Slip Op. 12- 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 [Orderingan appr aisal to deter mine the domestic value of the imported mer chandise on which plaintiff see ks to recove r a c ivil penalty throug h a def

ault judgme nt]

Dated: F ebrua

ry 1, 2012 DomeniqueKirchner , Senior Trial Attorne y , Commercial L itigation B ranc h, Civil Division, U.S. Department of Justi ce, of Washington, DC, for pla intiff. Wit h her on the brief wer e Tony W

est , Assistant Attorney

Gene ral, a

nd JeanneE. Davidson , Direc tor. Of c ounsel on the brief was Kevin B. Marsh , Assistant Chief Counsel, U.S. Cus toms and Bor der Protec tion, of Buf falo, NY

. Stanceu, Judge : I n this action brought under sec tion 592 of the Tar iff Ac t of 1930 (“T ariff Act”) , 19 U.S.C. § 1592 (1988), plaintiff applies f or a judg ment by

defa ult ag ainst Callanish Ltd. (“Callanish” ), a B ritish corporation, upon a claim that Callanish, by means of f

raud, introduc ed, or aide d and abe tted the entry or introduction of, c erta in mercha ndise into the commerc e of the United States. Pl.’s Request for De fault J. as to C allanish L td. (May 12, 2011), ECF N o. 28. The imported mer chandise consisted of c apsules of “ eveningprimrose oil,” a substance that is used as a dietary supplement but that, at the time of importations in question, could not be imported lawfully

beca use it was not re cog nized as safe for that use by the U.S. Food a

nd DrugCourt No. 03- 00658 P age 2

Administration. First Amended Compl. ¶¶ 4- 5 (Jul y 31, 2009), ECF N o. 16. U.S. Custom s and Bor der Protec tion (“Customs”) initiated a pena lty action under

section 592 of the T ariff

Act based on shipments of e veningprimrose oil imported on fifty -two consumption entries made betwee n September 1988 a nd Marc h 1992. Id . ¶¶ 10- 12. Plaintiff seeks to re cover a civil penalty “in the amount of $17,734,926,” which plaintiff a lleg es to be the sum of the domestic value of the merc handise on the f ifty -two entrie s. Id . ¶ 93. Contrary to a pre vious order in this case and contr ary to the Court’s rules, plaintiff f iled

an ame nded complaint (“ Second Amende d Complaint”) without leave of court. The court tre ats the filing of that complaint as a motion for leave to amend the c omplaint, which the cour t gr ants. Upon re view of the new c omplaint and the instant motion, t he cour t determines that a

lawful judgme nt by

defa ult cannot be e ntere d beca use the c ourt lacks a

sufficie nt basis to determine de

novo a fa ct essential to the c ourt’s ente ringjudgme nt: the domestic value of the merc handise on which plaintiff ba ses its penalty claim. In addition, the court c oncludes that the Sec ond Amended Complaint admits a fa ct that is inconsistent with plainti ff’ s repr esentation that the claimed domestic va lue of the me rcha ndise was de termined by

means of a

n appra isal that was conducte d in acc ordanc e with law. The court de termines it appropr iate to orde r the c onducting of a ne w appr aisal of the me rcha ndise. I. B A C K G R O U N D Ba ckg round information on this case is included in the court’ s opinions in United States v. Scotia Pharmac euticals Ltd ., 33 CI T __, __, Slip Op. 09-49, 3-6 (May 20, 2009) and United States v. Callanish L td. , 34 CI T __, __, Slip Op. 10-124, 2-5 (Nov. 2, 2010) . Supplementary information is provided her ein.Court No. 03- 00658 P age 3 A. Proce eding s Conducted upon the Or igina l Compl aint In its opini on and orde r in Scotia Pharmace uticals , the cour t denied plaintiff’ s application for judg ment by

