Court Opinion

ID: 4526217
Source: CourtListenerOpinion
Date Created: 2020-04-16 20:01:58.88729+00
Date Added: 2024-06-11T09:26:19.040576
License: Public Domain

Slip Op. 20-49

          UNITED STATES COURT OF INTERNATIONAL TRADE

UNITED STATES,

       Plaintiff,
v.
                                                Before: Claire R. Kelly, Judge
MAVERICK MARKETING, LLC ET AL.,
                                                Consol. Court No. 17-00174
       Defendants      and    Consolidated
       Defendants.

                             OPINION AND ORDER

[Granting Defendants’ motion to supplement and denying Defendants’ motion to
reconsider.]

                                                               Dated: April 16, 2020

Joseph H. Hunt, Assistant Attorney General, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice, of Washington, DC, for plaintiff United States.
With him on the brief were Jeanne E. Davidson, Director, Claudia Burke, Assistant
Director, and Stephen C. Tosini, Senior Trial Counsel.

Barry M. Boren, Law Offices of Barry M. Boren, of Miami, FL, for defendants
Maverick Marketing, LLC and Good Times USA, LLC.

Mark A. Loyd, Dentons Bingham Greenebaum LLP, of Louisville, KY, for defendant,
Good Times USA, LLC.

Rhonda A. Anderson, Rhonda A. Anderson, P.A., of Coral Gables, FL, for defendant
Gateway Import Management, Inc.

      Kelly, Judge: Before the court are Defendants Good Times USA, LLC (“Good

Times”), Maverick Marketing, LLC (“Maverick”), and Gateway Import Management,

Inc.’s (“Gateway”) (collectively, “Defendants”) motions for partial reconsideration
Consol. Court No. 17-00174                                                      Page 2

(“motion to reconsider”) of the court’s order, denying in part and granting in part

Defendants’ motions to compel discovery (“order”), as well as for leave to file

supplemental evidence for the motion to reconsider (“motion to supplement”). See

United States v. Maverick Marketing, LLC, 44 CIT __, Slip. Op. 20-17 (Feb. 7, 2020)

(“Maverick I”); see also Am. Mot. Partial Reconsideration of [Order] at 1–2, Apr. 14,

2020, ECF No. 102 (“Defs.’ Br. Supporting Reconsideration”); Am. Mot. File Supp.

Defs.’ Mot. Reconsider, Apr. 14, 2020, ECF No. 103 (“Defs.’ Mot. Supp.”).1 Specifically,

Defendants request, pursuant to U.S. Court of International Trade Rule (“USCIT”)

Rule 54(b), that the court reconsider its decision to deny: Maverick’s requests for

production (“RFP”) Nos. 9, 25, 38, and 39 for industry documents pertaining to cigar

pricing; Maverick’s RFP Nos. 30–33 for production related to trademarks of nonparty

companies; and, Good Times’ RFP Nos. 4–8, 15, and 17–21 for government documents

on affiliated nonparties.2 See Defs.’ Br. Supporting Reconsideration at 3–5; see also

Maverick Status Report at RFP Nos. 9, 25, 30–33, 38, 39; Good Times Status Report

1 On February 18, 2020, Defendants filed a motion to reconsider and, subsequently,

on March 16, 2020, Defendants also filed a motion to supplement. However, in light
of an error in the named counsel for Defendants, Defendants refiled corrected motions
on April 14, 2020 at the request of the court, which the court accepted for filing the
following day. See Order, Apr. 15, 2020, ECF No. 104. The refiled motions are
identical to the originals, except Mr. Boren indicates in the refiled motions that he
represents Maverick and Gateway, rather than “all Defendants.”
2Defendants’ motion for partial reconsideration concerns Maverick’s and Good Times’
RFPs. See Defs.’ Br. Supporting Reconsideration at 3 n.2 (noting that Gateway’s RFP
Nos. 10, 26, 39 and 40 are the same as Maverick’s RFP Nos. 9, 25, 38, and 39).
Consol. Court No. 17-00174                                                    Page 3

at RFP Nos. 4, 8, 15, 17–21.3 Defendants further ask the court to amend its order

and compel Plaintiff to produce the documents requested. Id. at 14–15. In addition,

Defendants request leave to file supplemental evidence in support of that motion. See

Defs.’ Mot. Supp. at 1–2. Plaintiff opposes both motions. See Pl.’s Opp’n [Defs.’ Br.]

at 1, March 9, 2020, ECF No. 95 (“Pl.’s Br. Opp’n Reconsideration”); see also Pl.’s

Opp’n Defs.’ Mot. for Leave Supp. Mot. Reconsideration, Mar. 31, 2020, ECF No. 99

(“Pl.’s Opp’n Mot. Supp.”). For the reasons that follow, the court grants Defendants’

motion to supplement and denies Defendants’ motion for partial reconsideration.

