Slip Op. 10-124 UNITED STAT ES COURT OF INTERNATIONAL TRADE

UNITED STAT ES ,

Plaintiff,

v. CALLANISH LT D. ,

Def endant. Before: Tim othy C. Stanceu, Judge Court No. 03- 00658

OP INION AND ORDER [Denying pla intiff’s application for a judg ment by defa ult ag ainst defe ndant in the amount of $17,734,926] Dated: Nove mber 2, 2010 Tony W est , Assistant Attorney

Gene ral, JeanneE. Davidson , Direc tor, Commercial L itigation B ranc h, Civil Division, United St ates Department of Justice ( DomeniqueKirchner); Kevin B. Marsh , Bur eau of Customs and B order

Protection, of counse l, for plaintiff. Stanceu, Judge : Followingthe cour t’s opinion and order

in United States v. Sc otia Pharmace uticals Ltd. , 33 CI T __, Slip Op. 09-49 (May 20, 2009), plaintiff filed a n amende d complaint to rec over a

civil penalty

under Sec tion 592 of the Tar iff Ac t of 1930, as ame nded, 19 U.S.C. § 1592 (1988) (“Sec tion 592”) ag ainst defe ndant Callanish Ltd. (“Callanish”) in the amount of $17,734,926. Am. Compl. ¶¶ 91-93. Plaintiff’s c laim arises out of f ifty -two consumption entries of mer chandise , made be tween Septe mber 1, 1988 a nd Marc h 24, 1992, that plaintiff alleg es to have been c apsules of “ eveningprimrose oil” (“ EPO”), a substance use d as a food additive that c ould not be imported lawfully at the time of the e ntries at issue. Id. ¶¶ 11- 12, 91-93. Afte r def

endant f ailed to appe ar by

licensed c ounsel and fa iled to plead or othe rwiseCourt No. 03- 00658 P age 2

defe nd itself within twenty day s of beingserve d with the summons and the amende d complaint, the Clerk of this Court, pursuant to USCI T Rules 12 and 55, ente red Callanish’s de fault. Entry of De fault 1. On May 19, 2010, plaintiff applied f or a judg ment by

defa ult ag ainst Callanish in the amount of $17,734,926 pursua nt to USC I T Rule 55(b). Pl.’s Req. for Def ault J . as to Callanish L td. 1-2 (“Pl.’s Req. for

Def ault J .”). U

pon revie w of the a

mended c omplaint and plaintiff’s application, the c ourt holds that plaintiff has not established its entitlement to the defa ult judgme nt it seeks ag ainst Callanish beca use plaintiff ha s failed to set for th as a we ll-pled fac t the domestic value of

the merc handise plaintiff a lleg es to have been importe d fra udulently . The court, ther efor e, will deny without prejudice pla intiff’s application for a de fault judg ment.

I. B A C K G R O U N D A. Alleg ed F raudule nt Scheme to Unlawf ully Import EveningPrimrose Oil The amended c omplaint alleg es that beg inning on F ebrua ry 12, 1985, the Food a

nd Drug Administration (“F DA”) issued a ser ies of import aler ts announcingthat eveningprimrose oil could not be sold lawfully in the United States without FDA a pproval, that this substance did not have F DA appr oval, and that a ll import shi pments of EPO offe red f or entry into the United States

wer e to be de tained by

Customs and B order

Protection (“Customs”) a nd namingEfamol Resear ch, Inc. as a

seller of EPO. Am. Compl. ¶ 5; P l.’s Req. for D efa ult J . 5; Admin. R. Doc. Nos. 70-75. The amended c omplaint further a lleg es that duringthe per iod from September 1, 1988 to Marc h 24, 1992, Callanish introduced, or a ided and a betted anothe r to enter

or introduce , into the United States merc handise c onsisting of c apsules of EPO unde r cove r of f ifty -two consumptionCourt No. 03- 00658 P age 3

entries f iled at var ious ports of entry throug hout the United States by means of ma

terial a nd false acts, stateme nts and/or mater ial omissions , in violation of Section 592. Am. Compl . ¶¶ 11- 12, 91-93; Admin. R. Doc. Nos. 1-12 ( Dec laration of Timothy F. Quinn, Spec ial Ag ent, U.S. Immigration and Customs Enforc ement). Plaintiff identifies sever al main par ticipants in the alleg ed fr audulent sche me: (1) Murdock He althcar e, “the rea l buy er a nd importer” ( a U.S. company doing busine ss under

sever al names suc h as He alth Products International (“HPI ”)) ; (2) Chester L ockar d, the “stra

w 1 buy er a nd importer of r ecor d” in the United States who se rved a s president of the two U.S. companies, Pine L awn F arms, Inc., and G enesis I Iof Mid-Amer ica, that pa id the duties and fe es for EPO shipments and then billed HPI for the shipments, plus commission; and (3) three 2 subsidiaries of Scotia Pharma ceutica ls L td. (“Scotia Pharma ceutica ls”), a B ritish company : Efamol Ltd. (the B ritish dist ributor of EPO), Ef amol Resear ch, Inc., the suc cessor of which is Quantanova , Canada , L td. (“Qua ntanova” ), and de fenda

nt Callanish, a British corporation with a business addre ss at Br easc lete, I sle of L ewis, Scotland, United King dom, that manufac tured a nd shipped the EPO to the United States. Am. Compl. ¶¶ 6-10; Pl.’s Req. for De fault J. 3-4.

