Slip Op. 05 - 57
UNITED STATES COURT OF INTERNATIONAL TRADE
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UNITED STATES, :
Plaintiff, :
v. : Court No. 01-00358
WASHINGTON INTERNATIONAL INSURANCE :
CO.,
:
Defendant.
:
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Opinion
[Upon cross-motions as to alleged violation
of the Tariff Act, summary judgment for the
defendant.]
Decided: May 12, 2005
Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, and Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice
(Kenneth D. Woodrow), for the plaintiff.
Sandler, Travis & Rosenberg, P.A. (Arthur K. Purcell) for the
defendant.
AQUILINO, Senior Judge: Tariff acts of the United States
have long provided for penalties for inadequate or omitted informa-
tion with regard to imposition of duties on goods upon entry into
the country. E.g., Act of March 3, 1791, §13, 3 Stat. 199, 202; 19
U.S.C. §1592(a)(1),(c) (1992). Moreover, the Tariff Act of 1930,
as amended, has provided for government recovery of unpaid duties,
"whether or not a monetary penalty is assessed"1, which provision
1
19 U.S.C. §1592(d) (1992).
Court No. 01-00358 Page 2
the courts have held to apply to an importer's surety. See, e.g.,
United States v. Blum, 858 F.2d 1566 (Fed.Cir. 1988); United States
v. Yuchius Morality Co., 26 CIT 1224 (2002).
I
That provision is the crux of the complaint filed herein
against the defendant surety Washington International Insurance
Company for recovery of duties in the sum of $542,472.87, "repre-
senting the amount due by the terms of its Customs bond."2 While
defendant's answer denies the occurrence of any violation of
section 1592(a) upon entry of the imports at issue3, it does admit
that the
surety is liable for payment of Section 1592(d) duties
that are lawfully demanded and are the result of a
violation of 19 U.S.C. §1592(a).
Defendant's Answer, para. 2, p. 4.
Following this joinder of issue, the parties simultan-
eously have interposed cross-motions for summary judgment, which
are subject to the court's exclusive jurisdiction per 28 U.S.C.
§1582. The gravamen of plaintiff's motion is that the importer(s)
of record, Sigallo Limited and Franshell Limited of New York, N.Y.,
defendant's principal(s), violated section 1592 "in at least three
2
Complaint, para. 17. Attached to the complaint as exhibit
B is a copy of defendant's continuous bond on Customs Form 301,
effective July 30, 1985 in the amount of $300,000.
3
Those 62 consumption entries of sweaters assembled in Guam
from otherwise-completed, knit-to-shape components of foreign ori-
gin occurred between April 3, 1992 and March 15, 1993. See
Complaint, Exhibit A.
Court No. 01-00358 Page 3
ways"4, namely, by falsely classifying the entries as duty-free
under the Harmonized Tariff Schedule of the United States
("HTSUS"); by falsely stating the value of them, which "had no
basis in fact and included a fabricated amount for 'profit' attrib-
utable to the Guam manufacturer"5; and by omitting material in-
4
Plaintiff's Memorandum, p. 13.
5
Id. Guam is an insular possession of the United States, and
General Note 3(a)(iv) to the 1992 HTSUS provided, for example, in
part:
Products of Insular Possessions.
(A) . . . [G]oods imported from insular posses-
sions of the United States which are outside
the customs territory of the United States are
subject to the rates of duty set forth in
column 1 of the tariff schedule, except that
all such goods the growth or product of any
such possession, or manufactured or produced
in any such possession from materials the
growth, product or manufacture of any such
possession or of the customs territory of the
United States, or of both, which do not con-
tain foreign materials to the value of more
than 70 percent of their total value (or more
than 50 percent of their total value with
respect to goods described in section 213(b)
of the Caribbean Basin Economic Recovery Act),
coming to the customs territory of the United
States directly from any such possession,. . .
are exempt from duty.
The reported intent of that statute with regard to the Caribbean
region cautioned, however, that the
object of these [foreign-content] provisions is to pre-
vent pass-through operations in which the work performed
is of little economic benefit to the Caribbean and
constitutes avoidance of U.S. duties.
H.R. Rep. No. 98-266, p. 13 (1983).
Court No. 01-00358 Page 4
formation about refunded profits that would have enabled Customs to
accurately appraise the true value of the merchandise. Plain-
tiff's Memorandum, p. 13.