                                  BACKGROUND

      The court presumes familiarity with the facts of this case as set forth in its

previous opinion, see Maverick I, Slip Op. 20-17 at 3–5, 44 CIT at __, and recounts

those relevant to disposition of these motions. Plaintiff commenced separate actions,

later consolidated, pursuant to section 592 of the Tariff Act of 1930, as amended 19

U.S.C. § 1592(d) (2012),4 seeking to recover unpaid Federal Excise Taxes (“FET”) from

Defendants. See Am. Summons, Aug. 3, 2017, ECF No. 8; Compl., July 10, 2017, ECF

No. 2; Order, Sept. 12, 2019, ECF No. 66 (consolidating Ct. Nos. 17-00174, 17-00232,

3 This opinion refers to the Defendants’ RFPs and Plaintiff’s responses to the RFPs

as itemized and excerpted in Defendants’ status reports. See Discovery Status Report
of Def. [Good Times] in the Maverick and Gateway Cases, Feb. 3, 2020, ECF No. 89-
1 (“Good Times Status Report”); Discovery Status Report of Def. [Maverick], Feb. 3,
2020, ECF No. 89-2 (“Maverick Status Report”); see also Amend. Status Report of
Def. [Gateway], Feb. 4, 2020, ECF No. 90.
4 Further citations to the Tariff Act of 1930, as amended, are to the relevant
provisions of Title 19 of the U.S. Code, 2012 edition.
Consol. Court No. 17-00174                                                    Page 4

19-00004, and 19-00019 under Ct. No. 17-00174). Plaintiff alleges that Defendants

failed to disclose a “special arrangement.”     See Compl. at ¶ 21.      Additionally,

according to Plaintiff, Defendants made material misstatements to Customs and

Border Protection (“CBP”) regarding FET owed, by using “transaction value” on entry

forms, when the statute demands application of constructive sales price (“CSP”) to

merchandise entered pursuant to a special arrangement. Id. at ¶¶ 21–25. Plaintiff

alleges these false statements were the result of Defendants’ failure to exercise

reasonable care. See id.

       Defendants deny these allegations, see Defs.’ [Maverick] & [Good Times’]

Answers and Affirmative Defenses at ¶¶ 21–25, Mar. 29, 2018, ECF No. 48

(“Answer”), and raise among their affirmative defenses that they acted with

reasonable care and were not negligent, “because they received and reasonably relied

on professional advice from their customs house broker and an experienced trade

attorney” and fully complied with applicable statutes and regulations. See id. at

Third Affirm. Defense. Defendants further contend they were not negligent because

“Plaintiff had an established and uniform practice” (“EUP”) of allowing the same

behavior complained of in this case. See id. at Fifth Affirm. Defense.

       On April 4, 2019, Defendants Maverick and Good Times served RFPs on

Plaintiff.   See [Maverick and Good Times’] Mot. Order Compelling Disc. &

Consideration Sanctions at Exs. A–B, Sept. 26, 2019, ECF No. 67 (“Maverick’s Mot.”).

On June 7, 2019, Plaintiff responded. Id. at Exs. E–F. On June 27, 2019, Defendants
Consol. Court No. 17-00174                                                        Page 5

notified Plaintiff of their objections to Plaintiff’s production responses. Id. at Exs. I–

J. Plaintiff replied to Defendants’ objections on July 10, 2019 and supplemented its

responses. Id. at Ex. M. Defendants thereafter filed their motion to compel. See

generally Maverick’s Mot.

      On February 7, 2020, the court rendered its decision on Defendants’ motion to

compel. See generally Maverick I. In relevant part, the court denied the motion to

compel with respect to certain industry documents pertaining to cigar pricing, certain

trademark information of nonparty companies, and certain government documents

on affiliated nonparties (collectively, “discovery requests”). Id. at 6–22. Discovery

remains ongoing.

                 JURISDICTION AND STANDARD OF REVIEW

      The court continues to have jurisdiction pursuant to 28 U.S.C. § 1582. See

United States v. Maverick Mktg., LLC, 42 CIT __, __, 322 F. Supp. 3d 1373, 1379–80

(2018) (holding that the court possesses subject-matter jurisdiction in this case); see

also United States v. Gateway Imp. Mgmt., 42 CIT __, 324 F. Supp. 3d 1328 (2018).

      A court may reconsider a non-final judgment, pursuant to USCIT Rule 54 “‘as

justice requires,’ meaning when the court determines that ‘reconsideration is

necessary under the relevant circumstances.’” Irwin Indus. Tool Co. v. United States,

41 CIT __, __, 269 F. Supp. 3d 1294, 1300–01 (2017) (quoting Cobell v. Norton, 355 F.

Supp. 2d 531, 539 (D.D.C. 2005)), aff'd, 920 F.3d 1356 (Fed. Cir. 2019). Factors a

court may weigh when contemplating reconsideration include whether there has been
Consol. Court No. 17-00174                                                     Page 6

a controlling or significant change in the law or whether the court previously

“patently” misunderstood the parties, decided issues beyond those presented, or failed

to consider controlling decisions or data. See, e.g., In re Papst Licensing GmbH & Co.

KG Litigation, 791 F. Supp. 2d 175, 181 (D.D.C. 2011); Singh v. George Washington

Univ., 383 F. Supp. 2d 99, 101 (D.D.C. 2005). The movant carries the burden of

proving that “some harm, legal or at least tangible,” would accompany a denial of the

motion. Cobell, 355 F. Supp. 2d at 540.

