Slip Op. 12-

UNITED STATES COURT OF INTERNATIONAL TRADE

UNITED STATES, Plaintiff,

v. N ITEK ELECTRONICS, INC.,

Defendant. Before: Judith M. Barzilay, Senior Judge

Court No. 11-00078

[Motion to dismiss for lack of subject matter juri sdiction denied; motion to dismiss for failure to state a claim granted in part and denied in part.] April 13, 2012 Stuart F. Delery , Acting Assistant Attorney General; Jeanne E. Davidson , Director; Patricia M. McCarthy , Assistant Director; Delisa M. Sanchez , Commercial Litiga tion Branch, Civil Division, U.S. Department of Justice; and Eric P. Delmar , U.S. Customs and Border Protection, Of Counsel, for Plai ntiff United States. Baker & McKenzie, LLP ( William D. Outman, II , Michael E. Murphy , Kevin J. Sullivan ) for Defendant Nitek Electronics, Inc.

MEMORANDUM & ORDER BARZILAY, Senior Judge: Pl aintiff United States brings th is action pursuant to section 592 of the Tariff Act of 1930, 19 U.S.C. § 1592, seek ing recovery of lost duties (Count I), lost antidumping duties (Count II), and penalties ba sed upon negligence (Count III). Compl. ¶¶ 33- 39. Currently before the court is Defendant Ni tek Electronics, Inc.’s (“Defendant” or “Nitek”) motion to dismiss this action pursuant to USCI T Rule 12(b)(1) for lack of subject matter jurisdiction or, in the alternative, USCIT Rule 12(b)(5) for failure to state a claim. For the reasons below, the court denies Defendant’s Rule 12(b)(1) motion, deni es Defendant’s RuleCourt No. 11-00078 Page 2

12(b)(5) motion with respect to Counts I and II, and grants De fendant’s Rule 12(b)(5) motion with respect to Count III. I. Background On April 1, 2004, U.S. Customs and Border Protection (“Customs”) issued a letter to Nitek, pursuant to § 1592(d), demanding payment of duties allegedly owed on certain entries of gas meter swivels and gas meter nuts from the People’s Republic of China. Compl. ¶¶ 5, 20, Ex.

B. Customs claimed that the merchandise – entered between June 14, 2001, and March 22, 2004

– was misclassified under the U.S. Harmonized Tariff Schedule (“HTSUS”), resulting in lost duties. Compl. ¶¶ 6, 7, 8, Ex. B. Further, Cust oms alleged that Nitek failed to classify its merchandise as subject to the antidumping duty order Certain Malleable Iron Pipe Fittings From the People’s Republic of China , 68 Fed. Reg. 69,376 (Dep’t of Commerce Dec. 12, 2003) (notice of antidumping duty). Compl. ¶¶ 9, 20, Ex. B. On March 21, 2005, Customs issued a pre-pena lty notice alleging that Nitek “entered or attempted to enter pipe fittings into the commerce of the United States by means of material false statements and documents, and/or omissions.” Compl. Ex. E. Custom s alleged a “tentative culpability” of gross negligence and appended a list of the 38 pertin ent entries. Compl. Ex. E. Included with the pre-penalty notice was a stat ute of limitations waiver form, which Nitek subsequently executed. Compl. ¶ 23, Exs. E, F. Concurrently with these ongoing penalty pr oceedings, other importers of gas meter swivels and gas meter nuts brought an action in this Court challenging the antidumping duty

order. See Sango Int’l L.P. v. United States , 30 CIT 602, 429 F. Supp. 2d 1356 (2006) (“ Sango

International ”). In a letter dated April 1, 2005, Nite k requested that Customs suspend the penalty proceedings pending resolution of Sango International . Compl. ¶ 24, Ex. G. CustomsCourt No. 11-00078 Page 3

agreed to stay the proceedings in exchange for two subsequent waivers of the statute of limitations. Compl. ¶¶ 25, 29, Exs. H, I, K, L. After a series of remands, the U.S. Court of Appeals for the Federal Circuit (“Federa l Circuit”) issued a final decision in Sango International on June 4, 2009, sustaining the order. See Sango Int’l L.P. v. United States , 567 F.3d 1356 (Fed. Cir. 2009). Customs issued a final penalty claim ag ainst Nitek on February 24, 2011. Compl. ¶ 30, Ex. M. Customs again alleged a “tentative culpability” of gross negligence, but omitted from the appendix of subject entries six entr ies previously listed in the pre-pe nalty notice. Compl. Ex. M. Customs also informed Nitek that, absent agreement to an additional waiver of the statute of limitations, Nitek had seven days “t o file a petition for relief fro m the penalty issued.” Compl.