defa ult ag ainst Callanish beca use plaintiff fa iled to alleg e fa cts sufficie nt to support a conc lusion that Callanish had violated 19 U.S.C. § 1592. Scotia Pharm ., 33 CI T at __, Slip Op. 09-49 at 12. The cour t concluded that the complaint “fa ils to attribute to C allanish any materia l and fa lse statement or a ct, or a ny materia l omissi on . . . such that the c ourt could conclude . . . that Callanish is li able f or a c ivil penalty

under 19 U .S.C. § 1592(a)(1) (A).” Id. at __, Slip Op. 09-49 at 12. The c ourt noted, fur ther, that “ the complaint does not alleg e, for purposes of § 1592( a)( 1)(B ), that Callanish, specif ically , aided a

nd abetted a

ny person to commit specific acts or omissions that are within the scope of the conduct made unlawful by § 1592(a) (1)( A) . . . .” Id. at __, Slip Op. 09-49 at 12. The or der issued in Scotia Pharmace uticals allowed plaintiff sixty day s to file an ame nded complaint as a matter of c ourse and informe d plaintiff that fa ilure to do so would result in an orde r to show ca use why the ca se should not be dismis sed. Id. at __, Slip Op. 09-49 at 14. The or der a lso dismi ssed the complaint, at plaintiff’s r equest, with re spect to two def endants upon whic h plaintiff had not obtained service of proc ess, Scotia Pharmac euticals L imited and Quantanova , Canada , L td. Id. at __, Slip Op. 09-49 at 14. B. Proc eeding s Conducted upon the F irst Amended Complaint Plaintiff filed its First Amended Complaint on J uly 31, 2009, seekingto rec over a civil penalty from Callanish base d on an alleg ation that “Callanish introduce d, or aide d or abe tted the entry or introduction of the me rcha ndise, or the attempt to enter or introduc e the mer chandise

. . . into the commerc e of the United States by means of f

raud a nd in violation of 19 U.S.C. § 1592.”Court No. 03- 00658 P age 4

First Amende d Compl. ¶ 92. Pl aintiff soug ht “a pe nalty in the amount of $17,734,926, which repr esents the domestic va lue of the me rcha ndise imported under

cover of the 52 c onsumption entries . . . .” Id. ¶ 93. Plaintiff filed on January 8, 2010 a status re port notifying the court that plaintiff was a

ble to obtain service of proc ess by servingthe Fir st Amended Complaint on the liquidator of Callanish. Pl.’s St atus Report (Jan. 8, 2010), ECF. No. 20. T he Clerk of the Court enter ed Callanish’s def

ault on May

17, 2010, afte r which pla intiff applied, a se cond time, for a judgme nt by

defa ult. Pl .’s Request for

Def ault J . as to Callanish L td. (May 19, 2010), ECF No. 23. The c ourt denied pla intiff’s application for a de fault judg ment in its opi nion and orde r in Callanish , 34 CI T at __, Slip Op. 10-124 at 7. The c ourt conc luded that plaintiff had f ailed to set forth in the F irst Amended Complaint, as a “ well-pled f act,” the domestic value of the

merc handise. Id. at __, Slip Op. 10-124 at 7. The c ourt stated in Callanish that “the domestic value of the merc handise is a f

act e ssential to the court’s de novo deter mination of the amount of any penalty” but that “[t] he complaint lac ks any well-pled f

act c oncer

ning the domestic value of the merc handise or how

that value wa s determined.” Id. at __, Slip Op. 10-124 at 6-7. The court stated that “[t] he mer e alleg ation of an a mount offer ed as the ‘domestic value ,’ abse nt any thing more, doe s not constitute a well-pled f act,” id. at __, Slip Op. 10-124 at 7, and obser ved that the domestic value of

the merc handise a s pled in the First Ame nded Complaint appea red to have been de rived “ by

doubling the a

mounts for enter ed value as set for th on entry

summaries for

the importations that are the subject of this ac tion,” id. at __, Slip Op. 10-124 at 7 n.3. In denying the application for a de fault judg ment, the cour t specified that “unless plaintiff moves within six ty (60) da y s . . . for lea

ve to file a

n amende d complaint, plaintiff, upon entry of a f urther or der,Court No. 03- 00658 P age 5

shall be re quired to show ca use why a judg ment should not be entere d dismiss ing this ac tion.” Id. at __, Slip Op. 10-124 at 7.

