United States v. New-Form Manufacturing Co.

Slip Op. 03-77

UNITED STATES COURT OF INTERNATIONAL TRADE

________________________________________
:
UNITED STATES,
:
Plaintiff,
:
v. Court No. 01–00034
:
NEW-FORM MANUFACTURING
COMPANY, LTD., :

Defendant. :
________________________________________

[Judgment by default entered for Plaintiff in customs civil penalty action, imposing maximum
penalty for gross negligence, and awarding interest and costs.]

Decided: June 30, 2003

Robert D. McCallum, Jr., Assistant Attorney General; David M. Cohen, Director,
Commercial Litigation Branch, Civil Division, United States Department of Justice (A. David Lafer
and Timothy P. McIlmail); Kevin B. Marsh, Office of the Associate Chief Counsel, Bureau of
Customs and Border Protection, United States Department of Homeland Security, Of Counsel; for
Plaintiff.

OPINION

RIDGWAY, Judge:

In this customs penalty action, plaintiff, the United States, seeks a civil penalty against

defendant, New-Form Manufacturing Company, Limited, Canada (“New-Form”), for conduct in

connection with its importation of steel jack parts from Canada into the United States. Jurisdiction

lies under 28 U.S.C. § 1582 (1994).1

1
While all statutory citations in this opinion are to the 1994 version of the U.S. Code, the
pertinent text of the cited provisions was the same at all times relevant herein.
Court No. 01-00034 Page 2

Pending before the Court is Plaintiff’s Application for Default Judgment (“Plaintiff’s

Application”). For the reasons set forth below, that application is granted. New-Form “has failed

to plead or otherwise defend” this action, and default has been entered against it. The record further

establishes that, although New-Form knew that its jack parts were subject to antidumping duties, the

company failed to accurately classify and describe its merchandise on its invoices, and – when

questioned by its broker – denied that the merchandise was jack parts. New-Form’s conduct thus

violated 19 U.S.C. § 1592, and warrants imposition of the maximum penalty for gross negligence,

plus interest and costs.

I. Background

A. The Facts of The Case

New-Form, a Canadian corporation located in Canada, manufactured and exported steel jacks

and jack parts to the United States. A81 ¶ 3, A101 ¶ 3, A113 ¶ 5(d)-(e).2 Initially, the company

2
Citations prefaced with the letter “A” are to documents included in the Appendix to
Plaintiff’s Application for Default Judgment (“Pl.’s Appl.”). Citations prefaced with “SA” are to
documents included in the Supplemental Appendix submitted with Plaintiff’s Second Response to
Court’s May 22, 2003 Order (“Pl.’s Supp. Appl.”).

Included in the Appendices are: correspondence from New-Form to the U.S. Department of
Commerce concerning the antidumping finding on Steel Jacks from Canada; New-Form invoices
for the merchandise at issue in this action; a telephone call sheet maintained by New-Form’s broker;
excerpts from an affidavit prepared by New-Form President David M. Boulanger in an unrelated
case; excerpts from the transcript of testimony given at trial by Mr. Boulanger in an unrelated case;
excerpts from the Complaint and Answer, as well as discovery requests and responses, in this action;
the letter from New-Form’s broker to Customs, transmitting payment for unpaid antidumping duties;
excerpts from the transcript of Mr. Boulanger’s deposition in this action; excerpts from the
Harmonized Tariff Schedule of the United States; declarations prepared for this action, by a Customs
special agent; Dun & Bradstreet reports on two business concerns related to New-Form; information
from the website of Supplierpipeline (one of the two concerns); and several computer-generated
reports prepared by Customs concerning the export activities of New-Form and Supplierpipeline.
Court No. 01-00034 Page 3

exported completed jacks. But, eventually, it turned to exporting jack parts – including steel beams,

handles, large and small runners, lifting pins, reversing levers, pitmans, reversing switches, bases,

lever guards, and dowel lift pins – which were then assembled into completed jacks in this country.

A66 ¶ 54, A191-92 ¶ 4.

Under cover of more than 30 entries, between February 5, 1996 and October 22, 1997, New-

Form caused more than 111,000 jack parts to be entered or introduced into the United States. A84

¶ 13, A86-87, A102 ¶ 13, A191-92 ¶ 4. Throughout that period, steel jack parts from Canada were

subject to antidumping duties. See 61 Fed. Reg. 6,627, 6,627-28 (Feb. 21, 1996).

New-Form was aware of the antidumping duty order. Indeed, in 1993, the company sought

to have the antidumping duty finding revoked. A1; 60 Fed. Reg. 53,584 (Oct. 16, 1995). However,

in its notice of the final results of the 1993-94 administrative review of the finding, the U.S.

Department of Commerce explained that New-Form was covered, and described the merchandise

covered as “multi-purpose hand-operated heavy-duty steel jacks, . . . measuring from 36 inches to

64 inches high, assembled, semi-assembled and unassembled, including jack parts, from Canada.”

61 Fed. Reg. 6,627, 6,627-28 (Feb. 21, 1996) (emphasis added).

Moreover, in a September 1997 affidavit (presented in the course of litigation in Canada that

is unrelated to this case), New-Form’s President – David M. Boulanger – explained that New-Form

decided to export jack parts to U.S. to minimize applicable duties. In his words:

[S]elling the components of a given product attracts less duty than would a product
in a finished or assembled state; the duty payable is directly proportional to the value
of the goods being shipped into the United States.
Court No. 01-00034 Page 4

A65-66 ¶ 54 (emphasis added). See also A67 ¶ 59, A72, A171. Included with the affidavit was a

chart, submitted by Mr. Boulanger, which indicated that New-Form’s “Canadian supplied

components” were “subject to U.S. Antidumping duty.” A67 ¶ 58, A69 (emphasis added).

Although New-Form knew that the components at issue were jack parts and were to be used

for jacks, it failed to reflect that fact on its invoices, which were among the documents used to

introduce its merchandise into the U.S. A2-63, A108 ¶ 18(b), A115 ¶ 18(b), A123-26 ¶¶ 56-59,

A127 ¶ 64, A132 ¶ 64, A133 ¶¶ 56-59. New-Form’s invoices also classified the jack parts by

Harmonized Tariff Schedule (“HTS”) numbers that do not apply to jack parts. Some parts were

identified by reference to HTS 8431.10, rather than the more accurate 8431.10.0090. But other parts

were identified by reference to 8201.90.60 and 7326.90. A2-63, A182-85.

Moreover, in mid-June 1996, New-Form was asked point-blank by its broker, Tower Group

International (“Tower”), whether the merchandise at issue was – tracking the language of the

antidumping duty finding – “heavy duty jack parts with a height of 36"-64."” New-Form responded

with an unequivocal “No.” A64.

Although New-Form knew that its merchandise was jack parts to be used for jacks, and

although New-Form knew that jack parts were subject to antidumping duties, neither New-Form nor

Tower paid those duties until years later – when Tower finally paid them, long after the merchandise

had been entered, and after this action had been filed.3 A170. The jack parts at issue were valued

3
New-Form has never asserted that it believed that the antidumping duties were being paid
by Tower; nor could it reasonably do so. The invoices that New-Form received from Tower during
the period the merchandise was entered reflected the fact that Tower was not charging New-Form
for payment of antidumping duties. See A133 ¶ 61.
Court No. 01-00034 Page 5

at $81,537.31; and the revenue lost to the United States (i.e., the unpaid duties) was, until Tower’s

payment, $18,466.84. A192 ¶ 5.