Ex. M. On March 3, 2011, counsel for Defendant file d a letter with Custom s stating that Nitek

had acted with reasonable care in classifying its merchandise and, in an effort to resolve the claim, offered to pay all duties owed. Def.’s Reply Ex. 1. 1 Plaintiff thereafter filed this action. II. Standard of Review A fundamental question in any action befo re the Court is whether subject matter jurisdiction exists over the claims presented. See Steel Co. v. Citizens for a Better Env’t , 523 U.S. 83, 94-95 (1998). “[W]hen a federal cour t concludes that it lacks subject-matter jurisdiction, the court must dismiss the complaint in its entirety.” Arbaugh v. Y&H Corp. , 546 U.S. 500, 514 (2006); see 13 Charles Alan Wright & Arthur R. Miller, Federal Practice and

Procedure § 3522 (3d ed. 2011) (“A federal court’s ente rtaining a case that is not within its

1 Defendant first brought this letterto the court’s atten tion in its reply brief. Def.’s Reply Ex. 1. Normally, the court will rely only on the comp laint and attachments thereto when deciding a Rule 12(b)(5) motion to dismiss. See Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322 (2007). Because this exhibit does not impact the court’s ultimate disposition, the court notes this letter solely for context.Court No. 11-00078 Page 4

subject matter jurisdiction is no mere technical vi olation . . . .”). The plaintiff bears the burden of establishing jurisdiction, see Norsk Hydro Can., Inc. v. United States , 472 F.3d 1347, 1355 (Fed. Cir. 2006), but, in deciding a Rule 12(b)(1) motion to dismiss, the Court accepts as true all uncontroverted factual allega tions in the complaint, Engage Learning, Inc. v. Salazaar , 660 F.3d 1346, 1355 (Fed. Cir. 2011). To survive a Rule 12(b)(5) motion to dismiss, “a complaint must contain sufficient

factual matter . . . to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads f actual content that allows the court to draw the

reasonable inference that the defendan t is liable for the misconduct alleged.” Id. (citing Twombly , 550 U.S. at 556). The plaintiff bears the burden of pleading the requisite fa cts, USCIT R. 8(a)(2) (“A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relie f.”), but the Court accepts as true all well-pled factual allegations and draws all reasonable inferences in favor of the plaintiff, Cedars-Sinai

Med. Ctr. v. Watkins , 11 F.3d 1573, 1584 n.13 (Fed. Cir. 1993).

III. Discussion A. Subject Matter Jurisdiction This Court has exclusive jurisdiction over any action by the United States to recover a penalty imposed for a violation of 19 U.S.C. § 1592. 2 28 U.S.C. § 1582(1). In a § 1592 recovery

2 Section 1592(a) provides that no person, “ by fraud, gross negligence, or negligence,” (A) may enter, introduce, or attempt to en ter or introduce any merchandise into the commerce of the United States by means of-- (i) any document or electronically transmitte d data or information, written or oral statement, or act which is material and false, or (ii) any omission which is material, or (B) may aid or abet any other pers on to violate subparagraph (A). § 1592(A).Court No. 11-00078 Page 5

action, however, the Court “shall, where appropria te, require the exhaustion of administrative remedies,” 28 U.S.C. § 2637(d); United States v. Rotek, Inc. , 22 CIT 503, 508 (1998) (not reported in F. Supp.) (“ Rotek ”), the detailed procedures for which Congress enacted in § 1592(b),

see § 1592(b). It is also well establ ished that § 2637(d) grants the court the discretion to waive § 1592(b) exhaustion in appr opriate circumstances. See , e.g., Agro Dutch Indus. Ltd. v. United

