United States v. Santos

Slip Op. 12 - 157
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
Before: Donald C. Pogue,
v. Chief Judge
ALEJANDRO SANTOS, CHB, Court No. 11-00436
Defendant.
OPINION
[granting motion for default judgment]
Dated: December 21, 2012
Karen V. Goff, Trial Attorney, Commercial Litigation
Branch, Civil Division, U.S. Department of Justice, of New York,
NY. With her on the brief were Stuart F. Delery, Acting
Assistant Attorney General, and Barbara S. Williams, Attorney in
Charge, International Trade Field Office.
Pogue, Chief Judge: This is an action by United
States Customs and Border Protection (“Customs”) to recover
civil penalties from a customs broker, Mr. Alejandro Santos
(“Santos”), for violating Customs’ regulations. Customs’ Motion
for Default Judgment, ECF No. 10, filed pursuant to USCIT
R. 55(b), is currently before the court. Because the Clerk has
entered default against Santos, Order, May 8, 2012, ECF No. 9,
and Customs’ Complaint, ECF No. 3, establishes a right to
relief, sufficient facts to support that right, and sufficient
facts to support the requested relief, Customs’ motion will be
Court No. 11-00436 Page 2
granted, and judgment will be entered against Santos in the
amount of $19,000.
The court has jurisdiction pursuant to Section
641(d)(2)(A) of the Tariff Act of 1930, as amended, 19 U.S.C.
§ 1641(d)(2)(A) (2006)1 and 28 U.S.C. § 1582(1) (2006).
BACKGROUND
Customs’ Complaint contains four counts, each relating
to one of the four penalties imposed against Santos. Customs
alleges that it imposed the penalties following three separate
reviews of entries of merchandise by Santos at the Port of
Laredo, TX. Because Santos did not plead or otherwise respond
to Customs’ Complaint, the following factual allegations are
taken as true. USCIT R. 8(c)(6).
First, on January 15, 2009, Customs Import Specialists
visited Santos’ place of business to conduct a review of
entries. Compl. ¶ 6. During the review, the Import Specialists
discovered that Santos had billed certain entries (BTN-0000501-
4, BTN-0000730-9, BTN-0000742-4, BTN-0002238-1, BTN-0003018-6,
and BTN-0000165-8) to a freight forwarder, Salvador Pedraza
d/b/a SPR International (“SPR”), rather than the importer of
1
All further citations to the Tariff Act of 1930, as
amended, are to Title 19 of the U.S. Code, 2006 edition.
Court No. 11-00436 Page 3
record or ultimate consignee, without transmitting a copy of the
bill to the importer of record or obtaining a waiver from the
importer. Id. ¶¶ 6–9; Ex. A to Compl. Based on these findings,
Customs issued penalty number 2010-2304-3-00004-01, in the
amount of $5000. Compl. ¶ 11; Ex. D to Compl. This penalty is
the subject of Count I.
During the same visit, the Import Specialists
requested a copy of the power of attorney associated with entry
BTN-00001658. Compl. ¶¶ 15–17. The requested power of attorney
was not in Santos’ records; instead, it was faxed to Santos’
office upon the Import Specialists’ request. Id. ¶ 20. The
power of attorney faxed to Santos’ office was dated February 15,
2007, Id. ¶ 18, which was subsequent to the importation of the
entry on November 10, 2006, Id. ¶ 16; furthermore, the document
did not identify Santos as the holder of power of attorney, Id.¶ 18–19; Ex. E to Compl. Based on these findings, Customs
issued penalty number 2010-2304-3-00005-01, in the amount of
$5000. Compl. ¶ 23; Ex. H to Compl.2 This penalty is the subject
of Count II.
