Slip Op. 05-24
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
United States, :
:
Plaintiff, :
: Court No.
v. : 02-00106
:
Ford Motor Company, :
:
Defendant. :
________________________________________:
The United States Bureau of Customs and Border Protection of
the Department of Homeland Security (“Customs”), plaintiff, seeks
to collect civil penalties and customs duties concerning certain
merchandise imported by Ford Motor Company (“Ford”), defendant, in
violation of 19 U.S.C. § 1592 (1988). Customs moves pursuant to
USCIT R. 56 for summary judgement on the prior disclosure and
statute of limitations defenses raised by Ford. Customs also moves
pursuant to USCIT R. 12 to dismiss Ford’s counterclaim, which seeks
a refund of certain duties tendered in connection with this matter.
Held: Customs’ motion for summary judgment on the prior
disclosure and statute of limitations defenses and to dismiss
counterclaim is denied.
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 Michael Panzera); of counsel: Jeffrey
E. Reim and Katherine Kramarich, United States 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
Frances P. Hadfield); of counsel: Paulsen K. Vandevert, Ford Motor
Company, for Ford Motor Company, defendant.
Dated : February 18, 2005
Case No. 02-00106 Page 2
OPINION AND ORDER
TSOUCALAS, Senior Judge: The United States Bureau of Customs
and Border Protection of the Department of Homeland Security
(“Customs”),1 plaintiff, seeks to collect civil penalties and
customs duties concerning certain merchandise imported by Ford
Motor Company (“Ford”), defendant, in violation of 19 U.S.C. § 1592
(1988).2 Customs moves pursuant to USCIT R. 56 for summary
judgement on the prior disclosure and statute of limitations
defenses raised by Ford. Customs also moves pursuant to USCIT R.
12(b) to dismiss Ford’s counterclaim seeking a refund of certain
duties tendered in connection with this matter.
BACKGROUND
On October 25, 2004, Customs moved for summary judgement on
the prior disclosure and statute of limitations defenses raised by
Ford. Customs also moved to dismiss Ford’s counterclaim for
failure to state a claim upon which relief can be granted.3 See
1
The United States Customs Service was renamed the Bureau
of Customs and Border Protection of the Department of Homeland
Security, effective March 1, 2003. See H.R. Doc. No. 108-32
(2003).
2
Customs seeks $184,495 in unpaid duties and civil
penalties in the amount of $21,314,111 if Ford’s conduct is found
to be fraudulent; $3,497,080 if Ford was grossly negligent; or
$1,748,540 if Ford was negligent. See Complaint.
3
Customs mistakenly filed its motion pursuant to USCIT R.
12(b)(6). See Customs’ Mot. at 1. USCIT R. 12(b)(6), however, is
Case No. 02-00106 Page 3
Pl.’s Mot. Summ. J. Prior Disclosure Statute Limitations Defenses
Dismiss Countercl. (“Customs’ Mot.”). Ford responded on December
13, 2004. See Def.’s Resp. Pl.’s Mot. Summ. J. Prior Disclosure
Statute Limitations Defenses Dismiss Countercl. (“Ford’s Resp.”).
Parties then submitted a joint pretrial order on January 5, 2005.
See Pretrial Order. Customs submitted its reply on January 11,
2005. See Pl.’s Reply Support Mot. Partial Summ. J. Mot. Dismiss
Countercl.. Finally, Ford, with leave from the Court, submitted a
sur-reply on January 14, 2005. See Def.’s Sur-Reply Pl.’s Reply
Mot. Summ. J.. The Court heard oral arguments from the parties on
February 7, 2005.
Ford has waived the statute of limitations defense. See
Ford’s Resp. at 1. Thus, the remaining issues are whether Ford
fulfilled the requirements for prior disclosure status and whether
Ford’s counterclaim has any merit. The Court denied Customs’
motion at the close of oral arguments on February 7, 2005. This
opinion elaborates the Court’s bench ruling.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1582 (2000). Jurisdiction over Ford’s counterclaim is
failure to join a party under R. 19. Although styled under USCIT
R. 12(b)(6), the Court will treat Customs’ motion as filed pursuant
to its proper provision, USCIT R. 12(b)(5).
Case No. 02-00106 Page 4
based on 28 U.S.C. §§ 1583 and 1585 (2000).
STANDARD OF REVIEW
On a motion for summary judgment, the Court must determine
whether there are any genuine issues of fact that are material to
the resolution of the action. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A factual dispute is genuine if it might
affect the outcome of the suit under the governing law. See id.