C. The Instant Application for Judgment by Def ault ag ainst Callanish Plaintiff filed what it desig nated the Sec ond Amended Complaint on Dec ember 22, 2010. Second Amende d Compl. (Dec. 22, 2010) , ECF No. 25. Plaintiff ef fec ted servic e of this document upon the liquidator of Ca llanish on J anuar y 12, 2011. Pl.’s Request for Entry of Def ault 1 (Mar . 3, 2011), ECF N o. 26. On Marc h 24, 2011, the Clerk of the Court entere d Callanish’s defa

ult. Order ( Mar. 24, 2011) , ECF No. 27. Plaintiff filed the instant application for a defa ult judgment on May

12, 2011. Pl.’s Request for De fault J. as to C allanish L td. (May 12, 2011), ECF N o. 28. II. D I S C U S S I O N Section 201 of the Customs Courts Act of 1980, 28 U.S.C. § 1582(1) (2006), grants the court jurisdiction over this ac tion to recove r a c ivil penalty under se ction 592 of the Ta riff A ct. Under section 592, the c ourt deter mines all issues de novo , including the amount of any penalty

. 19 U.S.C. § 1592(e)(1) . Section 592(c) (1) limits any penalty rec overy to “an amount not to exceed the dome stic value of the merc handise.” Id. § 1592(c) (1). The c ourt conc ludes, first, that plaintiff has not c omplied with the order the court issued in Callanish . In denying the application for a def ault judgme nt, the court spec ified in Callanish that “unless plaintiff moves w ithin si x ty (60) da y s . . . for lea

ve 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 enter ed dismissing this action.” 34 CI T at __, Slip Op. 10-124 at 7. Rather tha n move for leave to file an amended c omplaint, plaintiff filed the Second Amended Complaint as a matter ofCourt No. 03- 00658 P age 6

course . Under

USCI T Rule 15(a) as in eff ect on that date, plaintiff could amend its complaint as a matter of cour se only

once, a nd havingalre ady

done so on Jul y

31, 2009, was not authorized by the Court’s rules to do so ag ain. 1 I t is appare nt from the cir cumstance s that plaintiff filed its Second Amende d Complaint in an attempt to comply

with the order

in Callanish and would have complied but for a misint erpr etation of the Court’s r ules or the c ourt’s orde r. F or these r easons, the c ourt, in its discretion, conside rs the filingof the Sec ond Amended Complaint as a motion submitted under USCI T Rule 15(a) for lea ve to amend the complaint. The c ourt g rants this motion and acc epts the Second Ame nded Complaint as filed. The c ourt furthe r conc ludes that the def ect identifie d in Callanish has not bee n cure d. As

a re sult, the court re mains “unable to determine the corr ect de cision on the basis of the e vidence prese nted.” 28 U.S.C. § 2643(b) ( 2006). In Callanish , the cour t was unable to make a pr oper deter mination of the domestic value of the merc handise ba sed on the c omplaint and the motion for de fault judg ment then bef ore the court. Callanish , 34 CI T at __, Slip Op. 10-124 at 7. The court noted that “[t] he ame nded complaint see ks a pena lty of $17,734,926, which pla intiff alleg es to be the domestic va lue of the f ifty -two consumption entries of [evening primrose oil] that it alleg es to have been f

raudule ntly

imported . . . .” Id. at __, Slip Op. 10-124 at 6. The F irst Amended Complaint, howeve r, off ere d only a “c onclusory

statement of the dome stic value” on which the c ourt could not rely in rea chinga dec ision on the appropriate amount of a ny civil penalty

