Court Opinion

ID: 818624
Source: CourtListenerOpinion
Date Created: 2013-02-03 08:26:30.776284+00
Date Added: 2024-06-11T09:02:50.924223
License: Public Domain

Slip Op. 05-41

                UNITED STATES COURT OF INTERNATIONAL TRADE

 UNITED STATES,

                Plaintiff,
                                                      Before: Timothy C. Stanceu, Judge
                v.
                                                      Court No. 03-00212
 JEAN ROBERTS OF CALIFORNIA,
 INC.,

                Defendant.

[Defendant ordered to show cause why default judgment should not be entered against it for
failure to answer Complaint in compliance with Court rules]

                                                                     Decided: March 30, 2005

       Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, Patricia M.
McCarthy, Assistant Director, Kenneth S. Kessler, Trial Attorney, Commercial Litigation
Branch, Civil Division, United States Department of Justice; Erik Gantzel, Assistant Chief
Counsel, Bureau of Customs and Border Protection, of counsel, for plaintiff.

                                       OPINION AND ORDER

       Plaintiff United States commenced this action pursuant to 19 U.S.C. § 1592 (2000)

against defendant, Jean Roberts of California, Inc. (“Jean Roberts”) to collect a civil penalty for

alleged negligence by Jean Roberts in the entry into the United States of knit acrylic/polyester

blankets from Mexico. Jean Roberts, a company incorporated in California, is, according to

plaintiff, engaged in the business of manufacturing, importing, and distributing comforters,

bedspreads, and other textile items.
Court No. 03-00212                                                                    Page 2

       Default was entered against Jean Roberts for failure to file, through counsel, an answer to

the Complaint in compliance with the Rules of this Court. Pending before the court is Plaintiff’s

Application For Default Judgment (“Plaintiff’s Application”). To ensure that Jean Roberts has a

full and fair opportunity to retain legal counsel and defend itself in response to the allegations set

forth in the Complaint, the court herein orders defendant to show cause why a default judgment

should not be entered against it.

                                          I. BACKGROUND

       The Complaint alleges essentially that during the period of August 29, 1997 through

July 20, 1998, Jean Roberts violated 19 U.S.C. § 1592 in negligently causing thirty-four entries

of knit acrylic/polyester blankets to be filed with the U.S. Customs Service (“Customs”)1 at the

port of Otay Mesa, California by means of material false statements and/or material omissions.

Compl. ¶¶ 3, 6. Plaintiff’s principal allegation is that defendant’s false, and negligently-made,

description of the subject blankets as “woven” rather than “knit” on the entry documentation

resulted in defendant’s making an improper claim for preferential duty treatment under the North

American Free Trade Agreement (“NAFTA”) Implementation Act. Compl. ¶¶ 6, 7. Plaintiff

further asserts that the false statements and/or omissions occurring as a result of defendant’s

negligence caused a loss of revenue of $121,187.73, calculated as the difference between the

general duty rates and NAFTA preferential duty rates applying to the subject blankets. Compl.

¶¶ 6, 7, 9. This revenue loss, according to the Complaint, entitles the United States to collect a

       1
         All relevant documents concerning the entries in this action originally were filed with
the U.S. Customs Service. The U.S. Customs Service now is renamed the Bureau of Customs
and Border Protection. See Homeland Security Act of 2002, Pub. L. 107-296 § 1502, 116 Stat.
2135 (2002); Reorg. Plan for the Dep’t of Homeland Security, H.R. Doc. No. 108-32 (2003).
Court No. 03-00212                                                                  Page 3

civil penalty in the amount of $242,375.46, which is twice the alleged loss of revenue. Compl.

¶ 12. The maximum penalty for a violation based on negligence under 19 U.S.C. § 1592 is the

lesser of the domestic value of the merchandise or “two times the lawful duties, taxes, and fees of

which the United States is or may be deprived.” 19 U.S.C. § 1592(c)(3)(A).

