United States v. Jean Roberts of California, Inc. ( 2006 )

Slip Op. 06-190
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
Before: Timothy C. Stanceu, Judge
v.
Court No. 03-00212
JEAN ROBERTS OF CALIFORNIA,
INC.,
Defendant.
OPINION
[Granting plaintiff’s application for judgment by default against defendant in the amount of
$242,375.46]
Dated: December 22, 2006
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 (Kenneth S. Kessler); Erik Gantzel, Office of the Associate Chief Counsel,
Bureau of Customs and Border Protection, United States Department of Homeland Security, of
counsel, for plaintiff.
Stanceu, Judge: Plaintiff United States commenced this action pursuant to Section 592 of
the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (2000) (“Section 592”), against defendant
Jean Roberts of California, Inc. (“Jean Roberts”) on April 30, 2003, to recover a civil penalty for
alleged negligence by Jean Roberts arising from 34 consumption entries of knit acrylic/polyester
blankets imported from Mexico in 1997 and 1998, for which Jean Roberts claimed preferential
tariff treatment under the North American Free Trade Agreement (“NAFTA”). See North
American Free Trade Agreement Implementation Act of 1993, Pub. L. No. 103-182, 107 Stat.
Court No. 03-00212 Page 2
2057 (1993); 19 U.S.C. §§ 3311 et seq. (2000). On December 1, 2003, the United States filed
Plaintiff’s Request for Entry of Default on the grounds that Jean Roberts repeatedly failed to
appear by licensed counsel and defend the allegations pleaded in the complaint. Default was
entered by the Office of the Clerk of the Court of International Trade on December 3, 2003
pursuant to USCIT Rule 55(a) “for failure to obtain counsel in order to defend the allegations set
forth in the complaint.” Entry of Default (appended to Pl.’s Req. for Entry of Default). On
February 20 and July 23, 2004, the United States applied for judgment by default pursuant to
USCIT Rule 55(b). Various communications between defendant and the office of the Clerk of
the Court occurred, yet defendant did not retain counsel. On March 30, 2005, the court ordered
defendant to show cause why judgment by default should not be entered against it for failure to
answer the complaint in this action according to the court’s rules. United States v. Jean Roberts
of Cal., Inc., 29 CIT __, Slip Op. 05-41 (Mar. 20, 2005). The purpose of this order was to ensure
that Jean Roberts was provided “a full and fair opportunity to retain legal counsel and defend
itself in response to the allegations set forth in the Complaint.” Id. at 2. Through its order, the
court granted Jean Roberts until May 31, 2005 to obtain licensed counsel and to respond to the
court’s order to show cause. Because defendant, despite repeated notifications that it must retain
counsel to avoid a default judgment, has neither caused an attorney to enter an appearance in this
action nor responded to the show cause order, the court will enter a default judgment against Jean
Roberts in the amount of $242,375.46. This amount represents the statutory maximum penalty
of two times the loss of revenue alleged in plaintiff’s complaint.
Court No. 03-00212 Page 3
I. BACKGROUND
A complete background of the underlying administrative penalty proceeding and
procedural history of the penalty collection action is set forth in the court’s Opinion and Order
dated March 30, 2005. Familiarity with plaintiff’s claim for penalty is therefore presumed. For
purposes of this opinion, the court will restate those facts that are relevant to plaintiff’s
application for judgment by default and, specifically, a determination of the amount of a default
judgment to be entered. Determining that amount has required the court to resolve issues that
arose because the United States Customs Service1 (“Customs”) committed certain errors,
discussed in this opinion, during the administrative penalty proceeding that it must conduct under
Section 592(b) to perfect a claim for which a penalty can be recovered in a proceeding in the
Court of International Trade. Those errors became apparent upon the court’s review of
documents provided with plaintiff’s application for judgment by default and the court’s review of
additional, related documents from the administrative record that the court requested the plaintiff
to provide in order to resolve questions raised by information in the documents plaintiff
provided. The court’s review disclosed, specifically, errors committed by Customs pertaining to
the penalty claim as stated in the notice of penalty that Customs sent to Jean Roberts and the
mitigation decision it issued under 19 U.S.C. § 1618. Additionally, Customs erred in refusing to
consider defendant’s claim for waiver of penalty under the Small Business Regulatory
1
The United States Customs Service since has been renamed as the United States Bureau
of Customs and Border Protection. See Homeland Security Act of 2002, Pub. L. No. 107-296,
§ 1502, 116 Stat. 2135, 2308-09 (2002); Reorganization Plan Modification for the Department of
Homeland Security, H.R. Doc. No. 108-32, at 4 (2003).
Court No. 03-00212 Page 4
Enforcement Fairness Act of 1996 and defendant’s request for mitigation based on inability to
pay.