States , 508 F.3d 1024, 1029 (Fed. Cir. 2007); Rotek , 22 CIT at 508. Defendant argues that Customs failed to perf ect its penalty claim via the administrative process in § 1592(b) and that, as a result, the court lacks jurisdicti on over this action. Def.’s Br. 8; Def.’s Reply 4-8. Defendant concedes (as it mu st) that exhaustion in th is case is discretionary but argues that Plaintiff has faile d to demonstrate that a waiver of exhaustion is appropriate and that jurisdiction therefore cannot attach. Def.’s Reply 6. Dismissal based upon a lack of subject matter jurisdiction concerns the court’s power to hear a case rather than the part ies’ ability to seek relief. Landgraf v. USI Film Prods. , 511 U.S. 244, 274 (1994). Thus, the court is guided by th e Supreme Court’s recent admonitions that courts be mindful of the “important distincti ons between jurisdictional prescriptions and claimprocessing rules . . . .” Reed Elsevier, Inc. v. Muchnick , 130 S. Ct. 1237, 1244 (2010) (“ Reed

Elsevier ”); Arbaugh , 546 U.S. at 511 (“On the subject-ma tter jurisdiction/ingredient-of-claimfor-relief dichotomy, this Court and others have b een less than meticulous.”). In particular, these holdings have emphasized the precept that “whe n Congress does not rank a statutory limitation on coverage as jurisdictional, cour ts should treat the restriction as nonjurisdictional in character.” Arbaugh , 546 U.S. at 516; see United States v. Robert E. Landweer & Co. , 36 CIT __, ___, 816 F. Supp. 2d 1364, 1368-69 (2012) (“ Landweer ”) (“[T]he court presumes that exhaustion is nonjurisdictional unless Congress has stated in sw eeping and direct languag e (i.e., in clear andCourt No. 11-00078 Page 6

unequivocal terms) that there is no subject matter ju risdiction prior to exhaustion.” (citing

Avocados Plus Inc. v. Veneman , 370 F.3d 1243, 1248 (D.C. Cir. 2004)). In Reed Elsevier , the Court found nonjurisdictional a stat utory precondition that “is not clearly labeled jurisdictional, is not located in a jurisdictio n-granting provision, and admits of congressionally authorized exceptions.” Reed Elsevier , 130 S. Ct. at 1247; accord Ford Motor Co. v. United States , 635 F.3d 550, 556 (Fed. Cir. 2011). As an initial matter, § 1592(b) is neither cl early labeled jurisdictional nor located in the provision granting the Court juri sdiction over these penalty claims, § 1582(1). Applying the guidance in Reed Elsevier , the court finds that these consid erations strongly counsel against treating § 1592(b) as jurisdictional. Further undermining Defendant’s argument, § 1592(b) is subject to a congressionally authorized exception. “[S]ubject-matter jurisdicti on, because it involves a court’s power to hear a case, can never be forfeited or waived.” Arbaugh , 546 U.S. at 514 (citation and internal quotation marks omitted). As noted, the court is empowered to waive § 1592(b) exhaustion pursuant to § 2637(d), which precl udes a finding that these administ rative penalty procedures are jurisdictional prerequisites to suit. 3 The court therefore agrees w ith previous decisions by this Court holding that § 1592(b) e xhaustion is nonjurisdictional, Rotek , 22 CIT at 508-09; cf.

Landweer , 36 CIT at ___, 816 F. Supp. 2d at 1372 (exa mining exhaustion pursuant to 19 U.S.C.

