Slip Op. 11-68
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________x
:
UNITED STATES OF AMERICA, :
: Before: Nicholas Tsoucalas,
Plaintiff, : Senior Judge
:
v. :
:
TREK LEATHER, INC., :
: Court No. 09-00041
and :
:
HARISH SHADADPURI, :
:
Defendants. :
______________________________x
[Granting Plaintiff’s Motion for Summary Judgment in part. Denying
Defendant’s Cross Motion for Summary Judgment.]
Dated: June 15, 2011
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Franklin E. White, Jr., Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Scott A. MacGriff); Mary McGarvey-Depuy, Office of the
Associate Chief Counsel, United States Customs and Border
Protection, Of Counsel, for Plaintiff.
Galvin & Mlawski (John Joseph Galvin), for Defendants.
OPINION
Tsoucalas, Senior Judge: Plaintiff United States Customs and
Border Protection1 (“the Government” or “CBP”) commenced this
1
The United States Customs Service was renamed the United
States Bureau of Customs and Border Protection effective March 1,
2003. See Homeland Security Act of 2002, Pub.L. No. 107-296 §
1502, 2002 U.S.C.C.A.N. (116 Stat.) 2135, 2308; Reorganization
Plan Modification for the Department of Homeland Security, H.R.
Doc. No. 108-32, at 4 (2003).
Court No. 09-00041 Page 2
action against Trek Leather, Inc. (“Trek”), and Harish Shadadpuri
(“Mr. Shadadpuri”) for unpaid customs duties and civil penalties
for violating section 592 of the Tariff Act of 1930, as amended, 19
U.S.C. § 1592 (2003).2 Currently before the Court are the
Government’s motion for summary judgment and the defendants’ cross-
motion for partial summary judgment pursuant to Rule 56 of the
United States Court of International Trade. In accordance with the
decision rendered at oral argument on May 31, 2011, and based upon
all the evidence in the record, the Court grants the Government’s
motion for summary judgment on Count II of the Complaint finding
that both the defendants are liable, jointly and severally, for
gross negligence under 19 U.S.C. § 1592(a). The Court denies
judgment on Count I and III of the Complaint as moot. Lastly, the
Court denies the defendants’ cross motion in its entirety.
I. Background
Trek was the importer of record for seventy-two entries of
men’s suits between February 2, 2004, and October 8, 2004. Mr.
Shadadpuri is the president and sole shareholder of Trek. Pltf’s
Stmnt of Uncontested Fcts (“Uncontested Fcts”) at 1.3 Mr.
2
All further citations to the Tariff Act of 1930 are to the
relevant provisions of the Title 19 of the United States Code,
2003 edition.
3
While the defendants do not agree with every fact set
forth in Plaintiff’s Uncontested Facts, all references to that
document herein are uncontested by all parties.
Court No. 09-00041 Page 3
Shadadpuri is the president and 40% shareholder of non-party
Mercantile Electronics, LLC, the consignee of the subject goods.
Id.
Mr. Shadadpuri, through his corporate entities, purchased
fabric assists4 and provided them to manufacturers abroad. Id.
These manufacturers then incorporated the assists in the production
of the men’s suits at issue which were ultimately imported into the
United States. Id. In August of 2004, CBP Import Specialist
Dianne Wickware (“IS Wickware”) investigated the defendants’
activities and found that their entry documentation consistently
failed to include the cost of fabric assists in the price actually
paid or payable for the merchandise, thereby lowering the amount of
duty paid to CBP by the importer (“the 2004 Investigation”). Id. at
3.
This was not the first time that Mr. Shadadpuri failed to
4
In relevant part, 19 U.S.C. § 1401a(h)(1)(A) provides as
follows:
(1)(A) The term “assist” means any of the
following if supplied directly or indirectly,
and free of charge or at reduced cost, by the
buyer of imported merchandise for use in
connection with the production or the sale
for export to the United States of the
merchandise:
(i) Materials, components, parts, and similar
items incorporated in the imported
merchandise.