Each side's motion for summary judgment is accompanied by
a required statement of material facts as to which the moving party
contends there is no genuine issue to be tried within the meaning
of USCIT Rule 56(h). The statement filed on behalf of the
defendant is, in part, as follows:
5. Prior to the commencement of assembly opera-
tions in Guam, Sigallo, through its customs attorneys,
applied for a binding ruling with Customs Headquarters to
confirm whether sweaters assembled in Guam from foreign
components would be considered products of an insular
possession for purposes of entitlement to duty free
treatment under General Headnote 3(a), TSUS.
6. . . . Headquarters confirmed in HRL 067217
(April 10, 1981) that such sweaters are products of Guam
and would be "entitled to enter the United States under
General Headnote 3(a), TSUS, provided the value limita-
tion of the statute is met and there is compliance with
7.8(d), Customs regulations."
7. . . . Sigallo sought another ruling from
Customs to determine the applicability of statutory
transaction value to the importation of the sweaters to
be manufactured in and exported from Guam.
8. Sigallo's August 3, 1981 ruling request, also
prepared with the advice of customs counsel, identified
the facts and circumstances of the proposed importations,
advising that Sigallo Pac-Ltd., a corporation organized
under the laws of Guam, would produce sweaters from non-
territorial components and that Sigallo and Pac were
"related" companies within the meaning of Section 402(g)
of the TAA. . . .
9. Sigallo's August 3, 1981 ruling request also
asked Customs to confirm that, if in the absence of
Court No. 01-00358 Page 5
transaction value (either under section 402(b) or
402(c), TAA) Sigallo should elect to seek appraisement
under computed value rather than deductive value, the
invoice price will represent computed value and that the
"amount for profit and general expenses equal to that
usually reflected in sales of merchandise of the same
class or kind as the imported merchandise" shall be
considered the producer's actual general expenses and
profit.
10. In HRL 542580 [Nov. 4, 1981], Customs deter-
mined that the goods would be appraised under transaction
value at their invoice values. . . .
11. . . . HRL 542580 determined that the transfer
price between Pac and Sigallo would "closely approximate"
and, in fact be the same as, the computed value of
identical merchandise. The ruling states, inter alia,
that "The record also reflects that the profit will be
sufficient to maintain a 49 percent ratio[] of non-
Guamian costs when compared to the overall appraised
value of the product."
12. In reliance on this ruling, Pac began the
production of sweaters in Guam and the articles were
costed and invoiced in accordance with HRL 542580.
13. Thereafter, . . . Customs issued regulations
for determining the country of origin of textile goods.
T.D. 85-38 (effective April 4, 1984), 19 Cust. Bull. 58.
The regulations provided that textile products would be
considered products of the country where the panels were
knit to shape, instead of the country in which they were
assembled.
14. Because T.D. 85-38 would have resulted in a
duty increase for sweaters assembled in Guam, special
legislation was introduced on behalf of Pac for the
purpose of continuing the duty free eligibility of
sweaters assembled in Guam with non-territorial compon-
ents. The legislation was enacted as part of the Omnibus
Trade and Competitiveness Act of 1988, P.L. 100-418, 102
Stat. 1107 at 1280-81, and established item 905.45, TSUS,
the predecessor provision to HTSUS 9902.61.00.
15. Throughout the relevant period (1981 to 1993),
each of the importers entries from Guam were [sic] ac-
companied by a computed value statement clearly breaking
out the amounts for Guamian expenses and profits.
Court No. 01-00358 Page 6
16. Customs consistently appraised and liquidated
each of the numerous sweater entries manufactured by Pac
and imported by Sigallo and Franshell in accordance with
the values represented on the computed value statements.
17. On or about February 21, 1997, Customs, through
the Fines, Penalties and Forfeitures Office at J.F.K.
Airport, New York, issued a penalty notice to the im-
porters (amended on March 5, 1997 and again on April 2,
1997), . . . claiming monetary penalties and duty loss
for alleged violations of 19 U.S.C. §§ 1592, 1481, and
1485 in connection with the 62 subject entries.
18. The penalty notice alleged fraudulent viola-
tions of the statute, stating that the sweaters were
assembled in Guam by foreign labor, which disqualified
them from duty free treatment under HTSUS 9902.61.00.
19. On or about March 3, 1997, the importers filed
a petition challenging the penalty notice, arguing that
no violation of Section 1592(a) occurred.