As recently as March 2002, New-Form intended to continue doing business in the U.S., and

had transferred certain of its functions and personnel to a related company called “Supplierpipeline.”

A172, A176-77. Mr. Boulanger is not only the President of New-Form and, through Northman

Holdings, Inc., its sole shareholder (A65, A171); he is also the President and Chief Executive Officer

of Supplierpipeline, which is a subsidiary of Northman Holdings. A171, A187; SA5-6. And Dan

Evans, a former Vice President of New-Form, is now a Vice President of Supplierpipeline. A114

¶ 12; SA5-6, SA10, SA12.

Although New-Form itself has not exported merchandise into this country since December

2002 (SA15-16), it appears that the company’s business is being continued through Supplierpipeline.

Supplierpipeline represents that it began with “[its] Milverton, Ontario operation of New-Form

Manufacturing,” and that it manufactures and distributes jacks. A186; SA9. New-Form’s internet

address – www.new-form.com – leads directly to the website of Supplierpipeline. SA2 ¶ 6. And,

although Dun & Bradstreet reports that Supplierpipeline commenced business in 2000 (SA6),

Supplierpipeline claims to have been doing business for 11 years. SA11. See also A186

(Supplierpipeline boasts of growth rate “for the past 12 years”). Supplierpipeline even advertises,

as one of its products, the “Jackall” jack – the same jack whose parts are the subject of this litigation.

A172, A186; SA12, SA14. In fact, in March 2002, Mr. Boulanger, referring to a U.S. auto

manufacturer, testified that “we’re selling them Jackall jack product from Supplier Pipe Line.”

A172.
Court No. 01-00034 Page 6

In its Spring 2002 newsletter, “In The Pipeline,” Supplierpipeline reported that it was

combining two of its three manufacturing facilities to offer a better freight solution
to its customers. Currently, there are two manufacturing facilities in Mississauga and
one in Milverton, Ontario. The Milverton facility manufactures Erie Wheelbarrows,
Jackall Jacks and many . . . other seasonal lawn and garden products.

SA9 (emphasis added). The newsletter continued, “effective March 23rd, 2002 Supplierpipeline Inc.

will combine its Mississauga MIC Metabuilt facility and its Milverton Newform Manufacturing

facility.” Id. (emphasis added). Further, on January 28, 2003, in an apparent reference to its

“Milverton Newform Manufacturing facility,” Supplierpipeline reported:

The most recent “Pipeline Partner” welcomed to the group is Sinclair-Erie Ltd, a
Canadian manufacturer of Erie wheelbarrows and contractor tools located in
Milverton, Ontario. Sinclair-Erie has acquired a strong manufacturing operation in
Milverton, streamlined its product offering, and is committed to delivering improved
service levels within the next 60 days.

SA11.

Supplierpipeline identifies Sinclair-Erie as one of “two manufacturing partners” that it

“currently operates.” SA13. And, although Supplierpipeline does not list the Jackall jack as one

of the products that Sinclair-Erie manufactures, Sinclair-Erie is located at the same address (37

Pacific Avenue, Milverton, Ontario) and has the same telephone and fax numbers that New-Form

used. A2-63; SA3, SA13.

Through May 2003, Supplierpipeline had exported more than $2.7 million worth of

merchandise into the United States – including, since November 9, 2002, $482,323 worth of

merchandise of which $10,000 consisted of jack parts classified under HTS number 8431.10.0090,

and $12,158 consisted of jacks. SA2 ¶ 4, SA28-46.
Court No. 01-00034 Page 7

B. The Procedural Posture of The Case

The early stages of this action were largely uneventful – discovery was completed, a pretrial

conference was held, and counsel for both parties participated in a settlement conference before

another judge of this Court. Following the settlement conference, the parties were to file reports on

the prospects for settling the case, together with their recommendations as to further proceedings.

The Government’s post-settlement conference report advised that settlement was unlikely,

and proposed a schedule for the filing of dispositive motions. In contrast, the report filed by counsel

for New-Form – barely one month after the pretrial conference – stated that the company had just

declared bankruptcy, that a bankruptcy trustee had been appointed by the Canadian authorities, and

that the trustee had indicated that no counsel would be engaged to represent New-Form (apparently

in this or any other action). The report concluded that it was therefore impossible “to propose any

further recommendations as to further proceedings in this action.” Attached to the report was a copy

of a document on the letterhead of the “Office of the Superintendent of Bankruptcy Canada.” The

document, which is captioned “Certificate of Appointment” and was filed in an action styled “In the

Matter of the Bankruptcy of New-Form Manufacturing Co. Ltd.,” indicates that New-Form declared

bankruptcy on November 7, 2002.4 See also SA 6 (indicating date of filing for bankruptcy).

Through correspondence with the Court, counsel for both parties argued the merits of various

ways of proceeding in light of the bankruptcy – dispositive motions (urged by the Government), a

stay of this action pending the outcome of the bankruptcy ( proposed by counsel to New-Form), and

4
The notice states as the “Date and Time of Bankruptcy: November 7, 2002, 08:30.”
Court No. 01-00034 Page 8

application for default.5 In the meantime, the Court and the Government began to serve all papers

on the bankruptcy trustee, as well as counsel to New-Form.6

5
By letter dated December 5, 2002, then-counsel for New-Form advised that his law firm
“[could not] continue to represent the bankrupt,” but argued that it would nevertheless “be
inequitable to allow a default [against New-Form], even if that default were ultimately meaningless.”
Thus, at least as early as December 2002, New-Form recognized that its failure to retain substitute
counsel to represent its interests in this action could result in the entry of a default judgment against
it.
6
The Court and the Government have gone to great lengths to keep New-Form and its
representatives apprised of the status of this action. By letter dated November 21, 2002, counsel for
both parties were asked to advise how New-Form should be served in the future, in light of the
company’s bankruptcy and the prospective withdrawal of its counsel. That same day, the clerk of
the court contacted Mr. Keith Purves, Official Receiver in the Office of the Superintendent of
Bankruptcy Canada, who issued the Certificate of Appointment appended to the post-settlement
conference report submitted by then-counsel to New-Form. Mr. Purves confirmed that New-Form
had filed for bankruptcy and that KPMG had been appointed trustee, and advised that, as necessary,
the Court should serve the Defendant through the trustee, KPMG, at a Waterloo, Ontario address
which he provided.

In response to the Court’s November 21 letter, then-counsel for New-Form noted that “[t]he
trustee is willing to accept service of any further process in this action.” Counsel’s letter was “cc’d”
to “Richard Sutter, Trustee.” The court then began serving copies of all orders and correspondence
from the court on Mr. Sutter of KPMG, as well as on then-counsel for New-Form. After then-
counsel for New-Form sought leave to withdraw as counsel, the Government began serving copies
of all of its submissions and correspondence on counsel to KPMG as trustee. Since that time, the
court and the Government have served all papers in this action on Mr. Sutter of KPMG and/or on
counsel to KPMG. In addition, most of the more recent filings – including Plaintiff’s Request for
Entry of Default, Plaintiff’s Application for Default Judgment, the Court’s May 22, 2003 Order, and
Plaintiff’s Second Response to Court’s May 22, 2003 Order – have also been served by mail (and,
in some cases, by fax as well) on Willson International Inc. (which became New-Form’s broker in
December 1997) and on New-Form itself (at 37 Pacific Avenue in Milverton, Ontario).