19 U.S.C. § 1401a(h)(1)(A).
Court No. 09-00041 Page 4
include assists in entry declarations. In 2002, CBP investigated
Mr. Shadadpuri’s filed entries for another company he owned,
Mercantile Wholesale, Inc. (“the 2002 Investigation”). Id. at 2.
Mr. Shadadpuri was also the president and 40% shareholder of
Mercantile Wholesale, Inc. During the 2002 Investigation, IS
Wickware found that Mercantile Wholesale, Inc. “consistently failed
to include the cost of the fabric assists and trim in the price
actually paid or payable for the merchandise on its entry
documentation.” Declaration of Dianne Wickware at 2. IS Wickware
explained the term “assist” to Mr. Shadadpuri and advised him that
“assists are dutiable and that the value of the fabric assists must
be included on the importation documentation.” Id. at 2-3. After
the 2002 Investigation, IS Wickware noted that Mercantile
Wholesale, Inc. paid $46,156.89 in unpaid duties after admitting
they failed to add the value of the assists in the price actually
paid or payable for the merchandise. Id. at 3. No action was
filed as a result of the 2002 Investigation.
In November, 2004, IS Wickware informed Mr. Shadadpuri that he
did not declare the value of the fabric assists when importing the
men’s suits. Id. IS Wickware told Mr. Shadadpuri that the assist
“should have been included in the price actually paid or payable
for this merchandise for the purposes of calculating duty. [IS
Wickware] said, ‘You know you should have declared this,’ to which
he responded, ‘I know.’” Id. at 3-4. Neither Mr. Shadadpuri nor
Court No. 09-00041 Page 5
Trek have paid the balance of the remaining duties owed to the
Government in the amount of $45,245.39. Uncontested Fcts at 5.
In this action, the Government claims the defendants are
liable for damages in the amount of $2,392,307.00 for fraudulently,
knowingly, and intentionally understating the dutiable value of the
imported merchandise by failing to add the value of the fabric
assists to the value of the imported men’s suits. Compl. at 3-4.
Alternatively, the Government alleges the defendants were grossly
negligent for their actions and seek imposition of a civil penalty
in the amount of $534,420.32. Id. at 4. As an additional
alternative, the Government alleges a negligence theory of
liability and seeks penalties in the amount of $267,310.16. Id. at
4-5. Plaintiff further seeks a judgment for unpaid customs duties
in the amount of $45,245.39. Id. at 5. At oral argument on May
31, 2011, Trek conceded liability for gross negligence but denied
committing intentional fraud. Mr. Shadadpuri denies all counts of
the Complaint.
JURISDICTION AND STANDARD OF REVIEW
On a motion for summary judgment, the Court evaluates “the
pleadings, the discovery and disclosure materials on file, and any
affidavits” in order to determine whether there is any “genuine
issue as to any material fact” and, if none exists, whether the
“movant is entitled to judgment as a matter of law.” USCIT R.
Court No. 09-00041 Page 6
56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).
A factual dispute is material if it could affect the outcome of the
suit under the governing law. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). The evidence should be viewed in the
light most favorable to the non-moving party and all doubts
resolved in its favor. See Mazak Corp. v. United States, 33 CIT
__, __, 659 F. Supp. 2d 1352, 1356 (2009). The Court determines
all issues de novo under 19 U.S.C. § 1592(e)(1) and jurisdiction is
pursuant to 28 U.S.C. § 1582.
III. Analysis
A. Intentional Fraud
There exists a question of fact as to whether the defendants
intentionally committed fraud under 19 U.S.C. § 1592(a). The
Government claims intent can be imputed from the record evidence.
However, Mr. Shadadpuri contends it was an error and that he did
not intentionally omit the assists. Examination Before Trial of
Harish Shadadpuri at 80. “Intent is a factual determination
particularly within the province of the trier of fact.” Allen
Organ Co. v. Kimball Int’l, Inc., 839 F.2d 1556, 1567 (Fed. Cir.
1988). Therefore, the Court cannot grant the Government’s motion
for summary judgment as to the fraud count of the Complaint.
