United States v. Pentax Corp.

Slip Op. 99-98

UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
THE UNITED STATES, :
:
Plaintiff, :
: Consol. Court
v. : No. 96-01-00067
:
PENTAX CORPORATION, et al., :
:
Defendants. :
______________________________:

[Defendants’ motion for summary judgment based on lack of
materiality denied.]

Dated: September 20, 1999

David W. Ogden, Acting Assistant Attorney General, David M.
Cohen, Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice (A. David Lafer, Kenneth M.
Dintzer, William W. Stewart, Jr., Gregory T. Jeager, Ann
Loughlin), Saul Perla, Kathleen Bucholtz, Office of Chief
Counsel, United States Customs Service, of counsel, for
plaintiff.

Swidler Berlin Shereff Friedman, LLP (James Hamilton,
Michael Spafford, Amy Carpenter-Holmes) for defendants.

OPINION

RESTANI, Judge: This matter is before the court on

defendants’ motion for summary judgment, pursuant to USCIT R. 56.

Defendants argue that they are not liable for civil penalties

under 19 U.S.C. § 1592 (1988)1 for mismarking of goods because

1
Although the differences between the 1988 and 1994
version of § 1592 are minimal, the court refers to the 1988 version
(continued...)
CONSOL. COURT NO. 96-01-00067 PAGE 2

the mismarking did not affect the amount of duties owed or the

admissibility of the goods, as required by regulatory materiality

standards.

Background

The facts of this matter are set forth in Pentax Corp. v.

Robison, 20 CIT 486, 924 F. Supp. 193 (1996), rev’d, 125 F.3d

1457 (Fed. Cir. 1997), amended, 135 F.3d 760 (1998). Familiarity

with those opinions is presumed. In sum, defendants were

responsible for marking and importing cameras into the Customs

Territory of the United States between 1987 and 1991. The

cameras were marked of Hong Kong origin. For purposes of this

motion, it is conceded that the goods should have been marked

“made in China.” The mismarking was not discovered until after

the goods were admitted and liquidated. The goods would have

been admitted and dutied at the same rate if they had been marked

properly.

Jurisdiction and Standard of Review

The court has jurisdiction pursuant to 28 U.S.C. § 1582

(1994). Pentax, 125 F.3d at 1462. Summary judgment may be

granted when “there is no genuine issue as to any material fact

and . . . the moving party is entitled to judgment as a matter of

law.” USCIT R. 56(d).

1
(...continued)
because the entries at issue occurred between 1987 and 1991.
CONSOL. COURT NO. 96-01-00067 PAGE 3

Discussion

Defendants had previously admitted that the cameras were

entered into the United States by means of “material false

statements” constituting a violation of 19 U.S.C. § 1592(a).

First Am. Answer to First Am. Compl. at ¶ 10. They now seek

summary judgment on the basis of lack of materiality. The

question of materiality is a legal issue to be decided by the

court. United States v. Rockwell Int’l Corp., 10 CIT 38, 42, 628

F. Supp. 206, 209 (1986).

Country of origin is always, or nearly always, material. It

has the potential to affect all of Customs’ core decisions.

False country of origin declarations certainly also affect

Customs’ record-keeping, which in turn has the potential to

affect decisions as to whether to bring unfair trade action,

which in turn has the potential to affect duties. Further, the

concealed mismarking also has the potential to affect

admissibility. Had the mismarking been discovered before release

by Customs, the goods would not have been admitted as marked.

Remarking, exportation, or destruction, would have been required.

19 C.F.R. § 134.51(a) (1991).2 If none of these measures were

2
Section 134.51(a) provided that:

When articles or containers are found upon examination not to
be legally marked, the district director shall notify the
importer . . . to arrange with the district director’s office
(continued...)
CONSOL. COURT NO. 96-01-00067 PAGE 4

accomplished and if the mismarking had been discovered before

liquidation, marking duties would have been assessed. 19 U.S.C.

§ 1304(f) (1988).

The court declines to expand the Federal Circuit’s decision

in Pentax,3 into a holding that mismarking, which makes goods

further dutiable or inadmissible, if timely recognized by

Customs, is completely immaterial for purposes of 19 U.S.C.

§ 1592,4 unless but for the mismarking the goods would have been

inadmissible or subject to other duties. See United States v. An

Antique Platter of Gold, No. 97-6319, 1999 WL 498582, at *3-4 (2d

Cir. 1999) (rejecting “but for” test of materiality for 18 U.S.C.

