United States v. Active Frontier Int'l, Inc.

Slip Op. 13- 8
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
v. Before: Timothy C. Stanceu, Judge
ACTIVE FRONTIER Court No. 11-00167
INTERNATIONAL, INC.,
Defendant.
OPINION AND ORDER
[Granting plaintiff’s third motion to amend its complaint]
Date: January 16, 2013
Carrie Dunsmore, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, for plaintiff. With her on the motion were Stuart F.
Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M.
McCarthy, Assistant Director. Of counsel on the motion was Jean M. Del Colliano, Office of
the Associate Chief Counsel, U.S. Customs and Border Protection, of New York, NY.
Stanceu, Judge: Plaintiff brought this action to recover a monetary penalty under
section 592 of the Tariff Act of 1930, 19 U.S.C. § 1592 (2006) (“Section 592”),1 from defendant
Active Frontier International, Inc. (“AFI” or “Active Frontier”), a New York corporation,
alleging that AFI falsely declared the country of origin of imported wearing apparel on seven
entries made between June 5, 2006 and March 2, 2007. Compl. ¶¶ 1, 3, 6, 16 (May 31, 2011),
ECF No. 2. Plaintiff contends that the entry documentation filed with U.S. Customs and Border
Protection (“Customs”) variously identified one of three countries, Indonesia, South Korea or the
1
Citations to Section 592 of the Tariff Act of 1930 as codified are to the relevant portions
of Title 19 of the U.S. Code, 2006 edition.
Court No. 11-00167 Page 2
Philippines, as the country of origin and that the wearing apparel instead was manufactured in
the People’s Republic of China (“China”). Id. ¶¶ 6, 8(a)-(b). Plaintiff seeks to recover
$80,596.40, representing 20% of the dutiable value of the seven entries of the merchandise, the
maximum penalty authorized by Section 592(c)(3)(B) (19 U.S.C. § 1592(c)(3)(B)) for a violation
based on negligence. Id. ¶ 17, Prayer for Relief. The Clerk of the Court entered AFI’s default,
AFI having failed to plead or otherwise defend itself in response to the summons and complaint.
Entry of Default (Aug. 4, 2011), ECF No. 7.
In its first opinion and order in this matter, issued August 30, 2012, the court denied
plaintiff’s application for a default judgment on the ground that plaintiff did not allege facts
allowing the court to conclude that the false country of origin statements allegedly made by AFI
upon entry were “material” within the meaning of section 592(a)(1)(A)(i), 19 U.S.C.
§ 1592(a)(1)(A)(i).2 United States v. Active Frontier International, Inc., 36 CIT __, __, Slip
Op. 12-112, at 10-11, 14 (“Active Frontier I”). Plaintiff originally asserted, incorrectly, that all
wearing apparel on the seven entries was subject to a quantitative restriction (i.e., “quota”); after
the court pointed out that this assertion appeared to be in error, plaintiff stated in a supplemental
brief that a quota applied only to some of the merchandise at issue in the case. Id. at 9. The
court stated in Active Frontier I:
The error aside, both plaintiff’s application and the supplemental brief allege facts
beyond those stated in the complaint, which, in contrast to these two submissions,
fails to describe the goods sufficiently to allow the court to conclude that some or
2
Section 592(a)(1) provides, in pertinent part, that
[N]o person, by fraud, gross negligence, or negligence—
(A) may enter, introduce, or attempt to enter or introduce any merchandise into
the commerce of the United States by means of—
(i) any document or electronically transmitted data or information, written or oral
statement, or act which is material and false.
