Appeal from the United States Court of International Trade in No. 09-CV-0041, Judge Nicholas Tsoucalas.
Stephen C. Tosini, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for plaintiff-appellee. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of counsel was Scott A. MacGriff, Trial Attorney.
John J. Galvin, Galvin & Mlawski, of New York, New York, argued for defendant-appellant.
Before Dyk, Plager, and O'Malley, Circuit Judges.
O'Malley, Circuit Judge.
Mr. Harish Shadadpuri ("Shadadpuri") appeals the decision of the United States Court of International Trade granting in part the United States' ("the government") motion for summary judgment, finding Shadadpuri liable for gross negligence in connection with the entry of imported merchandise into the United States and imposing penalties under 19 U.S.C. § 1592(c)(2) for that conduct. Shadadpuri contends that corporate officers of an "importer of record" are not directly liable for penalties under § 1592(c)(2). In the circumstances presented here, we agree. We find that, absent piercing Trek's corporate veil to establish that Shadadpuri was the actual importer of record, as defined by statute, or establishing that Shadadpuri is liable for fraud under § 1592(a)(1)(A), or as an aider and abettor of fraud by Trek under § 1592(a)(1)(B), we must reverse the penalty assessment against Shadadpuri.
The relevant facts are not in dispute. Trek Leather, Inc. ("Trek") was the importer of record for seventy-two (72) entries of men's suits between February 2, 2004, and October 8, 2004. Mercantile Electronics, LLC ("Mercantile Electronics"), which is not a party to this suit, was the consignee of the men's suits. Shadadpuri is the president and sole shareholder of Trek, and is also a forty-percent (40%) shareholder of Mercantile Electronics. There is no evidence or even allegation that Shadadpuri is himself a licensed customs broker.
Trek and Mercantile Electronics purchased a number of fabric "assists" and provided them to manufacturers outside the United States. An assist is defined by 19 U.S.C. § 1401a(h)(1)(A) as, among other things: "materials, components, parts, and similar items incorporated in the imported merchandise." 19 U.S.C. § 1401a(h)(1)(A)(i). The foreign manufacturers used the assists to make men's suits which Trek imported into the United States. In August 2004, the United States Customs and Border Protection ("Customs") investigated Trek's import activities and determined that the relevant entry documentation failed to include the cost of the fabric assists in the price paid or payable for the men's suits which, in turn, lowered the amount of duty payable by Trek. In November 2004, Customs informed Shadadpuri that Trek had failed to declare the value of the fabric assists when importing the merchandise.
Shadadpuri previously failed to include assists in entry declarations when acting on behalf of a corporate importer. In 2002, Customs discovered that Shadadpuri, acting on behalf of Mercantile Wholesale Inc. ("Mercantile"), failed to include in Mercantile's entry documenta- tion the cost of fabric assists and trim when identifying the price actually paid or payable for the merchandise. The same Customs Import Specialist that conducted the investigation currently at issue discovered the discrepancies in 2002 and explained to Shadadpuri that assists were dutiable and must be included on import documentation. As a result of the 2002 investigation, Mercantile paid $46, 156.89 in unpaid duties after admitting it failed to add the value of the assists in the price actually paid or payable for merchandise. Customs did not take any action against Shadadpuri personally.
When confronted in 2004 regarding the assists at issue in this case, Shadadpuri conceded he knew Trek should have included the value of the fabric assists in its duties. Neither Shadadpuri nor Trek paid the balance of the duties owed in connection with the assists. The government filed suit in the Court of International Trade, claiming that both Trek and Shadadpuri, in his personal capacity, were liable for a penalty of $2, 392, 307, for fraudulently, knowingly, and intentionally understating the dutiable value of the imported men's suits. See United States v. Trek Leather, Inc. and Harish Shadadpuri, Case No. 1:09-cv-00041-NT, Doc. No. 2 ("Complaint"). The government alternatively alleged that Shadadpuri and Trek were either: (1) grossly negligent and liable for a civil penalty of $534, 420.32, or (2) negligent and liable for a civil penalty of $267, 310.16. The government further sought the unpaid customs duties of $45, 245.39.
The statutory scheme which governs these claims and requests for penalties contains two relevant sections. First, § 1592(a) defines what conduct is subject to a penalty. It provides:
(1) General Rule
Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no 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, or
(ii) any omission which is material, or
(B) may aid or abet any other person to violate subparagraph (A).
19 U.S.C. § 1592(a). Section 1592(c) then describes the penalties which may be assessed, depending on the level of an offender's culpability. It provides, in relevant part:
(c) Maximum penalties
A fraudulent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise.
A grossly negligent violation of subsection (a) of this section is punishable by a civil penalty in an ...