United States v. Pan Pacific Textile Group, Inc.

Slip Op. 05-107

UNITED STATES COURT OF INTERNATIONAL TRADE

UNITED STATES, Before: Richard W. Goldberg,

Senior Judge

Plaintiff,

v. Court No. 01-01022

PAN PACIFIC TEXTILE GROUP,

INC., AVIAT SPORTIF, Inc.,

BUDGET TRANSPORT, Inc.,

PRIME INTERNATIONAL AGENCY,

BILLION SALES, EVER POWER

CORP., AMERICAN CONTRACTORS

INDEMNITY COMPANY, and

THOMAS MAN CHUNG TAO, and

STEPHEN SHEN YU JUANG,

Defendants.

OPINION

[Plaintiff’s motion for partial summary judgment granted in part

and denied in part; defendants’ motion for partial summary

judgment denied. Defendants liable for duties unpaid as a result

of agent’s fraudulent customs violations. Additional briefing

required to determine amount of duty liability. Trial ordered on

issue of defendants’ liability for civil penalty.]

Dated: August 26, 2005

Peter D. Keisler, Assistant Attorney General; David M.

Cohen, Director, Commercial Litigation Branch, Civil Division,

U.S. Department of Justice (Patricia M. McCarthy and Michael D.

Panzera); Annmarie R. Highsmith, Senior Attorney, Office of

Associate Chief Counsel, U.S. Customs and Border Protection, U.S.

Department of Homeland Security, for plaintiff.

John Weber for defendants Thomas Man Chung Tao, Pan Pacific

Textile Group, Inc., and Aviat Sportif, Inc.

Court No. 01-01022 Page 2

Goldberg, Senior Judge: This case involves an action by

plaintiff the United States (specifically, the United States

Customs Service1 (“Customs”)) against defendants Pan Pacific

Textile Group, Inc. (“Pan Pacific”), Aviat Sportif, Inc. (“Aviat

Sportif”), Budget Transport, Inc., Prime International Agency,

Billion Sales, Ever Power Corp., American Contractors Indemnity

Company (“ACIC”),2 Thomas Man Chung Tao (“Tao”), and Stephen Yu

Juang (“Juang”),3 regarding 68 unlawful entries of track suits

imported from the People’s Republic of China (“China”) into the

United States. Customs moves for partial summary judgment

against Tao, Pan Pacific, and Aviat Sportif (collectively,

“defendants”) pursuant to USCIT Rule 56, seeking the recovery of

(1) unpaid duties under 19 U.S.C. § 1592(d) based on alternative

theories of fraud, gross negligence, or negligence and (2) a

1

The United States Customs Service is now U.S. Customs and

Border Protection per the Homeland Security Act of 2002, 6 U.S.C.

§ 542 (2005), and the Reorganization Plan Modification for the

Department of Homeland Security, H.R. Doc. 108-32, at 4 (2003).

2

ACIC entered into a settlement agreement whereby Customs

dismissed its claims against ACIC in exchange for payment of

$201,000. Plaintiff’s Motion for Partial Summary Judgment

(“Pl.’s Mot.”) at 10. As such, ACIC is no longer at issue in

this case.

3

Juang was the owner of Prime International Agency, Budget

Transport, Inc., Ever Power Corp., and Billion Sales.

Plaintiff’s Proposed Findings of Uncontroverted Fact (“PPFUF”) ¶¶

3-4. The Court entered default judgment against these parties on

June 15, 2004. Pl.’s Mot. at 9. As such, they are no longer at

issue in this case.

Court No. 01-01022 Page 3

civil penalty under 19 U.S.C. § 1592(b) based on alternative

theories of gross negligence or negligence. Defendants also move

for partial summary judgment pursuant to USCIT Rule 56,

contending that Customs cannot prove scienter for purposes of

establishing liability for a civil penalty under a fraud theory.

The Court has consolidated these motions for purposes of this

opinion.

I. BACKGROUND

In accordance with USCIT Rule 56(d), the Court begins with a

recitation of the relevant facts which appear to be without

substantial controversy. During the events at issue in this

case, Tao was an importer dealing almost exclusively in

tracksuits manufactured in China. PPFUF ¶ 2. To do business in

the United States, Tao acted through two companies, Pan Pacific

and Aviat Sportif, which were owned and controlled by Tao. PPFUF

¶ 2. In 1993, Tao and his companies engaged the freight

forwarding services of Juang, who operated several companies

providing cargo transportation between the United States and

China. PPFUF ¶ 12. Later that same year, Juang proposed to

expand the scope of the services he provided to Tao. PPFUF ¶ 12.

Juang offered to provide both freight forwarding and customs

clearance services on Tao’s shipments, although he was not a

Court No. 01-01022 Page 4

licensed customs broker.4 PPFUF ¶ 12. Tao accepted Juang’s

offer, and signed a power of attorney allowing Juang to conduct

customs entry transactions on behalf of Tao and his companies.

PPFUF ¶ 14. Tao (or one of his companies) remained the importer

of record for approximately one year after Juang began performing

customs clearance services. PPFUF ¶ 15.

Upon acquiring these new customs clearance responsibilities,

Juang began submitting entry documents to Customs that

misdescribed the tracksuits as plastic bags and wooden patio

furniture — classifications which carried lesser duty rates5 and

were not subject to quota restrictions.6 PPFUF ¶¶ 17, 19. He

also undervalued the merchandise to further reduce the duties

assessed by Customs. PPFUF ¶¶ 17, 19. Juang profited from this

scheme by continuing to charge Tao according to the proper duty

rate. PPFUF ¶ 20. To support his charges to Tao, Juang

4

It is a violation of Customs’ regulations for a broker to

transact customs business without a license. 19 C.F.R. § 111.4

(2005).

5

See, e.g., HTSUS 3923.21.0090 (1996) (setting 3% tariff for

plastic bags); HTSUS 9401.79.0025 (1996) (setting 2.4% tariff for

outdoor household furniture sets with metal frames); HTSUS

6211.33.30 (1996) (setting 16.8% tariff for sets of men and boys’

tracksuits of man-made fibers).

