United States v. Santos

2013 CIT 154

• Court: United States Court of International Trade
• Decided: December 26, 2013
• Docket: 13-00025
• Status: Published

Opinion

Slip Op. 13- 154

UNITED STATES COURT OF INTERNATIONAL TRADE

UNITED STATES, Plaintiff, Before: Richard W. Goldberg, Senior Judge v. Court No. 13-00025 ALEJANDRO SANTOS and ALEJANDRO SANTOS, CHB, Defendants.

OPINION AND ORDER

[Plaintiff’s motion for default judgment is granted.]

Dated: December 26, 2013

Stephen C. Tosini, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, for plaintiff. With him on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Stephanie L. Ciechanowski, Office of the Assistant Chief Counsel, U.S. Customs and Border Protection, of Laredo, TX.

Goldberg, Senior Judge: On January 11, 2013, the United States (the “Government” or

“United States”) commenced an action against Defendants Alejandro Santos and Alejandro

Santos, CHB (collectively, “Santos”) to recover civil penalties assessed under section 641 of the

Tariff Act of 1930, as amended, 19 U.S.C. § 1641(d)(2)(A) (2006).1 Summons & Compl., ECF

Nos. 1–2. The United States now moves for entry of default judgment. Mot. for Entry of

Default J., ECF No. 8 (“Default J. Mot.”). Because the Clerk has entered default against Santos

and the allegations in the Complaint support the United States’ entitlement to relief, the court

grants the Government’s motion and enters judgment against Santos in the amount of $30,000.

1 Further 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. 13-00025 Page 2

SUBJECT MATTER JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction pursuant to 28 U.S.C. § 1582(1) and will review the

Government’s claim for a penalty and the amount of any penalty de novo. See 28 U.S.C.

§ 2640(a)(6). On de novo review, “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.” United States v. Santos, 36 CIT __, __, 883 F. Supp. 2d 1322, 1326 (2012). In

reaching its determination, the court “may look beyond the complaint if necessary to ‘determine

the amount of damages or other relief’ or ‘establish the truth of an allegation by evidence.’” Id.

at __, 883 F. Supp. 2d at 1327 (quoting USCIT R. 55(b)).

Since the Clerk has entered default against Santos, the court accepts as true all well-pled

factual allegations in the Government’s Complaint. See United States v. Callanish Ltd., Slip Op.

10-124, 2010 WL 4340463, at *3 (CIT Nov. 2, 2010); USCIT R. 8(c)(6) (“An allegation—other

than one relating to the amount of damages—is admitted if a responsive pleading is required and

the allegation is not denied.”). Entry of default does not admit legal claims. Thus, the court

independently assesses whether the unchallenged facts give rise to a legitimate cause of action.

Callanish Ltd., 2010 WL 4340463, at *3; Santos, 36 CIT at __, 883 F. Supp. at 1326.

BACKGROUND

The Government has filed a one-count complaint against Santos, and the court accepts

the following factual allegations as true. During the period in question, Mr. Santos was an

individually licensed customs broker operating as a corporation named Alejandro Santos, CHB.2

Compl. ¶ 4. On January 14, 2008, Santos filed Entry Number BTN-00022126. Id. ¶ 6. The

2 Customs brokers include all persons granted a valid customs broker license. 19 U.S.C. § 1641(a)(1). Both individuals and corporations are eligible to receive customs broker licenses. Id. § 1641(b)(2)–(3). In this case, Mr. Santos was individually licensed and operated as the sole licensed broker at Alejandro Santos, CHB (a corporation, also licensed as a customs broker). Compl. ¶¶ 3–4. Court No. 13-00025 Page 3

entry summary represented that the imported merchandise was “Fats of Bovine Animals, OT,

Harmonized Tariff Schedule 1502.00.0060” and identified Santos as the importer of record and

ultimate consignee. See id.; Default J. Mot., Decl. of Liza Lopez at Exs. 1–2. On January 18,

2008, Santos filed Entry Number BTN-00022589 and made the same representation regarding

the content of the imported merchandise. Compl. ¶ 7. Despite Santos’ representations, the

commercial invoices for both entries revealed that the imported product was actually Co-Ral

Flowable, a pesticide.3 Id. ¶ 8. The Government submits that Co-Ral Flowable is classifiable

under subheading 3808.91.2500 of the Harmonized Tariff Schedule of the United States

(“HTSUS”).4 Id.