3 Indeed, the Federal Circuit and this Court have repeatedly f ound that administrative processes subject to § 2637(d) are nonjurisdictional in asmuch as the statut e renders exhaustion discretionary. See , e.g., United States v. Priority Prods., Inc. , 793 F.2d 296, 300 (Fed. Cir. 1986); Wuxi Seamless Oil Pipe Co. v. United States , 35 CIT __, ___, 780 F. Supp. 2d 1337, 1341 n.5 (2011); Hartford Fire Ins. Co. v. United States , 31 CIT 1281, 1284 n.8, 507 F. Supp. 2d 1331, 1334 n.8 (2007) (“It is somewhat unclear w hy the government is relying on 28 U.S.C. § 2637(d) in support of its USCIT R. 12(b)(1) mo tion, as section 2637(d) is discretionary, not jurisdictional.”); San Vicente Camalu SPR de RI v. United States , 31 CIT 599, 609, 491 F. Supp. 2d 1186, 1197 (2007).Court No. 11-00078 Page 7

§ 1641), denies Defendant’s Rule 12(b)(1) mo tion, and exercises jurisdiction pursuant to § 1582(1). B. Plaintiff’s Penalty Claim It remains, therefore, for the court to decide whether Plaintiff has exhausted the administrative remedies required for its penalty cl aim and, if not, whether a waiver of exhaustion is appropriate. This entails a close examin ation of the Congressiona l statute setting up the administrative process which may lead to the fili ng of a penalty action in this Court. Section 1592(b) provides that “[i]f [Customs] has reasonab le cause to believe there has been a violation of subsection (a),” it first must issue a pre-penalty notice that, inter alia , “specif[ies] all laws and regulations allegedly violated” a nd “state[s] whether the alleged vi olation occurred as a result of fraud, gross negligence, or negligence.” § 1592(b )(1)(A)(iii), (v). In addition, the pre-penalty notice must “inform [the subject of the notice] that he shall ha ve a reasonable opportunity to make representations, both oral and written, as to why a claim for a monetary penalty should not

be issued in the amount stated.” § 1592(b)(1)(A)(vii). “After considering re presentations, if any, made by the person concerned,” Customs must th en issue a penalty claim if it determines a violation has occurred. § 1592(b)(2). The pena lty claim must “specify all changes in the information” Customs provided in the pre-penalty notice. Id. Following the penalty claim, the liable party may seek remission or mitigation of the penalty by filing a petition with Customs pursuant to 19 U.S.C. § 1618. Id. “At the conclusion of any proceeding under such section 1618, [Customs] shall provide to the person concer ned a written statement which sets forth the final determination and the findings of fact and conclusions of law on which such determination

is based.” 4 Id.

4 The parties contest whether the statute requires Customs to issue a written statement if the importer does not file a § 1618 pe tition and, if not, whether N itek’s letter dated March 3, 2011,Court No. 11-00078 Page 8

Notably, applicable regulations instruct that prior to receipt of a § 1618 petition “the appropriate Customs field officer will cancel any such formal [§ 1592] claim whenever it is

determined that an essential element of the a lleged violation is not established by the agency record, including pre-penalty and penalty responses provided by the alleged violator.” 19 C.F.R. § 171, App. B(F)(2)(d). Once a party files a § 1618 petition, however, “j urisdiction over the action rests with Customs Headquarters incl uding the authority to cancel the claim.” Id. Properly framed, § 1592 creates a cause of ac tion for the United States to recover a penalty claim. See § 1592(e) (outlining parameters of “any proceeding commenced by the United States in [this Court] for the recovery of any monetary pena lty claimed under this section”); § 1582(1) (granting th e Court jurisdiction to hear an action by the United States “to

recover a civil penalty” (emphasis added)). It follows that the “Court’s stat utory role is not to impose penalties . . . but rather to decide whether to permit recovery of penalties the government has already imposed.” United States v. UPS Customhouse Brokerage, Inc. , 34 CIT __, ___, 686 F. Supp. 2d 1337, 1346 (2010) (emphasis in original) (discussing recovery pursuant to § 1641). Defendant argues that Plaintiff failed to perfect its penalty claim prior to instituting this

action. Def.’s Br. 4-5. Defendant avers that Count III of Plaintiff’s complaint constitutes a newly raised, non-exhausted claim inasmuch as Pl aintiff is seeking to recover a penalty based upon a degree of culpability (negligence) that differs from that alleged at the administrative level (gross negligence). Def.’s Br. 4- 5. Plaintiff responds that it ad equately perfected the penalty claim below by alleging that Nitek introduced the subject merchandise into the United States by