20. In response to the petition, Customs . . .
issued a ruling finding insufficient evidence of fraud or
gross negligence, and mitigated the penalty to two times
the loss of revenue. HRL 661821 (April 24, 2001).
* * *
22. On or about May 28, 1997, Customs issued an
amended penalty notice to Sigallo reducing the penalty
amount in accordance with . . . Headquarters' instruc-
tions in its April 24th ruling.
23. Customs thereafter made demands on the im-
porters for payment of penalties and duties under 19
U.S.C. §1592. No payment was tendered by the[m] . . ..
24. Demand for payment of the duties was then made
upon WIIC, as surety, under Section 1592(d). WIIC
declined to pay the duties and the United States com-
menced this action.6
6
Underscoring in original. "TSUS", of course, were the U.S.
Tariff Schedules in effect at the time of earlier imports herein,
while defendant's papers elsewhere indicate that "WIIC" is it and
that "TAA" refers to the Trade Agreements Act of 1979.
Court No. 01-00358 Page 7
The sum and substance of plaintiff's response to this
statement, save paragraph 167, is that it "does not disagree", al-
though, appropriately, it refers the court to the cited Customs
letters themselves for their precise contents. Plaintiff's own
statement, styled Proposed Findings of Uncontroverted Fact, points
to one Steven Segal, "now deceased . . . president and sole share-
holder"8 of the related corporate entities Sigallo, Franshell, and
Pac. It also states, among other things:
16. During the time of the entries at issue, Sigallo's
financial officer used a spreadsheet to compute the
amount of "Guam expense and profit" for each in-
voice. The calculations were based upon the actual
values for the costs attributable to foreign
sources, including the cost of materials (foreign
piece-good, labels, threads, poly-bags, etc.) and
shipping (ocean freight associated with shipping
the foreign material to Guam) and average values
for certain costs attributable to Guam sources
(non-foreign), including manufacturing costs (di-
rect and indirect labor and manufacturing over-
head). . . .
17. The average values for labor and manufacturing
overhead at the Guam factory were estimated based
7
As to this averment, plaintiff's response is that it
disagrees with this allegation because it constitutes an
incorrect characterization of Customs's role with respect
to the entries at issue. Plaintiff states that the
importers filed the entries in accordance with the values
represented on the computed value statements and that the
entries were liquidated without change by Customs.
Subsequent investigation by Customs revealed that certain
amounts listed on the computed value statements were
inaccurate or had no factual basis. . . .
8
Plaintiff's Proposed Findings of Uncontroverted Fact, para.
4, p. 1.
Court No. 01-00358 Page 8
upon the expected production for the year divided
by the total manufacturing and overhead costs
incurred during the previous year. . . .
18. With these costs as inputs, Sigallo's financial
officer used the spreadsheet to calculate an amount
for "Guam expense and profit" for each invoice such
that the total costs allegedly attributable to Guam
sources w[ere] equal or greater than the costs at-
tributable to foreign sources. . . .
19. The purpose of this method of determining the
appraised value of the entered merchandise was to
ensure that the merchandise qualified for duty-free
treatment pursuant to HTSUS [9902].61.00. . . .
20. Over the course of each year, the portion of the
money Sigallo paid to Pac for each shipment as
"Guam expense and profit" began to accumulate in
Pac's accounts. . . .
21. As the Guam "profits" began to accumulate, Pac
would periodically return the money to Sigallo in
the form of intra-company payments. . . .
22. These intra-company refund payments were made
periodically during the course of each year and
were described in Sigallo's combined financial
statements as "dividends." . . .
23. Steven Segal personally directed the frequenc[y]
and quantity of the "dividend" refunds by means of
telexes transmitted to Pac. . . .
24. According to Sigallo's 1992 consolidated financial
statement, Pac stated that it earned $2,714,452 in
net income during the year, but refunded to Sigallo
the exact same amount as "dividends" during the
course of the year. . . .
25. Sigallo routinely sold the imported sweaters to
domestic retailers at an amount less than the price
it paid Pac to import them. . . .
26. The combined Sigallo companies operated profitably
during the time of the entries at issue. . . .
* * *
Court No. 01-00358 Page 9
34. Customs Headquarters . . . ruling on April 24, 2001
upon the importers' petition . . . found that
the[ir]. . . reliance on the earlier . . . ruling
of November 4, 1981 to justify [their] method of
appraising the merchandise was inappropriate. Cus-
toms . . . concluded that the importer[s] made
material false statements on the entry documents
and were liable for the unpaid duties of $2,924,-
392.45 and for a penalty based upon negligence,
rather than fraud, in the amount of $5,848,784.90.
