United States v. Ford Motor Co.

Slip Op. 05-87

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
UNITED STATES, :
:
Plaintiff, :
: Court No. 02-00116
v. :
:
FORD MOTOR COMPANY, :
:
Defendant. :
________________________________________:

Plaintiff, the Bureau of Customs and Border Protection of the
Department of Homeland Security (“Customs”), seeks collection of a
civil penalty pursuant to 19 U.S.C. § 1592 (1988), and customs
duties concerning entries of vehicles and vehicle components made
between 1987 and 1992 by defendant, Ford Motor Company (“Ford”).
Customs alleges that Ford violated 19 U.S.C. § 1592 by acting
grossly negligent or negligent in making false statements or
omissions in connection with the entry of the merchandise at issue.
Accordingly, Customs seeks civil penalties in the amount of
$34,576,559 if Ford’s conduct was grossly negligent or $17,288,279
if such conduct was negligent. Customs also requests the Court to
award it $68,178 for unpaid duties. Ford counterclaims for a
refund of all or part of the $8,575,961.80 it has tendered for
duties in connection with this matter plus interest, as provided
for by law.

Held: Pursuant to the findings of fact and conclusions of
law, judgment is entered in favor of Customs. Ford acted
negligently in its entry of the merchandise subject to this action.
Accordingly, Ford is assessed a civil penalty of two times the loss
of revenue, $17,151,923.60, plus lawful interest. Customs’ request
for $68,178 for unpaid duties is denied. Defendant’s counterclaim
for a credit for duty tenders made in connection with this matter
is dismissed.

[Judgment is entered in favor of Customs for $17,151,923.60, plus
lawful interest.]

Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (David A. Levitt and David S. Silverbrand); of counsel:
Case No. 02-00116 Page 2

Jeffrey E. Reim and Katherine F. Kramarich, Bureau of Customs and
Border Protection, for the United States, plaintiff.

Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt, LLP
(Steven P. Florsheim, Robert B. Silverman, David M. Murphy, and
Robert F. Seely); of counsel: Paulsen K. Vandevert, for Ford Motor
Company, defendant.

Dated: July 21, 2005

OPINION

TSOUCALAS, Senior Judge: Plaintiff, the Bureau of Customs and

Border Protection of the Department of Homeland Security

(“Customs”), seeks collection of a civil penalty pursuant to 19

U.S.C. § 1592 (1988), and customs duties concerning entries of

vehicles and vehicle components made between 1987 and 1992 by

defendant, Ford Motor Company (“Ford”). Customs alleges that Ford

violated 19 U.S.C. § 1592 by acting grossly negligent or negligent

in making false statements or omissions in connection with the

entry of the merchandise at issue. Accordingly, Customs seeks

civil penalties in the amount of $34,576,559 if Ford’s conduct was

grossly negligent or $17,288,279 if such conduct was negligent.

Customs also requests the Court to award it $68,178 for unpaid

duties. Ford counterclaims for a refund of all or part of the

$8,575,961.80 it has tendered for duties in connection with this

matter plus interest, as provided for by law.
Case No. 02-00116 Page 3

DISCUSSION

Customs filed a timely complaint on January 29, 2002, alleging

that Ford made material false statements or acts or material

omissions in connection with the entries of vehicles and vehicle

components entered into the United States between January 1, 1987,

continuing through December 1992. See Compl. ¶¶ 4-6. In its

complaint, Customs alleges that Ford acted grossly negligent or

negligent by: (1) falsely understating to Customs in its entry

documents the price it paid or agreed to pay for the subject

merchandise; (2) falsely declaring as true and correct the prices

and other statements in the entry documents for the subject

merchandise; (3) failing to declare on the entry documents that the

prices set forth therein were not the final prices and were subject

to adjustments based upon agreements Ford had with its suppliers;

(4) failing to report upon entry the value of assists provided by

Ford for the production of the imported merchandise; and (5)

failing to produce to Customs “at once” information received after

importation indicating that prices on its entry documents had been

adjusted to include lump sum payments made by Ford to its suppliers

pursuant to purchase contracts. See id. ¶ 6. Customs claims that

Ford’s false statements or material omissions deprived the United

States of $8,644,139.80 for lawful duty of which $68,178 remains

unpaid. See id. at ¶ 9. A bench trial was held on March 15, 2005,

through March 23, 2005, to resolve the issues of fact remaining in
Case No. 02-00116 Page 4

this action. Pursuant to USCIT R. 52(a), “[i]n all actions tried

upon the facts without a jury . . . the court shall find the facts

specially and state separately its conclusions of law thereon . .

. .” USCIT R. 52(a). Accordingly, the Court’s findings of fact

and conclusions of law are set forth below.

I. Findings of Fact

At trial, Customs produced two witnesses, Mr. Michael Turner,

former Special Agent in the Detroit Customs Office of Enforcement,

and Mr. Robert Neckel, former group supervisor of the Detroit

Customs Office of Enforcement. Both witnesses testified to various

factual matters relevant to Customs’ investigation of Ford such as,

the scope of the investigation, the date such investigation

commenced, and the findings Customs made pursuant to its

investigation. Ford produced two witnesses, Mr. Harry Gibson,

former attorney in Ford’s Office of General Counsel, and Mr. Donald

Cohen, former manager of Ford’s International Transportation and

Customs Office. Both witnesses testified, inter alia, to their

knowledge of Customs’ investigation and the scope of the

investigation as it related to Ford. Messieurs Gibson and Cohen

also testified about Ford’s customs compliance procedures,

compliance record, and Ford’s responses to inquiries made by

Customs regarding its investigation.
Case No. 02-00116 Page 5

Customs and Ford identified documents relating to the

investigation and Ford’s compliance measures. Such documents were

moved by the parties and admitted by the Court into evidence. The

Court finds most of these documents highly probative because they

provide contemporaneous accounts of events related to Customs’

investigation, Ford’s response to the investigation, and Ford’s

customs compliance procedures. The Court finds that the testimony

of Messieurs Gibson and Cohen was not highly probative because the

demeanor of the witnesses and the testimony they supplied proves

that they did not independently recall events or facts relevant to

Customs’ investigation of Ford. The Court, however, finds the

testimony of Messieurs Turner and Neckel highly probative and

credible based on their demeanor and ability to independently

recollect Customs’ investigation of Ford.

The Court also heard testimony from: (1) Ms. Laura Cox

(formerly Ms. Laura Erpelding), former Special Agent in the Detroit

Customs Office of Enforcement; (2) Ms. Dathrenal Davis, former

Import Specialist and Field National Import Specialist for the

commodity automotive team in Detroit Customs; (3) Mr. Richard

Bridenbaugh, former member of Ford’s customs unit; (4) Ms. Karen

Monro, former member of Ford’s customs unit; and (5) Mr. Walter

Manns, former Supervisory Import Specialist and former member of

Ford’s customs unit. Based on the demeanor and quality of
Case No. 02-00116 Page 6

testimony of these witnesses, the Court finds them slightly

probative because they did not exhibit an independent recollection

or have knowledge of events or facts relating to the subject of

this action. Ford and Customs stipulated to the admission of

deposition testimony of Mr. Phillip Kruzich, former analyst in

Ford’s customs unit, and the deposition and prior trial testimony

given in Court No. 02-00106 of Ms. Angela Ryan, former Supervisory

Import Specialist of the automotive team in Detroit Customs.

The testimony presented at trial along with the documents

admitted into evidence established by a preponderance of the

evidence the following facts.

A. Findings of Fact Relevant to the Commencement and Scope
of Customs’ Investigation

1. Ford entered the vehicles, vehicle components, tooling and

related materials for the five import programs identified in

Exhibit A to the complaint between January 1, 1987, through

December 31, 1992. See Pretrial Order, Schedule C ¶ 3.

2. Operation Hat Trick was a trade enforcement initiative meant

to “subject certain Big Three import programs to joint Office

of Enforcement, Commercial Operations, and Regulatory Audit

scrutiny to identify undeclared assists and indirect payments,

determine the level of culpability of parties responsible for

the failure to declare the assists/payments, and, refer cases
Case No. 02-00116 Page 7

for criminal and civil action as appropriate.” Pl.’s Ex. 70;

see also Trial Transcript (“TT”) at 37-39. Operation Hat

Trick was initiated by Mr. Turner, based on his personal

observations and information obtained from import specialists

indicating that Ford and other car manufacturers were not

declaring the full value, or price paid or to be paid, for

merchandise entered into the United States. See TT at 37-38

& 283.

3. Plaintiff moved into evidence several reports of investigation

(“ROI”) prepared by Mr. Turner or Ms. Cox in the ordinary

course of their business as special agents of Customs’ Office

of Enforcement. See Pl.’s Ex. 1, 52, 59, 70, 71. The Court

places substantial weight on the veracity of the ROIs that

were contemporaneously written with events concerning the

commencement of Customs’ investigation of Ford. See Pl.’s Ex.

70 & 71. The Court gives less weight to the ROIs which

summarized the findings of Customs’ investigation,

particularly ROI #15 and ROI #22, because these ROIs were

prepared in anticipation of penalty proceedings. See e.g.,

Pl.’s Ex. 1, 52 & 59. In preparing certain ROIs, the special

agents often used notes and previous ROIs to compile their

findings. See TT at 170-172; see e.g., Pl.’s Ex. 52 at 5

(referencing ROIs #3 & 5). While events are recorded in ROIs

#15, 22, and 27, see Pl.’s Ex. 1, 52, 59, these ROIs also
Case No. 02-00116 Page 8

contain the legal conclusions of Customs. See TT at 185 &

226. For example, ROI #22, dated November 23, 1994, is a

penalty referral reporting the findings of Customs’ Office of

Enforcement as well as making legal conclusions relating to

Ford’s culpability under 19 U.S.C. § 1592. See Pl.’s Ex. 1.

Consequently, the Court gives ROIs #15, 22, and 27 less weight

than the earlier reports, ROI #1 and 2, because the former did

not simply record contemporaneous events or facts.

4. Operation Hat Trick “included all the components surrounding

value, material omissions, undervaluations, payments that may

not have been reflected on the invoice that was submitted with

the entry summary . . . .” TT at 283; see also TT 37-38.

5. During Operation Hat Trick, Customs looked at Ford’s prior

importations and found repeated instances where Ford had

“failed to declare and pay duties on assists and indirect

payments at the time of entry summary, but only declared those

assists/payments in response to import specialist Requests for

Information (‘CF-28s’).”1 Pl.’s Ex. 71 at 1; See also TT at

283.

1
A CF 28 was a request for information made by Customs to
importers when it had questions regarding an entry. See TT at 304-
05.
Case No. 02-00116 Page 9

6. The Ford vehicle and vehicle component programs investigated

by Customs included the Lincoln Mercury Capri (“Capri),2 Ford

Festiva (“Festiva”), Mercury Tracer and Taurus SHO engine

(“Yamaha SHO engine”). See Pl.’s Ex. 70.

7. On May 23, 1991, Customs notified Ford by letter that it had

opened a formal investigation of Ford “concerning the proper

declaration of assists and indirect payments in imports of

vehicles and vehicle component assemblies.” Pl.’s Ex. 5; see

also TT at 39-42; Pl.’s Ex. 71; Pretrial Order, Schedule C ¶

14.

8. Ford requested a meeting with Customs to discuss the May 23,

1991, letter because neither Mr. Gibson nor Mr. Cohen knew

what Customs meant by an indirect payment. See TT at 496-97;

see also TT at 45-46. Ford did not “make indirect payments in

terms of the general definition that we knew; that is, a

payment to A, A makes a payment to B for the benefit of C.

That is what we thought was an indirect payment, and Ford did

not do that.” TT at 498; see also TT at 508.

9. The meeting was held on June 7, 1991, and was attended by

Messieurs Turner and Neckel from Customs and Messieurs Gibson,

Cohen, and Ron Hamell from Ford (the “June 1991 Meeting”).

See TT at 45-50; Pl.’s Ex. 71.

2
The Capri was also referred to as the “SA30” vehicle.
See Pl.’s Ex. 52 at 5.
Case No. 02-00116 Page 10

10. The scope of the investigation, the meaning of the term

“indirect payment,” and prior disclosure were issues discussed

at the June 1991 Meeting. See TT at 45-50, 480-81, 489, 498-

99; Pl.’s Ex. 71. Customs explained to Ford that “the

investigation was going to look at the full scope of their

imports of automobiles and automobile parts; that [Customs]

would be looking programatically one program at a time.” TT

at 47; see also TT at 51-52; Pl.’s Ex. 71.

11. Messieurs Cohen and Gibson testified that they asked for a

definition of “indirect payment” from Customs at the June 1991

Meeting, but Ford never received a definition from Customs.