Plaintiff’s complaint and application for judgment by default are based on claims that
Jean Roberts, in the entry documentation, falsely described the imported blankets as “woven”
when in fact they were knit, and that Jean Roberts entered the merchandise according to a claim
for NAFTA preferential duty rates for which the merchandise did not qualify. Pl.’s Compl. ¶¶ 6-
7. Plaintiff claims that the description of the blankets as “knit” was material because the
blankets, if woven, would have qualified for the NAFTA preference. Id. ¶ 8.
On November 29, 2000, Customs issued a “Pre-Penalty Notice” pursuant to 19 U.S.C.
§ 1592(b)(1) (2000). According to the Pre-Penalty Notice, defendant “failed to exercise
reasonable care and competence throughout the importation process of thirty-four consumption
entries” filed at the port of Otay, Mesa, California from August 29, 1997 through July 20, 1998.
Pl.’s Notice of Filing of Supplemental Documentation in Supp. of Pl.’s Application for Default J.
in Resp. to the Ct.’s Telephonic Req. Ex. 1 at 2 (“Pl.’s Supplemental Documentation”). The Pre-
Penalty Notice cited a potential loss of revenue of $121,508.52, which it supported by attaching a
worksheet identified as a “Schedule of Entries,” and notified Jean Roberts that Customs was
contemplating issuance of a civil penalty of $243,017.04, an amount equal to the statutory
maximum penalty of two times the potential loss of revenue, as provided by Section
592(c)(3)(A)(ii). Id.; see 19 U.S.C. § 1592(c)(3)(A)(ii). Defendant did not respond to the Pre-
Penalty Notice and later alleged that it never received it. Pl.’s Supplemental Documentation
Ex. 3 at 2 n.1.
Court No. 03-00212 Page 5
On February 26, 2001, Customs issued to Jean Roberts an administrative penalty claim
under 19 U.S.C. § 1592(b)(2) in the form of a “Notice of Penalty.” The Notice of Penalty
demanded payment of a monetary penalty of $121,508.52. Pl.’s Supplemental Documentation
Ex. at 2. On May 14, 2001, Jean Roberts responded to the Notice of Penalty by filing a petition
requesting mitigation. Id. Ex. 3. On April 19, 2002, Customs issued to Jean Roberts a
mitigation decision under 19 U.S.C. § 1618. The mitigation decision denied mitigation and
stated that “the penalty against petitioner is affirmed at one (1) times the loss of revenue, or
$121,508.52” and ordered Jean Roberts to pay the loss of duties in the amount of $121,508.52,
and the penalty, an additional $121,508.52. Id. Ex. 4 at 10. Jean Roberts did not pay the
mitigated penalty or the duties, which duties later were paid by the importer’s surety in response
to a demand by Customs under the importer’s bond.
In the complaint filed in this action on April 30, 2003, Customs requested judgment for
the statutory maximum penalty for negligence, an amount equal to two times the actual loss of
revenue. In an exhibit to the complaint, Customs stated the actual loss of revenue to be
$121,187.73, resulting in a penalty claim in the amount of $242,375.46. Pl.’s Compl. ¶ 9. On
February 20 and July 23, 2004, the United States, pursuant to USCIT Rule 55(b), applied for
judgment by default for a penalty in the amount of $242,375.46, plus post-judgment interest and
costs. Pl.’s Application for Default J. at 25.
II. DISCUSSION
In an action brought to recover on a penalty claim brought under Section 592, “all issues,
including the amount of the penalty, shall be tried de novo[.]” 19 U.S.C. § 1592(e)(1).
However, a defaulting defendant is deemed to admit all facts well-pleaded in the complaint
Court No. 03-00212 Page 6
against it. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981) (explaining that “the
court should . . . accept[] as true all of the factual allegations of the complaint, except those
relating to damages.”). The facts pleaded in plaintiff’s complaint, as discussed herein and in the
court’s Opinion and Order dated March 30, 2005, are sufficient to state a factual basis for a claim
for penalty under Section 592. Accordingly, in consideration of the facts that plaintiff has
pleaded and the showing that plaintiff has made in the application for judgment by default,
including the showing made by means of the documents appended thereto, the court’s inquiries
are whether plaintiff has established as a matter of law its entitlement to a judgment by default,
and if so, in what amount a default judgment should be entered by the court.
From a review of the relevant statutory provisions, when applied to the facts as alleged in
the complaint and deemed to be admitted, and from a review of the application for judgment by
default and supporting documents of record, the court concludes that plaintiff has established its
entitlement to a judgment by default based on penalty liability under Section 592(a). In
particular, the court concludes that the alleged misdescription of the blankets as “woven” was
material for purposes of Section 592(a) because the blankets, had they actually been woven,
would have qualified for the NAFTA duty preference. The court next considers procedural
issues, including the effect of the various errors made by Customs in conducting the
administrative proceeding under Section 592.
