United States v. Ford Motor Co.

Slip Op. 05-86

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS

________________________________________

:

UNITED STATES, :

:

Plaintiff, :

: Court No. 02-00106

v. :

:

FORD MOTOR COMPANY, :

:

Defendant. :

________________________________________:

Plaintiff, the Bureau of Customs and Border Protection of the

Department of Homeland Security (“Customs”), seeks collection of a

civil penalty and customs duties pursuant to 19 U.S.C. § 1592

(1988) concerning entries of automotive dies made by Ford Motor

Company (“Ford”), defendant, in 1989. Customs claims that Ford

committed fraud, or was grossly negligent or negligent by making

material false statements and/or omissions in connection with the

entry of the merchandise at issue and, thereby, violated 19 U.S.C.

§ 1592. Accordingly, Customs seeks $184,495 for unpaid duties, and

civil penalties in the amount of $21,314,111 if Ford’s conduct is

found to be fraudulent; $3,497,080 if Ford was grossly negligent;

or $1,748,540 if Ford was negligent. Ford responds that the

merchandise at issue was entered at the value known at the time of

entry, thus violating no Customs laws. Ford also counterclaims

that it is entitled to recoup any overpayment in duties it has

tendered.

Held: Pursuant to the findings of fact and conclusions of law,

judgment is entered in favor of Customs. Ford’s conduct was

grossly negligent in its entry of the merchandise subject to this

action. Accordingly, Ford is ordered to pay $184,495 for unpaid

duties and assessed a penalty of $3,000,000, plus lawful interest.

[Judgment is held in favor of Customs in the amount of $184,495 for

unpaid duties and Ford is assessed a penalty of $3,000,000, plus

lawful interest.]

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

Director, Patricia M. McCarthy, Assistant Director, Commercial

Litigation Branch, Civil Division, United States Department of

Justice (David A. Levitt and David S. Silverbrand); of counsel:

Case No. 02-00106 Page 2

Jeffrey E. Reim and Katherine F. Kramarich, Bureau of Customs and

Border Protection, for the United States, plaintiff.

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP

(David M. Murphy, Steven P. Florsheim, Robert B. Silverman, and

Frances P. Hadfield); of counsel: Paulsen K. Vandevert, for Ford

Motor Company, defendant.

Dated: July 20, 2005

OPINION

TSOUCALAS, Senior Judge: Plaintiff, the Bureau of Customs and

Border Protection of the Department of Homeland Security

(“Customs”)1, seeks collection of a civil penalty and customs

duties pursuant to 19 U.S.C. § 1592 (1988) concerning entries of

automotive dies made by Ford Motor Company (“Ford”), defendant, in

1989. Customs claims that Ford committed fraud, or was grossly

negligent or negligent by making material false statements and/or

omissions in connection with the entry of the merchandise at issue

and, thereby, violated 19 U.S.C. § 1592. Accordingly, Customs

seeks $184,495 for unpaid duties, and civil penalties in the amount

of $21,314,111 if Ford’s conduct is found to be fraudulent;

$3,497,080 if Ford was grossly negligent; or $1,748,540 if Ford was

negligent. See Compl. Ford responds that the merchandise at issue

1

The United States Customs Service was renamed the Bureau

of Customs and Border Protection of the Department of Homeland

Security, effective March 1, 2003. See Homeland Security Act of

2002, Pub. L. No. 107-296, § 1502, 116 Stat. 2135 (2002);

Reorganization Plan for the Department of Homeland Security, H.R.

Doc. No. 108-32 (2003).

Case No. 02-00106 Page 3

was entered at the value known at the time of entry, thus violating

no Customs laws. Ford also counterclaims that it is entitled to

recoup any overpayment in duties it has tendered.

DISCUSSION

In its complaint, Customs alleges that Ford made false

statements and/or material omissions in entering automotive tooling

dies and equipment into the United States and that such conduct was

fraudulent, grossly negligent, or negligent. See Compl. These

false statements and/or material omissions include: (1) failing to

notify Customs that the prices declared at entry were provisional

and subject to upward adjustments; (2) certifying to Customs at

entry that the prices declared were true and correct when in fact

the invoices failed to include the cost of known engineering

changes; and (3) failing to notify Customs “at once” when

information was received after importation indicating that the

prices declared at entry had increased due to the value of the

engineering changes. See Compl. ¶ 6. As a result, Customs claims

that the United States was deprived of lawful duty, which it seeks

in addition to civil penalties. A bench trial was held on February

28 through March 10, 2005. Parties submitted post-trial briefs on

April 15, 2005.

Case No. 02-00106 Page 4

Pursuant to USCIT R. 52(a), “[i]n all actions tried upon the

facts without a jury . . ., the court shall find the facts

specially and state separately its conclusions of law thereon . .

. .” USCIT R. 52(a) (2002). At trial, the Court heard testimony

from sixteen witnesses.2 Customs produced three witnesses who

testified on various factual matters concerning: how Customs’

investigations were commenced and conducted; Customs’ investigation

of Ford (“FN-36 investigation”); and Customs’ factual findings

during and resulting from the FN-36 investigation. Customs

produced Mr. Michael Turner, former Special Agent in the Detroit

Customs Office of Enforcement and primary investigator of Ford; Mr.

Robert Neckel, former group supervisor of the Detroit Customs

Office of Enforcement; and Mr. Richard Hoglund, former Special

Agent in Charge of the Detroit Customs Office of Enforcement. Ford

produced three witnesses who testified, inter alia, about their

knowledge of Customs’ investigation and the scope of the

investigation as it related to Ford: Mr. Harry Gibson, former

attorney in Ford’s Office of General Counsel; Mr. Donald Cohen,

former manager in Ford’s International Transportation and Customs

Office; and Mr. Kenneth Coakley, former Ford purchasing

representative of stamps and dies for the FN-36 program. Messrs.

Gibson and Cohen also testified about Ford’s customs compliance

2

Each witness’ employment history is described as their

employment from 1988 to 1993 with additional relevant information.

Case No. 02-00106 Page 5

procedures, compliance record, and Ford’s responses to inquiries

made by Customs regarding the FN-36 program.

At trial, Customs and Ford introduced documents relating to

the FN-36 investigation and the Court admitted such documents into

evidence. The Court finds most of this documentary evidence highly

probative because it provides contemporaneous accounts of events

related to the FN-36 investigation, Ford’s responses to the

investigation, and Ford’s compliance procedures. The Court places

substantial weight in the veracity of Customs’ Reports of

Investigation (“ROI”) written contemporaneously to relevant events

concerning the commencement of the FN-36 investigation and fact-

finding interviews conducted therein. See Pl.’s Ex. 2, 33, 93, 94,

99, 112. The Court, however, gives less weight to the ROIs,

particularly Ford ROI # 37, which summarize the findings of the FN-

36 investigation, because these ROIs were prepared in anticipation

of penalty proceedings. See e.g., Pl.’s Ex. 1, 12, 14. The Court

finds that the testimony of Messrs. Gibson and Cohen was not highly

probative because it was apparent from their testimony and demeanor

that they did not independently recall specific events relating to

the FN-36 investigation. The Court, however, found the testimony

of Mr. Turner highly probative because it was apparent from his

testimony and demeanor that he had intimate knowledge of relevant

events and was able to independently recollect the FN-36

Case No. 02-00106 Page 6

investigation. Messrs. Neckel and Hoglund corroborated Mr.

Turner’s testimony regarding how Customs commenced and conducted

investigations during the relevant time period.

The Court also heard testimony regarding procedures and

practices pertaining to the entry of Ford’s automotive dies in

Seattle and Detroit Customs, issuing and responding to Customs’

Requests for Information (“CF 28s”), and general import practices

(both Customs’ and Ford’s) from: (1) Mr. Kent Barnes, former Import

Specialist in Seattle Customs; (2) Ms. Helen McCarty, former

commodities Import Specialist in Detroit Customs; (3) Ms. Dathrenal

Davis, former Field National Import Specialist for the commodity

automotive team in Detroit Customs; (4) Ms. Angela Ryan, former

Supervisory Import Specialist of the automotive team in Detroit

Customs, also the Port Director in Detroit Customs from 2000 until

she retired; (5) Ms. Denise Rashke McCandless, former Customs

Regulatory Auditor in Detroit Customs; (6) Mr. David LaCharite,

former Ford analyst in the International Transportation and Customs

Office; (7) Mr. James Brown, former supervisor in Ford’s customs

operations unit; and (8) Mr. Frank Ciavarro, former employee in

Ford’s customs unit beginning in October, 1989, and currently in

Ford’s purchasing unit. Ford and Customs stipulated to the

admission of deposition testimony of Mr. Phillip Kruzich, former

Case No. 02-00106 Page 7

analyst in Ford’s customs and compliance unit.3 The Court also

heard testimony from Mr. Tom Collins, former administrator in

General Motors’s (“GM”) customs office who had knowledge of Mr.

Turner’s investigation regarding GM, and Mr. Lowell Blackbourn,

former Ogihara America Corporation accounting manager. The Court

finds the testimony of Mr. Collins and Mr. Blackbourn slightly

probative because each witness spoke of their general interaction

with Customs during the relevant time frame. Based on their

demeanor and given the length of time since the relevant events

occurred, the Court finds the testimony of Ms. McCarty, Ms. Davis,

Ms. Ryan, Mr. Kruzich, Ms. McCandless, Mr. LaCharite, Mr. Brown,

and Mr. Ciavarro slightly probative because each testified to

general facts associated with their respective positions.

Regarding events relevant to the FN-36 investigation, these

witnesses could only attest to events in general terms, even after

having their memories refreshed with the exhibits. The Court finds

Mr. Barnes’ knowledge of his communications with Ford as probative

based on his demeanor and ability to recollect events in addition

to the documentary evidence. In accordance with USCIT R. 52(a) and

having given due consideration to the testimony of all sixteen

witnesses and numerous exhibits presented at trial and admitted by

3

Mr. Kruzich’s testimony was submitted via deposition,

taken on August 10, 2004, and February 24, 2005. See Joint Exhibit

1 (“Kruzich”).

