certificate of Origin on which a declaration was based contains information that is not correct, the importer shall within 30 calendar days after the date of discovery of the error make a corrected declaration and pay any duties that may be due. A corrected declaration shall be effected by submission of a letter or other written statement to the [Customs] office where the original declaration was filed.
B. Claiming Preferential Tariff Treatment Under the Tariff Preference Levels Program
NAFTA provides for annual quantitative limits, or quotas, on certain textile and apparel products that are made from non-originating materials, i.e., from materials (such as yarn) that are produced by non-NAFTA suppliers. See NAFTA, Annex 300-B, app. 6.B.4(a). The Tariff Preference Levels Program is a quota program that applies to these products. See Johnson Decl. (Feb. 9, 2017), ECF No. 89-8, Ex. 14 (Customs Directive No. 3550-085) (the Directive).11
NAFTA [Tariff Preference Level] rules allow duty free treatment on knitted fabrics produced in Canada from non-NAFTA yarns that do not meet the NAFTA [Rules of Origin], up to a certain quantity per year. Aegis I, 42 CIT at __, 301 F. Supp. 3d at 1362 n.6. Although goods entered under the Tariff Preference Levels Program are not subject to duties, [a]ll [such] goods . . . are subject to merchandise processing fees. Directive ¶ 6.1; see also Aegis I, 42 CIT
THE NORTH AMERICAN FREE TRADE AGREEMENT ACT STATEMENT OF ADMINISTRATIVE ACTION, H.R. DOC. NO. 103-159, vol. 1, at 507 (1993).
The regulations set out the procedure to claim eligibility for Tariff Preference Levels treatment of non-originating textile and apparel products:
§ 102.25 Textile or apparel products under the North American Free Trade Agreement
In connection with a claim for NAFTA preferential tariff treatment involving non-originating textile or apparel products subject to the tariff preference level provisions of appendix 6.B to Annex 300–B of the NAFTA and Additional U.S. Notes 3 through 6 to Section XI, Harmonized Tariff Schedule of the United States, the importer must submit to [Customs] a Certificate of Eligibility . . . covering the products. The Certificate of Eligibility . . . must be properly completed and signed by an authorized official of the Canadian or Mexican government and must be presented to [Customs] at the time the claim for preferential tariff treatment is filed under § 181.21 of this chapter. If the Center director is unable to determine the country of origin of the products, they will not be entitled to preferential tariff treatment or any other benefit under the NAFTA for which they would otherwise be eligible.
Generally, a Certificate of Eligibility is filed at the time a claim for preferential tariff treatment is made under
II. Facts Material to Plaintiffs Unpaid Duties Claims Under 19 U.S.C. § 1592(d)
A. Tricots Declaration Upon Importation
Between November 17, 2005, and December 23, 2008, Tricots imported 875 entries of fabric into the United States from Canada, declaring to Customs that each entry was eligible for preferential tariff treatment under NAFTA Rules of Origin because the fabric originated in a NAFTA country. Pl.s R. 56.3 Stmt. ¶ 1; Defs. Resp. Pl.s R. 56.3 Stmt ¶ 1. On 874 of its entries, Tricots made its claims by including on the entry summaries (1) the CA indicator, denoting that the goods qualified for duty-free treatment under NAFTA; (2) the 01 entry-type code, indicating that the goods were free or dutiable consumption entries; and (3) a calculation showing that no duties or merchandise processing fees were owed on the goods. For one entry—WFN-80098854, entered May 19, 2006—Tricots included on its entry summary (1) the CA indicator, denoting that the goods qualified for duty-free treatment under NAFTA; and (2) a calculation showing that no duties or merchandise processing fees were owed on the goods. See Pl.s R. 56.3 Stmt. ¶ 1; Defs. Resp. Pl.s R. 56.3 Stmt. ¶ 1.
Six hundred four of the subject entries for which the Government is seeking lost revenue (duties and fees) were covered by a continuous bond, in the amount of $230,000, issued by Aegis. See Pl.s R. 56.3 Stmt. ¶ 2; Defs. Resp. Pl.s R. 56.3 Stmt. ¶ 2. The bond was effective as of November 17, 2002, and remained in force for each succeeding annual period until it was terminated on November 29, 2007. See Johnson Decl. (Feb. 9, 2017), ECF No. 89-8, Ex. 1.