      Given that the USCIT Rules do not prescribe a procedure to amend or

supplement a motion or brief, USCIT Rule 1 governs, granting the court discretion to

“prescribe the procedure to be followed in any manner not inconsistent with these

rules.” See USCIT R. 1. Further, USCIT Rule 1 provides that the rules “should be

construed, administered, and employed by the court and the parties to secure the

just, speedy, and inexpensive determination in every action and proceeding.” Id.

                                   DISCUSSION

      Defendants request that the court reconsider and amend its order to compel

Plaintiff’s response to Defendants’ discovery requests. See Defs.’ Br. Supporting

Reconsideration at 1–2, 6–14. Defendants explain this production is relevant for

determining whether Defendants’ entries were valued at fair market price (“FMP”)

and whether or not they exercised reasonable care, i.e., were not negligent, in

reporting value of their cigars on entry. See id. at 3–6, 9–13. Further, Defendants

point to Plaintiff’s own discovery requests that, in their view, further underscore the
Consol. Court No. 17-00174                                                      Page 7

relevance of Defendants’ requested production and for which they seek leave to file

as supplemental evidence. See Defs.’ Mot. Supp. at 1-2. Without the requested cigar

pricing documents, trademark information, and government documents, Defendants

contend that they would suffer harm in presenting their case. Defs.’ Br. Supporting

Reconsideration at 1–2, 9.     Plaintiff counters that the motion to reconsider is

unwarranted because the court did not err in denying the motion to compel and,

therefore, requests the court to deny that motion in full.        See Pl.’s Br. Opp’n

Reconsideration at 1, 3–10. In addition, Plaintiff urges the court to reject Defendants’

request for leave to supplement their motion to reconsider, as it is untimely and

irrelevant. See Pl.’s Opp’n Mot. Supp. at 1, 4–5. The court grants Defendants leave

to supplement their motion to reconsider, given that no harm follows from granting

their motion, and accepts their supplemental evidence, Pl.’s Second Set of

Interrogatories, Requests for Admission and [RFPs] to [Good Times], Mar. 17, 2020,

ECF No. 96-1, for filing.    However, and in view of that supplemental evidence,

because the discovery sought is irrelevant, duplicative, and unduly burdensome, and

Defendants do not persuade that they would be harmed without the requested

production, the court denies the motion to reconsider.

I.   Motion to supplement

      Defendants request leave to supplement the motion to reconsider with

Plaintiff’s discovery requests, because that supplemental evidence “sheds light on the

relevance” of Defendants’ own discovery requests at issue in the motion to reconsider.
Consol. Court No. 17-00174                                                     Page 8

See Defs.’ Mot. Supp. at 1–2. In particular, Defendants allege that Plaintiff’s RFPs

seek third-party information that Plaintiff previously characterized as irrelevant and

refused to produce, when requested by Defendants. Id.   Plaintiff counters that

Defendants’ motion to supplement is untimely, because Defendants could have

sought to supplement their motion for reconsideration prior to receiving Plaintiff’s

reply to that motion, avoiding a second round of briefing. See Pl.’s Opp’n Mot. Supp.

at 4. Further, Plaintiff contends that the supplemental evidence is irrelevant to the

motion to reconsider, because Plaintiff’s RFPs concern Good Times’ state of mind

about its transactions compared to third-parties, relevant to establishing violation of

19 U.S.C. § 1592(a), unlike Defendants’ RFPs that ask Plaintiff to produce documents

pertaining to the government’s other enforcement actions, which is irrelevant to the

question of Defendants’ alleged negligence. Id. at 4–5. Plaintiff, however, raises no

argument that allowing Defendants to supplement their motion would be prejudicial

and, further, does not persuade that the filing is barred as untimely by virtue of

following Plaintiff’s response to Defendants’ motion to reconsider.5 See Pl.’s Opp’n

Mot. Supp. at 4.    Therefore, Defendants are granted leave to file supplemental

evidence in support of their motion to reconsider and the court accepts that

5 Defendants filed their original motion to reconsider on February 18, 2020. On

February 27, 2020, Plaintiff served its discovery request on Defendants. Thereafter,
on March 16, 2020, Defendants filed their original motion for leave to supplement.
As explained above, at the request of the court, Defendants refiled both motions on
April 14, 2020, to correct an error in named counsel. See Order, Apr. 15, 2020, ECF
No. 104.
Consol. Court No. 17-00174                                                     Page 9

supplemental evidence for filing.6 To the extent that the parties raise questions as to

the relevance of that supplemental evidence, the court considers those arguments

with respect to the motion to reconsider.

II.   Motion to reconsider

       Defendants request the court to reconsider and amend its order to compel

Plaintiff’s response to Defendants’ discovery requests, see Defs.’ Br. Supporting

Reconsideration at 1–2, 6–14, because the production is relevant to determine FMP

of cigars as well as to establishing Defendants’ exercise of reasonable care, and,

without the requested production, they would suffer harm in presenting their case.

See id. at 3–6, 9–13. Plaintiff counters that, as the court held, the production is

irrelevant and urges the court to deny the motion to reconsider. See Pl.’s Br. Opp’n

Reconsideration at 1, 3–10.    For the reasons that follow, Defendants’ motion to

reconsider is denied.

