Slip Op. 05-24

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS

________________________________________

:

United States, :

:

Plaintiff, :

: Court No.

v. : 02-00106

:

Ford Motor Company, :

:

Defendant. :

________________________________________:

The United States Bureau of Customs and Border Protection of

the Department of Homeland Security (“Customs”), plaintiff, seeks

to collect civil penalties and customs duties concerning certain

merchandise imported by Ford Motor Company (“Ford”), defendant, in

violation of 19 U.S.C. § 1592 (1988). Customs moves pursuant to

USCIT R. 56 for summary judgement on the prior disclosure and

statute of limitations defenses raised by Ford. Customs also moves

pursuant to USCIT R. 12 to dismiss Ford’s counterclaim, which seeks

a refund of certain duties tendered in connection with this matter.

Held: Customs’ motion for summary judgment on the prior

disclosure and statute of limitations defenses and to dismiss

counterclaim is denied.

Peter D. Keisler, Assistant Attorney General, David M. Cohen,

Director, Patricia M. McCarthy, Assistant Director, Commercial

Litigation Branch, Civil Division, United States Department of

Justice (David A. Levitt and Michael Panzera); of counsel: Jeffrey

E. Reim and Katherine Kramarich, United States Bureau of Customs

and Border Protection, for the United States, plaintiff.

Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt, LLP

(Steven P. Florsheim, Robert B. Silverman, David M. Murphy, and

Frances P. Hadfield); of counsel: Paulsen K. Vandevert, Ford Motor

Company, for Ford Motor Company, defendant.

Dated : February 18, 2005
Case No. 02-00106 Page 2

1 The United States Customs Service was renamed the Bureau

of Customs and Border Protection of the Department of Homeland

Security, effective March 1, 2003. See H.R. Doc. No. 108-32

(2003).

2 Customs seeks $184,495 in unpaid duties and civil

penalties in the amount of $21,314,111 if Ford’s conduct is found

to be fraudulent; $3,497,080 if Ford was grossly negligent; or

$1,748,540 if Ford was negligent. See Complaint.

3 Customs mistakenly filed its motion pursuant to USCIT R.

12(b)(6). See Customs’ Mot. at 1. USCIT R. 12(b)(6), however, is

OPINION AND ORDER

TSOUCALAS, Senior Judge: The United States Bureau of Customs

and Border Protection of the Department of Homeland Security

(“Customs”),1 plaintiff, seeks to collect civil penalties and

customs duties concerning certain merchandise imported by Ford

Motor Company (“Ford”), defendant, in violation of 19 U.S.C. § 1592

(1988).2 Customs moves pursuant to USCIT R. 56 for summary

judgement on the prior disclosure and statute of limitations

defenses raised by Ford. Customs also moves pursuant to USCIT R.

12(b) to dismiss Ford’s counterclaim seeking a refund of certain

duties tendered in connection with this matter.

BACKGROUND

On October 25, 2004, Customs moved for summary judgement on

the prior disclosure and statute of limitations defenses raised by

Ford. Customs also moved to dismiss Ford’s counterclaim for

failure to state a claim upon which relief can be granted.3 See
Case No. 02-00106 Page 3

failure to join a party under R. 19. Although styled under USCIT

R. 12(b)(6), the Court will treat Customs’ motion as filed pursuant

to its proper provision, USCIT R. 12(b)(5).

Pl.’s Mot. Summ. J. Prior Disclosure Statute Limitations Defenses

Dismiss Countercl. (“Customs’ Mot.”). Ford responded on December

13, 2004. See Def.’s Resp. Pl.’s Mot. Summ. J. Prior Disclosure

Statute Limitations Defenses Dismiss Countercl. (“Ford’s Resp.”).

Parties then submitted a joint pretrial order on January 5, 2005.