Before seeking to recover a penalty in the Court of International Trade, Customs must
perfect its penalty claim in the administrative process required by Section 592 by issuing a pre-
penalty notice and a notice of penalty. 19 U.S.C. § 1592(b)(1)-(2). Customs must include
certain information in every pre-penalty notice, including “the amount of the proposed monetary
Court No. 03-00212 Page 7
penalty[.]” Id. § 1592(b)(1)(A)(vi). After the issuance of the pre-penalty notice and
consideration of any representations made by the importer, Customs must issue a “written
penalty claim,” i.e., a notice of penalty, specifying any changes in the information provided in the
pre-penalty notice. Id. § 1592(b)(2). Following the notice of penalty, the importer is afforded “a
reasonable opportunity,” pursuant to 19 U.S.C. § 1618, to make “representations, both oral and
written, seeking remission or mitigation of the monetary penalty” assessed in the notice of
penalty. Id. Customs must respond to the representations by issuing a decision under the
authority of 19 U.S.C. § 1618, which provides for the mitigation of penalties. See id. The
importer then either may pay the penalty amount stated in the mitigation decision or may refuse
to pay, thereby rejecting the offer of mitigation and leaving it to the United States to initiate an
action on behalf of Customs for recovery of any monetary penalty claimed under § 1592. See id.
§ 1592(b)(2), (e).
The first issue presented is whether the Pre-Penalty Notice required by Section 592(b)
was invalid in this case because, as stated by defendant in the administrative proceeding, it was
not received by defendant and was sent to defendant’s former rather than current address. The
second inquiry concerns the nature of the penalty claim that the United States is attempting,
pursuant to Section 592(e), to recover in this judicial proceeding. The specific issue is whether
the claim for penalty brought against Jean Roberts in the administrative penalty, which was
stated ambiguously in the Notice of Penalty, was, absent any subsequent mitigation, a claim for a
civil penalty at the statutory maximum of two times the potential loss of revenue or, alternatively,
a claim for a civil penalty calculated as one time the potential loss of revenue. The court also
considers the possible effect of an improper refusal by Customs during the administrative
Court No. 03-00212 Page 8
proceeding to address defendant’s claim for exemption from penalty under the Small Business
Regulatory Enforcement Fairness Act of 1996 and defendant’s request for mitigation based on
inability to pay. The court concludes that none of the errors committed by Customs in the
administrative penalty proceeding is sufficient to defeat plaintiff’s penalty claim or to justify a
penalty in an amount different from that sought in plaintiff’s application for judgment by default.
A. The Record Does Not Demonstrate that the Pre-Penalty Notice Was Procedurally Defective
Section 592(b)(1) provides, with exceptions not here applicable, that Customs, before
issuing a claim for a monetary penalty, shall issue a pre-penalty notice to the person concerned if
it has reasonable cause to believe a violation of Section 592(a) has occurred and allow such
person a reasonable opportunity to make oral and written representations as to why a claim for a
monetary penalty should not be issued. 19 U.S.C. § 1592(b)(1)(A). Jean Roberts made no such
oral or written representations in the administrative proceeding, apparently because it did not
receive the Pre-Penalty Notice.
To determine whether Customs fulfilled the statutory requirements of Section 592(b), the
court has reviewed the documentation attached to plaintiff’s application for judgment by default
and related documents from the administrative record of the proceedings that the court requested
and obtained. Upon review of this record, the court became aware that Jean Roberts, in its
petition for mitigation dated May 14, 2001, stated that it did not respond to the Pre-Penalty Notice
because Customs addressed the Pre-Penalty Notice to a former address of Jean Roberts. Pl.’s
Supplemental Documentation Ex. 3 at 2 n.1. The issue that arises, therefore, is whether the Pre-
Penalty Notice was procedurally defective; such is a possibility if the record facts establish that
Jean Roberts did not receive the Pre-Penalty Notice as a result of an error by Customs.
Court No. 03-00212 Page 9
The court notes that Jean Roberts, in stating that it did not receive the Pre-Penalty Notice
and pointing out that the Pre-Penalty Notice was sent to a former address of the company, did not
expressly state that it was objecting to the Pre-Penalty Notice on the ground of defective notice
but simply stated that Jean Roberts had moved from its location in Commerce, California and
had been located in Montebello, California for the past three years. Id. Ex. 3 at 2 n.1. The
Notice of Penalty dated February 26, 2001 also lists for Jean Roberts the old address in
Commerce, California. Id. Ex. 2.
Jean Roberts did not create an administrative record from which the court could conclude
that the apparent irregularity was the fault of Customs. Defendant’s petition dated May 14, 2001,
states that Jean Roberts had been located in Montebello, California for the past three years and
thus indicates that Jean Roberts must have changed location at some point prior to May 14, 1998.
