United States v. Katana Racing, Inc. , 2024 CIT 100 ( 2024 )

Court No. 19-00125 Page 2
The Defendant, Katana Racing, Inc. (“Defendant” or “Katana”) moves to dismiss
Plaintiff’s complaint for failure to state a claim pursuant to United States Court of
International Trade (“CIT”) Rule 12(b)(6), or in the alternative, to grant summary
judgment pursuant to CIT Rule 56. Def.’s Renewed Mot. to Dismiss for Failure to State
a Claim, Or in the Alternative, for Summ. J., Nov. 14, 2023, ECF No. 40 (“Def.’s Mot.”).
Plaintiff opposes the motion and, in its cross motion, moves for partial summary
judgment. Pl.’s Cross Mot. for Partial Summ. J. and Opp. To Def.’s Combined Mot. to
Dismiss and Mot. for Summ. J., ECF No. 46 (“Pl.’s Resp.”).
With respect to Defendant’s motion to dismiss, the issues before the court are
whether the government’s complaint: (1) fails to properly identify the person liable for a
violation of 19 U.S.C. § 1592(a), and the level of culpability attributable to such person;
(2) fails to allege exhaustion of available administrative remedies; (3) alleged claims
barred by laches; and (4) alleges claims barred by the statute of limitations due to the
government’s purported affirmative misconduct in obtaining a statute of limitations
waiver. In the alternative, Katana seeks a motion for summary judgment. Additionally,
the court must determine whether Katana’s motion in for summary judgement in the
alternative or the government’s partial motion for summary judgment are proper and
justiciable at this stage of proceedings.
For reasons discussed herein, Defendant’s motion to dismiss is denied;
Defendant’s motion for summary judgment in the alternative is denied; and Plaintiff’s
motion for partial summary judgment is denied.
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BACKGROUND
I. Case History Prior to This Suit
On July 15, 2019, the United States brought an action before the CIT against
Katana Racing, Inc. to recover unpaid customs duties and fees pursuant to the Tariff
Act of 1930, as amended, 19 U.S.C. § 1592(d), based on violations of 19 U.S.C. §
1592(a). Compl. ¶ 1. The government alleges that Katana, a California-based distributor
of wheels and tires, was the importer of record for 386 entries of PVLT from China
between November 24, 2009, and August 7, 2012. Id. ¶ 3. Throughout that time,
Customs alleges that Katana undercalculated the amount of safeguard duties, regular
customs duties, harbor maintenance fees, and merchandise processing fees it owed
Customs by $5,742,483.80. Id. ¶ 13. After Customs conducted an audit and identified
the unpaid duties amount, the parties remained in communication and Katana agreed to
three waivers of the statute of limitations, the first of which was signed on May 15, 2014.
Def.’s Mot. to Dismiss, ECF No. 12-3, Attached Exhibits. (“Def.’s Ex.”) at 159–62. The
third and final waiver, dated October 25, 2016, indicated that the statute of limitations
would be waived “up to and including July 15, 2019.” Compl. ¶ 4.
II. Case History at Initial United States Court of International Trade
Appearance
The government filed suit for the unpaid duties on July 15, 2019. Compl. ¶ 1. On
August 30, 2019, Katana moved to dismiss the action under CIT Rule 12(b)(6) for
“failure to state a claim upon which relief can be granted” and under CIT Rule 12(b)(1)
for lack of jurisdiction. United States v. Katana Racing, Inc. (“Katana I”), 569 F. Supp. 3d
1296, 1298 (CIT 2022). Katana asserted that “it had been the victim of a pervasive
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scheme of . . . ‘identity theft’, as PRC vendors had engaged U.S. customs brokers to file
entries in Katana’s name, without its knowledge or permission.” Id. at 1302.
Katana’s three main arguments were: (1) the government’s complaint should be
dismissed under CIT Rule 12(b)(6) for failure to state a claim because Customs never
found a violation of 19 U.S.C. § 1592(a), which is a prerequisite to penalties under 19
U.S.C. § 1592(c) and assertion of unpaid duties under 19 U.S.C. § 1592(d); (2) the
government’s complaint should be dismissed under CIT Rule 12(b)(6) because
Customs was required to exhaust administrative remedies set forth in 19 U.S.C. §
1592(b) prior to determining a violation of 19 U.S.C. § 1592(a); and (3) that the
government’s suit was untimely and should be dismissed under CIT Rule 12(b)(1)
because Katana had revoked its final waiver of the statute of limitations due to Customs’
failure to undertake administrative proceedings to determine the validity of Katana’s
identity theft claim. Id. at 1302–1308.