See Pretrial Order. Customs submitted its reply on January 11,

2005. See Pl.’s Reply Support Mot. Partial Summ. J. Mot. Dismiss

Countercl.. Finally, Ford, with leave from the Court, submitted a

sur-reply on January 14, 2005. See Def.’s Sur-Reply Pl.’s Reply

Mot. Summ. J.. The Court heard oral arguments from the parties on

February 7, 2005.

Ford has waived the statute of limitations defense. See

Ford’s Resp. at 1. Thus, the remaining issues are whether Ford

fulfilled the requirements for prior disclosure status and whether

Ford’s counterclaim has any merit. The Court denied Customs’

motion at the close of oral arguments on February 7, 2005. This

opinion elaborates the Court’s bench ruling.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28

U.S.C. § 1582 (2000). Jurisdiction over Ford’s counterclaim is
Case No. 02-00106 Page 4

based on 28 U.S.C. §§ 1583 and 1585 (2000).

STANDARD OF REVIEW

On a motion for summary judgment, the Court must determine

whether there are any genuine issues of fact that are material to

the resolution of the action. See Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986). A factual dispute is genuine if it might

affect the outcome of the suit under the governing law. See id.

A genuine dispute for trial exists only if there is evidence from

which a reasonable jury could return a verdict for the non-moving

party. See id. Accordingly, the Court may not decide or try

factual issues upon a motion for summary judgment. See Phone-Mate,

Inc. v. United States, 12 CIT 575, 577, 690 F. Supp. 1048, 1050

(1988). When genuine issues of material fact are not in dispute,

summary judgment is appropriate if the moving party is entitled to

judgment as a matter of law. See USCIT R. 56; see also Celotex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The burden of

demonstrating an absence of genuine disputes as to material facts

is on the moving party. See Celotex, 477 U.S. at 323. Once that

burden is discharged, the non-moving party has the burden of

showing specific facts in dispute. See id.

The Court may dismiss a counterclaim for failure to state a

claim only “where it appears beyond doubt that plaintiff can prove
Case No. 02-00106 Page 5

4 The eleven entries and their ports of entry are listed in

Exhibit A of the Complaint.

no set of facts which will entitle him to relief.” Constant v.

Advanced Micro-Devices, Inc., 848 F.2d 1560, 1565 (Fed. Cir. 1998)

(citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Moreover,

the Court must accept all well-pleaded facts as true and view them

in the light most favorable to the non-moving party. See United

States v. Islip, 22 CIT 852, 854, 18 F. Supp. 2d 1047, 1051 (1998)

(citing Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.

Cir. 1991)). A plaintiff is only required to set out in detail the

facts upon which the claim is based so that the defendant has “fair

notice of what his claim is and the grounds upon which it rests.”

Conley, 355 U.S. at 47. The particular relief requested is not

required to be available, as long as the Court can ascertain that

some relief is available. See NEC Corp. v. United States, 20 CIT

1483, 1485, 967 F. Supp. 1305, 1307 (1996).

DISCUSSION

I. Uncontested Facts

Ford, the importer on record, and through its customs broker,

J.V. Carr, Inc., made eleven entries of dutiable merchandise

(“Complaint Entries”) between February 2, 1989, and March 12,

1989.4 See Customs’ Mot. at 2. The Complaint Entries consisted of

dies, checking fixtures, welding equipment, and accessories
Case No. 02-00106 Page 6

5 “FN-36” was Ford’s program code for the 1990 model year

Lincoln Town Car. See Pretrial Order, Schedule C at ¶ 2.

6 Ford describes the CF 28s as routine requests for

information which they respond to regularly from various Customs

ports each year. See Ford’s Resp. at 7.

7 The CF 28s dated February 9, 1989, and March 2, 1989, are

from Seattle and the CF 28 dated March 28, 1989, is from Detroit.