Other than the classification discrepancy, Customs found additional flaws in the

documentation pertaining to the entries in question. First, Santos claimed duty-free treatment

under the North American Free Trade Agreement (“NAFTA”) even though he did not possess

the requisite certificates of origin. Id. ¶ 12. Second, the commercial invoices that Santos

presented to U.S. Customs and Border Protection (“Customs”) were not in English and did not

include the duty rate and classification of the imported merchandise. Id. ¶ 11. Third, Santos did

not have an Environmental Protection Agency (“EPA”) Form 3540-1 (Notice of Arrival of

Pesticides and Devices) on file even though Co-Ral Flowable was a pesticide. Id. ¶ 13. Lastly,

because Santos did not have that form and did not classify the merchandise as a pesticide,

3 The Government pled that “the invoices revealed that the product imported was Co-Ral Flowable,” not that the product imported was in fact Co-Ral Flowable. See Compl. ¶ 8 (emphasis added). This is likely because Customs did not inspect the merchandise. Nonetheless, Customs did not inspect the merchandise because Santos never redelivered the items following a timely notice to redeliver. See Default J. Mot., Decl. of David Pulkrabek ¶¶ 8–9. Under those circumstances, the court accepts the uncontested information on the commercial invoices as proof of the actual contents of the entries. 4 Tariff classifications involve questions of law that the court does not accept as true. However, the issue here is not whether Co-Ral Flowable is properly classified under 3808.91.2500, but whether Co-Ral Flowable, a pesticide, was misclassified as animal fat. Court No. 13-00025 Page 4

Customs was unable to detain and inspect the merchandise as it normally would for shipments of

pesticides. Id. ¶ 14.

On the basis of the foregoing alleged violations, Customs transmitted pre-penalty and

penalty notices to Santos on December 9, 2010 and April 26, 2011, respectively. Id. ¶ 16. Both

notices informed Santos that the penalty totaled $30,000.5 See Default J. Mot., Decl. of Liza

Lopez at Exs. 3–4. Santos did not respond to Customs’ notices and has not paid any of the

assessed penalty. See Compl. ¶¶ 16–17. On January 11, 2013, the Government commenced a

civil enforcement action against Santos.

Santos waived formal service of process but has not otherwise appeared in the action or

responded to the Complaint. See Waiver of Service of Summons, ECF No. 4. The Clerk entered

default on April 11, 2013 and the Government later moved for default judgment. See Clerk’s

Entry of Default, ECF No. 6. Santos did not respond to the Government’s motion.

DISCUSSION

19 U.S.C. § 1641(d)(1)(C) permits monetary penalties “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.” The amount of any penalty assessed under § 1641(d)(1)(C)

may not exceed $30,000, and Customs may not assess a penalty unless it provides all statutorily-

mandated process. Id. § 1641(d)(2)(A). As set forth below, the Government sufficiently pled

facts establishing multiple regulatory violations, Customs complied with the mandatory

notification procedures, and Customs’ $30,000 monetary penalty was reasonable under the facts.

Default judgment is, thus, appropriate.

5 The cover letter accompanying the penalty notice and demand for payment incorrectly listed $20,000 as the contemplated penalty. Default J. Mot., Decl. of Liza Lopez at Ex. 4. However, the penalty notice itself—and all documents associated with the pre-penalty notice—listed $30,000 as the actual amount at issue. Id. at Exs. 3–4. Court No. 13-00025 Page 5

I. The Government has shown that Santos violated multiple regulations “enforced by the Customs Service,” in derogation of 19 U.S.C. § 1641(d)(1)(C)

A. 19 C.F.R. § 152.11

19 C.F.R. § 152.11 requires classification of merchandise in accordance with the HTSUS.

Entry summaries for Entry Numbers BTN-00022126 and BTN-00022589 described the imported

merchandise as “Fats of Bovine Animals, OT,” classifiable under HTSUS 1502.00.0060.

Compl. ¶¶ 6–7; Default J. Mot., Decl. of Liza Lopez at Exs. 1–2. The commercial invoices,

however, revealed that the imported merchandise was Co-Ral Flowable, a pesticide classifiable

as HTSUS 3808.91.2500. Compl. ¶ 8; Default J. Mot., Decl. of Liza Lopez at Ex. 6. Accepting

the Government’s allegations as true, Santos violated 19 C.F.R. § 152.11 by misclassifying

merchandise.

B. 19 C.F.R. §§ 12.112–.113

19 C.F.R. § 12.112(a) requires that importers of pesticides submit a Form 3540-1 Notice

of Arrival to the EPA Administrator “prior to the arrival of the shipment in the United States.”

The EPA then completes the Notice of Arrival and returns it to the importer or his agent. Id.

When the pesticides arrive, the importer or his agent must present the port director with the

completed Notice of Arrival for further analysis. Id. § 12.113(a). If the importer or his agent

does not present a completed Notice of Arrival, the port director will detain the pesticides

pending receipt of that form. Id. § 12.113(b)–(c).

