Court Opinion

ID: 4458724
Source: CourtListenerOpinion
Date Created: 2019-11-25 17:01:51.054715+00
Date Added: 2024-06-11T14:51:36.469037
License: Public Domain

Slip Op. 19-147

                UNITED STATES COURT OF INTERNATIONAL TRADE

 UNITED STATES,

        Plaintiff,

        v.                                        Before: Jennifer Choe-Groves, Judge

 GREENLIGHT ORGANIC, INC., and                    Court No. 17-00031
 PARAMBIR SINGH “SONNY”
 AULAKH,

        Defendants.

                                           OPINION

[Granting Defendant’s motion to dismiss for failure to state a claim upon which relief may be
granted. Judgment will be entered in 45 days.]

                                                                   Dated: November 25, 2019

William Kanellis and Kelly Krystyniak, Trial Attorneys, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice, of Washington, D.C., for Plaintiff United States. With
them on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson,
Director, and Patricia M. McCarthy, Assistant Director.

Robert Silverman, Robert Seely, and Angela Santos, Grunfeld Desiderio Lebowitz Silverman &
Klestadt LLP, of New York, NY, for Defendant Parambir Singh Aulakh.

       Choe-Groves, Judge: Plaintiff United States (“Plaintiff” or “Government”) brings this

civil enforcement action against Greenlight Organic, Inc. (“Greenlight”) and Parambir Singh

“Sonny” Aulakh (“Aulakh”) (together, “Defendants”) to recover unpaid duties and fees and affix

penalties for violations of 19 U.S.C. § 1592(a) and (d) (2012). Summons, Feb. 8, 2017, ECF No.

1; First Am. Compl. ¶ 1, ECF No. 111 (“Am. Compl.”). The Government alleges that

“Greenlight, under the direction of Aulakh,” “knowingly made material false statements” about

the classification and valuation of “approximately 122 entries” of wearing apparel imported into
Court No. 17-00031                                                                             Page 2

the commerce of the United States. Am. Compl. ¶ 5. Defendant Aulakh moves to dismiss the

complaint under Rules 9(b) and 12(b)(6) of the United States Court of International Trade

(“USCIT”) for failure to state a claim upon which relief can be granted. Def.’s Mot. to Dismiss,

June 3, 2019, ECF No. 120 (“Def.’s Mot.”), and Mem. of Law in Supp. of Def.’s Mot. to

Dismiss (“Def.’s Mem.”), ECF No. 120-1.1 Plaintiff opposed Aulakh’s motion. Pl.’s Opp’n to

Def.’s Mot. to Dismiss (“Pl.’s Opp’n”), July 8, 2019, ECF No. 121. Aulakh replied. Reply

Mem. in Supp. of Def.’s Mot. to Dismiss (“Def.’s Reply”), July 29, 2019, ECF No. 122. For the

following reasons, Aulakh’s motion to dismiss is granted, and judgment will be entered if

Plaintiff fails to file an amended complaint within 45 days of the issuance of this opinion.

    I.   FACTUAL AND PROCEDURAL BACKGROUND2

         The Government asserts that at all relevant times, Aulakh was owner and president of

Greenlight, a California corporation with a place of business in Nevada. Am. Compl. ¶¶ 3–4.

Plaintiff alleges that from January 1, 2007 to December 31, 2011, “Greenlight, under the

direction of Aulakh,” misclassified and undervalued shipments of athletic wearing apparel into

the United States under cover of approximately 122 entries from a manufacturer in Vietnam. Id.

¶ 5. The Government alleges that “Greenlight, under the direction of Aulakh and other

Greenlight agents, falsely represented to CBP [U.S. Customs and Border Protection]” that the

1
  Greenlight does not join in Aulakh’s motion to dismiss.
2
  In deciding a Rule 12(b)(6) motion to dismiss, the court takes the facts alleged in the complaint,
and all reasonable inferences drawn from those facts, in the plaintiff’s favor. A & D Auto Sales,
Inc. v. United States, 748 F.3d 1142, 1147 (Fed. Cir. 2014); Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). In a Rule 12(b)(6) setting, the court may also consider documents “incorporated by
reference or integral to the claim, items subject to judicial notice, [and] matters of public record.”
A & D Auto Sales, Inc., 748 F.3d at 1147 (internal quotation marks and citation omitted).
Court No. 17-00031                                                                           Page 3

wearing apparel was comprised of woven materials even though the subject merchandise was

comprised of knitted materials subject to higher tariff levels under the Harmonized Tariff

Schedule of United States (“HTSUS”). Id. ¶¶ 6–7. The complaint asserts that “Greenlight,

Aulakh, and other Greenlight agents” “instructed the manufacturer of [the approximately 122]

entries to falsely state” that the wearing apparel was comprised of recycled polyester, instead of

first-run polyester. Id. ¶ 8. The Government alleges that misclassification of “approximately

122 entries of wearing apparel” resulted in Greenlight paying lower duty amounts than it would

have paid had the subject entries been classified correctly. Id. ¶ 9.

