United States v. Wanxiang Am. Corp.

654 F.Supp.3d 1279

UNITED STATES, Plaintiff, v. WANXIANG AMERICA CORPORATION, Defendant.

Slip Op. 23-115 Court No. 22-00205

United States Court of International Trade

August 16, 2023

Mikki Cottet, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., argued for Plaintiff United States. With her on the brief were Brian M. Boynton, Principal Deputy Assistant Attorney General, Patricia M. McCarthy, Director, and L. Misha Preheim, Assistant Director. Of counsel on the brief was Steven J. Holtkamp, Office of the Associate Chief Counsel, U.S. Customs and Border Protection, of Chicago, IL.

Michael E. Roll, Roll & Harris LLP, of Los Angeles, CA, argued for Defendant Wanxiang America Corporation. With him on the brief was Brett I. Harris.

OPINION AND ORDER

Katzmann, Judge:

This case implicates important questions of fair notice and culpable intent when facing the specter of civil administrative penalties. Plaintiff the United States ("the Government") brings an action seeking more than $97 million in lost revenue and civil penalties against Defendant Wanxiang America Corporation ("Wanxiang") for nine counts of grossly negligent and negligent violations of 19 U.S.C. § 1592 across hundreds of entries. The Complaint pleads two categories of claims. First, the Government alleges that Wanxiang negligently failed to identify that its entries of wheel hub assemblies ("WHAs") were subject to the antidumping duty order on taper roller bearings ("TRBs") and, in turn, did not pay the requisite antidumping duties.¹ See Antidumping Duty Order; Tapered Roller Bearings and Parts Thereof, Finished or Unfinished, from the People's Republic of China, 52 Fed. Reg. 22667 (Dep't Com. June 15, 1987) ("TRB Order"). Second, the Government alleges that Wanxiang negligently classified its entries of automotive parts and accessories under incorrect item numbers of the Harmonized Tariff Schedule of the United States ("HTSUS"); some of those classifications, the Government further alleges, resulted from gross negligence because Wanxiang knew that those classifications were incorrect.

Wanxiang moved to dismiss the Complaint, see Compl., July 13, 2022, ECF No. 2, for failure to state a claim under USCIT Rule 12(b)(6), see Def.'s Mot. to Dismiss, Oct. 12, 2022, ECF No. 12. Per Wanxiang, both categories of claims fail as a matter of law. First, Defendant contends that while it is now clear that the TRB Order applies to WHAs, it had no fair notice at the time of the entries; the Government's attempt to collect duties and penalties on Wanxiang's then-reasonable interpretation of the TRB Order amounts to an impermissibly retroactive application of law. Second, Wanxiang argues that the alleged misclassifications of automotive parts and accessories fail for three reasons: (i) misclassifications alone cannot constitute the basis for a false statement under 19 U.S.C. § 1592; (ii) classification under a particular tariff heading was correct as a matter of law; and (iii) an alleged nonbinding notice from Customs cannot, without more, plausibly establish gross negligence or negligence.

Wanxiang's Motion to Dismiss is denied. Considering the issues relating to automotive parts first, the court holds that (i) an alleged misclassification, without more, sufficiently pleads falsity under § 1592; (ii) Wanxiang's proposed tariff heading improperly wades into the merits at the pleadings stage; and (iii) the nonbinding nature of a Customs notice does not vitiate an importer's duty of reasonable care and can support a factual finding that an importer acted in gross negligence of the customs laws. Finally, accepting all allegations in the Complaint as true and construing all reasonable inferences in favor of Plaintiff, the court concludes that Wanxiang's fair notice objection raises relevant questions about whether Wanxiang acted negligently but does not preclude § 1592 liability as a matter of law.

BACKGROUND

I. Legal Framework

It is an importer's responsibility to exercise reasonable care when entering merchandise into the United States. See 19 U.S.C. § 1484(a); 19 C.F.R. pt. 171, app. B(D)(6) (2022). An importer must, "using reasonable care," "make entry . . . by filing with [Customs] . . . such information as is necessary to enable [Customs] to determine whether the merchandise may be released from custody of the Bureau of Customs and Border Protection." 19 U.S.C. § 1484(a)(1)(A). Customs's regulations require that importers file an "entry summary," and, at time of entry, file "[e]vidence of the right to make an entry," a "commercial invoice," and a "packing list." 19 C.F.R. § 142.3(a)-(b). Among other requirements, "[t]he entry summary filed for merchandise subject to an antidumping or countervailing duty order must include the unique identifying number assigned by the Department of Commerce, International Trade Administration." Id. § 141.61(c).