All of Tricots entries liquidated, pursuant to
B. Tricots Effort to Make a Prior Disclosure and Correct Its Declaration
After liquidation of the subject entries became final, by letter dated May 28, 2010, Tricots sought prior disclosure treatment, under
[T]here was not sufficient attention paid [by Tricots former compliance specialist] to whether the goods were [Tariff Preference Level] or NAFTA [originating].
Defs. Mot. Dismiss, ECF No. 76-1, Ex. B at 2; Defs. Resp. Pl.s R. 56.3 Stmt. ¶ 9.
On December 1, 2010, for the purpose of complet[ing] the prior disclosure and provid[ing] information concerning the amount of [m]erchandise [p]rocessing [f]ee[s] which would have been due had the entry been made correctly, Tricots supplemented its May 28, 2010 letter with a second letter that calculated the fees it claimed were owed on its imports under the Tariff Preference Levels Program. See Defs. Mot. Dismiss, ECF No. 76-1, Ex. D at 2. Although the prior disclosure statute and Customs regulations required that the disclosing party pay any duties that may be due, Tricots did not do so, because, it maintained, no duties were owed. See
C. Customs Rejection of Tricots Prior Disclosure
Following Tricots December 1, 2010 letter, Customs notified Tricots counsel that it had reviewed the companys submission, and although Tricots had accounted for the merchandise processing fees that were due, the company had not accounted for the [d]uty due, and, moreover, that [Customs] policy is that if a company has failed to present Certificates of Eligibility by the time of final liquidation, this precludes that company from receiving the duty
Subsequently, by letter dated May 23, 2011, Customs notified Tricots of the amount of duties and fees owed. It stated that after carefully reviewing Tricots correspondence, the information Tricots office provided, and each of the entries at issue, Customs had concluded that Tricots owed $2,249,196.04 in lost revenue, representing $2,206,596.05 in unpaid duties and $42,599.99 in unpaid fees. The letter also notified Tricots that, following its deposit of the full amount owed, the company could seek review of Customs calculations as provided in the regulations.13 Tricots was given until June 24, 2011 to tender the amounts owed, which, for Customs, would perfect the prior disclosure. See Aegis I, 42 CIT at __, 301 F. Supp. 3d at 1363.
Rather than tender the amounts owed, on June 22, 2011, Tricots submitted an offer in compromise of $85,199.98, representing twice the amount of the unpaid merchandise processing fees it claimed were due on the entries. See Defs. Br., ECF No. 105-1, Ex. T at 8. In response, on December 7, 2011, Customs sent Tricots a letter stating that its entries did not qualify for prior disclosure treatment under
D. Customs Demands for Unpaid Duties
On February 16, 2012, Customs demanded payment of unpaid duties from Tricots in the amount of $2,249,196.04. See Defs. Br., ECF No. 105-1, Ex. G. Customs also demanded payment from Aegis of $500,113.32, the amount of duties owed on the 604 entries secured by its bond. See Johnson Decl. (Feb. 9, 2017), ECF No. 89-8, Ex. 19. Demands were sent to Aegis on May 18, 2011, May 31, 2011, and June 9, 2011. See Compl., ECF No. 2 ¶ 21; Answer, ECF No. 13 ¶ 21. Aegis did not respond to any of the demands. See Compl. ¶ 21; Answer ¶ 21. No duties or fees have been paid on any of the 875 entries.
III. CIT Litigation
On September 27, 2011, pursuant to
Separately, on April 25, 2016, the Government sued Tricots to recover (1) civil penalties, pursuant to
On August 4, 2016, the Governments lawsuit against Tricots was consolidated sub nom United States v. Aegis Security Insurance Company, Consol. Court No. 11-00388. See Order dated Aug. 4, 2016, ECF No. 68.
After consolidation, Defendants moved to dismiss the Governments civil penalty claim and its unpaid duties claims for lack of subject matter jurisdiction on the ground that the Government failed to exhaust its administrative remedies. Plaintiff opposed the motion and cross-moved for partial summary judgment solely as to its claims for unpaid duties and fees. The court stayed briefing on Plaintiffs cross-motion pending its decision on the motion to dismiss. See Order dated May 5, 2017, ECF No. 86.
