United States v. Juan Carlos Chavez

Slip Op. 17 - 140
UNITED STATES COURT OF INTERNATIONAL TRADE
____________________________________
:
UNITED STATES, :
:
Plaintiff, :
:
v. : Before: R. Kenton Musgrave, Senior Judge
: Court No. 12-00104
JUAN CARLOS CHAVEZ, and :
CHAVEZ IMPORT & EXPORT, INC., :
:
Defendants. :
____________________________________:
OPINION
[Motion for default judgment on customs penalty action granted.]
Dated: October 10, 2017
Albert S. Iarossi, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington DC, for the defendant. On the brief were Chad E. Readler,
Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy,
Assistant Director. Of Counsel was Adam M. Cornette, Office of the Chief Counsel, U.S. Customs
and Border Protection.
Musgrave, Senior Judge: As previously alluded, see 40 CIT ___, Slip Op. 16-26
(Mar. 25, 2016), ECF No. 43, the plaintiff commenced this case against defendants Juan Carlos
Chavez (“Chavez”) and Chavez Import & Export, Inc. (“CIE”) pursuant to 19 U.S.C. §1592 and 28
U.S.C. §1582 seeking collection of unpaid duties totaling US$40,288.82, plus penalties totaling
US$131,358.22, plus interest and costs, for certain misrepresentations on entry documents, as further
described below. Slip Op. 16-26 granted summary judgment in favor of the plaintiff for the portion
Court No. 12-00104 Page 2
of such items claimed against Chavez,1 and the plaintiff now moves for entry of default judgment
against CIE.
I. Background
To date, the corporate defendant CIE has remained unrepresented by counsel, has not
answered the complaint, and has had default entered against it. ECF No. 23 (May 5, 2015). See
USCIT Rule 55(a) (“[w]hen a party against whom a judgment for affirmative relief is sought has
failed to plead or otherwise defend as prescribed by these rules . . . the clerk shall enter the party’s
default”). The papers on the current motion for judgment state that CIE was a Florida corporation
prior to being administratively dissolved by the Florida Secretary of State on September 26, 2008,
for failing to file an annual report. See April 12, 2012 Complaint (Compl.) at ¶ 5; ECF No. 4. CIE
had two shareholders, directors, and officers from the time of its incorporation until the time of its
dissolution: Augusto E. Chavez (President) and co-defendant Juan Carlos Chavez (Vice President
and Secretary). Compl. ¶ 7.
The plaintiff further avers: that from June 24, 2005 to October 2, 2006, CIE, as
importer of record, caused to be entered or introduced ten entries of “Soft Dairy Express” and “White
Cheese” by means of entry documents filed with U.S. Customs and Border Protection (CBP); that
1
By way of further brief background thereon, Chavez’s answer to the complaint, ECF No.
18 (Apr. 22, 2014), denied the substance of the plaintiff’s averments. About a year later, the plaintiff
moved, inter alia, for summary judgment against Chavez, ECF No. 22 (May 4, 2015), and Chavez,
through counsel, was then granted three unopposed motions for extension of time to respond to the
motion for summary judgment, after which certain circumstances compelled counsel to move to
withdraw. See ECF No. 33 (Sep. 1, 2015). Chavez was then provided with duplicate copies of the
plaintiff’s motion for summary judgment, ECF No. 38 (Sep. 29, 2015), and ordered on January 19,
2016 to show cause why judgment should not be entered in favor of the plaintiff, ECF No. 42 (Jan.
19, 2016). No response or other contact from Chavez having been received within the time
proscribed, summary judgment entered in favor of the plaintiff. Slip Op. 16-26, ECF No. 43.