A genuine dispute for trial exists only if there is evidence from
which a reasonable jury could return a verdict for the non-moving
party. See id. Accordingly, the Court may not decide or try
factual issues upon a motion for summary judgment. See Phone-Mate,
Inc. v. United States, 12 CIT 575, 577, 690 F. Supp. 1048, 1050
(1988). When genuine issues of material fact are not in dispute,
summary judgment is appropriate if the moving party is entitled to
judgment as a matter of law. See USCIT R. 56; see also Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The burden of
demonstrating an absence of genuine disputes as to material facts
is on the moving party. See Celotex, 477 U.S. at 323. Once that
burden is discharged, the non-moving party has the burden of
showing specific facts in dispute. See id.
The Court may dismiss a counterclaim for failure to state a
claim only “where it appears beyond doubt that plaintiff can prove
Case No. 02-00106 Page 5
no set of facts which will entitle him to relief.” Constant v.
Advanced Micro-Devices, Inc., 848 F.2d 1560, 1565 (Fed. Cir. 1998)
(citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Moreover,
the Court must accept all well-pleaded facts as true and view them
in the light most favorable to the non-moving party. See United
States v. Islip, 22 CIT 852, 854, 18 F. Supp. 2d 1047, 1051 (1998)
(citing Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.
Cir. 1991)). A plaintiff is only required to set out in detail the
facts upon which the claim is based so that the defendant has “fair
notice of what his claim is and the grounds upon which it rests.”
Conley, 355 U.S. at 47. The particular relief requested is not
required to be available, as long as the Court can ascertain that
some relief is available. See NEC Corp. v. United States, 20 CIT
1483, 1485, 967 F. Supp. 1305, 1307 (1996).
DISCUSSION
I. Uncontested Facts
Ford, the importer on record, and through its customs broker,
J.V. Carr, Inc., made eleven entries of dutiable merchandise
(“Complaint Entries”) between February 2, 1989, and March 12,
1989.4 See Customs’ Mot. at 2. The Complaint Entries consisted of
dies, checking fixtures, welding equipment, and accessories
4
The eleven entries and their ports of entry are listed in
Exhibit A of the Complaint.
Case No. 02-00106 Page 6
purchased from Ogihara Iron Works, Ltd. of Japan (“OIW”) through
its subsidiary, Ogihara America Corporation (“OAC”) (collectively,
“Ogihara”), to manufacture and assemble parts in Ford’s FN-36
program (“FN-36”).5 See Pretrial Order, Schedule C at ¶¶ 3-4;
Ford’s Resp. at 5 n.5. The entered value of the Complaint Entries
was $63,078,426. See Pretrial Order, Schedule C at ¶ 10. Ford
issued an original purchase order, also called the “base tool
order,” to OIW in May 1987. See id. at ¶ 3. Ford then issued 17
purchase order amendments to the base tool order and “over 200
separately numbered purchase orders for engineering changes and
other price adjustments.” Id. at ¶ 6. These amendments were
issued between May 1987 and January 1991 modifying the purchase
order price from $42,544,844 to $66,075,960. See id. at ¶ 12.
In 1989, various requests for information (referred to as “CF
28”)6 were issued from the Seattle and Detroit District Customs
offices about FN-36 entries.7 Ford responded to the Detroit CF 28
on November 20, 1989, and included copies of the original purchase
5
“FN-36” was Ford’s program code for the 1990 model year
Lincoln Town Car. See Pretrial Order, Schedule C at ¶ 2.
6
Ford describes the CF 28s as routine requests for
information which they respond to regularly from various Customs
ports each year. See Ford’s Resp. at 7.
7
The CF 28s dated February 9, 1989, and March 2, 1989, are
from Seattle and the CF 28 dated March 28, 1989, is from Detroit.
See Pretrial Order, Schedule C at ¶¶ 13-14.
Case No. 02-00106 Page 7
order, amendments 1-16, and Ford’s April 5, 1989, letter.8 See
Pretrial Order, Schedule C at ¶ 15. On December 5, 1990, the
Seattle Customs office reissued a CF 28 covering additional FN-36
entries filed in Seattle. See id. at ¶ 16. Ford responded to the
reissued CF 28 on May 6, 1991, stating that “final audit results
and price adjustments will soon be available.” Id. at ¶ 17.
Customs was investigating OAC’s import practices in the late
1980s. See Customs’ App., Ex. 6 at 9; Ford’s Resp. at 10. As an
outgrowth of the OAC investigation, Customs also began
investigating Ford. See Customs’ Mot. at 12; Ford’s Resp. at 10.
On June 7, 1991, Special Agent in Charge Richard J. Hoglund issued
Ford a summons, served by Special Agent (“SA”) Michael Turner,
demanding production of documents related to the FN-36 program.
See Pretrial Order, Schedule C at ¶ 19; Customs’ App., Ex. 12 at
40-41.