       When entering the wearing apparel, the Government argues that “Greenlight, under the

direction of Aulakh and other Greenlight agents,” understated the value of approximately 122

entries by taking the following actions: (1) creating and providing CBP a second set of invoices

understating the subject entries’ transaction costs, id. ¶¶ 10–12; (2) subtracting unsupported

freight and insurance costs, id. ¶ 13; and (3) failing to notify CBP that they “had supplied its

manufacturer source fabric materials for certain entries,” id. ¶ 14.

       CBP issued a pre-penalty notice to Greenlight on or about April 15, 2014, alleging that

the company’s violations were the result of fraud. Id. ¶ 18; Def.’s Mot., Ex. A. The pre-penalty

statement showed that the Section 1592 violation was for “Entries made through various Ports of

Entry during the period of July 18, 2007 through September 07, 2012.” Compare Def.’s Mot.,

Ex. A with Am. Compl. ¶ 5 (alleging that Defendants entered the subject merchandise between

January 1, 2007 and December 31, 2011).

       Just over two weeks later, then-counsel for Greenlight submitted to CBP a Freedom of

Information Act (“FOIA”) request on April 30, 2014. Def.’s Mot., Ex. B. Greenlight sought
Court No. 17-00031                                                                          Page 4

records that would aid in responding to the pre-penalty notice because Greenlight was unable to

discern what entries CBP found to be misclassified and how the agency calculated the duties and

fees owed. Def.’s Mot., Exs. B, F.

       While the FOIA request remained pending, Greenlight sought a 30-day extension in

responding to the pre-penalty notice on May 15, 2014. Def.’s Mot., Ex. C. CBP denied

Greenlight’s extension request that same day. Id. In denying the extension, CBP noted that

Greenlight had declined to execute a voluntary statute of limitations waiver and, even if

Greenlight had executed the waiver, CBP would only “consider” any extension request. Id.

Greenlight filed no response to the pre-penalty notice. Am. Compl. ¶ 20; Def.’s Mot., Ex. E.

       CBP issued Greenlight a penalty notice and duty demand alleging fraud the day after

denying the company’s extension request on May 16, 2014. Am. Compl. ¶ 21; Def.’s Mot., Ex

E.3 Absent a properly executed statute of limitations waiver, Greenlight had seven business days

to explain why the company should not pay the monetary penalty. Def.’s Mot., Ex. E.

Greenlight responded to the amended penalty notice on June 28, 2014. Def.’s Mot., Ex. F.

Greenlight informed CBP that it had received the payment demand and had appealed CBP’s

FOIA response with the aim of using the responsive records to ascertain how much Greenlight

could afford to pay. Id. Greenlight did not pay the duties or penalty owed. Am. Compl. ¶ 22.

3
 CBP’s penalty notice demanded payment of $238,516.56 in duties representing the actual loss
of revenue. Def.’s Mot., Ex. E. In the pre-penalty notice, CBP demanded a lower amount—
$217,968.22—as payment representing the actual loss of revenue. Def.’s Mot., Ex. A.
Court No. 17-00031                                                                               Page 5

 II.    LEGAL STANDARD

        To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient

factual matter . . . to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility

when the plaintiff pleads factual content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not

akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant

has acted unlawfully.” Id. Courts are not required to accept as true “legal conclusions” or

“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory

statements[.]” Id.; Kam-Almaz v. United States, 682 F.3d 1364, 1368 (Fed. Cir. 2012) (citations

omitted).

        Although intent or knowledge may be alleged generally, “the circumstances constituting

fraud” must be stated “with particularity[.]” USCIT R. 9(b); Exergen Corp. v. Wal-Mart Stores,

Inc., 575 F.3d 1312, 1326 (Fed. Cir. 2009). The plaintiff must inject factual precision or some

measure of substantiation, i.e., pleading in detail “the who, what, when, where, and how of the

alleged fraud.” Exergen, 575 F.3d at 1327 (citation omitted).