See id. Ex. 3. However, the most recent entry summary, i.e., Customs Form 7501, that the record
contains shows that Jean Roberts, in its submission of entry documentation to Customs, had
continued to use the address in Commerce, California as late as July 20, 1998. Pl.’s Application
for Default J. Ex. B at 231. In addition, Jean Roberts did respond to the Notice of Penalty with
its May 14, 2001 petition for mitigation, indicating that Jean Roberts must have received the
Notice of Penalty. See Pl.’s Supplemental Documentation Ex. 3. The record does not
demonstrate that Jean Roberts properly notified Customs of its change of address when
relocating from Commerce, California to Montebello, California. Based on the documentation
accompanying the application for judgment by default and the related documents of record, the
court cannot conclude that the Pre-Penalty Notice was procedurally defective for having been
sent to an invalid address.
Court No. 03-00212 Page 10
B. The Notice of Penalty Gave Adequate Notice of a Claim for Penalty at the Statutory
Maximum Amount of Two Times the Loss of Revenue
The court next considers whether Customs, in the administrative penalty proceeding,
perfected a claim for a monetary penalty in the statutory maximum amount of two times the
revenue loss, as sought in defendant’s application for judgment by default. The penalty claim
made by Customs in the administrative penalty proceeding, as stated in the Notice of Penalty, in
some circumstances may limit the recovery that the United States may obtain in an action
brought in the Court of International Trade to recover on that penalty claim. See United States v.
Optrex America, Inc., 29 CIT __, __, Slip Op. 05-160 at 5-6 (Dec. 15, 2005).
The Notice of Penalty Customs issued to Jean Roberts was ambiguous as to whether
Customs was claiming a penalty at the statutory maximum of “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)(ii), or a
lesser penalty at one times that amount. See Pl.’s Supplemental Documentation Ex. 2. The Pre-
Penalty Notice dated November 29, 2000 included the information required by 19 U.S.C.
§ 1592(b)(1)(A), including the “Proposed Monetary Penalty: $243,017.04 (An amount equal to
two times the potential loss of revenue).” Id. Ex. 1 at 4. The Notice of Penalty, however, stated
the amount of the penalty claim as $121,508.52, an amount that is one-half of the amount of the
contemplated penalty stated in the Pre-Penalty Notice. Id. Ex. 2. The Notice of Penalty did not
identify any change in the potential loss of revenue as determined by Customs and as stated in the
Pre-Penalty Notice and in the attached Schedule of Entries, despite the requirement under
19 U.S.C. § 1592(b)(2) that “[t]he written penalty claim shall specify all changes in” the specific
information required to be disclosed in a pre-penalty notice, including the requirement under
Court No. 03-00212 Page 11
§ 1592(b)(1)(A)(vi) to specify any change in the “estimated loss of lawful duties.” The differing
amounts in the Pre-Penalty Notice and the Notice of Penalty indicate that Customs may have
intended to issue a Notice of Penalty for two times the potential revenue loss but made a mistake
in calculating or transcribing the amount of total penalty. On the other hand, because the Notice
of Penalty did not indicate a change in the potential loss of revenue and stated the amount of
$121,508.52 as the penalty being claimed, it arguably might have been reasonable to construe the
Notice of Penalty as signifying to Jean Roberts that Jean Roberts would be called on to defend
itself against a penalty claim in the amount of one times the potential loss of revenue. In this
regard, the court notes that Customs itself, in the mitigation decision dated April 19, 2002 that it
issued under Section 592(b)(2) and 19 U.S.C. § 1618, construed its own Section 592
administrative penalty claim as a claim in the amount of one times the loss of revenue. See id.Ex. 4. The mitigation decision denied any mitigation. Instead, it stated expressly that “the
penalty against petitioner is affirmed at one (1) times the loss of revenue, or $121,508.52.” Id.Ex. 4 at 10. In its application for a default judgment, plaintiff provides no explanation for these
multiple errors by Customs and advances no argument as to why the court should overlook them
in determining the amount of the penalty for purposes of a judgment by default.
The court concludes, however, that the Notice of Penalty was sufficient to place Jean
Roberts on notice that Customs was claiming a monetary penalty at the statutory maximum of
two times the loss of revenue. Although the Notice of Penalty stated, on the first page, that
“[d]emand is hereby made for payment of $121,508.52, representing penalties assessed against
you for violation of law or regulation, or breach of bond, as set forth below,” the Notice of
Penalty incorporated by reference Exhibit A (“Penalty Statement”), which contained the
Court No. 03-00212 Page 12
following paragraph 5: “Monetary Consequences: . . . A civil, administrative penalty of
$121,508.52, an amount equals [sic] to two times of the potential loss of revenue. (Level of
culpability of negligence).” Id. Ex. 2. The court concludes that the Exhibit A Penalty Statement
sufficed, albeit barely, to place Jean Roberts on notice that it would be called on to defend itself,
during the administrative proceeding and any judicial proceeding that could follow, against a
claim for monetary penalty in the statutory maximum amount of two times the loss of revenue.