In its response, the government argued that: (1) Customs did not have to
establish a violation of 19 U.S.C. § 1592(a) prior to bringing suit to recover duties under
[§] 1592(d) , and need only allege a violation of § 1592(a) in its complaint; (2) Customs
did not have to exhaust administrative remedies because 19 U.S.C. § 1592(d) creates
an independent cause of action for unpaid duties without exhaustion of administrative
remedies; and (3) the suit was timely because Katana did not properly revoke its third
waiver of the statute of limitations, as the government did not promise administrative
proceedings in exchange for the waiver and Customs justifiably relied on that waiver. Id.Court No. 19-00125 Page 5
The court granted Katana’s motion to dismiss on March 28, 2022. The court held
that the suit was “barred by the passage of time” because the June 26, 2019 revocation
of the third waiver of the statute of limitations was effective after Customs failed to meet
its “promise” of providing administrative procedures. Id. at 1314. The court further held
that the government could not bring suit against Katana solely as the importer of record,
and instead was required to provide “precise reasons for holding a defendant
‘responsible’ for paying its § 1592(d) duty demand in its complaint.” Id.
III. Case History at Appeal
The government appealed to the United States Court of Appeals for the Federal
Circuit (“Federal Circuit”) on May 25, 2022, and contended “that the Court of
International Trade erroneously dismissed its suit for lack of jurisdiction pursuant to CIT
Rule 12(b)(1).” United States v. Katana Racing, Inc. (“Katana II”), 75 F.4th 1346, 1351
(Fed. Cir. 2023). In its appeal, the government contended: (1) that “the statute of
limitations set forth at 19 U.S.C. § 1621 is not jurisdictional. Rather, it is an affirmative
defense that, at the pleading stage, must be adjudicated based on the well-pleaded
facts in the complaint”; (2) that “the government may bring a non-penalty action for
duties under [§] 1592(d) without first undertaking the administrative procedures
necessary to find that Katana, itself, violated [§] 1592(a)”; and (3) that “the court erred
by holding that Katana’s status as importer of record was not sufficient to state a claim
under [§] 1592(d).” Id.
Katana, in response, argued that the “the statute of limitations waiver was
procured by deception, specifically, Customs’ false promise of the administrative
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proceedings required by § 1592(b), and that therefore it was in fact ‘void,’ as opposed to
‘revoked.’” Id. Following oral argument, Katana “agreed with the government that, to the
extent the Court of International Trade dismissed the government’s suit for lack of
jurisdiction, it erred.” Id. “Instead, Katana argued that the Court of International Trade
issued an appealable decision on Katana’s USCIT Rule 12(b)(6) because it lacks
factual allegations supporting Katana’s culpability under § 1592(a).” Id. at 1352.
The Federal Circuit held, “that the Court of International Trade erred in
dismissing the government’s suit for lack of jurisdiction under CIT Rule 12(b)(1).” Id. at
1353. In its analysis, the Federal Circuit explained that the statute of limitations set forth
in 19 U.S.C. § 1621 is not a jurisdictional time limit but is an affirmative defense, and
that “a statute of limitations waiver, which is tantamount to a ‘consensual extension of
the limitations period,’ serves to preclude the defendant from raising the statute of
limitations as an affirmative defense.” Id. (citing United States v. Inn Foods, Inc., 383
F.3d 1319, 1322 (Fed. Cir. 2004)). Ultimately, the Federal Circuit held that, “because
the Court of International Trade erred in dismissing for lack of jurisdiction, we reverse
the court’s decision and remand the case to the court for further proceedings.” Id.The Federal Circuit provided that on remand, Katana can “assert any and all
defenses to the government’s claim for unpaid duties,” but that Katana cannot argue
that “Customs was required by statute to follow the penalty assessment procedures set
forth in 19 U.S.C. § 1592(b) … [as] such procedure[s] were not statutorily required.” Id.at 1353–1354. The Federal Circuit further declined to address the sufficiency of the
complaint on appeal, and provided that, “on remand, Katana may renew its motion to
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dismiss under CIT Rule 12(b)(6) or seek summary judgment.” Id. at 1353, n.5. The
Federal Circuit also provided that, on remand, “Katana will be able to assert as an
affirmative defense its claim that its third statute of limitations waiver was void.” Id. at
1353 (emphasis added).
IV. Case on Remand
Upon remand, Katana renews its CIT Rule 12(b)(6) motion to dismiss, asserting
that the complaint should be dismissed because the third statute of limitations waiver is
void due to the purported affirmative misconduct of the government. Katana argues that
“[i]ndeed, the Court of Appeals stated ‘[i]nstead, on remand Katana may renew its
motion to dismiss under CIT Rule 12(b)(6) or seek summary judgment.’” Def.’s Mot. at 6
n.3.