See Pretrial Order, Schedule C at ¶¶ 13-14.

purchased from Ogihara Iron Works, Ltd. of Japan (“OIW”) through

its subsidiary, Ogihara America Corporation (“OAC”) (collectively,

“Ogihara”), to manufacture and assemble parts in Ford’s FN-36

program (“FN-36”).5 See Pretrial Order, Schedule C at ¶¶ 3-4;

Ford’s Resp. at 5 n.5. The entered value of the Complaint Entries

was $63,078,426. See Pretrial Order, Schedule C at ¶ 10. Ford

issued an original purchase order, also called the “base tool

order,” to OIW in May 1987. See id. at ¶ 3. Ford then issued 17

purchase order amendments to the base tool order and “over 200

separately numbered purchase orders for engineering changes and

other price adjustments.” Id. at ¶ 6. These amendments were

issued between May 1987 and January 1991 modifying the purchase

order price from $42,544,844 to $66,075,960. See id. at ¶ 12.

In 1989, various requests for information (referred to as “CF

28”)6 were issued from the Seattle and Detroit District Customs

offices about FN-36 entries.7 Ford responded to the Detroit CF 28

on November 20, 1989, and included copies of the original purchase
Case No. 02-00106 Page 7

8 The April 5, 1989 letter included a tender of $948,230.45

for certain research and development, tooling, and assists for the

FN-36 program. See Pretrial Order, Schedule C at ¶ 15.

9 Ford refers to the supplemental response as a

reconciliation resulting from price negotiations with Ogihara after

FN-36 imports were completed. See Ford’s Resp. at 6.

order, amendments 1-16, and Ford’s April 5, 1989, letter.8 See

Pretrial Order, Schedule C at ¶ 15. On December 5, 1990, the

Seattle Customs office reissued a CF 28 covering additional FN-36

entries filed in Seattle. See id. at ¶ 16. Ford responded to the

reissued CF 28 on May 6, 1991, stating that “final audit results

and price adjustments will soon be available.” Id. at ¶ 17.

Customs was investigating OAC’s import practices in the late

1980s. See Customs’ App., Ex. 6 at 9; Ford’s Resp. at 10. As an

outgrowth of the OAC investigation, Customs also began

investigating Ford. See Customs’ Mot. at 12; Ford’s Resp. at 10.

On June 7, 1991, Special Agent in Charge Richard J. Hoglund issued

Ford a summons, served by Special Agent (“SA”) Michael Turner,

demanding production of documents related to the FN-36 program.

See Pretrial Order, Schedule C at ¶ 19; Customs’ App., Ex. 12 at

40-41.

On August 6, 1991, Ford submitted a supplemental response to

its November 20, 1989, response to Detroit’s CF 28.9 See Pretrial

Order, Schedule C at ¶ 20. The supplemental response identified

twelve entries of FN-36 merchandise that Ford estimated it owed
Case No. 02-00106 Page 8

$684,417 in unpaid duties and offered to tender the duty upon

Customs’ review. See id. at ¶ 21. After review, Customs concluded

that Ford undervalued the FN-36 entries by $16,816,296, thus owing

$689,775 in unpaid duties. See id. at ¶ 22. On November 22, 1991,

Ford tendered a check for $689,775 in unpaid duties. See id.

Customs exhausted its administrative procedures, initiated on

January 10, 1995, by issuing pre-penalty and penalty notices and

permitting Ford to file petitions in response. See Pretrial Order,

Schedule C at ¶ 23; Customs’ Mot. at 6. Customs then filed this

civil action on January 24, 2002. See Complaint.