In Aegis I, the court converted Defendants motion to dismiss into a motion for summary judgment. As to the penalty claim, the court agreed with Defendants that the Government had failed to exhaust its administrative remedies because the facts demonstrate that, despite Tricots efforts, Customs did not follow the statutory injunction to provide the company with a reasonable opportunity to make oral representations seeking remission or mitigation of the monetary penalty following issuance of the Notice of Penalty, and thus did not provide Tricots with the statutorily required opportunity to be heard under
On May 23, 2018, the court lifted the stay of briefing on the Governments previously filed cross-motion for summary judgment on its unpaid duties claim. See Order dated May 23, 2018, ECF No. 98. Defendants filed a cross-motion for summary judgment, asking the court to dismiss Plaintiffs claims for unpaid duties and fees. See Defs. Br. 47. For its part, Plaintiff asks the court to enter judgment in its favor on its unpaid duties claims (1) against Tricots for $2,249,196.04, representing $2,206,596.05 in duties and $42,599.99 in merchandise processing fees, plus equitable prejudgment interest, and post-judgment interest, and (2) against Aegis for $500,113.32, plus mandatory interest under
STANDARD OF REVIEW
Under Rule 56, [t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. U.S. CT. INTL TR. R. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
LEGAL FRAMEWORK
Under
I. Penalty Claims
The Governments penalty claim is no longer at issue because it was dismissed in Aegis I. To understand Defendants argument for dismissal of the Governments unpaid duties claims, however, Customs regulations on penalties procedures are discussed briefly below.
Subsection (b) of
The court held in Aegis I that [b]ecause Customs failed to exhaust its administrative remedies and thus failed to perfect its penalty claim, Tricots motion for summary judgment [was] granted in part, and the court award[ed] summary judgment in favor of Tricots on [P]laintiffs penalty claim. Aegis I, 42 CIT at __, 301 F. Supp. 3d at 1361. Thus, the sole remaining claims before the court are Plaintiffs claims for unpaid duties and fees, under
II. Unpaid Duties Claims
Subsection 1592(d) requires Customs to restore unpaid duties, taxes, and fees due on entries, even if the entries have been finally liquidated:
Notwithstanding [
19 U.S.C. § 1514 16], if the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of [§ 1592(a)], the Customs Service shall require that such lawful duties, taxes, and fees be restored, whether or not a monetary penalty is assessed.
Additionally, a claim for lost import duties is judicially enforceable, irrespective of whether the United States pursues a penalty claim, as the plain language of subsection (d) makes clear.
The plain language of subsection (d) provides for recovery of lost import duties resulting from a violation of subsection (a). Under this provision, import duties lost as a result of a violation of subsection (a) are recoverable by the United States whether or not a monetary penalty [. . .] is assessed. We hold that such a claim is judicially enforceable pursuant to subsection (d).
Blum, 858 F.2d at 1569. The Blum Court further stated:
Subsection (d) is not a penalty provision; rather, subsection (d) allows the United States to recover lawful duties lost as a result of a violation of subsection (a). Lawful duties are those that would have been collected by the United States but for the violation of subsection (a).
Relying on Blum, this Court has ruled that subsection [(d)] creates an independent cause of action, and the governments right to recover unpaid duties under section 1592(d) does not depend on its right to obtain penalties . . . . United States v. Nitek Elecs., Inc., 36 CIT 546, 557, 844 F. Supp. 2d 1298, 1309 (2012), affd on other grounds, 806 F.3d 1376 (Fed. Cir. 2015) (first citing Blum, 858 F.2d at 1568-69, then quoting United States v. Jac Natori Co., 108 F.3d 295, 299 (Fed. Cir. 1997)); see also United States v. Aegis Sec. Ins. Co., 29 CIT 1263, 1265, 398 F.