On August 6, 1991, Ford submitted a supplemental response to
its November 20, 1989, response to Detroit’s CF 28.9 See Pretrial
Order, Schedule C at ¶ 20. The supplemental response identified
twelve entries of FN-36 merchandise that Ford estimated it owed
8
The April 5, 1989 letter included a tender of $948,230.45
for certain research and development, tooling, and assists for the
FN-36 program. See Pretrial Order, Schedule C at ¶ 15.
9
Ford refers to the supplemental response as a
reconciliation resulting from price negotiations with Ogihara after
FN-36 imports were completed. See Ford’s Resp. at 6.
Case No. 02-00106 Page 8
$684,417 in unpaid duties and offered to tender the duty upon
Customs’ review. See id. at ¶ 21. After review, Customs concluded
that Ford undervalued the FN-36 entries by $16,816,296, thus owing
$689,775 in unpaid duties. See id. at ¶ 22. On November 22, 1991,
Ford tendered a check for $689,775 in unpaid duties. See id.
Customs exhausted its administrative procedures, initiated on
January 10, 1995, by issuing pre-penalty and penalty notices and
permitting Ford to file petitions in response. See Pretrial Order,
Schedule C at ¶ 23; Customs’ Mot. at 6. Customs then filed this
civil action on January 24, 2002. See Complaint.
II. Statutory Background
Title 19 of the United States Code, section 1592(a)(1)
prohibits fraudulent, grossly negligent, or negligent “material and
false” acts or omissions in connection with the entry of
merchandise into the United States. The penalties for a violation
of 19 U.S.C. § 1592(a) are substantially less if the alleged
violator makes a prior disclosure. See 19 U.S.C. § 1592(c)(4). A
prior disclosure is a disclosure of “the circumstances of a
violation” before, “or without knowledge of, the commencement of a
formal investigation of such violation.” Id. An alleged violator
has the burden of proof of establishing a lack of knowledge of the
commencement of a formal investigation. See id. Furthermore, a
Case No. 02-00106 Page 9
person is presumed to have such knowledge if an investigating
agent, who identifies himself and the nature of his inquiry,
inquires about or requests specific records concerning “the type of
or circumstances of the disclosed violation.” 19 C.F.R. §
162.74(f)(2)&(3) (1991). The presumption is rebuttable with
evidence that the person did not know an investigation had
commenced with respect to the disclosed information. See 19 C.F.R.
§ 162.74(f). A formal investigation is considered to be commenced
on the earliest of the following: (1) the date recorded in writing
in the investigatory record when an investigating agent believed
the possibility of a violation existed; (2) the date an
investigating agent, after identifying himself and the nature of
his inquiry: (a) inquired about the type of or circumstances of the
disclosed violation, or (b) requested specific books and records
relating to the disclosed information. See 19 C.F.R. §
162.74(d)(4). Further, a prior disclosure is made if it is
disclosed “in writing to a district director” and “makes a tender
of any actual loss of duties. . . .” 19 C.F.R. § 162.74(a).
III. Further Findings of Fact are Required to Determine When
Customs Commenced its Formal Investigation
Customs states that its investigation commenced, and that Ford
knew it was being investigated no later than October 18, 1990. See
Customs’ Mot. at 14 and 19. On this date, Customs requested the
Case No. 02-00106 Page 10
production of FN-36 entry records during a meeting. See id. This
meeting was documented in an OAC Report of Investigation (“ROI”)
dated January 7, 1991. See id. at 17. That documentation is
valid, Customs argues, because the regulations do not require a
separate file to record the opening of an investigation. See id.
at 13. In the alternative, Customs argues that Ford’s formal
investigation commenced no later than January 7, 1991, when SA
Turner’s suspicions of a violation by Ford were recorded in the OAC
ROI. See id. at 18-19. Customs also states that, even if Ford
could establish that an alleged disclosure occurred prior to, or
without the knowledge of a formal investigation, the alleged
disclosure still fails to satisfy the controlling regulations. See
id. at 10.
Ford, in response, argues that Customs did not commence its
investigation until August 21, 1991. See Ford’s Resp. at 30. In
support, Ford argues that this is the only date when the office of
investigations began taking steps it ordinarily takes when
commencing an investigation, particularly when verifying a prior
disclosure claim. See id. Such steps included opening a file,
sending notice to auditors and import specialists, requesting
liquidation of entries to be delayed, and requesting entries be
sent to the agent in charge. See id.
Under 19 U.S.C. § 1592(c)(4) and 19 C.F.R. § 162.74(a), a
Case No. 02-00106 Page 11
valid prior disclosure must be made before, or without knowledge
of, the commencement of a formal investigation. Based on the
parties’ contentions stated above, a dispute exists to when Customs
commenced a formal investigation of Ford. Additionally, during the
October 18, 1990, meeting, Customs states SA Turner asked Mr.