6

For the duration of defendants’ relationship with Juang,

Chinese textiles were subject to quotas and required quota visas

for entry into the United States. See, e.g., Agreement Between

the United States and China Concerning Trade in Textile and

Apparel Products, U.S.-China, June 8, 1995, Temp. State Dep’t No.

95-148, 1995 WL 539718.

Court No. 01-01022 Page 5

supplemented his invoices with accurate entry documents that were

never in fact submitted to Customs. PPFUF ¶ 21.

In 1994, Juang approached Tao with an alternate business

arrangement (the “flat fee scheme”). PPFUF ¶ 29. Juang claimed

that Tao had been “paying too much duty” and proposed that Tao

pay a flat fee per shipping container that would include all of

the costs of shipment, including both freight forwarding and

customs duties. PPFUF ¶ 29. Further, Juang claimed that Tao

would no longer need to separately purchase quota visas. PPFUF ¶

31. Juang suggested that he could instead accomplish this task

through a personal connection and include it in his package of

services to Tao. PPFUF ¶ 32. As part of this arrangement, Juang

proposed that he would become the importer of record, although

Tao would continue to ultimately receive the goods. PPFUF ¶ 31.

For all of his services under the flat fee scheme, Juang offered

to charge a fee that was less than the duties Tao would have

otherwise paid. PPFUF ¶ 29.

Before accepting Juang’s proposal, Tao questioned how Juang

could make a profit while offering such a reduced flat fee.

PPFUF ¶ 33. Tao consulted with Myron Rosenbach (“Rosenbach”), an

acquaintance experienced in importing from Asia into the United

States, seeking an explanation. Memorandum in Support of

Defendants Pan Pacific Textile Group Inc., Aviat Sportif Inc.,

and Thomas Man Chung Tao’s Motion for Summary Judgment Pursuant

Court No. 01-01022 Page 6

to Rule 56 of the Court of International Trade (“Defs.’ Mot.”) at

8. Rosenbach indicated that it was possible for an importer to

reduce duties owed by calculating the duty based on production

cost rather than invoice value, and he provided Tao with a copy

of a letter from a Customs attorney that supported this theory.

Defs.’ Mot., Ex. C (Deposition of Myron Rosenbach) (“Rosenbach

Dep.”) at 133-35. This letter had been sent to Rosenbach as a

general update on customs law, and was not intended for Tao, or

written with any knowledge of his situation. Rosenbach Dep. at

135-36. Two days after this conversation, Tao agreed to the flat

fee arrangement, including the designation of Juang as the

importer of record. PPFUF ¶ 37. Although Tao stated that he

assumed that duties would be calculated based on production

costs, Tao never provided these costs to Juang. Pl.’s Mot., App.

E (Deposition of Thomas Man-Chung Tao) at 255, 276.

After Tao agreed to the flat fee arrangement, Juang

continued to enter Tao’s tracksuits as plastic bags and patio

furniture, although he stopped providing Tao with falsified entry

documents as support for his invoices. PPFUF ¶ 47. Tao stated

that he thought it was not necessary for him to maintain copies

of his entry records, since he was no longer the importer of

record. PPFUF ¶ 41. Tao also told his supplier, Singmay

Industrial, Ltd., that it should no longer purchase quota visas,

indicating that Juang would take care of this under the new flat

Court No. 01-01022 Page 7

fee scheme. PPFUF ¶ 43. Tao stated that, while he perceived a

shift in responsibilities once Juang became the importer of

record, he still considered himself to be the owner of the

merchandise. PPFUF ¶ 41. To that end, Tao’s companies continued

to place the orders for the merchandise, and received the goods

directly from Juang’s companies after they cleared customs.

PPFUF ¶ 41. Tao’s company, Pan Pacific, also remained the

ultimate consignee. PPFUF ¶ 41.

On or about November 26, 1996, Customs Special Agents began

investigating Juang, initially for suspected involvement in the

smuggling of Chinese medicine. Pl.’s Mot. at 7. On February 26,

1997, Customs searched the premises occupied by Juang’s

companies. Pl.’s Mot., App. A (Declaration of David J. Peters) ¶

5. Records uncovered during the search revealed that, from late

1993 to early 1997, Juang entered tracksuits for Tao, Pan

Pacific, and Aviat Sportif. Pl.’s Mot., App. B (Declaration of

Marcia A. Brown) (“Brown Decl.”) ¶ 9. Investigators then

searched the premises of Pan Pacific and Aviat Sportif and

concluded from the records recovered that Tao’s payments to Juang

were below the duties that would have been assessed based on the

value stated on the commercial invoices. Brown Decl. ¶ 13. They

also discovered that quota visas had not been obtained and

associated charges had not been paid. Brown Decl. ¶ 12. As a

result of these discoveries, Tao and Juang were criminally

Court No. 01-01022 Page 8

prosecuted for conspiracy to smuggle merchandise into the United

States. Pl.’s Mot. at 8. Tao was acquitted, United States v.

Tao, CR-98-571-RAP (C.D. Ca. 1999), while Juang pled guilty,

agreeing to pay $1.4 million in restitution, United States v.

Juang, 98-CR-96-ALL (C.D. Ca. 2001).

On November 21, 2001, Customs filed the instant civil action

pursuant to 19 U.S.C. § 1592. Defs.’ Mot., Ex. D (Complaint)

(“Compl.”) ¶ 1. In its complaint, Customs sought unpaid duties

and a civil penalty for 68 entries of merchandise, including 34

that were at issue in the criminal trial. Compl. ¶¶ 1, 15; Pl.’s

Mot. at 9. These entries were made between September 21, 1995

and January 20, 1997, under the flat fee scheme.7 PPFUF ¶ 1.

Customs set the total domestic value of these goods at

$26,051,129, and claimed that $2,034,159.80 in duties remained

unpaid.8 Compl. ¶¶ 22, 28. In its complaint, Customs sought the

recovery of both unpaid duties and a civil penalty under the

three alternative theories of liability recognized by 19 U.S.C. §

1592 (i.e., fraud, gross negligence, or negligence). Compl. ¶¶

28, 31, 34, 37, 40, 43, 44. Under a theory of fraud liability,

7

Customs did not seek unpaid duties or a civil penalty for the

fraudulent entries made by Juang prior to the flat fee scheme.