Case No. 02-00106 Page 8

the Court, the Court now enters judgment in favor of plaintiff

pursuant to the following findings of fact and conclusions of law.

I. Findings of Fact

A. Findings of Fact Relevant to Ford’s FN-36 Program and

Entry of the FN-36 Merchandise

1. Ford’s program code for the 1990 model year Lincoln Town Car

was “FN-36.” See Trial Transcript (“TT”) at 1051; Pretrial

Order, Schedule C ¶ 2.

2. Ogihara Iron Works (“OIW”) is the parent company of Ogihara

America Corporation (“OAC”), the American subsidiary (referred

collectively as “Ogihara”). See TT at 741-42; PX 40.

3. The subject merchandise includes tooling and stamping dies,

which is large machinery used to make automotive body parts.

Tooling included dies, welding fixtures, and checking fixtures

(“FN-36 dies”). See TT at 797 & 1051-52; Pretrial Order,

Schedule C ¶ 4. Presses are separate from dies. See TT at

800. OIW built the stamping and tooling dies needed for the

FN-36 program in Japan. See Pretrial Order, Schedule C ¶ 3.

The dies were then shipped to Michigan where OAC did the

actual stamping of panels for Ford. See TT at 202; Pretrial

Order, Schedule C ¶ 5. All FN-36 payments were made to OAC,

who in turn transferred payment to OIW. See TT at 103-04,

156, 1051; Pl.’s Ex. 112.

Case No. 02-00106 Page 9

4. Ford, as importer of record, made eleven entries of FN-36 dies

between February 2, 1989, and March 12, 1989, which are the

entries in dispute. See Pretrial Order, Schedule C ¶ 11;

Pl.’s Ex. 69. The entries were handled by Ford’s customs

broker, J.V. Carr & Sons. See TT at 180 & 235; Pretrial

Order, Schedule C ¶ 11; Pl.’s Ex. 69.

5. In Detroit, Ford made the following entries: entry number 441-

4824795-8 on February 2, 1989; 441-4823061-6 on February 9,

1989. In Los Angeles, Ford entered entry number 989-0021515-7

on February 9, 1989. In Seattle, Ford made the following

entries: entry number 441-3103656-6 on February 2, 1989; 441-

3103684-8 on February 10, 1989; 441-3103705-1 on February 17,

1989; 441-3103778-8 on February 26, 1989; 441-3103780-4 on

February 26, 1989; 441-3103777-0 on February 27, 1989; 441-

3103799-4 on March 2, 1989; and 441-3103906-5 on March 12,

1989. See Pl.’s Ex. 40, 75, 102.

6. The value of the FN-36 dies declared upon entry was

$63,078,426. See Pretrial Order, Schedule C ¶ 10.

7. The value of the FN-36 dies declared on the entry summaries

(“CF 7501”) was the invoice price. See TT at 845. The

invoice price was the purchase order agreement value. See TT

at 845; Pl.’s Ex. 71. A tool order is a type of purchase

order, but one specifically to purchase a particular die or

Case No. 02-00106 Page 10

set of dies.4 See TT at 742. A purchase order is also

considered a contract. See TT at 742. The base tool order is

the initial order made by Ford for the dies. See TT at 743.

8. The base tooling order for the FN-36 dies, T510288, was issued

on May 27, 1987, in the amount of $42,544,884. See Pretrial

Order, Schedule C ¶ 3; Pl.’s Ex. 24. Subsequently, 17

amendments were made to the base tool order between May 27,

1987, and January 16, 1991, with the amount on the 17th

amendment being $66,075,960. See Pretrial Order, Schedule C ¶¶

6 & 12; Pl.’s Ex. 24. Amendment 17 to the base tool order,

dated January 16, 1991, is an audit reduction lowering the

price of the FN-36 dies. See Pl.’s Ex. 24.

9. 204 separately numbered purchase orders were also issued

between November 29, 1988, and November 16, 1989, for

engineering changes and other price adjustments (“engineering

purchase orders”). See Pretrial Order, Schedule C ¶ 6; Pl.’s

Ex. 2, 25, 39.

10. To track a program at Ford, purchase order amendments should

reference the previous purchase orders issued. This was done

by referencing the project number on each purchase order. See

4

Based on the testimony from the witnesses, tool orders

and purchase orders were used interchangeably. See e.g., TT at

742. For clarity, the Court uses “tool orders” when referring to

the base tool order and seventeen amendments, and “purchase orders”

when referring to the 204 engineering changes.

Case No. 02-00106 Page 11

TT at 775-76 & 838; Pl.’s Ex. 47 & 105; Def.’s Ex. C.

11. The base tool order and the seventeen amendments all have the

project number “1D90A00” designation on them to identify them

as part of the FN-36 program and to track program costs. See

TT at 150-51 & 751-54; Pl.’s Ex. 24. The 204 engineering

purchase orders also have the project number “1D90A00”

designation on them. See Pl.’s Ex. 25. Ford employees knew

that the project number was a way of tracking purchase orders

associated with a particular project. See TT at 751-54, 775-

76, 837-38.

12. A legend on the base tool order, amendments, and some of the

engineering purchase orders states that “[T]he price set forth

in this Purchase Order or Amendment shall be adjusted so as to

credit buyer in the amount, if any, by which such price

exceeds seller’s actual cost as verified.” followed by the

signature of K.J. Coakley and the date signed. See Pretrial

Order, Schedule C ¶ 9; Pl.’s Ex. 24 & 25.

13. To comply with a new seat-belt law in the United States, the

FN-36 program had a launch date of August 1, 1989. See TT at

747-49. Engineering changes on the dies were frozen by Ford

on October 10, 1988, so that the dies could be transported

from Japan to Michigan. See TT at 213-14, 762-63, 801-02;

Pl.’s Ex. 64. The purchase orders, on their face, do not

indicate whether they were issued for United States work or

Case No. 02-00106 Page 12

foreign source work. See TT at 795; Pl.’s Ex. 25.

14. Engineering changes to the dies were known and expected by

Ford as designs for the FN-36 program evolved, translating

into an increase in the price. See TT at 745 & 751; Kruzich

at 40-41. Ford knew that the invoice price for the FN-36 dies

stated in an entry summary was rarely the final price. See TT

at 839-40.

15. Tool order amendments 16 and 17 state that: “[T]he amount

shown on this invoice represents the actual incurred costs to

manufacture or purchase the tooling described in the

referenced tooling order and/or amendment(s), does not exceed

the amount authorized, and includes only those acceptable

categories of cost described in the tooling guidelines

provided by Ford.” Pl.’s Ex. 24; Def.’s Ex. BBBB.

16. Ford’s International Transportation and Customs Office was

divided into the customs and traffic units. The customs unit

was further divided into compliance and operations units. See

TT at 753-54 & 818-19; Kruzich at 5-6. Ford’s customs

compliance unit came into existence in the late 1980s/early

1990s. See Kruzich at 15.

17. Ford had an internal policy in place on November 7, 1983, and

updated on April 14, 1989, requiring Ford employees in the

purchasing department to send copies of each purchase order

and amendments to five internal Ford units including the

Case No. 02-00106 Page 13

traffic unit. A sixth copy was sent to the supplier. See TT

at 163-64, 753, 774-76; Kruzich at 19-24; Pl.’s Ex. 2, 47, 48,

105; Def.’s Ex. C.

18. Ford’s customs unit would not know about an upcoming entry of

imported merchandise unless Ford’s purchasing unit had sent

them a copy of the purchase order. See TT at 821-25 & 830;

Kruzich at 27-36; Pl.’s Ex. 99. Ford did not have a formal

policy, however, for what its customs unit was to do with the

purchase order upon receiving it. See TT at 823-25; Pl.’s Ex.

99. There were no internal verification procedures in place

to ensure that Ford’s customs unit was receiving copies of all

the purchase orders issued by purchasing. See TT at 823-25 &

830; Kruzich at 27-36; Pl.’s Ex. 40 at 7.

19. With regard to the FN-36 dies, Ford failed to adhere to its

internal policy whereby its purchasing unit notified its

customs unit of the engineering changes through the

transmittal of purchase orders prior to entry. See Pl.’s Ex.

105; see also TT at 163-73; Pl.’s Ex. 2.

20. Ford did not have a mechanism in place to verify that the

information submitted in an entry summary filed by the broker

was based on the correct price of the merchandise. See TT at

824-25; Pl.’s Ex. 40 & 99. Ford’s customs unit would learn of

changes in the purchase order price, usually after entry, when

it received payment information from Ford’s accounting unit.

Case No. 02-00106 Page 14

See Kruzich at 30-31. Ford’s customs unit was also aware that

it did not receive all the purchase orders because of

information later uncovered when answering CF 28s. See TT at

821-32; Kruzich at 42-45. Ford’s customs unit, however, did

not advise the purchasing unit supervisors of this issue. See

Kruzich at 44-45.

21. A Customs CF 28 is a request for information sent to importers

when Import Specialists have questions regarding an entry.

See TT at 347 & 825-26.

22. Ford’s customs unit did not consider receipt of a purchase

order before entry as important because the entry summary

could be amended. The focus at Ford was comparing payments

made to vendors against invoices. See TT at 850-51.

23. Ford knew it had a duty to report to Customs any additional

purchase orders, including engineering changes, that affected

the entered value of imported merchandise. See Kruzich at 40-

42.

24. During the late 1980s to early 1990s, Ford was importing

billions of dollars each year. See TT at 964.

B. Findings of Fact Related to Customs’ Investigation of

Ford

25. An investigation could be initiated in different ways. An

open investigation could lead into new investigations of

either different violations or other importers. See TT at 74,

Case No. 02-00106 Page 15

526, 580-81. Investigations could also begin with referrals

from import specialists. See TT at 489-90, 523, 580. When

information obtained in an open investigation led to another,

notes regarding the new investigation would be contained in

the former investigation’s file until a separate file was

opened. See TT at 526 & 581-82; Pl.’s Ex. 33.

26. Customs investigations would be documented in ROIs in which

agents would summarize interviews and investigative activity.