As a c onsequenc e of H ealth Products International’s (“H PI ”) pa rticipation in the 1 fra udulent scheme at issue in this action, HPI and its g ener al counse l, L oren I srae lson, pleaded guilty in the Easter

n District of Missouri in 1996 to viol ations of 18 U.S.C. § 542 (2006) (e ntry of g oods (EPO) by

means of f

alse stateme nts). Am. Compl. ¶ 14. HPIemploy ee D avid Ander son pleade d guilty

to a violation of 19 U.S.C. § 1304 (conce alinginformation re g ardingthe markingof imported g oods). Id

. As a c onsequenc e of his par ticipation in the fraudule nt scheme at issue in this action, 2 Chester L ockar d, president of Pine L awn F arms, Inc., plea ded guilty to a violation of 18 U.S.C. § 542 for f

raudule ntly

importing EPO. Am. Compl. ¶ 14.Court No. 03- 00658 P age 4

Specifica lly , plaintiff alleg es that Callanish, as the pa rty responsible for

shipping e ach of the fifty -two entrie s of EPO to the United States, per formed the followingacts in fur thera nce of the fra udulent scheme : (1) “Ca llanish followed HPI ’s instructions to ship the EPO . . . and not to list or describe the merc handise a s EPO;” (2) “ Callanish provided fa lse invoices to HPIshowing the buy er a s Pine L awn F arms rather than H PI ;” and ( 3) “Callanish, tog ether with Scotia Pharmac euticals Ltd[ .], and Quantanova , Canada , L td., used diffe rent invoice s for the sa me shipment, an invoice a ccur ately identifying the merc handise a s EPO was sent to HPI , and a second invoice was sent to Mr. L ockar d’s companie s, Pine L awn F arms or G enesis I I , which disguised the EPO in the shipments.” Am. Compl. ¶ 16. P laintiff claims that the doc uments submitt ed to Customs for the fifty -two consumption entries of EPO “conta ined mater ially false statements,” Am. Compl. ¶¶ 19-22, a nd that “Callanish shipped the EPO with knowledg e that the importation of the EPO into the United States was illeg al and that the E PO would be enter ed under c over of

false doc uments,” Am. Compl. ¶ 24.

B. Proc edura l History The proc edura l background of this litigation is prese nted in the cour t’s opinion and order in United States v. Sc otia Pharmaceuticals Ltd. , 33 CI T __, __, Slip Op. 09-49, at 4-6, and is further supplemented he rein. On May 20, 2009, the cour

t held that plaintiff had not esta blished its entitl ement to the judgme nt by

defa ult that it t hen soug ht ag ainst defe ndant Callanish for a civil penalty

under 19 U.S.C. § 1592. United States v. Sc otia Pharmaceuticals Ltd. , 33 CI T at __, Slip Op. 09-49, at 13-14. The c ourt denied pla intiff’s application for def ault but also allowed plaintiff the opportunity

to amend its complaint. Id. at __, Slip Op. 09-49, at 14. Be cause plaintiff had notCourt No. 03- 00658 P age 5

eff ecte d service upon defe ndants Scotia Pharmac euticals a nd Quantanova , the cour

t gr anted plaintiff’s re quest to dismis s the ac tion as to those defe ndants. Id

. On J uly 31, 2009, plaintiff filed its amende d complaint. Am. Compl. On May 17, 2010, afte r plaintiff succ essfully eff ecte d service of proc ess upon Callanish, defe ndant ag ain fa iled to appea r by licensed c ounsel and fa iled to plead or othe rwise de fend itself w ithin twenty day s of beingserve d with the summons and amended c omplaint, and the Clerk of this Court, pursuant to USCI T Rules 12 and 55, ente red Callanish’s de fault. Pl.’s Req. for De fault J. 1; Entry of Def ault 1. On May 19, 2010, plaintiff applied f or a judg ment by

defa ult ag ainst Callanish pursuant to USCI T Rule 55(b). Pl.’s Req. for Def ault J . 1. Plaintiff seeks a pe nalty equal to what it alleg es to be the dome stic value of the EPO entere d on the fifty -two entrie s, $17,734,926. Id. 2. II. D I S C U S S I O N Be cause defe ndant Callanish has bee n found to be in def ault, the cour

t acc epts as true all well-pled f

acts in the c omplaint. See A u Bon Pain Corp. v. Artect, Inc

. , 653 F.2d 61, 65 ( 2d Cir. 1981). An e ntry

of def ault, howeve r, is not sufficient to entitle plaintiff to the re lief it seeks. See Nishimats u Constr. C

o. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 ( 5th Cir. 1975) (“[A] defe ndant’s def

ault does not in itself warr ant the cour t in enteringa def

ault judgme nt.”). Eve n afte r an e ntry

of def ault, “it rema ins for the c ourt to consider whether the uncha lleng ed fa cts constitute a leg itimate cause of ac tion, since a pa rty in defa ult does not admit mere conc lusions of law.” 10A Charles A . Wright, Arthur R. Mill er & Mary