The only document returned to the Court was the copy of its Order of May 22, 2003 that was
mailed to New-Form. The envelope containing that document was returned on June 12, 2003,
stamped “Moved/Unknown” and “Return to Sender” by Canadian postal authorities. That same
order was also faxed to New-Form’s fax number on May 22, 2003. On May 26, 2003, the Court
received a fax from Mr. Ted Sinclair, on the stationery of Sinclair Erie Ltd. at 37 Pacific Avenue in
Milverton, Ontario (New-Form’s address of record), stating: “You have sent a fax to New Form
Court No. 01-00034 Page 9

By letter dated January 10, 2003, a Canadian law firm representing the bankruptcy trustee

sought to “confirm to [the Court] that New-Form has filed an Assignment in Bankruptcy and is

bankrupt.” The letter emphasized that New-Form’s status “is not a proposal in bankruptcy, and

therefore is not analogous to the U.S. Chapter 11 situation. Rather, New-Form is bankrupt and its

assets are being disposed of for distribution” in accordance with Canadian bankruptcy law.

(Emphasis added.) The letter highlighted five separately-numbered points:

1. New-Form is bankrupt and will not be coming out of bankruptcy.

2. The assets of New-Form are being liquidated by secured creditors rather than
by the Trustee in Bankruptcy.

3. It is expected that this will be a “no asset” bankruptcy in that the claims of
secured creditors will exceed the realizable value of assets, and thus there
will be no distribution to unsecured creditors.

4. Under Canadian Bankruptcy Law all proceedings against New-Form are
stayed unless leave of the Bankruptcy Court is granted, and no such leave has
been sought or granted.

5. The Trustee has not been funded to defend the U.S. litigation, or for that
matter to fund [then-counsel to New-Form in this action].7

Letter to Court from Aird & Berlis LLP (Jan. 10, 2003).

Manufacturing Ltd. New Form Manufacturing went into receivership in November 2002. The
Official Receiver for New Form is Richard Sutter of KPMG, [phone and fax numbers]. Please
forward all future correspondence to Mr. Sutter as we will no longer be forwarding.”

Finally, at all times, all papers and other materials filed in this matter have been on deposit
with, and available to New-Form and its representatives through, the clerk of the court, as
contemplated by Rule 5(b) for service where “no address is known.” USCIT Rule 5(b).
7
The letter from trustee’s counsel took pains to note that the firm was not appearing as
counsel in this action.
Court No. 01-00034 Page 10

A second letter from counsel to the trustee painted an even bleaker picture of New-Form’s

status:

There may be some confusion arising from different practises within the United
States and Canada. In the United States . . . it may be relatively common for
companies to seek the protection of Bankruptcy Courts . . . , while continuing
business operations and to later emerge from bankruptcy. Although there are
provisions for corporate re-organization [under Canadian law], this is not a
circumstance where there is in reality any pending proceeding. The result is known.
New Form has been adjudged bankrupt. It is not in the process of re-organization
and is not and will not be carrying on any business. Its assets have been given to the
Trustee for disposition and in fact have been disposed of. . . . In reality, this means
that all of the net proceeds of realization will be going to the former bank of New
Form as its secured creditor.

Letter to Court from Aird & Berlis LLP (Jan. 29, 2003).

The letter reiterated that “New Form is not now nor will it in the future be carrying on any

business,” and analogized “the imposition of a civil penalty to prevent future wrong in this case” as

“somewhat akin to seeking leave to impose a death penalty upon a person who is already dead.” The

letter concluded, “Certainly, if a hearing [in the instant action] is to proceed it will proceed on an

undefended basis,” expressing “doubt that there is any serious precedent value in such a proceeding

(if that were the aim).” Id.

A teleconference was scheduled in this action for early February 2003, to allow the Court and

the parties to discuss the status of the case and future proceedings, in light of the two letters from

counsel to the trustee as well as other developments. In the interim, then-counsel to New-Form

sought leave to withdraw its appearance in this matter, which was granted.

New-Form failed to appear for the scheduled teleconference on February 7, 2003. In the

course of that teleconference, the Court and counsel for the Government weighed various procedural
Court No. 01-00034 Page 11

options. The Government argued that New-Form was already in default because of its failure to be

represented on the teleconference, and advised that the Government was tentatively planning to seek

a default judgment. Audiotape of February 7, 2003 Teleconference. An order issued several days

later instructed New-Form to engage substitute counsel no later than March 3, 2003, warning that

the company’s failure to retain new counsel could result in the entry of judgment by default against

it. See Order of February 13, 2003. There was no response of any kind to that order.

The Government filed a Request for Entry of Default on March 7, 2003. As grounds for its

request, the Government pointed to New-Form’s failure to retain substitute counsel as required by

the Order of February 13, 2003, and invoked Rule 55(a) of the Rules of this Court, which provides

for the clerk’s entry of default against a party that “has failed to plead or otherwise defend.” USCIT

Rule 55(a). Default was duly entered on March 11, 2003.

Approximately one month later, the Government filed the Application for Default Judgment

at issue here. After reviewing the Government’s submission, an order was entered requiring the

parties to file by specified dates certain additional information, including (1) statements as to the

need for, or advisability of, a hearing or trial on damages, under the circumstances of this case; (2)

statements as to whether the parties and their representatives/counsel and witnesses (if any) would

appear at and participate in a hearing or trial, if one were held; (3) memoranda of law discussing the

factors to be considered in determining the amount of a civil penalty, and summarizing the relevant

evidence as to those factors; (4) any further evidence which should be considered in determining the

amount of a civil penalty, including “any evidence bearing on (a) the finances of Defendant and any

related or successor entities, and (b) any potentially exculpatory or mitigatory evidence relating either
Court No. 01-00034 Page 12

to the issue of negligence vs. gross negligence, or to the size of any penalty”; (5) any evidence

concerning New-Form’s bankrupt status and the disposition of its assets; and (6) any evidence

concerning “the nature and extent of the alleged involvement of Defendant’s President in ongoing

ventures presently doing business in the United States.” Order of May 22, 2003.

In addition, the order “once again cautioned [New-Form] that its failure to take immediate

action to protect is interests [might] result in the Court’s entry of judgment by default against it, with

no further notice.” The Government responded to the order in a timely fashion. See Plaintiff’s First

Response to Court’s May 22, 2003 Order; Plaintiff’s Second Response to Court’s May 22, 2003

Order (“Pl.’s Supp. Appl.”). However, the silence from north of the border has been deafening.

In sum, notwithstanding repeated warnings of the potential consequences (including entry

of default and entry of judgment by default), nothing has been heard from New-Form or from any

representative of its interests since February 5, 2003, when its then-counsel withdrew from the case.

New-Form was not represented on the February 7, 2003 teleconference; it failed to respond in any

fashion to the Court’s Order of February 13, 2003; it failed to retain substitute counsel by March 3,

2003 (as the Order of February 13, 2003 required); it failed to respond to Plaintiff’s Request for

Entry of Default; it never sought to set aside the default entered against it on March 11, 2003; it

failed to respond to Plaintiff’s Application for Default Judgment; it failed to request a hearing on

damages (i.e., the size of the penalty to be imposed), although the Court’s May 22, 2003 Order

invited it to do so; and, indeed, it flouted that Order in its entirety.

To be sure, judgment by default is an “extreme sanction” – “a weapon of last, rather than

first, resort.” Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981) (citations omitted). But, here, it
Court No. 01-00034 Page 13

has become abundantly clear that – as counsel to the bankruptcy trustee prophesied some months ago

– if this litigation proceeds, “it will proceed on an undefended basis.” Letter to Court from Aird &

Berlis LLP (Jan. 29, 2003). “Extreme” action is therefore appropriate.