§ 542 and adopting “natural tendency” approach that a “false

statement is material . . . if it has the potential significantly

2
(...continued)
to properly mark the article or containers, or to return all
released articles to Customs custody for marking, exportation,
or destruction.

The 1999 version of 19 C.F.R. § 134.51(a) differs only
slightly, by substituting “port director” for “district director.”
3
Pentax held duties were not owed under 19 U.S.C. §
1592(d) because the mismarking did not deprive the United States of
duties directly. Pentax, 125 F.3d at 1463.
4
Section 1592 provides, in relevant part, “Without regard
to whether the United States is or may be deprived of all or a
portion of any lawful duty thereby, no person, by fraud, gross
negligence, or negligence - (A) may enter . . . any merchandise
into the commerce of the United States by means of . . . any
document . . . which is material and false . . . .” 19 U.S.C.
§ 1592(a)(1)(A).
CONSOL. COURT NO. 96-01-00067 PAGE 5

to alter the integrity or operation of the importation process as

a whole . . . .”) (quoting United States v. Holmquist, 36 F.3d

154, 159 (1st Cir. 1994)); see also Rockwell, 10 CIT at 42, 628

F. Supp. at 210 (holding that the standard for determining

whether false statement is material under 19 U.S.C. § 1592(a), is

“whether [statement] has a natural tendency to influence, or was

capable of influencing, the decision of the tribunal in making a

determination required to be made.”) (quotation omitted).

If 19 C.F.R. Part 171, App. B, ¶ A (1999)5 is read to

require a but for standard, it would conflict with 19 U.S.C. §§

5
The regulation reads in relevant part:

(A) Violations of Section 592; Materiality

Without regard to whether the United States is or may be
deprived of all or a portion of any lawful duty thereby, a
violation of section 592 occurs when a person, through fraud,
gross negligence, or negligence, enters, introduces, or
attempts to enter or introduce any merchandise into the
commerce of the United States by means of any document,
written or oral statement, or act which is material and false,
or any omission which is material; or when a person aids or
abets any other person in the entry, introduction, or
attempted entry or introduction of merchandise by such means.
A document, statement, act, or omission is material if it has
the potential to alter the classification, appraisement, or
admissibility of merchandise, or the liability for duty, or if
it tends to conceal an unfair trade practice under the
antidumping, countervailing duty or similar statute, or an
unfair act involving patent or copyright infringement. There
is no violation if the falsity or omission is due solely to
clerical error or mistake of fact, unless the error or mistake
is part of a pattern of negligent conduct. (emphasis added)

This current section of the regulations is identical to the
1991 version.
CONSOL. COURT NO. 96-01-00067 PAGE 6

1304 and 1592,6 and render these provisions meaningless for

mismarking not affecting revenue and not discovered before

liquidation. As indicated by the Federal Circuit in Pentax,

marking duties are not owed in such a situation.7 The goods also

would be admitted finally because liquidation settles the issue

of admissibility. See United States v. Utex Int’l Inc., 857 F.2d

1408, 1409 (Fed. Cir. 1988) (“when goods are finally liquidated

they are deemed admissible.”). If penalties, as well as duties,

are not owed, importers seeking to fool Customs or the public by

such mismarking may simply lie, conceal the lie, and risk no

harm. This cannot be so.

6
“[T]he purpose of section 1592 was ‘to encourage accurate
completion of the entry documents upon which Customs must rely to
assess duties and administer other customs laws.’” United States
v. F.A.G. Bearings, Ltd., 8 CIT 294, 296, 598 F. Supp. 401, 403-04
(1984) (citing S. Rep. No. 778, 95th Cong., 2d Sess. 17, reprinted
in 1978 U.S.C.C.A.N. 2211, 2229).
7
By adopting a reading of 19 U.S.C. § 1592 which does not
encourage proper marking or proper use of the prior disclosure
statute, Pentax obviously indicates that the statute needs
amendment. Similarly, Customs should amend its regulation which
can be misinterpreted to undercut the statutory marking obligation.
CONSOL. COURT NO. 96-01-00067 PAGE 7

Summary judgment based on lack of materiality is denied.

__________________________
Jane A. Restani
Judge

Dated: New York, New York

This 20th day of September, 1999.