ROIs would often be written contemporaneously to the events

reported therein, but would also be written at a later date

from notes taken during earlier events. See TT at 76-77, 158-

59, 285-87. Material events that would be recounted in an ROI

would include: telling an importer it was under investigation,

telling an importer the scope of the investigation had

expanded, discovery that merchandise was undervalued, and

requesting documents to be produced. See TT at 286-88.

27. An investigative agent’s duties included keeping a careful

record of the dates relevant information was obtained. See TT

at 291-97; Def.’s Ex. A.

28. The term “formal investigation” is not defined in any Customs

document submitted to the Court. See Def.’s Ex. A. Among

Customs personnel, a “formal investigation” means a file has

been opened within Customs’ internal case management system to

track cases. The term “formal investigation” has a different

Case No. 02-00106 Page 16

meaning when used in Customs’ prior disclosure regulations.

The term “formal investigation” is not used interchangeably

among the two definitions. See TT at 548 & 553-54.

29. In the late 1980s, Customs conducted a national investigation

entitled, “Rebate Adjustment Program,” or “RAP.” Operation

RAP investigated allegations that certain United States

importers were manipulating freight rates in cooperation with

foreign shippers to affect the entered value of merchandise to

Customs. OAC was one of the companies being investigated and

on November 27, 1989, Customs executed a search warrant on

OAC’s Michigan facility seizing numerous documents. See TT at

80-81 & 528-29; Pl.’s Ex. 33; Def.’s Ex. YYY & ZZZ.

30. Mr. Turner took over the Ogihara case in August-September,

1990. See TT at 314-15. Mr. Turner was only investigating

OAC, but his attention was drawn to Ford while reviewing the

seized OAC documents. He began comparing Ford’s FN-36

invoices submitted to Customs against Ford’s payments made to

OAC for the same merchandise. See TT at 82-85 & 268; Pl.’s Ex.

33; Def.’s Ex. YYY & ZZZ.

31. On October 18, 1990, Mr. Turner met with Mr. Gibson and after

delivering two summonses in an unrelated matter, discussed

presses purchased from Ogihara for the FN-36 program. See TT

at 96-99 & 125-26; Pl.’s Ex. 94. Mr. Turner asked Mr. Gibson

to identify an entry number (441-4823061-6). See TT at 333 &

Case No. 02-00106 Page 17

893; Pl.’s Ex. 35. Mr. Turner “advised [Ford] that Customs

would ask to review Ford’s records related to payment for and

receipt of the presses purchased from OIW and OAC” for the FN-

36 program. Pl.’s Ex. 33; see also TT at 98-99 & 339-40;

Pl.’s Ex. 94. Mr. Turner did not specifically request records

from Ford and did not tell Ford that it was under

investigation at this October 18, 1990, meeting. See TT at

301-05, 339-40, 893-95; Pl.’s Ex. 33.

32. On December 19, 1990, Mr. Turner told OAC’s attorneys that the

OAC investigation was expanding to include whether the costs

of GM-33 and FN-36 dies from OIW were properly reflected in

invoices and entry summaries. See TT at 101-02; Pl.’s Ex. 33

& 97. On January 7, 1991, Mr. Turner wrote OAC ROI #8

recording the October 18, 1990, meeting and December 19, 1990,

expansion of investigation. See TT at 307-08; Pl.’s Ex. 33.

33. Between October 18, 1990, and March 8, 1991, Mr. Turner

requested documents from Ford regarding OAC. See Pl.’s Ex.

35, 37, 97. On March 8, 1991, Mr. Turner had a phone

conversation with Mr. Hamell, of Ford, following up on his

previous request for documents regarding FN-36 entries of

stamping dies and payments to Ogihara. See TT at 109 & 115-

19; Pl.’s Ex. 97. Mr. Turner learned that Ford was compiling

the requested information and was also conducting an internal

audit. See TT at 118 & 894-96; Pl.’s Ex. 97. The March 8,

Case No. 02-00106 Page 18

1991, phone conversation is memorialized in Mr. Turner’s

handwritten notes in the investigatory record, but not

included in a ROI. See TT at 115 & 316; Pl.’s Ex. 97.

34. By March 8, 1991, Mr. Turner had not only expanded the OAC

investigation to include Ford as a witness therein, but also

was investigating Ford as a separate target concerning its

payments to OAC and declarations to Customs regarding the FN-

36 program. See TT at 102-03 & 115-19.

35. On April 18, 1991, Detroit Customs Office of Enforcement sent

an internal memorandum to Detroit Customs Regulatory Audit

requesting an in-depth review of OAC’s records for presses and

dies, including a comparison of payments made by Ford against

OIW’s invoices. See TT at 119-24; Pl.’s Ex. 77 & 93.

36. On April 30, 1991, Ford completed its internal audit of the

FN-36 tooling and dies, entitled “Ogihara America Corporation

Tooling Audit” which includes the 204 purchase orders for

engineering changes. See Pl.’s Ex. 99A; see also TT at 855;

Pl.’s Ex. 97.

37. In a letter dated May 6, 1991, Ford requested a second

extension to answer a CF 28 from Seattle Customs. See Pl.’s

Ex. 32. The letter also stated that Ford’s customs unit had

been informed on April 22, 1991, that “final audit results and

price adjustments will soon be available” from OIW. Pl.’s Ex.

32; see also TT at 476-77. Ford’s customs unit knew of the

Case No. 02-00106 Page 19

engineering purchase orders, but did not disclose them because

Ford was unsure whether the work was done in Japan or the

United States. See TT at 879-81 & 942-43.

38. In a letter dated May 23, 1991, Ford updated Seattle Customs

on its CF 28 response to a different FN-36 entry than the one

discussed in its May 6, 1991, letter. See Def.’s Ex. Y. The

letter stated that Ford wanted to confirm that “the final

audit and price adjustments are in agreement” with its CF 28

response. Def.’s Ex. Y.

39. On June 7, 1991, Customs issued Ford a summons for all

documents relating to “dies, molds, and any other article” of

the FN-36 program and OIW. Pl.’s Ex. 38. The summons

requested “all purchase orders and payment records” and

“engineering change and modification orders” among other

records. Pl.’s Ex. 38; see also TT at 126-31 & 600-01;

Pretrial Order, Schedule C ¶ 19; Pl.’s Ex. 93 & 112.

40. By June 7, 1991, Ford knew or should have known that it was

being investigated by Customs regarding the FN-36 entries.

See TT at 540-41.

41. In a letter dated July 3, 1991, Ford informed Seattle Customs

that any correspondence regarding four FN-36 entries entered

at Seattle would now be directed to Detroit Customs. See

Pl.’s Ex. 54.

Case No. 02-00106 Page 20

42. On August 6, 1991, Ford sent Detroit Customs a “supplemental

response” to its previous November 20, 1989, response to the

March 28, 1989, CF 28. See Pl.’s Ex. 39. Ford reported the

17th amendment to the base tool order and then revealed that

there had been an “additional 204 separate Purchase Orders”

issued to OAC for dutiable engineering changes that had been

“discovered” by Ford’s customs unit in April 1991. See Pl.’s

Ex. 39. This disclosure was the first time Customs was

informed of the existence of the 204 engineering purchase

orders. See TT at 357. The letter estimated $684,417 for

unpaid duties owed from an undeclared value of $16.7 million

in engineering changes. The unpaid duty owed was determined

by applying an allocation method derived from the twelve

subject entries. See Pl.’s Ex. 39 & 74; see also TT at 131-

38, 357-61, 627-28; Pretrial Order, Schedule C ¶¶ 20 & 21.

43. Customs reviewed Ford’s August 6, 1991, letter and calculated

that Ford owed $689,775 for unpaid duties. Customs also

accepted the allocation method used by Ford to determine the

amount of unpaid duty owed. See TT at 361-62 & 627-28; Pl.’s

Ex. 40.

44. Each engineering purchase order represents a separate

engineering change to the FN-36 dies. The engineering changes

affected the price of the FN-36 dies, both increasing and

decreasing price. See TT at 755-65; Pretrial Order, Schedule

Case No. 02-00106 Page 21

C ¶ 7; Pl.’s Ex. 25, 39, 40, 74.

45. The engineering purchase orders were not cross-referenced as

amendments to the base tool order because an internal

“implementation of a mechanized purchase order system” would

not allow the issuance of an amendment until the previous

amendment had been processed. The system would allow

independent purchase orders to be issued without regard to

sequence. See Pl.’s Ex. 105, see also TT at 167-68; Pl.’s Ex.

2 & 99.

46. On August 21, 1991, Mr. Turner opened a separate file record

for the FN-36 investigation. Customs was investigating Ford

before August 21, 1991, as part of the OAC investigation. The

assignment of a separate case number was an internal mechanism

at Customs to track documents and investigative findings. See

TT at 153-55; Pl.’s Ex. 112; Def.’s Ex. DD.

47. On August 27, 1991, Mr. Turner sent Customs Regulatory Audit

a memorandum requesting a separate audit report of Ford’s FN-

36 transactions from the previously requested audit of OAC.

See Pl.’s Ex. 77 & 79; Def.’s Ex. DDDD.

48. On November 8, 1991, Ford submitted additional documents to

Customs pursuant to the June 7, 1991, summons including copies

of the twelve entry summaries of FN-36 dies filed by Ford in

the ports of Detroit, Seattle, and Los Angeles. See TT at

148-49; Pl.’s Ex. 105.

Case No. 02-00106 Page 22

49. On November 22, 1991, Ford tendered a check to Detroit Customs

for $689,775 for unpaid duties owed on the engineering changes

in the FN-36 program. See Def.’s Ex. BB.

50. On July 6, 1992, Customs Regulatory Audit published its audit

report of Ford and the FN-36 program. See Pl.’s Ex. 40. Ford

cooperated with Regulatory Audit by providing requested

information during the compilation of the audit report. See

TT at 630-31; Pl.’s Ex. 40. Ford, however, did not submit its

internal audit dated April 30, 1991 and it was not included in

Customs’ audit. See TT at 641. The audit report states that

the dutiable value of the FN-36 program was $79,894,722. See

Pl.’s Ex. 40. On its entry documents, Ford had declared

$63,078,426. See Pretrial Order, Schedule C ¶ 10. Thus, Ford

had undervalued the FN-36 dies by $16,816,296, which resulted

in a loss of revenue in the amount of $689,775. See Pl.’s Ex.