       A.   Fair market price

       Defendants’ view that the government must supply certain industry

documents pertaining to cigar pricing to determine FMP is mistaken, because the

requested production is not relevant to the Alcohol and Tobacco Tax and Trade

Bureau’s (“TTB”) assessment of Defendants’ FET liability, and, to the extent that it

6 Defendants, in amending the motion to supplement, also refiled the same

supplemental evidence included in the original motion to supplement. The court, in
granting the motion to supplement, accepts for filing the supplemental evidence,
which it deems as filed as of April 14, 2020, the date Defendants re-filed the motion
to supplement.
Consol. Court No. 17-00174                                                    Page 10

has any relevancy, it is duplicative and unduly burdensome.7 Defendants’ motion to

compel discovery stems from a misreading of the applicable statute and regulations

that govern TTB’s FET calculation.

      Here, Plaintiff alleges that Defendants erroneously used transaction value as

the basis for FET liability, when, given their special arrangement, they should have

used CSP as the basis for FET. See Compl. at ¶ 22; see also Compl., Sept. 6, 2017,

ECF No. 2 (from associated Dkt. No. 17-00232). TTB normally calculates FET based

on the sales price that a particular importer sells to an unrelated party in arm’s

length transaction. See 26 U.S.C. § 5702(l)(3) (“In determining price [of cigars] . . .

rules similar to the rules of section 4216(b) shall apply.”); 27 C.F.R. §§ 40.22, 41.39

7 Plaintiff argues that Defendants’ request is also barred by statute, because the

United States cannot release a taxpayer’s return or return information, absent
application of an exception. See Pl.’s Br. Opp’n Reconsideration at 6; see also 26
U.S.C. § 6103. Previously, Plaintiff had also argued it could not disclose nonparty
taxpayer information that Defendants requested and sought to compel. See Pl.’s
Opp’n Def.’s Mots. Compel at 6–8, Oct. 11, 2019, ECF No. 69. However, Maverick I
did not address the parties’ arguments regarding the non-discoverability of nonparty
taxpayer information under 26 U.S.C. § 6103 and instead denied the motion on
relevancy grounds. See Maverick I, 44 CIT at __, Slip Op. 20-17 at 6–11. Again, the
court does not need to reach this issue but raises it to note that, to the extent, as
Defendants assert, they have authorizations from affiliated companies to permit the
government to disclose taxpayer information pursuant to 26 U.S.C.
§ 6103(c), it stands to reason that Defendants can seek at least some of that
information directly from those parties. See Maverick’s Mot. at 8; [Defs.’ Gateway
Good Times] Mot. Order Compelling Disc. & Consideration Sanctions at 7, Sept. 26,
2019, ECF No. 66 (from associated Dkt. Ct. No. 17-00232). Although Defendants may
wish to use data obtained from their affiliates or other companies as proffered
industry data, expert testimony, or other information to demonstrate that a lower
price applies to Defendants’ cigar entries to determine CSP, see Storm Plastics, Inc.,
770 F.2d at 154–56, it would be unduly burdensome to require the government to
attempt to compile this information for the Defendants.
Consol. Court No. 17-00174                                                     Page 11

(2014) (setting out how to determine sale price of large cigars).8 If, however, a sale is

not at arm’s length, e.g., made pursuant to a special arrangement, and at less than

FMP, TTB determines FET liability on the basis of CSP.9 26 U.S.C. § 4216(b)(1)(C);

26 C.F.R. § 48.4216(b)-2(e). CSP is “computed on the price for which such articles are

sold, in the ordinary course of trade, by manufacturers or producers thereof, as

determined by the Secretary” of the Internal Revenue Service (“IRS”). 26 U.S.C.

§ 4216(b)(1)(C).

      In light of the difficulties to determine the price at which merchandise, such

as cigars, “are sold, in the ordinary course of trade, by manufacturers or producers[,]”

the IRS adopted the “95 percent presumption.” The “95 percent presumption” is the

IRS’s longstanding practice to presume, for the basis of excise tax, that CSP equals

8  The citation is to the Code of Federal Regulations 2014 edition, the most recent
version in effect at the time of the last entries of the subject merchandise. The entries
at issue in this action were imported between the years 2012 and 2015. See Compl.
at ¶ 1.
9 Courts have read 26 U.S.C. § 4216(b)(1)(C) as imposing two interrelated criteria for
the application of CSP, namely that the sale is made (1) at otherwise than arm’s
length and (2) at less than fair market price. Accord Creme Manufacturing Co., Inc.
v. United States, 492 F.2d 515, 520–22 (5th Cir. 1974); Storm Plastics, Inc. v. United
States, 770 F.2d 148, 152–54 (10th Cir. 1985). The Fifth Circuit, in Creme
Manufacturing, explained that the two criteria are directed to ensuring that the price
is a “bona fide expression” of price and an accurate representation of its true worth.
492 F.2d at 520. Further, by permitting the IRS to employ CSP, “Congress sought to
prevent taxpayers from reducing their excise tax liability by charging artificially low
prices to related buyers who then, without excise tax liability, might obtain the
market price from independent buyers.” Id. at 519 (citing H.R. REP. NO. 708, 72nd
Cong., 1st Sess. 38 (1932)).
Consol. Court No. 17-00174                                                     Page 12

95 percent of the taxpayer’s lowest established resale price to an unrelated distributor

in the ordinary course of trade. A taxpayer may rebut this presumption with industry

data, expert testimony, or other information, to overcome the presumption and show

a lower price applies. See Storm Plastics, Inc. v. United States, 770 F.2d 148, 152––

56 (10th Cir. 1985) (discussing the practice, as set out in IRS Revenue Rulings, and

noting that witness testimony on the industry rebutted the presumption).10 Here,

Defendants contend that TTB “determined the price used by manufacturers in the

ordinary course of trade[.]”    See Defs.’ Br. Supporting Reconsideration at 3–4.

