Slip Op. 05 - 9



## UNITED STATES COURT OF INTERNATIONAL TRADE

: UNI TED STATE S, : : Plaintiff, :

: v. : Before: M USGRAV

E, JUDGE : NATIONAL

SEMICONDUCTOR : Court No. 03-00223 CORPORATION, : : Defend

ant. : : [In the plaintiff

’s civil in terest penalty suit arising f

rom defendant’s two voluntary prior disclosures to the United States Bureau of Customs and Border Protection, ea ch party moved f

or summar y judgment. Because resolution of this matter requires fact finding and interpre tation, both motions are denied.] Dated: January 26, 2005

Peter D. Keisler , Assistan

t Attorne y G eneral ; David M. Cohen , Director, Patricia M. McCarthy , Assistant

Director, Civi l Division, Commercial Litigation Branch, U nited States Department

of Justice, ( Stefan Shaibani ); and Office of theChief Counsel, U.S. Bureau of Customs and Border Protection (Scott McBride ), of counsel, for the plaintiff. Horton, Whiteley &

Cooper ( Robert Scott Whiteley

), for th e defen

dant.

OPINION

AND ORDER National Semicondu

ctor Corp oration ( “NSC” ) u ndervalued certain integrate d circuits and micro-assemblies imported between 1993 and 2000. The undevaluations resulted in $948,159.13 in unpaid mercha ndise process ing fee s and wer e due to e rroneou s stateme

nts on entr

y do cuments. NSC reported the matters to the United States Bure au of Customs and Border ProtectionCourt No. 03-00223 Page 2

1 The November 13, 1998 disclosure proceeded f roma lengt hy r

eview of NSC’s cust

oms compliance procedu

res undert aken by

NSC with the

assistanc e of an in

depende nt consult

ant. Spec if ic al ly, the revi ew dete

rmined tha

t inaccu rate va lues had b een stat

ed for U .S.-origin componen

ts of the micro-assemblies, the articles had been mis-classified, and certain “assists” had notbeen properly

included as additions to the transaction value for the merchandise. Plaintiff’s Proposed Findings of Un controverted Fact (“PPFUF” ) at 16. T he March 3, 2000/May 29, 2001 disclosure concerned another group of importations involving similar “assist” undervaluations that were later discovered by

an NSC employee. PPFUF at 25.

2 The prior disc losure sta tute, 19 U .S.C. § 1592 (c)(4) , provide s in pertinent part as follow s: If the pers on conce

rned disc loses the c ircumstances of a violation of subsection(a) of this section be fo re, or without knowledge of, the commencement

of a for mal invest

igation of such vi olatio n, w ith respe ct to suchviolation, merchandise shall not be seized and any monetar y pe nalty to be assessed under subsection (c) of this section shall not exceed - . . . * * * (B) if such violation resulted from negligence or gross negligenc e , the inter est (computed

from the d

ate of liq uidation a

t the pre vailing rateof intere st applied under section 6621 of Title 26) on the amount of lawful du ties, taxes , and fees of which the United States is or may be deprived . . . 19 U.S.C. § 1592(c)(4). (“Customs”) via two vo luntary prior disc losures. 1 After determining that NSC’s conduct had been neglig ent, which NSC d

oes not he

re disput e, Customs s ent notic es asses sing civ il int erest-only penalties of $228,924.75 and $21,915.46 with respect to each dis clo sure in accordance with 19 U.S.C. § 1592(c)(4)(B). 2 NSC dispute d these c harge s. The Uni

ted State s theref

ore brou ght this action, c onsolidat

ing both p enalty

notices. At this stage, each

party request s summary

judgmen t on the amount, if a

ny, of the cu stoms penalty to be impos ed. The governme nt’s brie fs arg

ue that su

mmary judgmen t is approp ria te because Customs’ a ssessmen

ts are pro per and t hat Customs

is entitle d to judgment as a matter of law for the full in

terest pe nalty amounts. I

t argue s that section 1592( c)(4)( B) does not manda

teCourt No. 03-00223 Page 3

3 Pl.’s Br. at 6-7, referenc ing PP FUF at 3 5-36 ( referen cing Customs’ F ines, Pen alties & Forfeitures Handbook

(April 1986) (stating that there will be “ No Further Mitigation of Prior Disclosure Dispositions In the Absence of Extraordinary Factors”) (emphasis in original)). mitigationof penalties in pri or disclosure cases bu t permits c ollecting