II. Statutory Background

Title 19 of the United States Code, section 1592(a)(1)

prohibits fraudulent, grossly negligent, or negligent “material and

false” acts or omissions in connection with the entry of

merchandise into the United States. The penalties for a violation

of 19 U.S.C. § 1592(a) are substantially less if the alleged

violator makes a prior disclosure. See 19 U.S.C. § 1592(c)(4). A

prior disclosure is a disclosure of “the circumstances of a

violation” before, “or without knowledge of, the commencement of a

formal investigation of such violation.” Id. An alleged violator

has the burden of proof of establishing a lack of knowledge of the

commencement of a formal investigation. See id. Furthermore, a
Case No. 02-00106 Page 9

person is presumed to have such knowledge if an investigating

agent, who identifies himself and the nature of his inquiry,

inquires about or requests specific records concerning “the type of

or circumstances of the disclosed violation.” 19 C.F.R. §

162.74(f)(2)&(3) (1991). The presumption is rebuttable with

evidence that the person did not know an investigation had

commenced with respect to the disclosed information. See 19 C.F.R.

§ 162.74(f). A formal investigation is considered to be commenced

on the earliest of the following: (1) the date recorded in writing

in the investigatory record when an investigating agent believed

the possibility of a violation existed; (2) the date an

investigating agent, after identifying himself and the nature of

his inquiry: (a) inquired about the type of or circumstances of the

disclosed violation, or (b) requested specific books and records

relating to the disclosed information. See 19 C.F.R. §

162.74(d)(4). Further, a prior disclosure is made if it is

disclosed “in writing to a district director” and “makes a tender

of any actual loss of duties. . . .” 19 C.F.R. § 162.74(a).

III. Further Findings of Fact are Required to Determine When

Customs Commenced its Formal Investigation

Customs states that its investigation commenced, and that Ford

knew it was being investigated no later than October 18, 1990. See

Customs’ Mot. at 14 and 19. On this date, Customs requested the
Case No. 02-00106 Page 10

production of FN-36 entry records during a meeting. See id. This

meeting was documented in an OAC Report of Investigation (“ROI”)

dated January 7, 1991. See id. at 17. That documentation is

valid, Customs argues, because the regulations do not require a

separate file to record the opening of an investigation. See id.

at 13. In the alternative, Customs argues that Ford’s formal

investigation commenced no later than January 7, 1991, when SA

Turner’s suspicions of a violation by Ford were recorded in the OAC

ROI. See id. at 18-19. Customs also states that, even if Ford

could establish that an alleged disclosure occurred prior to, or

without the knowledge of a formal investigation, the alleged

disclosure still fails to satisfy the controlling regulations. See

id. at 10.

Ford, in response, argues that Customs did not commence its

investigation until August 21, 1991. See Ford’s Resp. at 30. In

support, Ford argues that this is the only date when the office of

investigations began taking steps it ordinarily takes when

commencing an investigation, particularly when verifying a prior

disclosure claim. See id. Such steps included opening a file,

sending notice to auditors and import specialists, requesting

liquidation of entries to be delayed, and requesting entries be

sent to the agent in charge. See id.

Under 19 U.S.C. § 1592(c)(4) and 19 C.F.R. § 162.74(a), a
Case No. 02-00106 Page 11

valid prior disclosure must be made before, or without knowledge

of, the commencement of a formal investigation. Based on the

parties’ contentions stated above, a dispute exists to when Customs

commenced a formal investigation of Ford. Additionally, during the

October 18, 1990, meeting, Customs states SA Turner asked Mr.

Gibson, of Ford, about an entry related to the FN-36 program. See

Customs’ Mot. at 17. Ford states that the meeting occurred on

November 27, 1990, but agrees that SA Turner and Mr. Gibson met and

an entry related to FN-36 was inquired about. See Ford’s Resp. at

31; Customs’ App., Ex. 8 at 27. The parties only agree that a

meeting occurred. Ford claims that it understood the inquiry made

at the meeting to be a part of Customs’ investigation of OAC and

not a part of an investigation of Ford itself. See Ford’s Resp. at

32-33. Customs states that Ford is presumed to have known of the

investigation as a matter of law under 19 C.F.R. § 162.74(f)

because Customs “inquired about a particular entry of FN-36

merchandise, sought information concerning all other FN-36 entries

filed by Ford, and/or requested specific books and records from

Ford related to the FN-36 project.” Customs’ Mot. at 19. In

viewing the evidence in favor of the non-movant, the Court does not

agree that the meeting clearly constitutes the commencement of a

formal investigation of Ford. For Ford to presumably know of the

investigation under 19 C.F.R. § 162.74(f), the investigating agent

has to identify himself and the nature of his inquiry. The parties
Case No. 02-00106 Page 12

dispute whether the meeting and subsequent request for Ford’s

records was part of Customs’ continuing investigation of OAC or was

part of a separate investigation of Ford.