Thus, . . . Headquarters mitigated the penalty.
. . .
Citations omitted.
The defendant admits these paragraphs of plaintiff's
statement except for number 23, as to which it pleads lack of in-
formation sufficient to formulate an answer. See Defendant's Re-
sponse to Plaintiff's Proposed Findings of Uncontroverted Fact, pp.
2, 3.
Given the substantial agreement between the parties over
the salient facts, and having reviewed the documentary evidence
submitted by them in regard thereto, the court concludes that this
action can be decided via summary judgment. That is, the governing
issues are matters of law. See, e.g., Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-50 (1986); Thermacote Welco Co. v. United
States, 27 CIT , , 246 F.Supp.2d 1327, 1328 (2003). And, in
addressing those matters, the Tariff Act provides that,
if the monetary penalty is based on negligence, the
United States shall have the burden of proof to establish
the act or omission constituting the violation, and the
alleged violator shall have the burden of proof that the
act or omission did not occur as a result of negligence.
19 U.S.C. §1592(e)(4).
Court No. 01-00358 Page 10
II
According to the Revised Penalty Guidelines of Customs,
19 C.F.R. Part 171, Appendix B(B)(1) (1992), a violation of 19
U.S.C. §1592(a)
is determined to be negligent if it results from an act
or acts (of commission or omission) done through either
the failure to exercise the degree of reasonable care and
competence expected from a person in the same circum-
stances in ascertaining the facts or in drawing infer-
ences therefrom, in ascertaining the offender's obliga-
tions under the statute, or in communicating information
so that it may be understood by the recipient. As a
general rule, a violation is determined to be negligent
if it results from the offender's failure to exercise
reasonable care and competence to ensure that a statement
made is correct.
See, e.g., United States v. Yuchius Morality Co., 26 CIT 1224, 1228
(2002).
The predicate of plaintiff's present action, albeit not
reproduced among the papers in support of its motion for summary
judgment, is the ruling letter 661821 (April 24, 2001) of Customs
Headquarters. It refers to the Notice of Penalty on Customs Form
5955A, which reaffirms duty-free entry for merchandise "which is
assembled in Guam by U.S. citizens, nationals, or resident aliens"
but also states that
Customs discovered that the importer did not comply with
the provisions of HTSUS 9902.61.00 because it utilized
foreign workers to manufacture the sweaters it imported.
Plaintiff's Appendix, p. 144 (capitalization deleted). More than
four years later, HQ 661821 concluded that the Service could not
Court No. 01-00358 Page 11
substantiate this claim. See Defendant's Memorandum, Exhibit C, p.
2. Furthermore:
The record before us does not contain sufficient
evidence to show that the petitioners knew of their obli-
gation to report the "dividend" payment. We find that
there is insufficient evidence to warrant a finding of
fraud or gross negligence in this case.
Id. at 3. Nonetheless:
. . . We determine that the petitioners failed to
exercise reasonable care in their failure to report to
Customs the fact of the "dividend" payment. We conclude
that the material omissions were the result of negli-
gence.
Id.
On the record adduced, the court cannot and therefore
does not concur even in this mitigated conclusion.
A
The plaintiff refers to its deposition of the importers'
financial officer, Alvin Loux, who stated that the amount declared
for "Guam expense and profit" was a "forced number" to ensure that
the value added in the territory was above the 50-percent threshold
of duty-free status. See Plaintiff's Memorandum, pp. 15-16, citing
Plaintiff's Appendix, pp. 106-10. The plaintiff alleges that in so
doing the importer(s) acted, at a minimum, negligently because they
should have realized that domestic buyers would not agree to
purchase the garments at prices covering such a number. See id. at
19, citing Plaintiff's Appendix, p. 99. The investigation
revealed, however, that the importer(s) could afford this approach
Court No. 01-00358 Page 12
because they would periodically receive the dividend payments, as
deponent Loux reaffirmed:
Q Did it happen that Sigallo [] was paid less for a
group of sweaters than it paid [] Pac for those
same sweaters?
A Yes.
Q Was that a frequent occurrence?
A Sure. That's how the dividend money accumulated.
Q Can you explain that?