19 U.S.C. § 1592(a)(1) (emphasis added).
Court No. 11-00167 Page 3
all of the goods fall within a class, kind, or category of apparel that was subject to
a quantitative restriction. Instead, the complaint offers only a vague description,
“certain articles of wearing apparel manufactured in the People’s Republic of
China.” Compl. ¶ 6. The alleged false origin statements could have affected the
admissibility of all the merchandise, as described in the complaint, only if all
wearing apparel of Chinese origin were subject to quota at the time the entries
were made, which was not the case. Plaintiff’s complaint impermissibly would
require the court to speculate that the unspecified apparel articles were quota
merchandise. Because the court must rule on plaintiff’s application according to
well-pled facts, facts not pled in the complaint but offered only in a subsequent
submission will not suffice.
Id. at 9-10. The court added that it “cannot conclude from the facts pled in the complaint that the
alleged misstatements of country of origin made upon entry affected admissibility or had any
potential to affect any other determination Customs or another agency was required to make
under any law applying to the importation of the merchandise.” Id. at 11.
The court offered plaintiff an opportunity to seek leave to amend its complaint. Id.,36 CIT at __, Slip Op. 12-112, at 14. Plaintiff’s first motion to amend, filed on October 1, 2012,
followed that order. Mot. to Amend, ECF No. 16. On October 3, 2012, the court denied
plaintiff’s motion to amend because plaintiff did not lodge a proposed amended complaint with
its motion and thereby prevented the court from determining, for purposes of USCIT
Rule 15(a)(2), whether the motion would be futile. United States v. Active Frontier
International, Inc., 36 CIT __, __, Slip Op. 12-127, at 4. The court gave plaintiff an opportunity
to refile its motion accompanied by a proposed amended complaint. Id. On October 9, 2012,
plaintiff refiled its motion and included a proposed amended complaint. Pl.’s Second Mot. to
Amend Compl., ECF No. 19; Am. Compl., ECF No. 19. On October 24, 2012, the court held a
telephonic status conference with plaintiff’s attorneys. Based on a discussion during the
conference related to the question of materiality, plaintiff sought, and the court granted, leave to
withdraw the motion without prejudice to the filing of a renewed motion to amend. Order
Court No. 11-00167 Page 4
(Oct. 24, 2012), ECF No. 20. On October 31, 2012, plaintiff lodged another proposed complaint
to accompany a third motion to amend, which is now before the court. Pl.’s Third Mot. to
Amend Compl., ECF No. 21 (“Pl.’s Mot.”); id., Ex. 1 (“Proposed Am. Compl.”).
USCIT Rule 15(a)(2) directs that “[t]he court should freely give leave” to amend a
pleading “when justice so requires.” In ruling on a motion to amend a complaint, a court may
consider various factors, including whether the amendment would be futile. See Foman v. Davis,
371 U.S. 178, 182 (1962); Intrepid v. Pollock, 907 F.2d 1125, 1128 (Fed. Cir. 1990). If an
amendment would not survive a motion to dismiss pursuant to USCIT Rule 12(b)(5), it is
deemed futile. Kemin Foods v. Pigmentos Vegetales Del Centro, 464 F.3d 1339, 1354-55
(citation omitted). Normally, an amended complaint supersedes the original. See Pacific Bell
Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438, 1122 n.4 (2009) (citation
omitted). Therefore, the court’s futility inquiry looks only to the proposed amended complaint.
“To survive a motion to dismiss, 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,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
A claim has facial plausibility when it “raise[s] a right to relief above the speculative level.”
Twombly, 550 U.S. at 555 (internal citation omitted). Determining whether the factual pleading
standard has been met is a “context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Iqbal, 556 U.S. at 679.
The stated purpose of plaintiff’s intended amendment is “to expand [the] pleading of the
element of materiality” and “to address the concerns raised by the Court in [Active Frontier I].”
Pl.’s Mot. 1, 4. Unlike the original complaint filed in this action, Plaintiff’s proposed amended
complaint draws a distinction between quota merchandise and non-quota merchandise,
Court No. 11-00167 Page 5
identifying the specific tariff provisions declared by AFI in its entry documentation and the
dutiable value of the merchandise listed on each entry, identified by textile/apparel category.
Proposed Am. Compl ¶ 13.