K. Kane , Fede ral Practice and Procedure§ 2688, at 63 (3d e d. 1998); see also Nishimatsu Cons tr. Co. , 515 F.2d a t 1206-08 (vac atingdistrict court’s e ntry of def ault judgme nt beca

use the plea dings w ere insufficient toCourt No. 03- 00658 P age 6

support the judg ment). “The re must be a sufficie nt basis in the pleading s for the judg ment enter ed.” Nishimats u Constr. Co. , 515 F.2d a t 1206. Accor dingly , the cour t must decide whether the well-ple d fac ts in plainti ff’ s complaint, and dee med to be admitted by Callanish as a result of the e ntry

of def ault, are sufficie nt to establish liabili ty for a violation of Section 592(a) that is gr ounded in fra

ud and suff

icient to establish the amount of the c ivil penalty soug ht by plaintiff. Under Section 592(a) (1)( A), it is unlawful for any person to ente r, introduce , or attempt to enter or

introduce a

ny merc handise into the commer ce of the United States by

means of materia l and fa lse documents, stateme nts, or acts or material omissions, whether by fra ud, gross neg lige nce, or

neg lige nce. 19 U .S.C. § 1592(a)(1) (A)( i)-(ii). The statute also prohibits the aidingand abe tting of a

nother to commit a violation of Section 592(a )(1) (A). Id. § 1592(a) (1)( B) . In an ac tion broug ht to recove r a c ivil penalty under Sec tion 592, the amount of the pena lty

is determined by

the cour t de novo

. Id. § 1592(e) . The statute pr ovides that a violation of Section 592(a) based on f raud “ is punishable by

a civil pena lty

in an amount not to exceed the dome stic value of the merc handise.” Id. § 1592(c) (1). The ref ore, the domestic value of the mer chandise is a fac t essential to the cour t’s de novo deter

mination of the amount of any penalty . Plaintiff, theref

ore, must alleg e the domestic va lue of the me rcha ndise as a w ell-pled fac t in order to obtain a de fault judg ment in this case. The amended c omplaint seeks a pe nalty of $17,734,926, which pla intiff alleg es to be the domestic value of

the fifty -two consumption entries of EPO that it alleg es to have been fra udulently imported in violation of the statute. Am. Compl. ¶ 93. The complaint lacks a ny well-pled f

act c oncer

ning the domestic value of the merc handise or how

that value wa sCourt No. 03- 00658 P age 7

deter mined. Plaintiff provides only the conc lusory

statement of the dome stic value of the imported EPO. The mer e alleg ation of an a mount offer ed as the “domestic va lue,” a bsent 3 any thing more , does not constitute a we ll-pled fac t. See D udnikov v . Chalk &Vermilion Fine Arts, Inc. , 514 F.3d 1063, 1070 ( 10th Cir. 2008) (def ining we ll-pled fac ts as those that are “plausible, non-c onclusory , and non-spec ulative ” (c iting Bell Atl. Corp. v. Tw ombly , 550 U.S. 544, 555-56 (2007) (empha sis added)) ). Absent suc h a we ll-pled fac t, the court is unable to e nter a judg ment by

defa ult in thi s case , and plaintiff’ s application must be denied. T he cour t will allow plaintiff the oppor

tunity to move for lea

ve to amend its complaint. III. C O N C L U S I O N A N D O R D E R Fr om its review of the amende d complaint and of pla intiff’s application for judg ment by defa ult, the court conc ludes that plaintiff has not esta blished its entitl ement to a judg ment by defa ult ag ainst defe ndant Callanish for a civil penalty

under 19 U .S.C. § 1592. Upon consideration of all paper s and proc eeding s here in, it is here by ORDERED that plaintiff’s application for judg ment by defa ult ag ainst defe ndant Callanish be, and he reby

is, DENI ED without prejudice ; and it is further ORDERED that unless plaintiff moves within six ty (60) da y s of the date of this Opinion and Or der f

or leave to file a

n amende d complaint, plaintiff, upon entry of a f urther or der, sha ll be require d to show cause why a judg ment should not be entere d dismiss ing this ac tion.

/s/ Timot hy

C. St ance u Timothy C. St ance u J udg e Dated: November

2, 2010 New Y ork, Ne w York

Fr om exhi bits to pl aintiff’s a pplication for judg ment by defa ult, it appears that the 3 amount of the “ domestic value” was de rived by doubling the a

mounts for enter ed value as set forth on entr

y summaries for

the importations that are the subject of this ac tion. SeeAdmin. R. Doc. Nos. 165- 531.