Moreover, unlike with penalty claims, the government need not exhaust administrative remedies prior to seeking recovery of lost duties—i.e., [s]ection 1592 does not provide any administrative process for imposing lost duty claims. Nitek, 36 CIT at 557, 844 F. Supp. 2d at 1309 (citing Aegis, 29 CIT at 1265, 398 F. Supp. 2d at 1355). This Court has rejected the argument that that because the statutory provision enabling the United States to collect duties [i.e., subsection (d)] is contained within the same section [i.e., § 1592] that outlines the penalty assessment procedures [i.e., subsection (b)] that those procedures are applicable to a duty claim brought by the United States. United States v. Ross, 6 CIT 270, 271, 574 F. Supp. 1067, 1068-69 (1983) (footnote omitted). Examining the relevant statutory language,17 the Ross Court found:
Section 1592(d), taken at face-value, demonstrates that the United States need not follow the elaborate penalty procedures when pursuing a duty claim. Subsections (b) and (c) of § 1592 are cast in such terms as monetary penalty or penalty claim. Subsection (d) alone deals with lawful duties and makes no reference to the preceding matters.
Id., 6 CIT at 271, 574 F. Supp. at 1069.
Subsection (d) does not, by its terms, identify the parties against whom the United States may seek to restore unpaid duties. The Blum Court held that the United States may seek the
Finally, subsection (e) of the statute provides that, in any proceeding based on negligence, such as the Government‘s claim here, “the United States shall have the burden of proof to establish the act or omission constituting the violation.”
If the Government meets its burden, “the alleged violator shall have the burden of proof that the act or omission did not occur as a result of negligence.”
DISCUSSION
I. Plaintiff‘s Unpaid Duties Claims Are Not Barred
Defendants argue that Plaintiff‘s claim for unpaid duties and merchandise processing fees under
Defendants’ argument lacks merit. It is an incorrect statement of the law that “to determine if a violation of [subsection] (a) [has] occurred, Customs must follow the subsection (b) procedures” to establish a subsection (d) claim for unpaid duties. Whether Customs has complied with the procedures in subsection (b) bears on whether Customs may pursue a penalty claim for an alleged violation of subsection (a). By its terms, subsection (b) pertains to a “pre-penalty notice,” which, among other things, must “inform [a defendant] that he shall have a reasonable opportunity to make representations, both oral and written, as to why a claim for a monetary penalty should not be issued in the amount stated.”
This Court has long held that “[subs]ection 1592(d), taken at face-value, demonstrates that the United States need not follow the elaborate penalty procedures when pursuing a duty claim.” Ross, 6 CIT at 271, 574 F. Supp. at 1069. Indeed, the plain language of subsection (d) makes it clear that unpaid duty claims may proceed “whether or not a monetary penalty is assessed.”
II. Plaintiff‘s Unpaid Duties Claims Have Merit
A. Tricots’ Violation of § 1592(a)
As has been discussed, no protest was filed with respect to the liquidation of any of Tricots’ 875 entries. By May 5, 2010, liquidation of the subject entries had become final. See Juice Farms, Inc. v. United States, 68 F.3d 1344, 1346 (Fed. Cir. 1995) (“Without a timely protest, liquidations become final and conclusive under
Subsection 1592(a) prohibits (1) negligently (2) entering merchandise into the commerce of the United States (3) by means of any statement, act, or omission (4) that is material (5) and false. See
1. Tricots’ Negligence
Customs’ regulations set out rules for determining the level of an importer‘s culpability under
A violation is determined to be negligent if it results from an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances either: (a) in ascertaining the facts or in drawing inferences therefrom, in ascertaining the offender‘s obligations under the statute; or (b) in communicating information in a manner so that it may be understood by the recipient. As a general rule, a violation is negligent if it results from failure to exercise reasonable care and competence: (a) to ensure that statements made and information provided in connection with the importation of merchandise are complete and accurate; or (b) to perform any material act required by statute or regulation.
Plaintiff insists that Tricots was negligent when it represented that its entries were originating goods and therefore qualified for entry free of duties and fees under the NAFTA Rules of Origin. In an attempt to defeat summary judgment, Defendants claim that there is a genuine issue of material fact, and further discovery is warranted, as to whether Tricots acted with reasonable care when it made erroneous preference claims in its entry paperwork:
[Tricots] knew the fabric it produced in Canada qualified for duty free treatment under the NAFTA, but made incorrect preference claims. As soon as Tricots identified that it claimed one NAFTA provision over another in certain instances, it immediately corrected its claim with Customs. Its actions were not unreasonable and similarly situated companies in the same circumstances would have acted in the same fashion. The question of whether a party is negligent is fact specific and Tricots should be afforded the opportunity after complete discovery to show it was not negligent and acted as others would in the same circumstance.