II. The Legal Standard for Judgment by Default

Judgment by default may be entered in a civil penalty action. Indeed, the procedure has been

invoked in at least two prior civil penalty cases before this court. See United States v. Quintin, 5 CIT

260, 261 (1983); United States v. Almany, 24 CIT 579, 579, 110 F. Supp. 2d 977, 977 (2000).8

Moreover, there are no special or different standards that apply in such cases. Entry of default and

entry of judgment by default in civil penalty actions, as in other actions, are governed by Rule 55 of

the rules of this court. See USCIT Rule 55.

8
In United States v. Quintin, the court denied the plaintiff’s motion for default judgment in
a § 1592 action and set the case for trial, for two reasons. The court first noted that, although the pro
se defendant failed to answer the amended complaint, the amended complaint “merely contain[ed]
alternative claims for damages,” and the defendant had filed an answer to the original complaint.
The court thus apparently concluded that the defendant was not truly in default. Second, the court
further noted that, based on the existing record, it simply was “not in a position to determine the
basis of damage, i.e. fraud, gross negligence or negligence.” 5 CIT at 261.

In United States v. Almany, the court entered partial summary judgment by default finding
violations of § 1592, and ordered the parties to propose a schedule for further proceedings to
determine culpability. 74 F. Supp. 2d 1345, 1349 (1999). When the defendants failed to comply
with the court’s order, the court entered judgment on the issue of culpability, and directed the parties
to propose a schedule for proceedings to determine the amount of the penalty. 74 F. Supp. 2d at
1349. Eventually, the court entered judgment against the defendants for the maximum penalty, plus
interest, after the defendants failed to respond to the court’s order to show cause why judgment in
favor of the United States should not be granted. United States v. Almany, 24 CIT 579, 579, 110
F. Supp. 2d 977, 977 (2000).

There was no suggestion in either Quintin or Almany that judgment by default is, as a matter
of law or policy, improper in a civil penalty case. Nor has New-Form advanced any such argument.
Court No. 01-00034 Page 14

The entry of default is a condition precedent to the entry of judgment by default. Meehan v.

Snow, 652 F.2d 274, 276 (2d Cir. 1981). As noted above, Rule 55(a) provides for entry of default

by the clerk of the court “[w]hen a party against whom a judgment for affirmative relief is sought

has failed to plead or otherwise defend.”9 USCIT Rule 55(a).10

9
Judgment by default may be entered not only under Rule 55, but also under Rule 16 (for
example, for failure to obey a scheduling order or to participate in a pretrial conference) or under
Rule 37 (for discovery misconduct), as well as under a court’s inherent powers. See generally
Judgments in Federal Court § 13.01 (1997).
10
There is some authority to the effect that Rule 55(a) “is designed to operate at the initial
stages of a lawsuit,” and would thus be inappropriate here. 10 James Wm. Moore et al., Moore’s
Federal Practice and Procedure § 55.10[2][b] (and cases cited there). Parsing Rule 55(a)’s reference
to a “fail[ure] to plead or otherwise defend,” those authorities reason:

The rule is written in the disjunctive. By its express language it authorizes a default
only if a party fails to plead or otherwise defend. Therefore, once a party has
pleaded, or has otherwise defended, may that party’s subsequent conduct, such as a
failure to appear at trial or a failure to comply with discovery requests, be considered
a subsequent failure to “otherwise defend” so as to justify the entry of a default under
Rule 55(a)? The proper answer is no.

Id. Indeed, this Court endorsed that rationale in United States v. T.J. Manalo, Inc., 26 CIT ____,
____ n.7, 240 F. Supp. 2d 1255, 1258 n.7 (2002).

But, however logical that position may appear at first blush, it is against the great weight of
the authority. Courts across the country routinely enter default and judgment by default in
circumstances similar to those presented here. See, e.g., Alameda v. Sec’y of Health, Education and
Welfare, 622 F.2d 1044, 1048 (1st Cir. 1980) (defendant’s failure to file memoranda requested by
court, or to offer explanation after months of delay, constituted failure to “otherwise defend” suit);
Eagle Associates v. Bank of Montreal, 926 F.2d 1305, 1310 (2d Cir. 1991) (partnership’s failure to
comply with court order to retain counsel constituted failure to “otherwise defend”); Hoxworth v.
Blinder, Robinson & Co., 980 F.2d 912, 917-18 (3d Cir. 1992) (filing of answer to complaint did
not preclude default judgment against defendant that failed to appear at trial); Home Port Rentals,
Inc. v. Ruben, 957 F.2d 126, 133 (4th Cir. 1992) (failure to appear at show cause hearing and failure
to respond to court notices constituted failure to “otherwise defend”); McGrady v. D’Andrea
Electric, Inc., 434 F.2d 1000, 1001 (5th Cir. 1970) (failure to appear at pretrial conference and failure
to comply with court orders or rules warrants default judgment under Rule 55); United States v. Di
Court No. 01-00034 Page 15

Rule 55(b), in turn, governs the entry of judgment by default, requiring that “[i]n all cases

the party entitled to a judgment by default shall apply to the court therefor.”11 USCIT Rule 55(b).

If the action is one in which the defendant has never appeared, and the plaintiff’s claim “is for a sum

certain or for a sum which can by computation be made certain,” Rule 55(b) provides that, “upon

request of the plaintiff and upon affidavit of the amount due,” judgment by default in the specified

amount shall be entered. No advance notice to the defendant is required.

In contrast, where – as here – the defendant has already appeared in an action, Rule 55(b)

entitles the defendant (or its representative) to 10 days’ written notice of the application for default.

Moreover, if the plaintiff’s claim cannot “by computation be made certain” and it is therefore

Mucci, 879 F.2d 1488, 1494 (7th Cir. 1989) (where defendants failed to comply with court orders to
produce documents and failed to appear at deposition, entry of default judgment under Rules 37 and
55 not an abuse of discretion); Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852, 856-57
(8th Cir. 1996) (corporate defendant’s failure to comply with court order to appoint counsel and
failure to participate in litigation after counsel withdrew warranted default judgment for failure to
“otherwise defend”); Ringgold Corp.v. Worrall, 880 F.2d 1138, 1141 (9th Cir. 1989) (failure to
appear at pretrial conference and at trial warranted default judgment under Rule 55).

The dicta in T.J. Manalo was thus ill-considered. The result was nevertheless correct. Cf.
In re First T.D. & Inv., Inc., 253 F.3d 520, 532 (9th Cir. 2001) (vacating default judgment against
defaulting defendants when court later granted summary judgment in favor of other defendants,
because it would be incongruous and unfair to permit plaintiff to recover against some defendants
on claim that was definitively determined to be invalid); Gulf Coast Fans, Inc. v. Midwest Elecs.
Imps., Inc., 740 F.2d 1499, 1512 (11th Cir. 1984) (default judgment against one defendant creates
inconsistent verdict when other defendant prevails on merits); see also Frow v. De La Vega, 82 U.S.
552 (1872) (reversing default judgment as to property ownership when plaintiff lost as to answering
defendants).
11
This is just one of several ways in which this court’s Rule 55 differs from the parallel
Federal Rule of Civil Procedure. Under the Federal Rules, the clerk of the court may enter judgment
by default “[w]hen the plaintiff’s claim . . . is for a sum certain or for a sum which can by
computation be made certain” (provided that certain other conditions are met). Fed. R. Civ. P.
55(b)(1).
Court No. 01-00034 Page 16

“necessary to . . . determine the amount of damages,” the rule provides that the court “may conduct

such hearings or order such references as it deems necessary and proper.” USCIT Rule 55(b)

(emphasis added).