Court No. 12-00104 Page 3
the entry numbers for these shipments were APJ-00061195, AWB-00044747, AWB-00046304,
AWB-00060297, AWB-00060305, AWB-00068779, AWB-00069173, AWB-00069934,
AWB-00070965, and AWB-00073258; that on the entry forms for their respective entries CIE falsely
classified the “Soft Dairy Express” under HTSUS 0405.20.4000, which applies to dairy spreads:
butter substitutes, whether in liquid or solid state, other than those containing over 45 percent by
weight of butterfat; that on the entry forms for their respective entries, CIE falsely classified the
“White Cheese” under HTSUS 0406.90.9900, which applies to cheeses and curds that do not contain
cow’s milk; that for some entries, in addition, the incorrect HTSUS classifications were preceded
by the letter “E”, which provides for duty-free treatment under the Caribbean Basin Economic
Recovery Act (CBERA) (Pub. L. 98-67); that the “Soft Dairy Express” should have been classified
under HTSUS 1901.90.4300, which applies to certain dairy products containing over 10 percent by
weight of milk solids; that the “White Cheese” should have been classified under HTSUS
0406.90.9700, which applies to cheeses and curds that do contain cow’s milk; that had the “Soft
Dairy Express” and “White Cheese” been properly classified under HTSUS 1901.90.4300 and
HTSUS 0406.90.9700, they would have been subject to additional duties under HTSUS subheadings
9904.04 and 9904.06; that neither of the correct classifications qualified for duty-free treatment
under the CBERA; that the invoices and entry documents for the entries at issue did not provide
meaningful descriptions of the products sufficient to correctly classify the merchandise; that, rather,
it was only through laboratory analyses conducted by CBP that the correct HTSUS classifications
could be determined; that some of the entries at issue also contained false valuations, allowing them
to be processed through informal entries without surety bonds; that the loss of revenue from
Court No. 12-00104 Page 4
misclassifying CIE’s entries was $53,263.54; that because three entries were liquidated with rate
advances totaling $8,403.57, and because four entries were covered by bonds for which the insurer
paid $13,344.92, the duties still owed are $31,505.15; that the domestic value of the merchandise
that was the subject of the false statements, acts and/or omissions by CIE was $105,916.50; that the
false statements, acts, and/or omissions described above were material because they influenced
CBP’s collection of duties; that until CBP discovered the false statements, defendants were depriving
the United States of duties lawfully owed; that CIE failed to ensure that the HTSUS classifications
were complete and accurate; that in March 2010, the United States issued an amended pre-penalty
notice and demand for duties and an amended penalty notice to CIE regarding the entries for which
CIE was the importer of record; that Mr. Juan Carlos Chavez, CIE’s Vice President and Secretary
(and co-defendant in this case) received these notices on behalf of CIE at his then-current address
in North Brunswick, New Jersey; that on April 14, 2010, a waiver of the statute of limitations was
executed with respect to the entries for which CIE was the importer of record, which waiver
indicated that Mr. Chavez, acting in his “individual and personal capacity, and also on behalf of
Chavez Import & Export, Inc.”, would “not assert any statutes of limitations defense in any action
brought by the United States Government” for two years beginning from the date of execution; that
Mr. Chavez and a CBP official signed the waiver; that CBP did not receive any written notice from
CIE, pursuant to Fla. Stat. §607.1406, informing CBP of any claims that CBP might be entitled to
assert against CIE; that CIE also did not publish or file a notice of dissolution, pursuant to Fla. Stat.
§607.1407, in order to address claims that were known to it; and that, accordingly, there is no time
Court No. 12-00104 Page 5
limit or statute of limitations under Florida law that would prevent this proceeding against CIE. See
generally Complaint, ECF No. 4 (Apr. 12, 2012).
II. Discussion
Jurisdiction here over this penalty action is conferred by 28 U.S.C. §1582(1). The
court’s Rules provide that after entry of default, if “the plaintiff's claim is for a sum certain or for a
sum that can be made certain by computation, the court -- on the plaintiff's request with an affidavit
showing the amount due -- must enter judgment for that amount and costs against a defendant who
has been defaulted for not appearing.” USCIT R. 55(b). However, because “a party in default does
not admit mere conclusions of law”, the question “to consider [is] whether the unchallenged facts
constitute a legitimate cause of action”. 10A Charles A. Wright, Arthur R. Miller & Mary K. Kane,
Federal Practice and Procedure §2688, at 63 (3d ed. 1998). Towards that end, all “well-pled” facts
in the complaint are taken as true, e.g., United States v. Callanish Ltd., 34 CIT 1423, 1426 (2010),
but consideration of matters outside the complaint are permissible whenever needed to “determine
the amount of damages or other relief . . . establish the truth of an allegation by evidence; or . . .
investigate any other matter.” USCIT R. 55(b).2
Pursuant to 19 U.S.C. §1592, it is unlawful for any person to introduce merchandise
into the United States by means of a material false statement or document, or a material omission
evidencing fraud, gross negligence, or negligence. 19 U.S.C. §1592(a)(1); United States v. Jac
Natori Co., Ltd., 108 F.3d 295, 298 (Fed. Cir. 1997). A statement or document is “material” if it has
2
“While the rule ‘permits the [trial] court to conduct a hearing to determine damages, such
a hearing is not mandatory.’” United States v. Freight Forwarder International, Inc., 39 CIT __, ___,
44 F. Supp. 3d 1359, 1362 (2015), quoting (and bracketing) Cement & Concrete Workers District
Council Welfare Fund v. Metro Foundation Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012).