                              A. Administrative Penalty Proceeding

       As specified in procedures established by 19 U.S.C. § 1592, Customs conducted an

administrative penalty proceeding before bringing an action in this court to collect an unpaid civil

penalty for alleged negligence by defendant in the entry of merchandise. The administrative

proceeding began on November 29, 2000, the date on which Customs issued to Jean Roberts a

“Pre-Penalty Notice” pursuant to 19 U.S.C. § 1592(b)(1) stating, inter alia, that defendant “failed

to exercise reasonable care and competence throughout the importation process of thirty-four

consumption entries” filed at the port of Otay Mesa, California from August 29, 1997 through

July 20, 1998 containing knit acrylic/polyester blankets. See Pl.’s Notice of Filing of

Supplemental Doc. in Supp. of Pl.’s Application for Default J. in Resp. to the Ct.’s Telephonic

Req. (“Pl.’s Supplemental Doc.”) Ex. 1. Like the Complaint in the case at bar, the Pre-Penalty

Notice alleged that Jean Roberts incorrectly described the subject blankets as “woven” on entry

documentation filed with Customs and that because the blankets actually were knit, not woven,

Jean Roberts was not eligible for the claimed NAFTA preferential tariff treatment. The Pre-

Penalty Notice, citing a revenue loss of $121,508.52 in unpaid duties, notified Jean Roberts that
Court No. 03-00212                                                                   Page 4

Customs was contemplating issuance of a civil penalty in the amount of $243,017.04,

representing twice the alleged loss of revenue.2

       Defendant did not submit a response to the Pre-Penalty Notice, and on February 26, 2001,

Customs issued to Jean Roberts a Notice of Penalty in the amount of $121,508.52. This amount

represented one time the loss of revenue, as then calculated by Customs.3 Customs also made a

demand for payment of the $121,508.52 in duties. Customs, on March 9, 2001, issued a demand

for payment of duties on defendant’s surety, American Contractors Indemnity. See Pl.’s

Application Ex. A at 3; Pl.’s Supplemental Application Ex. 3 at 2. American Contractors

Indemnity paid Customs the total amount of duty liability asserted by Customs. Customs

continued the proceeding against Jean Roberts in an effort to collect the civil penalty.

       Jean Roberts, through counsel, responded to the Penalty Notice on May 14, 2001,

petitioning for complete cancellation of the penalty. See Pl.’s Supplemental Doc. Ex. 3. As its

first argument, Jean Roberts claimed that the Mexican manufacturer of the blankets, Nova Textil

Rivera Hermanos y Asociados, S.A. de C.V. (“Novatex”), had been responsible for preparing the

import documentation for the imported blankets, a process in which it claimed not to have

participated. See id. Contending that Novatex acted essentially as an agent of Jean Roberts,

defendant argued that Customs should not allege negligence on the part of Jean Roberts unless

Customs first found negligence on the part of Novatex. See id.

       2
        An exhibit to the Complaint contains a worksheet recalculating the loss of revenue to be
$121,187.73.
       3
         Exhibit A to the Notice of Penalty is internally inconsistent in stating: “Monetary
Consequences: . . . A civil, administrative penalty of $121,508.52, an amount equals [sic] to two
times of the potential loss of revenue.” Pl.’s Supplemental Application Ex. 2.
Court No. 03-00212                                                                  Page 5

       Defendant’s second argument for cancellation of the penalty was that Novatex had

reasonably relied upon a Customs ruling holding that the subject merchandise qualified for

NAFTA preferential tariff treatment. In its petition, Jean Roberts argued that the ruling was

issued in response to a ruling request submitted by counsel for its customs broker that

erroneously, but in good faith, had informed Customs that the blankets were made of woven

fabric. According to defendant, the error stemmed from a mis-communication that occurred

when the counsel consulted with a Novatex employee.

       In its decision in response to the petition, issued to Jean Roberts on April 19, 2002,

Customs declined to mitigate its penalty claim of $121,508.52. The decision allowed Jean

Roberts seven days to pay the $121,508.52 penalty and offered additional time if Jean Roberts

would execute a two-year waiver of the statute of limitations. Jean Roberts did not pay the

penalty, and Customs brought this collection action.

              B. Procedural History of the Penalty Collection Action in this Court

       The Summons and Complaint commencing this case were served upon Jean Roberts on

June 12, 2003. On July 2, 2003, Mr. Marvin Brownstein, President and Chief Executive Officer

of Jean Roberts, attempting to appear pro se on behalf of Jean Roberts, filed a document entitled

Answer to Complaint that included a one sentence, general denial of all allegations of the

Complaint. On July 11, 2003, the Office of the Clerk of the Court of International Trade

informed Mr. Brownstein that the Answer to Complaint was deemed filed and “advised that [his]

corporation must be represented by counsel before [Jean Roberts] can proceed with this matter.”