means of a material false statement or omission. Pl.’s Resp. 14. Plaintiff further suggests that

constitutes such a petition. Def.’s Br. 6-7; Pl.’s Resp. 16-18; Def.’s Reply 10-13. Defendant also argues that Plaintiff’s failure to list six cove red entries in the penalty notice bars recovery of any penalty based upon importation of those entries. Def.’s Br. 5-6. As the court finds that Plaintiff did not otherwise perfect its penalty cl aim, the court will not address these issues.Court No. 11-00078 Page 9

the level of culpability alleged below is immate rial to whether Customs perfected the claim. Pl.’s Resp. 13.

This court addressed a similar issue in United States v. Optrex , 29 CIT 1494 (2005) (not reported in F. Supp.) (“ Optrex ”). There, the court rejected the government’s USCIT Rule 15(a) motion to add to its complaint penalty claims for fraud and gross negligence where Customs alleged only negligence in the underlying administ rative proceedings. The court reasoned as

follows: The language of section 1592 evidences that the level of culpabil ity forms the core around which the government must construct each penalty claim it wishes to bring: Each level of culpability generates a new separate claim. Subsection 1592(b) makes the level of culpability an essential el ement of the “violation” for which a “penalty” is claimed. Optrex , 29 CIT at 1498-99; see id. at 1502 (“The level of culpability is an inextricable part of a particular penalty claim issued pursuant to sect ion 1592(b)(2) . . . .”). In so holding, the court highlighted that § 1592(b) requires the pre-penalty notice and penalty claim to “state whether the alleged violation occurred as a result of fraud, gross negligen ce, or negligence.” Id. at 1498 (quoting § 1592(b)(1)(A)(v)); see § 1592(b)(2) (mandating that the penalty notice “specify all changes in the information provided under clauses (i) through (vi)” of § 1592(b)(1)(A)). While § 1592(e) subjects these penalty claims to de novo review, the court foun d that this “standard

refers to the issues in the c ontext of a specific claim based on one of three types of section 1592

violations and does not allow the court to review entire ly new penalty claims.” Optrex , 29 CIT at 1500; accord United States v. Ford Motor Co. , 463 F.3d 1286, 1298 (Fed. Cir. 2006) (citing with favor the holding in Optrex that “effectively limited the de novo review provided for in § 1592(e) to those issues considered in the proceedings before Customs”). The court sees no reason to apply the stat ute differently in this case. Section 1592 mandates that Customs perfect a penalty claim pr ior to seeking recovery in this Court and aCourt No. 11-00078 Page 10

distinct level of culpability cr eates the nucleus around which that claim forms. Customs did not seek to impose a penalty on Nite k for negligence at the administra tive level and, as a result, the

administrative claim for which Customs is s eeking recovery simply does not exist. Plaintiff attempts to distinguish Optrex by noting that in that case the government sought

to add claims for higher levels of culpability than what Cu stoms asserted at the administrative level, rather than lowering the level of culpability in its comp laint, as the government does here. 5 Pl.’s Resp. 15. In support of its position, Plaintiff argues that [t]he only difference between a negligent violat ion and a violation deemed to be grossly negligent is that a grossly negligent violati on results from an act or acts (of commission or omission) done with actual knowledge of, or wanton disregard for, the relevant facts and with indifference to or disregard for th e offender’s obligations under the statute. Thus, the threshold for alleging negligence is embedded within the threshold for alleging gross negligence. Accordingly, when Cu stoms issued the pre-penalty notice and disclosed to Nitek that it was contemplating a penalty gr ounded in gross negligence, Customs placed Nitek on notice of the elemen ts for a penalty grounded in negligence.