. Id. at __, Slip Op. 10-124 at 7. Any defa ult judgment for

a civil pena lty

under se ction

USCI T Rule 15(a) was amended, e ffe ctive January 1, 2011, in way s not pertinent to the 1 question prese nted her e.Court No. 03- 00658 P age 7

592 must be g rounded in a deter mination of domestic value be cause the domestic value of the

merc handise is a statutory limit on any

penalty rec overy . See19 U.S.C. § 1592(c)(1)

. The Sec ond Amended Complaint adds to the F irst Amended Complaint a sing le para g raph, pa

ragraph 88, a ddressingthe question of the domestic va lue of the imported

merc handise. Sec ond Amended Compl. ¶ 88. The para g raph state s as follows: Customs appra ised the merc handise re fer ence d in para g raphs 18 through 84 in acc ordanc e with law. See 19 U.S.C. § 1606; 19 C .F.R. § 162.43(a ). The a ppraisal workshee t signe d by

the re levant Customs officer is included in the Appendix at A159-164. F or ea ch entr y , the domestic value of the mer chandise was limited by Customs policy

to no more than twice the enter ed value of the mer chandise ; for ea ch entry , the domestic value was c alculate d by multipl ying the enter ed value of the merc handise by

two. The total domestic value of Entries 1 through 53, excluding Entry 2 for whic h Plaintiff no longe r see ks a pena lty , is $17,734,926. Id. This para g raph c oncludes by listi ng , in separate subpara g raphs, the a lleg ed domestic va lue of the merc handise that is the subjec t of ea ch entr y at issue in this case. Id. ¶ 88(a )-( aaa ). The Ta riff A ct does not def

ine the ter m “domestic value of the mer chandise ” as use d in section 592(c )(1) , 19 U.S.C. § 1592(c)(1) . The Sena te Report ac company

ing the Customs Procedur al Refor

m and Simpli fication Act of 1978, which e nacte d section 592(c )(1) in its current form, provide s that “domestic value is ge nera lly equivalent to re tail value . . . .” S. Rep. No. 95-778, at 19 (1978)

. The Ta riff A ct, in section 606, a pr ovision plainti ff c ites in paragraph 88 of the Second Amended Complaint, direc ts Cust oms to “determine the domestic value, at the time and place of appra isement, of any

vessel, vehic le, airc raf

t, mercha ndise, or bag g ag e seized under the customs laws.” 19 U .S.C. § 1606 (2006). In § 162.43(a) of the Customs regulations, Cust oms has define d the term “ domestic value” for pur poses of sec tion 606 as “the pric e at whic h such or simil ar pr operty

is free ly offe red f or sale at the time and place of appr aisement, in the sameCourt No. 03- 00658 P age 8

quantity or quantities as seized, and in the or dinary course of trade .” 19 C.F.R. § 162.43(a ) (2003). Although the definition of “domestic va lue” in par ag raph ( a) of § 162.43 g overns 2 appra isal of seized proper ty , the Customs reg ulations apply this definition to property not under seizure, providingthat “[t] he basis for a cla im for forf

eiture va lue or for

an asse ssment of a penalty rela ting to the f

orfe iture value of prope rty not under seizure is the domestic va lue as define d in para g raph ( a) of this section, except that the value sha ll be fix ed as of the date of

the violation.” Id. § 162.43(b). The regulation lends further clar ity to the term “da

te of the violation” by

specify ing that “[in] the ca se of e ntere d merc handise, the date of the violation shall be the date of the e ntry , or the date of the f iling of the document, or the commission of the act formingthe basis of the c laim, whicheve r is later.” Id. The ter m “assessment of

a pena lty relating to the f

orfe iture value of prope rty ,” as use d in § 162.43(b), r easona

bly can be construed to a

pply to a deter mination of domestic value f or purposes of a dminist rative pe nalty assessment under

section 592(b) of the Ta

riff A ct, but a

narr ower rea ding is a lso plausible. In para g raph 88 of the Second Ame nded Complaint, 3 plaintiff, on beha lf of Customs, cites § 162.43(a) in support of the re prese ntation that “Customs appra ised the merc handise re fer ence d in para g raphs 18 through 84 in acc ordanc e with law.” The court may infer f rom the Second A mended Complaint that Custom s construes 19 C.F .R. § 162.43

