United States v. Nippon Miniature Bearing Corp.

Slip Op. 01-73
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
BEFORE: Pogue, Judge
v. Court No. 96-12-02853
NIPPON MINIATURE BEARING CORPORATION
and MINEBEA CO., LTD.,
Defendants.
[This slip opinion was previously issued as a memorandum opinion
and order dated December 14, 2000. It is being published as a
precedential disposition pursuant to the Court’s June 19, 2001,
order granting Plaintiff’s motion to publish.]
Decided: June 19, 2001
Stewart E. Schiffer, Acting Assistant Attorney General; David M.
Cohen, Director; A. David Lafer, Senior Trial Counsel; Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Michele D. Lynch); AnnMarie Highsmith, Office of the Chief
Counsel, United States Customs Service, Of Counsel; and Jeffrey B.
Whalen, Of Counsel, Attorney, Office of Regulations & Rulings,
United States Customs Service, for Plaintiff.*
Coudert Brothers (Steven H. Becker, Robert L. Eisen, Paul A.
Horowitz, Scott D. Schauf); Shaw Pittman (Jack McKay, Michele N.
Tanaka), for Defendants.
*
Ms. Lynch has in the meantime been substituted by Ada E.
Bosque as the attorney of record for the Plaintiff in this
action. Ms. Lynch appears in the caption because she wrote the
Plaintiff’s motion to publish and represented the Plaintiff when
the December 14, 2000 Memorandum and Order was issued.
OPINION
Pogue, Judge: The following Memorandum and Order is in response to
Defendants’ letter dated November 20, 2000, requesting pretrial
rulings on specific issues briefed in the initial and supplemental
pretrial memoranda, and in view of the parties’ responses to the
Court’s December 5, 2000, request that the parties comment on how
the Ninth Circuit’s decision in Nippon Miniature Bearing
Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.) 2000), affects
the proceedings before this Court. The purpose of these rulings is
to assist the parties in narrowing the issues for trial.
I. The disclaimer in [Nippon Miniature Bearing ("NMB")] catalogs
which reads as follows: "The company reserves the right to
change the specifications and other information included in
the catalog without notice."
During the time period relevant to this dispute, NMB’s sales
catalogs contained one of two disclaimers regarding changes to the
products advertised in the catalogs. The disclaimer in its long-
form catalogs distributed in 1986 and 1987 stated, "The company
reserves the right to change specifications and other information
included in this catalog without notice." See Def.’s Supp.
Pretrial Mem. at 3, Annex A. The disclaimer in two short-form
catalogs dated August 1988 stated, "Specifications and data subject
to change without notice." See id. at 3 n.3, Annex A.
Defendants submit that "the disclaimers in [D]efendant NMB’s
catalogs effectively negate any alleged falsity in statements made
by [D]efendants to the U.S. Customs Service ("Customs"), and thus
the Court should dismiss the [P]laintiff’s case as [P]laintiff
cannot satisfy this legal prerequisite for liability under 19
U.S.C. § 1592 [("Section 592")]." Def.’s Supp. Pretrial Mem. at 1-
2. Defendants further argue that "from a ‘materiality’ standpoint,
in view of the disclaimers, Customs cannot legitimately claim even
to have been misled by the catalog into applying inadequate
scrutiny to the bearings and their admissibility . . . ." Id. at
5. Plaintiff maintains, to the contrary, that "this language has
no effect upon the Government’s claims because the [D]efendants
cannot disclaim their legal obligation to report accurate and
complete information to Customs." Pl.’s Supp. Pretrial Mem. at 2.
As a preliminary matter, the Court notes that Defendant NMB,
which issued the catalogs through its sales affiliate, first became
aware of the substitution of DD for 440C steel in July, 1987.
Consequently, the disclaimers contained in the August 1988 short-
form catalogsBthat is, those catalogs issued after NMB became aware
of the substitutionBcan have no effect on Defendants’ liability.1
A disclaimer reserving for the company the right "to change"
specifications between publications of sales catalogs does not, by
its language, reserve for the company the right to withhold, in any
subsequent publication, changes of which the company is aware. See
discussion of "400 series stainless steel" description infra.
The issue of the effect of the disclaimer in the long-form
catalogs remains. The Court turns first to Defendants’ claim that
1
We note that Minebea, the parent company of NMB, was aware
of the substitution during the entire period in dispute. We
decline at this point to decide the Hitachi liability issue
briefed by the parties.
the disclaimer negates any alleged falsity of its statements.