Defs.’ Br. 43. In other words, in Tricots’ view, whether it exercised reasonable care to ensure its statements to Customs were complete and accurate is a question that cannot be answered based on the information before the court, but rather requires further discovery from other importers about what they would have done if they had made the subject entries.
The standard to determine whether a party has acted negligently is set out in the regulations.
Tricots has admitted that its mistake was the result of inattention: “[B]ecause [Tricots] was a small manufacturer and importer . . . there was not sufficient attention paid by [its] former compliance specialist as to whether [its] products qualifie[d] for NAFTA [Tariff Preference Level] or NAFTA [Rules of Origin].” Defs.’ Resp. Pl.‘s R. 56.3 Stmt. ¶ 9; see also Defs.’ Mot. Dismiss, ECF No. 76-1, Ex. B at 2. Tricots, then, admits that it made a mistake, but insists that because it acted as other similarly situated importers would have acted, it was not negligent. Even if it could demonstrate that others would have been similarly inattentive, however, Tricots’ argument would be no more compelling. The test here is whether the company exercised the degree of reasonable care and competence expected from an importer in the same circumstances. Tricots has admitted that it failed to pay adequate attention to the origin of the materials used to make its products, which then resulted in the incorrect statement in the entry paperwork that its goods were NAFTA-originating. Tricots’ behavior does not stem from, for example, “an honest, good faith professional disagreement as to correct classification of a technical matter“—but rather, from a lack of reasonable care. See Optrex, 32 CIT at 630-31, 560 F. Supp. 2d at 1336 (citation omitted).
Because the question of whether Tricots was negligent here requires the application of the reasonable care standard to the facts—i.e., Tricots’ conduct and statements to Customs, not what another company might have done—it is difficult to see any real purpose for more discovery. A finding that an act is reasonable or not does not rely on consensus in the community but on the application of reason. Here, the undisputed facts support the conclusion that Tricots—
2. Tricots Entered Merchandise into the United States
No party disputes that “Tricots imported 875 entries of fabric into the United States from Canada between November 17, 2005, and December 23, 2008, declaring to [Customs] that each entry was eligible for preferential tariff treatment under NAFTA because the fabric originated in a NAFTA country.” Pl.‘s R. 56.3 Stmt. ¶ 1; Defs.’ Resp. Pl.‘s R. 56.3 Stmt. ¶ 1.
3. Tricots’ Statements to Customs
It is also undisputed that Tricots stated in its entry paperwork that its merchandise was produced in Canada from NAFTA-originating materials:
On 874 of its entries, Tricots made such claims [for preferential treatment] by including on its entry summaries (1) the “CA” indicator, indicating that the goods qualified for duty-free treatment under NAFTA; (2) the “01” entry-type code, indicating that the goods were “free” or “dutiable” consumption entries; and (3) a calculation indicating that no duties or [merchandise processing fees] were owed on the goods. . . . For one entry—WFN-80098854, entered May 19, 2006—Tricots included on its entry summary (1) the “CA” indicator, indicating that the goods qualified for duty-free treatment under NAFTA; and (2) a calculation indicating that no duties or [merchandise processing fees] were owed on the goods.
Pl.‘s R. 56.3 Stmt. ¶ 1; Defs.’ Resp. Pl.‘s R. 56.3 Stmt. ¶ 1. In the Certificates of Origin, Tricots stated that “[t]he good [covered by the Certificate] is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials.” Defs.’ Mot. Dismiss, ECF No. 76-1, Ex. A.
4. Tricots’ Statements Were Material
Moreover, Tricots’ statements were material. Regarding “materiality,” the regulations provide:
A document, statement, act, or omission is material if it has the natural tendency to influence or is capable of influencing agency action including, but not limited to a Customs action regarding: . . . determination of an importer‘s liability for duty . . . .