19 U.S.C. § 1592 enables the United States to enforce those requirements against importers. Under § 1592, the United States may file suit in the Court of International Trade to collect lost revenue and civil penalties for the fraudulent, grossly negligent, or negligent entry of merchandise into the United States by means of material false information or material omission.² Subsection 1592(a) states in relevant part:

Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence—

(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of—

(i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or

(ii) any omission which is material . . . .

19 U.S.C. § 1592(a)(1)(A). Claims under § 1592(a) require, then, at most four elements:

(1) act or omission;

(2) materiality;

(3) falsity (if the violation is not premised on an omission); and

(4) culpability.

See id.³

Under element four, Customs's regulations further define the three degrees of culpability in § 1592: fraud, gross negligence, and negligence. See 19 C.F.R. pt. 171, app. B(C) (2022). Only gross negligence and negligence are at issue here. Grossly negligent violations of § 1592 "result[ ] from an act or acts (of commission or omission) done with actual knowledge of or wanton disregard for the relevant facts and with indifference to or disregard for the offender's obligations under the statute." Id. pt. 171, app. B(C)(2); United States v. Ford Motor Co., 463 F.3d 1286, 1292 (Fed. Cir. 2006) ("An importer is guilty of gross negligence if it behaved willfully, wantonly, or with reckless disregard in its failure to ascertain both the relevant facts and the statutory obligation, or acted with an utter lack of care."). Moreover, "if the monetary penalty is based on gross negligence, the United States shall have the burden of proof to establish all the elements of the alleged violation." 19 U.S.C. § 1592(e)(3). The maximum penalty for gross negligence is "the lesser of (i) the domestic value of the merchandise, or (ii) four times the lawful duties, taxes, and fees of which the United States is or may be deprived." Id. § 1592(c)(2)(A).

By contrast, an importer's conduct is negligent if:

it results from an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances either: (a) in ascertaining the facts or in drawing inferences therefrom, in ascertaining the offender's obligations under the statute; or (b) in communicating information in a manner so that it may be understood by the recipient.

19 C.F.R. pt. 171, app. B(C)(1). As a general rule, a failure "(a) to ensure that statements made and information provided in connection with the importation of merchandise are complete and accurate; or (b) to perform any material act required by statute or regulation" would constitute negligence. Id. In negligence cases, "Customs has the burden merely to show that a materially false statement or omission occurred; once it has done so, the defendant must affirmatively demonstrate that it exercised reasonable care under the circumstances." Ford, 463 F.3d at 1279; see also 19 U.S.C. § 1592(e)(4) (shifting burden to the alleged violator to show that its act or omission "did not occur as a result of negligence"). The maximum penalty for negligence is "the lesser of (i) the domestic value of the merchandise, or (ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived." 19 U.S.C. § 1592(c)(3)(A).

Finally, subsection 1592(d) allows the United States to recover any lawful duties, taxes, or fees lost "as a result of a violation of subsection (a) . . . , whether or not a monetary penalty is assessed." Id. § 1592(d).

II. Factual Background

The following facts are allegations pleaded in the Complaint. Defendant Wanxiang is a subsidiary of Wanxiang Group Corporation, a multinational automotive components manufacturing company located in the People's Republic of China ("China"). Compl. ¶ 6. Wanxiang imported universal joints and parts thereof (including crosses, cross assemblies, yokes, caps, cups, bearing caps, and bearing kits), WHAs incorporating radial ball and tapered roller bearings, radial ball bearings, tapered roller bearings, and other parts and accessories of automobiles (including axles, cages for double offset joints of constant velocity axles ("CV"), races for CV axles used in utility vehicles, CV-joint parts, tube assemblies, and steering shafts for combines) into the United States from October 1, 2007, to September 30, 2012. Id. ¶¶ 8-9. That merchandise, the Government alleges, was negligently or grossly negligently entered into the United States by means of material false statements or omissions in violation of 19 U.S.C. § 1592. See id...