2
In the Complaint, Customs alleged a $4000 penalty under
Count II, Compl. ¶ 23; however, this appears to have been a
typo, as the penalty notice referenced in Count II was for
$5000. See Pl.’s Mot. Entry Default J. at 14 n.3; Ex. H to
Compl. Because the court determines the amount of the penalty
de novo, see discussion infra under Standard of Review, it is
(footnote continued)
Court No. 11-00436 Page 4
Second, on September 4, 2008, Santos presented four
entry summaries, Customs Form CF 7501 (“CF 7501”), to Customs
for entry numbers BTN-00040011, BTN-00040029, BTN-00040037, and
BTN-00040045. Compl. ¶ 28. The entry summaries classified the
merchandise as “vegetable hair” under Harmonized Tariff Schedule
of the United States (“HTSUS”) subheading 1409.90.10. Id. ¶ 28;
Ex. A to Mot. Default J. (entry summaries attached as Ex. 1).
The entered merchandise, however, was corn husks, which Customs
asserts are separately classified under HTSUS subheading
1404.90.90. Compl. ¶ 28. Based on these findings, Customs
issued penalty number 2010-2304-3-00003-01, in the amount of
$4000. Id. ¶ 31; Ex. K to Compl. This penalty is the subject of
Count III.
Third, on April 15, 2009, Santos filed entry BTN-
00052032, indicating that the entry contained “U.S. goods
returned.” Compl. ¶ 35. An April 17, 2009, inspection of the
entry revealed that the merchandise was not entirely U.S. Goods
Returned. Id. ¶ 36. After receiving notification from Customs,
Santos acknowledged the discrepancy and indicated that the entry
included goods originating in Great Britain; however, Santos
never corrected the CF 7501. Id. ¶¶ 37–39; Exs. L, M to Compl.
within the courts’ authority to correct this error in the
Complaint.
Court No. 11-00436 Page 5
Based on these findings, Customs issued penalty number 2010-
2304-3-00180-01, in the amount of $5000. Compl. ¶ 43; Ex. P to
Compl. This penalty is the subject of Count IV.
For each penalty, Customs issued a pre-penalty notice,
penalty notice, and final demand for payment; Santos failed to
respond to any of Customs’ penalty notices or demands, and the
penalties remain unpaid. Compl. ¶¶ 11–12, 23–24, 31–32, 43–44;
Ex. B to Mot. Default J. ¶¶ 11–18. To remedy Santos’ non-
payment, Customs, on November 9, 2011, commenced suit in this
court by filing the Summons and Complaint. On January 12, 2012,
Commerce filed proof of service. Proof of Service, ECF No. 4.
Santos did not respond to the Complaint, and upon motion for
entry of default, the Clerk of the Court entered default on
May 8, 2012. Order, May 8, 2012, ECF No. 9. Customs
subsequently filed its Motion for Default Judgment, and Santos
has not responded to the Motion.
STANDARD OF REVIEW
A case brought pursuant to 28 U.S.C. § 1582(1) is
reviewed de novo. 28 U.S.C. § 2640(a)(6) (providing that in
cases commenced under 28 U.S.C. § 1582, “[t]he Court of
International Trade shall make its determinations upon the basis
of the record made before the court”); United States v. UPS
Customhouse Brokerage, __ CIT __, 686 F. Supp. 2d 1337, 1364
Court No. 11-00436 Page 6
(2010) (“UPS Customhouse Brokerage II”) (interpreting
“determination upon the basis of the record made before the
court” to require trial de novo).3 Specifically, to decide a
penalty enforcement action under § 1582(1), the court must
consider both whether the penalty has a sufficient basis in law
and fact and whether Customs provided all process required by
statute and regulations. UPS Customhouse Brokerage II, __ CIT at
__, 686 F. Supp. 2d at 1346. No distinction is drawn in
§ 2640(a) between determination of the penalty claim and the
penalty amount; therefore, pursuant to 28 U.S.C. § 2640(a), the
3
United States v. Ricci, 21 CIT 1145, 985 F. Supp. 125(1997), interpreted 28 U.S.C. § 2640(a) as providing only a
scope and not a standard of review. Ricci, 21 CIT at 1146,
985 F. Supp. at 126. Therefore, the Ricci court looked to the
Administrative Procedure Act for the standard of review and
determined that 5 U.S.C. § 706(F) applied, making the standard
of review de novo. Ricci, 21 CIT at 1146, 985 F. Supp. at 126–
27. Nonetheless, because § 2640(a)
describes the manner in which the Court “shall make
its determinations” — or, in other words, settle or
decide the case in the first instance — the statutory
language “upon the basis of the record made before the
court” appears to contemplate de novo review by the
court and constitute a standard of review.