Court No. 12-00104 Page 6
“the tendency to influence Customs’ decision in assessing duties.” United States v. Thorson
Chemical Corp., 16 CIT 441, 448, 795 F. Supp. 1190, 1196 (1992); see also 19 C.F.R. Pt. 171, App.
B(B) (“[a] document, statement, act, or omission is material if it has the natural tendency to influence
. . . a Customs action regarding the classification, appraisement, or admissibility of merchandise[,]
. . . determination of an importer’s liability for duty[,] . . . [or] determination as to the source, origin,
or quality of merchandise”).
The plaintiff averments, unchallenged, constitute a legitimate cause of action. The
level of culpability asserted in this case is negligence. See 19 U.S.C. §1592(c) (establishing penalties
at different culpability levels). To prove negligence, the government need only establish the false
and material act or omission constituting the violation, and the burden then shifts to the alleged
violator to prove that the act or omission did not occur as a result of negligence. 19 U.S.C.
§1592(e)(4). The plaintiff’s complaint satisfies its burden by averring that CIE’s classifications of
the ten entries were false in light of the laboratory analyses conducted by CBP. See Compl. ¶18.
The complaint further alleges that the fat content of the “Soft Dairy Express” as determined by CBP
rendered it inapplicable for the classification chosen by CIE (id. ¶¶ 11, 14), and that the “White
Cheese” was actually made from cow’s milk, as determined and further alleged by CBP, and was
falsely classified by CIE under a tariff provision for cheese not made from cow’s milk (see id. ¶¶ 12,
15). In addition, for some of the entries, the incorrect classifications were preceded by the prefix “E”
to enable them to receive duty-free treatment under the CBERA, and had the correct classifications
been used there would have been no entitlement to this duty-free treatment. Id. ¶¶ 13, 17.
Court No. 12-00104 Page 7
Although the United States need not be deprived of a portion of a lawful duty in order
for a false statement to be considered “material,” see 19 U.S.C. §1592(a), a false statement that
results in such deprivation, which is allegedly the case at bar, is, a fortiori, “material.” See, e.g.,
United States v. Inn Foods, Inc., 560 F.3d 1338, 1344 (Fed. Cir. 2009); United States v. Country
Flavor Corp., 36 CIT ___, ___, 825 F. Supp. 2d 1296, 1302 (2012). Cf. United States v. Active
Frontier International, Inc., 36 CIT ___, ___, 867 F. Supp. 2d 1312, 1316-17 (2012) (discussing
non-binding definition of “material” in 19 C.F.R. Part 171, App. B(B)).
Once the government shows materiality and falsity, the burden shifts to CIE to prove
that the acts or omissions did not occur as a result of negligence. See 19 U.S.C. §1592(e)(4); United
States v. Matthews, 31 CIT 2075, 2081, 533 F. Supp. 2d 1307, 1312 (2007). The plaintiff contends
that in order to do so, CIE must show that the statements did not result from the “failure to exercise
reasonable care and competence . . . to ensure that statements made and information provided . . .
are complete and accurate” and to prove it exercised reasonable care, CIE must show that it took
“measures that will lead to and assure the preparation of accurate documentation” Pl’s Mot. at 7,
referencing 19 C.F.R. Pt. 171, App. B(C)(1)&(D)(6).
CIE has not appeared in this case or responded to the government’s complaint to
challenge such recitation. There is, therefore, no claim before the court that CIE exercised
“reasonable care and competence” to ensure the accuracy of the classifications for the entries at issue
in this case. CIE has offered neither evidence of reasonable care nor other standard of negligence.
Nor, the plaintiff asserts, does the government have any reason to believe that CIE would be able to
meet its burden to demonstrate that it took steps to ensure the accuracy of the classifications.
Court No. 12-00104 Page 8
And despite CIE’s dissolution, claims against CIE are permitted under Florida law.
See Fla. Stat. §607.1405(2)(e). Because the allegations that CIE violated 19 U.S.C. §1592(a) with
respect to the entries at issue in this case have not been challenged, the court must conclude CIE
liable to the United States for the actual loss of duties on those entries. See 19 U.S.C. §1592(d) (“if
the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of
subsection (a) of this section, the Customs Service shall require that such lawful duties, taxes, and
fees be restored, whether or not a monetary penalty is assessed”).
The plaintiff avers the actual loss of revenue from CIE’s shipments as $31,505.15.