Assuming, arguendo, that Plaintiff prevails at trial on its claim
that the statements in the catalogs are statements made to Customs
as part of Defendants’ invoice, Defendants had an obligation under
19 U.S.C. § 1485(a)(4) to "produce to the appropriate customs
officer any invoice, paper, letter, document or information
received showing that such . . . statements are not true or
correct." A disclaimer might be effective as a general notice to
customers that the products offered in an advertisement may not be
available in the exact form advertised. See Def.’s Supp. Pretrial
Mem. at 4 (citing Norton Tire Co. v. Tire Kingdom Co., 858 F.2d
1533 (11th Cir. 1988)). A disclaimer is not, however, effective
against the statutory obligation to inform Customs that a statement
that was once trueBhere, that the bearings were composed of 440CBis
no longer true.2
Moreover, the disclaimer does not prevent Plaintiff, as a
matter of law, from proving materiality. Customs’ regulation, 19
C.F.R. Part 171 App. B(A), provides that a statement "is material
if it has the potential to alter the . . . admissibility of
2
The correctness of this conclusion is confirmed by the
effect courts have found disclaimers to have in other contexts.
For example, in contracts cases, a general disclaimer must yield
to a specific obligation contained in the contract, if the two
are inconsistent. See, e.g., Consolidated Data Terminals v.
Applied Digital Data Systems, Inc., 708 F.2d 385, 391 (9th Cir.
1983)(applying New York law to find that, "[w]here a contract
includes both specific warranty language and a general disclaimer
of warranty liability, the former prevails over the latter where
the two cannot be reasonably reconciled"). Similarly here, a
general disclaimer concerning the truth of statements made must
yield to the specific obligation contained in the statute to
guarantee the truth of statements made to Customs. See 19 U.S.C.
§ 1845 (requiring importer to make a "declaration under oath"
that all statements made are "true and correct").
merchandise . . . ." 19 C.F.R. Part 171 App. B(A) (1987).
Plaintiff bases its "materiality" claim on the argument that the
merchandise was potentially inadmissible due to a possible or
actual Lanham Act violation pursuant to 15 U.S.C. § 1125(a)
("Section 43(a)"). See Pl.’s Supp. Pretrial Mem. at 8. In a case
involving another section of the Lanham Act, 15 U.S.C. § 1124, the
court explained that, "Although courts may also consider an alleged
infringer’s use of a disclaimer . . . the mere presence of a
disclaimer does not necessarily prevent customer confusion." Ross
Cosmetics Distribution Centers, Inc. v. United States, 18 CIT 979,
987 (1994). A statement that results in "consumer confusion" is
also a ground for finding a violation of Section 43(a). Thus,
whether or not the disclaimer would prevent a conclusion that the
statement was "literally false" under Section 43(a), a Customs
official could not, upon reading the disclaimer, conclude
definitively that the merchandise would not result in customer
confusion and thus, would be admissible. This Court concludes that
the mere presence of the disclaimer does not, as a matter of law,
prevent Plaintiff from proving that Section 592 civil penalties are
owing.
II. Customs’ receipt of information in September 1987 indicating
that NMB was importing bearings composed of material other
than 440C steel. Customs’ June 1, 1998, seizure of documents
discussing the use of "DD" steel in bearings marked with the
"SS" part number.
Defendants imported the merchandise at issue between August 1,
1986, and February 27, 1989. Defendants argue that there can be no
liability for a violation of Section 592 for at least part of that
period, because Customs had actual knowledge of the substitution of
DD steel for 440C steel from September 1987 onward. See Def.’s
Pretrial Mem. at 40. Defendants allege that Special Agent William
Dean became aware of the use of DD steel in September 1987 from a
Customs informant; despite this knowledge, "he took no action with
respect to [D]efendants’ bearings." See id. at 5 (¶ 11).
Moreover, following a June 1988 raid of NMB’s offices, during which
Customs acquired more evidence of the substitution of DD steel for
440C steel, "Customs still took no action against [D]efendants’
bearings until seizure in January and February 1989." Id. (¶ 11).
According to Defendants, "Customs admitted millions of NMB bearings
with knowledge that they were made of DD steel." Id. (¶ 12). The
legal significance of Customs’s knowledge, urge Defendants, is that
it negates Plaintiff’s theory of materiality: "once Customs learned
that [D]efendants had substituted steel in their bearings, it
cannot claim that it was somehow misled into not giving adequate
scrutiny to the bearings in order to determine their
admissibility." See id. at 40-41 n.23. More broadly, Defendants
suggest that, in order to prosecute under Section 592, Plaintiff
must point to "reliance by Customs on the allegedly false
statement." Def.’s Pretrial Mem. at 41 n.24, and cites therein.