Reply to Defendants’ Opposition to Motion for Partial Summary

Judgment at 12.

8

Defendants dispute both the valuation of the merchandise and

the calculation of duties owed. Defendants’ Response to

Plaintiff’s Rule 56(h) Statement (“Defs.’ Resp. to PPFUF”) ¶ 59.

Court No. 01-01022 Page 9

Customs sought the full amount of unpaid duties, as well as a

$26,051,129 civil penalty. Compl. ¶¶ 28, 37. Alternatively,

Customs sought $241,351 in unpaid duties9 and a $956,406 civil

penalty under a gross negligence theory or a $482,703 civil

penalty under a negligence theory. Compl. ¶¶ 31, 34, 38, 40.

On October 31, 2002, defendants moved for summary judgment

on four separate grounds, all of which were denied by this Court.

United States v. Pan Pac. Textile Group, Inc., 27 CIT __, 276 F.

Supp. 2d 1316 (2003). The instant motions for partial summary

judgment on different grounds followed. The Court has

jurisdiction over this action pursuant to 19 U.S.C. § 1582.

II. STANDARD OF REVIEW

“[S]ummary judgment is proper ‘if the pleadings [and the

discovery materials] show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law.’” Celotex Corp. v. Catrett, 477

9

Customs sought a lesser amount of duties under the theories of

gross negligence and negligence because the applicable statute of

limitations limited recovery of duties from grossly negligent or

negligent violations to only those violations committed within

five years of the action. 19 U.S.C. § 1621(1) (2005). Invoking

an exception to this statute of limitations for cases of fraud,

Customs sought additional duties for violations occurring within

five years of the discovery of the fraud. 19 U.S.C. § 1621(1)

(2005).

Court No. 01-01022 Page 10

U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)).10 However,

“summary judgment will not lie if the dispute about a material

fact is ‘genuine,’ that is, if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When

considering a motion for summary judgment, all reasonable

inferences should be drawn in favor of the nonmoving party. See

United States v. Neman, 16 CIT 97, 98, 784 F. Supp. 897, 897-98

(1992).

Even where summary judgment cannot be rendered upon the

whole case, partial summary judgment may be granted in some

circumstances. See USCIT R. 56(d). “Partial summary judgment is

appropriate ‘when it appears that some aspects of a claim are not

genuinely controvertible [and] . . . genuine issues remain

regarding the rest of the claim.’” Ugg Int’l, Inc. v. United

States, 17 CIT 79, 83, 813 F. Supp. 848, 852 (1993) (quoting

Fleming James, Jr. & Geoffrey C. Hazard, Jr., Civil Procedure §

5.19, at 273-74 (3d ed. 1985) (footnotes omitted)).

The fact that state of mind is at issue in a case does not

preclude summary judgment. See Liberty Lobby, 477 U.S. at 256.

10

“When the Court's rules are materially the same as the

[Federal Rules of Civil Procedure (“FRCP”)], the Court has found

it appropriate to consider decisions and commentary on the FRCP

in interpreting its own rules.” Former Employees of Tyco Elec.

v. United States Dep’t of Labor, 27 CIT ___, ___, 259 F. Supp. 2d

1246, 1251 (2003) (citation omitted).

Court No. 01-01022 Page 11

“[T]here are many instances in the law where the evidence of

state of mind is so unequivocal that summary judgment is proper

and, indeed, expressly mandated by Rule 56.” Piamba Cortes v.

Amer. Airlines, Inc., 177 F.3d 1272, 1292 n.14 (11th Cir. 1999)

(quoting In re Air Crash Near Cali, 985 F. Supp. 1106, 1124 (S.D.

Fla. 1997)). Even “[p]otential issues of fact as to . . . state

of mind . . . do not prevent summary judgment” where the facts

“lead to only one legal conclusion.” Executone Info. Sys. v.

United States, 19 CIT 960, 965, 896 F. Supp. 1235, 1239 (1995),

aff’d, 96 F.3d 1383 (Fed. Cir. 1996).

III. DISCUSSION

A. DEFENDANTS ARE LIABLE FOR DUTIES UNPAID DUE TO THE

FRAUDULENT VIOLATIONS OF 19 U.S.C. § 1592 BY THEIR AGENT

On summary judgment, Customs first seeks recovery from

defendants of the unpaid duties associated with the entries at

issue in this case. Customs has presented two alternative

arguments supporting defendants’ liability for duties unpaid due

to fraudulent violations of 19 U.S.C. § 1592. Customs first

argues that Juang was serving as defendants’ agent, making

defendants liable, as principals, for the duties that remain

unpaid as a result of Juang's fraud. Customs’ second argument is

that Tao himself (and by extension, Tao’s companies) committed

fraud under the statute. Customs argues that Tao deliberately

avoided knowledge of Juang’s unlawful activities, which served as

constructive knowledge sufficient to make Tao (and Tao’s

Court No. 01-01022 Page 12

companies) complicit in the fraud. Further, because the

statutory scheme also prohibits violations of 19 U.S.C. § 1592

due to gross negligence or negligence, Customs has presented

alternative arguments supporting defendants’ liability for unpaid

duties under these lesser theories of liability as well.

For the reasons that follow, the Court finds defendants

liable for unpaid duties on the entries at issue in this case.

The Court concludes that, as a matter of law, a principal may be

held liable under the fraud provisions of 19 U.S.C. § 1592 for a

customs violation committed by an agent acting within its proper

scope of authority, regardless of whether the principal

authorized the agent’s specific unlawful conduct constituting the

customs violation. Because the uncontroverted facts in this case

clearly demonstrate that Juang committed customs violations in

the performance of his duties as defendants’ agent, defendants

are liable as principals for duties unpaid as a result of Juang’s

fraud.11

1. Juang’s Actions Constituted a Fraudulent Violation of

19 U.S.C. § 1592(a)

As a threshold matter, in order for liability for unpaid

11

As such, for purposes of the analysis of liability for unpaid

duties, the Court need not reach Customs’ second argument

regarding defendants’ complicity in fraud through deliberate

ignorance. Similarly, the Court need not reach Customs’

arguments concerning gross negligence and negligence, as duties

owed under these lesser theories of liability are subsumed by

those owed under fraud.