See TT at 481 & 498. Mr. Gibson testified that, “We asked

what was an indirect payment. Agent Turner says ‘Here.’ He

presents two summonses . . . I signed for the two summonses,

and we said we would get back to them with our responses, and

we left.” TT at 498; see also TT 510 (stating that Ford left

the meeting not understanding the meaning of indirect

payments). The Court finds it incredible that Ford requested

the meeting to discuss the definition of the term “indirect

payment” only to leave the meeting without having received a

satisfactory response from Customs.

12. During the June 1991 Meeting, Customs served Ford with a

summons relating to the Capri program. See Pl.’s Ex. 7 & 71;

TT at 53-56.
Case No. 02-00116 Page 11

13. The summons requested “all original records and documents

related to any and all assists and payment made by Ford Motor

Company in connection with the design, development,

engineering, production, purchase, and importation of Mercury

Capri automobiles into the United States . . . .” Pl.’s Ex.

7. The scope of the investigation with regard to Capri

“involved . . . all records relating to the importation of

Capri and Capri parts.” TT at 482; see also TT at 285.

14. Ford was advised at the June 1991 Meeting that Customs’

investigation included the entire scope of Ford’s importations

of certain vehicles and vehicle components. See TT at 286-88;

Pl.’s Ex. 71.

15. Ford knew or should have known that the term “indirect

payment,” as used by Customs in its notification to Ford of

the investigation, included all payments that impacted the

final price paid by Ford for the merchandise in question. See

TT at 511-12. The term “indirect payments” included lump sum

payments for engineering and manufacturing expenses,

retroactive price adjustments, and volume price adjustments.

See TT at 47-48, 284, 287-88, 482; Pl.’s Ex. 71.
Case No. 02-00116 Page 12

16. An assist is an item provided by the buyer, such as Ford, to

the seller either free or at a reduced cost for the design,

development or production of merchandise imported into the

United States. See Joint Ex. 2 at G at 17; see also TT at 284

& 493.

17. “The investigation included all payment, indirect or

otherwise, so [Customs] wanted to be sure that we were

thorough and we got the information relative to all payment.”

TT at 286. “At the conclusion of the meeting Ford indicated

that they better understood what [Customs was] looking at; the

fact that it was automobiles and automobile parts; that it was

both the actual providing of assists as well as payments that

impacted the agreed upon price.” TT at 48.

18. Ford was advised by Customs that the investigation would

encompass entries made between 1987 through the 1991 model

year. See TT at 188-90. Importations related to the 1992

model year and thereafter were not within the scope of

Customs’ investigation. See TT at 188-90.

B. Findings of Fact Relevant to Ford’s Reconciliation
Agreement with Customs

19. Ford’s supply agreements with many of its foreign vendors

contained post-importation price adjustments, which typically

provided a per vehicle or vehicle component base price subject

to possible modifications. See Pretrial Order, Schedule C ¶
Case No. 02-00116 Page 13

1. Although the prices Ford paid for vehicles and vehicle

components was “fairly firm,” the prices could increase based

on the supply agreements Ford had with its vendors. See TT at

492.

20. The supply agreements requiring lump sum payments, retroactive

price adjustments and other post-entry payments were

negotiated and signed prior to the shipment of the

merchandise. See TT at 512.

21. In a letter dated October 14, 1988, Ford proposed to Customs

a change in how it reported lump sum payments. See Pl.’s Ex.

55. In its letter, Ford stated that a lump sum annual

reconciliation report would allow Ford to track all lump sum

billings throughout the entire model year and reduce the

paperwork and time associated with the reconciliation process

for both Ford and Customs. See id. Ford proposed the

following policy:

1. The Ford Motor Company will track all lump sum
billings throughout each model year (July 1 to June 30)
and report the dutiable expenses associated with each
import program. Credits will be used to offset relevant
debits with final dutiable expenses being reported. If
the final dutiable expense results in a credit balance to
the Ford Motor Company, a negative report will be
presented to U.S. Customs. Dutiable expenses for future
model year import programs will be recorded in their
respective model year and reported at the close of the
model year.

. . .

3. An annual reconciliation report will be prepared for
Case No. 02-00116 Page 14

each import program and filed with the Detroit customs
district within 60 days after the close of each model
year (July 30) to enable us to followup and capture all
relevant model year expenses. All backup data will be
retained in our office and will be available for your
review up request.

Pl.’s Ex. 55 (emphasis in original).

22. In a letter dated August 29, 1989, Customs accepted Ford’s

proposal to report and reconcile lump sum payments on an

annual basis (“Reconciliation Agreement”). See Pretrial

Order, Schedule C ¶ 8. Customs, however, made two

modifications to Ford’s proposal: (1) Ford would not be

allowed to offset debits with credits; and (2) Ford would only

be allowed to annually reconcile withheld duties on entry

summaries which had already been liquidated. See Pl.’s Ex.

55. Customs response did not indicate a modification to the

time period proposed by Ford. See Pl.’s Ex. 55; TT at 550.

23. A model year ran from July 1 to June 30. See Pretrial Order,

Schedule C ¶ 2.

24. Under the Reconciliation Agreement, Ford was obligated to file

its annual reconciliation report with Detroit Customs within

60 days of the end of the model year, i.e. August 31. See

Pl.’s Ex. 55; see also Pl.’s Ex. 17 at 2 (Ford states that

certain costs incurred for Yamaha SHO engines “will be

declared 60 days after the end of the 1992 model scheduled to

end July 30, 1992”); TT at 307-09 & 476-77. Mr. Kruzich
Case No. 02-00116 Page 15

testified that he came up with the 60 day time period because

he “thought it was reasonable at the time.” Joint Ex. 2 at

114.

25. With the exception of one reconciliation report, see Pl.’s Ex.

8, Ford failed to file reconciliation reports within 60 days

of the end of the model year. See e.g., Pl.’s Ex. 14, 15, 17,

19, 20; Def.’s Ex. LL, MM, NN.

26. Ford was not notified of the untimely nature of its

submissions. See TT at 322-23, 355-56, 394. Ford did not ask

Customs for permission to extend the 60 day period. See TT.

at 364; Joint Ex. 2 at 117.

27. Ms. Monro, the Ford employee responsible for the

reconciliation program from approximately 1990 through 1993,

see TT at 381, was not aware of the deadline for the

submission of reconciliation reports to Customs. See TT at

392.

28. The lump sum payments Ford made to its suppliers were made

subsequent to entry and, therefore, the amount of the payments

was not known at the time of entry. See TT at 382. The

invoices or entry documents reviewed to make reconciliation

reports did not indicate that the prices were subject to

change. See TT at 410 & 492.

29. “[A]ny expenses that came in for a model year for a particular

program after that model year closed went into the program
Case No. 02-00116 Page 16

folder for the next model year when [Ford] would declare it.”

TT at 386; see also TT at 402-03 & 435-36. “If the entry had

been liquidated, then [Ford] would tack . . . the additional

duties onto an entry that was not liquidated even though the

entry may not have related to the program that initially

incurred it.” TT at 488; see also Joint Ex. 2 at 179.

30. Ford began the reconciliation process at the end of the model

year, see TT at 387-88, even though the reconciliation process

“could take anywhere from a few months to six months to eight

months.” TT at 391.

31. Between 1987 and 1992, Customs did not have a regulation

requiring an importer to put a statement on the entry

documents indicating that the price may change after entry.

See TT at 531; Joint Ex. 1 at 511.

32. Ford did not entirely capture additional assists or lump sum

payments in its initial reconciliation reports for each

program. See TT at 471 & 474-75; Joint Ex. 2 at Z.

C. Findings of Fact Relevant to Ford’s Unreported Tooling
Assists and Payments for 1987-1992

33. Ford had a program to report assists, whereby it gathered

information about assists at the time of importation and paid

all duties related to such assists on the first entry. See TT

at 493-94.

34. Assists related to vehicles and vehicle components “start to
Case No. 02-00116 Page 17

occur in Ford’s major programs sometimes two, three years

prior to the good actually being imported into the United

States.” TT at 493.

35. Ford also declared assists by “looking at the total assists

versus the total sales, [and] coming up with a factor, and

adding that to the entry that [Ford] brought across from . .

. Canada.” TT at 495.

36. If Ford learned of an additional assist after the first

importation, then Ford would “sweep those and file them as

necessary.” TT at 494.

37. On May 22, 1992, Ford submitted a letter to Customs, which it

claimed was a prior disclosure relating to certain

undervaluations of imported tooling assists from 1987 through

1992. See Pretrial Order, Schedule C ¶ 24; Pl.’s Ex. 22.

Customs, however, did not accept the letter as a prior

disclosure. See Pretrial Order, Schedule C ¶ 24. Ford stated

that the tooling assists were “omitted from the dutiable

values of the related parts because of inadequate instructions

to certain Ford foreign suppliers.” Pl.’s Ex. 22.

38. On August 6, 1992 Ford submitted a letter to Customs claiming

to be a prior disclosure relating to lump sum payments for

merchandise imported between 1987 and August 6, 1992. See

Pretrial Order, Schedule C ¶ 39; Pl.’s Ex. 32. Ford explained

that “[t]he undervaluation of these imported goods was due to
Case No. 02-00116 Page 18

revisions to the price of these goods made subsequent to their

importation and not identified by Ford and reported to U.S.

Customs.” Pl.’s Ex. 32.

39. On October 22, 1992, Ford indicated to Customs that it had

manufactured developmental engine parts for engines

manufactured at its Essex Engine Plant located in Canada

(“Essex Plant”). See Pretrial Order, Schedule C ¶ 40. These

parts were provided free of charge to the plant and Ford had

provided $1,327,455 of such parts for the 1990, 1991, and 1992

model year engines manufactured at the Essex Plant. See id.

On April 13, 1993, Ford tendered $15,920.95 for duties for

these undeclared assists. See id.; Pl.’s Ex. 26.

40. In a letter dated November 18, 1992, Ford advised Customs that

it had failed to identify in its previous reconciliation

submissions all of the duties and fees owed for tooling

assists for merchandise imported between January 1, 1987

through and including May 22, 1992. See Pl.’s Ex. 23. The

total value Ford failed to declare was $41,165,251. See id.;

TT at 99. As part of the reconciliation, Ford tendered

$1,304,847.95 in duties and fees. See Pl.’s Ex. 23; See

Pretrial Order, Schedule C ¶ 24.

41. Ford submitted a letter, dated December 16, 1992, to Customs

claiming to be “a partial voluntary disclosure reconciliation

of additional duties and fees owed for unreported retroactive
Case No. 02-00116 Page 19

price adjustment payments and lump-sum payments for imported

goods made during the period January 1, 1987 through various

dates in July 1992.” Pl.’s Ex. 33. In connection with these

payments, Ford tendered $848,262.34 as unpaid duties and fees

and stated that it needed further time to analyze some

additional payments. See id.; Pretrial Order, Schedule C ¶

39.

42. On January 29, 1993, Ford tendered an additional $17,888.23

for duties and fees for unreported lump sum payments for

merchandise imported between 1987 and 1992. See Pretrial

Order, Schedule C ¶ 39; Pl.’s Ex. 34.

43. By letter dated February 24, 1993, Ford advised Customs that

it had failed to report assists paid four years earlier, in

1989, to Sheller-Ryobi, Indiana to produce prototype castings

in Japan. See Pl.’s Ex. 24. In connection with these

payments, Ford tendered $2,664.35 in duties and fees. See id.

44. In a letter dated April 6, 1993, Ford advised Customs that,

between 1990 and 1992, it had provided assists to the Essex

Plant totaling $1,327,455. See Pl.’s Ex. 25. Ford tendered

$15,920.95 for duties and merchandise processing fees in

connection with this merchandise. See Pl.’s Ex. 26.

45. In a letter dated February 14, 1994, Ford stated that it had

discovered that it had not previously reported certain tooling

assists for merchandise imported between 1987 through 1993.
Case No. 02-00116 Page 20

See Pl.’s Ex. 27. Ford stated that “[c]ertain tooling assists

may have been omitted because the country of origin for some

tool orders was not coded correctly in the Ford payment

records.” Id.

46. In two letters dated March 17, 1994, Customs advised Ford that

it would accept Ford’s letters submitted on May 22, 1992, and

March 1, 1993, relating to undeclared tooling and assists for

the period of 1987 through 1992, as prior disclosures. See

Def.’s Ex. VVV & WWW. In both instances, Customs found that

the misclassification of the relevant entries was due to

Ford’s failure to exercise reasonable care in the preparation

of the entries. See Def.’s Ex. VVV & WWW. Therefore, Customs

found Ford negligent and penalized Ford the interest on the

withheld duties from the date of the liquidation and the

balance of withheld duties. See id.

47. By letter dated May 13, 1994, Ford advised Customs that it had

failed to declare $6,674,338 in tooling assists associated

with imported merchandise from 1987 through 1993. See Pl.’s

Ex. 28. In connection with these assists, Ford tendered

$248,215 for duties and fees. See id. Ford indicated that it

had “discovered supplier location coding errors in the payment

records that [led] to some tooling assists being excluded from

the prior reports.” Id. Ford advised Customs that it had

made changes to assure that tooling assists did not go
Case No. 02-00116 Page 21

undeclared due to supplier location coding errors in payment

records. See id. Ford stated that it is “now using a tooling

report that uses information drawn directly from the tool

order system as well as payment record data.” Id.