Thus, because a defaulting defendant is deemed to admit all facts “well-pleaded” in the

complaint against it, an entry of default generally establishes the defendant’s liability. Nishimatsu

Constr. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). However, in considering

whether to enter judgment by default, the court is not confined to the face of the complaint and may

require the moving party to present proof of facts necessary to establish liability. USCIT Rule

55(b).12 Moreover, before entering judgment by default, the court must make an independent

determination on damages, unless the sum to be awarded is certain. Credit Lyonnais Sec., Inc. v.

Alcantara, 183 F.3d 151, 154-55 (2d Cir. 1999).

The plaintiff bears the burden of proving its entitlement to the requested damages, Oberstar

v. FDIC, 987 F.2d 494, 505 n.9 (8th Cir. 1993), but is entitled to all reasonable inferences that may

be drawn from the evidence. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). In

appropriate cases, detailed affidavits or other documentary evidence may suffice to fix the amount

of damages for purposes of entering judgment by default. Fustok v. Conticommodity Services, Inc.,

12
Rule 55 (b) provides that “If, in order to enable the court to enter judgment or to carry it into
effect, it is necessary . . . to establish the truth of any averment by evidence . . ., the court may
conduct such hearings or order such references as it deems necessary and proper.” (Emphasis
added.) See also Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (district
court “heard substantial testimony and admitted documentary evidence on all of the plaintiffs’
claims”); Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981) (“district court has
discretion under Rule 55(b)(2) once a default is determined to require proof of necessary facts”).
Court No. 01-00034 Page 17

873 F.2d 38, 40 (2d Cir. 1989). There is no iron-clad rule requiring a hearing or trial on damages

in every case. Id.13

13
Rule 55(b) is, on its face, permissive: “[T]he court may conduct such hearings or order
such references as it deems necessary and proper . . . . ” Some cases nevertheless say – or at least
appear to say – that an inquest, an evidentiary hearing, or a trial on damages is necessary before
entering default judgment whenever a plaintiff’s claim is not for a sum certain. See, e.g., Eisler v.
Stritzler, 535 F.2d 148, 153-54 (1st Cir. 1976) (where plaintiffs’ claims not liquidated, evidentiary
hearing is required to assess damages before entry of default judgment); Jackson v. Beech, 636 F.2d
831, 835 (D.C. Cir. 1980) (“a court must hold a hearing on damages before entering a [default]
judgment on an unliquidated claim even against a defendant who has been totally unresponsive”).
But, even in jurisdictions where a hearing may have been required in the past, it seems that the rule
may be eroding. Compare Eisler, supra, with Home Restaurants, Inc. v. Family Restaurants, Inc.,
285 F.3d 111, 114 (1st Cir. 2002) (hearing on damages not required where complaint and cross-claim
sought “specific dollar figures,” where court received affidavits on damages, and where defendant
had opportunity to respond prior to entry of default judgment); compare Jackson, supra, with Int’l
Painters and Allied Trades Industry Pension Fund v. R.W. Amrine Drywall Co., 239 F. Supp. 2d 26,
30 (D.D.C. 2002) (“court may rely on detailed affidavits or documentary evidence to determine the
appropriate sum for the default judgment”).

The great weight of the authority thus holds that there is no “hard and fast” requirement for
a hearing on damages before entering judgment by default on an unliquidated claim. See, e.g.,
Fustok v. Conticommodity Services, Inc., 873 F.2d 38, 39 (2d Cir. 1989) (court properly relied on
detailed affidavits and documentary evidence, as well as its own knowledge of case, in determining
damages, where damages “were neither liquidated nor capable of mathematical calculation”); Curtis
T. Bedwell and Sons, Inc. v. Int’l Fidelity Ins. Co., 843 F.2d 683, 689, 697 n.25 (3rd Cir. 1988)
(damages hearing not required before entering default judgment under Rule 37 where damages
established through “over 200 pages of affidavits and documentation,” and where preclusive order
“would [have] render[ed] any hearing on damages meaningless”); Mut. Fed. Sav. and Loan Ass’n
v. Richards & Associates, Inc., 872 F.2d 88, 94 (4th Cir. 1989) (no abuse of discretion to enter almost
$9 million default judgment under Rule 37 without hearing on damages); James v. Frame, 6 F.3d
307, 309-11 (5th Cir. 1993) (where $10.2 million default judgment is entered late in litigation, so that
court has “long and close familiarity” with case, and “where the evidence before the court allows it
to make findings based upon that evidence, the court need not jump through the hoop of an
evidentiary hearing”); United States v. DeFrantz, 708 F.2d 310, 312-13 (7th Cir. 1983) (no damages
hearing required under Rule 55 where motion for default judgment under Rule 37 specified amount
of damages sought, yet defendant never questioned the sum); Taylor v. City of Ballwin, Mo., 859
F.2d 1330, 1332-33 (8th Cir. 1988) (where facts on the record indicated reasonable fair market value
of merchandise, court “need not hold an evidentiary hearing on the issue of damages”).
Court No. 01-00034 Page 18

III. Analysis

A. Mootness

In light of New-Form’s bankrupt status, there arises – as a threshold matter – a question of

mootness. The Government maintains that “there is no indisputable evidence in the record” to

establish that New-Form has been adjudged bankrupt. Pl.’s Supp. Appl. at 1-2. The Government

concedes that “Dun & Bradstreet reports that New-Form entered bankruptcy on November 7, 2002,

and that New-Form, currently, has no assets or liabilities.” Pl.’s Supp. Appl. at 2 (citing SA6). But,

quoting Rule 201 of the Federal Rules of Evidence, the Government argues that “[a] judicially

noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known

within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination

by resort to sources whose accuracy cannot reasonably be questioned.” Id. Asserting that “the

In light of the affidavits and documentary evidence proffered by the Government, there is no
need here for an evidentiary hearing on damages. This is all the more true since New-Form has not
requested such a hearing. Indeed, New-Form never even responded to the Court’s request for the
company’s views on the need for or advisability of a hearing. See Order of May 22, 2003. Nor did
New-Form advise whether its representatives and/or witnesses would appear at a hearing or trial on
damages if one were held, although the company was ordered to do. Id. New-Form’s intransigence
indicates that a hearing on damages would have been little more than an empty exercise. Cf. Curtis
T. Bedwell and Sons, 843 F.2d at 697 (damages hearing not required where, inter alia, preclusion
order “would [have] render[ed] any hearing on damages meaningless); Davis v. Fendler, 650 F.2d
1154, 1161-62 (9th Cir. 1981) (defendant cannot be heard to complain that default judgment was
entered without hearing on damages where not only did documentary evidence substantiate damages
awarded, but court scheduled hearing to address, inter alia, damages, and defendant waived right to
appear and testify).
Court No. 01-00034 Page 19

source of the information reported by Dun & Bradstreet may reasonably be questioned,” the

Government concludes that New-Form’s bankrupt status is not subject to judicial notice. Id.14

However, the Dun & Bradstreet report is admissible as evidence of New-Form’s bankrupt

status – “for the truth of the matter asserted” – without regard to the doctrine of judicial notice. Rule