Defendants’ legal theory is incorrect. "Materiality" for
purposes of Section 592 is determined without regard to whether the
importer’s false statement to Customs actually misled Customs, or
whether Customs actually relied on the false statement. See 19
C.F.R. Part 171 App. B(A)(a statement "is material if it has the
potential to alter the . . . admissibility of merchandise . . . or
if it tends to conceal an unfair trade practice . . . .")(emphases
added); United States v. Daewoo International, 12 CIT 889, 894, 696
F. Supp. 1534, 1540 (1988), vacated on other grounds, 13 CIT 76,
704 F. Supp. 1067 (1988)(false statements are material if they have
"a natural tendency to influence, or [were] capable of influencing,
the decision of [Customs] in making a determination required to be
made")(emphases added)(cites omitted); United States v. Holmquist,
36 F.3d 154, 161 (1st cir. 1994)(the focus of an inquiry into
materiality is not what effect a false statement actually may have,
but whether it has "the potential significantly to affect the
integrity or operation of the importation process as a
whole")(emphasis added). This approach is in accord with the
fundamental principle that the burden is on the importer to provide
true and accurate information to Customs; the burden is not on
Customs to "find out" non-complying importers. That Customs may
have known that NMB made false statements to Customs does not make
the statements either true or accurate, nor does it make the
statements not "material" as that term has been interpreted.
III. NMB’s distribution, in August 1988, of a catalog indicating
that bearings with "SS" part numbers were made from 400 series
stainless steel (as opposed to 440C steel as stated in earlier
catalogs).
Defendants further argue that there can be no liability for a
violation of Section 592 after August, 1988. At that time, NMB
issued a revised short-form catalog indicating that bearings with
"SS" part numbers were made from a "400 series stainless steel."
See Def.’s Pretrial Mem. at 41. The legal significance of this
revision, according to Defendants, is that it remedied any possible
violation of the Lanham Act by indicating to Customs that the
bearings were not made of 440C steel. See id. at 41-42.
Defendants’ argument cannot be accepted. First, as 440C is
itself a "400 series stainless steel" pursuant to AISI standards,
Defendants simply cannot maintain that Customs should have known
from the catalog revision that the bearings were not composed of
440C. And even if Customs should have known that the bearings were
not made of 440C, Customs could not have known from the description
"400 series stainless steel" that the bearings were made of DD.
Moreover, it is uncontested that DD is not recognized by the AISI,
see Second Amended Pretrial Order, Stmt. Uncontested Facts at ¶ 73;
thus, it is in a strict sense not true that DD is a "400 series
stainless steel," even if DD in fact meets the AISI criteria for
that series. In sum, the description "400 series stainless steel"
does not by itself extinguish the possibility that Defendants
violated the Lanham Act.3
IV. The effect of the Ninth Circuit’s decision in Nippon Miniature
Bearing Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.)
2000), on the proceedings before this Court.
In a letter dated December 5, 2000, the Court asked the
parties to address the Ninth Circuit’s decision in Nippon Miniature
Bearing Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.) 2000)
3
In Pacamor Bearings, Inc. v. Minebea Co., Ltd., 918 F.
Supp. 491, 503 n.14 (D.N.H. 1996), the district court noted the
possibility that the representation "400 series stainless steel"
could be, if not "literally false," "susceptible to the alternate
§ 43(a) prong of ‘consumer confusion.’"
("NMB"). Specifically, the Court noted that the Ninth Circuit
distinguished between jurisdiction over claims related to Customs’
penalty assessment, and claims related to seizure. The Court asked
the parties to consult, and comment on how the Ninth Circuit’s
opinion affects the proceedings at this Court.
In its comments of December 7, 2000, Plaintiff informed the
Court that the parties had consulted, and were unable to reach
agreement. See Pl.’s Comments at 1. The United States reiterated
its position "that the CIT has jurisdiction over the 926 entries
listed on Exhibit A to the Complaint but that it lacks jurisdiction
over the [D]efendants’ counterclaim which arises solely from the
nineteen shipments that were seized by Customs and which are not
included within the 926 entries." Id. In its comments of December
12, 2000, Defendants, without indicating agreement with Plaintiff’s
position, did, however, decide "to voluntarily withdraw [the
counterclaim related to the nineteen shipments of seized ball
bearings] in order to narrow the issues for trial." Def.’s
Comments at 2. The Court has reviewed Defendants’ amended
schedules to the Pretrial Order, and will approve these amendments.
IT IS SO ORDERED.
Donald C. Pogue
Judge
Dated: June 19, 2001
New York, New York