D. Findings of Fact Relevant to the Capri Investigation

48. In April 1990, Ford began to purchase and import the Capri

vehicles from Ford of Australia. See Pl.’s Ex. 57 at 2. As

of July 31, 1991, Ford had imported 32,959 Capri vehicles

valued at over $372,000,000. See id. In connection with the

importation of the Capri vehicles, Ford filed 23 entries

between April 1990 through July 1991. See Pl.’s Ex. 57 at Ex.

A; Pl.’s Ex. 52 at 7; see also Pl.’s Ex. 82.

49. On September 5, 1992, Ford complied with the summons issued at

the June 1991 Meeting and provided Customs with the requested

documents. See Pl.’s Ex. 52 at 5. Ford provided a copy of

the supply contract for the Capri vehicles, which indicated

that transfer prices would be adjusted every six months to

reflect increases or decreases in a market basket of similar

vehicles. See Pretrial Order, Schedule C ¶ 19.

50. Ford made lump sum payments to Ford of Australia for the 1991

model year Capri vehicle, which were in addition to the

payments reflected on the commercial invoices at the time of

entry. See Pl.’s Ex. 8 & 57 at 4.
Case No. 02-00116 Page 22

51. Ford disclosed these lump sum payments, totaling $5,570,900,

to Customs in a letter dated August 26, 1991 and tendered a

check for $155,708 for duties and fees. See Pl.’s Ex. 8; see

also Pretrial Order, Schedule C ¶ 17.

E. Findings of Fact Relevant to the Festiva Investigation

52. Ford filed 372 entries importing Ford Festiva vehicles from

Kia Motors Corporation between December 15, 1988 and August

18, 1989. See Pl.’s Ex. 1; see also Pl.’s Ex. 14. Ford

purchased Festiva vehicles from KM Corporation, a trading

company consisting of Kia Motors Corporation and Mazda Motor

Corporation. See Pl.’s Ex. 14.

53. Customs issued a summons on March 20, 1992, requesting Ford to

produce “[a]ll original records and documents related to any

and all assists given and payments made by Ford Motor Company

in connection with the design, development, engineering,

production, purchase, and importation of Ford Festiva

automobiles manufactured by Kia Motors Corporation . . . .”

Pl.’s Ex. 13; See also Pretrial Order, Schedule C ¶ 20.

54. In a letter dated June 5, 1992, Ford responded to the Festiva

summons and stated that “there is $11,408,470.92 of undeclared

engineering and tooling cost prior to 1993 model and

$309,169.56 is owed including duty and other fees.” Pl.’s Ex.

12; Pretrial Order, Schedule C ¶ 25. Ford tendered the duties
Case No. 02-00116 Page 23

and fees on April 29, 1993. See Pretrial Order, Schedule C

¶ 25. Ford indicated that $63,893 for duties and fees were

applicable to the 1993 model year which it undertook to report

60 days after the end of the 1992 model year. See Pl.’s Ex.

12.

55. In a letter dated November 13, 1992, Ford advised Customs that

it had failed to report, in its June 5, 1990 reconciliation,

$13,358,413 paid to Kia Motors Corporation for the production

shortfall of the 1990 model year Festiva. See Pl.’s Ex. 14;

Pretrial Order, Schedule C ¶ 27. Ford tendered $362,013 in

duties owed in connection with the shortfall payments. See

id.

56. Ford and KM Corporation had a business agreement entitled

Passenger Vehicle Program Agreement (“Festiva Agreement”), and

dated July 1, 1988, containing an annual volume commitment

clause and volume price adjustment clause. See Pl.’s Ex. 58;

Pretrial Order, Schedule C ¶ 26. Pursuant to the annual

volume commitment clause, Ford was obligated to purchase

85,000 Festivas for resale in the United States and Canada.

See Pl.’s Ex. 58 at 11.

57. Under section 2.3A of the Festiva Agreement, if the number of

orders for Festivas to be delivered during any production year

was between 50 and 90 percent of 85,000 vehicles, then “the

purchase price for each Ford vehicle ordered for delivery”
Case No. 02-00116 Page 24

would increase. See Pl.’s Ex. 58 at 11-12.

58. Pursuant to section 2.3B of the Festiva Agreement, if Ford

ordered less than 50 percent of 85,000 Festivas, then the

parties were obligated to engage in “good faith discussions.”

See id. at 12-13. Either the purchase price for each vehicle

would increase further, or the parties would renegotiate the

terms of the contract or terminate the agreement. See id.

59. If Ford purchased more than the annual volume commitment by

ten percent, then Ford would receive a lump sum payment from

KM Corporation for the adjusted purchase price as calculated

pursuant to Section 2.3C of the agreement. See Pl.’s Ex. 58

at 13.

60. The adjustments required under the Festiva Agreement were to

the purchase price of each vehicle. See Pl.’s Ex. 58, See

also TT at 77-79.

61. In a letter dated November 18, 1992, Ford advised Customs that

it had made supplemental lump sum payments in the amount of

$43,663,125 to Kia Motors for the 1991 and 1992 model year

Festiva. See Pl.’s Ex. 15; See TT at 84-86; Pretrial Order,

Schedule C ¶ 28. Ford tendered $1,220,384 for duties and fees

associated with these payments. See Pl.’s Ex. 15, Pretrial

Order, Schedule C ¶ 28.
Case No. 02-00116 Page 25

F. Findings of Fact Relevant to the Yamaha SHO Engines
Investigation

62. Ford made 322 entries for Yahama SHO engines between December

22, 1988 through December 31, 1991 at the ports of Atlanta,

Georgia and Detroit, Michigan. See Pretrial Order, Schedule

C ¶ 33.

63. There were three variations to the Yamaha SHO engines: (1) the

3.0 liter engine introduced with the launch of the Taurus SHO

1988 model; (2) the 3.2 liter engine introduced in July 1992

for the 1993 model year; and (3) the 3.4 liter engine that was

to be introduced at the launch of the 1996 model. See Pl.’s

Ex. 17.

64. By letter dated January, 31, 1991, Ford advised Customs that

it had made supplemental lump sum payments of $5,762,129 to

Ford of Germany for the 1990 model year 2.9 liter V-6 engines.

See Def.’s Ex. LL. In connection with these payments, Ford

tendered $190,727 for duties and fees. See id. Ford also

advised Customs that it had made supplemental lump sum

payments of $77,217,109 to Ford of Germany for 1990 model year

4.0 liter V-6 engines. See Def.’s Ex. MM. In connection with

these payments, Ford tendered $2,128,953 for duties and fees.

See id.

65. In a letter dated January 31, 1991, Ford advised Customs that

it had made supplemental lump sum payments of $58,457,120 to
Case No. 02-00116 Page 26

Ford of France for the 1990 model year A4LD Bordeaux

transmissions. See Def.’s Ex. NN. Ford tendered $1,665,215

for duties and fees in connection with these payments. See

id.

66. Customs issued a summons on January 22, 1992, requesting Ford

to produce “[a]ll original records and documents related to

any and all assists given and payments made by Ford,” in

connection with automobile engines manufactured by the Yamaha

Motor Co., Ltd. for the Taurus SHO automobile. See Pl.’s Ex.

18; TT at 88-89; see also Pretrial Order, Schedule C ¶ 29.

67. Ford’s response to the summons, on June 5, 1992, indicated

that the value declared for the 3.0 liter engine had been

$15,100,449 but that the total value had been $15,387,841.

See Pl.’s Ex. 17 at 3. Accordingly, Ford advised Customs that

it was liable for $287,112 in undeclared value for the 3.0

liter engine. See id. at 3-4; Pretrial Order ¶ 30. Ford

tendered an additional $9,623.16 for duties and fees owed in

connection with Customs’ investigation of the 3.0 liter

engine. See Pl.’s Ex. 21; Pretrial Order, Schedule C ¶ 30.

Ford also informed Customs that there were $14,779,026 in

prototype and development costs for the 3.2 liter SHO engine

for the 1993 model year, which would be declared 60 days after

the end of the 1992 model year. See Pl.’s Ex. 17; See

Pretrial Order, Schedule C ¶ 32.
Case No. 02-00116 Page 27

68. Ford also provided Customs with a copy of its supply

agreement, indicating that the base price for the SHO engines

could be adjusted. See Pretrial Order, Schedule C ¶ 31.

69. In a letter dated November 13, 1992, Ford identified

$2,158,417 in retroactive payments it made between 1987

through 1991 for the 3.0 liter engines, which it had failed to

include in its June 5, 1992, reconciliation. See Pl.’s Ex.

19; see also Pretrial Order, Schedule C ¶ 34. Ford tendered

$59,707 for duties and fees in connection with these lump sum

payments. See Pl.’s Ex. 19.

70. In a letter dated November 18, 1992, Ford tendered $404,100

for duties associated with lump sum payments of $14,274,097

related to design and development costs for the 3.2 liter SHO

engines made during 1991 and 1992. See Pl.’s Ex. 20; Pretrial

Order, Schedule C ¶ 35. Ford also indicated that at the end

of the 1993 model year it would reconcile actual usage and

tender additional money owed or request a refund based on

actual occurrences during the 1993 model year. See Pl.’s Ex.

20; Pretrial Order, Schedule C ¶ 35.

71. In a meeting with Customs Import Specialist Spiro Karras held

on December 18, 1992, Ford admitted that it had not declared

development costs apportioned to Yamaha prototype 3.2 liter

SHO engines that were to be retained in Japan rather than

shipped to the United States. See Pretrial Order, Schedule C
Case No. 02-00116 Page 28

¶ 36. Ford sought advice from Customs’ Office of Regulations

and Rulings (“Customs’ OR&R”) on March 26, 1993. See id.

Ford was advised that the development costs should be

apportioned over the imported production engines. See id.;

Pl.’s Ex. 59 at 5. Customs’ OR&R advised Ford that the

payment for development and design costs were attributable to

the production of engines and, therefore, constituted the

price actually paid or payable for the 3.2 liter SHO engines.

See Pl.’s Ex. 59 at 5. Ford has not tendered $68,178 of

alleged duties owed on the undeclared development costs for

3.2 liter SHO engines. See Pretrial Order, Schedule C ¶ 37.

G. Findings of Fact Relevant to Customs Investigation of
Engines From Germany and Transmissions from France

72. Prior to the commencement of Operation Hat Trick, Ford filed

a voluntary disclosure on August 3, 1988, relating to

undeclared lump sum payments made to Ford of France and Ford

of Germany. See Pl.’s Ex. 1 at 22; Joint Ex. 2 at Z. In a

letter dated October 3, 1988, Ford tendered duties and fees in

connection with these payments. See Joint Ex. 2 at Z. Ford

informed Customs that it had taken corrective action and that

its accounting services had been instructed to provide copies

of all debit and credit memoranda it processed. See id.; TT

at 255-56.
Case No. 02-00116 Page 29

73. In letters dated March 23, 1992, Ford advised Customs that

lump sum payments totaling $21,401,808 and $32,130,256 had

been made to Ford of Germany for 1991 model year 2.9 liter and

4.0 liter V-6 engines, respectively. See Pretrial Order,

Schedule C ¶ 21-22; Pl.’s Ex. 29 & 31. Ford tendered $726,591

and $1,047,074, respectively, for duties and fees associated

with these payments. See Pretrial Order, Schedule C ¶ 21-22;

Pl.’s Ex. 29 & 31.

74. Ford informed Customs, in a letter dated May 6, 1993, that it

had made lump sum payments to Ford of Germany totaling

$4,783,094 for 1991 model year 2.6 liter V-6 engines. See

Pretrial Order, Schedule C ¶ 42; Pl.’s Ex. 36. Ford tendered

$162,625 for duties and fees in connection with these

payments. See Pl.’s Ex. 36.

75. Ford disclosed on May 6, 1993, that it had made lump sum

payments to Ford of Germany for 1992 model year 4.0 liter V-6

engines in the amount of $25,782,651. See Pl.’s Ex. 35;

Pretrial Order, Schedule C ¶ 43. Ford tendered $695,874 in

unpaid duties and fees in connection with these payments. See

Pl.’s Ex. 35.

76. On May 28, 1993, Customs issued a summons to Ford requesting

“documents and information regarding ‘lump sum payments’ on

engines imported from Ford of Germany for the period January

1990 to the present . . . .” Pl.’s Ex. 39; see also Pretrial
Case No. 02-00116 Page 30

Order, Schedule C ¶ 45.

77. In a letter dated August 9, 1993, Ford responded to Customs’

summons. See Pl.’s Ex. 38. Ford adjusted the 1990 submission

data relating to 1990 model year V-6 engines from Germany

resulting in additional duties and fees of $73,635.13, which

Ford tendered. See id.; TT at 258.