803(17) of the Federal Rules of Evidence establishes an exception to the hearsay rule for “[m]arket

quotations, tabulations, lists, directories, or other published compilations, generally used and relied

upon by the public or by persons in particular occupations.” Fed. R. Evid. 803(17). The report at

issue – compiled largely from public records by one of the world’s leading providers of global

business information, and offered through a subscriber service aimed at the business and financial

communities – is clearly the sort of record contemplated by Rule 803(17).15

14
Quite apart from the Dun & Bradstreet report, judicial notice is appropriate here. The Court
may take judicial notice of the Canadian court’s bankruptcy records to establish the fact that New-
Form has been adjudged bankrupt in Canada. As the Court of Appeals has recognized, “[T]he most
frequent use of judicial notice of ascertainable facts is in noticing the content of court records.”
Genentech, Inc. v. U.S. Int’l Trade Comm’n, 122 F.3d 1409, 1417 n.7 (Fed. Cir. 1997) (citing
Colonial Penn Ins. Co. v. Coil, 887 F.2d 1236, 1239 (4th Cir. 1989), quoting 21 Charles A. Wright
& Kenneth W. Graham, Jr., Federal Practice & Procedure § 5106, at 505 (1977) ). See also United
States v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (noting that court “may take notice of
proceedings in other courts, both within and without the federal judicial system, if those proceedings
have a direct relation to matters at issue.”) (citations omitted).

However, judicial notice of a sister court’s records is taken for the limited purpose of
recognizing that court’s judicial act. It does not recognize the sister court’s findings of fact as true.
United States v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994).
15
The information contained in the Dun & Bradstreet report is consistent with a record
produced by an “Insolvency Name Search” conducted through the official website of the Office of
the Superintendent of Bankruptcy Canada using the identification number of New-Form’s case – 35-
103918. The website is maintained by Industry Canada, a department of the Canadian Government.
The record was thus produced by an agency of the Canadian Government, and reflects factual
findings made by the Canadian Office of the Superintendent of Bankruptcy, pursuant to Canada’s
Bankruptcy and Insolvency Act.
Court No. 01-00034 Page 20

Because the Constitution generally restricts the exercise of judicial power to live “Cases” and

“Controversies” (U.S. Const. art. III, § 2, cl. 1), the bankruptcy of a defendant conceivably could

leave a plaintiff with no hope of recovery; and the impossibility of recovery could arguably render

the case moot. However, that is not the situation here. A case is not moot as long as there is at least

a metaphysical possibility of recovery. See, e.g., Ratner v. Sioux Natural Gas Corp., 770 F.2d 512,

516-17 (5th Cir. 1985). As the Government notes, and as discussed in greater detail here (both above

and below), the integral involvement of New-Form’s President and sole shareholder – Mr. Boulanger

– in Supplierpipeline, an ongoing venture presently doing business in this country, opens at least a

potential avenue for recovery beyond New-Form, and thus precludes the dismissal of this action as

moot. Pl.’s Supp. Appl. at 7-8.

B. Liability Under 19 U.S.C. § 1592

Although the entry of default precludes New-Form from controverting the factual allegations

of the Complaint, a default neither establishes legal arguments made in the pleadings, nor requires

the entry of judgment on a legally unsound claim. See, e.g., Premier Bank v. Tierney, 114 F. Supp.

The record indicates as the date of bankruptcy “2002/11/07” and lists New-Form’s “Total
Liabilities” and “Total Assets” at $7,166,045 and $2,831,349, respectively. Those statements are
admissible “for the truth of the matter asserted,” because the record falls squarely within Rule
803(8) of the Federal Rules of Evidence, which excepts from the hearsay rule “[r]ecords, reports,
statements, or data compilations, in any form, of public offices or agencies, setting forth . . . (C) in
civil actions and proceedings . . . factual findings resulting from an investigation made pursuant to
authority granted by law unless the sources of information or other circumstances indicate lack of
trustworthiness.” Fed. R. Evid. 803(8).
Court No. 01-00034 Page 21

2d 877, 880 (W.D. Mo. 2000); In re Indus. Diamonds Antitrust Litig., 119 F. Supp. 2d 418

(S.D.N.Y. 2000). Thus, even after default, it must be determined “whether the unchallenged facts

constitute a legitimate cause of action.” 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane,

Federal Practice & Procedure, Civil 3d § 2688, at 63 (1998).

In this case, the unchallenged facts establish gross negligence under 19 U.S.C. § 1592. That

statute prohibits parties from entering, introducing, or attempting to enter or introduce any

merchandise into the commerce of the United States by means of “any document or electronically

transmitted data or information, written or oral statement, or act which is material and false,” or “any

omission which is material.” 19 U.S.C. § 1592(a)(1)(A)(i)-(ii). A violation is grossly negligent if

it results from an act or acts – whether of omission or commission – “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 § (B)(2) (1996).16

Here, New-Form introduced merchandise into the commerce of this country by means of

false written and oral statements, and by omissions. Customs regulations require that invoices for

machine parts classifiable under the HTS specify the type of machine for which the parts are

intended. 19 C.F.R. § 141.89(a). New-Form’s invoices nevertheless failed to accurately describe

its merchandise, in violation of the regulation. A2-63. Further, the invoices identified jack parts by

HTS numbers other than HTS 8431.10.0090, the correct classification. A2-63, A182-85. On one

16
While all citations to the Code of Federal Regulations in this opinion are to the 1996
version, the pertinent text of the referenced provisions was the same at all times relevant herein.
Court No. 01-00034 Page 22

occasion, New-Form even flatly denied to its broker that it was exporting heavy-duty jack parts.

A64.

Moreover, New-Form’s statements, acts and omissions were material. The measurement of

materiality is the potential impact on Customs’ determination of the applicable duties. See United

States v. Menard, Inc., 16 CIT 410, 417, 795 F. Supp. 1182, 1188 (1992). Here, New-Form exported

jack parts from Canada, when jack parts from Canada were subject to antidumping duties. 61 Fed.

Reg. at 6,627-28. New-Form’s statements, acts and omissions related to whether its merchandise

was jack parts and, thus, whether the merchandise was subject to antidumping duties.

Finally, New-Form acted with gross negligence. New-Form knew that its merchandise was

jack parts to be used for jacks. A123-26 ¶¶ 56-59, A127 ¶ 64, A132 ¶ 64, A133 ¶¶ 56-59. New-

Form knew that jack parts were subject to antidumping duties. A69. And New-Form knew that its

broker was not paying those duties. See A133 ¶ 61. Nevertheless, on its invoices, New-Form

identified its merchandise using HTS numbers that did not apply to jack parts, and failed to

accurately describe the merchandise. A2-63, A182-85. Again, New-Form even denied to its broker

that it was exporting jack parts. A64. New-Form’s conduct thus evidenced not only its knowledge

of and wanton disregard for relevant facts, but also its manifest indifference to and disregard for its

obligations under the customs laws of this country.

C. The Size of The Penalty

The Government seeks the maximum penalty for New-Form’s gross negligence – under 19

U.S.C. § 1592(c)(2)(A)(i)-(ii), the lesser of “the domestic value of the merchandise” at issue, or “four
Court No. 01-00034 Page 23

times the lawful duties, taxes, and fees of which the United States is or may be deprived.” Pl.’s

Appl. at 12, 14; Pl.’s Supp. Appl. at 3.