III.    DISCUSSION

        The Government seeks to recover a monetary penalty and unpaid duties under 19 U.S.C.

§ 1592(a) and (d) for Defendants’ importation of approximately 122 entries of athletic wearing

apparel into the United States. Am. Compl. ¶¶ 32–34 (Count I); ¶¶ 35–37 (Count II). Aulakh

moves to dismiss on two grounds: (1) administrative exhaustion and (2) failure to state a claim.

See Def.’s Mem. 8–23.
Court No. 17-00031                                                                               Page 6

            1. Exhaustion

        Aulakh argues that dismissal is warranted because Plaintiff failed to exhaust its

administrative remedies. Id. at 8–17. Aulakh contends that the Government failed to perfect its

penalty claim at the administrative level because CBP failed to identify with specificity the

subject entries, the alleged violations (i.e., value, misclassification, or assists), or each entry’s

loss of revenue calculation. Id. at 12. The Government responds that, even if true, any

deficiencies about CBP’s penalty process “would have no legal import because all issues,

including the amount of the penalty, shall be tried de novo.” Pl.’s Opp’n 11. Plaintiff then

argues that Aulakh had notice and opportunities to be heard because Aulakh participated in the

administrative penalty process on Greenlight’s behalf, authorized counsel to represent

Greenlight, and directed Greenlight’s FOIA application. Id. at 15.

        The exhaustion doctrine compels pursuing the prescribed administrative remedies before

seeking judicial review. United States v. Priority Prods., Inc., 793 F.2d 296, 300 (Fed. Cir.

1986)). “[T]he Court of International Trade shall, where appropriate, require the exhaustion of

administrative remedies.” 28 U.S.C. § 2637(d). “[E]xhaustion is not strictly a jurisdictional

requirement” and may be waived at the court’s discretion. United States v. Nitek Elecs., Inc.,

806 F.3d 1376, 1381 (Fed. Cir. 2015).

        To perfect its administrative penalty claim, CBP must issue pre-penalty and penalty

notices containing certain information. United States v. Jean Roberts, 30 CIT 2027, 2030 (2006)

(citing 19 U.S.C. §§ 1592(b)(1)–(2)). The pre-penalty notice must identify and describe the

subject entries, the laws and regulations violated, the material facts satisfying the alleged

violation, the assigned culpability determination (fraud, gross negligence, or negligence), the
Court No. 17-00031                                                                          Page 7

estimated loss of lawful duties and fees and amount of the proposed monetary penalty, and

inform the alleged violator of the opportunity to make oral and written representations as to why

the penalty claim should not issue in the amount stated. 19 U.S.C. § 1592(b)(1). If CBP finds

that a violation occurred, then the agency issues a penalty claim. 19 U.S.C. § 1592(b)(2). CBP

must then give the importer “a reasonable opportunity . . . to make representations, both oral and

written, seeking remission or mitigation of the monetary penalty.” Id. If the importer declines to

pay the penalty, then Plaintiff may file suit seeking satisfaction of the payment obligation. 19

U.S.C. §§ 1592(b)(2), (e)(2).

       Aulakh’s contention that Plaintiff failed to perfect the penalty claim at the administrative

level is without merit. The record reflects that Aulakh, represented by counsel, received notice

that CBP intended to assert liability against him for customs penalties owed by Greenlight and

was given notice and a right to be heard throughout the administrative penalty process. See Pl.’s

Opp’n, Exs. A–H; Def.’s Mot, Exs. A, E, F. The court affords no deference to CBP’s findings

because the facts and penalty amount are decided de novo on the record before the court. Nitek

Elecs., Inc., 806 F.3d at 1380 (“[I]f Customs determines that the importer violated [Section

1592] based on negligence, the court does not need to give any deference to Customs’ finding

that the importer was negligent.”).