Defendants wish to survey the prices at which cigars are sold using unrelated

taxpayer information in the government’s possession. Yet, as the revenue rulings

demonstrate, when TTB calculates FET based on CSP, it presumes that CSP equals

10 Although revenue rulings lack force of law, they guide IRS officials’ practice. See

Storm Plastics, Inc., 770 F.2d at 154 (holding a revenue ruling as inconsistent with
Congressional intent). Relevant here, revenue ruling 62-68, as modified, sets forth
the IRS’s 95 percent presumption. See Rev. Rul. 62-68, 1962-1 C.B. 216. (“on
intercompany sales at less than arm’s length and less than the fair market price, a
manufacturer of an article . . . may elect to use as a basis for tax, pursuant to section
4216(b)(1)(C), a [CSP] equal to 95 percent of its selling company’s lowest established
resale price for the article to unrelated wholesale distributors in the ordinary course
of trade.”); see also Rev. Rul. 71-240, 1971-1 C.B. 372 (providing that any
intercompany sale price that is less than 95 percent of the selling company’s lowest
established resale price to unrelated distributors is presumed to be less than FMP).
Subsequent revenue rulings elaborated that a taxpayer is entitled to rebut the
presumption. See Rev. Rul. 76-182, 1976-1 C.B. 343; Rev. Rul. 89-47, 1989-1 C.B. 295
(modifying Rev. Rul. 76-182 to enable a taxpayer to rebut the presumption when the
taxpayer does not have sales to unrelated wholesale distributors in the ordinary
course of trade and, consistent with Storm Plastics, do so “in a variety of ways,” be it
the use of industry data, expert testimony, or other information).
Consol. Court No. 17-00174                                                   Page 13

95 percent of the taxpayer’s lowest established resale price the taxpayer sells to

unrelated customers. See Storm Plastics, 770 F.2d at 152. Therefore, Defendants’

request for certain industry documents pertaining to cigar pricing is not relevant,

because TTB does not itself investigate and determine what the industry actually

charges for that product but applies the 95 percent presumption. See id. at 152–54.11

      To the extent that the government calculated liability, i.e., underpayment of

FET based on calculated CSP of Defendants’ cigar imports, see, e.g., Compl. at Attach.

1, July 10, 2017, ECF No. 2-1, the court compelled Plaintiff to produce documents

relied upon in that determination of damages and liability, as requested by

Maverick’s RFP Nos. 4, 15, 26, and 28. Specifically, Plaintiff has already been

instructed to produce, “every document, spreadsheet, worksheet, supporting

documents, or record used by the government to calculate the FETs claimed to be due

in this case” as well as “every document or record used or obtained by the government

to investigate, calculate or establish the sales price for which each article imported

by Maverick was sold in the ordinary course of trade by manufacturers or producers

thereof.” See Maverick Status Report at RFP Nos. 26, 28. Further, Plaintiff must

11 USCIT Rule 26(b)(1) permits “discovery regarding any nonprivileged matter that

is relevant to any party’s claim or defense and proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the parties’
resources, the importance of discovery in resolving the issues, and whether the
burden or expense of the discovery outweighs its likely benefit.” USCIT R. 26(b)(1).
“Evidence is relevant if: (a) it has any tendency to make a fact more or less probable
than it would be without the evidence; and (b) the fact is of consequence in
determining the action.” Fed. R. Evid. 401.
Consol. Court No. 17-00174                                                    Page 14

also produce information supporting its response to Maverick’s Interrogatory No. 3,

which provides: “For each item the government contends was not sold in an arms-

length transaction, please provide the price at which such articles were ‘sold, in the

ordinary course of trade, by manufacturers or producers thereof’, how each price was

calculated, upon what facts and evidence this price was determined to be the

appropriate price, and list each and every manufacturer or producer whose prices

were examined to determine this price.” See id. at RFP No. 15, Interrogatory No. 3;

see also Maverick I, 44 CIT at __, Slip Op. 20-17 at 22–23. If Plaintiff relied on other

information, or other information is necessary for Plaintiff to make its case, and

Plaintiff has not produced that information, Plaintiff may be unable to introduce that

information at trial. See USCIT R. 37(c)(1) (“If a party fails to provide information .

. . the party is not allowed to use that information . . . at a trial[.]”).