UPS Customhouse Brokerage II, __ CIT at __, 686 F. Supp. 2d
at 1363 (quoting 19 U.S.C. § 2640(a)) (additional quotation
marks and citations omitted); see also id. (reasoning,
furthermore, that the Supreme Court has interpreted “upon the
basis of the record made before the court” to mandate de novo
review and that § 2640(a) governs other actions where the court
conducts a trial de novo, including, inter alia, civil actions
to contest the denial of a protest under 19 U.S.C. § 1515).
Court No. 11-00436 Page 7
court considers both the claim for a penalty and the amount of
the penalty de novo. See Ricci, 21 CIT at 1146, 985 F. Supp. at
127.
A defendant’s default admits all factual allegations
in the complaint, USCIT R. 8(c)(6), but it does not admit legal
claims, see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(reasoning, in the context of a motion to dismiss for failure to
state a claim, that when a court accepts factual allegations as
true, it does not, therefore, accept legal conclusions as true).4
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Id. (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In addition,
in the case of a default judgment, the court may look beyond the
4
Because a court may grant a motion to dismiss sua sponte
when a complaint is insufficiently pled, the court will not
grant default judgment on the basis of a complaint that is
insufficiently pled. This is the rule in the majority of
circuits. See Am. United Life Ins. Co. v. Martinez, 480 F.3d
1043, 1069 (11th Cir. 2007); Brereton v. Bountiful City Corp.,
434 F.3d 1213, 1219 (10th Cir. 2006); Bazrowx v. Scott, 136 F.3d
1053, 1054 (5th Cir. 1998); Ledford v. Sullivan, 105 F.3d 354,
356 (7th Cir. 1997); Thomas v. Scully, 943 F.2d 259, 260 (2d
Cir. 1991); Martin-Trigona v. Stewart, 691 F.2d 856, 858 (8th
Cir. 1982); Dodd v. Spokane Cnty., Wash., 393 F.2d 330, 334 (9th
Cir. 1968); see also Gooden v. City of Memphis Police Dept., 29
F. App’x 350, 352–53 (6th Cir. 2002); but cf. Neitzke v.
Williams, 490 U.S. 319, 329 n.8 (1989) (“We have no occasion to
pass judgment, however, on the permissible scope, if any, of sua
sponte dismissals under Rule 12(b)(6).”).
Court No. 11-00436 Page 8
complaint if necessary to “determine the amount of damages or
other relief” or “establish the truth of an allegation by
evidence.” See USCIT R. 55(b); United States v. Inner Beauty
Int’l (USA) Ltd., Slip Op. 11-148, 2011 WL 6009239, at *2 (CIT
Dec. 2, 2011).
DISCUSSION
Pursuant to 19 U.S.C. § 1641(d)(1)(C), Customs may
“impose a monetary penalty . . . if it is shown that the broker
. . . has violated any provision of any law enforced by the
Customs Service or the rules or regulations issued under any
such provision.”5 As noted above, Customs’ Complaint contains
four counts, each alleging that Customs has not received payment
of a monetary penalty lawfully imposed against Santos pursuant
to 19 U.S.C. § 1641(d)(1)(C) for violation of applicable
regulations and following the procedures required by 19 U.S.C.
§ 1641(d)(2)(A). The court will address each count in turn.
I. Count I
Count I alleges that Santos violated 19 C.F.R.
§ 111.36 when he conducted business with a freight forwarder,
SPR, without forwarding a copy of his bill to the importer of
5
The procedure for imposing a monetary penalty pursuant to
§ 1641(d)(1)(C), and the basis for the court’s jurisdiction, is
provided by 19 U.S.C. § 1641(d)(2)(A).