Compl. ¶ 31; Pino Decl. ¶ 3. In addition to the lost revenue, the plaintiff moves that CIE be
adjudicated liable for a civil penalty based on negligence in the amount of $105,916.50, which is
alleged to be the domestic value of the merchandise that was the subject of the false statements, acts,
and/or omissions by CIE.3 The plaintiff also claims entitlement from CIE for pre-judgment interest4
3
The plaintiff explains that the penalty for negligence that affects the assessment of duties
is “the lesser of -- (i) the domestic value of the merchandise, or (ii) two times the lawful duties,
taxes, and fees of which the United States is or may be deprived.” 19 U.S.C. §1592(c)(3)(A). In this
case, two times the original loss of revenue equaled $106,527.08, and that amount was higher than
the domestic value of the merchandise, which was calculated to be $105,916.50. Pl’s Mem. at 8,
referencing Compl. ¶¶ 31, 38; Pino Decl. ¶ 4.
4
Pre-judgment interest provides a mechanism to fairly compensate a party for its inability
to use monies owed. West Virginia v. United States, 479 U.S. 305, 310-11 & n.2 (1987); United
States v. Ford Motor Co., 31 CIT 1178, 1181 (2007) (“the long-established rule in the [f]ederal
[c]ourts permits the United States to recover interest on money due to the government even in the
absence of any statutory authorization for an award of pre-judgment interest”); United States v.
Millennium Lumber Distribution Co., 37 CIT __, ___, 887 F. Supp. 2d 1369, 1384 (2013) (“equity
compels an award of prejudgment interest,” otherwise “the [g]overnment here will not be made
whole”). The rationale for awarding prejudgment interest is that “[i]t would be inequitable and unfair
for the government to make an interest-free loan of this sum from the date of final demand to the
date of judgment.” United States v. Imperial Food Imports, 834 F.2d 1013, 1016 (Fed. Cir. 1987).
Court No. 12-00104 Page 9
on the amount of unpaid duties, post-judgment interest on both the amount of unpaid duties and the
civil penalty, and costs.
There does not appear any reason on this record to disallow all or some of such items.
Pre-judgment interest accrues during any delay in payment after a demand for payment has been
made giving proper notification of liability. See United States v. Reul, 959 F.2d 1572, 1577 (Fed.
Cir. 1992); Insurance Company of North America v. United States, 951 F.2d 1244, 1246 (Fed. Cir.
1991). In this case, the court concurs that the appropriate date for the commencement of
pre-judgment interest is March 23, 2010, the date of the Amended CBP Form 5955A, Notice of
Penalty, allegedly transmitted to CIE, and attached to the plaintiff’s memorandum as Exhibit B. See
United States v. Monza Automobili, 12 CIT 239, 240, 683 F. Supp. 818, 820 (1988). Further, the
plaintiff appropriately demarcates that the government is not here seeking pre-judgment interest on
the penalty amount but seeks pre-judgment interest on unpaid duties only. See United States v.
National Semiconductor Corporation, 547 F.3d 1364, 1369-70 (Fed. Cir. 2008).
The plaintiff also seeks mandatory post-judgment interest pursuant to 28 U.S.C.
§1961. That provision generally applies to district court judgments, and this Article III court has
employed it as a basis for awarding post-judgment interest. See United States v. Golden Gate
Petroleum Co., 30 CIT 174, 183 n.9 (2006). And unlike pre-judgment interest, post-judgment
interest on the total amount for which CIE is liable, including the civil penalty, is lawful. See, e.g.,
Freight Forwarder International, supra, 39 CIT at ___, 44 F. Supp. 3d at 1365-66.
Finally, the plaintiff seeks reimbursement of its costs pursuant to USCIT R. 54(d)(1),
which provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs
Court No. 12-00104 Page 10
-- other than attorney’s fees -- should be allowed to the prevailing party.” That rule parallels Federal
Rule of Civil Procedure 54(d), which creates a presumption that the prevailing party is entitled to
costs. See Neal & Co. v. United States, 121 F.3d 683, 686 (Fed. Cir. 1997) (“[c]ourts following
[Federal Rule of Civil Procedure] 54(d)(1) have acknowledged in its language a presumption in favor
of costs to the prevailing party”).
III. Conclusion
In accordance with the foregoing, the papers before the court persuade that default
judgment in favor of the plaintiff against Chavez Import & Export, Inc. for the unpaid duties,
penalty, interest, and cost items discussed above is appropriate. A separate order to that effect will
be entered on the docket.
/s/ R. Kenton Musgrave
R. Kenton Musgrave, Senior Judge
Dated: October 10, 2017
New York, New York