A Well . . . Pac had the difference as . . . excess
profit . . .. Because we brought it up over that
50 percent mark, . . . the profit on those sweaters
was all in Guam. So we had to get the money back.
The money had to be dividended back.
Plaintiff's Appendix, p. 109. Indeed, Customs discovered that the
importer(s) received the subsidiary exporter's entire net income
for the 1992 fiscal year, for example, via dividend distributions.
See id. at 15-16, paras. 12-15.
The plaintiff attempts to take the position now that this
approach had not been disclosed and that it would have affected the
subject merchandise's applicable duty rate and thus that the
importers' failure to disclose it constituted a material omission
under section 1592(a)(1)(A). See Plaintiff's Memorandum, pp. 27-
29, citing United States v. Rockwell Int'l Corp., 10 CIT 38, 41-42,
628 F.Supp. 206, 209-10 (1986). But the defendant confirms that
the importer(s) did inform Customs of the intent that the value
Court No. 01-00358 Page 13
added in Guam would be of an amount sufficient to ensure duty-free
entry of the imports. It states that, in fact, Customs had allowed
the importer(s) to structure their transactions this way, as
indicated in HQ 542580 (Nov. 4, 1981):
. . . If in the absence of any transaction value either
under section 402(b) or 402(c), Sigallo Ltd. ("Ltd.")
should elect to seek appraisement under computed value
. . ., you request that we confirm that the invoice price
will represent computed value and that the "amount for
profit and general expenses equal to that usually
reflected in sales of merchandise of the same class or
kind as the imported merchandise" shall be the producer's
actual general expenses and profit.
* * *
. . . [T]he transfer price will represent Pac's full cost
of materials as landed in Guam, its actual direct labor,
overhead . . . and general expenses. The record also
reflects that the profit will be sufficient to maintain
a 49 percent ratio of non-Guamian costs, when compared
with the overall appraised value of the product. . . .
Section 402(e)(2)(B) requires that the amount for general
expenses and profit be based upon the producer's profit
and general expenses, unless the producer's profit and
expenses are inconsistent with those usually reflected in
sales of the same class or kind as the importer's
merchandise. Because there are no other producers of
this merchandise in Guam for exportation to the United
States, Pac's figures represent "the usual general ex-
penses and profit."
Under the circumstances, since the transfer price
between Pac and Ltd. will "closely approximate" and in
fact be the same as the computed value of identical
merchandise, a transaction value may be found for the
merchandise at the transfer price between Ltd. and Pac.
Plaintiff's Appendix, pp. 140, 141, 142. In the importers' ap-
plication requesting this ruling from Customs, counsel had openly
stated:
Court No. 01-00358 Page 14
One of the compelling reasons for [Sigallo] Ltd. or
any importer to import high tariff rate articles from
Guam is the possibility of their duty-free treatment.
Where, as here, foreign materials are incorporated into
the product manufactured in Guam, the only way to ensure
duty-free treatment is for the manufacturer to realize a
sufficiently great profit so as to maintain the ratio of
foreign components to the overall value of the product at
less than 50%. It is submitted that Pac would realize a
similar profit on sales to unrelated parties for the same
reason.
Id. at 137-38. Moreover, to quote further from HQ 661821, pro-
mulgated some 20 years later:
. . . [T]he principal question is whether the price
declared by the [importers] accurately represents the
price actually paid or payable. The value statute states
that any rebate of, or other decrease in, the price
actually paid or payable made or otherwise effected
between the buyer and the seller after the date of
importation will be disregarded in determining the
transaction value. 19 U.S.C. § 1401a(b)(4)(B). Notwith-
standing this provision, the Customs regulations provide
that in determining transaction value, the price actually
paid or payable will be considered without regard to its
method of derivation and may be arrived at by the
application of a formula. 19 C.F.R. § 152.103(a). Cus-
toms has ruled that if the decrease is pursuant to a
formula that was in existence prior to the date of
exportation, then such decrease will not be disregarded.
See HRL 544944, May 26, 1992. The failure to declare the
"dividend" payments materially affected Customs ability
to correctly appraise the merchandise. We conclude
therefore that the [importers] made a material omission
under 19 U.S.C. § 1592(a).
Defendant's Memorandum, Exhibit C, p. 3.
The above-quoted characterization of the importers' ap-
proach as a "formula" 9 within the meaning of 19 C.F.R. §152.103-
9
See Deposition of Alvin Loux, Plaintiff's Appendix, p. 106
(discussing the "formulation" of the "Guam expense and profit"
figure).