Court No. 01-01022 Page 13

duties to accrue under 19 U.S.C. § 1592(d), a violation of 19

U.S.C. § 1592(a) must have been committed through either fraud,

gross negligence, or negligence. A fraudulent violation under 19

U.S.C. § 1592(a) is committed directly12 when four key elements

are present: first, the party against whom liability is sought

must belong to the class of “persons” subject to liability under

the statute; second, that party must enter, introduce, or attempt

to enter or introduce merchandise into the United States by means

of false documents or acts; third, such documents or acts must

also be material; and fourth, the material, false documents or

acts must be transmitted or performed fraudulently.13 19 U.S.C.

§ 1592(a)(1)(A)(i) (1999). All four elements are easily met in

this case.

First, Juang, as importer of record, was clearly a “person”

within the meaning of 19 U.S.C. § 1592(a) and, as such, may be

held liable for a violation of that statute. This Court has

repeatedly held that an importer of record belongs to the class

of “persons” subject to liability under 19 U.S.C. § 1592(a) and

against whom a claim may be brought for suspect entries. See,

e.g., United States v. F.H. Fenderson, Inc., 11 CIT 199, 658 F.

12

The statute also prohibits the aiding and abetting of customs

violations. 19 U.S.C. § 1592(a)(1)(B) (1999).

13

An alleged violation involving a material omission need not

satisfy the second requirement concerning falsity. 19 U.S.C. §

1592(a)(1)(A)(ii) (1999).

Court No. 01-01022 Page 14

Supp. 894 (1987). It is uncontested that Juang was the importer

of record for the shipments at issue and he is therefore a

“person” subject to liability under the statute.14

Next, the facts also show that Juang submitted documents to

Customs containing information that was both false and material

within the meaning of 19 U.S.C. § 1592(a). Juang submitted entry

documents to Customs which identified Tao's merchandise as

plastic bags or wooden patio furniture. There is no doubt that

these identifications were false, as all parties acknowledge that

the shipments contained tracksuits. Further, these false

statements were also material. The definition of “material”

under 19 U.S.C. § 1592 is provided by 19 C.F.R. pt. 171 app.

B(B):

A document, statement, act, or omission is material if it

has the natural tendency to influence or is capable of

influencing agency action including, but not limited to a

Customs action regarding: (1) Determination of the

classification, appraisement, or admissibility of

merchandise (e.g., whether merchandise is prohibited or

restricted); (2) determination of an importer's liability

for duty . . . .

19 C.F.R. pt. 171 app. B(B)(1)-(2) (2005). In the instant case,

Juang's actions satisfy this definition on multiple counts. The

documents submitted to Customs contained false statements which

14

There is also support for the proposition that anyone in a

position to satisfy the other elements of a 19 U.S.C. § 1592(a)

violation is a “person” within the meaning of the statute,

regardless of any other legal status they might hold. See United

States v. Golden Ship Trading, 22 CIT 950, 953 (1998) (“One who

violates the statute is always liable whether or not the importer

of record.”).

Court No. 01-01022 Page 15

affected Customs' determination of the classification,

appraisement, and admissibility of the merchandise, as well as

the calculation of the duty. Juang's entry documents falsely led

Customs to believe that the tracksuits being imported fell under

the classifications associated with plastic bags or wooden patio

furniture. These erroneous classifications consequently affected

Customs’ determination of admissibility as well. While the

actual merchandise was subject to quota, the classifications

indicated were not, enabling Juang to avoid the quota. Since no

quota visas were obtained, Customs was falsely led to believe

that the shipments were admissible. Juang further misled Customs

by providing a false appraisement of the value of the

merchandise, declaring a value lower than the actual value of the

goods. Further, since the duty rate on plastic bags and wooden

patio furniture was less than that for tracksuits at the time of

the shipments at issue, Juang’s misstatements resulted in an

inaccurate determination of duty liability. Collectively, these

deceptions caused Customs to assess significantly lower duties on

the merchandise entered by Juang. Thus, Juang's actions

satisfied each of the alternative tests for “materiality” under

Customs’ regulation. See also United States v. Rockwell Int’l

Corp., 10 CIT 38, 42, 628 F. Supp. 206, 210 (1986) (holding that

the determination of the materiality of a false statement is

properly made based on its impact on Customs’ determination of

Court No. 01-01022 Page 16

the correct duty).

Finally, it is clear that Juang fraudulently submitted the

material, false entry documents to Customs. Customs’ regulations

deem a violation of 19 U.S.C. § 1592 to be fraudulent when “a

material false statement, omission, or act in connection with the

transaction was committed (or omitted) knowingly, i.e., was done

voluntarily and intentionally, as established by clear and

convincing evidence.” 19 C.F.R. pt. 171 app. B(C)(3) (2005). In

the instant case, Juang has admitted to knowingly submitting

false statements to Customs. Pl.’s Mot., App. F (Deposition of

Stephen Juang) (“Juang Dep.”) at 41-43. Further, defendants, in

their own submissions to the Court, have acknowledged that Juang

committed fraud through his customs transactions. Defs.’ Mot. at

9. It is thus firmly established by uncontroverted facts that

Juang committed fraud, and in so doing, violated 19 U.S.C. §

1592(a). These violations created liability for unpaid duties

under 19 U.S.C. § 1592(d).

2. Juang Was Defendants’ Agent

In order for any liability for Juang’s actions to transfer

to defendants under agency principles, it must be shown that

Juang was defendants’ agent. In the instant case, the

uncontroverted facts firmly establish that defendants engaged

Juang as their agent. Agency is defined as “the fiduciary

relation which results from the manifestation of consent by one

Court No. 01-01022 Page 17

person to another that the other shall act on his behalf and

subject to his control, and consent by the other so to act.”

Restatement (Second) of Agency § 1(1) (1958) (the “Restatement of

Agency”). It is undisputed that Tao engaged Juang to perform

customs entry services on behalf of defendants, and that Juang

consented to this arrangement. Tao formalized the agency

relationship by signing a power of attorney, a document

specifically designed to create an agency relationship. See,

e.g., Black’s Law Dictionary 1191 (7th ed. 1999) (defining “power

of attorney” as “[a]n instrument granting someone authority to

act as agent or attorney-in-fact for the grantor”). Further, Tao

hired Juang to perform the role of a customs broker on behalf of

defendants, a role that courts have recognized as that of an

agent. See United States v. Fed. Ins. Co., 805 F.2d 1012, 1013

(Fed. Cir. 1986); United States v. Yip, 930 F.2d 142, 144 (2d

Cir. 1991). The responsibilities delegated by Tao and accepted

by Juang clearly constituted the basis of an agency relationship

between Juang and defendants.

