United States v. International Trading Services, LLC

Slip Op. 17-55
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
Before: Mark A. Barnett, Judge
v.
Court No. 12-00135
INTERNATIONAL TRADING SERVICES,
LLC and JULIO LORZA,
Defendants.
OPINION
[The court grants Plaintiff’s motion for partial summary judgment.]
Dated: May 5, 2017
Daniel B. Volk, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, for Plaintiff. With him on the brief were
Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and
Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Bryan K. Luby,
Senior Attorney, U.S. Customs and Border Protection, of New Orleans, LA.
Peter S. Herrick, Peter S. Herrick PA, of St. Petersburg, FL, for Defendants.
Barnett, Judge: Before the court is Plaintiff’s (“Plaintiff” or “United States”)
motion for partial summary judgment pursuant to section 592 of the Tariff Act of 1930,
as amended, 19 U.S.C. § 1592 (2006), 1 regarding eight misclassified shipments of
sugar. Pl.’s. Mot. for Partial Summ. J. (“Pl.’s Mot”), ECF No. 53. Plaintiff contends
Defendants International Trading Services, LLC (“ITS”) and Julio Lorza (“Mr. Lorza”) are
jointly and severally liable for unpaid duties and penalties amounting to $986,967.31,
1Further citations to the Tariff Act of 1930, as amended, are to the relevant portions of
Title 19 of the U.S. Code, 2006, edition.
Court No. 12-00135 Page 2
plus interest, as a result of negligent misclassification of eight entries of sugar under an
improper subheading of the Harmonized Tariff Schedule of the United States
(“HTSUS”). 2 Id. at 1; see also Compl. ¶¶ 32, 34, ECF No. 2. Plaintiff’s motion is
unopposed. See generally Docket. This court has jurisdiction pursuant to 28 U.S.C.
§ 1582. For the reasons discussed below, the court grants Plaintiff’s motion for partial
summary judgment.
BACKGROUND
I. Material Facts Not in Dispute
The party moving for summary judgment must show "there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law."
United States Court of International Trade (“USCIT”) Rule 56(a). Movants should
present material facts as short and concise statements, in numbered paragraphs, and
cite to “particular parts of materials in the record” as support. USCIT Rule 56(c)(1)(A);
USCIT Rule 56.3(a). When, as here, the nonmoving party has failed to respond to the
motion or otherwise address the movant’s factual positions, the court may consider
those facts as “undisputed for purposes of the motion,” and may “grant summary
judgment if the motion and supporting materials,” including the undisputed facts, “show
that the movant is entitled to it.” USCIT Rule 56(e)(2)-(3); see USCIT Rule 56.3(b) (the
opponent must include in its responsive papers “correspondingly numbered paragraphs
responding to the numbered paragraphs in the statement of the movant”). Plaintiff
2 All citations to the HTSUS are to the 2007 version, as determined by the date of
importation of the merchandise.
Court No. 12-00135 Page 3
submitted a statement of undisputed material facts with its motion. See Pl.’s Statement
of Material Facts in Supp. of Summ. J (“Pl.’s SOF”), ECF No. 53-1. Upon review of
Plaintiff’s facts and supporting materials, the court finds the following undisputed
material facts. 3
Mr. Lorza was the President, Chief Executive Officer, and Managing Member of
ITS until its dissolution in 2009. Pl.’s SOF ¶ 10. In May and June 2007, Mr. Lorza,
through ITS, imported into the United States eight shipments of sugar with a total value
of $935,333. Pl.’s SOF ¶¶ 1, 11; Pl.’s Response in Opp’n to Def. Lorza’s Mot. to
Dismiss (“Pl.’s MTD Opp’n”), Ex. A at CBP000147 (“Domestic Value Calculation”), ECF
No. 49-1.
Entry documents show that ITS classified the sugar under HTSUS subheading
1701.99.0500, which has a corresponding duty rate of $0.036606 per kilogram. Pl.’s
SOF ¶ 2; Pl.’s Mot., App. (“App.”) 25, 34, 51, 71, 98, 107, 132, 141 (collectively, “Entry
Summaries”), ECF No. 53-3; HTSUS subheading 1701.99.0500 (rate of duty); see also
App. 1-19 (appending the relevant portions of the HTSUS). Subheading 1701.99.05.00
covers “[c]ane or beet sugar and chemically pure sucrose, in solid form,” that also is
“[d]escribed in general note 15 of the tariff schedule and entered pursuant to its
provisions.” HTSUS subheading 1701.99.05.00; App. 10. 4
3 Citations are provided to the relevant paragraph number of the undisputed facts;
internal citations generally are omitted. Citations to the record are provided when a fact
is uncontroverted by record evidence.