The Government alleges that Co-Ral Flowable is a pesticide and that Santos did not have

an EPA Form 3540-1 on file for the two entries in question. Compl. ¶¶ 8, 13. Santos, the broker

and importer of record, thus violated 19 C.F.R. § 12.112 by failing to obtain a required EPA Court No. 13-00025 Page 6

form.6 By extension, Santos also violated 19 C.F.R. § 12.113 by not presenting a completed

Notice of Arrival upon arrival of the Co-Ral Flowable.

C. 19 C.F.R. § 111.32

Brokers violate 19 C.F.R. § 111.32 when they file “any document, affidavit, or other

papers, known by such broker to be false.” Santos possessed commercial invoices identifying

Entry Numbers BTN-00022126 and BTN-00022589 as Co-Ral Flowable, but submitted entry

summaries representing that the imported merchandise was animal fat. See Compl. ¶¶ 8, 10.

Because Santos possessed the invoices, the court accepts the Government’s allegation that

Santos knowingly submitted false documents in violation of § 111.32. See id. ¶ 10 (alleging

knowledge and minimal facts supporting inference of knowledge); see also USCIT R. 9(b)

(noting that “knowledge . . . may be alleged generally”).

D. 19 C.F.R. §§ 141.86; 141.90

Customs’ regulations establish certain requirements for commercial invoices

accompanying imported merchandise. 19 C.F.R. § 141.86(d) requires that an invoice be in

English or contain an attached English translation. Additionally, pursuant to § 141.90(b),

importers and brokers must include on commercial invoices the appropriate duty rate and

classification of the imported merchandise.7

The commercial invoices accompanying Entry Numbers BTN-00022126 and BTN-

00022589 were not in English. Compl. ¶ 11; Default J. Mot., Decl. of David Pulkrabek at Ex. 5.

6 19 C.F.R. § 12.112(b) exempts from the Notice of Arrival requirement certain chemicals “not shown on the Index of Pesticide Products located in the Environmental Protection Agency’s handbook.” Co-Ral appears on the Index of Pesticide Products and is, thus, not an exempted chemical. See Envtl. Protection Agency, Index of Pesticide Prods. 225, available at http://www.epa.gov/oppfead1/safety/healthcare/handbook/Index2.pdf. 7 The 2008 version of 19 C.F.R. § 141.90 referenced only importers, not customs brokers. See 19 C.F.R. § 141.90 (2008); Santos, 36 CIT at __, 883 F. Supp. 2d at 1328 n.6. The intervening change is immaterial here, though, because Santos was also the importer of record for Entry Numbers BTN-00022126 and BTN-00022589. Moreover, Customs had previously informed Santos that commercial invoices must be notated with the pertinent duty rate and classification. Default J. Mot., Decl. of David Pulkrabek ¶ 16. Court No. 13-00025 Page 7

The invoices also did not identify the goods’ duty rate and classification. Compl. ¶ 11; Default J.

Mot., Decl. of David Pulkrabek at Ex. 5. Accordingly, Santos violated 19 C.F.R. §§ 141.86(d)

and 141.90(b).

E. 19 C.F.R. § 111.29

“Each 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(a). Due diligence

is defined as “[t]he diligence reasonably expected from, and ordinarily exercised by, a person

who seeks to satisfy a legal requirement or to discharge an obligation.” Black’s Law Dictionary

523 (9th ed. 2009).

According to the Government’s complaint, Entry Numbers BTN-00022126 and BTN-

00022589 entered duty-free pursuant to NAFTA. Compl. ¶ 12. However, Santos did not have a

Certificate of Origin for either entry. Id. Because Santos lacked a Certificate of Origin, he either

should not have claimed NAFTA preferential treatment on the entry summaries, or should have

corrected the entries and paid any increased duties for a non-preferential importation. See

Default J. Mot., Decl. of David Pulkrabek ¶ 14. Santos took neither of those steps,

demonstrating that Santos failed to exercise the due diligence required by 19 C.F.R. § 111.29.

F. 19 C.F.R. § 111.28

Brokers “must exercise responsible supervision and control over the transaction of the

customs business.” 19 C.F.R. § 111.28 (citation omitted). 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 Court No. 13-00025 Page 8

the broker is required to provide.” Id. § 111.1. Customs must consider ten non-exclusive factors

before finding that a broker failed to exercise responsible supervision and control. See United

States v. UPS Customhouse Brokerage, Inc., 575 F.3d 1376, 1383 (Fed. Cir. 2009) (partially

vacating court’s opinion because Customs did not consider all ten factors).

The Government pled that “[t]he totality of the violations associated with” the two entries

in question “and the 10 factors identified in 19 C.F.R. § 111.1, demonstrate that Mr. Santos

failed to exercise responsible supervision and control over these transactions.” Compl. ¶ 15.