The court’s conclusion is grounded in the plain language of the Exhibit A Penalty Statement,
which expressly identified the “monetary consequences” as “[a] civil, administrative penalty of
$121,508.52, an amount equals [sic] to two times of the potential loss of revenue.” Id. For two
reasons, the court attaches greater significance to the statement characterizing the penalty claim
as two times the potential revenue loss than to the statement therein of the penalty amount. First,
the penalty amount was characterized by Exhibit A as having been derived as “two times of the
potential loss of revenue,” even though it apparently was derived in error.2 Second, the Customs
determination of the loss of revenue resulting from the entries that formed the basis for the
penalty claim was subject to change, and did change, during or after the administrative
proceeding; the revenue lost as a result of a Section 592 violation is a factual issue that ultimately
may be resolved de novo in a proceeding brought under Section 592(e). See 19 U.S.C.
§ 1592(e)(1). Jean Roberts, therefore, was not entitled to rely detrimentally and reasonably could
2
In referring to “potential” revenue loss, Customs apparently was referring to its estimate
of revenue loss at some point prior to the liquidation of the entries. At the time it issued the
mitigation decision, Customs also issued, under Section 592(d), a demand for payment of duties
in the amount of $121,508.52. Pl.’s Supplemental Documentation Ex. 4 at 1.
Court No. 03-00212 Page 13
not assume that the calculation of revenue loss would not change subsequently and that the
amount of the civil penalty being sought would not change accordingly.
Because Customs provided adequate notice to Jean Roberts of a civil penalty claim at the
statutory maximum for an alleged violation based on a level of culpability of negligence, i.e., at
the amount of two times the loss of revenue, this case is readily distinguished from the recent
decision of the Court of International Trade in United States v. Optrex America, Inc. In Optrex,
the United States moved to amend its complaint, which sought to recover a civil penalty under
Section 592 based on a level of culpability of negligence, to add two additional consumption
entries to the summons and to plead additional claims based on the higher levels of culpability of
gross negligence and fraud. Optrex, Slip Op. 05-160 at 5. Customs had not pursued a penalty
based on gross negligence or fraud in the administrative proceeding. Id. at 2-4 The court in
Optrex denied the government’s motion to amend the complaint. Id. at 15. Employing the
traditional rule of statutory construction, in pari materia, the court in Optrex concluded that all
subsections of Section 592, when construed together, require Customs to fulfill certain
“administrative procedural requirements” to perfect a penalty claim under Section 592 and to
recover in an action brought before the court. Id. at 6,8. Specifically, the court in Optrex held
that the “level of culpability is an inextricable part of a particular penalty claim issued pursuant to
§ 1592(b)(2), and allowing the government to amend its complaint to include penalty claims that
have not been perfected through the administrative process would be contrary to the statutory
scheme and the [relevant] statute of limitations.” Id. at 15; see United States v. Ford Motor Co.,
463 F.3d 1286, 1296-98 (Fed. Cir. 2006) (discussing, with approval, in dicta, the court’s
reasoning in Optrex). Underlying the analysis in Optrex was the necessity of adequate notice to
Court No. 03-00212 Page 14
the party with interests at stake and the purpose of “giv[ing] an importer an opportunity to fully
resolve a penalty proceeding before Customs, before any action in [the United States Court of
International Trade.]” Optrex, Slip Op. 05-160 at 9. In contrast, Jean Roberts was placed on
notice of a civil penalty claim at the statutory maximum for a level of culpability of negligence
and given the opportunity to resolve, in the administrative proceeding, the potential liability
stemming from that penalty claim. Based on the administrative record as a whole, the court
concludes that Customs, in its administrative penalty proceeding, perfected a penalty claim based
on negligence at the statutory maximum level of two times the loss of revenue.
Plaintiff’s complaint and supporting exhibit claim an actual loss of revenue of
$121,187.73 and request judgment in the amount of two times that loss of revenue, or
$242,375.46. Pl.’s Compl. ¶¶ 9, 12. The court considers de novo the amount of the loss of
revenue. 19 U.S.C. § 1592(e)(1). Because plaintiff is entitled to a judgment by default, the court
determines, for purposes of entering a default judgment, the loss of revenue according to
plaintiff’s complaint and the attached exhibits, which loss of revenue defendant is deemed to
admit.