4 General note (“GN”) 15 covers entries of certain agricultural products (including sugar
entered under chapter 17) that meet certain conditions. When one or more of the
conditions are met, the imported merchandise qualifies for the reduced duty rate of, in
Court No. 12-00135 Page 4
Relevant thereto, each shipment had a net weight exceeding five kilograms. Pl.’s
SOF ¶ 4. 5 None of the eight shipments contained blended syrups or cotton. Pl.’s SOF
¶¶ 8, 9. None of the eight shipments were imported by any U.S. agency or for the
account thereof. Pl.’s SOF ¶ 3; see also Entry Summaries (reflecting ITS as the
importer). Each of the eight shipments was introduced into the commerce of the United
States. Pl.’s SOF ¶ 11.
U.S. Customs and Border Protection (“CBP” or “Customs”) sought
documentation from ITS supporting its claimed classification for two entries before rate-
advancing 6 them. App. 48, 140 (notices of action informing ITS that Customs was
investigating entries for false statements “result[ing] in underpayment of duties and
failure to properly declare merchandise subject to quota”). Customs later classified
Defendants’ entries under HTSUS subheadings 1701.99.5010 and 1701.99.5090, with a
corresponding duty rate of $0.3574 per kilogram. App. 34, 67, 77, 95, 112, 141, 158. 7
this case, HTSUS 1701.99.05.00, and is not counted against the otherwise applicable
tariff rate quota. GN 15, HTSUS; see also infra Discussion Sect. II.A.i.
5 In May 2007, ITS made one entry of 7,920 bags of sugar with a combined net weight
of 179,942.40 kilograms. App. 25, 31. In June 2007, ITS made seven entries of sugar
collectively consisting of 39,600 bags of sugar, with a combined net weight of
897,352.42 kilograms. App. 34, 51, 71, 98, 107, 132, 141.
6 An entry is rate-advanced when it is “liquidate[d] at a higher rate” than the rate
associated with the claimed classification. See United States v. Horizon Prods. Int’l,
Inc., 39 CIT ___, ___, 82 F. Supp. 3d 1350, 1354 (2015).
7 CBP rate-advanced seven of the eight entries before liquidation. App. 34, 67, 77, 95,
112, 141, 158. The first entry, Entry Number U52-67034317, liquidated without being
rate-advanced. See App. 20 (seeking the return of liquidated entry summaries); App.
21 (requesting the constructed entry summary for Entry Number U52-67034317); Pl.’s
MTD Opp’n, Ex. A at CBP000145-146 (“Penalty Statement”) (penalty statement
reflecting a $57,735.46 actual loss of revenue for the non-rate-advanced entry, and a
$287,920.31 potential loss of revenue for the eight rate-advanced entries).
Court No. 12-00135 Page 5
Plaintiff values its revenue loss at $345,655.77. Pl.’s SOF ¶ 12; Penalty Statement. Of
that amount, Plaintiff has recovered $50,000 from ITS’s surety. Pl.’s SOF ¶ 12; App.
159.
II. Procedural History
The United States commenced this enforcement action on May 17, 2012. See
Compl. Defendants answered the complaint on September 11, 2012. Defs.’ Answer &
Aff. Defenses (“Answer”), ECF No. 4. 8 On February 13, 2017, Plaintiff moved for partial
summary judgment. Pl.’s Mot. Defendants’ response to the motion was due on March
20, 2017; to date, Defendants have not responded. See Docket Entry, ECF No. 53.
Thus, the motion is ripe for decision.
8 In connection with Mr. Lorza’s failure to respond to Plaintiff’s First Set of Requests for
Admission, on March 21, 2016, the court granted Plaintiff’s Motion to Deem Requests
For Admission Admitted. See Order (Mar. 21, 2016), ECF No. 34; Pl.’s Mot. to Deem
Requests for Admission Admitted (“Pl.’s Discovery Mot.”), ECF No 30. Mr. Lorza
subsequently moved, out of time, to oppose Plaintiff’s Motion to Deem Requests for
Admissions Admitted. Def., Julio Lorza, Moves to Oppose Pl.’s Mot. to Deem Req.’s for
Admis. Admitted, Out of Time, ECF No. 35. The court treated Defendant’s motion as a
Motion to Withdraw and Substitute Admissions (“Def.’s Mot. to Withdraw”) and deferred
ruling on the motion pending consideration of Plaintiff’s expected partial motion for
summary judgment. See Order (May 18, 2016), ECF No. 41. Plaintiff does not rely on
any of the admissions Defendant seeks to withdraw in its motion for summary judgment
and, therefore, Defendant’s motion is granted for purposes of ruling on Plaintiff’s motion.