Court No. 11-00436 Page 9
record. Compl. ¶¶ 6–10. A broker employed by an unlicensed
person, such as a freight forwarder, is required to transmit a
copy of the bill or entry to the importer of record “unless the
merchandise was purchased on a delivered duty-paid basis or
unless the importer has in writing waived transmittal of the
copy of the entry or bill for services rendered.” 19 C.F.R.
§ 111.36(a) (2006). Customs alleges that Santos failed to copy
the importer of record for entries billed to SPR. Compl. ¶¶ 8–9.
Customs supports these allegations with copies of the brokerage
receipts for the entries in question. Ex. A to Compl. The
receipts show that Santos billed SPR, but they do not indicate
that the importer was notified of the transaction as required by
§ 111.36(a). Ex. A to Compl. Taking these facts as true, Santos
violated 19 C.F.R. § 111.36 by failing to notify the importer of
record when doing business with an unlicensed person.
II. Count II
Count II alleges that Santos violated 19 C.F.R.
§ 141.46 by conducting Customs business without a valid power of
attorney. Compl. ¶¶ 17–22. “Before transacting Customs business
in the name of his principal, a customhouse broker is required
to obtain a valid power of attorney to do so. . . . Customhouse
brokers shall retain powers of attorney with their books and
papers, and make them available to representatives of [Customs]
. . . .” 19 C.F.R. § 141.46 (2006). Customs alleges that when
Court No. 11-00436 Page 10
requested by the Customs Import Specialist, Santos could not
produce the power of attorney for entry BTN-00001658; instead a
power of attorney was faxed to Santos, but this power of
attorney was dated after the entry of merchandise and did not
identify Santos as the holder of power of attorney. Compl.
¶¶ 16–20; Ex. E to Compl. Taking these facts as true, Santos
violated 19 C.F.R. § 141.46 by conducting business without a
valid power of attorney for entry BTN-00001658.
III. Count III
Count III alleges that Santos violated 19 C.F.R.
§§ 152.11 and 141.90 by misclassifying merchandise. Compl.
¶¶ 28–30. “Merchandise shall be classified in accordance with
the [HTSUS] . . . .” 19 C.F.R. § 152.11 (2008). Furthermore, it
is the responsibility of the importer or the customs broker to
include the proper classification on the invoice. Id.§ 141.90(b).6 Customs alleges that Santos incorrectly classified
four entries of corn husks under HTSUS subheading 1404.90.10,
6
The subject entries were entered in 2008. Compl. ¶ 28. At
that time, § 141.90(b) only referenced importers and not customs
brokers. Compare 19 C.F.R. § 141.90(b) (2008), with 19 C.F.R. §
141.90(b) (2010). Because application of the 2008 regulation to
a customs broker is not contested in this case and because the
court defers to an agency’s interpretation of its own
regulation, United States v. UPS Customhouse Brokerage, Inc.,
575 F.3d 1376, 1382 (Fed. Cir. 2009) (“UPS Customhouse Brokerage
I”), the court will not overrule the penalty.
Court No. 11-00436 Page 11
the subheading for vegetable hair, whereas corn husks are
properly classified under HTSUS subheading 1404.90.90. Compl.
¶ 28. Customs further alleges that Santos misclassified the
entries after prior advice from Customs regarding the proper
classification of corn husks. Ex. A to Mot. Default J. ¶ 3.
Taking these facts as true, Santos misclassified the entries in
question, in violation of 19 C.F.R. §§ 152.11 and 141.90.7
IV. Count IV
Count IV alleges that Santos violated 19 C.F.R.
§§ 111.28, 111.29, 141.90, 142.6, and 152.11. Compl. ¶¶ 35–42.