40. Customs Regulatory Audit used the same allocation formula

as Ford had used in its August 6, 1991, letter to determine

the amount of unpaid duty owed. See TT at 627-28.

51. The Pre-Penalty Notice was issued on January 10, 1995. See

Pl.’s Ex. 41. Customs reappraised the dutiable value of the

FN-36 dies upon Ford’s submission of its internal audit, dated

April 30, 1991. See TT at 641-46; Pl.’s Ex. 43, 75, 99A.

Customs issued a Notice of Penalty reflecting the reappraisal

on July 19, 1995. See TT at 641-46; Pl.’s Ex. 43. The final

Case No. 02-00106 Page 23

appraised value of the FN-36 dies was $84,393,564; the final

undeclared value to Customs was $21,314,111; and the final

loss of revenue to the United States was $874,270. See Pl.’s

Ex. 43 & 75. After accounting for Ford’s November 1991,

payment, the remaining unpaid duty amount owed is $184,495.

See Pl.’s Ex. 43. Customs again applied the same allocation

method used in its audit and by Ford. See TT at 381; Pl.’s

Ex. 75. The $184,495 difference formed the basis of Customs’

complaint. See Compl. ¶ 9.

C. Findings of Fact Related to Ford’s Provisional Value

Policy and Internal Procedures

52. Ford had a formalized practice of designating certain entries

as “provisional” values or prices. See Def.’s Ex. C. Ford’s

Customs Compliance Manual states: “[i]n the event that the

value is not completely and correctly shown, a ‘provisional’

disclaimer is stated on the invoice, thereby advising

customs.” Def.’s Ex. C; see also Pretrial Order, Schedule C

¶ 1. Ford’s Supply Manual states: “[p]rovisional values must

be used when actual values are not available and the words

‘Provisional Value’ must be shown on the commercial invoice.”

Def.’s Ex. C; see also Pretrial Order, Schedule C ¶ 1. Ford

defined a “provisional” entry, invoice, value, or price as

merchandise imported through Customs without knowledge of the

final price. See TT at 215-16, 868-69, 1022. Ford would

Case No. 02-00106 Page 24

notify Customs that merchandise was entered at provisional

value either on the invoice or on a separate memorandum to

Customs. See TT at 1022-24; Pl.’s Ex. 85 & 86.

53. At the time of the subject entries were made, Ford had an

informal procedure with its broker when to advise Customs that

the invoice price was not the final price. See TT at 228-30,

332, 839-40, 869-71, 1022-24. Ford would orally instruct its

broker to place the words “provisional pricing or value” on an

invoice. See TT at 869-71, 992. Ford implemented formal

procedures for provisional value with its broker in 1991,

after the subject entries. See TT at 247 & 332; Pl.’s Ex.

107. The formal procedure required that all entries for

tooling, dies, molds and machinery be entered with a letter

alerting Customs that the value was provisional. See Pl.’s

Ex. 107.

54. Without indicating provisional value on an entry summary, an

import specialist would not know that the price listed was

incomplete and to withhold liquidation. See TT at 216, 427-

28, 493-94.

55. Prior to the FN-36 entries, Ford had used provisional values

when entering machinery, tooling, dies, and presses. See TT

at 868.

56. Ford had previously entered merchandise without alerting

Customs that the entry was provisional. Ford would then later

Case No. 02-00106 Page 25

advise Custom in a CF 28 response that the prices declared had

been provisional. When provisional values were first relayed

to Customs in a CF 28 response, the information was accepted,

treated as a prior disclosure and possibly subject to

penalties. See TT at 430-31 & 507-08.

57. Between 1988 and 1991, there were no Customs regulations or

directives requiring an importer to use the words “provisional

value” or pricing on entry documents. See TT at 440, 476,

511, 870.

58. The entry summaries for the FN-36 dies did not indicate that

the transaction value was provisional or subject to change.

See TT at 229-30; Pl.’s Ex. 26E & 113.

59. There was a lack of communication between Ford’s internal

units about Ford’s provisional value policy and when to use

it. See TT at 705-06, 779-80 (stating “I have never used

[provisional value] in 32 years.”), 827-29; Pl.’s Ex. 2.

60. Ford had submitted internal customs training videos and

manuals to Customs for review and suggestions in 1990-91. See

Def.’s Ex. D, F, G, H, M.

61. In 2000, Customs published a compliance audit report reviewing

Ford’s compliance with Customs laws during the 1996 calender

year. Overall, Ford is credited as having met an acceptable

level of compliance. Areas where Ford was lacking included

internal control procedures especially in verifying the

Case No. 02-00106 Page 26

reliability of its broker’s work, maintenance of records, and

ensuring that correct values were reported on entries. See

Pl.’s Ex. 114.

D. Findings of Fact Related to Customs’ CF 28s and Ford’s

Responses

62. Customs often sent CF 28s to importers when the imported

merchandise was an automotive die because most dies usually

had tooling or assists, which could affect dutiable value.

See TT at 347, 388, 468-70. The issuance of CF 28s was fairly

routine and it was not uncommon for Ford to request additional

time to respond to CF 28s. See TT at 478-79 & 832-33.

Information submitted as a response to a CF 28 was certified

by the importer’s signature to be true and correct. See Pl.’s

Ex. 29, 30, 31, 113.

63. Answering CF 28s was not a high priority at Ford. See TT at

826-29 & 851-52.

64. Detroit Customs issued a CF 28 regarding entry 441-4823061-6

on March 28, 1989, to which Ford responded on November 20,

1989, and sent a supplemental response on August 6, 1991. See

Def.’s Ex. BBBB; see also Pretrial Order, Schedule C ¶¶ 13,

15, 20; Pl.’s Ex. 113. Ford’s response dated November 20,

1989, did not mention that Ford was conducting an internal

audit. See Def.’s Ex. BBBB. The letter described the

different dies imported for the FN-36 program and included

Case No. 02-00106 Page 27

copies of the base tooling order and sixteen of the seventeen

amendments. See Def.’s Ex. BBBB.

65. Seattle Customs issued a CF 28 regarding entry 441-3103656-6

on March 2, 1989, reissued it on February 28, 1990, to which

Ford responded on May 23, 1991, asking for an extension. See

Pretrial Order, Schedule C ¶¶ 14 & 18; Pl.’s Ex. 29; Def.’s

Ex. Y.

66. Seattle Customs issued a CF 28 regarding entry 441-3103684-8

on March 1, 1989, reissued it on December 5, 1990, to which

Ford responded on January 9, 1991, and May 6, 1991, asking for

extensions. See TT at 480-81; Kruzich at Ex. 5; Pretrial

Order, Schedule C ¶ 17; Pl.’s Ex. 31, 32, 51, 52. Ford’s May

6, 1991, letter also stated that its delay in responding was

because final audit results were soon available. Pl.’s Ex.

32. Seattle Customs met with Ford in late 1990 to finalize

Ford’s penalties in an unrelated Fuji dies case, after which

this unanswered CF 28 was discussed. See TT at 872-74 & 897;

Pl.’s Ex. 27.

67. Seattle Customs expanded the CF 28 reissued on December 5,

1990, to include entries 441-3103705-1, 441-3103778-8, and

441-3103777-0. See Pretrial Order, Schedule C ¶ 16; Pl.’s Ex.

31 & 54. In Ford’s response, dated July 3, 1991, to these

four Seattle entries, Ford only stated that a summons had been

issued by Detroit Customs and that all future correspondence

Case No. 02-00106 Page 28

would be directed to the Detroit office. See Pl.’s Ex. 54.

68. Seattle Customs also issued a CF 28 for entry 441-3103780-4 on

March 16, 1989, to which Ford responded on March 30, 1989,

asking for a ninety day extension. See Pl.’s Ex. 2 at Ex. 7;

Pl.’s Ex. 30.

69. As a practice, Customs accepted disclosures of values that had

changed from the entered value in a CF 28 response. If

additional duties were paid with the corrected value, Customs

would accept the payment, check the information provided, and

possibly refer the information to Customs’ auditors or special

agents for further review. See TT at 496-97.

70. Automotive dies were not automatically bypassed by Customs

because they often had assists, were not the same type of die

in each entry, and were fairly expensive items. See TT at

426-27, 448, 499. Ford’s dies were not on bypass in Seattle

or Detroit. See TT at 448 & 499.

II. Conclusions of Law

The Court has jurisdiction pursuant to 28 U.S.C. § 1582

(2000).5 In actions brought for the recovery of any monetary

5

Relevant portions of the statute state:

The Court of International Trade shall have exclusive

jurisdiction of any civil action which arises out of an

import transaction and which is commenced by the United

States --

Case No. 02-00106 Page 29

penalty claimed under section 592 of the Tariff Act of 1930, as

amended, 19 U.S.C. § 1592 (1988), all issues are tried de novo, see

28 U.S.C. § 2640(a)(6) (2000), including the amount of the penalty.

See 19 U.S.C. § 1592(e)(1). The level of culpability has a direct

correlation to the maximum amount of penalty that can be assessed.

See 19 U.S.C. § 1592(c).

Customs has alleged that Ford violated 19 U.S.C. § 1592,

thereby depriving the United States of all or a portion of lawful

duty through fraud, or in the alternative, gross negligence or

negligence. See Compl. In pertinent part, 19 U.S.C. § 1592(a)

states:

Without regard to whether the United States is or may be

deprived of all or a portion of any lawful duty thereby,

no person, by fraud, gross negligence, or negligence–

(A) may enter, introduce, or attempt to enter or

introduce any merchandise into the commerce of the

United States by means of–

(i) any document, written or oral statement,

or act which is material and false, or

(ii) any omission which is material . . .

19 U.S.C. § 1592(a). An act or omission is deemed material if it

has the potential to alter the appraisement or liability for duty.