The fact that Juang became the importer of record did not

alter the nature of his agency relationship with defendants.

Several cases, before this Court and others, have confirmed that

the importer of record may also be an agent in the context of the

customs transactions he or she is performing. See, e.g.,

Corrigan v. United States, 35 C.C.P.A. 10, 17-18 (C.C.P.A. 1947)

Court No. 01-01022 Page 18

(“While . . . a customs broker may make entry . . . in his own

name, . . . he does so as the agent of the owner.”) (citations

omitted); Trans-Border Customs Servs. v. United States, 18 CIT

22, 23, 843 F. Supp. 1482, 1483 (1994) (“Trans-Border is the

importer of record and the customs broker acting as agent . . .

.”), aff’d, 76 F.3d 354 (Fed. Cir. 1996); Detroit Zoological

Soc’y v. United States, 10 CIT 133, 140, 630 F. Supp. 1350, 1358

(1986) (“Plaintiff seems to acknowledge in its complaint that the

importer of record here is an ‘agent’ of plaintiff-consignee . .

. .”); Hammerstein v. United States, 27 Cust. Ct. 147, 150 (1951)

(identifying the plaintiff as an “agent” and the “importer of

record”); Old Republic Ins. Co. v. Hansa World Cargo Serv., Inc.,

51 F. Supp. 2d 457, 473 (S.D.N.Y. 1999) (“Hansa technically was

‘importer of record’ acting on behalf of the actual importer,

Duferco USA.”).

In the instant case, it is clear that Juang continued to

function as an agent for defendants, even after Juang became the

importer of record. Defendants placed the orders for merchandise

prior to importation, and received the goods directly from

Juang’s companies after they cleared Customs. Further, Tao

intended to retain ownership of the merchandise throughout this

process and, to that end, Pan Pacific remained the ultimate

consignee. There can be no reasonable doubt that Juang was

handling the goods on defendants’ behalf, regardless of how he

Court No. 01-01022 Page 19

may have deviated from the proper performance of his duties.

Despite the transfer of importer of record status, Juang remained

defendants’ agent during the flat fee scheme.

3. Defendants Are Liable for the Customs Violations

Committed by their Agent Within the Scope of that

Agent’s Authority

It is well established under the agency principle of

imputation that defendants, as principals, may be held liable by

a third party for the authorized acts of Juang, as their agent.

See Restatement of Agency § 140 (“The liability of the principal

to a third person upon a transaction conducted by an agent, or

the transfer of his interests by an agent, may be based upon the

fact that: (a) the agent was authorized; [or] (b) apparently

authorized . . . .”). An agent is authorized if he acts “in

accordance with the principal’s manifestations of consent to

him.” Restatement of Agency § 7. In the instant case, Tao

unambiguously consented to Juang filing entry documents on

defendants’ behalf when he retained Juang’s customs clearance

services and signed a power of attorney. Thus, liability for

Juang’s customs transactions may be extended to defendants.

It is irrelevant whether or not defendants authorized the

specific unlawful conduct which constituted the violation of 19

U.S.C. § 1592(a). In Gleason v. Seaboard A. L. R. Co., 278 U.S.

349 (1929), the United States Supreme Court (the “Supreme Court”)

noted that “few doctrines of the law are more firmly established

Court No. 01-01022 Page 20

or more in harmony with accepted notions of social policy than

that of the liability of the principal without fault of his own.”

Id., 278 U.S. at 356 (citations omitted); see also Restatement of

Agency § 216 (“A master or other principal may be liable to

another whose interests have been invaded by the tortious conduct

of a servant or other agent, although the principal does not

personally violate a duty to such other or authorize the conduct

of the agent causing the invasion.”). Even if Juang had ignored

instructions from defendants to the contrary, defendants may

still be held liable for Juang’s unlawful actions, since those

actions were within the scope of the duties that Juang had been

authorized to perform. See Hoover v. Wise, 91 U.S. 308, 311

(1876) (“[T]he principal is . . . liable in a civil suit if the

[agent’s] fraud be committed in the transaction of the very

business in which the agent was appointed to act.”) (citations

omitted). It is clear that misrepresentations, including fraud,

fall within the category of unlawful acts contemplated under

these principles of agency liability. See, e.g., Restatement of

Agency § 261 (“A principal who puts a[n] . . . agent in a

position which enables the agent, while apparently acting within

his authority, to commit a fraud upon third persons is subject to

liability to such third persons for the fraud.”). Even if Juang

was acting entirely for his own purposes, defendants remain

liable. In the Gleason case, the Supreme Court noted with regard

Court No. 01-01022 Page 21

to agency liability that “there would seem to be no more reason

for creating an exception . . . because of the agent's secret

purpose to benefit himself . . . than in any other case where his

default is actuated by negligence or sinister motives.” Gleason,

278 U.S. at 357; see also Restatement of Agency § 262 (“A person

who otherwise would be liable to another for the

misrepresentations of one apparently acting for him is not

relieved from liability by the fact that the . . . agent acts

entirely for his own purposes . . . .”).

Nevertheless, defendants claim that they cannot be found

liable due to the “adverse interest exception” to this principle

of agency liability. This exception absolves a principal of

liability “when an agent abandons his principal’s interests and

acts entirely for his or another’s purposes.” In Re Crazy Eddie

Sec. Litig., 802 F. Supp. 804, 817 (E.D.N.Y. 1992) (citation

omitted). The exception does not apply, however, when “the

unfaithful agent’s . . . conduct, while motivated by improper

self-serving reasons, also benefit [sic] the . . . principal.”