Katana asserts that the complaint should be dismissed under CIT Rule 12(b)(6)
because the government failed to state a claim by (1) failing to properly identify the
person liable for the violation, and (2) failing to identify the proper level of culpability
under 19 U.S.C. § 1592(a). Def.’s Mot. at 12. Katana asserts that the complaint should
be dismissed under CIT Rule 12(b)(6) because the government failed to exhaust
administrative remedies as required by 28 U.S.C. § 2637(d). Def.’s Mot. at 6. Finally,
Katana asserts that the complaint should be dismissed under CIT Rule 12(b)(6)
because it is barred by laches. Def.’s Mot. at 27. Katana moves for summary judgment
in the alternative. Def.’s Mot. at 29.
The government, in its response and later reply, argues that: (1) the government
did not engage in affirmative misconduct in procuring a statute of limitations waiver from
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Katana; (2) its complaint was properly pleaded; (3) it was not required to exhaust
administrative remedies; and (4) its suit is not barred by laches. Pl.’s Resp. The
government moves for partial summary judgment, arguing that as the importer of
record, Katana is liable for unpaid duties, and that there is no dispute of material,
admissible facts. Pl.’s Resp. and Pl.’s Reply in Supp. of Cross Mot. for Partial Summ. J.,
ECF No. 50 (“Pl.’s Reply”).
STANDARD OF REVIEW
Whether the court has subject matter jurisdiction to hear an action is a
“threshold” inquiry. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998).
In considering a motion to dismiss under CIT Rule 12(b)(6), the court must accept well-
pleaded factual allegations to be true and draw all reasonable inferences in favor of the
nonmovant. Wanxiang Am. Corp. v. United States, 12 F.4th 1369, 1373 (Fed. Cir.
2021). To survive a motion to dismiss for failure to state a claim, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim of relief that is
plausible on its face.’” Ashcroft v. Iqbal (“Iqbal”), 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Additionally, a motion for summary judgment will be granted “if the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” CIT R. 56(a); Anderson v. Liberty Lobby, Inc. (“Liberty
Lobby”), 477 U.S. 242, 247 (1986).
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DISCUSSION
Although nearly fifteen years have passed since the first entry of tires into the
United States without payment of required duties for which Katana was the alleged
importer of record, the lengthy administrative history and considerable judicial resources
which have already been expended in refereeing the controversy between the
government and Katana do not change the procedural posture of the motions before the
court: the parties’ respective motions are each upon the initial pleadings, the Defendant
has not filed an answer to the government’s complaint, and the discovery process has
not yet begun. The events which underlie the government’s claims and Katana’s
defenses are variously described and contested in both their substance and their
import. Despite submitting and responding to a CIT Rule 56.3 statement, the parties
have not yet established a body of undisputed facts that the court could rely upon in
determining that no genuine dispute of any material fact exists. The court has only the
parties’ pleadings and their representations made at oral argument upon which to base
its determinations as to the propriety and persuasiveness of the arguments set forth in
their motions. That procedural posture informs and compels the court’s analysis and
decisions below.
I. Katana’s 12(b)(6) Motion to Dismiss Is Denied
A. The government sufficiently alleged the culpability level for an action
under 19 U.S.C. § 1592(d).
The first issue is whether the government asserted the proper level of culpability
in its complaint.
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To survive a 12(b)(6) motion to dismiss for failure to state a claim, a complaint
must show the court that the pleader is entitled to relief through well-pleaded facts
accepted as true. In United States v. Blum, the Federal Circuit held that independent
action can be brought for unpaid duties under 19 U.S.C. § 1592(d) without finding the
requisite culpability level under 19 U.S.C. § 1592(a). 858 F.2d 1566, 1570 (Fed. Cir.
1988). “[F]or ordinary negligence [the government] need only show that acts or
omissions constituting a violation occurred.” United States v. KAB Trade Co., 21 CIT
297, 303 (1997). States of mind for negligence may be pleaded generally. Id. Iqbal
provides that factual assertions are the lynchpin of a claim, and that conclusory legal
opinions will not suffice. Iqbal, 556 U.S. at 1950.
The government brings a 19 U.S.C. § 1592(d) claim against Katana for unpaid
duties in the amount of $5,742,483.80, without seeking additional penalties. Compl. ¶ 1.
Although the government did not use the term “negligence,” it alleged in its complaint
that Katana, “as the importer of record,” engaged in conduct which fell below “the
reasonable standard of care” required under 19 U.S.C. § 1592(a). Id. ¶ 14.