See Def.’s Mot. to Withdraw, Attach. A (Defendant’s response to Plaintiff’s first set of
requests for admissions) (“Def.’s Admis.”), ECF No. 35; see also Pl.’s Discovery Mot,
Attach. A (Plaintiff’s first set of requests for admission) (“Pl.’s RFA”), ECF No. 30.
Court No. 12-00135 Page 6
DISCUSSION
I. Standard of Review
“The U.S. Court of International Trade reviews all issues in actions brought for
the recovery of a monetary penalty under § 1592 de novo, including the amount of any
penalty.” Horizon Prods. Int’l, 82 F. Supp. 3d at 1354 (citing 19 U.S.C. § 1592(e)(1)).
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.” USCIT
Rule 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Although substantive law will identify the materiality of a fact, Anderson, 477 U.S. at
248, there is no genuine issue when the evidence is “so one-sided that one party must
prevail as a matter of law,” id. at 251-52; see also Horizon Prods. Int’l, 82 F. Supp. 3d at
1355. Still, the court must consider the evidence in the light most favorable to the non-
moving party, drawing all reasonable inferences in its favor. Anderson, 477 U.S. at
255.
II. Analysis
A. Negligence
Section 1592 bars the negligent entry, introduction, or attempt to enter or
introduce, merchandise into the commerce of the United States by means of a material
false statement or material omission. 19 U.S.C. § 1592(a)(1)(A). Plaintiff bears the
initial burden of proof establishing the act or omission constituting the violation; the
burden then shifts to the alleged violator to “affirmatively demonstrate that it exercised
Court No. 12-00135 Page 7
reasonable care under the circumstances.” United States v. Ford Motor Co., 463 F.3d
1267, 1279 (Fed. Cir. 2006); 19 U.S.C. § 1592(e)(4).
i. Material False Statement
The record shows that ITS, through Mr. Lorza, classified the subject merchandise
under HTSUS subheading 1701.99.05.00. Pl.’s SOF ¶ 2; Entry Summaries. That
subheading applies to sugar and sucrose “[d]escribed in general note 15 of the tariff
schedule and entered pursuant to its provisions.” Subheading 1701.99.05.00, HTSUS;
App. 10. Pursuant to GN 15, entries of sugar under chapter 17 that would typically be
“subject to a tariff-rate quota” are not counted against the “in-quota quantity” when:
(a) such products [are] imported by or for the account of any agency of the
U.S. Government; (b) such products [are] imported for the personal use of
the importer, provided that the net quantity of such product in any one
shipment does not exceed 5 kilograms; (c) such products, which will not
enter the commerce of the United States, [are] imported as samples for
taking orders, for exhibition, display or sampling at a trade fair, for
research, for use by embassies of foreign governments or for testing of
equipment, provided that written approval of the Secretary of Agriculture
or his designated representative the United States Department of
Agriculture (USDA) is presented at the time of entry; (d) [such products
consist of] blended syrups . . .; and (e) [such products consist of]
cotton . . . .
GN 15, HTSUS (second emphasis added); App. 1.