       However, the court denied the expansive requests for information related to

the calculation of FET on all imports of cigars into the United States.12 See Maverick

12 Maverick seeks: “copies of all documents, records, agreements, and correspondence

. . . that pertain[] to the assessment, taxation, or computation of FET for imported
cigars since April 1, 2009”; “copies of every document or record which references or
refers to advanced pricing arrangements or other agreements, expert reports, audit
results and reports, and economic studies that relate or refer in any way to the
calculating [sic] of FETs for large cigars”; “copies of any documents and records
regarding the sale price of cigars including, but not limited to[,] any report or study
regarding cigar pricing”; and, “copies of any correspondence, notes, records,
agreements, contracts, documents, rulings, decisions, and audit results including, but
not limited to any, Advanced Pricing Agreements or similar agreements, between
Customs, TTB, the IRS, or any other government entity and any cigar company or
group of companies that relate in whole or in any part to the pricing of cigars.”
Maverick Status Report at RFP Nos. 9, 25, 38, and 39.
Consol. Court No. 17-00174                                                     Page 15

I, 44 CIT at __, Slip Op. 20-17 at 11 n.12. USCIT Rule 26(b)(2) limits discovery, inter

alia, when “the discovery sought is unreasonably cumulative or duplicative, or can be

obtained from some other source that is more convenient, less burdensome, or less

expensive[.]”   USCIT R. 26(b)(2)(C)(i).       Defendants acknowledge that, when

calculating FET liability on the basis of CSP, the 95 percent presumption applies,

unless the taxpayer can come forward with industry data rebutting that presumption.

See Defs.’ Br. Supporting Reconsideration at 8–9. They seem to rely upon their right

to rebut that presumption to argue that the information is relevant and aver that it

is in the sole possession of Plaintiff. See id. at 3, 9. To the extent that industry data

not already captured by discovery ordered thus far is relevant, placing the onus on

Plaintiff to produce all the requested documents, records, agreements, and

correspondence pertaining to all companies’ pricing information would be overly

burdensome, as Plaintiff has reasonably explained. See, e.g., Maverick Status Report

at RFP Nos. 9, 38, 39; see also Pl.’s Opp’n Defs.’ Mot. Compel at 8, Oct. 11, 2019, ECF

No. 69 (“Pl.’s Opp’n Mot. Compel”) (explaining that “[t]he effort to retrieve and

produce all these records for TTB alone, and not including IRS records, would take

3,800 to 4,800 person-hours at a cost of $153,446.40 to $191,808.00” to respond to

Maverick RFP Nos. 38 and 39, alone). To hold otherwise would be tantamount to

reversing the government’s use of the 95 percent presumption in the first place: the

government would be forced to compile and maintain industry data in order to pursue

a penalty action for underpayment of FET.
Consol. Court No. 17-00174                                                    Page 16

      B.    Reasonable Care

      Likewise, the reasonable care standard fails to justify Defendants’ requests.

The reasonable care standard, as the court previously explained, “is concerned with

the reasonableness of a defendant’s actions alone—not whether the actions of

similarly situated entities evinces a ‘reasonableness’ standard that would bear on

defendant’s actions.” See Maverick I, 44 CIT at __, Slip Op. 20-17 at 10; see also

United States v. Aegis Sec. Ins. Co., 43 CIT __, __, Slip Op. 19-162 at 26 (Dec. 17,

2019) (determining that whether or not one exercises reasonable care does not depend

upon the “consensus in the community[,]” but rather on the “application of reason”).13

Defendants, in requesting production of trademark information of nonparty

companies and government documents on affiliated nonparties—i.e., Maverick’s RFP

Nos. 30–33 and Good Times’ RFP Nos. 4–8, 15, 17–2114—seek to establish that “the

13  The H.R. Report on the amendments to 19 U.S.C. § 1592 provides examples of steps
an importer should take to meet the “reasonable care” standard, including: “seeking
guidance from the Customs Service through the pre-importation or formal ruling
program; consulting with a Customs broker, a Customs consultant, or a public
accountant or an attorney; using in-house employees such as counsel, [etc.]” H.R. REP.
NO. 103-361, pt.1, at 120 (1993), reprinted in 1993 U.S.C.C.A.N. 2552, 2670. Notably,
these examples do not include relying on the government’s past action or inaction
toward the behavior. Id.
14 Maverick RFP Nos. 30–33 seek trademark information of nonparties, such as
“documents or records which identif[y] all the trademarks” on cigars manufactured
or imported by named nonparties. See Maverick Status Report at RFP Nos. 30–33.
Similarly, Good Times’ RFP Nos. 4–8, 15, and 17–21 request government documents
on affiliated nonparties, i.e., “copies of every document, record, or communication”
concerning a named nonparty, see Good Times’ RFP Nos. 4–8, 15, and documents and
records, inter alia, related to federal investigations of Good Times and its affiliates.
See Good Times Status Report at RFP Nos. 17–21.
Consol. Court No. 17-00174                                                    Page 17

requirement to disclose [their arrangement] was not known in the trade,” and, as a

result, Defendants were not negligent.15 See Defs.’ Br. Supporting Reconsideration

at 12 (“Something must put [importers] on notice that they might not be in

compliance with the law”). Yet, contrary to Defendants’ assertion, the statute and

regulations compel disclosure of a special relationship. See 19 U.S.C. §§ 1484(a),

1592(a); 26 C.F.R. § 48.4216(b)–2.16

      In addition, Defendants mistakenly invoke, and selectively cite to, Hitachi v.