Gibson, of Ford, about an entry related to the FN-36 program. See
Customs’ Mot. at 17. Ford states that the meeting occurred on
November 27, 1990, but agrees that SA Turner and Mr. Gibson met and
an entry related to FN-36 was inquired about. See Ford’s Resp. at
31; Customs’ App., Ex. 8 at 27. The parties only agree that a
meeting occurred. Ford claims that it understood the inquiry made
at the meeting to be a part of Customs’ investigation of OAC and
not a part of an investigation of Ford itself. See Ford’s Resp. at
32-33. Customs states that Ford is presumed to have known of the
investigation as a matter of law under 19 C.F.R. § 162.74(f)
because Customs “inquired about a particular entry of FN-36
merchandise, sought information concerning all other FN-36 entries
filed by Ford, and/or requested specific books and records from
Ford related to the FN-36 project.” Customs’ Mot. at 19. In
viewing the evidence in favor of the non-movant, the Court does not
agree that the meeting clearly constitutes the commencement of a
formal investigation of Ford. For Ford to presumably know of the
investigation under 19 C.F.R. § 162.74(f), the investigating agent
has to identify himself and the nature of his inquiry. The parties
Case No. 02-00106 Page 12
dispute whether the meeting and subsequent request for Ford’s
records was part of Customs’ continuing investigation of OAC or was
part of a separate investigation of Ford.
The OAC ROI, dated January 7, 1991, documents the October 18,
1990/November 27, 1990, meeting. See Customs’ Mot. at 17. The ROI
states that:
On October 18, 1990, I [SA Turner] met with Ford
attorney C. Harry Gibson, and advised him that Customs
would ask to review Ford’s records related to payment
for and receipt of the presses purchased from OIW and
OAC for the FN-36 Lincoln Town Car Project. Gibson
advised that Ford would compile the requested
information.
See Customs’ App., Ex. 6 at 14. The ROI, on its face, does not
mention the possibility or suspicion that Ford violated 19 U.S.C.
§ 1592. Again, viewing the present evidence in a light favorable
to the non-movant, the ROI could reasonably indicate that Customs
was merely requesting Ford’s participation in the OAC
investigation. Because issues of material fact exist as to when
Customs commenced its formal investigation of Ford, summary
judgement fails and therefore is denied.
IV. Ford’s Counterclaim is Proper
Customs moves to dismiss Ford’s refund counterclaim seeking
$689,775 plus lawful interest for duties tendered on November 22,
1991, resulting from an undervaluation of the FN-36 project. See
Customs’ Mot. at 1; Answer at ¶ 42. Ford’s counterclaim states
Case No. 02-00106 Page 13
that the Complaint Entries were appraised based on the transaction
value of the imported merchandise, which was equal to the prices
stated on the invoices presented at the time of entry. See Answer
at ¶¶ 36-42. Therefore, Ford argues that it is entitled to a
refund for overpaid duties. See Ford’s Resp. at 37. Customs
asserts that Ford’s counterclaim fails to identify any statutory or
regulatory basis for obtaining a refund. See Customs’ Mot. at 24.
Under USCIT Rules 8(a) and 13, however, Ford is not required to
identify such a basis for its counterclaim. Ford’s counterclaim is
a short and plain statement properly limited to the value of the
Complaint Entries, which is a direct challenge to Customs’ case.
Accordingly, Ford’s counterclaim falls within the Court’s subject
matter jurisdiction thereby satisfying USCIT R. 8. Furthermore, a
counterclaim “may or may not diminish or defeat the recovery sought
by the opposing party.” USCIT R. 13(b). The Court finds that
Ford’s counterclaim meets the requirements of this Court’s rules.
Therefore, Customs’ motion to dismiss Ford’s counterclaim is
denied.
CONCLUSION
In conclusion, a factual dispute exists as to when Customs
commenced its formal investigation of Ford. Factual issues also
exist as to when Ford knew it was being investigated about the
Complaint Entries. Additionally, Ford has properly pleaded its
Case No. 02-00106 Page 14
counterclaim. Upon consideration of Customs’ motion for summary
judgment on the prior disclosure and statute of limitations
defenses and to dismiss counterclaim, all pleadings and papers
filed herein, and oral arguments, it is hereby
ORDERED that the statute of limitations defense has been
waived and is thus moot; and it is further
ORDERED that the Customs’ motion for summary judgment on the
prior disclosure defense is denied; and it is further
ORDERED that the Customs’ motion to dismiss Ford’s refund
counterclaim is denied; and it is further
ORDERED that the parties prepare for trial on the merits.
/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: February 18, 2005
New York, New York