Pl.’s Application Ex. A at 20 (emphasis omitted). The Clerk’s Office further informed

Mr. Brownstein that, pursuant to USCIT Rule 75(b), corporations, in order to make a proper
Court No. 03-00212                                                                   Page 6

appearance, must be represented by licensed counsel admitted to practice before the Court. In a

letter dated July 24, 2003, Mr. Brownstein informed the Clerk’s Office that he attempted to

secure counsel by contacting three attorneys in New York, all of whom required a $10,000

retainer and informed Mr. Brownstein that the defendant should “expect to spend over $50,000 to

fight this case.” Id. at 22. A statement of assets, liabilities and equity, as of March 31, 2003, was

attached to the same correspondence, in which Mr. Brownstein claimed financial insolvency and

requested a “public defender.” See id. at 22-30. The Clerk’s Office responded to

Mr. Brownstein’s request by letter dated August 5, 2003 informing him that public defenders are

not available to represent corporations in civil matters and reiterating the requirements of USCIT

Rule 75(b). See id. at 32. In a letter dated August 13, 2003 to which additional financial

statements were attached, Mr. Brownstein reasserted that Jean Roberts does not have the

financial means to defend the allegations pleaded in the Complaint. See id. at 33. The Clerk’s

Office responded by letter on August 19, 2003, advising defendant that failure to obtain counsel

could result in judgment for the United States. See id. at 40. The Court has received no further

correspondence from defendant.

       On December 1, 2003, the United States filed Plaintiff’s Request for Entry of Default on

the grounds that Jean Roberts repeatedly failed to appear and defend the allegations pleaded in

the Complaint. The Office of the Clerk of the Court of International Trade entered default on

December 3, 2003 pursuant to USCIT Rule 55(a).4

       4
         Rule 55(a) states that “[w]hen a party against whom a judgment for affirmative relief is
sought has failed to plead or otherwise defend as prescribed by these rules and that fact is made
to appear by affidavit or otherwise, the clerk shall enter the party’s default.”
Court No. 03-00212                                                                    Page 7

                         C. Plaintiff’s Application for Default Judgment

       On February 20, 2004, the United States, pursuant to USCIT Rule 55(b), applied for

judgment by default against Jean Roberts for $242,375.46, an amount representing the statutory

maximum penalty of two times the loss of revenue alleged by Customs in the Complaint. See

Pl.’s Application at 19, 25; see also 19 U.S.C. § 1592(c)(3)(A). The penalty sought in the default

judgment is nearly twice the amount of the penalty claim Customs asserted against Jean Roberts

in the administrative proceeding conducted under 19 U.S.C. § 1592.

       In its pending application for default judgment, the government argues that “Jean Roberts

improperly relied upon the work of a foreign manufacturer to complete its entry documentation”

relating to the subject merchandise, and that such reliance constitutes negligence pursuant to

19 U.S.C. § 1592. Pl.’s Application at 8. The government also maintains that the refusal of Jean

Roberts to retain legal representation prevented plaintiff from “conducting discovery and

expeditiously prosecuting the case.” Id. at 12. Plaintiff further maintains that Jean Roberts

willfully violated the Rules of the Court by “failing to comply with the initial disclosure

requirements of USCIT Rule 26(a)(1) and other discovery and planning obligations that require

the appearance of licensed counsel.” Id. at 14. According to plaintiff, the negligent conduct of

Jean Roberts and defendant’s failure to obtain counsel in order to defend the allegations of the

Complaint despite repeated warnings from the Clerk of the Court of International Trade justify

entry of a default judgment. See id. 8-9.

       Plaintiff further argues that the application of factors articulated in United States v.

Complex Machine Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307, 1313-14 (1999), to the

facts of this case warrants imposing the maximum penalty for negligence, plus post-judgment
Court No. 03-00212                                                                        Page 8

interest and costs. Plaintiff alleges that these factors include the failure of Jean Roberts to put

forth a good faith effort to comply with the customs laws of the United States during the

importation of the subject blankets, the public interest in deterring importers in the future from

submitting to Customs inaccurate documentation, and the degree of harm Jean Roberts caused to

the public by depriving the government of revenue and requiring the government to conduct an

“extensive investigation” and commence a civil prosecution. See Pl.’s Application at 21-23. The

United States also contends that the court should not consider as a mitigating factor the inability

of Jean Roberts to pay the penalty. See id. at 24.