the full a mount of in

terest withoutmi ti ga ti on , t ha t t he in te re st pe na lt y on ly p ar ti al ly compensat es the g overnme nt for its “monetary losses,”

and that no mitigation of interest penalties is warranted in this instance. The government also argues that since interest under the statute is calculated only f rom the date of liquidation, not from the date of entry , the statute operate s as mitig ation in its own rig ht. According

to the government, Customs’ policy since at least 1986 has been that “further” mitigation invol untary di sclosure

situations

is unwarr

anted, a bsent extra

ordinar y c ircumsta

nces, 3 because “further” mitigation would only provide “unsc rupulous” importers with anincentive to violate the customs laws, not l east bec ause such would provide them with an “interest free governme nt loan.” NSC’s motion for summary judgment responds that

the Customs’ guideline on “mitigation” for voluntar y di sclosure

situations

was and i s not in acc ordance with 19 U.S.C. § 1592(c)(4). That statute provides that “any

monetary pena

lty to be assessed under

subsection (c) of this section shall not e xceed ... the inte

rest on th e amount o f lawful duties” ( italics a

dded). B y c ontrast, Customs’ guideli ne read as follow s at the time NSC initia ted its pri or disclo sures: Inactual revenue-loss cases involving a pr ior disclosure where the degree of culpabil ity

is determined

to be negligence or g

ross negligence, the

claim for mon etary penal ty shall be e

qual to the interest computed from the date of liquidation on the amo

unt of the actual lo ss of reve nue resulting from the violation.Court No. 03-00223 Page 4

4 The guideline was amended shortly thereafter, effective July

24, 2000: Duty Loss Violation. The claim for monetary penalty shal l be equ al to the interest on the actual loss of

duty computed

from the d

ate of liq uidation to

the date of the party' s tender of the ac tual loss of duty resulting fr om the violation. Custo ms notes t hat ther e is no mone

tary penalty in these c ases if the duty loss is potential in nature. Absent extraordinary circumstances, no mitigation will be afforded. 19 C.F.R. Pt. 171 App. B(F)(2)(f)(a) (2001). See 65 Fed. Reg. 39087 (June 23, 2000). 19 C.F.R. Pt. 171 App. B(E)(3) (as of Apr. 1, 2000) (italics adde d ). 4 Cont inuing, NSC urges consideration of the fourteen factors addressed by

the Court in United States v. Complex Machine Work s. Co. , 23 CIT 94 2, 949-50 , 83 F.Sup p.2d 1307, 1315 (199 9), arg uing tha t such wou

ld mitigate ag ai ns t t he im po si ti on of

a s ub st an ti al pe na lt y. Subject matter jurisdi ctio n here is bestowe d by

28 U.S.C. § 1 582(1). I

n accor dance w ith USC IT Rule 56(a), summary judg ment is appropriate if the Court determines that “the plead ings , depositions, an sw er s t o i nt er ro ga to ri es , a nd ad mi ss io ns on fi le , t og et he r w it h t he af fi da vi ts , i f a ny,
s how that there is no genuine issue as to any material fact and that the moving pa rty is entitled t o judgment as a matter of law.”See also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248-50 (1986). “Under

this standa

rd, the c ourt must

reach a conclusion that there is no factual issue and that the applicable laws warrant judgment in favor of the movant; absent such a conclusion, therecan be

no summary judgme

nt.” Precision Specialty Metals, Inc. v. United States , 24 CIT 1016, 1023, 116 F.Supp.2d

1350, 1359 (2000) (emphasis in original). I n a summary

judgment motion, the movant bea rs the burden of demonstrating that there is no ge nuine issue of material fact. SRI In t’l v

. Matsushita

Elec. Corp. of

Am. , 775 F.2d 1107, 1116 (Fed. Cir. 1985). “I n determining if a party

has met its burden the court does not ‘weigh the evidence and determine the truth of the matter,’ butCourt No. 03-00223 Page 5

5 See , e.g. , United States v. V alle y Steel Products Co. , 15 CIT 268, 271 (1991) (“[t]he amount of the penalty to be a ssessed is within t he soun d discretion of the Court, but only afte r a violation of section 592 has been proven”). Cf