United States to argue that knowledge in the trade is relevant to their defense

against negligence.   See Defs.’ Br. Supporting Reconsideration at 10–13 (citing

Hitachi v. United States, 21 CIT 373, 964 F. Supp. 344 (1997), aff’d in part, rev’d in

part, 172 F.3d 1319 (Fed. Cir. 1999)). Relevant here, Defendants refer to the Court

of Appeals’ decision to argue that “if the requirement to disclose was not known in

15 Specifically, Defendants assert that trademark information of nonparties is

relevant to whether there was a requirement to disclose a special arrangement
because, “TTB audited [those] companies and did not find that importing cigars with
trademarks owned by others was a disqualifying factor,” when, in this case, Plaintiff
contends that Good Times controlled the importer “because the imported cigars bore
[Good Times’] trademarks[.]” Defs.’ Br. Supporting Reconsideration at 12.
16 Defendants may be trying to assert that they were not on notice that the particular
circumstances of their transactions were made under a “special arrangement” that
needed to be disclosed. If that is their position, whether the statute and regulations
provide notice of the need to disclose a special arrangement does not rely upon the
knowledge or actions of other importers. Defendants raise, as a separate affirmative
defense, that “26 CFR § 48.4216(b)(2)(e) [sic] is void for ambiguity.” See Answer at
First Affirm. Defense. Section 48.4216(b)-(2)(e) sets out when a sale is “considered to
be made under circumstances otherwise than at ‘arm’s length[,]’” including when
“[t]he sale is made pursuant to special arrangements between a manufacturer and a
purchaser.” 26 C.F.R. § 48.4216(b)(2)-(e)(2).
Consol. Court No. 17-00174                                                    Page 18

the trade, then the Defendants would not have been negligent under Hitachi.” Id. at

12.   However, in that case, the government challenged on appeal the Court of

International Trade’s decision not to penalize importer’s failure to disclose escalation

payments under an economic price adjustment clause because it would be contrary to

due process.   See Hitachi, 172 F.3d at 1330.      The government argued that the

importers had notice that they must disclose escalation payments and the importers’

failure to disclose violated the Customs laws. See id. 1323–25. Yet, as the Court of

Appeals for the Federal Circuit explained, no statute or regulation required the

disclosure of the escalation payments. See id. at 1330. The Court of Appeals for the

Federal Circuit faulted the government in suggesting that, in the absence of such a

statute and the presence of a Customs Decision, that such reporting was not required.
Id. at 1330–31. In such a situation the Court of Appeals tasked the government to

point to some knowledge in the trade. Id. Unlike the situation in Hitachi, the statute,

here, clearly proscribes Defendants’ conduct.       Further, the government is not

estopped from enforcing its laws, irrespective of whether, and to what extent, it has

enforced the law in the past or its state of mind in deciding whether or not to enforce

the law.17 See Hitachi v. United States, 21 CIT 373, 390–91, 964 F. Supp. 344, 363

17 Although Defendants emphasize they “do not seek to estop Plaintiff from enforcing

the law,” they argue that estopping enforcement “must be balanced with the
requirements of due process in relation to notice.” Defs.’ Br. Supporting
Reconsideration at 13. This argument conflates the due process considerations of

                                                                   (footnote continued)
Consol. Court No. 17-00174                                                     Page 19

(1997) (“Despite the harsh consequences, the federal government is not estopped to

enforce laws against citizens who were advised by government that their actions were

legal when the government later ascertains that such actions were not in compliance

with the law.”).18 The government’s treatment or past investigations of nonparties

do not relate to whether Defendants, here, violated the law or acted with reasonable

care.19 Therefore, information on trademarks and government documents are not

notice, whether a party has notice of penalizable conduct, with reasonable care, the
conduct required to avoid the penalty of negligence. See, e.g., Lambert v. California,
355 U.S. 225, 228 (1957).
       In addition, Defendants attempt to distinguish differences in the government’s
obligations for unliquidated as opposed to liquated entries. See Defs.’ Br. Supporting
Reconsideration at 13–14. They state that “[i]n proceeding against Defendants for
liquidated entries as the Plaintiff does here, the bar to estoppel does not bar
Defendants from using Plaintiff’s past practices as evidence relevant to whether or
not Defendants exercised reasonable care or were negligent in relation to Plaintiff’s
19 U.S.C. § 1592 claims.” Id. at 14. However, reference to Plaintiff’s alleged past
practice is irrelevant, because declining to act does not establish a practice. See
Maverick I, Slip Op. 20-17 at 9, 44 CIT at __. Moreover, it is not the bar to estoppel
that renders the Defendants’ request irrelevant; it is the reasonable care standard.
18 Similarly, Defendants’ citation of the lower court’s decision for the proposition that
Customs’ past acquiescence would be evidence tending to show reasonable care in the
circumstances is also misplaced. See Defs.’ Br. Supporting Reconsideration at 12.
Read in context, the court explained that “even if there were such a past practice, it
would not estop the federal government from enforcing the statute.” Hitachi, 21 CIT
at 390–91, 964 F. Supp. at 363.
19For example, Maverick RFP Nos. 30–33 seek trademark information of nonparties,
such as “documents or records which identif[y] all the trademarks” on cigars
manufactured or imported by named nonparties. See Maverick Status Report at RFP
Nos. 30–33. Maverick claims this trademark information is relevant because
Plaintiff invokes Good Times’ ownership of trademarks on the imported cigars to

