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 coll ect civil penalties and customs duties concerning certain merchandise imported by Ford Motor Company (“Ford”), defendant, in violation of 19 U.S.C. § 1592 (198 8). 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 judgme nt 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 Bra nch, Civil Division, United States Department of Justice ( David A. Levitt and Michael Panzera ); of counsel: Jeffrey E. Re imand Katherine Kramarich , United States Bureau of Custo m s and Border Protection, for the United States, plaintiff. Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt, LLP ( Steve n 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, 2005Case 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 s eek s $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 andBorder Protect ion of the Department of Homeland Security (“Customs”), 1 pl ainti ff, seeks to collect civil penalties and customs dutie s concerning certain merchandise imported by Ford Motor Company (“Ford”), defendant, in violation of 19 U.S.C. § 1592 (1988). 2 Customs move s pu rsuant to USCIT R. 56 for summary judgemen t 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 see king a refund of certain duties tendered in connection with this matter.

BACKGROUND On Oct ober 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 countercla im for failure to state a claim upon which relief can be granted. 3 SeeCase 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. Pr ior D isclosure 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.

Fordhas waived the statute of li mitations defense. See Ford’s Resp. at 1. Thus, the remaining issues are whether For d fulfilledthe requirements for prior disclosure status and whether Ford’s co unterc laim 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 p urs uant to 28 U.S.C. § 1582 (2000). J urisdiction over Ford’s counterclaim isCase 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 det erm ine 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). Afactual 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 . 5 6; 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 ha s the burden of showing specific facts in dispute. See id.

The Court may dismiss a counterclaim for failure to state a claimonly “where it appears beyond doubt that plaintiff can proveCase 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. AdvancedMicro-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 particula r 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. , ma de 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 accessoriesCase 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 Forddescribes the CF 28s as routine requests for information which they respon d 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. purcha sed fr om 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-3 6”). 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 issuedan original p urchas e 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 sep a rately numbered purchase orders for engineering changes and other price adjustment s.” Id. at ¶ 6. These amendments were issuedbetween May 1987 and January 1991 modifying th e p urchase 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 purchaseCase 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 Fordrefers 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 Fo rd’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 reissuedCF 28 on May 6, 1991, stat ing 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 th e 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 Forda 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 t wel ve entries of FN-36 merchandise that Ford estimated it owedCase 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 notice s 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, aCase No. 02-00106 Page 9

person is presume d to h ave such knowledge if an investigating agent, who ident ifi es himself and the nature of his inquiry, inquires about or requests specific records concerning “the type of

or circumstances of the disclosed viol ation. ” 19 C.F.R. § 162.7 4(f)(2)&(3) (1991). The presumption is rebuttable wi t h

ev idence that the person did not know an investigation had commencedwith 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 inves tiga tory record when an investigating agent believed the possibility of a violation existed; (2) the date a n investigating agent, after identifying himself and the n atur e of his inquiry: (a) inquired about the type of or circumstances of the disclosedviolation, or (b) requeste d sp ecific books and records relating to the disclosed in format ion. 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 theCase No. 02-00106 Page 10

production of FN-36 entry records during a meeting. See id. This meeting was documented in an OAC R eport of Investigation (“ROI”) datedJanuary 7, 1991. See id. at 17. That documentation is valid, Customs argues, because the regulat ion s 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 sta tes that, even if Ford couldestabl ish th at 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 res ponse, 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, particular ly w hen verifying a prior disclosure claim. S ee id. Su ch steps included opening a file, sending notice to auditors and import spec ia lists, requesting liquida tio n 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), aCase 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 commenceda formal investigation of Ford. Additionally, during the October 18, 1990, m eeting , 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 th at t he 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; Cust oms’ App., Ex. 8 at 27. The parties only agree th at 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 filedby Ford, an d/or requested specific books and records from Fordrelated 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 partiesCase 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 wouldask to review Ford’s records related to payment for and receipt of the presses purchased fromOIW and OAC for the FN-36 Lincoln Town Car Project. Gibson advisedthat 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 part icipat ion in the OAC investigation. Because issues of material fact exist as to when Customs co mme nced 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 counterc laim 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 c ounterclai m statesCase 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 statedon the invoices presented at the time of entry. See Answer at ¶¶ 36-42. Therefore, Ford argues that it is entitled to a refundfor overpaidduties. 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 Rule s 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 dire ct cha llenge 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 c ounter claim is denied.

CONCLUSION In conclusion, a factual dispute exi sts as to when Customs commencedits formal investigation of Fo rd. Factual issues also

ex ist as to when Ford knew it was being investigated about the Complaint Entries. Additionally, Ford has properly pleaded itsCase No. 02-00106 Page 14

counte rcla im. Upon consideration of Customs’ motion for summary judgment on the prior disclosure and statute of limitations defenses and to dismiss counterclaim, all pleadi ngs 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’ moti on t o 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