Defendants’ entries are not covered by the provisions of GN 15. None of the
eight shipments were imported by any U.S. agency or for the account thereof. Pl.’s
SOF ¶ 3; Entry Summaries; GN 15 (a). Each shipment had a net weight exceeding five
kilograms, precluding any claim for personal use, and was introduced into the
commerce of the United States. Pl.’s SOF ¶¶ 4, 5, 11; GN 15(b), 15(c); see also supra
Court No. 12-00135 Page 8
note 5. The shipments did not contain cotton or blended syrups. Pl.’s SOF ¶¶ 8, 9; GN
15(d), 15(e). Accordingly, the classification of the entries under subheading
1701.99.0500 constituted a false statement. 9
When a statement has the “potential to alter Customs’ appraisement or liability
for duty,” it is material. Horizon Prods. Int’l, 82 F. Supp. 3d at 1356 (citation omitted); ;
see also United States v. Menard, Inc., 16 CIT 410, 417, 795 F. Supp. 1182, 1188
(1992) (materiality for purposes of § 1592 refers to the false statement’s effect on CBP’s
determination of the applicable duty); 19 C.F.R. Pt. 171, App’x B (B) (2013) (defining
materiality for purposes of § 1592). The asserted classification of merchandise in entry
paperwork “has the tendency to influence Customs’ decision in assessing duties and
therefore constitutes a material statement under the statute.” United States v. Optrex
Am., Inc., 32 CIT 620, 631, 560 F. Supp. 2d 1326, 1336 (2008). Because Defendants’
misclassification influenced Customs’ assessment of duties, leading to the difference
between a proper duty of $0.3574 per kilogram and the declared duty of $0.036606 per
kilogram, it was material. See Pl.’s SOF ¶ 12; Optrex Am., Inc., 32 CIT at 631, 560 F.
Supp. 2d at 1336.
9 Further supporting this finding is Defendant’s failure to admit or, more importantly,
deny, that the entries did not fall within the exclusions stated in GN 15. See Def.’s
Admis. at 1; Pl.’s RFA ¶ 15; see also USCIT Rule 36(a)(3) (“A matter is admitted unless,
within 30 days after being served, the party to whom the request is directed serves on
the requesting party a written answer or objection addressed to the matter . . . . “);
USCIT Rule 36(a)(4) (“If a matter is not admitted, the answer must specifically deny it or
state in detail why the answering party cannot truthfully admit or deny it.”).
Court No. 12-00135 Page 9
ii. Reasonable Care
The burden of proof now shifts to Defendants to show that “the act or omission
did not occur as a result of negligence;” that is, that they demonstrated reasonable care.
19 U.S.C. § 1592(e)(4); Ford Motor Co., 463 F.3d at 1279. Defendants did not respond
to Plaintiff’s motion and have proffered no evidence of reasonable care. Accordingly,
Plaintiff is entitled to judgment in its favor; Defendants are jointly and severally liable for
unpaid duties, penalties, and applicable interest. 10
B. Duties
On count one of the complaint, Plaintiff seeks to recover $295,655.77 in unpaid
duties, which consists of $345,655.77 in lost revenue minus the $50,000 recovered from
ITS’s surety. Pl.’s Mot. at 4, 10; Pl.’s SOF ¶ 12; see also Compl. ¶¶ 31, 32; Penalty
Statement. Section 1592 provides that CBP shall require the restoration of “lawful
duties, taxes, and fees” of which the United States may have been deprived as a result
of a violation of § 1592(a) “whether or not a monetary penalty is assessed.” 19 U.S.C.
§ 1592(d). Accordingly, the court will order Defendants to pay the United States
$295,655.77 in unpaid duties.
10Section 1592 applies to “person[s].” 19 U.S.C. § 1592(a)(1)(A). ITS, the importer of
record, is a “person” for purposes of § 1592. See 19 U.S.C. § 1401(d) (“The word
“person” includes partnerships, associations, and corporations.”). Mr. Lorza, who was
personally involved in introducing the imported sugar into the commerce of the United
States,” Pl.’s SOF ¶¶ 1, 11, is also a “person,” see United States v. Trek Leather, Inc.,
767 F.3d 1288, 1299 (Fed. Cir. 2014) (applying “longstanding agency law” to find that
the individual defendant’s “own acts [came] within the language of subparagraph (A)”
when he acted on behalf of the corporate importer-of-record).
Court No. 12-00135 Page 10
C. Penalties
On count two of the complaint, Plaintiff seeks a $691,311.54 penalty, i.e., two
times the lost revenue, pursuant to 19 U.S.C. § 1592(c)(3). Pl.’s Mot. at 10; see also
Compl. ¶ 34; Penalty Statement. The penalty determination is committed to the court’s
discretion, subject to statutory maximums. 19 U.S.C. § 1592(c)(1); Horizon Prods. Int’l,
82 F. Supp. 3d at 1359. Section 1592(c)(3) permits the court to assess a penalty “in an
amount not to exceed . . . the lesser of (i) the domestic value of the merchandise, or (ii)
two times the lawful duties of which the United States is or may be deprived.” 19 U.S.C.
§ 1592(c)(3).