The factors to be considered in determining the size of a penalty are enumerated in United

States v. Complex Machine Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307, 1315 (1999): (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 applicable law; (5) the nature and circumstances of the violation; (6) the gravity

of the violation; (7) the defendant’s ability to pay; (8) the appropriateness of the size of the penalty

vis-a-vis the defendant’s business, and its effect on the defendant’s ability to continue doing

business; (9) whether the penalty shocks the conscience of the court; (10) the economic benefit to

the defendant as a result of the violation; (11) the degree of harm to the public; (12) the value of

vindicating agency authority; and (13) whether the party sought to be protected by the statute has

been adequately compensated for the harm; as well as (14) such other matters as justice may require.

Id. The first 10 factors are largely remedial and relate essentially to deterring future violations, the

primary focus of Congress in enacting § 1592. Accordingly, those factors are to be accorded greater

weight in determining the size of a penalty. 23 CIT at 950, 950, 83 F. Supp. 2d at 1315-16, 1319.

As discussed below, application of the Complex Machine Works factors to the facts of this

case supports the imposition of the maximum penalty for gross negligence – $73,867.36, or four

times the revenue lost by the Government (and less than the $81,537.31 domestic value of the

subject jack parts). New-Form elected to present no evidence or argument in mitigation. And
Court No. 01-00034 Page 24

independent analysis reveals that all – or virtually all – of the relevant factors weigh heavily in favor

of a substantial penalty; certainly, none of the factors weighs against it.

Defendant’s Character:
Extent of Good Faith Effort to Comply, Degree of Culpability,
and History of Prior Violations

The first three factors set forth in Complex Machine Works – the defendant’s good faith

effort to comply with the statute, the defendant’s degree of culpability, and the defendant’s history

of prior violations – are indicia of a defendant’s character. 23 CIT at 950, 83 F. Supp. 2d at 1316.

As Complex Machine Works points out, “[a] strong indicator of [a defendant’s] character

is whether there was a good faith effort to comply with the statute.” 23 CIT at 951, 83 F. Supp. 2d

at 1316. The record in this action belies any suggestion that New-Form made a significant good faith

effort to comply with the law. Although New-Form retained a licensed customhouse broker, the

company affirmatively denied to that broker that the merchandise at issue was jack parts. A64, A82

¶ 7, A102 ¶ 7, A114 ¶ 10, A133 ¶¶ 56-59. Application of the “good faith effort to comply” factor

thus weighs in favor of the imposition of a heavy penalty. Cf. Complex Mach. Works, 23 CIT at

951, 83 F. Supp. 2d at 1316 (“good faith effort to comply” factor supported heavy penalty where

defendants gave inconsistent, false and uncooperative responses and explanations to Customs).

A heavy penalty is also warranted by New-Form’s “degree of culpability.” Specifically,

New-Form knew that its merchandise was jack parts (A133 ¶¶ 56-59), that jack parts were subject

to antidumping duties (A69), and that its broker was not paying those duties. See A133 ¶ 61.

Nevertheless, on its invoices, New-Form classified its merchandise according to HTS numbers that

did not apply to jack parts, and failed to describe the merchandise as parts of jacks which were to be
Court No. 01-00034 Page 25

used with jacks. A2-63, A182-85. New-Form even denied, to its broker, that it was exporting jack

parts. A64. Moreover, the sheer number and frequency of New-Form’s violations are telling. A84

¶ 13, A85-87, A102 ¶ 13, A191-92 ¶ 4. This was no isolated incident. Thus, as in Complex

Machine Works, the record here reflects a high degree of culpability and merits a penalty at the high

end of the range. 23 CIT at 951-52, 83 F. Supp. 2d at 1316-17.

The “history of previous violations” factor counsels a heavy penalty as well. The duration

of a defendant’s current violations can weigh in favor of a heavy penalty even where there is no

history of previous violations. Complex Mach. Works, 23 CIT at 952, 83 F. Supp. 2d at 1317.

Although New-Form had no history of customs violations before it began exporting jack parts to the

United States, the violations at issue here involved more than 111,000 jack parts entered on more

than 30 separate occasions spanning more than a year and a half. A84 ¶ 13, A85-87, A102 ¶ 13,

A191-92 ¶ 4. As in Complex Machine Works, the relatively longstanding course of violations in this

case is significant. 23 CIT at 952, 83 F. Supp. 2d at 1317.

Seriousness of Offense:
Public Interest in Compliance, Nature and Circumstances of Violation,
and Gravity of Violation

As Complex Machine Works observed, “[a] significant public interest in the enforcement of

the regulations at issue militates in favor of a heavier penalty.” 23 CIT at 952, 83 F. Supp. 2d at

1317. There, as here, “[t]he public interest at issue . . . is the truthful and accurate submission of

documentation to Customs and the full and timely payment of duties required on imported

merchandise.” Id. In this action, the Government asserts that, even though New-Form has not

exported merchandise to the United States since December 2002 (SA15-16), there is “no evidence
Court No. 01-00034 Page 26

of record that [New-Form] is bankrupt, has dissolved, or that it will not resume business and exports

to the United States in the future, such that a penalty would have no deterrent effect upon New-Form

itself.” Pl.’s Supp. Appl. at 5.

As discussed above, however, New-Form’s bankrupt status is established by the Dun &

Bradstreet report which was proffered by the Government and is admissible “for the truth of the

matter asserted.” See section III.A, supra. It is nevertheless true that, even if New-Form is

permanently defunct, the imposition of a substantial penalty in this case may well have a salutory

effect upon the future conduct of others exporting to this country (including, in particular,

Supplierpipeline and Mr. Boulanger, both of which are closely tied to New-Form), deterring them

from conduct of the type in which New-Form engaged.

The “nature and circumstances of the violations” committed by New-Form also compel a

heavy penalty. New-Form knew that it was exporting jack parts that were subject to antidumping

duties that its broker was not paying. Yet the invoices New-Form prepared failed to accurately

describe and classify those jack parts. Indeed, New-Form even denied to its broker that it was

exporting jack parts. A2-64, A133 ¶¶ 56-59, A61, A69, A182-85. As the Government so succinctly

puts it, New-Form’s “knowledge, failure, and denial weigh in favor of a heavy penalty.” Pl.’s Supp.

Appl. at 8.

For purposes of determining the size of a penalty, the “gravity of the violations” can be

assessed “in terms of the frequency of the violations, the amount of the duties at issue, and the

domestic value of the imported goods.” Complex Mach. Works, 23 CIT at 953, 83 F. Supp. 2d at

1317. As in Complex Machine Works, the conduct at issue here “[was] not an isolated occurrence,
Court No. 01-00034 Page 27

but [rather] presents a pattern of gross disregard for and evasion of the Customs laws of the United

States.” 23 CIT at 953, 83 F. Supp. 2d at 1317-18. Specifically, New-Form’s violations spanned

more than 30 entries over a period of one and a half years – a rate of nearly one entry every two

weeks. A2-63, A84 ¶ 13, A85-87, A102 ¶ 13, A191-92 ¶ 4. The amount of the duties at issue totals

nearly $19,000; and the domestic value of the imported goods exceeds $81,000. A192 ¶ 5. Had

interest accrued on the antidumping duties from the date of the last violation in October 1997

through October 2001 (when New-Form’s broker paid the duties) (A170), the total amount would

be even greater. In short, like the other factors discussed above, the gravity of the violations here

weighs decisively against New-Form and in favor of the maximum allowable penalty.