B. Gross Negligence
Defendants are liable for gross negligence under 19 U.S.C. §
Court No. 09-00041 Page 7
1592(a),5 if the violation “results from an act or acts (of
commission or omission) done with actual knowledge of or wanton
disregard for the relevant facts and with indifference to or
disregard for the offender’s obligations under the statute.” 19
C.F.R. pt. 171, App. B(C)(2)(2003). Turning to the facts before
the Court, the defendants do not dispute that Mr. Shadadpuri,
through his corporate entities, paid for and provided the fabric
assists to the manufacturers, who then incorporated these assists
into the finished suits. See Uncontested Fcts at 1-2. The
declared value on the entries failed to reflect the cost of the
dutiable fabric assists, and the entries filed for the suits were,
therefore, false. In addition to being false, the omissions were
also material because it “has the natural tendency to influence or
is capable of influencing agency action including, but not limited
to a Customs action regarding: . . . (2) determination of an
importer’s liability for duty. . . .” 19 C.F.R. pt. 171, App. B(B)
5
Section 1592(a) reads, in part,
[N]o 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).
19 U.S.C. 1592(a).
Court No. 09-00041 Page 8
(2003). “Understated prices in customs entry documents are
material because they alter the appraisement and liability for duty
of entered merchandise.” United States v. Menard, Inc., 16 CIT
410, 417, 795 F. Supp. 1182, 1188 (1992). Therefore, the omissions
on the entry documents were both material and false.
Trek conceded gross negligence at oral argument on May 31,
2011 as well as in their documents. See Defendants’ Memorandum in
Opposition to Pl.’s Mot. For Summ. Judgement and in Support of
Defendants’ Cross-Motion for Partial Dismissal at 7 (“Defendants’
failure to ensure that the value of material assists were included
in dutiable value may have been occasioned by negligence or,
indeed, grounded on reckless disregard or inattention to
consequences.”).
Mr. Shadadpuri contends that he cannot be personally liable
for gross negligence because he did not act intentionally as an
aider or abetter under 19 U.S.C. § 1592(a)(1)(B). However, Mr.
Shadadpuri is also a member of the class of “persons” subject to
liability under 19 U.S.C. § 1592(a). This section is not limited
to importers of record. Any “person” who engages in the behavior
prohibited by 19 U.S.C. § 1592(a) is liable thereunder regardless
of whether that “person” is the importer of record or not. “The
language of section 1592 leaves room for those other than the
importer of record to be held accountable for violations.” United
States v. Matthews, ___ CIT ___, ___, 533 F. Supp. 2d 1307, 1313
Court No. 09-00041 Page 9
(2007); see also United States v. Golden Ship Trading, 22 CIT 950,
953 (not reported in F. Supp. 2d) (1998) (“The plain language of
the statute itself, which uses the term ‘person’ rather than
‘importer,’ refutes [this] contention.”). Mr. Shadadpuri is
personally liable under the statute because “[t]he plain language,
which proscribes negligent false entries by a person, does not
recognize an exception for negligent corporate officers . . . . [A]
corporate officer who is negligent can be held liable under §
1592(a).” Id. at 956. Moreover, at oral argument, the defendants
conceded it was Mr. Shadadpuri who had the responsibility and
obligation to examine all appropriate documents including all
assists within the entry documentation and to forward these assists
to his customs broker. Lastly, Trek’s admission of gross
negligence directly implicates Mr. Shadadpuri. Gross negligence
requires knowledge of or wanton disregard for offender’s
obligations. Trek’s gross negligence, therefore, could not have
been conceded but for the direct involvement of Mr. Shadadpuri, the
sole shareholder of Trek and the only person who had knowledge of
the statutory obligation due to his involvement in the 2002
Investigation, to which Trek was not a party. It is Mr. Shadadpuri
who is the common denominator in both the 2002 and the 2004
investigations. Therefore, Mr. Shadadpuri can also be found
personally liable under 19 U.S.C. § 1592(a).