In re Drexel Burnham Lambert Group, Inc., 148 B.R. 1002, 1005 n.2

(S.D.N.Y. 1993) (citation omitted). In the instant case,

defendants do not qualify for the exception, since they

benefitted from Juang’s fraud. The flat rate that Juang charged

for the shipments at issue was a reduction relative to the duties

defendants would have paid. In addition, under the flat fee

Court No. 01-01022 Page 22

scheme, defendants no longer purchased quota visas for shipments

to the United States. Defendants argue that these savings could

also have been obtained through legitimate means,15 but this is

irrelevant. The savings Juang achieved through his fraud were

passed on to defendants. The reception of this benefit

forecloses use of the adverse interest exception, regardless of

any alternate explanation of the benefit which hypothetically

might exist. Since defendants do not satisfy the exception’s

most basic requirements, the Court does not further consider its

applicability to this case.

To be sure, the instant case appears to be the first time

this Court has applied agency liability to customs violations in

precisely this manner,16 but the agency principles employed

herein are firmly established. For example, Gleason demonstrates

15

Defendants claim that court holdings, including Synergy Sport

Int’l v. United States, 17 CIT 18 (1993) and Nissho Iwai Am.

Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), indicate

that duties can properly be derived from production value,

producing a significant savings when compared to similar

calculations using invoice value. Defs.’ Resp. to PPFUF ¶¶ 36,

38. Defendants contend that this alternative method could

produce similar savings to those received under the flat fee

scheme. Defs.’ Opp’n at 11.

16

The novelty of this case is probably due to the unusual nature

of the business arrangement under the flat fee scheme. In most

customs transactions involving a broker, the principal remains

the importer of record and, as such, is made explicitly liable by

Customs’ regulations. See 19 C.F.R. § 111.29(b)(1) (“If you are

the importer of record, payment to the broker will not relieve

you of liability for Customs charges (duties, taxes, or other

debts owed Customs) in the event the charges are not paid by the

broker.”).

Court No. 01-01022 Page 23

a closely analogous application of these principles by the

Supreme Court. Gleason involved a fraudulent scheme by an

employee of a railroad company to defraud a cotton merchant.

Gleason, 278 U.S. at 352-53. Unbeknownst to the railroad

company, the employee submitted a fraudulent invoice and bill of

lading to the merchant’s bank in order to receive payment for a

fictitious shipment of cotton. Id. Despite the railroad

company’s ignorance of the scheme and the fact that it was

performed solely for the employee’s own benefit, the Supreme

Court held the railroad company liable for the losses resulting

from the fraud. Id. at 357. Although the instant case deals

instead with customs violations, the theory of defendants’

liability is essentially the same as the railroad company’s: a

principal is liable for a fraud made possible by the

responsibilities delegated to an agent, even if the agent acts

independently in motive and execution.

4. Sound Public Policy Supports Application of Agency

Principles to Fraudulent Violations of 19 U.S.C. § 1592

Assigning liability to defendants for Juang’s fraudulent

violations of 19 U.S.C. § 1592 is also supported by sound public

policy. The policy underlying the agency principle of

imputation, at the most basic level, is “to protect innocent

third parties or . . . to prevent principals from benefitting at

the expense of innocent third parties.” Bankers Life Ins. Co. of

Neb. v. Scurlock Oil Co., 447 F.2d 997, 1005 (5th Cir. 1971). In

Court No. 01-01022 Page 24

this vein, the United States Court of Appeals for the Federal

Circuit has previously indicated that, rather than force the

government (as third party) to bear the loss resulting from

unpaid duties, it is preferable to extend liability for unpaid

duties to an innocent party who is nonetheless “traditionally

liable” for such payment. United States v. Blum, 858 F.2d 1566,

1570 (Fed. Cir. 1988).17 As such, extending liability to

defendants in this case achieves the public policy goals

underlying both traditional agency principles and the Blum

court’s reasoning.

Further, the Court’s holding in this case serves an

additional public policy interest by creating proper incentives

for importers in the future. If the Court were to allow

defendants to immunize themselves from liability for customs

violations by hiring a customs broker and transferring importer

of record status, the Court would effectively create an incentive

for bad behavior. Allowing such protection for importers would

discourage care on their part in selecting their agents, and

17

To be clear, Customs does not argue (the Court believes

rightly) that this case satisfies the requirements of Blum, which

permits the assignment of liability for unpaid duties under 19

U.S.C. § 1592 to any party “traditionally liable for such

duties[.]” Blum, 858 F.2d at 1570. The unusual business

arrangement under the flat fee scheme, involving transfer of

importer of record status, appears to preclude direct application

of Blum to this case. See Customs Directive 4400-09 (Feb. 6,

1989) (indicating that demands for unpaid duties under 19 U.S.C.

§ 1592 are traditionally made only to violators, importers of

record, and sureties).

Court No. 01-01022 Page 25

would thus provide more opportunity for dishonest middlemen such

as Juang. Moreover, if importers could lower their costs through

unlawful customs transactions without incurring any liability,

they would be encouraged to seek brokers willing to commit fraud

on their behalf (this case demonstrates that it is possible for

both parties to benefit from such an arrangement). In the

Court’s view, the likely effect of denying liability in this case

would be an increase in fraudulent customs transactions.

Therefore, the Court concludes that extending liability to

defendants for duties unpaid as a result of Juang’s fraud is not

only well supported by law, but also sound public policy. See

TIE Commc’n, Inc. v. United States, 18 CIT 358, 366 (1994)

(weighing public policy concerns to arrive at disposition in

customs case).

* * *

Accordingly, the Court concludes that defendants are liable

for the duties unpaid as a result of Juang’s fraudulent

violations of 19 U.S.C. § 1592.

B. SUMMARY JUDGMENT CANNOT BE GRANTED ON THE ISSUE OF LIABILITY

FOR A CIVIL PENALTY UNDER 19 U.S.C. § 1592

On summary judgment, Customs makes two alternative claims

for the assignment of liability to defendants for a civil penalty

under 19 U.S.C. § 1592. Customs first argues that a civil

penalty is warranted because defendants were complicit in the

false entry of the merchandise at issue through gross negligence,

Court No. 01-01022 Page 26

in violation of 19 U.S.C. § 1592(a).18 In the alternative,

Customs argues that, at a minimum, defendants’ role in the flat

fee scheme constituted a negligent violation of 19 U.S.C. §

1592(a) deserving of a civil penalty.19, 20

Under either theory,

Customs requests that the Court assign liability to defendants

for a penalty in accordance with 19 U.S.C. § 1592.21

Defendants, in turn, request summary judgment on Count 1 of

the complaint, in which Customs seeks a civil penalty based on

allegations that defendants were complicit in the false entry of

the merchandise at issue through fraud.22 Defendants claim that

Customs has failed to provide any evidence of scienter on the

18

Customs’ regulations provide that gross negligence is the

“actual knowledge of or wanton disregard for the relevant facts .