These allegations relate to entry BTN-00052032, which Santos
entered as “U.S. goods returned”; however, subsequent inspection
revealed that not all of the entered merchandise was U.S. goods
returned. See id. ¶¶ 35–36. Furthermore, Santos acknowledged
7
While the court accepts the alleged facts as true, it does
not accept Customs’ interpretation of the tariff classification,
which is a question of law. Universal Elecs. Inc. v. United
States, 112 F.3d 488, 491 (Fed. Cir. 1997) (“[T]he proper
meaning of the tariff provisions at hand . . . is a question of
law, which we review de novo.”). The question before the court,
however, is not whether Customs should have classified the
merchandise otherwise than it did; rather, the question is
whether Customs properly imposed a penalty on Santos for failing
to classify merchandise in accordance with what he knew to be
the correct HTSUS subheading. That Santos was previously
advised on the classification of corn husks and failed to
classify the entries at issue in accordance with that advice is
sufficient for the court to uphold the penalty. Therefore, the
court need not and does not address the proper interpretation of
the relevant HTSUS subheadings.
Court No. 11-00436 Page 12
that some of the goods originated from Great Britain but never
corrected the CF 7501. See id. ¶¶ 37–39; Ex. L to Compl.
Customs claims under Count IV fall into three categories.
First, Customs alleges that Santos failed to properly
classify merchandise. Compl. ¶ 42. As noted above, 19 C.F.R.
§§ 152.11 and 141.90 require a customs broker to properly
classify goods in accordance with the HTSUS. Furthermore, the
commercial invoice or other documentation submitted with the
entry shall include, inter alia, “[a]n adequate description of
the merchandise [and] . . . [t]he appropriate eight-digit
subheading from the [HTSUS].” 19 C.F.R. § 142.6 (2009).
Accordingly, Customs alleges that Santos misclassified goods
originating from Great Britain under HTSUS subheading 9801.00.10
(U.S. goods returned). See Compl. ¶¶ 36–37. Taking these facts
as true, Santos improperly classified goods originating from
Great Britain as U.S. goods returned, in violation of 19 C.F.R.
§§ 141.90, 142.6, and 152.11.
Second, Customs alleges that Santos failed to exercise
due diligence. Compl. ¶ 40. A customs broker “must exercise due
diligence in making financial settlements, in answering
correspondence, and in preparing or assisting in the preparation
and filing of records relating to any customs business matter
handled by him as a broker.” 19 C.F.R. § 111.29 (2009). Customs
alleges that Santos failed to correct the misclassification on
Court No. 11-00436 Page 13
the CF 7501 entry summary and failed to pay the merchandise
processing fee, as well as any duty that would have been
assessed on properly entered goods. Compl. ¶ 40; Ex. N to Compl.
Taking these facts as true, Santos violated 19 C.F.R. § 111.29by failing to exercise due diligence to correct a record filed
with Customs and failing to pay money due to Customs.
Finally, Customs alleges that Santos failed to
exercise responsible supervision and control. Compl. ¶ 41. A
customs broker “must exercise responsible supervision and
control . . . over the transaction of the customs business
. . . .” 19 C.F.R. § 111.28(a) (2009). Responsible supervision
and control is defined as “that degree of supervision and
control necessary to ensure the proper transaction of the
customs business of a broker, including actions necessary to
ensure that an employee of a broker provides substantially the
same quality of service in handling customs transactions that
the broker is required to provide.” Id. § 111.1 (listing ten
factors for consideration). As discussed above, Customs alleges
that Santos failed to correct an acknowledged misclassification
filed with Customs. Compl. ¶ 41; Ex. L. to Compl. Taking these
facts as true, Santos failed to exercise reasonable supervision
Court No. 11-00436 Page 14
and control pursuant to 19 C.F.R. § 111.28 by failing to ensure
that the misclassification was corrected.8
V. Amount of Penalty
Customs imposed a $5,000 penalty for the collective
violations under Count I, Compl. ¶ 11; Ex. D to Compl.; a $5,000
penalty for the violation under Count II, Compl. ¶ 23; Ex. H to
Compl.9; a $4,000 penalty for the collective violations under
Count III, Compl. ¶ 31; Ex. K to Compl.; and a $1,000 penalty
for each of the five violations under Count IV, Compl. ¶ 43; Ex.