The Court finds that the Government has clearly and
Court No. 09-00041 Page 10
convincingly demonstrated that the defendants violated 19 U.S.C. §
1592(a). Specifically, (i) the defendants imported men’s suits
into the United States via false entry documents omitting the
values of dutiable fabric assists; (ii) these omissions materially
interfered with CBP’s ability to properly assess duties on these
imports; (iii) the defendants are both persons subject to
liability; and (iv) the defendants were grossly negligent in their
duties and responsibilities when they transmitted these entry
documents to CBP with the omitted material information despite the
awareness of their duty to declare assists.
There is no issue of material fact in dispute that might
affect the outcome of the case under governing law. As such, based
on all the evidence in the record and the defendants’ admissions at
oral argument on May 31, 2011, summary judgment is hereby granted
to the Government on Count II of the Complaint. The defendants
acted with gross negligence in violation of 19 U.S.C. § 1592(a) and
are subject to penalties under 19 U.S.C. § 1592(c)(2).
IV. Assessment of Damages
A. Recovery of Unpaid Duties
The “language and structure of § 1592 indicates that
subsection (d) is not limited to only importers and their sureties,
but is intended to apply to further the mandatory recovery of
unpaid duty from any party liable under subsection (a).” See
Court No. 09-00041 Page 11
United States v. Inn Foods, Inc., 560 F.3d 1338, 1346 (Fed. Cir.
2009). Accordingly, both defendants are liable for unpaid duties
jointly and severally.
As a result of the defendants’ violation of 19 U.S.C. §
1592(a), the Government is entitled to lost duties in the amount
that would have been assessed had the defendants properly included
the fabric assists in the value declared. Accordingly, CBP is
entitled to $45,245.39 from the defendants in unpaid customs
duties.
B. Civil Penalties
Under 19 U.S.C. § 1592(c)(2), “[a] grossly negligent violation
of subsection (a) of this section is punishable by a civil penalty
in an amount not to exceed-- (A) the lesser of-- (i) the domestic
value of the merchandise, or (ii) four times the lawful duties,
taxes, and fees of which the United States is or may be deprived.
. . .” 19 U.S.C. § 1592(c)(2).
Therefore, the penalty in this action may not exceed
$534,420.32. The Court begins the penalty assessment on a clean
slate without presuming that the maximum penalty should apply.
United States v. Complex Mach. Works Co., 23 CIT 942, 946, 83 F.
Supp. 2d 1307, 1312 (1999). The Court “possesses the discretion to
determine a penalty within the parameters set by the statute.”
United States v. Modes, Inc., 17 CIT 627, 636, 826 F. Supp. 504,
Court No. 09-00041 Page 12
512 (1993). In making this determination, the defendants’ degree
of culpability is to be considered. See United States v. Thorson
Chem. Corp., 16 CIT 441, 452, 795 F. Supp. 1190, 1199 (1992). In
evaluating such culpability, the Court may consider both mitigating
and aggravating factors in order to determine the appropriate
penalty amount. See Matthews, __ CIT at __, 533 F. Supp. 2d at
1316. Here, the defendants have failed to make a good faith effort
to comply with the statute. Also, they were previously
investigated and found liable for the identical violation herein.
The nature and circumstances of this violation is particularly
grave given their awareness of their statutory obligations.
Therefore, based on the factors enunciated in Complex Mach. Works
Co., supra, the Court finds the defendants liable, jointly and
severally, in the amount of $534,420.32.
CONCLUSION
For the foregoing reasons, the Court determines that Trek and
Mr. Shadadpuri committed gross negligence, in violation of 19
U.S.C. § 1592(a) by importing men’s suits into the United States by
means of material false entry documents with wanton disregard for
and indifference to their obligations under the statute.
Accordingly, the defendants are jointly and severally liable for
(1) restoration of lawful customs duties under 19 U.S.C. § 1592(d)
Court No. 09-00041 Page 13
in the amount of $45,245.39, plus pre judgment interest from the
date of liquidation and post judgment interest; and (2) civil
penalties under 19 U.S.C. § 1592(c)(2) in the amount of $534,420.32
plus interest.
/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: June 15, 2011
New York, New York