                                             II. DISCUSSION

        Rule 55(b) of the Rules of this Court provides as follows:

        When the plaintiff’s claim against a defendant is for a sum certain or for a sum
        which can b[y] computation be made certain, the court upon request of the
        plaintiff and upon affidavit of the amount due shall enter judgment for that
        amount against the defendant, if the defendant has been defaulted for failure to
        appear and is not an infant or incompetent person.

USCIT R. 55(b). The Rule, however, provides that the court may “conduct such hearings or

order such references as it deems necessary and proper.” Id. The court may do so, under the

Rule, “[i]f, in order to enable the court to enter judgment . . . it is necessary . . . to establish the

truth of any averment by evidence or to make an investigation of any other matter.” Id. The

court construes Rule 55(b) in conjunction with Rule 55(c), which states that “[f]or good cause

shown, the court may set aside an entry of default and, if a judgment by default has been entered,

may likewise set it aside as prescribed by [USCIT] Rule 60(b).” USCIT R. 55(c). The court also

is cognizant of the “strong policy in favor of decisions on the merits and against resolution of
Court No. 03-00212                                                                     Page 9

cases through default judgments.” 10 James W. Moore et al., Moore’s Federal Practice § 55.20

(3d ed. 2003).

       Within twenty days of the date on which this collection action was commenced, Jean

Roberts filed a document entitled Answer to Complaint with the Court. Such document cannot,

however, answer to the allegations pleaded against Jean Roberts in the Complaint because it was

filed pro se.5 The Rules of the Court require that “each party . . . must appear through an attorney

authorized to practice before the court,” providing an exception only for “an individual (not a

corporation, partnership, organization or other legal entity) appearing pro se.” USCIT R. 75(b).

The Supreme Court, moreover, has stated that “[i]t has been the law for the better part of two

centuries . . . that a corporation may appear in the federal courts only through licensed counsel.”

Rowland v. Cal. Men’s Colony, 506 U.S. 194, 201-02 (1993) (citations omitted).

       At this point, the court cannot reach the conclusion that Jean Roberts willfully violated

the Rules of the Court. The court is not satisfied that Jean Roberts does not wish to retain legal

counsel or defend itself against the allegations of the Complaint. The court views the

defendant’s attempt to reply to the pleadings in this action and its communications with the

Office of the Clerk of the Court of International Trade on the obtaining of counsel as acts

indicative of its desire to defend itself in this action. Accordingly, the court considers it

necessary and proper to provide defendant a final opportunity to secure legal counsel, so that

defendant may be afforded a full and fair opportunity to defend itself in this action. The court,

       5
         In addition, the general denial that constituted defendant’s answer did not meet the
substance of the specific allegations in the Complaint. See USCIT R. 8(c) (“Denials shall fairly
meet the substance of the averments denied.”).
Court No. 03-00212                                                                     Page 10

therefore, will grant to Jean Roberts one final opportunity to be represented by legal counsel

eligible to file an appearance with this Court.

                                    III. CONCLUSION AND ORDER

       In view of the requirement set forth by USCIT Rule 75(b), the guidance of the Supreme

Court in Rowland v. California Men’s Colony, 506 U.S. at 201-02, that a corporate defendant

may appear in federal court only through licensed counsel, and the general disfavor accorded to

default judgments, the court, pursuant to USCIT Rule 55(b), will grant defendant Jean Roberts

one final opportunity to obtain legal representation and proceed with a defense in this action.

The court is allowing defendant sixty days to obtain counsel and show cause why a default

judgment should not be entered against it in this litigation. The court is taking this action to

ensure that defendant has a full and fair opportunity to fulfill its desire to respond to the

allegations in the Complaint. It is hereby

       ORDERED that defendant, through licensed counsel admitted to practice in this Court,

and by May 31, 2005, will show cause why a default judgment should not be entered.

                                                        /s/ Timothy C. Stanceu
                                                       Timothy C. Stanceu
                                                       Judge

Dated: March 30, 2005