. . . . In short, in giving notice of the claim for a penalty grounded in gr oss negligence through the administrative process, the Government also gave notice of the elements upon a claim grounded in negligence. Pl.’s Resp. 14-16 (internal citation omitted). The court will not endorse this argument. “Proper exhaustion demands compliance with . . . critical procedur al rules because no adjudicative system can function effectively wi thout imposing some orderly structure on the course of its proceedings.” Woodford v. Ngo , 548 U.S. 81, 90-91 (2006). Plaintiff relies heavily on its contention that Customs placed Nitek on noti ce of the elements of a negligence claim by alleging a higher level of culpabil ity, but fails to demonstrate that such constructive notice is all

5 As Plaintiff notes, Optrex also differs from the instant action in that the government there sought to add additional claims, pursuant to Rule 15(a), ra ther than changing the level of culpability of a claim imposed below. Pl.’s Resp. 15 (citing Optrex , 29 CIT at 1496). In light of the applicable statutory regime, however, this proves to be a distinction without a difference. By alleging a level of culpability different from th at alleged below, the government here (as in Optrex ) is asserting an entirely new claim.Court No. 11-00078 Page 11

§ 1592 requires for successful exhaustion. Conspic uously absent from Plai ntiff’s argument is any reference to § 1592(b) and th e applicable requirements therei n, and Plaintiff cites no other statute, regulation, or precedent (nor any authorit y from what it might consider comparable areas of law) that support this interpretation. 6 Moreover, the statute clearl y requires more: Customs is to articulate a level of culpability in the pre-penalty notice and ther eafter indicate any change in that culpability in the final penalty claim. See § 1592(b)(1)-(2). The cour t will not ignore these explicit statutory instructions. Even assuming that Customs had placed Nitek on notice of the elements necessary to establish negligence (a ch aritable posit), the stat ute would still not be satisfied. At a minimum, before seeking recove ry of a penalty imposed at a different (even lower) level of culpability than that alleged in the pre-penalty phase, Customs is to notify a potential defendant of that cha nge in the penalty claim. Cust oms did not do so in this case. 7

6 Most strikingly, Plaintiff doe s not discuss § 1592(b)(1)(A)(v), which requires the pre-penalty notice to “state whether the alleged violation occurred as a re sult of fraud, gross negligence, or negligence.” Instead, Plaintiff relies solely on United States v. Jean Roberts of Cal., Inc. , 30 CIT 2027 (2006) (not reported in F. Supp.) (“ Jean Roberts ”), which is inapposite. The court in Jean Roberts addressed a penalty claim in which Customs specifically stated that the importer would be subject to a penalty in the am ount of two times the lost revenue, but, apparently in error, listed a dollar amount equal to the lost revenue. Id. The court found that despite this error the government could seek recovery for a pe nalty two times the lost revenue. Id. Though Plaintiff truncates its explanatory parenthetica l to omit this fact, the court in Jean Roberts characterized Optrex as relying not only on “the necessity of ad equate notice” but also on the § 1592’s purpose of affording importers the opportunity to resolv e penalty claims at the administrative level, id. at 2035, and distinguished the two holdings accordingly. The error addressed in Jean Roberts is thus a far cry from the question at hand: whet her Customs can seek recovery on a level of culpability it did not allege below.

7 The court does not ascribe any significance to the fact that Customs describes the level of culpability alleged in the pre-pena lty notice and penalty claim as “ten tative.” Compl. Exs. E, M. Nitek received notice only of a clai m for gross negligence – in fact , the record is devoid of any reference by Customs to a level of culpability other than gross negligence – and Customs’ mere use of the term “tentative” does not act to mitig ate its statutory responsibilities under § 1592(b). Indeed, as the court notes infra , Customs has alleged in the altern ative culpability levels of both gross negligence and negligence in other pr oceedings and could ha ve done so here.Court No. 11-00078 Page 12

It follows that the court finds exhaustion appropriate under the circumstances. Section 2637(d) “indicates a congressional intent that, absent a strong contrary reason, the court should insist that parties exhaust their remedies be fore the pertinent administrative agencies.” Corus

Staal BV v. United States , 502 F.3d 1370, 1379 (Fed. Cir. 2007). The Court has identified certain limited exceptions in which waiver is appropriate, see Jiang Brother Fastener Co. v.

