Court Opinion

ID: 819322
Source: CourtListenerOpinion
Date Created: 2013-02-05 02:37:22.377756+00
Date Added: 2024-06-11T09:02:57.069353
License: Public Domain

Slip Op. 01-73

           UNITED STATES COURT OF INTERNATIONAL TRADE

UNITED STATES,

                 Plaintiff,
                                           BEFORE: Pogue, Judge
           v.                              Court No. 96-12-02853
NIPPON MINIATURE BEARING CORPORATION
and MINEBEA CO., LTD.,

                 Defendants.

[This slip opinion was previously issued as a memorandum opinion
and order dated December 14, 2000.    It is being published as a
precedential disposition pursuant to the Court’s June 19, 2001,
order granting Plaintiff’s motion to publish.]

                                               Decided: June 19, 2001

Stewart E. Schiffer, Acting Assistant Attorney General; David M.
Cohen, Director; A. David Lafer, Senior Trial Counsel; Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Michele D. Lynch); AnnMarie Highsmith, Office of the Chief
Counsel, United States Customs Service, Of Counsel; and Jeffrey B.
Whalen, Of Counsel, Attorney, Office of Regulations & Rulings,
United States Customs Service, for Plaintiff.*

Coudert Brothers (Steven H. Becker, Robert L. Eisen, Paul A.
Horowitz, Scott D. Schauf); Shaw Pittman (Jack McKay, Michele N.
Tanaka), for Defendants.

     *
      Ms. Lynch has in the meantime been substituted by Ada E.
Bosque as the attorney of record for the Plaintiff in this
action. Ms. Lynch appears in the caption because she wrote the
Plaintiff’s motion to publish and represented the Plaintiff when
the December 14, 2000 Memorandum and Order was issued.
                                  OPINION

Pogue, Judge: The following Memorandum and Order is in response to

Defendants’ letter dated November 20, 2000, requesting pretrial

rulings on specific issues briefed in the initial and supplemental

pretrial memoranda, and in view of the parties’ responses to the

Court’s December 5, 2000, request that the parties comment on how

the   Ninth     Circuit’s   decision     in     Nippon   Miniature   Bearing
Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.) 2000), affects

the proceedings before this Court. The purpose of these rulings is

to assist the parties in narrowing the issues for trial.

I.    The disclaimer in [Nippon Miniature Bearing ("NMB")] catalogs
      which reads as follows: "The company reserves the right to
      change the specifications and other information included in
      the catalog without notice."

      During the time period relevant to this dispute, NMB’s sales

catalogs contained one of two disclaimers regarding changes to the

products advertised in the catalogs.           The disclaimer in its long-

form catalogs distributed in 1986 and 1987 stated, "The company

reserves the right to change specifications and other information

included   in   this   catalog   without      notice."   See   Def.’s   Supp.

Pretrial Mem. at 3, Annex A.           The disclaimer in two short-form

catalogs dated August 1988 stated, "Specifications and data subject

to change without notice."       See id. at 3 n.3, Annex A.

      Defendants submit that "the disclaimers in [D]efendant NMB’s

catalogs effectively negate any alleged falsity in statements made

by [D]efendants to the U.S. Customs Service ("Customs"), and thus
the Court should dismiss the [P]laintiff’s case as [P]laintiff

cannot satisfy this legal prerequisite for liability under 19

U.S.C. § 1592 [("Section 592")]." Def.’s Supp. Pretrial Mem. at 1-

2. Defendants further argue that "from a ‘materiality’ standpoint,

in view of the disclaimers, Customs cannot legitimately claim even

to   have   been   misled   by   the   catalog   into   applying   inadequate

scrutiny to the bearings and their admissibility . . . ."             Id. at

5.   Plaintiff maintains, to the contrary, that "this language has

no effect upon the Government’s claims because the [D]efendants

cannot disclaim their legal obligation to report accurate and

complete information to Customs."         Pl.’s Supp. Pretrial Mem. at 2.

      As a preliminary matter, the Court notes that Defendant           NMB,

which issued the catalogs through its sales affiliate, first became

aware of the substitution of DD for 440C steel in July, 1987.

Consequently, the disclaimers contained in the August 1988 short-

form catalogsBthat is, those catalogs issued after NMB became aware

of the substitutionBcan have no effect on Defendants’ liability.1

A disclaimer reserving for the company the right "to change"

specifications between publications of sales catalogs does not, by

its language, reserve for the company the right to withhold, in any

subsequent publication, changes of which the company is aware. See

discussion of "400 series stainless steel" description infra.

      The issue of the effect of the disclaimer in the long-form

catalogs remains.     The Court turns first to Defendants’ claim that

      1
      We note that Minebea, the parent company of NMB, was aware
of the substitution during the entire period in dispute. We
decline at this point to decide the Hitachi liability issue
briefed by the parties.
the disclaimer negates any alleged falsity of its statements.