Court No. 01-00358 Page 15
(a)(1) is thus central to the Headquarters conclusion that Sigallo/
Franshell had a duty to report the post-importation dividend
payments. But the plaintiff does not discuss this characterization
in its motion papers. On its behalf, the defendant states that the
characterization is inapposite herein. It maintains that neither
section 152.103(a)(1) nor any other provision of law obligates an
importer to report receipt of post-importation dividends. See,
e.g., Defendant's Response in Opposition to Plaintiff's Motion, pp.
19-20, citing 19 U.S.C. §1401a(b)(4)(B):
Any rebate of, or other decrease in, the price
actually paid or payable that is made or otherwise
effected between the buyer and seller after the date of
the importation of the merchandise into the United States
shall be disregarded in determining the transaction value
under paragraph (1).
Cf. 19 C.F.R. §152.103(g) (1992); Statements of Administrative Ac-
tion, H.R. Doc. No. 96-153, Part II, p. 444 (1979).
The court concurs that the word "formula", when read in
the context of 19 C.F.R §152.103(a)(1), does not appear to
implicate the importers' distribution of profit via dividends, to
wit:
. . . In determining transaction value, the price
actually paid or payable will be considered without
regard to its method of derivation. It may be the result
of discounts, increases, or negotiations, or may be
arrived at by the application of a formula, such as the
price in effect on the date of export in the London
Commodity Market.
This usage of that word does not connote an approach of the kind
herein to distribute dividends to a shareholder some time after
Court No. 01-00358 Page 16
exportation. Cf. Gustafson v. Alloyd Co., 513 U.S. 561 (1995):
. . . [A] word is known by the company it keeps (the
doctrine of noscitur a sociis). This rule we rely upon
to avoid ascribing to one word a meaning so broad that it
is inconsistent with its accompanying words, thus giving
"unintended breadth to the Acts of Congress."
Id. at 575 (citation omitted). Furthermore, even if the court
were to agree with Customs that the plan to pass profits to
Sigallo/Franshell was "a formula that was in existence prior to the
date of exportation", that still would not validate its ruling
herein. That is, the only decision it cites in support thereof,
HQ 544944, is in fact inapposite. In that matter, the Service
stated that prices subject to an adjustment, either upward or
downward, pursuant to a formula in existence prior to the date of
exportation cannot be considered the transaction value of an
import, citing HQ 543252 (March 30, 1984). The importer and
exporter therein had a contract wherein the latter would transfer
funds to the former subsequent to the importation of its merchan-
dise. Customs distinguished that contractual formula from that
where a price adjustment pursuant to a prior formula could not be
determined until after the merchandise had been imported, such as
was considered in HQ 543252. And, in contrast to that situation,
in HQ 544944 the Service disregarded the importer's post-importa-
tion receipt of funds from the exporter since the price could be
determined prior to importation, to wit:
. . . The payment to the importer from the seller
subsequent to importation was a rebate of or other de-
Court No. 01-00358 Page 17
crease in the price paid or payable made after the date
of importation and should thus be disregarded in deter-
mining transaction value, pursuant to [19 U.S.C. §1401a-
(b)(4)(B)].
Here, transaction value was based on the transfer price
between Pac and Sigallo/Franshell pursuant to 19 U.S.C. §1401a(b)-
(2)(B)(ii)10 at the time of importation. The dividends were dis-
tributed to the exporter's parent importer(s) later. Cf. HQ 545063
(Sept. 8. 1992):
That the price was in part set so that the seller
could make a profit, and the buyer take advantage of a
duty-free provision, is merely a factor that went into
the negotiations of the price . . .. It does not fall
under any of the four limitations [on the use of transac-
tion value].
In sum, the court concludes that Customs erred in its analysis of
19 C.F.R. §152.103(a)(1) in HQ 661821; the result thereof -- that
10
See HQ 542580 (Nov. 4, 1981), supra.
