In United States v. Callanish, Ltd., the Court of International Trade (CIT) has been trying to deal with an action brought by the United States to recover a civil penalty under Section 592 of the Tariff Act of 1930, as amended. 19 U.S.C. § 1592 (2006). Trying? Well, considering that the government has been pursuing this civil penalty for well over a decade…yes, they are trying. But the government seems to be having some trouble, procedurally. Let’s start from the beginning. . .
In 1985, the Food and Drug Administration (FDA) issued several several import alerts stating that evening primrose oil could not be lawfully sold in the United States and would be detained by Customs if entry was attempted. From September 1, 1988 to March 24, 1992, the government alleged that Scotia Pharmaceuticals Limited (Scotia Pharmaceuticals), Callanish Ltd. (Callanish) and Qunatanova, Canada, Ltd. (Quantanova) fraudulently made fifty-two entries evening primrose oil into the United States through various ports of entry by means of material false statements, documents, acts and/or material omissions, in violation of 19 U.S.C. § 1592.
Now, all three companies are located outside of the United States and it was up to the government to procure service upon all three companies. The government was only able to complete service of process on Callanish. But, with service of process completed, the government moved forward and filed for a judgment by default against Callanish seeking to recover $17,734,926, which the government claimed was “equivalent to the statutory maximum penalty for a violation of 19 U.S.C. § 1592(c)(1). . . .” United States v. Scotia Pharmaceuticals Limited, Callanish Ltd., and Quantoanova, Canada, Ltd., No 03-00658, Slip Op. 09-49 at 6 (CIT 2009).
In order for the CIT to enter a default judgment, the court had to determine whether there was sufficient basis in the pleadings to establish liability for a violation of 19 U.S.C. § 1592 that is grounded in fraud. That is, did the government establish that Callanish “entered, introduced, or attempted to enter or introduce merchandise into the commerce of the United States by means of material and false documents, statements, acts, or omissions”? United States v. Scotia Pharmaceuticals, et al., No. 03-00658, Slip Op. 09-49 at 7-8. In a word, “no”. The CIT found the government’s complaint to be deficient because it failed to attribute to Callanish any material and false statement or act, or any material omission, related to the entry or introduction, or attempted entry or introduction, of merchandise into the United States on any of the 52 entries so that the court could conclude that Callanish was liable for a civil penalty under 19 U.S.C. § 1592. As a result, the CIT denied the government’s application for judgment by default against Callanish. The CIT also dismissed the suit against Scotia Pharmaceuticals and Quantanova since the government was not able to serve process.
But, the government wasn’t dead in the water, yet. The government had the opportunity to amend its complaint. And, they did…
On July 31, 2009, the United States presented its first amended complaint. Unfortunately, the government’s first amended complaint still had some procedural issues. The government had failed to present the domestic value of the merchandise as a “well-pled fact” in its complaint. The court stated that “[t]he mere allegation of an amount offered as the ‘domestic value,’ absent anything more, does not constitute a well-pled fact.” United States v. Callanish Ltd., No. 03-00658, slip op. 10-124 at 7 (CIT 2010). The court held that the United States could not simply double the entered value of the goods stated on the entries and claim this as its domestic value. Oh, but the lucky stars were shining down on the government.
The court gave the government another 60 days to move for leave to file a second amended complaint or, if not, would require it to show cause why the action should not be dismissed.
The government filed a second amended complaint alleging it appraised the goods “in accordance with law,” but again only stated that it had doubled the entered value of the merchandise. United States v. Callanish Ltd., No. 03-00658, slip op. 12-15 at 7 (CIT 2012). Now, there were a couple of problems with the government’s second amended complaint. (Given the track record in this case, I hope this didn’t come as a surprise). First, under the rules, the government should have requested leave to file a second amended complaint since it had already amended once as a matter of course. See USCIT Rule 15(a). But, despite the fact that the government failed to follow procedure, the court considered the filing a motion for leave to file, which it granted and, thus, accepted the second amended complaint. But, second and more importantly, the second amended complaint still failed to establish how it determined the domestic value of the merchandise.
According to the court, domestic value is defined in 19 CFR 162.43(a) as “the price at which such or similar property is freely offered for sale at the time and place of appraisement, in the same quantity or quantities as seized, and in the ordinary course of trade.” Even though this definition is applied to seized property, Customs applies this definition to property not under seizure by requiring the domestic value to be determined as of the date of the violation, which in the case of entered merchandise, is determined on the date of entry. See 19 CFR 162.43(b).
The government only declared that it followed the regulation and did not actually provide proof as to how it determined the domestic value of the merchandise imported. Giving the government all the help it could possibly get, the court ordered a new appraisal of the merchandise within 60 days and, again, if not provided with one, the court would require the government to show cause as to why the action should not be dismissed.
Will the third time be the charm?