5. Tricots’ Statements Were False
Based on Tricots’ statements in the entry paperwork, Customs concluded that neither duties nor merchandise processing fees were due on any of Tricots’ 875 entries. After liquidation of the subject entries had become final, Tricots attempted to make a prior disclosure under
Defendants assert that there is a genuine issue of material fact as to whether “all 875 entries contained materially false statements.” Defs.’ Br. 41. Here, Defendants appear to argue that it is possible, subject to further factual discovery, that their statements were not materially false as to an unidentified subset of the entries. The evidence before the court shows that Tricots,
The argument that a genuine factual issue exists as to whether Tricots’ representation that its entries were originating was “materially false” for the combination entries is difficult to credit. First, it ignores that, as the manufacturer and importer of record, Tricots must have in its possession the entry and production documentation that could conclusively resolve the issue. If this documentation established that any of Tricots’ entries, or the materials therein, qualified as originating goods, Tricots would have brought it forward in its cross-motion for summary judgment. Rather than doing so, however, Tricots does not even identify the entry numbers of the entries with respect to which it claims a genuine issue of fact exists.
Second, in its dismissal motion, Tricots stated that it sought, and obtained, Certificates of Eligibility from the Canadian Department of Foreign Affairs and International Trade for all of the subject entries, not a subset:
[I]n May 2012, Tricots requested that [the Canadian Department of Foreign Affairs and International Trade] issue [Tariff Preference Level] certificates for the subject exports made between 2005 and 2008. After confirming that the subject fabrics qualified for duty free treatment under the NAFTA [Tariff Preference Level] rules, [the Canadian Department of Foreign Affairs and International Trade] issued Tricots the [Tariff Preference Level] certificates in June and July
2012. On or about August 9, 2012, Tricots provided the [Tariff Preference Level] certificates to Customs (and [the U.S. Department of Justice]).
Tricots’ Mem. Supp. Mot. Dismiss, ECF No. 76, 5 (emphasis added). In other words, Tricots’ position before the Canadian authorities, and before the court in its motion to dismiss, was that the 875 subject entries were eligible for duty-free treatment under the Tariff Preference Levels Program, not as a combination of originating and non-originating goods.
Finally, there has already been discovery in this case. During discovery, Tricots represented to Customs that any amount of originating yarn included in the combination entries was so negligible that it disregarded it when calculating the total amount of revenue Customs lost as a result of Tricots’ error. See Pl.‘s Resp. Defs.’ R. 56.3 Stmt. ¶ 7 (citing Letter from Tricots’ Counsel to Government (May 23, 2014), ECF No. 80-17). Because Defendants have failed to show that there is a genuine issue of material fact with respect to the subset of entries it now claims were duty-free as a combination of originating materials and materials eligible for Tariff Preference Levels Program treatment, Plaintiff succeeds on summary judgment. In other words, Plaintiff wins because Tricots has not cited to, or even made reference to, any evidence that would support its assertion of a factual dispute, while the record has ample evidence that no genuine dispute exists.
Accordingly, the court finds that Plaintiff has met its burden to establish that Tricots violated
B. Plaintiff Is Entitled to Collect Unpaid Duties and Fees Under § 1592(d) from Tricots and Aegis
Where the United States has been deprived of lawful duties or fees as a result of a subsection (a) violation,
(d) Deprivation of lawful duties, taxes, or fees
Notwithstanding [
19 U.S.C. § 1514 ], if the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of [§ 1592(a) ], the Customs Service shall require that such lawful duties, taxes, and fees be restored, whether or not a monetary penalty is assessed.
Defendants argue that the United States has not been deprived of any duties it was owed because the subject entries were eligible for duty-free entry under the Tariff Preference Levels Program, as Tricots sought to establish by its prior disclosure. See Defs.’ Br. 33 (“[B]ecause the correct NAFTA preference claim at the time of entry was duty free under the NAFTA [Tariff Preference Levels Program] rules, Customs was not ‘deprived’ of any duties and cannot ‘recover’ duties that would not have been owed.“).
Defendants maintain that the law places no time limit on correcting declarations, or claiming eligibility for Tariff Preference Levels treatment. They point to the absence of a time limit in
For its part, the Government argues that Customs’ regulations clearly establish the documentation necessary to claim eligibility under the Tariff Preference Levels Program, and the timing for making such a claim:
In connection with a claim for duty-free treatment under the [Tariff Preference Levels] Quota Program, importers must (1) make “formal declaration[s]” that their goods qualify under the [Tariff Preference Levels] Quota Program, . . . and (2) submit Certificates of Eligibility to [Customs] covering the goods. . . . [Tariff Preference Levels] Certificates of Eligibility are expected to be presented at the time of entry, but [Customs] allows importers to submit them any time before liquidation or, if the entry has liquidated, before final liquidation.