78. By letter dated March 23, 1992, Ford informed Customs that it

had made lump sum payments in the amount of $10,875,431 to

Ford of France for 1991 model year A4LD Bordeaux

transmissions. See Pretrial Order, Schedule C ¶ 23; Pl.’s Ex.

30. Ford tendered $339,379 for duties and fees in connection

with these payments. See Pl.’s Ex. 30.

79. Ford informed Customs by letter, dated May 6, 1993, that it

had made lump sum payments to Ford of France in the amount of

$16,359,794 for 1992 model year A4LD Bordeaux transmissions

and tendered $458,893 for unpaid duties and fees. See Pl.’s

Ex. 37; Pretrial Order, Schedule C ¶ 44.

80. Ford informed Customs by letter dated September 2, 1993, that

the value of certain lump sum payments relating to

transmissions imported from Ford of France for the 1989

through 1992 model year were not reported to Customs because

of “incorrect currency exchange rates applied at the time of

payment, missing billing invoices and a change in Ford’s

internal tracking/reporting process from manual to a
Case No. 02-00116 Page 31

mechanized procedure.” Pl.’s Ex. 42.

81. In a letter dated December 1, 1993, Ford explained how it

calculated duties and fees it owed on the additional payments

referred to in its September 2, 1993, letter. See Pl.’s Ex.

43. Ford determined that it had not declare $4,973,042 of

value upon entry of the merchandise. See id.; Pretrial Order,

Schedule C ¶ 47. Ford calculated that it owed $113,387.68 for

duties and fees and tendered a check to Customs in that

amount. See id.

H. Ford’s Compliance Measures

82. After the June 1991 Meeting, Ford undertook a review of

earlier post-entry submissions and tenders dating from 1987

through 1992 (“Five Year Look Back”). TT at 446-48. Mr.

Cohen testified that the Five Year Look Back was not in

response to a summons.3 See TT at 447. Mr. Gibson testified

that the review did not occur after Ford was notified of

Customs’ investigation. See TT at 503-04. No testimony or

documentary evidence was presented at trial to support the

conclusion that Ford had undertaken a Five Year Look Back

prior to the commencement of Customs’ investigation or that it

has undertaken such a review with regard to any other program

3
When asked when the reviews began, Mr. Cohen did not
recall if it was before or after the commencement of Customs’
investigation. See TT at 447.
Case No. 02-00116 Page 32

that was not within the scope of Customs’ investigation. The

Court finds the testimony of Messieurs Cohen and Gibson

incredible and finds that the Five Year Look Back was in

response to Customs’ investigation of Ford.

83. Ford had a Customs compliance manual which instructed Ford

employees on how to properly file documents for imported

goods. See TT at 422; Joint Ex. 2 at G.

84. Ford’s compliance manual states that, “[t]he invoice must be

priced so that the true value can be ascertained. In the

event that the value is not completely and correctly shown, a

‘provisional’ disclaimer is stated on the invoice, thereby

advising customs.” Joint Ex. 2 at G at 12. The manual

further explains that Ford is required to report to Customs

all extraneous dutiable payments that affect the original

entered value of the imported merchandise. See Joint Ex. 2 at

G. Examples of extraneous payments list in the manual may be

in the form of: (a) retroactive adjustments; (b) lump sum

payments for engineering and manufacturing expenses; ©)

adjustments for currency fluctuations; or (d) volume price

adjustments. See id.

85. Ford sent a draft copy of the manual to Customs for review and

comment. See TT at 423. Customs offered several suggestions,

which Ford subsequently incorporated in its final manual. See

Def.’s Ex. H; TT at 423 & 425.
Case No. 02-00116 Page 33

86. During the relevant time period, Ford had training videos, a

Customs compliance hotline, and held seminars and meetings to

make its employees aware of their responsibilities with regard

to complying with Customs’ laws and regulations. See Def.’s

Ex. J, K, & L; see also TT at 381 & 425-28.

87. Ford received a letter from Customs’ regional director, in

September 1988, commending Ford “for recognizing the

importance of complying with Customs’ regulations and taking

constructive and positive steps to educate other members of

the Ford Motor Company community in these matters.” Def.’s

Ex. Q.

88. Ford’s purchasing and finance departments were instructed to

provide Ford’s customs unit “with copies of anything that

might impact the cost of the goods.” TT at 437. Every Ford

employee in the purchasing department involved in overseas

purchases was instructed to provide a copy of the purchase

order to Ford’s International Transportation and Customs

Office. See Joint Ex. 2 at 19. The employees of Ford’s

purchasing unit, however, did not always comply with these

instructions. See id.

89. Ford’s customs unit “had to rely on the procedures in place at

the time that we were to get a copy of the purchase order,

period.” Joint Ex. 2 at 30. If a purchase order was not sent

to Ford’s customs unit then it would not know what was being
Case No. 02-00116 Page 34

imported. See id. at 31. Ford’s customs unit knew that

Ford’s purchasing unit’s failure to provide it with purchase

orders would open Ford to liability for failure to report

dutiable payments. See id.

90. After Operation Hat Trick had commenced, Ford proposed to

Customs a change in its methodology for reporting dutiable

assists. See Def.’s Ex. V. In a letter dated August 26,

1992, Ford advised Customs that it “would like to discontinue

reporting assist values at the time of the first importation

of the applicable goods.” Id. Instead, Ford proposed to

provide Customs with information on potential assists before

importation, in July for the upcoming year, and report and

tender duties on such assists in December of the following

year. See id. Customs, in a letter dated February 1, 1993,

accepted Ford’s proposal to change its methodology of

reporting assists. See Def.’s Ex. W.

91. In a report dated October 27, 2000, Customs assessed Ford’s

compliance and import practices beginning in 1995. See Joint

Ex. 1 at Ex. 114. Customs’ audit of Ford found that “Ford

lacked adequate internal control procedures in . . . verifying

the reliability of their brokers’ work [and] . . . ensuring

the reporting of correct values on entries . . . .” Id.

Customs, found, however, that Ford “has attempted to improve

their Customs compliance through their involvement in various
Case No. 02-00116 Page 35

other programs.” Id. Based on corrective action taken by

Ford, Customs’ Compliance Assessment Team recommended that

“Ford’s imports . . . should receive the level of cargo

examinations and document reviews associated with companies

that pose a low risk.” Id.

II. Conclusions of law

The Court has jurisdiction of this matter pursuant to 28

U.S.C. § 1582 (2000).4 In actions brought for the recovery of any

monetary penalty claimed under section 592 of the Tariff Act of

1930, as amended, 19 U.S.C. § 1592, all issues are tried de novo,

see 28 U.S.C. § 2640(a)(6) (2000), including the amount of the

penalty. See 19 U.S.C. § 1592(e)(1). The level of culpability has

a direct correlation to the maximum amount of penalty that can be

assessed. See 19 U.S.C. § 1592©).

4
The relevant portions of the statute state:

The Court of International Trade shall have exclusive
jurisdiction of any civil action which arises out of
an import transaction and which is commenced by the
United States—

(1) to recover a civil penalty under section 592
. . . of the Tariff Act of 1930 . . .
(3) to recover customs duties.

28 U.S.C. § 1582.
Case No. 02-00116 Page 36

Customs has alleged that Ford violated 19 U.S.C. § 1592,

thereby depriving the United States of all or a portion of lawful

duty through grossly negligent or, in the alternative, negligent

conduct. See Compl. In pertinent part, 19 U.S.C. § 1592(a)

states:

Without regard to whether the United States is or may be
deprived of all or a portion of any lawful duty 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, written or oral statement,
or act which is material and false, or
(ii) any omission which is material.

19 U.S.C. § 1592(a). An act or omission is deemed material if it

has the potential to alter the appraisement or liability for duty.

See 19 C.F.R. pt. 171, App. B(A) (1992). The issue of materiality

is for the Court to determine. See United States v. Hitachi Am.,

Ltd. (“Hitachi I”), 21 CIT 373, 386, 964 F. Supp. 344, 360 (1997),

aff’d in part and rev’d in part on other grounds, 172 F.3d 1319

(Fed. Cir. 1999); see also United States v. Rockwell Int’l Corp.,

10 CIT 38, 42, 628 F. Supp. 206, 210 (1986) (stating that “the

measurement of the materiality of the false statement is its

potential impact upon Customs’ determination of the correct duty

for the imported merchandise”).

As a threshold issue, Ford asserts that Customs failed to

offer into evidence entries related to the subject merchandise,
Case No. 02-00116 Page 37

except for the Capri vehicle and Yamaha SHO engine entry documents.

See Def.’s Post-Trial Br. at 16-17. Ford argues that, without the

entries admitted into evidence, the Court has no means of

evaluating Customs’ claim that the entered values were false or

that Ford failed to notify Customs that the prices reflected

therein were not final. See id. Ford’s argument is flawed because

the statutory language contemplates violations where the importer

has either made material omissions or failed to act. Accordingly,

an importer may violate the statute by failing to provide Customs

with entry documents in the first place. Pursuant to Ford’s

argument, Customs would be precluded from successfully bringing an

action pursuant to 19 U.S.C. § 1592 in instances where entry

documents or specific entry information was never submitted to

Customs. This reasoning is untenable and contradicts the plain

language of the statute.

The totality of the evidence submitted at trial provides the

Court with enough evidence of the values Ford declared on its entry

documents. Therefore, such documents need not be introduced and

admitted into evidence. The testimony of Ford’s own witnesses

established its failure to declare assists at entry and Ford’s

failure to alert Customs “at once” of dutiable lump sump payments

made after entry. See e.g. Pl.’s Ex. 12, 14, 15, 16, 17, 19, 23,

24, 25, 28, 29, 30, 31, 33, 35, 36 37; See also TT at 402-03; 435-
Case No. 02-00116 Page 38

36, 488. Such failures and acts may be found by a trier of fact to

constitute gross negligence or negligence in violation of 19 U.S.C.

§ 1592. Based on the testimony and evidence presented at trial,

the Court finds that there is sufficient evidence to evaluate

Customs’ claim that values appearing on Ford’s entry documents were

false or that Ford failed to notify Customs that the prices

reflected therein were not final.

A. Customs Failed to Establish by a Preponderance of the
Evidence that Ford’s Conduct Was Grossly Negligent

1. Statutory Background

Gross negligence arises “if it 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). A finding of gross negligence

requires the Court to determine that Ford’s omissions of

information from entry documents and its failure to comply with its

statutory obligations was willful, wanton or reckless or that the

evidence before the Court illustrates Ford’s utter lack of care.

See Mach. Corp. of Am. v. Gullfiber AB, 774 F.2d 467, 473 (Fed.

Cir. 1985) (citation omitted). Gross negligence involves a type of

intent which is a question of fact and not law. See United States

v. Hitachi Am., Ltd., 172 F.3d 1319, 1326 (Fed. Cir. 1999); see

also Allen Organ Co. v. Kimball Int’l, Inc., 839 F.2d 1556, 1567
Case No. 02-00116 Page 39

(Fed. Cir. 1988) (stating that “intent is a factual determination

particularly within the province of the trier of fact”).

Customs bears the burden of establishing all the elements of

the alleged violation. See 19 U.S.C. § 1592(e)(3). Customs must

establish such elements by a preponderance of the evidence, which

“is the general burden assigned in civil cases for factual

matters.” St. Paul Fire & Marine Ins. Co. v. United States, 6 F.3d

763, 769 (Fed. Cir. 1993). Preponderance of the evidence is “the

greater weight of evidence, evidence which is more convincing than

the evidence which is offered in opposition to it.” Id. (quoting

Hale v. FAA, 772 F.2d 882, 885 (Fed. Cir. 1985)). Based on the

testimony and documents submitted during trial, the Court finds

that Customs has failed to meet its burden of proof.

2. Discussion

Customs has not established that Ford acted with a wanton

disregard for the relevant facts and with indifference to or

disregard for its obligations under 19 U.S.C. § 1592. During the

relevant time period, Ford had a customs compliance manual setting

forth the duties of its employees for reporting dutiable values to

Customs. See TT at 422; Joint Ex. 2 at G. Customs reviewed Ford’s

manual and made several comments and recommendations, see Def.’s

Ex. H, which Ford subsequently incorporated into its compliance

manual. See TT at 423 & 425. Moreover, Ford produced training
Case No. 02-00116 Page 40

videos, see Def.’s Ex. J, K & L, maintained a compliance hotline

and held seminars and meetings relating to Ford’s compliance with

Customs’ rules and regulations. See TT at 381 & 421-28. The

evidence showed that Ford had mechanisms in place which enabled it

to comply with its statutory obligations to properly enter

merchandise. See Joint Ex. 2 at R, Z, CC, DD, EE, II, JJ, KK.