Assuming, arguendo, that Plaintiff prevails at trial on its claim

that the statements in the catalogs are statements made to Customs

as part of Defendants’ invoice, Defendants had an obligation under

19 U.S.C. § 1485(a)(4) to "produce to the appropriate customs

officer   any   invoice,   paper,   letter,   document   or   information

received showing that such . . . statements are not true or

correct."   A disclaimer might be effective as a general notice to

customers that the products offered in an advertisement may not be

available in the exact form advertised.       See Def.’s Supp. Pretrial

Mem. at 4 (citing Norton Tire Co. v. Tire Kingdom Co., 858 F.2d

1533 (11th Cir. 1988)).     A disclaimer is not, however, effective

against the statutory obligation to inform Customs that a statement

that was once trueBhere, that the bearings were composed of 440CBis

no longer true.2

     Moreover, the disclaimer does not prevent Plaintiff, as a

matter of law, from proving materiality.       Customs’ regulation, 19

C.F.R. Part 171 App. B(A), provides that a statement "is material

if it has the potential to alter the . . . admissibility of

     2
      The correctness of this conclusion is confirmed by the
effect courts have found disclaimers to have in other contexts.
For example, in contracts cases, a general disclaimer must yield
to a specific obligation contained in the contract, if the two
are inconsistent. See, e.g., Consolidated Data Terminals v.
Applied Digital Data Systems, Inc., 708 F.2d 385, 391 (9th Cir.
1983)(applying New York law to find that, "[w]here a contract
includes both specific warranty language and a general disclaimer
of warranty liability, the former prevails over the latter where
the two cannot be reasonably reconciled"). Similarly here, a
general disclaimer concerning the truth of statements made must
yield to the specific obligation contained in the statute to
guarantee the truth of statements made to Customs. See 19 U.S.C.
§ 1845 (requiring importer to make a "declaration under oath"
that all statements made are "true and correct").
merchandise . . . ."          19 C.F.R. Part 171 App. B(A) (1987).

Plaintiff bases its "materiality" claim on the argument that the

merchandise was potentially inadmissible due to a possible or

actual   Lanham    Act   violation    pursuant    to   15   U.S.C.   §    1125(a)

("Section 43(a)").       See Pl.’s Supp. Pretrial Mem. at 8.         In a case

involving another section of the Lanham Act, 15 U.S.C. § 1124, the

court explained that, "Although courts may also consider an alleged

infringer’s use of a disclaimer . . . the mere presence of a

disclaimer does not necessarily prevent customer confusion."                Ross

Cosmetics Distribution Centers, Inc. v. United States, 18 CIT 979,

987 (1994).   A statement that results in "consumer confusion" is

also a ground for finding a violation of Section 43(a).                    Thus,

whether or not the disclaimer would prevent a conclusion that the

statement was "literally false" under Section 43(a), a Customs

official   could    not,    upon     reading     the   disclaimer,       conclude

definitively that the merchandise would not result in customer

confusion and thus, would be admissible. This Court concludes that

the mere presence of the disclaimer does not, as a matter of law,

prevent Plaintiff from proving that Section 592 civil penalties are

owing.

II.   Customs’ receipt of information in September 1987 indicating
      that NMB was importing bearings composed of material other
      than 440C steel. Customs’ June 1, 1998, seizure of documents
      discussing the use of "DD" steel in bearings marked with the
      "SS" part number.

      Defendants imported the merchandise at issue between August 1,

1986, and February 27, 1989.         Defendants argue that there can be no

liability for a violation of Section 592 for at least part of that
period, because Customs had actual knowledge of the substitution of

DD steel for 440C steel from September 1987 onward.                      See Def.’s

Pretrial Mem. at 40.        Defendants allege that Special Agent William

Dean became aware of the use of DD steel in September 1987 from a

Customs informant; despite this knowledge, "he took no action with

respect    to   [D]efendants’      bearings."      See       id.    at   5   (¶    11).

Moreover, following a June 1988 raid of NMB’s offices, during which

Customs acquired more evidence of the substitution of DD steel for

440C steel, "Customs still took no action against [D]efendants’

bearings until seizure in January and February 1989."                    Id. (¶ 11).

According to Defendants, "Customs admitted millions of NMB bearings

with knowledge that they were made of DD steel."                   Id. (¶ 12).      The

legal significance of Customs’s knowledge, urge Defendants, is that

it negates Plaintiff’s theory of materiality: "once Customs learned

that [D]efendants had substituted steel in their bearings, it

cannot claim that it was somehow misled into not giving adequate

scrutiny    to        the   bearings     in   order     to      determine         their

admissibility."        See id. at 40-41 n.23.      More broadly, Defendants

suggest that, in order to prosecute under Section 592, Plaintiff

must   point     to    "reliance   by    Customs   on    the       allegedly      false

statement."      Def.’s Pretrial Mem. at 41 n.24, and cites therein.