Practical Effect of Penalty:
Defendant’s Ability to Pay, Relationship of Size of Penalty to Defendant’s Business
and Effect on Ability to Continue Doing Business, and Whether Penalty Shocks Conscience

The “defendant’s ability to pay” must also be considered in determining the size of a penalty.

New-Form’s financial status is thus once again implicated. Again, the Government argues that there

is no affirmative evidence in the record to indicate that New-Form would be unable to pay the

maximum allowable penalty. Pl.’s Appl. at 15; Pl.’s Supp. Appl. at 9. The Government notes that

there are, for example, no audited financial statements, or expert testimony (by, for example, a

witness qualified to explain Canadian bankruptcy law). Cf. Complex Mach. Works, 23 CIT at 954,

83 F. Supp. 2d at 1318 (evidence such as unaudited financial statements and foreign tax returns are

accorded little weight).

But, to the contrary, as discussed above, New-Form’s bankrupt status is properly a matter of

record in this action. Ordinarily, the bankruptcy of a defendant might contraindicate a substantial
Court No. 01-00034 Page 28

penalty (and, indeed, could conceivably moot a case). Here, however, the record evidence

establishes the close relationship between New-Form and Supplierpipeline – a company which has,

in recent months, exported nearly half a million dollars worth of merchandise into this country. SA2

¶ 4. That level of business activity in the United States suggests that both Supplierpipeline and Mr.

Boulanger – the President and sole shareholder of both companies (A65; SA5-6) – are potential

sources for payment of any penalty imposed upon New-Form. See Restatement (Second) of

Judgments § 59 comment g (1982) (“a judgment nominally against the corporation creates a binding

obligation upon those who have acted in corporate dress”). As recently as January of this year,

Supplierpipeline boasted that it was progressing “toward its goal of $100 million annual sales,” and

that it “has enjoyed compounded annual growth of over 50% for the last 11 years straight.” SA11.

Under these circumstances, consideration of the “ability to pay” factor does not preclude the

imposition of a substantial penalty.

Nor does the “ability to continue doing business” factor give pause. Even if New-Form is

not now doing business, and even though it has not exported merchandise to the United States since

December 2002 (SA15-16), Supplierpipeline is an ongoing, closely-related business concern which

appears to have sufficient resources to pay the maximum penalty without jeopardizing its continued

operation. SA2, SA6, SA11.

Moreover, even the maximum penalty in this case should not “shock the conscience” of a

court. The importance of the United States to a defendant’s business and the degree to which the

defendant disregards the customs laws of this country are relevant to this factor. Complex Mach.

Works, 23 CIT at 954, 83 F. Supp. 2d at 1318. New-Form viewed the United States as such an
Court No. 01-00034 Page 29

important market for its jacks that it requested that Commerce review the antidumping finding that

applied to those jacks (A1); and the company established an assembly operation here to reduce the

applicable antidumping duties. A66 ¶ 54, A69. Even if New-Form is now bankrupt,

Supplierpipeline continues to export merchandise to the United States. SA2, SA6, SA11. And, in

October 2002, Supplierpipeline announced plans to “open[ ] a second Western US based warehouse

. . . to further enhance coverage for the North American market.” SA10. As in Complex Machine

Works, “[s]ince [the defendants’] business relied substantially upon United States markets, a greater

proportion of their assets may fairly be called upon as [a] penalty for violations of United States

law.” 23 CIT at 954, 83 F. Supp. 2d at 1318. This factor thus supports a heavy penalty.

Economic Benefit to Defendant Resulting from Violation

Consideration of the “economic benefit to the defendant” is damning as well. New-Form’s

violations resulted in lost revenue to the United States in the sum of $18,466.84 in unpaid

antidumping duties (A192 ¶ 5) – savings that flowed directly to New-Form. New-Form never paid

a penny of those duties; its broker paid them. A170.

Public Policy Concerns:
Degree of Harm to Public, Value of Vindicating Agency Authority,
and Whether Damaged Party Has Been Compensated for Harm

While the factors discussed above relate primarily to deterring future violations, the three

remaining specific factors – the degree of harm to the public, the value of vindicating agency
Court No. 01-00034 Page 30

authority, and the extent to which the damaged party has been compensated for its harm – are

concerned with compensating society. Accordingly, they are to be accorded less weight. Complex

Mach. Works, 23 CIT at 950, 955, 83 F. Supp. 2d at 1315-16, 1319. They do not, in any event, favor

New-Form.

The “harm to the public” here is clear. New-Form’s violations resulted in the dumping of

its jack parts into the United States – which, by definition, damaged the domestic jack industry.

Moreover, “the amount of harm suffered by the Government is not limited to the dollar value of

duties lost.” Complex Mach. Works, 23 CIT at 955, 83 F. Supp. 2d at 1319. New-Form’s conduct

necessitated a Customs investigation and eventually led the Department of Justice to bring this

action. The cost of investigating and prosecuting a customs penalty action is an independent harm

to the Government, and is to be considered in determining the size of a penalty. Id.

Although its broker has (albeit belatedly) paid the duties lost as a result of New-Form’s

actions (A170), the Government has yet to be compensated for the expense of the administrative and

judicial proceedings that New-Form’s conduct spawned. Both the “harm to the public” and

“adequacy of compensation” factors thus support the imposition of a substantial penalty.

So too the public interest in “vindicating agency authority” weighs against New-Form, and

in favor of the Government. “[I]t is vital that the penalties imposed deter future [potential]

lawbreakers from considering [conduct such as that at issue here] to ensure the submission of true

and accurate statements to Customs so that the agency may carry out its functions.” Complex Mach.

Works, 23 CIT at 955, 83 F. Supp. 2d at 1319.
Court No. 01-00034 Page 31

As discussed above, even if a heavy penalty in this case has no deterrent effect on New-Form,

it may deter others who export into the United States – including Supplierpipeline and Mr.

Boulanger, in particular – from engaging in the type of conduct in which New-Form engaged. See

Complex Mach. Works, 23 CIT at 955, 83 F. Supp. 2d at 1319 (penalty may deter future exporters

from engaging in similar conduct).

Such Other Matters As Justice May Require

The final “catch-all” factor to be considered is “such other matters as justice may require.”

On this point, the Government emphasizes that – even if New-Form is bankrupt – it entered

bankruptcy less than two weeks before this action had been scheduled to go to trial. SA6; Order

Governing Preparation for Trial ¶ 8 (Aug. 14, 2002) (trial to commence November 20, 2002). The

Government argues that, as a matter of policy, bankruptcy should not be a haven for wrongdoers.

Pl.’s Supp. Appl. at 12 (citing Commodity Futures Trading Comm’n v. Co Petro Mktg. Group, Inc.,

700 F.2d 1279, 1283 (9th Cir. 1983) ). The Government therefore concludes that justice requires that

New-Form’s current status not shield the company from liability for its actions. Pl.’s Supp. Appl.

at 12. While the case for the maximum penalty is already compelling, this final factor may also

militate in favor of a heavy penalty. At a minimum, it does not weigh against it.
Court No. 01-00034 Page 32

IV. Conclusion

For all the reasons set forth above, Plaintiff’s Application for Default Judgment is granted.

New-Form’s conduct violated 19 U.S.C. § 1592, and warrants imposition of the maximum civil

penalty for gross negligence – in this case, $73,867.36, plus interest and costs.

Plaintiff shall submit within 30 days hereof a proposed final judgment in conformity with this

opinion, with any response by Defendant due within 10 days thereafter.

So ordered.

___________________________________
Delissa A. Ridgway, Judge

Decided: June 30, 2003
New York, New York