The mere existence of such mechanisms, however, does not

completely prevent Customs from establishing that Ford was grossly

negligent. Customs may meet its burden by demonstrating that Ford

disregarded or was indifferent to the internal compliance measures

it put into place. Ford’s compliance measures relieve Ford from

gross negligence liability only if (a) such mechanisms set forth

procedures and guidelines that, if followed, ensured Ford’s

fulfillment of its statutory duties, and (b) Ford made a good faith

effort to follow its internal compliance measures. Ford satisfied

the first requirement. Customs’ positive review of Ford’s

compliance manual established that Ford’s compliance mechanisms

would allow Ford to meet its statutory obligations. See TT at 423

& 425, Def’s Ex. H. The Court, therefore, must determine whether

Ford made a good faith attempt to implement and follow its internal

compliance measures.

Based on the testimony and documentary evidence produced, the

Court finds that Customs failed to establish by a preponderance of
Case No. 02-00116 Page 41

the evidence that Ford did not make a good faith effort to follow

its internal compliance measures or statutory obligations. Ford’s

submission of reconciliation reports illustrates Ford’s

understanding of its duty to report additional transaction values

incurred after entry. See e.g., Pl.’s Ex. 8, 12, 19. Ford

actively tried to fulfill its duty under 19 U.S.C. § 1485 to inform

Customs of changes to the value declared on its entry documents.

Credible evidence was admitted at trial showing that Ford attempted

to reconcile the difference between the prices reported to Customs

at the time of entry and the final price paid. See e.g., Pl.’s Ex.

8, 12, 14, 15, 16, 17, 19, 30, 31, 32, 33, 35, 36, 37. In October

1988, Ford proposed the Reconciliation Agreement as a means of

increasing the efficiency of reporting lump sum payments to

Customs. See Pl.’s Ex. 55. Ford indicated that the proposed

changes would aid both Customs and Ford by reducing paperwork and

the amount of time needed to report lump sum payments. See id.

Ford undertook to report lump sum payments on an annual basis. See

id. From about 1990 through 1993, Ford had an employee, Ms. Monro,

who was responsible for implementing Ford’s lump sum reconciliation

program. See TT at 381. Ford submitted reconciliation reports to

Customs when it failed to capture certain lump sum payments or

assists. See TT at 381-82, 471, 474-75; Joint Ex. 2 at Z; See

e.g., Pl.’s Ex. 8, 12, 14, 15, 16, 17, 19, 23, 24, 25, 28, 29, 30,

31, 32, 33, 35, 36, 37. Accordingly, Ford’s attempt to reconcile
Case No. 02-00116 Page 42

the price paid with the price reported at entry demonstrates that

Ford did not act with wanton disregard or indifference to its

statutory obligations, which were set forth in its compliance

manual.

A showing of utter lack of care would have required Customs to

establish that Ford made no attempt to meet its statutory

obligations. To meet its burden of proof, Customs had to

demonstrate Ford’s failure to act upon relevant facts indicating

that Ford’s entry procedures were deficient. Ford’s attempt to

reconcile the price actually paid and the price declared at entry

along with the training videos, customs compliance hotline, and

seminars relating to customs compliance illustrates that Ford did

not act with wanton disregard or indifference to its internal

compliance program. The testimony and documentary evidence simply

does not establish Ford’s grossly negligent conduct. The evidence

failed to establish Ford’s indifference to make material omissions

from the entry documents. The evidence also failed to establish

that Ford exhibited an utter lack of care. Accordingly, the Court

concludes that Customs failed to carry its burden to show that

Ford’s violation of 19 U.S.C. § 1592 was a result of grossly

negligent conduct.
Case No. 02-00116 Page 43

B. Customs Established Ford’s Negligence by a Preponderance
of the Evidence and Ford Failed to Demonstrate it
Exercised Reasonable Care

1. Statutory Background

Negligence arises out of “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 in ascertaining the facts or in drawing inferences

therefrom . . . .” 19 C.F.R. pt. 171, App. B(B)(1).

Consequently, negligence does not require the trier of fact to

determine intent. Section 1592(e)(4) of Title 19 of the United

States Code derogates from common law negligence (i.e., duty,

breach, causation, and injury) by shifting the burden of persuasion

to the defendant to show lack of negligence. See Hitachi I, 21 CIT

at 380, 964 F. Supp. at 355. The statute removes the breach

element from Customs’ prima facie negligence case. See id.

Accordingly, Customs must establish by a preponderance of the

evidence that the materially false act or omission occurred. See

19 U.S.C. § 1592(e)(3). Once Customs has met its burden, Ford

bears the burden to establish that it exercised reasonable care

under the circumstances and that the alleged violation was not

caused by its negligence. See 19 U.S.C. 1592(e)(3); 19 C.F.R. pt.

171, App. B; see also Hitachi I, 21 CIT at 381, 964 F. Supp. at

355-56.
Case No. 02-00116 Page 44

Customs is directed to appraise imported merchandise based on

the transaction value. See 19 U.S.C. § 1401a(a)(1) (1988). The

statute defines transaction value as “the price actually paid or

payable for the merchandise when sold for exportation to the United

States, plus amounts equal to . . . the value, apportioned as

appropriate, of any assist . . . .” 19 U.S.C. § 1401a(b)(1).

Under 19 U.S.C. § 1481(a), all invoices for imported merchandise

are required to set forth, inter alia, the purchase price of each

item. See 19 U.S.C. § 1481(a)(5) (1988). The statute also states

that the invoices must contain any facts required to properly

appraise the merchandise. See 19 U.S.C. § 1481(a)(10). An

importer must file at the time of entry appropriate documentation

enabling Customs to properly assess duties. See 19 U.S.C. §

1484(a)(1)(B); see also United States v. Thorson Chem. Corp., 16

CIT 441, 448, 795 F. Supp. 1190, 1195 (1992) (noting that defendant

had a “legal obligation pursuant to the statute to file appropriate

documentation permitting Customs to properly assess duties and

determine whether any other applicable requirement of law is met”)

(citation omitted). Furthermore, an importer making an entry must

file a declaration under oath stating that “the prices set forth in

the invoice are true, in the case of merchandise purchased or

agreed to be purchased . . . [and that] all other statements in the

invoice or other documents filed with the entry, or in the entry

itself, are true and correct . . . .” 19 U.S.C. § 1485(a)(2) &
Case No. 02-00116 Page 45

(3). The importer must also declare “[t]hat he will produce at

once to the appropriate customs officer any invoice, paper, letter,

document, or information received showing that any such prices or

statements are not true or correct.” 19 U.S.C. § 1485(a)(4).

2. Discussion

The Court finds that Customs established, by a preponderance

of the evidence, that Ford failed to exercise reasonable care

expected from a person in the same circumstances. See 19 C.F.R pt.

171, App. B (C)(1). Testimonial and documentary evidence presented

at trial established that Ford had made assists between 1987

through 1992, which it failed to declare on its entry documents or

“at once” thereafter. See e.g., Pl.’s Ex. 23, 24, 25, 28, 29; see

also TT at 493. Ford also failed to declare on its entry documents

that the values stated therein were not final because Ford was

obligated to make lump sum payments to its vendors after entry.

Furthermore, Ford failed to report these lump sum payments “at

once” pursuant to 19 U.S.C. § 1485 or the Reconciliation Agreement.

See e.g., Pl.’s Ex. 12, 14, 15, 16, 17, 19, 30, 31, 33, 35, 36, 37;

see also TT at 402-03; 435-36, 488.
Case No. 02-00116 Page 46

a. Ford’s Failure to Declare Assists at Entry Violated
19 U.S.C. §§ 1484 & 1485

1. Customs Satisfied its Burden of Proof

The Court finds that Customs met its burden of proof and

established that Ford made materially false statements or omissions

in its entry documents related to tooling assists provided for

certain vehicles and vehicle components thereby violating 19 U.S.C.

§ 1484. See Pl.’s Ex. 22, 23, 24, 25, 27, 28. Based on testimony

and documentary evidence, the Court finds that Ford’s omission of

assists on the entry documents had a material impact on Customs’

ability to properly determine the dutiable value of the relevant

merchandise. See Rockwell, 10 CIT at 42, 628 F. Supp. at 210.

Based on uncontroverted evidence, the Court further concludes that

Ford knew or should have known that it had incurred expenses for

assists prior to importation, see TT at 493, but failed to report

such assists as part of the transaction value in its entry

documents. See 22, 23, 24, 25, 27, 28.

Customs also established that Ford violated 19 U.S.C. § 1485

by failing to advise Customs “at once” that it had provided such

tooling assists. Ford advised Customs, on several occasions, that

it had failed to capture additional duties and fees on its entry

documents relating to tooling assists provided by Ford. See Pl.’s

Ex. 22, 23, 25, 27, 28. On one occasion, Ford indicated that it
Case No. 02-00116 Page 47

had failed to include tooling assists “from the dutiable values of

the related parts because of inadequate instructions to certain

Ford foreign suppliers.” Pl.’s Ex. 22. Ford, on a different

occasion, indicated that it had failed to include certain tooling

assists in the dutiable values “because the country of origin for

some tool orders was not coded correctly in the Ford payment

records.” Pl.’s Ex. 27. Ford’s lack of reasonable care to report

the assists in the entry documents and invoices constitutes

materially false statements or omissions arising out of Ford’s

negligence. See 19 C.F.R. pt. 171, App. B(B)(1).

Moreover, the evidence established that Ford failed to “at

once” notify Customs that the entry values included assists. The

documentary evidence demonstrates that Ford advised Customs of the

assists well after entry. For example, in a letter dated April 6,

1993, Ford advised Customs that it had provided $1,327,455 of value

to the Essex Plant free of charge for the 1990, 1991, and 1992

calendar years. See Pl.’s Ex. 25. Ford’s disclosure of the

assists came almost three years after the first assists had been

incurred. See id. Ford’s failure to capture assists at entry or

when they were incurred is unreasonable and violated the plain

language of 19 U.S.C. § 1485, which requires an importer to report

changes in value declared at enrty “at once.”
Case No. 02-00116 Page 48

2. Ford Failed to Satisfy its Burden of Proof

Customs satisfied its burden of proof, thereby shifting the

burden to Ford to establish that it exercised reasonable care under

the circumstances and that the violations were not the result of

its negligence. See 19 U.S.C. § 1592(e)(4). From all the evidence

presented on the reporting of assists by Ford, the Court concludes

that Ford failed to meet its burden. There was uncontroverted

evidence that Ford knew that assists “start to occur in Ford’s

major programs sometimes two, three years prior to the good

actually being imported into the United States.” TT at 493. Ford

had a compliance program in place to report assists. See TT at

421, 442, 493-94. If Ford learned of additional assists after the

first importation, then Ford would report such assists to Customs

in a subsequent reconciliation. See TT at 494.

The evidence established, however, that Ford failed to follow

its own policies. Ford argues that “throughout the period at issue

in this action Ford had procedures in place that satisfied Customs’

reporting requirements which were ignored by the Customs Agents.”

Def.’s Post-Trial Br. at 23. There was documentary evidence

presented at trial that Ford reported to Customs its failure to

initially capture assists upon entry of the merchandise. See e.g.,

Pl.’s Ex. 22, 23, 24, 25. Ford, however, did not establish that it

exercised reasonable care to report such assists which, in some
Case No. 02-00116 Page 49

cases, related to merchandise imported over five years before

Ford’s notification of Customs. See e.g., Pl.’s Ex. 28. Ford did

not present corroborating evidence that it reported such assists in

a timely fashion and therefore met the requirement of 19 U.S.C. §

1485. Moreover, Ford failed to establish through testimony or

documentary evidence that its assist reporting program, if

followed, would have satisfied Ford’s statutory obligations with

respect to making entries in accordance with law.

Ford asserts that “it was common practice for Customs to issue

CF 28’s requesting information about assists and to accept the

resulting tenders without further action.” Def.’s Post-Trial Br.

at 22. While Customs may have used CF 28s to gather relevant

information regarding assists, the burden to report such assists

remains with the importer. See 19 U.S.C. §§ 1401a(b)(1) &

1481(a)(5). Ford’s customs compliance manual explains that the

basis for Customs’ collection of duty is the value of the entered

merchandise, which includes assists provided by Ford. See Joint

Ex. 2. Nonetheless, Ford failed to advise Customs at the time of

entry that it had provided assists. See Pl.’s Ex. 22, 23, 24, 25,

27, 28.