There are three levels of culpability under 19 U.S.C. § 1592: (1) negligence; (2)
gross negligence; and (3) fraud. 19 C.F.R. pt. 171, app. B(C) (2023). “As a general rule,
a violation is negligent if it results from failure to exercise reasonable care and
competence.” Id. (emphasis added). In comparison, gross negligence and fraud have
heightened mens rea culpability levels; where grossly negligent violations are done with
actual knowledge of or wanton disregard, and fraudulent violations are the result of a
known material false statement, omission, or act. Id. The court has previously explained
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that these three culpability levels are distinct from one another, and only one may be
pleaded at the complaint stage:
It is clear that the three alternative theories of liability recognized by 19
U.S.C. § 1592 are mutually exclusive. See 19 U.S.C. § 1592(a)(1) (1999)
(indicating that a violation may occur “by fraud, gross negligence or
negligence”). Congress' use of the word “or” indicates that a choice must be
made among the three theories; for purposes of determining penalty liability
under 19 U.S.C. § 1592, a person who commits a customs violation may
not have more than one mens rea at the time of commission.
United States v. Pan Pac. Textile Grp., Inc., 395 F. Supp. 2d, 1244, 1258 (CIT 2005).
The Supreme Court has further instructed that it is the function of a claim, not the
form, that guides a lawsuit by explaining the elements of a claim will guide the suit
throughout litigation. Comcast Corp. v. Nat’l Ass’n of Afr. Am.-Owned Media, 589 U.S.
327, 332 (2020). In Comcast Corp., the Court held that while the difficulty to satisfy the
elements of a claim may increase, the elements themselves do not change:
Normally, too, the essential elements of a claim remain constant through
the life of a lawsuit. What a plaintiff must do to satisfy those elements may
increase as a case progresses from complaint to trial, but the legal elements
themselves do not change. So, to determine what the plaintiff must plausibly
allege at the outset of a lawsuit, we usually ask what the plaintiff must prove
in the trial at its end.
589 U.S. at 332.
The government claims that “Katana did not exercise reasonable care to ensure
that these entries, for which Katana is the importer of record, reflected accurate values
of the merchandise, and thus Katana violated 19 U.S.C. § 1592(a).” Compl. ¶ 14. The
government’s factual allegations of the entries, paired with the “scheme” described, do
not collectively transmogrify into a constructive allegation of fraud. See id. ¶ 13. Instead,
these are factual allegations required in a complaint to support the asserted elements
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for a claim of negligence, the reasonable standard of care. These elements, alleged in
the initial complaint, are the elements that will remain constant throughout the suit. See
Compl. ¶ 14; Comcast Corp, 589 U.S. at 332.
Further, this Court has previously held that a violation of 19 U.S.C. § 1592(a)
creates a presumption of negligence,
It is basic that the applicable statute generally supersedes other standards
of conduct. See 2 American Law Institute, Restatement of the Law Second
§ 284 (1965). Further, violation of the statute [19 U.S.C. § 1592(a)] creates
a presumption of negligence. See W. Prosser, Handbook of the Law of Torts
200 (1971). It therefore follows that a statute-based claim which adequately
pleads elements of the statute satisfies the pleading requirement […].
United States v. Valley Steel Prod. Co., 12 CIT 1161, 1162 (1988); United States v. Jac
Natori Co., 821 F. Supp. 1514 (CIT 1993).
Although it did not use the term “negligence,” the government properly described
the culpability level for negligence, which is the exercise of “reasonable care and
competence.” 19 C.F.R. pt. 171, app. B(C) (2023). The government’s allegation of
violating the elements for negligence under a statute, 19 U.S.C. § 1592(a), paired with
sufficient factual allegations of the claimed violation, satisfies a claim for negligence.
Katana’s motion to dismiss on the grounds that the government failed to allege the
requisite culpability in its initial complaint is denied.
B. The government properly identified the person responsible for the
violation.
The next issue is whether the government properly alleged the person or entity
liable for unpaid duties in its complaint.
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Blum provides that importers of record can be held liable for unpaid duties. 858
F.2d at 1570. The Federal Circuit explained that,
Although such parties may be innocent of a subsection (a) violation, these
parties, if determined to be liable for import duties, are not “innocent” with
respect to subsection (d). Subsection (d) allows the United States to recover
duties that would have been paid but-for conduct that violates subsection
(a). It follows that subsection (d) provides the United States with a cause of
action to recover duties from those parties traditionally liable for such duties,
e.g., the importer of record and its surety.
Id.Additionally, this Court has held that,
[A]s importer of record, [a defendant is] clearly a ‘person’ within the meaning
of 19 U.S.C. § 1592(a) and, as such, may be held liable for a violation of
that statute. This Court has repeatedly held that an importer of record
belongs to the class of “persons” subject to liability under 19 U.S.C. §
1592(a) and against whom a claim may be brought for suspect entries.
Pan Pac. Textile Grp., Inc., 395 F. Supp. 2d. at 1250 (citing United States v. F.H.
Fenderson, Inc., 658 F. Supp. 894 (CIT 1987)).