C. Plaintiff Did Not Satisfy the Factors Required to Qualify for Exemption from Penalty
Pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996
The court next considers the refusal by Customs during the administrative penalty
proceeding to consider the claim by Jean Roberts for relief from penalty based on defendant’s
assertion during that administrative penalty proceeding that it qualified for relief from penalty
pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996 and its request for
mitigation based on inability to pay. See Pl.’s Supplemental Documentation Ex. 4 at 10; see also
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19 C.F.R. § 171 App. B(G) (2001). In its March 29, 2002 decision on defendant’s petition in
response to the Notice of Penalty, Customs stated that “[w]e decline to address petitioner’s
claims of (1) inability to pay; and (2) status as a small business entity under the Small Business
Regulatory Enforcement Act of 1996.” Pl.’s Supplemental Documentation Ex. 4 at 10. “We
note that the statute of limitations in this case will begin to expire on August 29, 2002.” Pl.’s
Supplemental Documentation Ex. 4 at 10. Customs interpreted petitioner’s non-responsiveness
to Customs’ request for a waiver of the statute of limitations as a refusal to submit the waiver
Customs sought, stating that “[s]aid claims will only be addressed if petitioner submits a two-
year waiver of the statute of limitations.” Id. The demand by Customs that defendant waive the
applicable statute of limitations for a two-year period in return for any consideration of these two
claims for relief was neither justified under the applicable statute and regulations nor consistent
with principles of equity and fairness.
The court does not interpret the statute or the regulations to justify, on the particular facts
revealed by the record, a refusal by Customs even to consider claims for relief already made in a
submitted petition solely because the petitioner has not acceded to demands by Customs for a
voluntary waiver of the statute of limitations. The Customs regulations attach certain
consequences to an impending expiration of the statute of limitations, including the shortening of
the period to file a petition in response to a penalty claim to 7 days. See 19 C.F.R. §§ 162.78(a)
(2001), 171.2(e), 171 App. B(E)(2)(c); see also 19 C.F.R. § 171.64 (providing Customs with the
discretion to require a waiver of the statute of limitations as a condition precedent before
accepting a supplemental petition in cases where the statute of limitations will expire in less than
one year). Nowhere do the statute or the relevant regulations provide that Customs may
Court No. 03-00212 Page 16
condition the consideration of issues raised in a petition upon the granting of a statute of
limitations waiver by petitioner, especially where Customs requested the waiver after the
submission of the petition. To the contrary, Section 592 directs that Jean Roberts “shall have a
reasonable opportunity under [19 U.S.C. § 1618] to make representations, both oral and written,
seeking remission or mitigation of the monetary penalty” and that “[Customs] shall provide to
the person concerned a written statement which sets forth the final determination and the findings
of fact and conclusions of law on which such determination is based.” 19 U.S.C. § 1592(b)(2).
Customs requested the waivers in July and December of 2001, months after Jean Roberts
submitted its May 14, 2001 petition for relief. Pl.’s Supplemental Documentation Ex. 3 & Ex. 4
at 10. Moreover, Customs did not issue its decision until April 19, 2002, nearly a year after the
submission of the petition. Id. Ex. 4. In that decision, despite the statutory directive, Customs
simply declined to “set[] forth the final determination” as to those two issues and thereby also
declined to set forth “the findings of fact and conclusions of law on which such determination
[would be] based.” See 19 U.S.C. § 1592(b)(2). Perhaps there are situations where dilatory
behavior or other action on the part of a petitioner might render such a refusal reasonable on the
part of Customs. In this case, however, Customs was the source of delay. The court cannot
conclude that refusal even to consider claims in the petition, when there was opportunity to do
so, was reasonable or lawful under the statute and pertinent regulations. The court, therefore, has
reviewed the administrative record to consider whether Jean Roberts alleged facts and submitted
sufficient evidence to prove that it qualifies for exemption.
In the Small Business Regulatory Enforcement Fairness Act of 1996, Congress directed
that “[e]ach agency regulating the activities of small entities shall establish a policy or program
Court No. 03-00212 Page 17
within 1 year of enactment of this section to provide for the reduction, and under appropriate
circumstances for the waiver, of civil penalties for violations of a statutory or regulatory
requirement by a small entity.” See Pub. L. No. 104-121, § 223(a), 110 Stat 847, 862 (1996). In
compliance with the Small Business Regulatory Enforcement Fairness Act, Customs
implemented a procedure whereby, under appropriate circumstances, the penalty assessed upon
the issuance of a Notice of Penalty under 19 U.S.C. 1592(b)(2) would be waived for businesses
qualifying as small business entities. See Policy Statement Regarding Violations of 19 U.S.C.
1592 by Small Entities, 62 Fed. Reg. 30,378, 30,378 (“Policy Statement”).
According to the Policy Statement, “[t]he alleged violator will have the burden of
establishing, to the satisfaction of the Customs officer issuing the prepenalty notice, that it
qualifies as a small entity . . . .” Id. Alternatively, the alleged violator may assert an exemption
in its mitigation petition under 19 U.S.C. § 1592(b)(2) upon the issuance of a notice of penalty.