Ford was required to file a declaration under oath stating

that the prices set forth in the entry documents were true and

correct. See 19 U.S.C. § 1485(a)(2) & (3). Ford, however, did not
Case No. 02-00116 Page 50

present the Court with evidence that it provided Customs with true

and accurate information. See United States v. Nippon Miniature

Bearings, Corp., 25 CIT 638, 641, 155 F. Supp. 2d 701, 705 (2001)

(stating that “the burden is on the importer to provide true and

accurate information to Customs; the burden is not on Customs to

‘find out’ non-complying importers”). Based on the evidence

submitted, the Court finds that Ford’s failure to report assists at

the time of importation, in accordance with 19 U.S.C. § 1484, had

a material impact on Customs’ ability to properly determine the

dutiable value of the relevant merchandise. Furthermore, Ford

failed to report changes in the entry values “at once,” in

accordance with 19 U.S.C. § 1485. Accordingly, the Court holds

that Ford’s failure to report assists in its entry documents or “at

once” resulted from Ford’s negligent conduct. Ford, therefore,

violated 19 U.S.C. § 1592.

b. Ford’s Failure to Declare Lump Sum Payments

1. Ford’s Material Omissions Violated 19 U.S.C. §
1484 and was the Result of Ford’s Negligence

Customs met its burden of proof and established that Ford made

materially false statements or omissions in its entry documents

relating to lump sum payments it made in connection with certain

vehicles and vehicle components. The court in Hitachi held that

“importers are required to disclose escalation clauses in entry

documents . . . .” Id. 21 CIT at 387-88, 964 F. Supp. at 360-61
Case No. 02-00116 Page 51

(stating that the importer’s omission on entry documents of

escalation clauses affecting price “had a potential impact on the

correct duty and thus perpetrated a material omission”). In the

case at bar, Ford presented no evidence that it disclosed

escalation clauses on its entry documents in accordance with 19

U.S.C. § 1484.

The evidence demonstrated that Ford violated the statute by

failing to notify Customs of potential post-entry lump sum

payments. Customs offered unrebutted evidence that Ford knew at

the time of importation that the cost of certain vehicles and

vehicle components were subject to change. See TT at 492 & 512.

Ford had supply agreements with many of its foreign vendors which

contained post-importation price adjustments. See Pretrial Order,

Schedule C ¶ 1. These supply agreements were negotiated prior to

the shipment of the merchandise. See TT at 512. Under the terms

of the supply agreements, however, Ford did not know the amount of

the payments required. See TT at 382. While Ford became aware of

the amount of these payments subsequent to the entry of the

merchandise, Ford failed to notify Customs on the entry documents

that it anticipated making lump sum payments. See e.g., Pl.’s Ex.

81 & 82.

The evidence established that Ford’s omissions deprived

Customs of information required to determine whether or not to
Case No. 02-00116 Page 52

extend the statutory period for liquidation. See 19 C.F.R. § 159.2

(1992) (stating that “[a]ll entries covering imported merchandise

. . . shall be liquidated”). Under Customs’ regulations, “an entry

[that is] not liquidated within 1 year from the date of entry of

the merchandise . . . shall be deemed liquidated by operation of

law at the rate of duty, value, quantity, and amount of duties

asserted at the time of filing an entry summary for consumption in

proper form with estimated duties attached. . . .” 19 C.F.R.

§ 159.11. However, Customs may extend liquidation for an

additional period of time if “[i]nformation needed by Customs for

the proper appraisement . . . is not available.” 19 C.F.R. §

159.12. Accordingly, Ford’s omissions in its entry documents

impinged on Customs’ ability to properly assess duties on the

subject merchandise or to withhold liquidation until the

transaction values on the entry summaries became final. See 19

U.S.C. § 1484(a)(1)(B); see also Thorson, 16 CIT at 448, 795 F.

Supp. at 1196.

Although Customs established Ford’s material omissions from

entry documents, Ford is afforded an opportunity to rebut Customs

allegations by establishing that it exercised reasonable care. See

19 U.S.C. § 1592(e). The Court, however, concludes that Ford has

failed to meet its burden. There is no evidence before the Court

that Ford took action to notify Customs that the transaction values
Case No. 02-00116 Page 53

contained in the entry documents were subject to change. Ford

argues that it was not required under the applicable law to

disclose that the transaction values were subject to change due to

post-entry price adjustments. See Def.’s Post-Trial Br. at 17.

Ford asserts that, pursuant to 19 U.S.C. § 1484(a)(1)(b), it was

merely required to file documentation “necessary for the assessment

of duties and collection of statistics on the merchandise.” Id.

Ford further argues that the Reconciliation Agreement placed

Customs on notice that it would have post-entry price adjustments.

See id. at 19-20. Accordingly, Ford argues that it met its

statutory obligations or alternatively that it exercised reasonable

care under the circumstances.

The evidence presented and facts found by the Court

demonstrate that Ford failed to exercise reasonable care and,

therefore, acted with negligence. Ford failed to alert Customs

that the values declared at entry were not final values. See TT at

410 & 491, See e.g., Pl.’s Ex. 81 & 82. Furthermore, in letters

Ford sent to Customs between August 1991 through December 1993,

Ford repeatedly advised Customs that lump sum payments had not been

declared on the entry documents. See Pl.’s Ex. 8, 12, 14, 15, 17,

19, 20, 29, 30, 31, 32, 33, 35, 36, 37, 38, 42, 43. Ford also

failed to indicate on the entry documents that its transaction

values were not final. See e.g., Pl.’s Ex. 81 & 82. Ford may not
Case No. 02-00116 Page 54

shirk its statutory obligations under 19 U.S.C. § 1484 and place

the blame for its failure to meet those obligations with Customs.

Ford did not offer evidence to suggest that its failure to comply

with the statute was not due to its failure to exercise reasonable

care. On the contrary, there was uncontroverted testimony that

Ford knew that the prices paid to its vendors for vehicles and

vehicle components were subject to change. See TT at 492. While

it was reasonable for Ford to enter the merchandise with the

transaction values known at the time of entry, the Court finds that

Ford’s failure to place Customs on notice that such values were not

final is unreasonable. If Ford had exercised reasonable care under

the circumstances, then Ford would have followed its own internal

procedures and alerted Customs at entry that the transaction values

were provisional. See Joint Ex. 2 at G.

The lump sum payments Ford made to its vendors after entry are

analogous to the escalation payments made by the importer in

Hitachi. While the importer in Hitachi escaped liability because

a Customs ruling clouded the importer’s duties, Ford has failed to

establish that its duties were nebulous in the present case.5 With

5
The court in Hitachi, determined that the importer could
“not be held liable [for violating 19 U.S.C. §1484] because Customs
confused the obligation by virtue of its own published rulings.”
Hitachi, 21 CIT at 388, 964 F. Supp at 361. Customs had issued a
ruling in which it stated that if an importer has an agreement
whereby the price actually paid or payable may change, than the
importer should preferably advise Customs of such an agreement at
Case No. 02-00116 Page 55

respect to Ford’s argument that the Reconciliation Agreement placed

Customs on notice that its entry values were provisional, the Court

finds this contention, at best, tenuous. If Ford’s argument were

to be adopted, then every single entry Ford made would have been

provisional and not final. Furthermore, the Reconciliation

Agreement did not identify specific entries, if any, to which it

applied. Consequently, Customs would never know when to hold

liquidation open or liquidate entries. Ford’s logic is inapposite

to the plain language of the statute because it would require

Customs to guess which entry documents contain final transaction

values and which entry values were subject to change because of

contract provisions Ford had with its vendors. The statute

encumbers the importer with the responsibility of ensuring that

information contained in entry documents is true and correct. See

19 U.S.C. § 1485(a)(2) & (3). The statute required Ford to put

Customs on notice for each entry made. See id. It is unreasonable

for Ford to have relied on the Reconciliation Agreement to place

Customs on notice for every entry Ford made.

Customs does not allege that Ford declared inaccurate values

on its entry documents. Rather, Customs alleges that Ford failed

the time of entry. See id. The Court held that Customs’ ruling,
in the absence of a subsequent ruling, “clouded the existence and
exigency of the requirement [to report escalation clauses at
entry], and a nebulous duty is a legal oxymoron.” Id.
Case No. 02-00116 Page 56

to fulfill its statutory obligations to place Customs on notice

that such prices were provisional. There was uncontroverted

evidence that Ford failed to place Customs on notice that the

transaction values set forth in the entry documents were subject to

change, and, therefore, not final transaction values. See TT at

410 & 491; See e.g., Pl.’s Ex. 81 & 82. Accordingly, the Court

concludes that Ford’s omission of material facts from its entry

documents was a result of its negligent conduct. The Court holds

that 19 U.S.C. § 1484 required Ford to indicate on the entry

documents that transaction values were not final because, under

pre-existing contracts Ford had with its vendors, the price

actually paid or payable was subject to change. Accordingly, the

Court holds that Ford violated 19 U.S.C. § 1592.

2. Ford Violated 19 U.S.C. § 1485

The Court finds that the testimony and documents submitted at

trial established that Ford violated the “at once” requirement of

19 U.S.C. § 1485. As the court noted in Hitachi, an importer may

escape liability for failing to meet the requirements of 19 U.S.C.

§ 1485 by implementing one of two statutory mechanisms available.

See Hitachi, 21 CIT at 389, 964 F. Supp. at 361-62. An importer

“may arrange to hold open liquidation under 19 U.S.C. § 1504(b),”

or “deposit estimated duties” pursuant to 19 U.S.C. § 1505. Id.
Case No. 02-00116 Page 57

Under 19 U.S.C. § 1485, lump sum payments must be reported to

Customs at once unless other arrangements have been made.

Ford contends that, in order to prove that it acted with

reasonable care, Ford need only show that it met its “obligation to

notify Customs after entry if it received information that entered

prices had changed.” Def.’s Post-Trial Br. at 19. Ford also

argues that the Reconciliation Agreement placed Customs on notice,

thereby satisfied the requirements of advance timely notice set

forth in Hitachi. See id. Ford maintains that it had created

procedures to tender duties after post-entry payments were made.

See id. Lastly, Ford asserts that it consistently filed

reconciliations with Customs and that its “program was more

proactive than the type of post entry notice to Customs than the

Hitachi court contemplated.” Id. at 20.

The evidence established that the Reconciliation Agreement

constitutes an arrangement between Customs and Ford, which modified

Ford’s duty under 19 U.S.C. § 1485. Pursuant to the arrangement,

Ford was allowed to report lump sum payments made after entry in an

annual reconciliation report to Customs. See Pl.’s Ex. 55. Ford

proposed the Reconciliation Agreement to capture and report to

Customs lump sum payments made after vehicles and vehicle

components had been entered. See id. Under the plain language of

the Reconciliation Agreement, Ford was required to submit such
Case No. 02-00116 Page 58

reports within 60 days after the close of each model year, July 30.

See Pl.’s Ex. 55 (stating that “[a]n annual reconciliation report

will be prepared for each import program and filed with the Detroit

customs”). Mr. Kruzich, the Ford employee who proposed the 60-day

time frame, chose the time frame because he “thought it was

reasonable at the time.” Joint Ex. 2 at 114.

Ford did not rebut with credible evidence the specific

language of the agreement which set the 60-day time-frame as a

fixed deadline. Ford presented several witnesses that indicated

that they believed the 60-day time-frame was a target date rather

than a fixed deadline. See Joint Ex. 2 at 114-15; TT at 541.

Based on the witnesses demeanor and inability to independently

recollect events and facts, the Court finds their testimony

incredible. Moreover, the testimony of these witnesses is directly

controverted by the plain language of the Reconciliation Agreement,

which states that reconciliation reports were to be filed “within

60 days after the close of each model year (July 30) . . . .”

Pl.’s Ex. 55. Furthermore, there was no evidence presented by Ford

of any other agreement modifying the Reconciliation Agreement.

Customs’ response to Ford’s proposal for the Reconciliation

Agreement did not modify the proposed time-frame. See Pl.’s Ex.

55. The testimony and documentary evidence established that the

60-day time frame was a deadline and not a “target” date. The
Case No. 02-00116 Page 59

evidence demonstrated that the Reconciliation Agreement absolved

Ford from liability of reporting changes in value “at once”, if

Ford reported such changes before the 60-day deadline. The

agreement, however, did not absolve Ford from liability for

submissions made after the 60-day deadline had lapsed.

Customs established that Ford failed to meet the requirements

of 19 U.S.C. § 1485 or the Reconciliation Agreement. Except for

one of the duty tenders at issue, Ford failed to submit its

reconciliation reports to Customs within the 60-day deadline. See

e.g. Pl’s. Ex. 12, 14, 15, 17, 19, 20, 29, 30, 33, 35. Ford’s

failure to timely file the reconciliation reports was in direct

contravention to the plain text of the Reconciliation Agreement.

In failing to meet the deadline, Ford waived its immunity from

liability for violating the “at once” provision of 19 U.S.C. §

1485. Moreover, the evidence established that Ford failed to

exercise reasonable care to comply with the terms of the

Reconciliation Agreement or 19 U.S.C. § 1485.