Where it is uncontested that a defendant is the importer of record for shipments
at issue, he is a “person” subject to 19 U.S.C. § 1592(a) liability. Id.; see also United
States v. Pacheco, 151 F. Supp. 3d, 1323, 1327 (CIT 2015) (“Having given Individual A
a power of attorney, Pacheco, as principal, can be held liable for her agent Individual
A's actions whether or not she authorized the specific unlawful conduct which
constituted the violation of section 1592.”).
Further, 19 U.S.C. § 1592(d) requires only that “if the United States has been
deprived of lawful duties, taxes, or fees as a result of a violation of subsection (a), the
Customs Service shall require that such lawful duties, taxes, and fees be restored,
Court No. 19-00125 Page 14
whether or not a monetary penalty is assessed.” 19 U.S.C. § 1592(d). There are
sufficient factual allegations pleaded to show that the government believes that Katana,
as the alleged importer of record, is culpable for violating subsection (a) under a theory
of negligence, and therefore, may be found liable for the unpaid duties. See generally
Compl.
Nonetheless, the Federal Circuit has made clear that Katana is “entitled to assert
any and all defenses to the government’s claims for unpaid duties,” including its claims
that it was the victim of identity theft. Katana II, 75 F.4th at 1354. Such defenses,
however, entail fact-based inquiries that are not suited for resolution at the threshold
stage of this proceeding. For purposes of its claim, the government properly alleged the
“person” within the meaning of a 19 U.S.C. § 1592(a) violation. Katana’s motion to
dismiss on the grounds of the government’s failing to name the “person” in its initial
complaint is denied.
C. The government was not required to exhaust administrative
remedies prior to filing suit.
The next issue is whether the government was required to exhaust administrative
procedures pursuant to 28 U.S.C. § 2637(d) prior to filing suit for a 19 U.S.C. § 1592(d)
claim.
In remanding the case, the Federal Circuit held that,
Katana will not be able to argue that Customs was required by statute to
follow the penalty assessment procedures set forth in 19 U.S.C. § 1592(b).
As the government argues and as Katana recognizes, such procedures
were not statutorily required. Section 1592(b) provides the applicable
procedures for issuing a pre-penalty and penalty notice in the event the
government seeks to collect penalties for a violation of § 1592(a). In
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contrast, § 1592(d) explains that “the Customs Service shall require that ...
lawful duties, taxes, and fees be restored, whether or not a monetary
penalty is assessed.” 19 U.S.C. § 1592(d). Thus, when a penalty is not
assessed, as here, the statute does not mandate the performance of the
procedures under § 1592(b).
Katana II, 75 F.4th at 1354 (emphasis in original).
The Federal Circuit has held that the government’s claim for unpaid duties under
19 U.S.C. § 1592(d) does not require the performance or exhaustion of the
administrative procedures under 19 U.S.C. § 1592(b). Katana has not alleged what
additional administrative procedures might be required beyond those set forth in
subsection (b).1 As such, it would be inappropriate for the court to create further
administrative procedure requirements through application of the catch-all provision of
28 U.S.C. § 2637(d). Katana’s motion to dismiss for failure to exhaust additional
administrative remedies is denied.
D. This claim is not barred by laches.
The next issue in Katana’s renewed motion to dismiss is whether the
government’s claim is barred by laches.
The Supreme Court has provided guidance for determining timeliness of suit
when Congress has specifically enacted a statute of limitations. In SCA Hygiene Prod.
Aktiebolag v. First Quality Baby Prod., LLC, the Court held that,
1 Instead, Katana again alleges that “[w]hile […] Customs is not required to follow the
elaborate procedures of § 1592(b) when asserting a claim for withheld duties, it must
articulate that there was a culpable violation of § 1592(a).” Def.’s Mot. at 10. As
previously discussed, Customs has alleged a culpable violation of 19 U.S.C. § 1592(a).
Court No. 19-00125 Page 16
Laches provides a shield against untimely claims, and statutes of limitations
serve a similar function. When Congress enacts a statute of limitations, it
speaks directly to the issue of timeliness and provides a rule for determining
whether a claim is timely enough to permit relief. The enactment of a statute
of limitations necessarily reflects a congressional decision that the
timeliness of covered claims is better judged on the basis of a generally
hard and fast rule rather than the sort of case-specific judicial determination
that occurs when a laches defense is asserted. Therefore, applying laches
within a limitations period specified by Congress would give judges a
“legislation-overriding” role that is beyond the Judiciary's power. As we
stressed in Petrella, “courts are not at liberty to jettison Congress' judgment
on the timeliness of suit.”
SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 580 U.S. 328, 334–35
(2017) (internal citations omitted) (quoting Petrella v. Metro-Goldwyn-Mayer, Inc., 572
U.S. 663, 667 (2014)).