Pl.‘s Br. 23-24 (citing
Tricots had numerous opportunities to submit Certificates of Eligibility before final liquidation of its entries. It could have submitted them when it entered the goods between 2005 and 2008 or before final liquidation as late as 2009, but it elected not to do so. Instead, Tricots submitted Certificates of Eligibility in August 2012—almost seven years after it first entered its goods, more than three years after all of its entries had finally liquidated, and more than two years after it admitted to its violations. So even assuming that Tricots has otherwise made a valid claim for duty-free treatment under the [Tariff Preference Levels] Quota Program, its right to duty-free treatment is foreclosed because it did not submit
the required Certificates of Eligibility before its entries finally liquidated under 19 U.S.C. § 1514 .
Pl.‘s Br. 27-28 (citations omitted). Therefore, for Plaintiff, while it might have been possible for Tricots to qualify its merchandise for duty-free treatment under the Tariff Preference Levels Program prior to the date liquidation became final, its failure to do so leaves it liable for regular duties.
Accordingly, Plaintiff asks the court to grant its motion for summary judgment and award it lost duties and merchandise processing fees:
[B]ecause Tricots‘[] goods were ineligible for preferential NAFTA treatment either as originating goods or under the [Tariff Preference Levels] Quota Program, they were dutiable at the general duty rate. . . . Because the majority of Tricots‘[] goods were dutiable at the general rate of 12.3 percent ad valorem, and the remaining goods were dutiable at the general rate of 10.0 percent ad valorem, Tricots‘[] material false statements and/or omissions on its 875 subject entries total to be $2,249,196.04, representing $2,206,596.05 in duties and $42,599.99 in [merchandise processing fees], and the lost revenue on the Aegis bonded entries was $1,653,291.07, of which $500,113.32, was covered by Aegis‘[] bond.
Pl.‘s Br. 28 (citations omitted).
The court finds that the United States has been deprived of lawful duties and fees as a result of Tricots’ violation of
Defendants seem to believe that merely by making a prior disclosure they can somehow turn back the clock, but that is not the case. It is undisputed that Tricots, through its negligent misrepresentations, entered the 875 subject entries as originating goods between 2005 and 2008. The entries liquidated free of duties and fees before 2010. No protests were filed, and liquidation of all the subject entries had become final by May 5, 2010. See
Aegis, as surety, is liable for lawful duties and fees owed on subject entries entered during the period covered by its bond. Six hundred four of the subject entries were covered by the continuous bond issued by Aegis. See Pl.‘s R. 56.3 Stmt. ¶ 2; Defs.’ Resp. Pl.‘s R. 56.3 Stmt. ¶ 2. The 604 subject entries were imported during the following time periods, while the
Finally, Defendants’ argument that they have a valid equitable recoupment counterclaim against the Government lacks merit. For Defendants, it is “patently inequitable” that they should be made to pay duties on the subject entries because, ultimately, they obtained Certificates of Eligibility from the Canadian authorities, which showed the goods were eligible for duty-free treatment under the Tariff Preference Levels Program. See Def.‘s Br. 40. It is settled law, however, that equitable recoupment is unavailable in the case of the recovery of customs duties. See United States v. Fed. Ins. Co., 805 F.2d 1012, 1013, 1014 n.2 (Fed. Cir. 1986). In Federal Insurance, the Federal Circuit reversed this Court‘s holding that the government was equitably estopped from collecting duties owed by an importer and its surety because “no equitable estoppel can arise against the government in connection with an obligation to pay taxes.” Id. at 1013 & 1014 n.2 (noting that the equitable recoupment counterclaim “fails . . . for the same reason as the defense of estoppel“). Thus, Defendants’ equitable recoupment counterclaim presents no hurdle to the Government‘s collection of the duties owed.
A. Aegis’ Liability for Statutory Prejudgment Interest Pursuant to 19 U.S.C. § 580
In this collection action, the Government seeks an award of statutory prejudgment interest under
[S]ection 580 expressly requires that, when unpaid import duties upon a bond are awarded, interest be attached at the statutory rate “from the time when said bonds became due.” As a matter of law, whenever a court awards unpaid import duties in a suit upon a bond, interest must be attached pursuant to section 580.