. . with indifference to or disregard for the offender's

obligations under the statute.” 19 C.F.R. pt. 171, app. B(C)(2)

(2005).

19

Customs’ regulations provide that “a violation is negligent if

it results from failure to exercise reasonable care and

competence . . . .” 19 C.F.R. pt. 171, app. B(C)(1) (2005).

20

In its complaint, Customs claimed that defendants committed

fraudulent violations of 19 U.S.C. § 1592(a) for the purpose of

recovering both unpaid duties and a civil penalty. However, on

summary judgment, Customs does not request that penalty liability

be assigned to defendants under a fraud theory.

21

The penalty amount differs under each theory of liability.

See 19 U.S.C. § 1592(c)(1999).

22

As indicated supra, at III.A, Customs’ regulations provide

that a violation of 19 U.S.C. § 1592 is fraudulent “if a material

false statement, omission, or act in connection with the

transaction was committed (or omitted) knowingly, i.e., was done

voluntarily and intentionally, as established by clear and

convincing evidence.” 19 C.F.R. pt. 171, app. B(C)(3) (2005).

Court No. 01-01022 Page 27

part of defendants, and thus cannot support its claim for a

penalty based on fraud under 19 U.S.C. § 1592(c). Defendants

request that the Court deny such a penalty on summary judgment.

For the reasons that follow, the Court concludes that it is

unable to grant summary judgment for either party on the issue of

a civil penalty under any theory of defendants’ liability.

Although the Court finds that defendants are at least eligible

for the assignment of liability for a civil penalty under 19

U.S.C. § 1592, defendants’ direct culpability in the flat fee

scheme (and thus degree of liability) is a contested factual

question which, in the Court’s view, is more appropriate for

resolution at trial.

1. Defendants Are Eligible for the Assessment of a Civil

Penalty Under 19 U.S.C. § 1592

Like liability for unpaid duties, liability for a civil

penalty accrues under 19 U.S.C. § 1592 when a violation of 19

U.S.C. § 1592(a) is committed through either fraud, gross

negligence, or negligence. 19 U.S.C. § 1592(c). The Court

applies the same four-part test derived from 19 U.S.C. § 1592(a)

to determine whether such a violation has been committed for

purposes of affixing liability for both unpaid duties and a civil

Court No. 01-01022 Page 28

penalty.23 Here, it is already firmly established that

information submitted on behalf of defendants to Customs was both

false and material. See supra, at III.A.1. Thus, for a customs

violation to exist and penalty liability to thereby accrue to

defendants, it need only be determined that: (1) defendants

belong to the class of “persons” subject to liability under 19

U.S.C. § 1592 and (2) defendants’ conduct in connection with the

false, material submissions to Customs constituted fraud, gross

negligence, or negligence.24

As an initial matter, it is clear that defendants are

“persons” subject to liability within the meaning of 19 U.S.C. §

1592(a), i.e., they are at least eligible for the assessment of a

civil penalty under the statute. This Court has previously held

that “neither the statute nor the regulations limit liability for

23

Although the same test is applied, a claim for recovery of

unpaid duties is independent of (and analyzed separately from) a

claim for assessment of a civil penalty. Under 19 U.S.C. § 1592,

a defendant may be required to restore unpaid duties to the

government without payment of a penalty; likewise, a defendant

may be required to pay a penalty for a customs violation not

resulting in unpaid duties to the government. See, e.g., Blum,

858 F.2d at 1569; United States v. Snuggles, Inc., 20 CIT 1057,

1060, 937 F.Supp. 923, 926 (1996); United States v. Gordon, 10

CIT 292, 297, 634 F. Supp. 409, 415 (1986).

24

These two parts of the statutory test remain open at this

stage of analysis because Customs does not seek (the Court

believes rightly) a civil penalty under a fraud theory on summary

judgment. The Court is precluded from considering an extension

of the agency principles discussed supra, at III.A, to satisfy

the statutory requirements for the assignment of penalty

liability under 19 U.S.C. § 1592 because this remedy was not

requested by Customs.

Court No. 01-01022 Page 29

customs penalties to the ‘importer of record.’” United States v.

KAB Trade Co., 21 CIT 297, 300 (1997); see also United States v.

Action Prods. Int'l, Inc., 25 CIT 139, 142 (2001) (“Defendant’s

contention that it cannot be held liable for a violation of 19

U.S.C. § 1592 because it is not the importer of record is

supported by neither the statute nor case law.”). Indeed, the

current language of the statute is intended “to encompass all of

the potential violators listed in the prior version [of the

statute].” Action Prods., 25 CIT at 142 (citing H.R. Rep. No.

95-621, at 12 (1977)). “This list included ‘any consignor,

seller, owner, importer, consignee, agent or other person or

persons.’” Id. (citing United States v. Appendagez, Inc., 5 CIT

74, 80, 560 F. Supp. 50, 55 (1983) (citing 19 U.S.C. § 1592

(1976))). Since the uncontroverted facts establish that, at all

relevant times, Tao, Pan Pacific, and/or Aviat Sportif served as

ultimate consignee (and likely also owner and importer) of the

suspect entries, defendants are “persons” under 19 U.S.C. § 1592

who may be assessed a civil penalty if shown to have violated the

statute through fraud, gross negligence, or negligence.

2. Disputes of Material Fact Regarding Defendants’ Direct

Culpability Preclude Establishing Defendants’ Liability

for a Civil Penalty on Summary Judgment

Although defendants are eligible as a matter of law for the

assessment of a civil penalty under 19 U.S.C. § 1592, defendants’

direct culpability (and thus degree of liability under a fraud,

Court No. 01-01022 Page 30

gross negligence, or negligence theory) is a contested question

of fact inappropriate for summary judgment in this case.