Id. Small entities may be eligible for a reduction of penalties if (1) the small entity has taken
corrective action within a reasonable correction period, including the payment of all duties, fees
and taxes owed as a result of the violation within 30 days of the determination of the amount
owed; (2) the small entity has not been subject to other enforcement actions by Customs; (3) the
violation did not involve criminal or willful conduct, and did not involve fraud or gross
negligence; (4) the violation did not pose a serious health, safety or environmental threat; and
(5) the violation occurred despite the small entity’s good faith effort to comply with the law. Id.In addition to the aforementioned five factors, the Policy Statement requires that in
establishing that it qualifies as a small entity, the alleged violator should (a) demonstrate that it is
independently owned and operated, i.e., there are no related parties that would disqualify the
Court No. 03-00212 Page 18
business as a small business entity; (b) prove that it is not dominant in its field of operation; and
(c) provide evidence, including tax returns for the previous three years and a current financial
statement from an independent auditor, of its annual average gross receipts over the past three
years, and its average number of employees over the previous twelve months.3 Id.Defendant asserted that it met all of Customs’ requirements for small business status, i.e.,
that it is independently owned and operated, is not dominant in its field, and has 27 employees.
See Pl.’s Supplemental Documentation Ex. 3 at 17. Defendant, however, did not adduce
sufficient evidence to show that it was entitled to relief under the Policy Statement. The court
concludes from a review of the record that the decision by Customs not to consider defendant’s
claim for exemption under the Small Business Regulatory Enforcement Fairness Act, though
impermissible and inconsistent with principles of equity and fairness, was harmless error.
The record does not establish that defendant satisfied the first factor required under the
Policy Statement. To the contrary, defendant did not pay the duties, fees and taxes owed within
30 days of the determination of the amount owed. Upon the issuance of the mitigation decision
on April 19, 2002, Customs also made a demand for the payment of duties under Section 592(d).
Pl.’s Supplemental Documentation Ex. 4. As stated in the complaint and plaintiff’s other
submissions, Jean Roberts did not pay the duties and its surety, American Contractors Indemnity,
3
The number of employees a business employs is highly determinative in deciding
whether the business is, in fact, a small business. Customs’ Policy Statement references
13 C.F.R. § 121.201, which is the Small Business Administration’s size standards that define
whether a business entity is small and, thus, eligible for government programs and preferences
reserved for “small business concerns.” Size standards have been established under the North
American Industry Classification System (“NAICS”) for types of economic activity or industry
and are published in a manual. Among the chief factors for assessing a company’s size within an
industry are annual receipts in millions of dollars and the number of employees. See 13 C.F.R.
§ 121.201.
Court No. 03-00212 Page 19
satisfied the total amount of duty liability asserted by Customs. See Pl.’s Compl. ¶ 9; Pl.’s
Supplemental Documentation Ex. 3 at 2. Defendant thereby failed to qualify for relief from
penalty under the Policy Statement.
Moreover, defendant did not satisfy the additional factors indicated in the Policy
Statement. Defendant did not submit any evidence that proves it is independently owned and
operated, that there are no related parties, and that Jean Roberts is not dominant in its field.
Furthermore, although defendant submitted what may be construed as financial auditing
statements that satisfy the Policy Statement, those statements indicate that the financial
statements were not produced by an independent auditor as the Policy Statement requires. See
Policy Statement; Pl.’s Application for Default J. Ex. A at 23 (disclosing, in an introductory letter
accompanying defendant’s financial statements from defendant’s accountants, that “[defendant’s
accountants] are not independent with respect to the above mentioned company.”). Finally, none
of the evidence submitted substantiates the average number of employees employed by defendant
as required by the Policy Statement. The failure by defendant to pay the duties owed and the
insufficient factual demonstration by defendant render harmless any error Customs made in
conditioning consideration of defendant’s small business exemption claim upon the submission
of a waiver of the statute of limitations.
D. The Court Declines to Mitigate the Penalty on the Basis of Equitable Considerations
Finally, the court has considered the issue of whether the court should afford mitigation in
determining a penalty amount, due to an inability to pay or any other relevant mitigating factor.
The court has considered the various factors relevant to the question of the penalty to be
assessed. See United States v. Complex Machine Works Co., 23 CIT 942, 948, 83 F. Supp.2d
Court No. 03-00212 Page 20
1307, 1315 (1999) (identifying fourteen factors relevant to determining the penalty amount); see
also 19 C.F.R. Part 171 Appendix B(G) (listing the factors that Customs considers in mitigating
a penalty amount under Section 592). Two possible mitigating factors, ability to pay and claimed
inexperience in importing, deserve particular mention.
With respect to ability to pay, the court notes, first, that the financial information
submitted in defendant’s petition dated May 14, 2001 pertains to the financial status of the
defendant in years prior to that time and is not probative of defendant’s current financial status.