           2. Sufficiency of the Allegations

       Aulakh avers that even if Plaintiff perfected its penalty claim at the administrative level,

the fraud allegations lack the requisite level of particularity. See Def.’s Mem. 17–22. Aulakh

finds fault with Plaintiff alleging generally that Aulakh directed Greenlight to knowingly make

material false statements as to the composition, value, and source of fabrics of wearing apparel.
Court No. 17-00031                                                                             Page 8

Id. Nowhere in the complaint does the Government identify the who, what, when, where, and

how supporting the fraud claim and, to that end, identify the entries for which Aulakh allegedly

directed the material false statements that perpetrated the fraudulent misclassification and

undervaluation scheme. Id. at 20. The Government responds by merely reciting the facts alleged

in the complaint, such as pleading the time of the affirmative misrepresentations (from January 1,

2007 to December 31, 2011), the fact that the subject merchandise involved approximately 122

entries of wearing apparel from a manufacturer in Vietnam, and that Aulakh made material false

statements aimed at misclassifying and undervaluing the subject merchandise. See Pl.’s Opp’n

17–21.

         To sustain a Section 1592(a) violation, Plaintiff must show that a person entered,

introduced, or attempted to enter or introduce merchandise into the United States by means of a

material and false statement, document or act, or a material omission. 19 U.S.C.

§ 1592(a)(1)(A)(i)–(ii); see United States v. Inn Foods, Inc., 560 F.3d 1338, 1343 (Fed. Cir.

2009). Entry or introduction of merchandise occurs when a person “bring[s] goods to the

threshold of the process of entry by moving goods into CBP custody in the United States and

providing critical documents[.]” United States v. Trek Leather, Inc., 767 F.3d 1288, 1299 (Fed.

Cir. 2014) (en banc). A statement, document, act, or omission is “material” if it had the potential

to “influence [CBP]’s decision in assessing duties.” United States v. Thorson Chem. Corp., 16

CIT 441, 448, 795 F. Supp. 1190, 1196 & n.9 (1992) (citing CBP regulation 19 C.F.R. Part 171,

Appendix B, which “define[s] a material statement as one which has the potential to alter the

classification or admissibility of merchandise, or the liability for duty”). Plaintiff bears the

elevated burden of proving fraud by clear and convincing evidence. 19 U.S.C. § 1592(e)(2).
Court No. 17-00031                                                                           Page 9

       In this case, the fraud allegations lack the factual precision or substantiation required

under USCIT Rule 9(b). Nowhere in or attached to the complaint does the Government identify

necessary and relevant information needed to substantiate a plausible fraud claim, such as

identifying with specificity the “approximately 122 entries of wearing apparel” at issue here, a

loss of revenue calculation, and the applicable HTSUS provision. See Am. Compl. ¶¶ 1, 5–7, 9.

And nowhere does Plaintiff identify or attribute to a specific Defendant who made what

statements that were false and material, or critically, the degree of each Defendant’s participation

in the fraudulent scheme. See, e.g., id. ¶¶ 7–10 (alleging that Aulakh directed Greenlight to

create two sets of invoices without identifying the extent of each Defendant’s involvement);

Def.’s Reply, Exs. H–M (reflecting invoices that were issued by vendors, not Greenlight).

Instead, Plaintiff combines Greenlight, Aulakh, and “and other Greenlight agents” together to

allege that they “knowingly made material false statements” about the classification and value of

the subject merchandise. See Am. Compl. ¶¶ 6–8, 10–16, 24 (alleging as a group that

“Greenlight, under the direction of Aulakh, and other Greenlight agents,” made false statements

aimed at misclassifying and undervaluing the subject merchandise).

       The complaint is replete with allegations that, because of his high-level role as

Greenlight’s owner and president, Aulakh must have directed Greenlight to make materially

false and misleading statements. Id. ¶ 6 (“Greenlight, under the direction of Aulakh and other

Greenlight agents, falsely represented to CBP” the composition of “approximately 122 entries of

wearing apparel”), ¶¶ 10, 12 (“Greenlight, under the direction of Aulakh and other Greenlight

agents, knowingly understated the value of the athletic wearing apparel by creating more than

one set of invoices for the same entries” and submitted invoices with understated transaction
Court No. 17-00031                                                                          Page 10

costs), ¶ 13 (“Greenlight, under the direction of Aulakh and other Greenlight agents, knowingly

deducted freight and insurance costs for the wearing apparel when . . . no basis existed”), ¶ 14

(“Greenlight, under the direction of Aulakh and other Greenlight agents,” undervalued the

subject merchandise when they “failed to notify CBP that it had supplied its manufacturer source

fabric materials for certain entries”), ¶ 16 (“Greenlight, under the direction of Aulakh, and other

Greenlight agents, made [ ] false statements to CBP regarding misclassification and

undervaluation knowing that [the statements] were false”). Absent adequate facts supporting the

fraud allegations, Plaintiff cannot impute knowledge to Aulakh merely by virtue of his position

of power and influence over Greenlight. See Exergen, 575 F.3d at 1327 & n.4.