See 19 C.F.R. pt. 171, App. B(A) (1988). The issue of materiality

(1) to recover a civil penalty under section 592 . . . of

the Tariff Act of 1930 . . .

(3) to recover customs duties.

28 U.S.C. § 1582.

Case No. 02-00106 Page 30

is for the Court to determine. See United States v. Hitachi Am.,

Ltd. (“Hitachi I”), 21 CIT 373, 386, 964 F. Supp. 344, 360 (1997),

aff’d in part and rev’d in part on other grounds, 172 F.3d 1319

(Fed. Cir. 1999); see also United States v. Rockwell Int’l Corp.,

10 CIT 38, 42, 628 F. Supp. 206, 210 (1986) (stating that “the

measurement of the materiality of the false statement is its

potential impact upon Customs’ determination of the correct duty

for the imported merchandise”).

A. Customs Failed to Prove that Ford’s Conduct was

Fraudulent

Fraudulent conduct “results from an act or acts (of commission

or omission) deliberately done with intent to defraud” the United

States and must be established by clear and convincing evidence.

19 C.F.R. pt. 171, App. B(B)(3); see also 19 U.S.C. § 1592(e)(2)

(burden is on Customs). Fraud occurs if an importer “knowingly”

enters goods by means of a material false statement or omission.

See Hitachi I, 21 CIT at 402, 964 F. Supp. at 371. “Intent is a

factual determination particularly within the province of the trier

of fact.” Allen Organ Co. v. Kimball Int’l, Inc., 839 F.2d 1556,

1567 (Fed. Cir. 1988).

Based on the evidence and the testimony submitted during

trial, the Court finds that Customs has failed to show by clear and

convincing evidence that Ford intentionally violated 19 U.S.C. §

Case No. 02-00106 Page 31

1592 when it entered the subject merchandise. Customs failed to

show any intent by Ford to deliberately misrepresent the value of

the 204 engineering purchase orders from Customs. Customs also did

not show that Ford employees intentionally or knowingly misplaced

purchase orders or colluded with other employees to defraud the

United States. Rather, the evidence demonstrated that Ford had in

place internal compliance procedures. Such procedures illustrate

Ford’s attempt to comply with its legal obligations. Whether

Ford’s internal procedures ensured that Ford met its statutory

obligations is not central to a fraud analysis. Rather, it is

significant that Ford had measures in place because they contravene

a showing of fraud.

Ford, for example, had customs compliance and supply manuals

that instructed its employees to circulate copies of purchase

orders to other units for upcoming importations for proper and

smooth entry of merchandise. See Def.’s Ex. C. Also, Ford’s

internal provisional value policy was meant to ensure that Ford was

forthright, rather than subversive with Customs. See id.

Moreover, Ford responded to Customs’ CF 28s about the subject

merchandise rather than ignoring them, albeit often after many

months had passed. See e.g., Pl.’s Ex. 113; Def.’s Ex. BBBB;

Pretrial Order, Schedule C ¶¶ 13, 15, 20. Ford’s CF 28 responses

commonly included tenders for unpaid duties. See e.g., Pl.’s Ex.

Case No. 02-00106 Page 32

39. Such procedures illustrate Ford’s intent to comply with the

statute. Without showing that Ford purposefully disregarded its

statutory obligations with the intent to defraud the United States,

Customs’ allegation of fraud fails. The Court concludes that

Customs failed to meet its burden showing that Ford deliberately

disregarded its statutory obligations or acted with the requisite

intent to defraud the United States.

B. Customs Has Established by a Preponderance of the

Evidence that Ford’s Conduct was Grossly Negligent.

Gross negligence arises “if it results from an act or acts (of

commission or omission) done with actual knowledge of or wanton

disregard for the relevant facts and with indifference to or

disregard for the offender’s obligations under the statute.” 19

C.F.R. pt. 171, App. B(B)(2). “Wanton” is defined as “unreasonably

or maliciously risking harm while being utterly indifferent to the

consequences.” BLACK ’S LAW DICTIONARY 1613 (8th ed. 2004). A

defendant is liable for a grossly negligent violation of 19 U.S.C.

§ 1592 “if it behaved willfully, wantonly, or with reckless

disregard in its failure to ascertain both the relevant facts and

the statutory obligation.” Hitachi I, 21 CIT at 406, 964 F. Supp.

at 374 (emphasis retained). A finding of gross negligence requires

the Court to determine that Ford’s omissions of information from

entry documents and its failure to comply with its statutory

obligations was willful, wanton or reckless or that the evidence

Case No. 02-00106 Page 33

before the Court illustrates Ford’s utter lack of care. See Mach.

Corp. of Am. v. Gullfiber AB, 774 F.2d 467, 473 (Fed. Cir. 1985)

(citation omitted).

Gross negligence involves a type of intent which is a question

of fact and not law. See United States v. Hitachi Am., Ltd.

(“Hitachi II”), 172 F.3d 1319, 1326 (Fed. Cir. 1999); see also

Allen, 839 F.2d at 1567. Customs bears the burden to establish all

the elements of the alleged violation. See 19 U.S.C. § 1592(e)(3).

Customs must establish such elements by a preponderance of the

evidence, which “is the general burden assigned in civil cases for

factual matters.” St. Paul Fire & Marine Ins. Co. v. United

States, 6 F.3d 763, 769 (Fed. Cir. 1993). Preponderance of the

evidence is “the greater weight of evidence, evidence which is more

convincing than the evidence which is offered in opposition to it.”

Id. (quoting Hale v. FAA, 772 F.2d 882, 885 (Fed. Cir. 1985)).

Negligence is either failure “to exercise the degree of

reasonable care and competence expected from a person in the same

circumstances” or “in communicating information so that it may be

understood by the recipient.” 19 C.F.R. pt. 171, App. B(B)(1).

Consequently, negligence does not require the trier of fact to

determine intent. Section 1592(e)(4) of Title 19 of the United

States Code derogates from common law negligence (i.e., duty,

breach, causation, and injury) by shifting the burden of persuasion

Case No. 02-00106 Page 34

to the defendant to show lack of negligence. See Hitachi I, 21 CIT

at 380, 964 F. Supp. at 355. The statute removes the breach

element from Customs’ prima facie negligence case. See id.

Accordingly, Customs must establish by a preponderance of the

evidence that the materially false act or omission occurred. See

19 U.S.C. § 1592(e)(3). Once Customs has met its burden, Ford

bears the burden to establish that it exercised reasonable care

under the circumstances and that the alleged violation was not

caused by its negligence. See 19 U.S.C. § 1592(e)(3); 19 C.F.R.

pt. 171, App. B; see also Hitachi I, 21 CIT at 381, 964 F. Supp. at

355-56.

As a threshold issue, Ford asserts that Customs failed to

offer into evidence ten of the eleven entry summaries at issue.6

See Def.’s Post-Trial Br. at 24-26. Ford argues, that without the

entry summaries admitted into evidence, the Court has no means of

evaluating Customs’ claims that the entered values were false or

that Ford failed to notify Customs that the prices reflected

therein were not final. See id. Ford’s argument is flawed because

the statutory language contemplates violations where the importer

of record has either made material omissions or failed to act. See

6

Ford is actually incorrect. Customs submitted the CF

7501 for entry number 441-3103684-8 as a separate exhibit. See

Pl.’s Ex. 26E. Other entry summaries were admitted as parts of

other exhibits. See Pl.’s Ex. 113 (including CF 7501s for entry

numbers 441-4824795-8 and 441-4823061-6).

Case No. 02-00106 Page 35

19 U.S.C. § 1592(a). An importer may violate the statute by

failing to provide Customs with entry documents in the first place.

Pursuant to Ford’s argument, the government would be precluded from

successfully bringing an action pursuant to 19 U.S.C. § 1592 in

instances where entry documents or specific entry information was

never submitted to Customs. This reasoning is untenable and

contradicts the plain meaning of the statutory language.

The totality of the evidence submitted at trial provides the

Court with ample evidence of the values Ford declared on its entry

documents. Ford admitted that the invoice price stated in the

entry documents was the purchase order price, and all the purchase

orders are in evidence. See TT at 845; see also Pl.’s Ex. 24, 25,

26E, 71. Furthermore, Ford acknowledged that it did not enter the

subject merchandise provisionally or disclose the existence of the

204 engineering purchase orders to Customs until its letter, dated

August 6, 1991. See TT at 357; Pl.’s Ex. 39. Accordingly, the

Court finds that there is sufficient evidence to evaluate Customs’

claims that the entered values were false or that Ford failed to

promptly notify Customs that the prices reflected therein were not

final.

Based on the evidence submitted, the Court finds that Customs

established by a preponderance that Ford’s conduct was grossly

negligent. Ford failed to account for the value of the engineering

Case No. 02-00106 Page 36

changes when it entered the subject merchandise. On multiple

occasions, Ford failed to promptly notify Customs promptly of the

value of the engineering purchase orders. This repeated failure

constitutes a material omission because the engineering changes had

an impact on the dutiable value of the FN-36 dies. Consequently,

Ford’s knowledge of and repeated indifference for the value of the

engineering changes in its submissions to Customs constitutes a

wanton disregard of its obligations.

1. Ford’s Failure to Include or Notify Customs of the

Engineering Changes at Entry was a Material

Omission in Violation of 19 U.S.C. § 1484

Under 19 U.S.C. § 1484, an importer of record has the duty to

present true and correct information at entry enabling Customs to

properly assess duties on the merchandise. See 19 U.S.C. §§

1484(a) & 1485 (1988); see also 19 U.S.C. § 1592(a). True and

correct information includes, invoices with the purchase price in

the currency of the purchase and any other documentation necessary

for proper appraisement and classification. See 19 U.S.C. § 1484;

see also 19 U.S.C. § 1481(a)(5) (1988); United States v. Thorson

Chem. Corp., 16 CIT 441, 448, 795 F. Supp. 1190, 1195 (1992). This

duty encompasses an importer’s obligation to notify Customs if the

values on an entry summary are not final. See Hitachi I, 21 CIT at

387, 964 F. Supp. at 360 (stating that the importer’s omission on

entry documents of escalation clauses affecting price “had a

Case No. 02-00106 Page 37

potential impact on the correct duty and thus perpetrated a

material omission”).