In moving for leave to amend, plaintiff objects to the “narrow” materiality standard the
court articulated in Active Frontier I. Pl.’s Mot. 4-9. Plaintiff would have the court consider the
new proposed complaint under a broader view of materiality, submitting that this proposed
complaint “alleges that [AFI’s] false statement [of country of origin] is material because each
entry at issue contained merchandise subject to quota, and [] explain[s] exactly what the relevant
quota was.” Id. at 9 (citation omitted). Reiterating some arguments it has made previously in
this case, which the court rejected, plaintiff submits that the proposed amended complaint sets
forth facts demonstrating materiality as to all merchandise at issue in this action, including some
merchandise plaintiff describes as not subject to quota. Id. at 10 (citation omitted).
Having addressed in Active Frontier I the materiality standard for Section 592(a) as it
applies to this case, Active Frontier I, Slip Op. 12-112, at 4-14, the court is not persuaded by
plaintiff’s repetition of its earlier arguments. As the court then discussed, plaintiff’s expansive
definition of materiality impermissibly would expand the concept beyond that which Congress
intended. One argument plaintiff reiterates is that “when Active Frontier provided a false
statement of country of origin for each entry, the false statement was material to that entry, and
thus to all the goods in that entry.” Pl.’s Mot. 9. Plaintiff posits that a misstatement of country
of origin for a single entry cannot be material as to “some of the goods contained within that
entry . . . and not material as to other[s].” Id. However, plaintiff does not cite to any authority,
either within the text of Section 592 or elsewhere, for the principle it advances. The court sees
no reason why a false origin designation could not be material with respect to some merchandise
Court No. 11-00167 Page 6
on a given entry, such as merchandise subject to quota, and on the particular facts presented be
immaterial with respect to other merchandise on the same entry, such as non-quota merchandise.
In this example, the determination of admissibility would involve the application of law to
findings of fact specific to each the two types of merchandise in question. See Active Frontier I,
Slip Op. 12-112, at 10-11. For these reasons, the court, in reviewing plaintiff’s proposed
amendment, applies the statutory construction of the term “material” discussed in Active
Frontier I.
The only remaining question posed by plaintiff’s motion is whether sufficient facts are
pled to allow the court to view the alleged false origin statements as “material” within the
meaning of Section 592(a)(1)(A)(i), properly construed.3 See United States v. Ford Motor Co.,
463 F.3d 1286, 1296-98 (Fed. Cir. 2006) (futility is a sufficient ground to deny motion to amend
complaint). The new complaint plaintiff lodges, like plaintiff’s original complaint, fails to
identify the imported merchandise with specificity. See Active Frontier I, 36 CIT __, __, Slip
Op. 12-112, at 9-10. The court again is informed that the merchandise consists of “certain
articles of wearing apparel manufactured in the People’s Republic of China,” Proposed Am.
Compl. ¶ 6, a description too vague to allow the court to determine tariff classification and,
accordingly, ascertain whether any of the merchandise at issue in this case falls within tariff
3
The proposed amended complaint does not raise a question as to the adequacy of
pleading negligence on the part of defendant. It does not plead facts from which the court
can conclude that AFI’s alleged misstatements of country of origin made occurred by
negligence, see Pl.’s Third Mot. to Amend Compl., Ex. 1 (Oct. 31, 2012), ECF No. 31
(“Proposed Am. Compl.”), but this omission does not render the motion to amend futile.
Section 592(e)(4) places the burden on the United States to show that an act or omission
within the purview of the Section 592(a) occurred and shifts to the defendant the burden of
establishing that the act or omission did not occur as a result of negligence. 19 U.S.C.
§ 1592(e)(4).