At oral argument, Katana was asked to explain why its argument regarding
laches is appropriate given the clear directive from the Supreme Court. Oral Arg. 46:4–
5, ECF No. 56. Katana failed to explain why this court should depart from the Supreme
Court’s holding or how the facts of this proceeding are distinguishable.2 As such, the
court will not take on a “legislation-overriding” role. Katana’s motion to dismiss under a
theory of laches is denied.
2 In response to questioning as to whether Katana wanted to continue its laches
argument despite clear directive from the Supreme Court in SCA Hygiene Prod.
Aktiebolag, counsel for Katana replied, “You know, the normal questions of laches
apply; dimmed recollection, dimmed access to documents.” Oral Arg. 48:13–16.
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E. Katana’s assertion of affirmative misconduct is appropriately raised
by motion for summary judgment.
The Federal Circuit held that the court erred in dismissing the case for lack of
subject-matter jurisdiction under CIT Rule 12(b)(1), and that on remand Katana has the
option to either “renew its motion to dismiss under USCIT Rule 12(b)(6) or seek
summary judgment.” Katana II, 75 F.4th at 1353 n.5. The Federal Circuit explained that
Katana is “able to assert as an affirmative defense its claim that its third statute of
limitations waiver was void.” Katana II, 75 F.4th at 1353. Specifically, a waiver may be
found to be void if it is not “voluntary” or is procured from an act of “affirmative
misconduct.” Id. (citing United States v. Ford Motor Co., 497 F.3d 1331,1336 (Fed. Cir.
2007); Stange v. United States, 282 U.S. 270, 276 (1931)). Thus, if Katana were able to
demonstrate that the execution of its third statute of limitations waiver was procured
through the government’s affirmative misconduct, it would be able to raise the statute of
limitations as an affirmative defense to the government’s claims.3
Generally, an affirmative defense is not properly raised at the motion to dismiss
stage, and instead is asserted at trial or at the summary judgment stage by reference to
undisputed material facts. See Toxgon Corp. v. BNFL, Inc., 312 F.3d 1379, 1382 (Fed.
Cir. 2002); Transamerica Premier Life Ins. Co. v. Selman & Co., LLC, 401 F. Supp. 3d
576, 588 (D. Md. 2019) (“Courts ordinarily do not ‘resolve contests surrounding the
facts, the merits of a claim, or the applicability of defenses’ through a Rule 12(b)(6)
3 While Katana did not explicitly assert the claimed affirmative misconduct as an
affirmative defense, the court will treat it as such following the Federal Circuit’s
guidance. See Katana II, 75 F.4th at 1353.
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motion.”). An exception exists, and an affirmative defense may be considered at the
motion to dismiss stage when it “clearly appears on the face of the pleading.” Mobile
Acuity Ltd. v. Blippar Ltd., 110 F.4th 1280, 1289 (Fed. Cir. 2024) (quoting Boquist v.
Courtney, 32 F.4th 764, 774 (9th Cir. 2022) (“Ordinarily affirmative defenses may not be
raised by motion to dismiss …. But a complaint may be dismissed when the allegations
of the complaint give rise to an affirmative defense that clearly appears on the face of
the pleading.”)). A motion to dismiss based upon an affirmative defense must be
resolved by summary judgment standards if it relies upon matters outside the pleadings.
CODA Dev. s.r.o v. Goodyear Tire & Rubber Co., 916 F.3d 1350, 1360 (Fed. Cir. 2019)
(“If a court does consider material outside the pleadings, the motion to dismiss must be
treated as a motion for summary judgment under Rule 56 and all parties must be given
a reasonable opportunity to present all material pertinent to the motion.”); see also 5C
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1366 (3d ed.
2018) (“Once the district court decides to accept matters outside of the pleadings, the
presence of the word ‘must’ [in Rule 12(d)] indicates that the judge must convert the
motion to dismiss into one for summary judgment.”).
In its renewed motion to dismiss pursuant to CIT Rule 12(b)(6), Katana asserts
that the government engaged in affirmative misconduct by inducing Katana to agree to
a waiver of the statute of limitations in exchange for a promise to make a “presentation.”
Def’s. Mot. at 21. Katana provides multiple exhibits in support of this affirmative defense
assertion, including written statements between Customs officers and Katana’s lawyers
Court No. 19-00125 Page 19
discussing this purported presentation. Def.’s Ex. at 182. In its complaint, however, the
government asserted that,
This action is timely pursuant to 19 U.S.C. § 1621. Katana executed a
waiver of the statute of limitations for a two-year period commencing on May
15, 2014. On July 15, 2015, Katana signed a second two-year waiver that
extended the period of the waiver until July 15, 2017. On October 25, 2016,
Katana signed a third waiver for a period “up to and including July 15, 2019.”
Compl. ¶ 4.
