Clash with a Titan

Being an importer is fraught with legal peril. It just is. Often, importers are unaware of legal requirements. In other cases, the importer doesn't care and assumes that its small or infrequent transactions are unlikely to get noticed. That might have been a viable (if not compliant) strategy 20 years ago. Back in the day, the biggest risk to the non-compliant importer was that a Customs Officer would actually open a container and find something amiss. Today, Customs and Border Protection operates in the era of big data. Using targeting algorithms, CBP computers can find discrepancies based on country of origin, country of export, classification, and value. A little data mining based on those factors can pluck the enforcement needled from the haystack of international trade. So, the baseline advice for importers is: know the law, be compliant, and don't assume you will not be caught.

That would have been good advice for a company called Titan Metals Corporation, which is the subject of a recent (OK, I admit it, recent-ish) decision from the Court of International Trade.

Titan's business is to collect scrap metal in the US and sell it to India. On one occasion, it imported a steel flange from India. At the time of entry, Titan filed a normal type 01 consumption entry. However, there is an antidumping duty order covering Forged Stainless Steel Flanges from India. On top of that, Titan made a GSP claim for duty-free treatment, which means it doubled down on India as the country of origin. Customs inquired as to why Titan had not made a Type 03 entry and deposited antidumping duties. 

What followed is a series of shifting explanations. First, Titan asserted that the flange was not finished and was, therefore, outside the scope of the order. Later, Titan claimed that the flange was actually a US product that was mistakenly shipped to India and returned. Regarding the latter theory, Titan provided some supporting documentation but CBP found the weights and values of the export and subsequent improt did not match sufficiently to prove that the imported flange was the same item that had been exported to India.

Complicating matters was testimony from Titan's president that the declaration of origin made at the time of entry was false. He apparently went on to testify that he knew it was false at the time of the entry.

Customs issued a penalty notice seeking $146,368.64 in unpaid antidumping duties and a penalty of $283,969.97. That penalty is the statutory maximum for a violation based on simple negligence. I realize the math does not work out exactly. Two times the unpaid duty would be $292,737.28. The penalty amount is capped at the domestic value of the merchandise, which is the amount Customs sought. It appears the lesser amount should have been the maximum penalty. On the other hand, I went to law school to avoid doing significant math. I may be missing something.

The interesting thing about this case is that the Court had to grapple with the penalty amount. Lately, a lot of these cases have been default judgments, leaving the Court little to work with. Here, Titan made several arguments that, despite admitting to a knowing material false statement, the penalty should be reduced.

First, Titan pressed that there is an open question of fact as to whether the goods are actually subject to the ADD order. Specifically, whether the goods were of U.S.-origin. Customs countered that Titan did not follow the regulatory requirements to make a claim for U.S. Goods Returned. It did not provide a Foreign Shipper's Declaration. It did not produce a declaration by the owner, importer, or consignee certifying the basis of the claim. See 19 CFR 10.1 for the details of how to do this properly.

Titan's reasons for failing to provide the documentation were not sufficient to create a triable question of fact. Basically, the mere denials of facts or conclusory statements that a dispute exists are not sufficient to create a genuine dispute Titan failed to produce anything concrete. Accordingly, the Court found no genuine issue of fact regarding the origin and, therefore, that the case can be resolved on summary judgment.

This is an important practice point. Penalty cases are decided by the Court of International Trade de novo on the basis of the record made before the Court. That leads some lawyers to assume that they will be able to start fresh in Court with witnesses explaining away the violation in a scene ripped from an old episode of LA Law. That can happen, but it is a rare event. To get to a trial, the importer can't just say, "I promise, we can prove that there is no violation." Prior to that, in its Answer and in the response to the inevitable motion for summary judgment, the defendant needs to put concrete facts on the record that establish a genuine dispute as to what happened.

There might also be a genuine dispute regarding facts relevant to setting the penalty. If, for example, the defendant seeks mitigation on the basis of prior good behavior or inexperience, it needs to get those facts on the record to create a genuine issue. Otherwise, as happened here, the case will be resolved on the pleadings and the briefs.

Turning to the penalty amount, the Court noted the 14 Complex Machine Works factors generally considered when setting a penalty. We have discussed those previously. The Court has a lot of discretion here. The existence of mitigating factors does not preclude the maximum penalty. On the other hand, the government's claim for the maximum is not entitled to any special deference. In other words, the Court has to make an independent penalty determination based on the evidence.

In this case, the Court noted a lack of prior violations, that this was a one-time import, and that Titan is a small business. It has just five employees including the president's daughter. Titan is not a "repeat player familiar with the customs laws and regulations." Apparently, it had never hired a customs broker prior to this importation because it is in the business of exporting, not importing. On the other hand, Titan's president testified in a deposition that the company made a knowing false statement regarding origin and antidumping status. That is a bad act and the penalty should be sufficiently high to deter future lawbreakers. Based on these and the other Complex Machine Works factors, the Court imposed a penalty of 50% of the statutory maximum.


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