During the relevant time, Ford had mechanisms in place to

prepare for the entry of the subject merchandise. For example,

Ford’s internal units had procedures that facilitated the

notification of upcoming importations so that each unit could do

its job correctly. See e.g., Def.’s Ex. C. Ford also had a

provisional value policy designed to transmit information within

Ford, to its broker, and ultimately to Customs that the value of

certain merchandise would increase after entry. See TT at 228-30,

332, 839-40, 869-71, 1022-24; Def.’s Ex. C. Both pre-entry

mechanisms failed to occur with the FN-36 entries, resulting in the

wanton disregard for the engineering purchase orders. See TT at

229-30; Pl.’s Ex. at 24, 25, 26E, 113. Ford argues that the

compliance mechanisms it had in place illustrates that it was not

wanton. See Def.’s Post-Trial Br. at 18-19. Ford cites the

following mechanisms in support: instructions to vendors to put

“provisional pricing” on invoices; standing instructions to its

broker to indicate provisional prices on entries; and a regular

filing of a reconciliation of prices and duties to Customs after

prices were finalized. See id. at 2. Of the three mechanisms Ford

cites, the evidence established that the first two mechanisms

failed to occur with respect to the FN-36 entries. The existence

Case No. 02-00106 Page 38

of the third mechanism is not adequately supported by the

evidence.7 Rather, the minimal mechanisms Ford may have

implemented represent an institutional indifference to ensuring

that Ford captured and reported the full transaction value of

entered merchandise. Ford failed to include the value of the

engineering changes known at the time of entry. Moreover, Ford

knew that the prices declared at entry were not the final dutiable

value and failed to notify Customs that such values were subject to

change. Ford’s institutional indifference to the existence of the

engineering purchase orders constitutes an utter lack of care and

therefore, a violation of 19 U.S.C. § 1592.

a. Ford Failed to Include the Value of the Engineering

Changes When Entering the FN-36 Dies

An entry summary is the presentation made by an importer to

Customs for entry of merchandise declaring classification numbers,

rates of duty, and any supporting documents such as invoices. See

TT at 352-53. Ford argues that it complied with 19 U.S.C. § 1484

because the prices listed on the invoices in the entry summaries

7

Mr. Gibson testified that Ford reconciled programs after

entry by comparing values declared at entry to Customs against

amounts actually paid to the supplier. If there was a discrepancy,

Ford would tender any additional duties owed to Customs. See TT at

870. Conflicting evidence was submitted to the Court about when

Ford began conducting reconciliations. See e.g., TT at 875-77 &

884-85; Pl.’s Ex. 2 & 99A. Therefore, the Court finds that Ford

failed to show that it had a reconciliation program in place prior

to and during the FN-36 program.

Case No. 02-00106 Page 39

were the only prices known at the time of entry. See Def.’s Post-

Trial Br. at 11-12. Ford’s argument fails in two ways. First, the

initial entry for the FN-36 dies was made on February 2, 1989, yet

the initial engineering purchase order was dated November 29, 1988.

See Pl.’s Ex. 25, 69, 113; Pretrial Order, Schedule C ¶ 11.

Accordingly, the Court concludes that Ford knew or should have

known at the time of importation that the value of the FN-36 dies

was not solely the base tool order and amendments. The entry value

of the FN-36 dies should have included any engineering changes

dated before February 2, 1989. Ford, however, failed to provide

the true and complete value of the merchandise because it did not

include the engineering changes known prior to entry.

Second, on their face, the purchase orders provide enough

information to cross-reference the base tool order and amendments

to the 204 engineering purchase orders in three different ways.

See Pl.’s Ex. 24 & 25. First, the 204 engineering purchase orders

begin with tool order T524675, which is dated November 29, 1988.

See Pl.’s Ex. 25. This tool order unambiguously states that it

replaces amendments 8, 9 & 10 to the base tool order, T510288. See

id. Second, amendment 11 to the base tool order has a handwritten

notation that states it is “reissued on T524675,” which is the

initial engineering purchase order. See Pl.’s Ex. 24. Third and

most significantly, the project number “1D90A00” was printed on the

Case No. 02-00106 Page 40

base tool order, amendments, and most of the engineering purchase

orders to track changes and costs made in the FN-36 program. See

TT at 775-76; Kruzich at 19-23; Pl.’s Ex. 24, 25, 105. A review of

purchase orders by project number should have encompassed the base

tool order, seventeen amendments, and 204 engineering purchase

orders. Thus, Ford’s customs unit should have been able to account

for the engineering changes and convey the correct information to

its broker for entry. Ford offered no evidence explaining how its

customs unit missed the links between the base tool order and the

engineering changes when its accounting unit was able to track all

the purchase orders. See Pl.’s Ex. 99A (internal audit dated April

30, 1991, capturing all the engineering changes). Accordingly, the

Court concludes that Ford exhibited a lack of care and

indifference. Ford ignored the timing and cross-references between

all the purchase orders which attributed to the undervaluation of

the FN-36 dies.

b. Ford Failed to Use or Check Its Provisional Value

Policy Regarding the FN-36 Dies

Ford contends that it had no legal obligation to enter the

dies “provisionally” and did so voluntarily. See Def.’s Post-Trial

Br. at 13. Ford also argues that the legend on each purchase

order, submitted with Ford’s CF 28 response dated November 20,

1989, placed Customs on notice that the prices declared at entry

were not final. See id. at 3. The plain language of the legend,

Case No. 02-00106 Page 41

however, indicates that a final price adjustment could occur in

crediting the buyer, i.e. Ford receiving a credit on money paid,

which is different from an increase in price that would affect

dutiable value. See Pretrial Order, Schedule C ¶ 9; Pl.’s Ex. 24

& 25. Ford’s provisional value policy was a mechanism implemented

by Ford to satisfy its 19 U.S.C. § 1484 legal obligation.

Provisional value would be marked somewhere on the entry documents,

either on the invoice or on a separate memorandum to Customs,

notifying Customs that the value of the merchandise was not final.

See TT at 215-16, 228-30, 332, 839-40, 868-71, 1022-24; Pl.’s Ex.

85 & 86; Def.’s Ex. C. When Customs knew that an entry’s value was

not final, it would withhold liquidation until the final value was

known. See TT at 212-16, 427-28, 493-94. Ford correctly asserts

that between 1988 and 1991, there was no Customs regulation or

directive requiring an importer to use the words “provisional

pricing.” See TT at 440, 476, 511, 870. Ford, however, should

have known its legal duty under 19 U.S.C. § 1484 to notify Customs

if the value at entry was not the complete and final value. See 19

U.S.C. § 1484.

Ford’s duty to be forthright on its entry documents remained

regardless if Customs was aware of Ford’s provisional value policy.

Ford was a sophisticated importer. See TT at 964. Moreover, Ford

had an internal provisional value policy and had marked entries as

Case No. 02-00106 Page 42

provisional before. See Pl.’s Ex. 85 & 86; Def.’s Ex. C. Ford

understood that it had an obligation to notify Customs if the price

at entry was not complete. See Kruzich at 40-42. Otherwise Ford

would not have implemented its provisional value policy. The

evidence demonstrated that automotive dies were a type of

merchandise that Ford historically marked as provisional because it

knew the price would usually change after entry. See e.g., TT at

868, Pl.’s Ex. 85, 86, 107; Def.’s Ex. C. Ford should have

notified Customs that the price stated on the entry summaries was

not final because Ford knew that the price of the dies did not

include the engineering changes or the price was bound to increase.

Ford failed to mark the subject entries as provisional. See TT at

229-30; Pl.’s Ex. 26E & 113. This was a direct failure and lapse

of Ford’s provisional value policy, and a material omission

affecting Customs’ ability to assess duties correctly.

There was a lack of communication among the Ford units about

how and when to apply its provisional value policy. See TT at 705-

06, 779-80, 827-29; Pl.’s Ex. 2. With respect to the 204

engineering purchase orders omitted from the entry documents, there

was a failure within Ford’s purchasing unit to transmit copies of

these purchase orders to the other Ford units and the broker. See

Pl.’s Ex. 105; see also TT at 163-73; Pl.’s Ex. 2. No witness

explained why the 204 engineering purchase orders were either not

Case No. 02-00106 Page 43

received by Ford’s customs unit or not included in dutiable costs.

The only explanation given by Ford was that an internal computer

system caused all the engineering purchase orders to be separately

numbered rather than issued as amendments to the base tool order.

See TT at 167-68; Pl.’s Ex. 2, 99, 105. Ford’s explanation,

however, is not reasonable. Ford should have had control mechanisms

in place to ensure that its provisional value policy was being

implemented or used properly. Without any control mechanisms,

Ford’s behavior exhibits an indifference to whether its provisional

value policy was being implemented or not defeating its purpose.

Ford’s failure to follow its provisional value policy also

affected Ford’s communications to its broker. Ford did not

formalize its provisional entry policy with its broker until

November 1991, well after the subject entries. See TT at 247 &

332; Pl.’s Ex. 107. In early 1989, when the FN-36 dies were

entered, Ford’s policy was to tell its broker to enter certain

merchandise provisionally on a case by case basis. See TT at 228-

30, 839-40, 869-71. Ford would convey this request through verbal

or written communication, but did not have a set practice. See TT

at 869-71 & 992. Even if the broker received copies of the

engineering purchase orders per Ford’s policies, the broker would

not have known to enter any merchandise provisionally unless

specifically instructed to do so by Ford. More importantly, Ford

Case No. 02-00106 Page 44

did not have post-entry mechanisms in place to verify that the

information the broker submitted to Customs was true and correct.

See TT at 824-25; Pl.’s Ex. 40 & 99. Ford’s failure to have a

clear policy with its broker on when to use provisional value and

its failure to verify information submitted by its broker exhibits

Ford’s indifference to satisfying its Customs obligations. Ford

did not present evidence that it took any steps to ensure the use

of its policy, internally or with its broker. Thus, Ford’s failure

to implement or check its provisional value policy demonstrates an

indifference amounting to gross negligence.