The government’s assertion in its initial complaint is valid on its face. As such,
within the context of a motion to dismiss, the court cannot consider Katana’s assertion
of affirmative misconduct as an affirmative defense given the factual dispute as to
whether its third waiver of the statute of limitations is void. This factual dispute relies on
matters outside the initial pleading, rather than on the face of the complaint itself.
Therefore, it is appropriate to analyze Katana’s arguments respecting its allegations of
the government’s affirmative misconduct under the rubric of a motion for summary
judgment.
II. Katana’s Motion for Summary Judgment and Government’s Motion for
Partial Summary Judgment Are Denied
Summary judgment is proper when “the movant shows that there is no genuine
issue as to any material fact and the movant is entitled to judgment as a matter of law.”
CIT Rule 56(a); see also Celotex Corp. v. Catrett (“Celotex”), 477 U.S. 317, 324 (1986).
The Federal Circuit has explained that the “movant bears the burden of demonstrating
absence of all genuine issues of material fact” and the court “must view the evidence in
a light most favorable to the nonmovant and draw all reasonable inferences in its favor
and must resolve all doubt over factual issues in favor of the party opposing summary
Court No. 19-00125 Page 20
judgment.” SRI Int'l v. Matsushita Elec. Corp. of America, (citation omitted) 775 F.2d
1107, 1116 (Fed. Cir. 1985).
If a genuine dispute about a material fact exists, summary judgment must be
denied. Liberty Lobby, 477 U.S. at 248. A dispute is “genuine” only if a reasonable fact-
finder could find for the non-moving party; a fact is “material” only if it is capable of
affecting the outcome of the litigation. Id. The primary responsibility of the court on a
motion for summary judgment is to determine whether there are any factual issues to be
tried. Dan-Dee Imports, Inc. v. United States, 7 CIT 241, 243 (1984); Yamaha
International Corp. v. United States, 3 CIT 108, 109 (1982); Outlet Book Co. v. United
States, 11 CIT 598, 599 (1987).
A. Katana’s claim regarding the government’s purported affirmative
misconduct presents an issue of material fact.
Because Katana’s affirmative defense alleging the government’s purported
affirmative misconduct relies on arguments outside of the initial pleadings, the court now
considers those arguments under summary judgment standards.
Outside of the initial pleadings, Katana asserts that the government engaged in
affirmative misconduct by inducing Katana to agree to a waiver of the statute of
limitations in exchange for a promise to make a “presentation.” Def’s. Mot. at 21. Katana
argues that it relied on this opportunity to make a presentation in order to “exonerate
itself” prior to the government’s demand for payment of unpaid duties. Id. at 23. In
support of this argument, Katana cites to a March 21, 2016, meeting where Katana’s
President, General Manager and Controller, and counsel met with Customs Deputy
Assistant Director Jorge A. Garcia. Def.’s. Mot. 20–21. After this meeting, and reflected
Court No. 19-00125 Page 21
in a March 22, 2016, letter, Mr. Garcia granted Katana an extension of time to tender
the claimed unpaid duties and allowed Katana the “right to make presentations in
response to that demand in accordance with 19 U.S.C. § 1618.” Def.’s Ex. at 182.
Katana executed its third statute of limitations waiver on October 25, 2016. Def.’s
Ex. at 186. Katana asserts that the opportunity to make a presentation was later
revoked and that the affirmative misconduct is “the refusal of Customs at Detroit to
honor the promise of Mr. Garcia from Los Angeles, that we would be given the
opportunity to come in and make a presentation about the identity theft.” Oral Arg.
40:19–22.
The government disagrees that there was any affirmative misconduct. The
government presented evidence that a Customs official, Officer Hiyama, attempted to
communicate with Katana multiple times between June 24, 2018 and March 28, 2019,
without a response. Def.’s Ex. at 190–91. In these communications, Officer Hiyama
asked for updates from Katana, as well as offered a “pathway to settlement.” Def.’s Ex.
190. The government additionally asserts that there was no affirmative misconduct
because the right to present was available as a written submission, and “Katana
recognized that it could be a written submission.” Oral Arg. 42:24.
The parties’ disagreement about the events that transpired during the time period
between October 25, 2016 and July 15, 2019 constitutes a genuine dispute about a
material fact that cannot be resolved at the summary judgment stage, and without
discovery. There is no single test for detecting the presence of affirmative misconduct;
each case must be decided on its own particular facts and circumstances. See Dis
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Vintage, LLC v. United States, 40 Int’l Trade Rep. (BNA) 1089 at 18 (CIT 2018); Lavin v.
Marsh, 644 F.2d 1378, 1382–83 n.6 (9th Cir. 1981). The inquiry is necessarily fact-
intensive and given the parties’ disagreement about the facts surrounding Katana’s third
waiver, it is improper to rule on this affirmative defense under summary judgment
standards. Katana, however, will have the opportunity to assert its affirmative defense at
trial, and both parties will have the opportunity to develop a more thorough factual
record through discovery.