Turning first to the fraud theory of penalty liability, the

relevant facts are sufficiently disputed to prevent the Court

from granting partial summary judgment in favor of defendants.

Defendants urge the Court that they are entitled to judgment as a

matter of law concerning their penalty liability for fraud

because, in their view, Customs has failed to produce any direct

evidence of defendants’ knowledge of the customs violations

committed under the flat fee scheme. Rather, defendants argue

that the uncontroverted direct evidence demonstrates their

absolute lack of knowledge. In support of this position,

defendants note that Tao has consistently denied any knowledge of

the customs violations committed under the flat fee scheme.

Defs.’ Mot. at 2, 7-8. Defendants also point to statements by

Juang and his employee, Chien Kuo Chen, indicating that they did

not disclose the customs violations to defendants. See Juang

Dep. at 45; Deposition of Chien Kuo Chen, dated March 17, 2004 at

43-44. Finally, defendants claim that they have introduced

evidence indicating that there were rational explanations for why

defendants did not suspect criminality in connection with the

flat fee scheme. See Rosenbach Dep. at 185-91.

While this evidence does weigh in defendants’ favor, it is

insufficient to warrant summary judgment for defendants on the

Court No. 01-01022 Page 31

issue of penalty liability for fraudulent customs violations. In

order to prove fraud under 19 U.S.C. § 1592, Customs must

establish by “clear and convincing evidence” that defendants

“knowingly” committed a customs violation or an act in connection

therewith. 19 C.F.R. pt. 171 app. B(C)(3) (2005). To satisfy

this standard, Customs need not present direct evidence of

defendants’ knowing participation in the customs violations.

Rather, courts have repeatedly found that, in the fraud context,

the clear and convincing evidence standard may be satisfied by

circumstantial evidence. See, e.g., Unitherm Food Sys., Inc. v.

Swift-Eckrich, Inc., 375 F.3d 1341, 1360 (Fed. Cir. 2004)

(finding fraud on the basis of “clear and convincing

circumstantial evidence”). The rationale for this rule is clear:

“[i]t is seldom that a fraud or conspiracy to cheat can be proved

in any other way than by circumstantial evidence.” Thompson v.

Bowie, 71 U.S. 463, 473 (1866); see also Herman & MacLean v.

Huddleston, 459 U.S. 375, 390 n.30 (1982) (noting that “the proof

of scienter required in fraud cases is often a matter of

inference from circumstantial evidence”). In this light, when

all reasonable inferences are drawn in favor of Customs, there is

sufficient circumstantial evidence for a reasonable trier of fact

to infer defendants’ knowing participation in the customs

violations at issue. This evidence includes (but is not limited

to): the unusual nature of the flat fee scheme (including the

Court No. 01-01022 Page 32

reduction in costs and the lack of quota visas); Tao’s decision

not to directly inquire into the mechanics of the scheme with

Juang; and changes in defendants’ own business practices

(including accepting invoices without supporting documentation

and ceasing to keep proper records). Admittedly, this evidence

is fairly countered by the evidence proffered by defendants; but,

this only demonstrates the existence of a dispute concerning the

material fact of defendants’ knowledge of the customs violations.

Such a dispute is more appropriately resolved at trial where, for

example, the credibility of defendants’ various witnesses may be

tested. Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 285

F.3d 1353, 1362 (Fed. Cir. 2002) (finding that “summary judgment

is inappropriate where . . . a case may ultimately turn on the

credibility of witnesses) (citing Liberty Lobby, 477 U.S. at

255).

Preservation of the issue of penalty liability for

fraudulent customs violations leaves the Court equally unable to

determine, on summary judgment, defendants’ liability under the

alternate theories of gross negligence and negligence urged by

Customs. Turning to the plain language of the statute, it is

clear that the three alternative theories of liability recognized

by 19 U.S.C. § 1592 are mutually exclusive. See 19 U.S.C. §

1592(a)(1) (1999) (indicating that a violation may occur “by

fraud, gross negligence or negligence”) (emphasis added).

Court No. 01-01022 Page 33

Congress’ use of the word “or” indicates that a choice must be

made among the three theories; for purposes of determining

penalty liability under 19 U.S.C. § 1592, a person who commits a

customs violation may not have more than one mens rea at the time

of commission.25 United States v. Complex Mach. Works Co., 23

CIT 942, 950 n.14, 83 F. Supp. 2d 1307, 1315 n.14 (1999)

(recognizing alternative nature of levels of culpability under 19

U.S.C. § 1592).

The Court will not attempt to issue judgment as a matter of

law on either of the lesser theories of liability while fraud

remains a possible outcome. Such an order at this stage of the

proceedings would only add confusion later if a judgment imposing

greater liability were made at trial. Instead, it is well within

the discretion of this Court to make a threshold determination of

eligibility for penalty liability under 19 U.S.C. § 1592 while

reserving the issue of actual culpability for trial. See United

States v. Almany, 22 CIT 490, 493 (1998) (holding defendant

generally liable for violation of 19 U.S.C. § 1592 and reserving

issue of state of mind for later determination).

25

However, when liability for unpaid duties and a civil penalty

are both sought in connection with the same customs violation,

the Court notes that the end result of these separate liability

analyses may be the attribution of two different states of mind

to a single person, such as where the agency principle of imputed

mens rea is used to establish only one category of liability.

See Blum, 858 F.2d at 1570 (recognizing that a party may be

“innocent” for purposes of penalty liability but not liability

for unpaid duties).

Court No. 01-01022 Page 34

* * *

Accordingly, defendants’ and Customs’ motions for partial

summary judgment on the issue of penalty liability are both

denied and the issue of defendants’ liability for a civil penalty

is reserved for trial.

IV. CONCLUSION

For the foregoing reasons, the Court grants Customs’ motion

for partial summary judgment on the issue of defendants’

liability for unpaid duties, in an amount to be determined

following briefing by both parties. In addition, the Court

denies both parties’ motions for partial summary judgment on the

issue of defendants’ liability for a civil penalty, reserving

this issue for trial. A separate order will be issued

accordingly.

/s/ Richard W. Goldberg

Richard W. Goldberg

Senior Judge

Date: August 26, 2005

New York, New York