United States v. Fed. Ins. Co., 857 F.2d 1457, 1459 (Fed. Cir. 1988). Here, the Government is seeking unpaid import duties from Aegis under a surety bond. Defendants do not dispute the award of
B. Aegis’ and Tricots’ Liability for Mandatory Post-Judgment Interest Pursuant to 28 U.S.C. § 1961
Next, Plaintiff seeks mandatory post-judgment interest from both Tricots and Aegis, pursuant to
Defendants do not object to Plaintiff‘s claim that it is entitled to post-judgment interest, nor could they. “Post-judgment interest is not discretionary, but rather is available as a matter of right to prevailing parties.” United States v. Am. Home Assurance Co., 39 CIT __, __, 100 F. Supp. 3d 1364, 1374 (2015), aff‘d, 857 F.3d 1329 (Fed. Cir. 2017) (citation omitted). Therefore, because Plaintiff has prevailed in this matter by means of an award of a money judgment against Defendants, it is entitled to post-judgment interest from Tricots and Aegis at the rate set forth in
C. Plaintiff Is Not Entitled to Equitable Prejudgment Interest
Plaintiff also seeks equitable prejudgment interest, arguing that “Tricots and Aegis should pay equitable pre-judgment interest as compensation for the lost use of funds over time.” Pl.‘s Br. 29. In determining whether to grant an award of equitable prejudgment interest, full compensation, including the time value of money, should be a court‘s primary concern. See United States v. Am. Home Assurance Co., 789 F.3d 1313, 1329 (Fed. Cir. 2015); see also West Virginia v. United States, 479 U.S. 305, 310 n.2 (1987) (“Prejudgment interest serves to compensate 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 to redress.“). “In other words, if the United States has been compensated for the time value of its money by another provision, it is difficult to see why equity should direct that it may
In awarding the United States prejudgment statutory interest under the previously discussed provision, the Federal Circuit, in United States v. American Home Assurance Co., reaffirmed the longstanding principle that “[i]n the absence of a statute governing the award of prejudgment interest, ‘the question [of prejudgment interest] is governed by traditional judge-made principles.‘” Am. Home Assurance Co., 789 F.3d at 1328 (alterations in original) (quoting Princess Cruises, Inc. v. United States, 397 F.3d 1358, 1367 (Fed. Cir. 2005)). Here, there is a statute,
The court holds that Plaintiff is not entitled to an award of equitable prejudgment interest. The reasoning in American Home Assurance Co. applies equally here:
[T]he purpose of equitable interest is to ensure that the party be fully compensated for the time during which it was deprived of the use of the funds. Because [the Government] will be fully compensated by the statutory prejudgment interest it will receive by means of
19 U.S.C. § 580 , here, the balance of equities tips in favor of [Defendants] and against an award of equitable prejudgment interest. In other words, it would be inequitable to award the United States both statutory prejudgment interest under§ 580 and equitable prejudgment interest under the principles of equity.
Am. Home Assurance Co., 39 CIT at __, 113 F. Supp. 3d at 1315. Accordingly, in view of the court‘s holding that Plaintiff is entitled to statutory prejudgment interest under
Based on the foregoing, Plaintiff‘s motion for summary judgment is granted, and Defendants’ cross-motion for summary judgment is denied. It is hereby
ORDERED that the parties shall confer and jointly submit a proposed Judgment that sets out the amounts of duties, fees, and interest that Tricots and Aegis owe to Plaintiff, in accordance with this opinion. The proposed Judgment shall be submitted to the court on or before December 31, 2019.
/s/ Richard K. Eaton
Richard K. Eaton, Judge
Dated: December 17, 2019
New York, New York
Notes
(footnote continued . . .)Generally, importers who make false declarations of NAFTA origin to the Customs Service, and persons who make false statements in NAFTA certificates of origin, will be liable for penalties under [
19 U.S.C. § 1592 ] for fraud, gross negligence or negligence, as appropriate. . . . [T]he bill amends [19 U.S.C. § 1592 ] to exempt from penalty U.S. exporters or producers who make false certifications if they voluntarily and promptly notify in writing all persons to whom the person provided the certificate of origin of its falsity.
Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence—
(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of—
(i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or
(ii) any omission which is material, or
(B) may aid or abet any other person to violate subparagraph (A).