In the absence of legislative guidance the court has identified 14 non-exclusive
factors that it may consider when determining the appropriate penalty. Complex Mach.
Works Co., 23 CIT 942, 949–50, 83 F. Supp. 2d 1307, 1315 (1999) see also United
States v. Optrex Am., Inc., 32 CIT 620, 640-42, 560 F. Supp. 2d 1326, 1342-44 (2008)
(considering four of the fourteen factors). The factors are:
(1) the defendant's good faith effort to comply with the statute; (2) the
defendant's degree of culpability; (3) the defendant's history of previous
violations; (4) the nature of the public interest in ensuring compliance with
the regulations involved; (5) the nature and circumstances of the violation
at issue; (6) the gravity of the violation; (7) the defendant's ability to pay;
(8) the appropriateness of the size of the penalty to the defendant's
business and the effect of a penalty on the defendant's ability to continue
doing business; (9) that the penalty not otherwise be shocking to the
conscience of the [c]ourt; (10) the economic benefit gained by the
defendant through the violation; (11) the degree of harm to the public; (12)
the value of vindicating the agency authority; (13) whether the party
sought to be protected by the statute had been adequately compensated
for the harm; and (14) such other matters as justice may require.
Court No. 12-00135 Page 11
Complex Mach. Works Co., 23 CIT at 949-50, 83 F. Supp. 2d at 1315. The first three
factors “are indicia of the defendant's character.” Id. at 949–50, 83 F. Supp. 2d at 1316.
Factors four through six speak to the “seriousness of the offense.” Id. at 950, 83 F.
Supp. 2d at 1316. Factors seven through nine speak to “the practical effect of the
imposition of the penalty.” Id. at 950, 83 F. Supp. 2d at 1316. The tenth factor, “the
economic benefit gained by the defendant,” speaks for itself. Id. at 950, 83 F. Supp. 2d
at 1316. Those ten factors relate to deterrence, which, “because of the clear
Congressional preference for deterrence in this statute,” are to be accorded more
weight. Id. at 950, 83 F. Supp. 2d at 1316. Factors eleven to thirteen instead reflect
“public policy concerns.” Id. at 950, 83 F. Supp. 2d at 1316.
Plaintiff’s requested penalty equals two times the unpaid duties and is less than
the $935,333 domestic value of the merchandise. Penalty Statement; Domestic Value
Calculation. It is, therefore, consistent with 19 U.S.C. § 1592(c)(3).
The court’s 14-factor analysis is hindered by Defendant’s failure to respond to
Plaintiff’s motion with any evidence that might support penalty mitigation. Plaintiff
summarily points to Defendants’ lack of cooperation during the administrative
proceedings and throughout discovery in this case and contends that there is no
“credible, persuasive evidence” supporting “a penalty of any less than $691,311.54.”
Pl.’s Mot. at 11 (quoting United States v. Country Flavor Corp., 844 F. Supp. 2d 1348,
1358 n.12 (2012) (“As the Government observes in its Renewed Motion, ‘Country Flavor
has done nothing meriting the Court’s exercise of its discretion to impose a reduced
penalty.’ . . . There is no record evidence that might justify some degree of mitigation.”)).
Court No. 12-00135 Page 12
However, the statutory maximum is not the “default starting point” for the imposition of
penalties, only to be adjusted downward when evidence supports mitigation. See
Optrex Am., 32 CIT at 641, 560 F. Supp. 2d at 1344 (citing United States v. Modes, Inc.,
17 CIT 627, 635, 826 F. Supp. 504, 512 (1993)); Complex Mach. Works Co., 23 CIT at
946, 83 F. Supp.2d at 1312 (“[T]he law requires the court to begin its reasoning on a
clean state. It does not start from any presumption that the maximum penalty is the
most appropriate or that the penalty assessed or sought by the government has any
special weight.”) (citation omitted). Instead, the court determines the appropriate
amount in light of the totality of the evidence supporting a higher or lower penalty. Cf.
Optrex Am., 32 CIT at 641-42, 560 F. Supp. 2d at 1344 (starting the “evaluation of the
penalty amount at the midpoint where it may be subject to upward or downward
departure based on mitigating and aggravating factors”). The court now considers the
Complex Machine Works Co. factors to the extent they may shed light on the Court’s
determination of the appropriate penalty.
Regarding the first three factors, there is no evidence Defendants made a good
faith effort to comply with the statute by, for example, voluntarily disclosing the violation.