See Pl.’s Supplemental Documentation Ex. 3. The other record evidence relevant to the issue of
defendant’s ability to pay is contained in correspondence sent by the president of Jean Roberts to
the Deputy Clerk of the Court of International Trade. Pl.’s Application for Default J. Ex. A
at 22-41. That correspondence generally addressed the requirement that Jean Roberts obtain
counsel in order to enter an appearance. A letter from the president of Jean Roberts dated
July 24, 2003 requested a “public defender” and referred to an appended statement of defendant’s
accounting firm in support of contentions that the company’s losses exceeded $1 million and
asserted a net worth for the company of “minus this amount.” Id. at 22. The response of the
Deputy Clerk of the Court correctly informed Jean Roberts that because Jean Roberts is a
corporation, court-appointed counsel was not available and that an attorney admitted before the
Court of International Trade must enter an appearance in order for Jean Roberts to make any
filings with the court. Id. at 32; see 28 U.S.C. § 1654 (2000); see Rowland v. California Men’s
Colony, 506 U.S. 194, 201-02 (1993).
A letter from the president of Jean Roberts dated August 13, 2003 informed the Deputy
Clerk of the Court of International Trade that Jean Roberts has “a negative net worth of over one
Court No. 03-00212 Page 21
million dollars” and reiterated another point made in the July 24, 2003 letter by stating that “what
little assets we have are pledged to Banco Popular.” Pl.’s Application for Default J. Ex. A at 33.
The letter further states that Jean Roberts has entered bankruptcy proceedings,4 that its equipment
and inventory were pledged to Banco Popular and soon would be liquidated, that the company
would go out of business in November 2003, that it has a $15,000 negative balance in its bank
account, and that the company could not afford to retain counsel to defend itself in the collection
action. Id. The correspondence from the president of Jean Roberts and the attached financial
statement are relevant to a finding that the financial status of Jean Roberts would support a claim
for mitigation of penalty or relief from penalty liability based on inability to pay, and they also
provide an explanation for the failure of Jean Roberts to respond to the court’s show cause order.
See id. Ex. A at 33-39.
The court, however, declines to mitigate the penalty amount because of an overriding
equitable consideration: the court concludes from the record as a whole that Jean Roberts never
made any attempt to fulfill, or even to comprehend, its responsibilities as an importer of record.
The administrative penalty proceeding placed Jean Roberts on notice of its responsibilities as an
importer. Even after the administrative penalty proceeding was concluded, the president of Jean
Roberts still was claiming, in the letter dated August 13, 2003, that Jean Roberts was not the
importer of the merchandise, implying that on this basis it should not be held liable. “We have
never imported anything or would not have any idea how to import anything, especially when
Nova-Tex told us all duties was [sic] paid.” Id. Ex. A at 33. The record contains conclusive
4
In its petition of May 14, 2001, Jean Roberts earlier had stated that it “anticipates having
to file for bankruptcy if Customs requests payment of such penalties, as the company has no
financial condition to pay for them.” Pl.’s Supplemental Documentation Ex. 3 at 16.
Court No. 03-00212 Page 22
evidence that Jean Roberts was the importer of record on the entries that are the subject of this
civil penalty action and discloses that Nova Textil Rivera Hermanos y Asociados, S.A. de C.V.
was the exporter, not the importer. The letter dated August 13, 2003 reveals that the president of
Jean Roberts continued, even after the conclusion of the penalty proceeding conducted by
Customs, to fail to understand the responsibilities imposed on an importer under the tariff laws,
which include, most basically, the duty to exercise reasonable care when causing merchandise to
be imported into the United States. Jean Roberts failed to make even a good faith effort to do so.
The court has reviewed the entire administrative record to ascertain whether, despite the
facts as pleaded, which are deemed admitted by defendant, any other basis for mitigation exists,
including mitigation according to the various factors cited by Jean Roberts during the
administrative penalty proceeding. The court concludes from its examination of the record that
there is no other basis that would warrant mitigation or other equitable relief from penalty.
III. CONCLUSION
From its review of the complaint and plaintiff’s application for judgment by default,
including the documents appended thereto and the additional documents from the administrative
record necessary to resolve issues of law raised by the application for judgment by default, the
court concludes that defendant has established its entitlement to a judgment by default against
defendant Jean Roberts for a civil penalty under Section 592. Facts pleaded in the complaint
relevant to the establishment of liability are deemed admitted, as is the claimed loss of revenue in
the amount of $121,187.73. Based on the admitted loss of revenue, the court will grant
Court No. 03-00212 Page 23
plaintiff’s application for judgment by default against Jean Roberts in the amount of
$242,375.46, plus post-judgment interest as provided for by law. The plaintiff shall bear its own
costs.
/s/ Timothy C. Stanceu
Timothy C. Stanceu
Judge
Dated: December 22, 2006
New York, New York