The OAC ROI, dated January 7, 1991, documents the October 18,

1990/November 27, 1990, meeting. See Customs’ Mot. at 17. The ROI

states that:

On October 18, 1990, I [SA Turner] met with Ford

attorney C. Harry Gibson, and advised him that Customs

would ask to review Ford’s records related to payment

for and receipt of the presses purchased from OIW and

OAC for the FN-36 Lincoln Town Car Project. Gibson

advised that Ford would compile the requested

information.

See Customs’ App., Ex. 6 at 14. The ROI, on its face, does not

mention the possibility or suspicion that Ford violated 19 U.S.C.

§ 1592. Again, viewing the present evidence in a light favorable

to the non-movant, the ROI could reasonably indicate that Customs

was merely requesting Ford’s participation in the OAC

investigation. Because issues of material fact exist as to when

Customs commenced its formal investigation of Ford, summary

judgement fails and therefore is denied.

IV. Ford’s Counterclaim is Proper

Customs moves to dismiss Ford’s refund counterclaim seeking

$689,775 plus lawful interest for duties tendered on November 22,

1991, resulting from an undervaluation of the FN-36 project. See

Customs’ Mot. at 1; Answer at ¶ 42. Ford’s counterclaim states
Case No. 02-00106 Page 13

that the Complaint Entries were appraised based on the transaction

value of the imported merchandise, which was equal to the prices

stated on the invoices presented at the time of entry. See Answer

at ¶¶ 36-42. Therefore, Ford argues that it is entitled to a

refund for overpaid duties. See Ford’s Resp. at 37. Customs

asserts that Ford’s counterclaim fails to identify any statutory or

regulatory basis for obtaining a refund. See Customs’ Mot. at 24.

Under USCIT Rules 8(a) and 13, however, Ford is not required to

identify such a basis for its counterclaim. Ford’s counterclaim is

a short and plain statement properly limited to the value of the

Complaint Entries, which is a direct challenge to Customs’ case.

Accordingly, Ford’s counterclaim falls within the Court’s subject

matter jurisdiction thereby satisfying USCIT R. 8. Furthermore, a

counterclaim “may or may not diminish or defeat the recovery sought

by the opposing party.” USCIT R. 13(b). The Court finds that

Ford’s counterclaim meets the requirements of this Court’s rules.

Therefore, Customs’ motion to dismiss Ford’s counterclaim is

denied.

CONCLUSION

In conclusion, a factual dispute exists as to when Customs

commenced its formal investigation of Ford. Factual issues also

exist as to when Ford knew it was being investigated about the

Complaint Entries. Additionally, Ford has properly pleaded its
Case No. 02-00106 Page 14

counterclaim. Upon consideration of Customs’ motion for summary

judgment on the prior disclosure and statute of limitations

defenses and to dismiss counterclaim, all pleadings and papers

filed herein, and oral arguments, it is hereby

ORDERED that the statute of limitations defense has been

waived and is thus moot; and it is further

ORDERED that the Customs’ motion for summary judgment on the

prior disclosure defense is denied; and it is further

ORDERED that the Customs’ motion to dismiss Ford’s refund

counterclaim is denied; and it is further

ORDERED that the parties prepare for trial on the merits.

/s/ Nicholas Tsoucalas 

NICHOLAS TSOUCALAS 

SENIOR JUDGE 

Dated: February 18, 2005

 New York, New York