Court No. 11-00167 Page 7
provisions to which a quota on Chinese apparel articles applied at the time of entry.4 Appearing
in paragraph 9(d) is the allegation that “[a]ccording to the entry information, each entry
contained merchandise that was listed under Harmonized Tariff Schedule (HTS) number
6204.63.3090.” Id. ¶ 9(d). This allegation, which states no more than that plaintiff listed
subheading 6204.63.3090, HTSUS on its entry documentation, is not an allegation that goods
correctly classified within the identified subheading actually were imported and thus were
subject to the quota. The eo nomine article description for subheading 6204.63.3090, HTSUS
identifies “water resistant women’s or girls’ suits, ensembles, suit-type jackets, blazers, dresses,
skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear)
of synthetic fiber.” Subheading 6204.63.3090, HTSUS (2006, 2007). The proposed complaint
further states that “category 648” of the quota on Chinese-origin apparel “covered women’s or
girl’s synthetic fibers [all of which are classifiable under HTSUS 6204.63.3090],” id. ¶¶ 9(a)-
9(b), 9(d) (citations omitted), but this is a conclusion of law, not a factual allegation.5 In
summary, the proposed amended complaint leaves the court to speculate as to the actual class or
kind of apparel items that were imported under cover of each of the seven entries upon which
plaintiff has grounded its claim for a civil penalty. Plaintiff’s motion thus raises the question of
4
In earlier submissions in this case, plaintiff identified the class or kind of merchandise
for some but not all of the entries in this action. See Active Frontier I, 36 CIT __, __, Slip.
Op. 12-112, at 10 n.2. The complaint plaintiff now proposes lacks such specificity for any
entry.
5
See Proposed Am. Compl. ¶¶ 9(a), 9(b) (citing Establishment of Agreed Import Levels
and the ELVIS (Electronic Visa Information System) Requirement for Certain Cotton, Wool,
Man-Made Fiber, Silk Blend and Other Vegetable Fiber Textiles and Textile Products
Produced or Manufactured in the People’ Republic of China, 70 Fed. Reg. 74,777(Dec. 13, 2005); Establishment of Agreed Import Levels for Certain Cotton, Wool,
Man-Made Fiber, Silk Blend and Other Vegetable Fiber Textiles and Textile Products
Produced or Manufactured in the People's Republic of China, 71 Fed. Reg. 62,999(Oct. 27, 2006)).
Court No. 11-00167 Page 8
whether the standard established by the Supreme Court in Twombly and Iqbal is satisfied on the
issue of whether the alleged false origin statements were material. The court is “not bound to
accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678.
Although the new proposed complaint fails to identify the imported merchandise with
specificity, the court concludes that plaintiff’s motion to amend should not be denied on the
ground of futility. In construing the complaint, the court must draw all reasonable inferences in
favor of the plaintiff. See Cary v. United States, 552 F. 3d 1373, 1376 (Fed. Cir. 2009) (citation
omitted). With respect to materiality of the alleged false origin statements, the complaint
plaintiff lodges is saved from futility by a single sentence in paragraph 9(d): “By misstating the
country of origin on these articles, Active Frontier allowed them to be entered into the country
without having them count towards the quota on these goods.” Compl. ¶ 9(d). The court
construes this statement as an implied assertion of fact that the apparel items actually imported,
whatever they were, were encompassed by the article description for subheading 6204.63.3090,
HTSUS. When read in the context of the other allegations in the proposed amended complaint,
this statement alleges facts allowing the court to conclude that the alleged false origin statements
made as to the imported quota merchandise were material within the meaning of Section
592(a)(1)(A)(i). As applied to the country of origin of the imported apparel items subject to
quota, the alleged false statements AFI is alleged to have made affected, or at least had the
potential to affect, the administration of the quota by Customs.
For the reasons discussed in the foregoing, upon consideration of plaintiff’s third motion
to amend the complaint, as filed on October 31, 2012, and all papers and proceedings herein, and
upon due deliberation, it is hereby
Court No. 11-00167 Page 9
ORDERED that plaintiff’s third motion to amend the complaint be, and hereby is,
granted.
/s/ Timothy C. Stanceu
Timothy C. Stanceu
Judge
Dated: January 16, 2013
New York, New York