Cf. United States v. Nat’l Semiconductor Corp., 30 CIT 769, 771 (2006) (voluntary
disclosure of misclassified entries favored mitigation). Customs’ guidelines suggest that
suspected violators “exhibit[ing] extraordinary cooperation beyond that expected from a
person under investigation” or who take “immediate remedial action” may obtain the
benefit of this factor. 19 C.F.R. Pt. 171, App. B(G)(2),(3)(mitigating factors); Optrex
Am., 32 CIT at 640, 560 F. Supp. 2d at 1343. Here, however, Defendants impeded
Court No. 12-00135 Page 13
resolution of this matter by failing to participate in the administrative proceedings. See
United States v. Int’l Trading Services, 40 CIT ___, ___, 190 F. Supp. 3d 1263, 1271-
72, 1274 (2016) (denying Mr. Lorza’s motion to dismiss) (discussing Defendants’ failure
to take advantage of opportunities to be heard at the administrative level). There is no
evidence of past violations; however, the instant case concerns not one but eight
serially misclassified entries accruing to Defendants a significant economic benefit. See
supra Discussion Sect. II.A.i; Pl.’s SOF ¶ 12; cf. Optrex Am., 32 CIT at 641, 560 F.
Supp. 2d at 1344 (the lack of past violations favored mitigation because it suggested
“an isolated violation [had occurred], as opposed to habitual misconduct”). These
factors support a substantial penalty.
With regard to the fourth factor, there is “a significant public interest in upholding
certain standards of conduct in the importation of foreign goods into the United States.”
Optrex Am., 32 CIT at 641, 560 F. Supp. 2d at 1343. When, as here, the public interest
to be vindicated is “the truthful and accurate submission of documentation to Customs
and the full and timely payment of duties, . . . the imposition of a penalty of some
substance” is merited. See Complex Mach. Works Co., 23 CIT at 952, 83 F. Supp.2d at
1317) (citing Modes, 17 CIT at 638, 826 F. Supp. at 514); cf. Nat’l Semiconductor Corp.,
30 CIT at 772 (public interest factor potentially supported mitigation when there was a
voluntary disclosure in order to encourage voluntary disclosures). Here, there was no
voluntary disclosure to support mitigation; thus, this factor supports a significant penalty.
The fifth and sixth factors involve the nature, circumstances, and gravity of the
violation. The record reflects minimal evidence on the circumstances of the violation.
Court No. 12-00135 Page 14
Defendants used a customs broker for the relevant entries. Def.’s Admis. at 1; Pl.’s
RFA ¶ 8. However, Defendants “provided information and/or direction to [the broker] in
connection with the [entries],” and did not take steps to ensure the accuracy of the entry
paperwork submitted to CBP. Def.’s Admis. at 1; Pl.’s RFA ¶¶ 9, 13-14. The “[g]ravity
of the violation may be evaluated in terms of the frequency of the violations, the amount
of the duties at issue, and the domestic value of the imported goods.” Complex Mach.
Works Co., 23 CIT at 953, 83 F. Supp. 2d at 1317. Plaintiff has established eight
violations on several dates in May and June 2007, implicating goods with a total
domestic value of $935,333 and which resulted in $295,655.77 in unpaid duties. See
Domestic Value Calculation; Penalty Statement. Defendants’ incorrect reporting would
have allowed them to avoid 90 percent of the properly assessed duties on these
imports. The significant sums involved support the imposition of a significant penalty.
Regarding the practical effect of the imposition of the penalty, although ITS’s
dissolution may affect its ability to pay, 11 there is no evidence concerning Mr. Lorza’s
ability (or inability) to pay any assessed penalty or the penalty’s impact on his ability to
do business. Cf. 19 C.F.R. Pt. 171, App’x B(G)(6) (a party asserting an inability to pay
must present documentary evidence supporting the assertion). As noted above,
however, Defendants’ conduct resulted in the evasion of $345,655.77 in lawful duties,
taxes, and fees, a substantial economic benefit. Pl.’s SOF ¶ 12. Thus, no sum within
the statutory range is shocking to the court’s conscience.
11The record shows that ITS’s dissolution was effected by the Florida Department of
State for failure to file an annual report. Compl. ¶¶ 3-4; Answer ¶ 2.