The provision fur

ther states that “[i] f there is no market for the seized proper

ty at the 2 place of appr aisement, such va lue in the principa l market ne are st to the place of appra isement shall be re ported.” 19 C.F.R. § 162.43(a) (2003). Provisions of the Tariff

Act of 1930 othe r than sec tion 592, mostnotably section 596, 3 19 U.S.C. § 1595a (2006), a lso provide for pe nalty assessment. Section 596 provide s for both penalties a

nd forf eitures r elatingto imported mercha ndise. See19 U.S.C. § 1595a(b), (c ). Section 592 also provides for seizure and f

orfe iture, but seizure and f orfe iture ar e ava ilable under section 592 only

in limi ted situations. See19 U.S.C. § 1592(c)(11) (2006).Court No. 03- 00658 P age 9

to apply to an appr aisal to deter

mine domestic value f

or purpose s of pena lty

assessment under 19 U.S.C. § 1592(c)(1) . The c ourt defe rs to an ag ency ’s re asonable construction of its own regulation. See A merican Signature, I nc. v. U nited States , 598 F.3d 816, 827 ( Fe d. Cir. 2010) (“In g ener al, ‘[t] he ag ency ’s construc tion of its own regulations is of controlling we ight unless it is plainly err oneous or inconsistent with the re g ulation.’”) ( quoting Reizenstein v . Shinseki , 583 F.3d 1331, 1335 ( Fe d. Cir. 2009) (interna l quotation omit ted)). T he cour t concludes, the ref

ore, that the def

inition of “domestic value” as set for th in § 162.43(a) a

nd applied ac cordingto § 162.43(b) wa s binding upon Customs when Customs appraised the imported me rcha ndise for purposes of de termining domestic value in the a dminist rative pe nalty proce edingthat Customs conducte d under se ction 592(b) of the Tar iff Ac t. See Second Amende d Compl. ¶ 89. The re g ulation require d, inter alia , that Customs deter mine the domestic value of the eveningprimrose oil in the various e ntries ac cordingto the price at which the me rcha ndise or simil ar me rcha

ndise was f

ree ly offe red f or sale in the or dinary

course of trade . 19 C.F.R. § 162.43(a) . Paragraph 88 of the Second Ame nded Complaint does not alleg e spec ifically that such a pr ocedur e wa s followed; howeve r, it does contain a conclusion of law , stating that the appra isement “wa s in acc ordanc e with law” and citingas support 19 C.F.R. § 162.43(a ). Paragraph 88 a lleg es only one fa ct per

taining to the me thod of appra isal, stating that “ the domestic value w as calculated by multipl ying the enter ed value of the mer chandise by two.” Second Amende d Compl. ¶ 88. (emphasis adde d). The dif ficulty fac ing the court in dete rmining the domestic value from the f acts a lleg ed in the Second A mended Complaint is that paragraph 88 descr ibes a method of a

ppraiseme nt inconsistent with that required by § 162.43. Although the para g raph e x plains that “the domestic va lue of the me rcha ndise was limited by

Customs policy

to no more than twic e the e ntere d value of the merc handise,” this ex planation is unavailing