2. Ford’s Failure to Notify Customs “At Once” of the

Engineering Purchase Orders was a Material Omission

in Violation of 19 U.S.C. § 1485

Pursuant to 19 U.S.C. § 1485(a), an importer “will produce at

once to the appropriate customs officer any invoice, paper, letter,

document, or information received showing that any such prices or

statements are not true or correct.” 19 U.S.C. § 1485(a)(4)

(emphasis added). The statute obligates importers to immediately

report to Customs any new information showing that the prices

declared at entry were incorrect. See Hitachi I, 21 CIT at 382,

964 F. Supp. at 356. In Hitachi, an escalation clause in the

contract gave rise to a possible post-entry increase in the value

of the imported merchandise. See id. at 371, 964 F. Supp. at 344.

The importers failed to disclose the escalation clause on any of

Case No. 02-00106 Page 45

the entry documents, or later when it made payments under the

escalation clause. See id. The Court found this failure to be in

violation of 19 U.S.C. §§ 1484 and 1485. See id. at 381-82, 964 F.

Supp. at 356. Under 19 U.S.C. § 1485, an importer must notify

Customs of post-entry payments affecting dutiable value “at once”

unless other arrangements have been made. Cf. id. at 390, 964 F.

Supp. at 362-63. Ford failed the 19 U.S.C. § 1485 “at once” duty

when it 1) failed to fully answer Customs’ CF 28s, and 2) failed to

promptly disclose the information contained in its internal audit

of the FN-36 program.

a. Ford Failed to Fully Answer Customs’ CF 28s

The testimonial and documentary evidence established that Ford

did not have any procedures in place to compare information filed

with Customs against purchase orders or payment records unless a CF

28 was issued by Customs. See TT at 821-32; Kruzich at 42-45;

Pl.’s Ex. 40 & 99. A Customs CF 28 was a request for information

sent to importers when Import Specialists had questions regarding

an entry. TT at 347 & 825-26. Various Ford employees knew a

problem existed between Ford’s customs and purchasing units

regarding advance notice of upcoming importations because Ford’s

customs unit would “discover” purchase orders when answering CF

28s. See TT at 821-32; Kruzich at 29-45. In some instances, the

issuance of a CF 28 was the first time Ford’s customs unit even

Case No. 02-00106 Page 46

learned that an entry had been made. See TT at 821-32; Kruzich at

42-45. Ford’s customs unit, however, did not advise the purchasing

unit supervisors of this issue, thus nothing was done to remedy the

problem. See Kruzich at 44-45. The evidence further demonstrated

that the accepted practice at Ford was to wait for Customs to issue

a CF 28 as a means of checking whether or not Ford had properly

declared all dutiable values at entry. See TT at 823-30 & 850-52;

Kruzich at 27-45; Pl.’s Ex. 40 & 99.

Ford had numerous opportunities to advise Customs of the 204

engineering purchase orders each time it responded to a CF 28.

Testimonial evidence explained that Customs had a practice of

accepting prior disclosures in CF 28 responses. See TT at 496-97.

While CF 28s are routine, Ford did not take them very seriously,

and made minimal efforts to respond. See TT at 826-29 & 851-52.

Customs issued CF 28s for seven of the eleven subject entries, to

which Ford substantively responded only to two. See Pl.’s Ex. 29,

30, 31, 32; Def.’s Ex. BBBB. The documentary evidence shows that

of the two substantive CF 28 responses Ford submitted, the earliest

response was eight months after the CF 28 was originally issued.

See Def.’s Ex. BBBB. The other CF 28 response was twenty-six

months after Customs initially issued the CF 28. See Pl.’s Ex. 31

& 32.

Case No. 02-00106 Page 47

In answering the CF 28s, Ford should have compiled all the

information it had about the inquired entry number and attempt to

answer each CF 28 completely and thoroughly. If Ford had

thoroughly answered each CF 28, a search by project number would

have revealed the engineering purchase orders because all the

purchase orders had the same project number (“1D90A00”) on them.

Of Ford’s two substantive CF 28 responses, both failed to disclose

the engineering changes and their affect on the dutiable value of

the FN-36 dies. Ford’s CF 28 response dated November 20, 1989,

references the base tool order and sixteen amendments for the FN-36

dies. See Def.’s Ex. BBBB. The cost for the FN-36 dies stated in

the letter was $67,834,926, which was also the amount listed on

amendment 16. See Pl.’s Ex. 24; Def.’s Ex. BBBB. Again, the

engineering purchase orders were first dated November 28, 1988.

See Pl.’s Ex. 25. Had Ford’s response been complete, it should

have reported the 204 engineering purchase orders to Customs in its

November 20, 1989, response as a prior disclosure. Ford’s CF 28

response dated May 6, 1991, stated that final audit results were

not yet available and requested an additional thirty days to

respond. See Pl.’s Ex. 32. Ford’s customs unit was aware of an

internal audit, see TT at 879-81 & 942-43, yet, Ford still did not

disclose the engineering purchase orders to Customs until August 6,

1991, after a summons had been issued. See Pl.’s Ex. 38 & 39.

Ford’s May 23, 1991, response only asked for an extension to

Case No. 02-00106 Page 48

“confirm that final audit and price adjustments are in agreement”

with its final CF 28 response. Def.’s Ex. Y. For the remaining

four CF 28s, Ford first asked for an extension and then informed

Seattle Customs that it would be directing its responses to Detroit

Customs because of the June 6, 1991, summons. See Pl.’s Ex. 31 &

54.

In each of Ford’s CF 28 responses to Customs, Ford had enough

knowledge to disclose the engineering purchase orders but failed to

utilize the opportunity. The Court concludes that Ford’s reliance

on Customs’ practice of sending CF 28s is not a valid excuse for

its failure to declare full value at entry or to notify Customs

that the invoice price was not final. Cf. United States v. Nippon

Miniature Bearings, Corp., 25 CIT 638, 641, 155 F. Supp. 2d 701,

705 (2001) (burden is on the importer to provide true and accurate

information to Customs, and not on Customs to ferret out those

importers not in compliance). Again, Ford’s continual and

systematic indifference to the existence of the engineering

purchase orders and their affect on dutiable value constitutes

grossly negligent conduct.

b. Ford Did Not Disclose the Information Contained in

Its Internal Audit “At Once”

The only evidence presented to the Court of a post-entry

mechanism that accounted for all the FN-36 costs was an internal

Case No. 02-00106 Page 49

audit completed by Ford on April 30, 1991. See Pl.’s Ex. 99A. For

each engineering order, the internal audit broke down the work

attributable to OIW and to OAC. See Pl.’s Ex. 99A. This

information was important because work completed by OIW in Japan

increased the dutiable value of the FN-36 dies. While Customs knew

that Ford was conducting an internal audit, Customs had no

information as to the scope of the audit or if the audit would

affect dutiable value of the subject entries. See Pl.’s Ex. 32 &

97; Def.’s Ex. Y. Ford had informed Customs that it was conducting

an internal audit on March 8, 1991. See TT at 115-19; Pl.’s Ex.

97. Also, in its May 6, 1991, CF 28 response to Seattle Customs,

Ford used the audit as an excuse to request additional time. See

Pl.’s Ex. 32. Merely notifying Customs that an internal audit was

taking place, however, did not provide Customs with the information

it had requested to determine whether correct prices had been

declared on the entry summaries. Therefore, Customs was not able

to calculate proper duties.

Furthermore, the Court finds that Ford knew the values of the

engineering purchase orders before its audit was published on April

30, 1991. Ford, for example, issued amendment 17 to the base tool

order, dated January 16, 1991, for an audit reduction of

$1,758,966. See Pl.’s Ex. 24. Customs, however, did not receive

amendment 17 until seven months later, as part of Ford’s August 6,

Case No. 02-00106 Page 50

1991, letter which also disclosed the 204 engineering purchase

orders. See Pl.’s Ex. 39. Neither amendment 17 nor the

attachments to Ford’s August 6, 1991, letter explain the audit

reduction. See Pl.’s Ex. 24, 39. The Court finds that Ford’s

failure to disclose its internal audit results “at once” is another

example of its indifference and lack of care to fulfill its Customs

obligations.

When Ford finally informed Customs for the first time of the

existence of the 204 engineering purchase orders, it did so in a

letter dated August 6, 1991. See Pl.’s Ex. 39; see also TT at 357.

The letter merely listed the engineering purchase orders and the

amount of each, but lacked information about which Ogihara company

completed the work. See Pl.’s Ex. 39. Ford again did not disclose

the relevant information contained in its internal audit to

Customs. This information would have helped Customs determine

which engineering changes affected the dutiable value of the FN-36

dies. Rather, the contents of Ford’s internal audit results were

not revealed to Customs until after the Pre-Penalty Notice was

issued in 1994. See TT at 641-46; Pl.’s Ex. 41 & 43. Testimony at

trial established that Ford’s internal audit was submitted after

Customs published its own audit of the FN-36 program on July 6,

1992. See TT at 641-42. Therefore, Ford’s internal audit was not

used by Customs in its audit, however, Ford had submitted other

Case No. 02-00106 Page 51

documents to Customs during their audit. See TT at 630-31; Pl.’s

Ex. 40. The information contained in Ford’s audit about which

Ogihara company had done the various engineering changes would have

been very relevant to Customs’ audit in determining the value of

the FN-36 dies. Ford’s failure to notify Customs of the changes to

the value of the FN-36 dies upon completion of Ford’s internal

audit violated the “at once” duty of 19 U.S.C. § 1485.

Ford’s indifference to the engineering purchase orders is

illustrated by the gross failure of its provisional value policy

and the lapse of communication between its internal units. Ford

also had opportunities to disclose the existence of the 204

engineering purchase orders to Customs in CF 28 responses and

repeatedly failed to do so until after Customs issued a summons.