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The deterrence factors support a heightened penalty. Public policy
considerations likewise favor a heightened penalty. The eleventh and thirteenth factors
assess the degree of harm to the public and whether adequate compensation has been
paid thereto. “[T]he amount of harm suffered by the Government is not limited to the
dollar value of duties lost.” Complex Mach. Works Co., 23 CIT at 955, 83 F. Supp. 2d at
1319 (quoting United States v. Snuggles, Inc., 20 CIT 1057, 1068, 937 F. Supp. 923,
927 (1996) (“[T]he purpose of this penalty is not just to replace lost levies, but to remedy
a wrong.”)). In addition to the duties that remain unpaid, Plaintiff has expended
resources investigating the misclassified entries and pursuing this enforcement action
against uncooperative Defendants. See Pl.’s Mot. at 5, 11; Pl.’s Discovery Mot.; Def.’s
Mot. to Withdraw. The twelfth factor--vindicating agency authority--also supports a
heightened penalty to “deter future lawbreakers from considering [similar] actions” so
that CBP may properly conduct its functions. Complex Mach. Works Co., 23 CIT at 955,
83 F. Supp.2d at 1319.
In light of the afore-mentioned factors strongly favoring a heightened penalty, and
absent evidence supporting penalty mitigation, the court finds that the statutory
maximum penalty of $691,311.54 is appropriate. See United States v. Nat’l
Semiconductor Corp., 547 F.3d 1364, 1369 (Fed. Cir. 2008) (court may award the
maximum penalty for a negligent violation).
Court No. 12-00135 Page 16
D. Interest
Plaintiff seeks an award of prejudgment interest on the unpaid duties. Pl.’s Mot.
at 10; Compl. at 9 (Wherefore clause ¶ 4). 12 The court has discretion to award
prejudgment interest to compensate the United States for the “loss of use of the money
due.” United States v. Imperial Food Imports, 834 F.2d 1013, 1016 (Fed. Cir. 1987)
(“[I]n cases such as this in which no statute specifically authorizes an award of pre-
judgment interest, such an award lies within the discretion of the court as part of its
equitable powers.”). 13 The court considers the following factors to determine whether to
award prejudgment interest: “the degree of personal wrongdoing on the part of the
defendant, the availability of alternative investment opportunities to the plaintiff, whether
the plaintiff delayed in bringing or prosecuting the action, and other fundamental
considerations of fairness.” United States v. Great Am. Ins. Co. of N.Y., 738 F.3d 1320,
1326 (Fed. Cir. 2013) (citation omitted).
Defendants’ wrongdoing discussed above, supra Discussion Sect. II.C,
demonstrates that an award of prejudgment interest is appropriate. Further, there is no
evidence Plaintiff delayed initiating or prosecuting this action. Therefore, the court
awards prejudgment interest on the unpaid duties from the date of CBP’s final demand
12 Prejudgment interest is not available for penalties assessed pursuant to 19 U.S.C.
§ 1592(c). Nat’l Semiconductor Corp., 547 F.3d at 1369-71.
13 Section 1592 does not affirmatively address whether pre-judgment interest must be
assessed. Instead, § 1592(c)(4)(B) sets the interest rate on the lawful duties, taxes,
and fees as the maximum penalty for negligent or grossly negligent violators who
disclose violations prior to knowledge of commencement of a formal investigation.
Court No. 12-00135 Page 17
for payment until the date on which judgment issues. 14 Prejudgment interest shall be
computed at the rate provided in 28 U.S.C. § 2644 and in accordance with 26 U.S.C.
§ 6621. See Horizon Prods. Int’l, 82 F. Supp. 3d at 1356 (discussing prejudgment
interest).
Plaintiff also seeks an award of post-judgment interest. Compl. at 9 (Wherefore
clause ¶ 4). The court awards post-judgment interest on the unpaid duties and penalty
pursuant to 28 U.S.C. § 1961. See Great Am. Ins. Co. of N.Y., 738 F.3d at 1325-26.
CONCLUSION
For the foregoing reasons, Plaintiff’s motion for partial summary judgment is
granted. Judgment will be entered accordingly. 15
/s/ Mark A. Barnett
Mark A. Barnett, Judge
Dated: May 5, 2017
New York, New York
14 CBP issued its final demand for payment on April 20, 2011. See Pl.’s MTD Opp’n,
Ex. A at CBP000202.
15 Plaintiff pled count three in the alternative. See Compl. at 9 (Wherefore clause ¶ 3).
Because the court is entering judgment for Plaintiff on counts one and two, count three
will be dismissed.