B. Katana’s claims regarding its level of culpability as a purported
victim of identity theft present an issue of material fact.
Also at issue before the court is the government’s cross motion for partial
summary judgment seeking $5,742,483.80 in unpaid duties. The government argues
that it has presented evidence which “would be admissible at trial” demonstrating the
elements necessary for a 19 U.S.C. § 1592(d) claim. Pl.’s Reply at 3–7. According to
the government, Katana “failed to submit evidence that would be admissible at trial to
rebut these points.” Id. The government faults Katana for failing to submit an affidavit or
declaration made under penalty of perjury, arguing that “Katana primarily relies on
statements it made to CBP, but those statements are hearsay that would not be
admissible at trial and, thus, do not establish any dispute of material fact.” Id. at 1.
Katana disagrees, arguing that the Federal Rules of Civil Procedure were “amended a
few years ago [so] you no longer have to put admissible evidence in support of a
summary judgment motion.” Oral Arg. 33:20–33:21. Katana asserts that the “only
requirement” at the summary judgment stage of a proceeding is a statement “which
could be provided to the court at trial in an admissible form.” Id. at 33:23–33:25.
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Katana is correct that when considering a motion for summary judgment, the
court may consider evidence presented in a form that would be inadmissible at trial.
Celotex, 477 U.S. at 324 (“We do not mean that the nonmoving party must produce
evidence in a form that would be admissible at trial in order to avoid summary
judgment.”). The inquiry for summary judgment purposes is “whether the cited evidence
may be reduced to admissible form, not whether it is admissible in the form submitted at
the summary judgment stage.” United States v. Univar USA Inc. (“Univar USA”), 355 F.
Supp. 3d 1225, 1235–1236 (CIT 2018) (quoting United States v. Sterling Footwear, Inc.
(“Sterling Footwear”), 279 F. Supp. 3d 1113, 1124 (CIT 2017)); see also United States
v. Harvic Int’l, Ltd., 427 F. Supp. 3d 1349, 1356 (CIT 2020).
The government relies on the hearsay rule as the basis for its summary judgment
argument. Pl.’s Reply at 3–7. Hearsay is an out-of-court statement offered “to prove the
truth of the matter asserted in the statement.” Fed. R. Evid. 801(c). Hearsay is
inadmissible at trial unless a federal statute, Federal Rule of Evidence, or other rule
“prescribed by the Supreme Court” provides otherwise. Fed. R. Evid. 802. Nonetheless,
a court “may consider a hearsay statement in passing on a motion for summary
judgment if the statement could be reduced to admissible evidence at trial or reduced to
admissible form." Sterling Footwear, 279 F. Supp. 3d at 1124–25 (2017). Cf. CIT Rule
56(c)(2).
Here, the email statements made by Katana’s employees regarding its claims of
identity theft as a defense against culpability may be hearsay to the extent that they are
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used to prove the truth of the matter asserted.4 See Fed. R. Evid. 801(c). However,
“[t]he most obvious way that hearsay testimony can be reduced to admissible form is to
have the hearsay declarant testify directly to the matter at trial.” Sterling Footwear, 279
F. Supp. 3d at 1124–25. Counsel for Katana stated that with respect to these
statements, “there’s an author and a recipient of the email; they could be made to testify
at trial.” Oral Arg. 34:3–34.5. The government has made no indication that these
individuals would not be able to testify at trial.
As such, irrespective of the government’s arguments regarding the form of the
statements, the content of Katana’s statements indicates that there is a genuine dispute
as to one of the most significant material facts of the case: the person or entity who is
liable under 19 U.S.C. § 1592(a) for the claim of unpaid duties under 19 U.S.C. §
1592(d). Summary judgment is not appropriate when such a significant material fact is
in dispute, and CIT Rule 56 was not meant or anticipated to be used in such manner.
See Univar USA, 355 F. Supp. 3d at 1235–1236.
Both Katana’s motion for summary judgment in the alternative and the
government’s motion for partial summary judgment are therefore denied.
CONCLUSION
For the foregoing reasons, Defendant’s motion to dismiss is DENIED;
Defendant’s motion for summary judgment in the alternative is DENIED; and Plaintiff’s
motion for partial summary judgment is DENIED. It is ORDERED that both parties are
4 The court makes no finding regarding the admissibility of such statements as hearsay.
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hereby directed to file with this court within forty-five days of the date of this order an
amended Joint Status Report and Proposed Scheduling Order. Without intimating any
view on the merits, the court encourages the parties to conduct a good faith attempt to
settle this matter prior to trial.
/s/ Lisa W. Wang
Lisa W. Wang, Judge
Dated: September 9, 2024
New York, New York