Notwithstanding the binding effect of this ruling letter, it
does not constitute "treatment" under 19 U.S.C. §1625 (1993), as
defense counsel point out. See Defendant's Response in Opposition
to Plaintiff's Motion, pp. 11, 14-15. The government correctly
recognizes that treatment under section 1625(c) "requires Customs
to publish for public comment any interpretative ruling that would
have the effect of modifying how it had treated substantially
identical transactions in the past." Plaintiff's Reply to
Defendant's Opposition to Plaintiff's Motion, p. 8. Here, as con-
firmed in the importers' application for a binding ruling [see
Plaintiff's Appendix, p. 136], there was no substantially-
identical merchandise being imported into the United States by
others at, or before, that time. Customs
merely accepted the information provided by Sigallo on
its [1981] entry documents at face value, and then
discovered [in its 1995 investigation] that Sigallo had
not provided material information that would have
affected the valuation and duty-free entry of the
merchandise.
Id.
Court No. 01-00358 Page 18
the importer(s) were required to report the post-importation divid-
ends -- cannot be affirmed by this action.
B
The plaintiff claims that the importer(s) violated 19
U.S.C. §1485(a) by falsely reporting or, in the alternative,
failing to update with actual numbers Pac's estimated labor and
overhead costs. See Plaintiff's Memorandum, pp. 22-23, citing
Plaintiff's Appendix, p. 2, para. 8; Plaintiff's Reply, pp. 3-4,
quoting section 1485(a)(4):
[The importer] will produce at once to the appropri-
ate customs officer any invoice, paper, letter, document,
or information received showing that any [] prices or
statements [submitted under oath] are not true or
correct.
See, e.g., United States v. Jac Natori Co ., 19 CIT 930, 933-35
(1995), aff'd in part, vacated in part, 108 F.3d 295 (Fed.Cir.
1997); Memorandum in Support of Plaintiff's Opposition to Defend-
ant's Motion, p. 9. In their application for a binding ruling, the
importers' counsel had stated that
Pac's transfer price to [Sigallo] will represent its full
cost of materials as landed in Guam; its actual direct
labor, overhead and other general expenses . . . and
sufficient profit to maintain a maximum 49% ratio of non-
Guamian costs, when compared with the overall appraised
value of the product.
Plaintiff's Appendix, p. 136. However, as apparently admitted by
the importers' now-deceased president during his interview by
Court No. 01-00358 Page 19
Customs special agents, "it was impossible to compute their value
as [Pac] had no actual costs of overhead until year's end." Id. at
6. He also admitted never having reconciled the estimated figures
with actual numbers. See id. See also Deposition of Alvin Loux,
id. at 105 ("we estimated what the labor and delivery would cost
based on last year"); Declaration of Richard Sartin, id. at 63
("Direct labor [and] indirect labor and overhead were sample
costs").
Be that as it may, plaintiff's posture at this time is
still akin to post-hoc rationalization of a ruling or to an extem-
poraneous amendment of an indictment, each of which violates due
process.11
11
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156,
168-69 (1962), for example, has held that the
courts may not accept appellate counsel's post hoc ra-
tionalizations for agency action; Chenery requires that
an agency's discretionary order be upheld, if at all, on
the same basis articulated in the order by the agency
itself[.] . . . For the courts to substitute their or
counsel's discretion for that of the [agency] is in-
compatible with the orderly functioning of the process of
judicial review[,]
referring to SEC v. Chenery Corp., 318 U.S. 80, 87 (1943):
. . . The grounds upon which an administrative order must
be judged are those upon which the record discloses that
its action was based.
Improper amendment "occurs when the charging terms of the in-
dictment are altered, either literally or in effect, by prosecutor
or court after the grand jury has last passed upon them." Gaither
v. United States, 413 F.2d 1061, 1071 (D.C.Cir. 1969) (footnotes
omitted). Compare Ex parte Bain, 121 U.S. 1, 13 (1887), with
United States v. Cotton, 535 U.S. 625, 630-31 (2002).
Court No. 01-00358 Page 20
III
In view of the foregoing, the plaintiff does not satisfy
its burden of proving that the importer(s) acted in violation of 19
U.S.C. §1592. Hence, the defendant need not prove that its im-
porter principal(s) were not negligent. See 19 U.S.C. §1592(e)(4),
supra. And, without an actionable claim against the importer(s)
pursuant to section §1592(a), there is no basis for collecting
duties from their surety under subsection 1592(d). Cf. United
States v. Blum, 858 F.2d 1566 (Fed.Cir. 1988). Ergo, plaintiff's
motion for summary judgment cannot be granted, and judgment must
therefore enter, granting defendant's cross-motion and dismissing
this action.
Decided: New York, New York
May 12, 2005
Thomas J. Aquilino, Jr.
Senior Judge