United States , 34 CIT __,___, 751 F. Supp. 2d 1345, 1356 (2010) , and a plaintiff must “show that it exhausted its administrative remedies, or th at it qualifies for an ex ception to the exhaustion

doctrine.” Consol. Bearings Co. v. United States , 348 F.3d 997, 1003 (Fed. Cir. 2003). Here as well, Plaintiff fails to identify any applicable exception to the exhaustion requirement, nor even request a waiver, despite recognizi ng that § 1592(b) exhaustion is discretionary. Pl.’s Resp. 13. Because Plaintiff has made no effort to persua de the court to abandon a presumption favoring exhaustion, the court deems the issue waived. Regardless, the court believes that § 1592 precludes a waiver of exhaustion in this case. Contrary to Plaintiff’s position, Congress designed § 1592 not merely to articulate the elements of the importer’s potential liability at trial, but also “to give an importer an opportunity to fully resolve a penalty proceeding before Custom s, before any action in this Court.” Optrex , 29 CIT at 1500 (citing S. Rep. No. 95-778, at 19-20 (1978)). Even a cursory reading of the statute indeed reveals that § 1592(b) twice gran ts importers “a reasonable oppor tunity” to address Customs’ allegations (following the pre-pena lty notice and in a § 1618 petiti on) and demands that Customs impose a penalty only after considering (and, in the case of a § 1618 petition, addressing) the importer’s representations. See § 1592(b)(1)-(2). Moreover, applicable regulations mandate thatCourt No. 11-00078 Page 13

Customs cancel a penalty claim if the agency record, including the importers’ submissions,

demonstrates the absence of a crucial element of the claim. 8 19 C.F.R. § 171, App. B(F)(2)(d).

To waive exhaustion in this context woul d force importers either to abandon the administrative opportunities for resolution th at § 1592 affords or, in composing their administrative responses, to guess at whether Customs will choose to allege a lesser culpability before the Court or indeed alter any of the statut orily prescribed factors that must be included in the pre-penalty notice and penalty claim. True, an importer could – as Nitek did, Def. ’s Reply Ex. 1 – respond to a claim of gross negligence by alleging that it exercised reasona ble care, an assertion (if true) that would sufficiently rebut an allegation of negligence as well. (Notably, Plaintiff did not take any action in response to Nitek’s assertion.) Even in this seemingly innocuous circumstance, though, the court cannot sanction the administration of a penalty scheme in which statutory prescriptions are ignored and importers are left with uncertainty re garding the level of culp ability the government will allege before the Court. 9 This approach would frustr ate the back-and -forth between

8 Indeed, this regulation presumably requires Cust oms to cancel a claim for gross negligence if the importer demonstrates in its submissions an absence of the requisite scienter (willful or wanton disregard), a crucial element of that claim. See Ford Motor Co. , 463 F.3d at 1292 (“[A] determination of gross negligence involves a determination of intent . . . .” (citation omitted)); see also 19 C.F.R. § 171, App. B(C)(2). That same showing, however, would not be sufficient to extinguish a claim for negligence, a level of cu lpability that does not require scienter. See , e.g., United States v. Optrex Am., Inc. , 30 CIT 650, 661 (2006) (not reported in F. Supp.). In light of this regulatory scheme, Plaintiff’s position (that alleging only gross negligence below automatically perfects a claim for negligence as well) seems, at best , counterintuitive.

9 In a rather puzzling mischaracterization of the law, counsel for Plaintiff asserts the following: “In an action brought for gross negligence or ne gligence, the Government must show that a material omission occurred, after which the burden shifts to the alleged violator to prove by a preponderance of evidence that reasonable care wa s exercised.” Pl.’s Resp. 14 (citing 19 U.S.C. § 1592(e)(4); United States v. Menard, Inc. , 16 CIT 410, 795 F. Supp. 1182 (1992)). This is not true. Section 1592(e)(3) provides th at “if the monetary penalty is based on gross negligence, the United States shall have the burden of proof to establish all the elements of the alleged violation.” § 1592(e)(3) (emphasi s added). By contrast, § 1592(e)(4) provides that “if theCourt No. 11-00078 Page 14

Customs and importers at the administrative le vel thereby inhibiting the resolution of penalty claims prior to suit, as § 1592(b) encourages . Conversely, nothing prevented Customs from bringing penalty claims for both negligence and gro ss negligence in th e alternative, as it has done in the past, see , e.g., United States v. Inn Foods, Inc. , 31 CIT 1474, 515 F. Supp. 2d 1347 (2007),

and the court is doubtful that it would have burdene d Customs (in any significant sense) to do so.