                                                                   (footnote continued)
Consol. Court No. 17-00174                                                    Page 20

relevant in determining whether Defendants’ conduct would be that “expected from

[] person[s] in the same circumstances.” See Defs.’ Br. Supporting Reconsideration

at 9 n.13, 10 (citing 19 C.F.R. Pt. 171, app. B(D)(6)). Moreover, Plaintiff has

reasonably explained that the cost of obtaining the documents requested would be

overly burdensome to the government given the limited, if any, relevancy. See, e.g.,

Maverick Status Report at RFP Nos. 5–8, 15, and 17–21 (Plaintiff objects that the

requests are overly burdensome).

      Nonetheless, Defendants seek to establish that the discovery sought is relevant

by pointing to Plaintiffs’ requests for information about third-parties. See Defs.’ Mot.

Supp. at 1–3.20 This argument is unavailing. As a threshold matter USCIT R.

26(b)(1) permits discovery regarding any nonprivileged matter that is relevant to any

party’s claim or defense “[u]nless otherwise limited by court order.”        USCIT R.

demonstrate Good Times’ control, Defs.’ Br. Supporting Reconsideration at 11–12,
and avers that it believes the government did not pursue other similarly situated
parties. See Maverick’s Mot. at 8. Likewise, Good Times’ RFP Nos. 4–8, 15, and 17–
21 request government documents on affiliated nonparties, i.e., “copies of every
document, record, or communication” concerning a named nonparty, see Good Times’
RFP Nos. 4–8, 15, and documents and records, inter alia, related to federal
investigations of Good Times and its affiliates. See Good Times Status Report at RFP
Nos. 17–21. Setting aside the variety of a factors that the government considers in
determining whether to pursue an investigation, even if another company might
have acted in the same manner as Defendants is not relevant to whether Defendants
exercised reasonable care here. See Maverick I, 44 CIT at __, Slip Op. 20-17 at 10;
see also Aegis, 43 CIT at __, Slip Op. 19-162 at 26.
20 Defendants point to supplemental evidence that comprises Plaintiff’s RFPs
pertaining to an email regarding other importers’ contracts and for documents within
Good Times’ possession relating to the determination of FET on tobacco products. See
Defs.’ Mot. Supp. at 2–3.
Consol. Court No. 17-00174                                                     Page 21

26(b)(1). Federal Rule of Evidence 401 provides “[e]vidence is relevant if: (a) it has

any tendency to make a fact more or less probable than it would be without the

evidence; and (b) the fact is of consequence in determining the action.” Fed. R. Evid.

401. The court may limit the proposed discovery if it is irrelevant. USCIT R.

26(b)(2)(C)(iii). It is for the court to determine what is relevant. See Sprint/United

Mgmt. Co. v. Mendelsohn, 552 U.S. 379, 384, 387 (2008) (noting that the question of

relevancy is one reserved to the sound discretion of the trial court.). Moreover, it is

possible for plaintiffs and defendants to seek discovery for different purposes

depending on their claims and defenses. Plaintiff here claims to seek information

regarding Good Times’ state of mind as allegedly relevant to liability under 19 U.S.C.

§ 1592. See Pl.’s Opp’n Mot. Supp. at 4. However, whether or not the documents

Plaintiff has sought are relevant to its claims is not before the court. The issue before

the court is whether the documents requested by Defendants are relevant.

Defendants fail to persuade that Plaintiff’s discovery requests in this case bear on the

relevance of their own discovery requests.

                                   CONCLUSION

      Defendants have not demonstrated that they would suffer harm if the court

declines to reconsider and amend its order.       Although Defendants contend they

“would be harmed by the[] unavailability” of the requested production to make their

case, see Defs.’ Br. Supporting Reconsideration at 2, Defendants’ discovery requests

are irrelevant, duplicative, and unduly burdensome. To the extent that the requested
Consol. Court No. 17-00174                                                    Page 22

information is relevant, Defendants may pursue alternate avenues that alleviate the

burden of production otherwise placed on Plaintiff. Further, if Plaintiff relied on any

other information in the determination of FET of Defendants’ cigar imports, or if it

would need to rely upon any other information at trial to make its case, and did not

proffer that relevant information, Plaintiff may be unable to introduce that

information at trial. See USCIT R. 37(c)(1).

      For the foregoing reasons, it is

      ORDERED that Defendants’ motion to supplement is granted; and it is

further

      ORDERED that Defendants’ supplemental evidence, Pl.’s Second Set of

Interrogatories, Requests for Admission and [RFPs] to Good Times, Apr. 14, 2020,

ECF No. 103-1, is accepted for filing and is deemed filed as of April 14, 2020; and it

is further

      ORDERED that Defendants’ motion for reconsideration is denied.

                                                     /s/ Claire R. Kelly
                                                     Claire R. Kelly, Judge

Dated:       April 16, 2020
             New York, New York