P to Compl. In total, Customs imposed penalties against Santos
in the amount of $19,000.
8
In order to assess a penalty pursuant to 19 C.F.R.
§ 111.28, Customs must consider all ten factors listed in the
definition of reasonable supervision and control at 19 C.F.R.
§ 111.1. UPS Customhouse Brokerage I, 575 F.3d at 1383. Here,
Customs has provided evidence that the Import Specialist who
recommended the penalty considered all ten factors. See Ex. A to
Mot. for Default J. ¶¶ 12–22.
The court in UPS Customhouse Brokerage II held that the
appropriate Customs officer to consider the ten factors is the
Fines, Penalties, and Forfeiture Officer (“FP&F Officer”) for
the relevant port, because it is the FP&F Officer that issues
the pre-penalty notice and considers any response from the
broker before issuing the penalty. UPS Customhouse Brokerage II,
__ CIT at __, 686 F. Supp. 2d at 1348. In this case, Customs
provided evidence that the Import Specialist, not the FP&F
Officer, considered the ten § 111.1 factors. Because Santos did
not challenge the penalties before Customs, the court finds no
reason to require that Customs show that the FP&F Officer re-
analyzed the ten § 111.1 factors rather than accepted the Import
Specialist’s analysis.
9
There is discrepancy between the amount claimed in the
Complaint and the penalty imposed. See supra note 2.
Court No. 11-00436 Page 15
The statute does not provide penalty guidelines for
penalties imposed pursuant to 19 U.S.C. § 1641(d)(1)(C), except
that such penalties should not “exceed $30,000 in total for a
violation or violations of this section.” 19 U.S.C.
§ 1641(d)(2)(A). Within this limit, the amount of a
§ 1641(d)(1)(C) penalty is left to Customs’ discretion. While
the court reviews the amount of penalty de novo, see 28 U.S.C.
§ 2640(a)(5); Ricci, 21 CIT at 1146, 985 F. Supp. at 127, where
Customs’ determination of the appropriate penalty amount is
unchallenged, as it is here, the determination will be upheld so
long as it is reasonable and supported by the facts. See United
States v. NJC Int’l, Inc., Slip Op. 12-148, 2012 WL 6062562, at
*1 (CIT Dec. 6, 2012).
In this case, Customs imposed penalties for violations
of multiple Customs regulations relating to twelve entries of
merchandise. Some of the violations are ones for which Santos
had previously received sanction or warning from Customs. Ex. A
to Mot. Default J. ¶¶ 3, 14 (noting that previous entries of
corn husks entered by Santos were rejected for
misclassification; Santos had attended broker compliance
meetings regarding proper classification of corn husks and U.S.
goods returned; that Santos was issued a prior penalty for
improperly associating with a freight forwarder, and Santos
violated the power of attorney regulation on three prior
Court No. 11-00436 Page 16
occasions). Furthermore, the $19,000 penalty is well below the
statutory maximum of $30,000. 19 U.S.C. § 1641(d)(2)(A).
Finally, Customs provided Santos with a pre-penalty notice and
opportunity to challenge the penalty in each case, see id., but
Santos did not respond. See Compl. ¶¶ 11, 23, 31, 43; Exs. B, C,
F, G, I, J, N, O to Compl. On these grounds, the court finds
the penalty award reasonable and supported by the facts.
CONCLUSION
Consistent with the foregoing opinion, Customs’ Motion
for Default Judgment is granted and the amount of penalty
imposed by Customs is upheld on all counts; therefore, the court
finds that a penalty in the amount of $19,000 is warranted.
Judgment will issue accordingly.
___ /s/ Donald C. Pogue______
Donald C. Pogue, Chief Judge
Dated: December 21, 2012
New York, NY
ERATTA
United States v. Santos, Court No. 11-00436, Slip Op. 12-157,
dated December 21, 2012.
Page 4: In Line 6, replace 1409.90.10 with 1404.90.10.
January 2, 2013