       Defendants’      legal   theory   is   incorrect.       "Materiality"       for

purposes of Section 592 is determined without regard to whether the

importer’s false statement to Customs actually misled Customs, or

whether Customs actually relied on the false statement.                        See 19

C.F.R. Part 171 App. B(A)(a statement "is material if it has the

potential to alter the . . . admissibility of merchandise . . . or
if it tends to conceal an unfair trade practice . . . .")(emphases

added); United States v. Daewoo International, 12 CIT 889, 894, 696

F. Supp. 1534, 1540 (1988), vacated on other grounds, 13 CIT 76,

704 F. Supp. 1067 (1988)(false statements are material if they have

"a natural tendency to influence, or [were] capable of influencing,

the decision of [Customs] in making a determination required to be

made")(emphases added)(cites omitted); United States v. Holmquist,

36 F.3d 154, 161 (1st cir. 1994)(the focus of an inquiry into

materiality is not what effect a false statement actually may have,

but whether it has "the potential significantly to affect the

integrity   or   operation   of   the   importation    process   as   a

whole")(emphasis added).     This approach is in accord with the

fundamental principle that the burden is on the importer to provide

true and accurate information to Customs; the burden is not on

Customs to "find out" non-complying importers.        That Customs may

have known that NMB made false statements to Customs does not make

the statements either true or accurate, nor does it make the

statements not "material" as that term has been interpreted.

III. NMB’s distribution, in August 1988, of a catalog indicating
     that bearings with "SS" part numbers were made from 400 series
     stainless steel (as opposed to 440C steel as stated in earlier
     catalogs).

     Defendants further argue that there can be no liability for a

violation of Section 592 after August, 1988.      At that time, NMB

issued a revised short-form catalog indicating that bearings with

"SS" part numbers were made from a "400 series stainless steel."

See Def.’s Pretrial Mem. at 41.     The legal significance of this
revision, according to Defendants, is that it remedied any possible

violation of the Lanham Act by indicating to Customs that the

bearings were not made of 440C steel.        See id. at 41-42.

      Defendants’ argument cannot be accepted.        First, as 440C is

itself a "400 series stainless steel" pursuant to AISI standards,

Defendants simply cannot maintain that Customs should have known

from the catalog revision that the bearings were not composed of

440C.       And even if Customs should have known that the bearings were

not made of 440C, Customs could not have known from the description

"400 series stainless steel" that the bearings were made of DD.

Moreover, it is uncontested that DD is not recognized by the AISI,

see Second Amended Pretrial Order, Stmt. Uncontested Facts at ¶ 73;

thus, it is in a strict sense not true that DD is a "400 series

stainless steel," even if DD in fact meets the AISI criteria for

that series.       In sum, the description "400 series stainless steel"

does not by itself extinguish the possibility that Defendants

violated the Lanham Act.3

IV.     The effect of the Ninth Circuit’s decision in Nippon Miniature
        Bearing Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.)
        2000), on the proceedings before this Court.

        In a letter dated December 5, 2000, the Court asked the

parties to address the Ninth Circuit’s decision in Nippon Miniature

Bearing Corporation v. Weise, 230 F.3d 1131 (9th Cir. (Cal.) 2000)

        3
      In Pacamor Bearings, Inc. v. Minebea Co., Ltd., 918 F.
Supp. 491, 503 n.14 (D.N.H. 1996), the district court noted the
possibility that the representation "400 series stainless steel"
could be, if not "literally false," "susceptible to the alternate
§ 43(a) prong of ‘consumer confusion.’"
("NMB").     Specifically, the Court noted that the Ninth Circuit

distinguished between jurisdiction over claims related to Customs’

penalty assessment, and claims related to seizure. The Court asked

the parties to consult, and comment on how the Ninth Circuit’s

opinion affects the proceedings at this Court.

     In its comments of December 7, 2000, Plaintiff informed the

Court that the parties had consulted, and were unable to reach

agreement.       See Pl.’s Comments at 1.          The United States reiterated

its position "that the CIT has jurisdiction over the 926 entries

listed on Exhibit A to the Complaint but that it lacks jurisdiction

over the [D]efendants’ counterclaim which arises solely from the

nineteen shipments that were seized by Customs and which are not

included within the 926 entries."            Id.    In its comments of December

12, 2000, Defendants, without indicating agreement with Plaintiff’s

position,    did,      however,   decide     "to    voluntarily   withdraw   [the

counterclaim related to the nineteen shipments of seized ball

bearings] in order to narrow the issues for trial."                      Def.’s

Comments    at    2.     The   Court   has    reviewed    Defendants’   amended

schedules to the Pretrial Order, and will approve these amendments.

IT IS SO ORDERED.

                                                     Donald C. Pogue
                                                          Judge

Dated:      June 19, 2001
            New York, New York