Other information before the court corroborates the Government’s assertion that Customs

considered all ten factors before finding a violation of 19 C.F.R. § 111.28. Default J. Mot., Decl.

of David Pulkrabek ¶¶ 17–26 (applying the ten factors in 19 C.F.R. § 111.1 to these facts), Decl.

of Liza Lopez ¶¶ 17–28 & Ex. 5 (containing worksheet considering all ten factors, created by

David Pulkrabek and reviewed with approval by Liza Lopez). Accepting the Government’s

findings as true, Santos violated § 111.28 by, inter alia, inadequately training and supervising

employees on the lawful importation of pesticides and other requirements governing entry

documents.

II. Customs complied with relevant notification procedures

The court also finds that Customs exhausted administrative remedies before bringing this

action. 19 U.S.C. § 1641(d)(2)(A) requires that Customs “serve notice in writing upon any

customs broker to show cause why the broker should not be subject to a monetary penalty” under

§ 1641. Id. In that notice, Customs must “advise the customs broker of the allegations or

complaints against him and . . . explain that the broker has a right to respond to the allegations or

complaints in writing within 30 days of the date of the notice.” Id.; see also United States v.

Robert E. Landweer & Co., 36 CIT __, __, 816 F. Supp. 2d 1364, 1374–75 (2012) (finding that Court No. 13-00025 Page 9

Customs must inform broker of specific regulations violated). Customs then issues a written

decision, considering any timely responses from the recipient of the pre-penalty notice. 19

U.S.C. § 1641(d)(2)(A). After transmission of the penalty notice, a broker against whom a

penalty has been assessed has a reasonable opportunity to seek remission or mitigation of the

penalty under 19 U.S.C. § 1618. Id.

The pre-penalty notice in this case informed Santos of his rights, enumerated the

regulations that Santos allegedly violated, and set forth the material facts giving rise to those

violations.8 Default J. Mot., Decl. of Liza Lopez at Ex. 3. Customs’ subsequent penalty notice

informed Santos that he had sixty days to file a petition for relief under 19 U.S.C. § 1618. Id. at

Ex. 4. Santos neither responded to the pre-penalty statement nor sought relief under § 1618. As

a result, Customs complied with all relevant procedures under 19 U.S.C. § 1641.

III. The $30,000 monetary penalty was reasonable

The court also finds that the assessed penalty was reasonable. Customs imposed a

collective penalty of $30,000 for the regulatory violations set forth above. Although 19 U.S.C.

§ 1641 counsels that penalties under that statute may not “exceed $30,000 in total,” the statute

does not contemplate a particular framework for assessing penalties within that range. Because

Customs’ $30,000 penalty is unchallenged, the court will uphold the penalty if it is reasonable

and factually supported. See Santos, 36 CIT at __, 883 F. Supp. 2d at 1330.

The $30,000 penalty assessed against Santos satisfies that standard. Santos violated

multiple regulations when importing Entry Numbers BTN-00022126 and BTN-00022589.

8 Customs could have been clearer when enumerating the material facts establishing a violation of 19 U.S.C. § 1641. Though Customs provided a detailed overview, Customs did not explicitly list facts giving rise to certain regulatory violations. For instance, Customs did not expressly state that Santos failed to submit invoices in English and to notate the invoices with the duty rate and classification. Nonetheless, Customs informed Santos of violations of “19 CFR 141.86 (Contents of invoice and general requirements)” and “19 CFR 141.90 (Notation of tariff classification and value on invoicing).” See Default J. Mot., Decl. of Liza Lopez at Ex. 3. Customs provided similar statements for all regulatory violations at issue here. Id. That notice was sufficient, especially where Santos had received prior warnings about similar violations and does not claim a lack of notice. Court No. 13-00025 Page 10

Further, Santos had previously committed some of the same violations at issue in this case. For

example, Customs informed Santos as early as 2007 that invoices must be in English and notated

with a duty rate and classification. See Default J. Mot., Decl. of David Pulkrabek ¶¶ 15–16 &

Exs. 7–8. Santos’ failure to take corrective action, even after having been advised of prior

violations, makes the subsequent violations particularly egregious.

In addition to being quantitatively numerous, the violations supporting the penalty were

qualitatively significant. Santos misclassified a pesticide, thereby preventing the EPA from

considering whether to allow entry of a potentially dangerous substance. Violations with

possible health and safety implications warrant a stiffer sanction.

CONCLUSION AND ORDER

For the reasons set forth above, the Government’s Motion for Default Judgment is hereby

granted and Customs’ $30,000 penalty is upheld. Accordingly, judgment is entered against

Santos in the amount of $30,000.

/s/ Richard W. Goldberg Richard W. Goldberg Senior Judge

Dated: December 26, 2013 New York, New York