The court therefore finds that Pl aintiff’s penalty claim is barred. C. Plaintiff’s § 1592(d) Claims Finally, the court must address whether Cu stoms’ failure to exhaust administrative remedies bars its § 1592(d) claims as well. Defe ndant argues that Customs’ failure to issue a written statement pursuant to § 1592(b)(2) preven ts recovery of lost duties on the subject merchandise and, further, that Cust oms’ failure to list six entries in the penalty claim (previously listed in the pre-penalty notice) pr events recovery on those entries. Def.’s Br. 5-6; Def.’s Reply 2-4. Plaintiff responds that lost duties claims are not predicated on § 1592(b) exhaustion. Pl.’s Resp. 23-24; Pl.’s Surreply 8. Accordingly, Plainti ff also argues that its failure to list the six entries in the penalty no tice does not prevent recovery on thos e entries. Pl.’s Resp. 23-24. Section 1592(d) provides that “if the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of subsection (a) of this section, [Customs] shall require that such lawful duties, ta xes, and fees be restored, whether or not a monetary penalty is

assessed .” § 1592(d) (emphasis added). This subsect ion creates an independent cause of action,

United States v. Blum , 858 F.2d 1566, 1568-69 (Fed. Cir. 1988), a nd the “government’s right to recover unpaid duties under sec tion 1592(d) does not depend on its right to obtain penalties

monetary penalty is based on negligence, the Unit ed States shall have the burden of proof to establish the act or omission constituting the viol ation, and the alleged violator shall have the burden of proof that the act or omission did not o ccur as a result of neglig ence.” § 1592(e)(4).Court No. 11-00078 Page 15

pursuant to section 1592(c).” United States v. Jac Natori Co. , 108 F.3d 295, 299 (Fed. Cir. 1997) (citation omitted); see United States v. Inn Foods, Inc. , 560 F.3d 1338, 1348 (Fed. Cir. 2009) (noting that § 1592(d) action exists even if Customs chooses not to assess penalty (citing H.R. Rep. No. 95-621 at 16 (1977)). Relying on the above, the Cour t has previously held that the government need not exhaust admi nistrative remedies prior to seek ing recovery of lost duties. See United States v. Aegis Sec. Ins. Co. , 29 CIT 1263, 398 F. Supp. 2d 1354 (2005). Section 1592 does not provide any administrative process fo r imposing lost duty claims, see generally § 1592, and Defendant cites no authority (sta tutory or otherwise) that indicates § 1592(d) claims are subject to an exhaustion requirement. Plain tiff has alleged a violation of § 1592(a) that deprived the United States of la wful duties and antidumping duties, the payment for which Nitek is responsible. Compl. ¶¶ 6-19. These are “the essentia l elements of § 1592(d) liability.” Aegis Sec. Ins. Co. , 29 CIT at 1265, 398 F. Supp. 2d at 1356. Plaintiff thus states a plausible claim for recovery of duties lost on the entries listed in its complaint, see Iqbal , 556 U.S. at 678 (citing Twombly , 550 U.S. at 570), and the court w ill not dismiss this portion of the government’s case. IV. Conclusion For the reasons stated, it is hereby ORDERED that Defendant’s motion to dismiss pur suant to USCIT R. 12(b)(1) is denied;

it is further ORDERED that Defendant’s motion to dismiss Counts I and II pursuant to USCIT R. 12(b)(5) is denied; it is further ORDERED that Defendant’s motion to dismiss Count III pursuant to USCIT R. 12(b)(5) is granted; and it is furtherCourt No. 11-00078 Page 16

ORDERED that counsel for the parties shall confer and inform the court by May 14, 2012, how they intend to proceed in this matte r by filing a proposed joint scheduling order.

Dated: April 13, 2012 /s/ Judith M. Barzilay New York, NY Judith M. Barzilay, Senior Judge