       Plaintiff contends that a pre-Iqbal case, United States v. Rotek, Inc., 22 CIT 503 (1993),

provides support for meeting Rule 9(b)’s heightened pleading requirements. In Rotek, Inc., the

Court held that the plaintiff adequately pleaded a Section 1592 penalty claim based on a lower

culpability finding of negligence. Id. at 513. Plaintiff overlooks that this court must apply Iqbal-

Twombly plausibility pleading standards to “all civil actions,” with limited exceptions that are

not relevant in this case. Iqbal, 556 U.S. at 684; see also United States v. Nitek Elecs., Inc., 36

CIT 546, 548–49, 840 F. Supp. 2d 1298, 1302 (2012), aff’d 806 F.3d 1376 (Fed. Cir. 2015)

(reviewing a Section 1592 claim for plausibility under Twombly and Iqbal when ruling on a Rule

12(b)(6) motion to dismiss).

           3. Leave to Amend

       Without filing a motion to amend the complaint, Plaintiff nonetheless seeks leave to file a

more definite statement if the court finds the allegations to be pled inadequately. Pl.’s Opp’n 21
Court No. 17-00031                                                                           Page 11

(citing United States v. Koo Chow, 17 CIT 1372, 1377, 841 F. Supp. 1286, 1290 (1993)). The

court construes Plaintiff’s request as one seeking to leave to amend.

       A party may move for a more definite statement if the pleading “is so vague or

ambiguous that the party cannot reasonably prepare a response.” USCIT R. 12(e). Allegations

lacking sufficient factual detail may be cured through amendment “when justice so requires.”

USCIT R. 15(a)(2).4 Generally, courts should allow repleading if the complaint gives any

indication that a valid claim might be stated. A & D Auto Sales, Inc., 748 F.3d at 1158. Courts

have discretion to deny leave for certain reasons, including futility, bad faith, undue delay, or

undue prejudice to the opposing party. Id. (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).

In this case, the court will permit a curative amendment because it does not appear that

repleading the claims would be inequitable or futile.

           4. Greenlight Organic, Inc.’s Failures to Obtain Counsel, Plead, and Otherwise
              Defend Itself in this Action

       The court granted the motion of Greenlight’s counsel to withdraw its appearance in this

matter on February 27, 2019. Order, ECF No. 108. The court gave Greenlight 30 days to retain

substitute counsel and cautioned that a failure to obtain counsel would support entertaining a

motion for default judgment under USCIT Rule 55. Id. Over eight months later, Greenlight has

neither retained licensed counsel nor pleaded or otherwise defended itself in this action.

4
  The Rules of the Court are, to the extent practicable, in conformity with the Federal Rules of
Civil Procedure. The Rules of the Court at times deviate from the Federal Rules of Civil
Procedure when required to tailor the rules to the actions ordinarily brought before the Court.
See, e.g., USCIT R. 56.2. Except for minor differences in USCIT Rule 15(c)(2), USCIT Rule 15
is identical to Rule 15 of the Federal Rules of Civil Procedure.
Court No. 17-00031                                                                         Page 12

       “It has been the law for the better part of two centuries . . . that a corporation may appear

in federal courts only through licensed counsel.” Rowland v. California Men’s Colony, 506 U.S.

194, 201–02 (1993). In this case, absent action by Greenlight and as directed per this court’s

Order of February 27, 2019, Greenlight may be subject to potential consequences for its failure

to plead or otherwise defend, including an entry of default and entry of a default judgment.

USCIT R. 55 (noting that, under USCIT Rule 55(a), the clerk must enter a default against a party

that “has failed to plead or otherwise defend”). The Government has not yet filed a motion for

default judgment against Greenlight.

IV.    CONCLUSION

       For the reasons set forth above, Defendant Aulakh’s motion to dismiss is granted. The

court will defer filing an order of judgment for forty-five (45) days. If the Government fails to

file a second amended complaint addressing the deficiencies noted herein within forty-five (45)

days from the date of this opinion, the court will file an order of judgment dismissing the

complaint with prejudice.

                                                                   /s/ Jennifer Choe-Groves
                                                                  Jennifer Choe-Groves, Judge

Dated: November 25, 2019
       New York, New York