Although Ford may have escaped liability if it had submitted

its reconciliation reports within the 60-day deadline, Ford failed

to comply with the explicit terms of the agreement and consistently

filed reconciliation reports well after the 60-day deadline. See

e.g., Pl.’s Ex. 12, 14, 15, 17, 19, 20, 29, 30, 33, 35. The

reconciliation process “could take anywhere from a few months to
Case No. 02-00116 Page 60

six months to eight months.” TT at 391. Ford, however, only began

the reconciliation process at the end of the model year. See TT at

387-88. The testimony of Ms. Monro, the Ford employee responsible

for creating the bulk of the reconciliation reports at issue, see

TT at 381, established that Ford knew or should have known that the

reconciliation process could not be completed within the 60 days

after the model year. Ford failed to present evidence that it

notified Customs that its reconciliation reports would not be

submitted before the 60-day deadline lapsed. Ford also did not

seek permission from Customs to extend the 60-day deadline. See TT

at 344; Joint Ex. 2 at 117. Furthermore, in compiling the

reconciliation reports, Ford did not contemplate reporting any

expenses paid after the model year closed until the following

year’s reconciliation report. See TT at 386, 402-03, 435-36.

Ford’s lack of reasonable care is further illustrated by its

inability to accurately capture all lump sum payments in the

untimely reconciliation reports. On several occasions Ford advised

Customs that it had failed to capture ceratin lump sum payments in

the reconciliation reports it had already submitted. See e.g.,

Pl.s’ Ex. 19 & 34. Ford also submitted letters to Customs which it

labeled “prior disclosures” to advise Customs that it had failed to

report lump sum payments made after entry. See e.g., Pl.s’ Ex. 33

& 34. Ford’s failure to begin the reconciliation process before

the model year ended, even though it knew that it was a lengthy
Case No. 02-00116 Page 61

process, and its failure to notify Customs that the reconciliation

reports would be submitted after the deadline demonstrated Ford’s

lack of reasonable care.

The evidence presented at trial established that Ford had an

agreement with Customs to submit reconciliation reports within 60

days after the model year closed. Ford argues that it understood

the deadline of the Reconciliation Agreement to be a target date.

See Def.’s Post-Trial Br. at 20-21. Ford, however, failed to

present persuasive evidence to support its claim. Ford violated

the Reconciliation Agreement and filed its reconciliation reports

after the Reconciliation Agreement deadline. In some instances

Ford disclosed such information a year or more after the close of

the model year. See e.g., 15, 20, 32, 36, 38. Ford failed to

produce any evidence that a reasonable person acting with

reasonable care would have understood the agreement to mean

anything other than imposing a 60-day deadline. Moreover, Ford did

not present evidence that it took reasonable measures to meet the

deadline. Based on the testimony and documentary evidence, the

Court concludes that Ford violated the terms of the Reconciliation

Agreement and the “at once” requirement 19 U.S.C. § 1485 because it

failed to exercise reasonable care.
Case No. 02-00116 Page 62

C. Ford Failed to Make Prior Disclosures of its Violations

The maximum penalty an importer may be assessed is

significantly reduced if the importer discloses facts and

circumstance relating to a violation. See 19 U.S.C. § 1592(c)(4).

To make a prior disclosure, the person concerned must disclose the

circumstances of a violation before, or without knowledge of, the

commencement of a formal investigation and make a tender of any

actual loss of duties.6 See id.; 19 C.F.R. § 162.74(a) (1992). A

formal investigation is considered to be commenced on the earliest

of the following: (1) the date recorded in writing in the

investigatory record as the date the investigating agent believed

the possibility of a violation existed; (2) the date an

investigating agent inquired, in writing or in person, about the

disclosed violation; or (3) the date an investigating agent

requested specific books and records relating to the disclosed

violation. See 19 C.F.R. § 162.74(d)(4). Furthermore, if before

the claimed prior disclosure a person is informed of “the type of

circumstances of the disclosed violation,” then she is “presumed to

have had knowledge of the commencement of a formal investigation.”

6
A violator “discloses the circumstances of a violation”
by providing Customs with a written statement which: (1) identifies
the class or kind of merchandise involved; (2) identifies the entry
included in the disclosure; (3) specifies the material omission or
false statement made at entry; and (4) sets forth the true and
accurate information or data which should have been provided in the
original entry documents. See 19 C.F.R. § 162.71(e).
Case No. 02-00116 Page 63

19 C.F.R. § 162.74(f). This presumption, however, may be defeated

with evidence that the person did not know an investigation had

commenced with respect to the disclosed information. See id.

Ford contends that the maximum penalty that may be assessed is

limited because Ford’s disclosures and duty tenders relating to

lump sum payments constituted valid prior disclosures. See Def.’s

Post-Trial Br. at 23-26. Ford asserts that the documents

describing Customs’ Operation Hat Trick limit the scope of the

investigation to assists and indirect payments. See id. at 24.

Customs’ regulations define the terms “assists” and “indirect

payments” and, therefore, the terms used to describe the

investigation are precise and unambiguous. See id. Ford maintains

that, at the June 1991 Meeting, Mr. Gibson asked for a definition

of the term “indirect payments” and he was simply presented with

two summonses from Mr. Turner. See id. Consequently, Ford argues

that it “relied on Customs published regulation to define the

terms” and, therefore, the scope of Customs’ investigation. Id. at

25. Ford further contends that the summonses did not expand the

scope of the investigation beyond the description set forth in

Customs’ May 23, 1991, notification letter. See id. Ford also

argues that the submission and tenders it filed between 1991

through 1993 were outside the scope of the investigation. Ford

asserts that the payments Ford made directly to its vendors did not
Case No. 02-00116 Page 64

constitute either assists or indirect payments and are consequently

outside the scope of the investigation.

The evidence established, however, that the assists and

indirect payments Ford made in connection with the entries at issue

were within the scope of Customs’ Operation Hat Trick

investigation. See TT at 37-39, 47-48, 283-84, 511-12; Pl.’s Ex.

70 & 71. Operation Hat Trick was initiated by Mr. Turner, based on

personal observations, and information from import specialists

indicating that Ford and other car manufacturers were not declaring

the full value, or price paid or to be paid, for merchandise

entered into the United States. See TT at 37-38, 283. The

evidence established that Operation Hat Trick “included all the

components surrounding value, material omissions, undervaluations,

payments that may not have been reflected on the invoice that was

submitted with the entry summary . . . .” TT at 283; see also TT

37-38. Ford requested the June 1991 Meeting because neither Mr.

Gibson nor Mr. Cohen knew what Customs meant by an indirect payment

in its May 23, 1991, notification letter. See TT at 496-97; see

also TT at 45-46. Ford did not “make indirect payments in terms of

the general definition that [Ford] knew; that is, a payment to A,

A makes a payment to B for the benefit of C. That is what we

thought was an indirect payment, and Ford did not do that.” TT at

498; see also TT at 508.
Case No. 02-00116 Page 65

The testimony and documentary evidence demonstrated that

Customs explained to Ford the scope of its investigation. Customs

notified Ford that “the investigation was going to look at the full

scope of their imports of automobiles and automobile parts; that

[Customs] would be looking programatically one program at a time.”

TT at 47; see also TT at 51-52; Pl.’s Ex. 71. Ford was advised at

the June 1991 Meeting that Customs’ investigation included the

entire scope of Ford’s importation of certain vehicles and vehicle

components. See TT at 286-88; Pl.’s Ex. 71. Ford knew or should

have known that the term “indirect payment,” as used by Customs in

its notification to Ford of the investigation, included all

payments that impacted the final price paid for the merchandise in

question. See TT at 511-12. Based on the evidence, the Court

concludes that the payments Ford made directly to its vendors

between 1987 through 1992 constitute either assists or indirect

payments and, therefore, were within the scope of the Operation Hat

Trick investigation.

Moreover, the evidence established that Customs began its

investigation of Ford on or before May 23, 1991. See Pl.’s Ex. 70.

Ford was notified of Customs’ investigation by letter dated May 23,

1991. See Pl.’s Ex. 5. Ford’s request of a meeting with Customs

to discuss the notification letter illustrates Ford’s knowledge of

Customs’ investigation. See 19 C.F.R. § 162.74(f). Accordingly,
Case No. 02-00116 Page 66

to make a valid prior disclosure, Ford would have had to disclose

the circumstances of its violations and make tenders of any actual

loss of duties before May 23, 1991, the date Customs notified Ford,

in writing, of the nature of its investigation. See 19 C.F.R. §

162.74(a) & (d)(4). Ford failed to present any evidence that it

made such disclosures prior to this date. Rather, Ford’s letters

advising Customs of its violations all came after the May 23, 1991,

notification letter. See e.g., Pl.’s 8, 12, 14, 15, 16, 17, 19,

20, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 42, 43. The Court

concludes that Ford failed to meet its burden of establishing that

it lacked knowledge of Customs’ investigation prior to or at the

time Ford made its disclosures. See 19 U.S.C. § 1592(c)(4). The

evidence established that Ford knew of Customs’ investigation and

that the scope of such investigation covered the entries for which

Ford tendered undeclared duties after the investigation was

commenced.

D. Ford’s Payments Relating to the Festiva

In 1988, Ford and Mazda Motor Corporation (“Mazda”), a

Japanese corporation, executed a Passenger Vehicle Program

Agreement (“Festiva Agreement”) pursuant to which Ford agreed to

purchase Festiva vehicles from Mazda for importation to the United

States. See Pl.’s Ex. 58. Ford argues that the Festiva Agreement

established a minimum annual volume commitment of 85,000 and that
Case No. 02-00116 Page 67

Ford’s failure to purchase such an amount of Festivas would result

in a shortfall penalty. See Def.’s Post-Trial Br. at 28-29. Ford

asserts that the “shortfall penalty provisions were distinct in

both form and substance from any other price adjustment.” Id. at

28. Ford argues that the case at bar is indistinguishable from

Chrysler Corp. v. United States, 17 CIT 1049 (1993), where

production shortfall payments were held to be non-dutiable. See

Def.’s Post-Trial Br. at 29. Ford maintains that the shortfall

payments were booked to different accounts, which were different

from the purchased vehicles accounts and, therefore, not part of

the price for imported vehicles. See id. Additionally, the

shortfall payments were calculated after the close of the period

specified in the agreement and were made in lump sum. See id.

Similar to the agreement at issue in Chrysler, under the Festiva

Agreement, Ford would have had to pay a substantial penalty if it

did not purchase any vehicles. See id. Ford argues that because

no duties were due on Ford’s shortfall payments, Ford is entitled

to recoup the duty tendered for lump sum payments made pursuant to

the Festiva Agreement. See id. at 31. Ford argues that it should

receive the amount of duties it paid on such lump sum payments as

a credit to offset any potential penalties that may be assessed.

See id.
Case No. 02-00116 Page 68

Pursuant to 19 C.F.R. § 152.103(a)(1) (1992), the method of

deriving the price actually paid or payable will not be considered

in determining the transaction value. Rather, the regulation

instructs that the price actually paid or payable may be “the

result of discounts, increases, or negotiations, or may be arrived

at by the application of a formula.” Accordingly, a payment that

represents something other than the per se value of the good may be

properly included in the transaction value. See Chrysler, 17 CIT

at 1054 (citation omitted). The Court must determine whether the

payment by the buyer to the seller was in exchange for merchandise

sold for export. See id. If the payment was not in exchange for

merchandise, then such payment constitutes a penalty which may not

be included in transaction value. See id. at 1054-55.

In Chrysler, the agreement did not contain a formula for

changing the base price depending upon the number of vehicles

purchased. See id. Rather, the court in Chrysler held that the

terms of the agreement at issue obligated the importer to pay a

penalty for each engine that it did not purchase. See id. Such

penalty payments were not part of the transaction value because

nothing was received in exchange for the penalty payments. See id.

The court, in VWP of Am., Inc. v. United States, 25 CIT 1056, 163

F. Supp. 2d 645 (2001), noted that “[c]onceptually, the economic

‘value’ of merchandise in its state as imported would include all
Case No. 02-00116 Page 69

matters which accrue in advance and are incidental to placing it

into the international stream of commerce.” Id. at 1063, 163 F.

Supp. 2d at 653. The court observed that the shortfall payments at

issue in Chrysler were non-dutiable because they were triggered by

non-performance on a contract, rather than importation. See id.

The Court finds that contrary to Ford’s contention, the

Festiva Agreement is not similar to the agreement in Chrysler and

therefore, the lump sum payments made by Ford pursuant to the

Festiva Agreement are dutiable. The Festiva Agreement established

various mechanisms for adjusting the initial purchase price of

Festivas. Depending on the adjustments, Ford was either obligated

to make additional payments to, or be entitled to receive payments

from, Mazda. Under the agreement, Ford was either obligated to

make payments pursuant to market basket criteria provisions

(sections 3.3 and 3.4 of the Festiva Agreement) or the annual

volume commitment and volume price adjustment provisions (sections

2.1 and 2.3 of the Festiva Agreement, respectively). See Pl.’s Ex.