.Court No. 03- 00658 P age 10

Construed ac cordingto the standard e stablished by § 162.43(a) , such a policy can be only

a limit ation on appra isement, not a method of a ppraiseme nt. The “ appra isal workshee ts” to which re fer ence is made in para g raph 88 do not solve the problem fa cingthe cour

t. These doc uments are not incorporated into the Second Amende d Complaint, buteven ha d they been so inc orporated, they would not aid the cour

t in making the requisite finding . The wor ksheets consist of two doc uments, eac h titled “Rece ipt for Merc handise Seized,” with attac hed sche dules listing, inter alia , the dutiable value and the domestic value of

the merc handise on e ach of the fifty -two entrie s, set forth in amounts doubling the dutiable value s. Pl.’s Request for De fault J. as to C allanish L td. A159-A164 (Ma y 8, 2008), ECF No. 10. Ea ch docume nt contains a sig ned ce rtification that “this is a true and cor rec t appra isal.” These cer

tifications shed no lig ht on the method of appr aisement a nd, there fore , would not suffice as an a lleg ation that Customs followed the pr ocedur e of § 162.43. In this procee ding to r ecove r a c ivil penalty by defa ult judgment, the c ourt is not bound by the appr aisement Customs conducted on the importe d eveningprimrose oil duringthe administrative pena lty

proce eding

. See 19 U.S.C. § 1592(e)(1) (“N otwithstanding a ny other provision of law, in any

proce edingcommence d by the United States in the Court of International Trade for the r ecove ry

of any monetary penalty claimed unde r this section . . . all issues, including the amount of the pe nalty , shall be tried de novo”); USCI T R. 55(b)(2) (“The court may conduct he aring s . . . when to ente r or e ffe ctuate judgment it needs to . . . deter mine the amount of dama g es or other relief ”). F or the re asons identified, the c ourt is unable to enter judgme nt based on that a ppraiseme nt. Be cause it appear s to the court, base d on the fa cts as pled in the Second Amende d Complaint, t hat the only appra isal of the mer chandise available at this time was not conduc ted ac cordingto law, the cour t considers it unlikely

that the question of theCourt No. 03- 00658 P age 11

domestic value of

the merc handise will be re solved by further amendment of

the complaint. The court c onsiders it appropr iate to hold in abeyance any ruling on plaintiff’s application for a defa ult judgment pendingresolution of the a ppraiseme nt question. The cour t will order a f

urther administrative proc edure consisting of a new appra isal to determine the dome stic value of the

merc handise on the f

ifty -two entrie s at issue in this case. See 28 U.S.C. § 2643(b) (author izi ng the cour t to “order

such fur ther a dminist rative or

adjudicative pr ocedur es as the c ourt consider s

nece ssary to enable it to re ach the corr ect de cision.”); USCI T R. 55(b)(2)

.

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 Second Amende d Complaint and of plaintiff’s application for judgme nt by

defa ult, the court conc ludes that it is unable to enter judg ment in this action and that it is appropriate to orde r fur ther proc edure s. There fore , upon considera tion of all paper s and proce eding s here in, and upon due de liberation, it is hereby ORDERED that plaintiff’s filingof the Sec ond Amended Complaint on Dec ember 22, 2010, ECF No. 25, be , and her eby is, deemed to be a motion for leave to amend the complaint; it is further ORDERED that plaintiff’s motion for leave to amend the complaint be, and he reby is, GRANTED, a

nd the Second Ame nded Complaint is hereby acc epted f

or filingas of Dec ember

22, 2010; it is further ORDERED that plaintiff, as “ further administrative or a djudicative proc edure s” pursua nt to 28 U.S.C. § 2643(b), shall arra ng e for a new appra isal of the mer chandise imported on the fifty -two entrie s that are the subject of this ac tion; it is further ORDERED that plaintiff shall file with the cour t a re port of the ne w appr aisal no later than six ty (60) da y s from the date of this Opinion & Or der; it is further ORDERED that plaintiff’s application for a judg ment by defa ult be, and her eby

is, held in abeyance pendingfurther proce dures a s descr ibed her ein; and it is furtherCourt No. 03- 00658 P age 12

ORDERED that in that absenc e of a timely filing of a re port of a ne w appr aisal, plaintiff will be require d, throug h a subseque nt order, to show c ause why this case should not be dismiss ed pursua

nt to USC I T Rule 41(b). /s/ Timot hy C. St ance u Timothy C. St ance u J udg e Dated: F ebrua

ry 1, 2012 New Y ork, Ne w York