. United States v. Menard, Inc. , 64 F.3d 678, 680 (Fed. Cir. 1995) (ob serving

that the a mount of th e civil

penalty is within the sound discretion of the trial court). rather the court determines ‘whether there is a genuine issue for trial.’” G&R P roduce Co. v. United States , 26 CIT 1247, 1249, 245 F. Supp.2d 1304, 1307 (2002) (quot ing Anderson , 477 U.S. at 249). Furthermore, “[t]he court views all evidence in the light most fa vorabl e t o t he no n- mo vi ng pa rt y, drawinginferences in the nonmovant’s favor.” Id

. (refere ncing United States v. Diebold, Inc ., 369 U.S. 654, 655 (1962). Considering the parties’ essential arguments, the Court notes that NSC correctly points out that “shall be equal to” in Customs’ guideline(s) does not comport with the st atute’s s liding- scale language. Cf. United Stat es v. Yuchius Morality Company, Ltd. , 26 CIT 1224, 1235 (2002) (“Cong ress has chosen to adopt only maxi mums, as opp osed to prescribing precise penalties, for proven violations under 19 U.S

. C. §1592”) . But, to the extent tha t Customs’ a

ctual pr actice is in accordancewith the statute, the argument amounts to a tempest in a teacup. As pointed out by the gover nment, there is nothing in the regulation s or guidel ines that would preclude a request for mitigationunder an

y c ircumsta

nces. Cf. 19 C.F.R. § 171.1, § 171.2, § 171.11, Pt. 171 App. B(G) (2001). Under Customs’ view, those cir cumstanc es must be

“extraor dinary .” The pe

rspective is not unreasonable, and, of course, th e prudent exercise of judicial discretion would consider opposing viewpoin ts without subjugating judicial independence, 5 but consideringthe government’s argument that the p rior disc losure sta tute amou

nts to mitig ation in its

own rig ht, beca use it only

partiall yCourt No. 03-00223 Page 6

compensates the gov ernment ( i.e. , “d eprives” it of interest from the date of entry ), the Court concludes that the argument is also wide of the mark. Until liquidation, the customs duties (and, by implication, interest) owed on a particular importation are u ncertain. Cf . 19 C.F.R. § 159.1 (“[l]iquidation means the final computation or ascertainment of the duties or drawback accruing on an entry ”); 19 C.F .R. Pt. 171 A

pp. B(F )(2)(f

)(a) (2 001) (“C

ustoms notes that there is no monetary penalty in these cases if the duty loss is potential in nature”). The government’s monetization of the matter, upon which interest could be based, is not made certain until such time. Las tl y, the government opposes consideration of the Complex Machine

factors, as argued by NSC, in the context of this prior disclosure matter for negligence . However, United Sta t es v. ITT Industrie s, Inc. , 28 CIT ___, 343 F.Supp.2d 1322 (2004), would proceed to conside

r some, if not all (as applicable), of those factors in context of a prior disclosure. See 343 F.Supp.2d at 1343-44. As inthat case, this Court is confronted with appeals to exercise discretion to deter mine the a

ppropria te amount of the pena lt y, if any, and the pa rties’ collective assertion that there are no g enuine issues of material fact to be resolved by a trial. Undoubtedly, the par ties would rather that this matter be summarily

resolve d, but the r

eality is that the

parties a rgue c ontrary

interpre tati o ns of fact. As observed in ITT Industries :

The Court can

not under take this a naly sis on summary judgme nt. Because the Courthas discr

etion to de

termine t he appro priate penalt y amount, . . . the Courtis required to weigh evidence, make cr edibility determinations, and drawinferences fromthe facts, functions strictly de legated to a fact-finder or ju ry. . . . As the Court cannot properly perform these functions on summary ju dgment, the Court must deny the parties’ motions on this particular i ssu e and orde r a trial

. Id

. The cro ss - motions at b ar are theref ore deni ed, and the plaintif f is here by ordered

to set this matter f or trial.Court No. 03-00223 Page 7

SO ORDERED.
__/s/_R. KENTON MUSGRAVE, JUDGE_____ R. KENTON MUSGRAVE, JUDGE Dated: January 26, 2005 New York, New YorkERRATA

United States v. National Semiconductor Corporation , Court No. 03-0 0223 , Slip Op. 05-9, dated January 26, 2005: Page 1: substitute

Gary Graff f or Scott Mc Bride a s the plain tiff’s of counsel. Line 2, correct “

undevaluations” to “undervaluations.” January 31, 2005