58. Under section 3.3, Ford agreed to purchase Festivas for a

specified base price per vehicle, according to an initial pricing

schedule described in the agreement. See id. In an effort to keep

the purchase price of the imported vehicles competitive within the

United States and Canadian markets, however, the parties agreed to

adjust the initial purchase price on a semi-annual basis pursuant
Case No. 02-00116 Page 70

to the terms of section 3.4. See id. Section 3.4 incorporates a

formula that compares the imported automobiles to similar

automobiles competing in the same market to derive price

adjustments for the imported automobiles. See id. Those price

adjustments would be reconciled on a semi-annual basis, and any

difference between the preliminary purchase price would be paid in

a lump sum. See id.

Pursuant to section 2.1 of the Festiva Agreement, Ford was

obligated to purchase 85,000 Festivas in a model year. See Pl.’s

Ex. 58. Section 2.3 specifies formulas for determining an

“Adjusted Purchase Price” in the event that Ford’s purchase of

Festivas exceeded or fell short of the annual volume commitment.

See id. Under Section 2.3A, if the number of orders for Festivas

was between 50 and 90 percent of 85,000 vehicles, then the purchase

price for each vehicle would increase. See id. If the number of

orders was less than 50 percent of 85,000 vehicles, then the

parties were obligated to engage in good faith discussions and

either (1) the purchase price would increase, or (2) the parties

would renegotiate the terms of the contract to the extent possible,

or terminate the agreement. See id. Finally, if Ford’s bought

more than 93,500 vehicles, then the purchase price per vehicle

would decrease. See id.
Case No. 02-00116 Page 71

The evidence demonstrated that, based on the number of

vehicles purchased, the purchase price for each vehicle changed

according to the formulas set forth in the Festiva Agreement. See

Pl.’s Ex. 58; see also TT at 77-79. In contrast to the penalty

payments in Chrysler, Ford’s payments under the Festiva Agreement

were not triggered by or based on a purchase commitment or quota.

See id. Rather, the purchase price or transaction value of each

vehicle was adjusted depending on changing market conditions. The

Court notes that the Festiva Agreement’s cancellation clause

provided for the recovery of fixed costs by Mazda if Ford failed to

perform. See Pl.’s Ex. 58. In contrast, the agreement in Chrysler

required the importer to pay a penalty for each engine it did not

purchase so that the producer could recoup fixed costs expended.

See Chrysler, 25 CIT at 1054-55. Consequently, the lump sum

payments Ford made in connection with the Festiva did not

constitute a penalty. Rather, these payments were related to the

price actually paid or payable and, therefore, were dutiable.

Consequently, Ford’s request for a credit for overpaid duties is

not warranted because Ford owed Customs the duties it tendered.

E. Customs Failed to Prove $68,178 For Duties Remains Unpaid

Ford asserts that Customs’ demand for duties in the amount of

$68,178 with respect to undeclared development costs for the Yamaha

3.2 liter SHO engines should be dismissed. See Def.’s Post-Trial
Case No. 02-00116 Page 72

Br. at 30. Ford contends that Customs did not satisfy its burden

of proof because it presented “no evidence to explain to what the

amount alleged in the Complaint relates, how the amount was

calculated, or evidence showing that Customs made a demand for

payment prior to this action.” Id. Alternatively, Ford argues

that Customs’ demand for $68,178 was not the subject of any pre-

penalty or penalty notice. See id. Therefore, Ford was prevented

from exhausting its administrative remedies. See id. Ford also

asserts that Customs did not follow its own administrative

procedures, as illustrated by Customs failure to make a proper

demand pursuant to 19 C.F.R. § 162.79b. See id. Consequently, Ford

argues that the Court lacks jurisdiction over this claim. See id.

Customs asserts, however, that Ford failed to produce evidence

establishing that Ford’s waiver of the statute of limitations

related to Yamaha SHO engines did not encompass development costs

for non-imported prototype engines. See Customs’ Post-Trial Br. at

31. Customs asserts that the statute of limitations is an

affirmative defense to an action seeking unpaid duties and

penalties and, therefore, may be waived. See id. Moreover,

Customs argues that Ford bears the burden of proof concerning the

application of the statute of limitations defense because it raised

the affirmative defense. See id. Ford, however, did not prove

that the general waiver included the duty claim for $68,178. In
Case No. 02-00116 Page 73

addition, Customs maintains that 19 U.S.C. § 1592 does not require

that the duty claim be addressed in an administrative proceeding.

See id. at n.21. Accordingly, Customs argues that it is entitled

to $68,178 for unpaid duties related to development costs for the

Yamaha 3.2 liter SHO engine.

The Court agrees with Ford that Customs failed to present

evidence to satisfy its burden of proof with respect to its demand

for $68,178 for unpaid duties. Pursuant to 19 U.S.C. § 1592(d),

Customs, may collect any lawful duties owed resulting from a 19

U.S.C. § 1592(a) violation notwithstanding 19 U.S.C. § 1514

(finality of liquidations) whether or not a monetary penalty is

assessed. See 19 U.S.C. § 1592(d). In the present matter,

however, Customs failed to present any evidence at trial to support

its claim that Ford deprived Customs of $68,178 in unpaid duties

and fees related to developmental costs for the 3.2 liter SHO

engines. The only evidence Customs presented was ROI #27, which is

a penalty case referral to the district director. See Pl.’s Ex.

59. As aforementioned, the Court does not place great weight in

the veracity of this document because it was created in

contemplation of penalty proceedings against Ford. Additionally,

Customs failed to introduce into evidence the pre-penalty or

penalty notices.
Case No. 02-00116 Page 74

Customs failed to present any corroborating evidence

suggesting that Ford failed to tender correct duties. Accordingly,

the only evidence the Court has before it to evaluate the validity

of the claim is the complaint itself. Without supporting evidence

moved and admitted into evidence during trial, there is

insufficient evidence demonstrating that Customs was deprived of

duties. Accordingly, the Court concludes that Customs has failed

to carry its burden of proof and, therefore, Customs request for

$68,178 for unpaid duties and fees is denied.

F. Assessment of Penalties

For negligent violations of 19 U.S.C. § 1592(a), the maximum

penalty is the lesser of the domestic value of the merchandise or

twice the loss of duties. See 19 U.S.C. § 1592(c)(3); 19 C.F.R. §

162.73(a)(3). The plain language of the statute only sets maximum

penalties and does not establish minimum penalties. See 19 U.S.C.

§ 1592(c)(3). Moreover, the statute does not require the court to

begin with the maximum possible penalty and reduce that amount in

light of mitigating factors. See United States v. Modes, Inc., 17

CIT 627, 635, 826 F. Supp. 504, 512 (1993). The Court has

discretion to impose a penalty within the maximum established by

the statute. A number of factors, however, may be considered in

assessing a penalty. See id. at 636, 826 F. Supp. at 513; United

States v. Complex Mach. Works Co., 23 CIT 942, 949-50, 83 F. Supp.
Case No. 02-00116 Page 75

2d 1307, 1315 (1999). These factors are:

1. The defendant’s good faith effort to comply with the
statute.
2. The defendant’s degree of culpability.
3. The defendant’s history of previous violations.
4. The nature of the public interest in ensuring compliance
with the regulations involved.
5. The nature and circumstances of the violation at issue.
6. The gravity of the violation.
7. The defendant’s ability to pay.
8. 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.
9. That the penalty not otherwise be shocking to the
conscience of the Court.
10. The economic benefit gained by the defendant through the
violation.
11. The degree of harm to the public.
12. The value of vindicating the agency authority.
13. Whether the party sought to be protected by the statute
had been adequately compensated for the harm.
14. And such other matters as justice may require.

See Complex Mach., 23 CIT at 949-50, 83 F. Supp. 2d 1315 (citations

omitted). The first ten factors relate to deterring future

violations, which was Congress’ primary focus when it enacted 19

U.S.C. § 1592. See id. at 950, 83 F. Supp. 2d at 1316.

Consequently, in determining the size of the penalty, these ten

factors are accorded greater weight. See id.

Pursuant 19 U.S.C. § 1592(c)(3), the maximum penalty that can

be assessed against Ford for negligence is $17,151,923.60, twice

the loss of revenue, $8,575,961.80, to the United States

established by Customs. In Count II of its complaint, Customs

claims that the loss of revenue to the United States was
Case No. 02-00116 Page 76

$8,644,139.80, of which $68,178 remains unpaid. See Compl. Based

on its alleged loss of revenue, Customs seeks a penalty of

$17,288,279. See id. The Court, however, concludes that Customs

failed to meets its burden and establish that Ford owes $68,178 for

unpaid duties. Accordingly, the Court finds that the actual loss

of revenue to the United States was $8,575,961.80.

Ford argues that any penalty assessed should be mitigated

because there is significant evidence demonstrating Ford’s

consistent efforts to comply with its statutory obligations. See

Def.’s Post-Trial Br. at 32. Ford asserts that it made consistent

efforts to fully and properly account for its transactions. See

id. Ford maintains that Customs “was fully aware of [Ford’s]

reconciliations and never told Ford of any deficiency in its

filings.” Id. Finally, Ford asserts that the interests of justice

require the Court to assess a relatively lenient penalty because

Ford did not gain anything from its failure to abide by the

deadline set forth in the Reconciliation Agreement. See id. at 33.

After carefully considering the mitigating factors set forth

in Complex Machine and the evidence presented at trial, the Court

has determined that the penalty assessed must be a substantial one.

The evidence before the Court established, by a preponderance,

Ford’s failure to comply with 19 U.S.C. §§ 1481, 1484, 1485 and

1592. The Court takes into account, inter alia, the degree of harm
Case No. 02-00116 Page 77

to Customs, the duration of Ford’s violations, and whether Ford

made a good faith effort to fulfill its statutory obligations.

There was overwhelming evidence presented that Ford failed to

declare the correct transaction value at entry for more than $350

million of merchandise entered between 1987 through 1992. See

Pl.’s Ex. 8, 12, 14, 15, 16, 17, 19, 20, 21, 22, 23, 24, 25, 26,

27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 42, 43, 57. In an

effort to comply with 19 U.S.C. § 1485, the evidence showed that

Ford failed to make a good faith effort to meet its obligations

pursuant to the Reconciliation Agreement. The majority of

reconciliation reports submitted in connection with the entries at

issue were well after the 60-day deadline imposed by the

Reconciliation Agreement. Furthermore, the evidence demonstrated

that Ford on several occasions had to file additional

reconciliation reports because it had failed to adequately capture

certain lump sum payments in its previous submissions. Customs

established by a preponderance of the evidence that Ford failed to

declare assists and lump sum payments made between 1987 through

1992 because of Ford’s failure to exercise reasonable care. Ford’s

failure to properly declare such payments over the course of five

years further illustrates Ford’s lack of good effort to correct its

violations.
Case No. 02-00116 Page 78

The evidence also established that Ford failed to exercise

reasonable care in carrying out its own customs compliance measure.

The manual instructed Ford employees to place a “provisional”

disclaimer on invoices when the value of the merchandise is not

completely or correctly shown. See Joint Ex. 2. The evidence

established that Ford employees did not follow the compliance

manual. The transaction values for the entries at issue were not

known at the time of entry because Ford had supply agreements with

its vendors subjecting the prices of the merchandise to further

adjustments. See Pretrial Order, Schedule C ¶ 1. Ford, however,

did not present any evidence that a “provisional” disclaimer was

placed on any of the invoices relating to the merchandise at issue.

The Court concludes that Ford’s inexplicable failure to follow its

own compliance measures and its statutory obligations was the

result of Ford’s negligence.

The Court, after weighing the evidence and the various

mitigating factors, concludes that Ford’s penalty does not warrant

mitigation. The severity of Ford’s culpability and the resulting

violation of its statutory obligations were substantial. The

significant public interest in the enforcement of Customs’

regulations also weigh in favor of the imposition of a heavy

penalty. See Complex Mach., 23 CIT at 952, 83 F. Supp. 2d at 1317.

Here, the evidence established by a preponderance that Ford’s
Case No. 02-00116 Page 79

negligent conduct led to its failure to meet its statutorily

mandated obligations. Consequently, the Court assesses the

statutory maximum penalty for negligence pursuant to 19 U.S.C. §

1592(c)(3). Ford is assessed a penalty of $17,151,923.60.

CONCLUSION

Ford negligently violated 19 U.S.C. §§ 1481, 1484, 1485 and

1592 by failing to advise Customs that the transaction values in

the entry documents were not final. Ford violated 19 U.S.C. § 1485

by failing to adhere to the requirements of the Reconciliation

Agreement of reporting lump sum payments. Pursuant to 19 U.S.C. §

1592, the Court grants judgment for plaintiff and assess a civil

penalty against defendant in the amount of $17,151,923.60, plus

interest from the date of judgment. Plaintiff’s request for

$68,178 for unpaid duties is denied. Defendant’s counterclaim for

a credit for duty tenders made with respect to lump sum payments

for the Festiva is also dismissed. Judgment shall be entered

accordingly.

/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE

Dated: July 21, 2005
New York, New York