Repeated neglect of a legal duty rises to indifference and an utter

lack of care. Based on the evidence presented, the Court finds

that Ford’s indifference to its duty to disclose “at once” the

value of the engineering changes constitutes grossly negligent

conduct in violation of 19 U.S.C. § 1485.

C. Ford Did Not Make a Valid Prior Disclosure

The maximum penalty an importer may be assessed is

significantly reduced if the importer makes a prior disclosure

revealing the facts and circumstance relating to a violation. See

19 U.S.C. § 1592(c)(4). To make a prior disclosure, the person

Case No. 02-00106 Page 52

concerned must disclose the circumstances of a violation before, or

without knowledge of, the commencement of a formal investigation

and make a tender of any actual loss of duties. See id.; 19 C.F.R.

§ 162.74(a) (1991). A violator “discloses the circumstances of the

violation” by providing Customs with a written statement which: (1)

identifies the class or kind of merchandise involved; (2)

identifies, by entry number or by the port of entry and approximate

dates of entry, the importation included in the disclosure; (3)

specifies the material omission or false statement made at entry;

and (4) sets forth the true and accurate information or data which

should have been provided in the original entry documents. See 19

C.F.R. § 162.71(e). A formal investigation is considered to be

commenced on the earliest of the following: (1) the date recorded

in writing in the investigatory record, including contemporaneous

notes, as the date upon which an agent believed the possibility of

a violation existed; (2) the date an investigating agent properly

identified herself or himself and the nature of her or his inquiry,

in writing or in person and inquired about the disclosed violation;

or (3) the date an investigating agent, after properly identifying

herself or himself and the nature of her or his inquiry, requested

specific books and records relating to the disclosed violation.

See 19 CFR § 162.74(d)(4). Furthermore, if before the claimed

prior disclosure a person is informed of “the type of or

circumstances of the disclosed violation,” then the person is

Case No. 02-00106 Page 53

“presumed to have had knowledge of the commencement of a formal

investigation.” 19 C.F.R. § 162.74(f). This presumption, however,

may be defeated with evidence that the person did not know an

investigation had commenced with respect to the disclosed

information. See id.

1. Customs Commenced Its Investigation of the FN-36

Program by March 8, 1991.

The evidence established that Ford did not make a prior

disclosure because Customs was already investigating the FN-36 dies

and Ford knew or should have known it was being investigated by the

time it disclosed its violations. Customs began its investigation

of Ford as an outgrowth of the OAC investigation. See TT at 82-85

& 268; Pl.’s Ex. 33; Def.’s Ex. YYY & ZZZ. Customs argues that it

commenced its investigation in October 1990 when Mr. Turner met Mr.

Gibson. See Pl.’s Post-Trial Br. at 22-23. Ford counters that

Customs did not commence its investigation until August 21, 1991.

See Def.’s Post-Trial Br. at 22-23. The October 1990 meeting is

recorded in OAC ROI # 8, and is described in a few short

sentences.8 See Pl.’s Ex. 33. Several pages of the ROI recount

meetings Mr. Turner had with GM indicating that his focus was on

8

In some situations, the presence of a special agent and

what transpired at the meeting may indicate that an investigation

has commenced. Given the length of time since the events in

question, however, the Court relies on the documentary evidence to

corroborate the testimony of Messrs. Turner, Neckel, and Gibson.

Case No. 02-00106 Page 54

GM’s interactions with OAC at that time. See id. Both Messrs.

Neckel and Turner stated that Ford was under investigation by late

1990, see TT at 339-40 & 536, but the documentary evidence simply

does not satisfy 19 C.F.R. § 162.74(d)(4) to sustain such a

finding. Therefore, the Court concludes that Ford was not being

investigated in October 1990 because of the minimal contemporaneous

notes recording the events that transpired therein.

Based on the evidence, the Court concludes that Mr. Turner

suspected a violation, regarding Ford, may have existed by March 8,

1991. An investigating agent is required to put a date in writing,

in the investigative record including contemporaneous notes, when

she or he received or discovered information causing her or him to

believe the “possibility” of a 19 U.S.C. § 1592 violation existed.

See 19 C.F.R. § 162.74(d)(4)(i). On March 8, 1991, Mr. Turner

received information that Ford was compiling previously requested

documents regarding Ogihara and the FN-36 dies and that Ford was

conducting an internal audit. See TT at 109, 115-19, 316, 894-96;

Pl.’s Ex. 97. Mr. Turner’s dated notes are a part of the

investigative record, and mention dies; entries in Seattle,

Detroit, and Los Angeles; and an internal audit at Ford. See Pl.’s

Ex. 97. The regulations require that Customs record a date in

writing in the investigative record, which specifically includes

contemporaneous notes, and Mr. Turner did so with his notes of

Case No. 02-00106 Page 55

March 8, 1991. Accordingly, Ford’s argument that Customs did not

commence its investigation until August 21, 1991, fails. See

Def.’s Post-Trial Br. at 22-23. If there was still any doubt, the

arrival of a Customs summons on June 7, 1991, should have alerted

Ford an investigation was underway. Pursuant to 19 CFR §

162.74(d)(4)(i), the Court finds that Mr. Turner’s notes along with

the trial testimony established that by March 8, 1991, Customs had

commenced its investigation of Ford.

2. Ford Knew or Should Have Known of the FN-36

Investigation by June 7, 1991 and Failed to

Disclose Its Violation Until August 6, 1991

Ford knew or should have known that it was being investigated

by June 7, 1991, when Customs issued a summons for the FN-36

program. See TT at 126-31, 540-41, 600-01; Pl.’s Ex. 38 & 112. A

person may still receive prior disclosure treatment if the

disclosure was made prior to knowledge of the investigation. See

19 U.S.C. § 1592(c)(4); 19 C.F.R. § 162.74(f). A party claiming

lack of knowledge of the commencement of an investigation has the

burden to prove that lack of knowledge. See 19 C.F.R. § 162.74(f).

Based on the evidence, the Court finds that Ford failed to prove

its lack of knowledge.

The June 7, 1991, summons requested documents from Ford

regarding the FN-36 dies and was very expansive in scope. See

Pl.’s Ex. 38. Ford should have known that it was no longer a

Case No. 02-00106 Page 56

potential witness in OAC’s investigation, but had become a target

of a Customs investigation itself. To deliver the summons, Messrs.

Turner and Neckel met with Mr. Gibson and other Ford

representatives. See TT at 130-31, 541-42, 881-82; Pl.’s Ex. 112.

Ford did not offer persuasive evidence that it did not know about

Customs’ investigation after the June 7, 1991, summons was issued.

Therefore, the Court concludes Ford knew or should have known that

it was being investigated by June 7, 1991.

Ford’s letter dated August 6, 1991, revealed the existence of

204 engineering purchase orders for the first time to Customs.9

See Pl.’s Ex. 39; see also TT at 131-38, 355-57, 627-28; Pl.’s Ex.

74. This letter is the only communication that could qualify as a

prior disclosure. The letter disclosed the circumstances of Ford’s

violation because it was a written statement, identifying the

merchandise and entry number involved, disclosed the engineering

purchase orders, and explained how they affected the dutiable value

of the subject entries, thereby satisfying 19 C.F.R. § 162.71(e).

The violation addressed in the letter was the material omission of

the engineering purchase orders which affected the value of the FN-

9

The August 6, 1991, letter also claimed that the

engineering purchase orders were “discovered” in April 1991 because

they were not cross-referenced to the base tool order. The Court

is not persuaded by this claim. Again, all the purchase orders

(base tool order, seventeen amendments, and engineering changes)

had the same project number on them, precisely so that they could

be tracked and cross-referenced.

Case No. 02-00106 Page 57

36 dies and ultimately the duty owed. See Pl.’s Ex. 39. Ford also

tendered unpaid duties on November 22, 1991, as required by19

C.F.R. § 162.74(a). See Pl.’s Ex. 39; Def.’s Ex. BB.

Customs commenced its investigation of Ford by March 8, 1991.

Since Ford had knowledge of the investigation by June 7, 1991, and

did not disclose the engineering purchase orders until August 6,

1991, the Court concludes that Ford failed to make a disclosure

prior to its knowledge of the investigation. Therefore, Ford did

not satisfy the requirements under Customs’ regulations for prior

disclosure treatment.

D. Appraisement of Merchandise and Loss of Revenue

Pursuant to 19 U.S.C. § 1592(d), the United States may collect

any lawful duties owed resulting from a 19 U.S.C. § 1592(a)

violation notwithstanding 19 U.S.C. § 1514 (finality of

liquidations) whether or not a monetary penalty is assessed. See

19 U.S.C. § 1592(d). The Court must determine the loss of revenue.

See 19 U.S.C. § 1592(e). Pursuant to 19 U.S.C. § 1401a(a)(1)(A),

imported merchandise is appraised at the transaction value, which

is the “price actually paid or payable” plus other enumerated

costs. See 19 U.S.C. §§ 1401a(a) & (b) (1988).

Customs’ Regulatory Audit reviewed the values for the

engineering changes submitted by Ford in its August 6, 1991, letter

Case No. 02-00106 Page 58

and determined that Ford underdeclared the value of the FN-36 dies

by $16,816,296 and owed $689,775 for unpaid duties. See Pl.’s Ex.

40. After the Pre-Penalty Notice, dated January 10, 1995, Ford

made submissions requesting reappraisal of the value and loss of

revenue. See Pl.’s Ex. 41, 43. As a result of the reappraisal,

Customs’ Penalty Notice stated a revised appraisal value of the FN-

36 dies as $84,393,564. See Pl.’s Ex. 43. Thus, Customs

determined that Ford had not declared $21,314,111 in value. See

id. Customs calculated a loss of revenue in duties to the United

States of $874,270, of which $184,495, was unpaid. See id. The

unpaid duty of $184,495, is the remaining loss of revenue sought by

Customs in this action.

Ford argues that the FN-36 dies were only undervalued by

$6,697,291 and Customs’ total loss of revenue was $274,588.93. See

Def.’s Post-Trial Br. at 28-30. Ford further states that because

Customs only introduced one of the twelve entry summaries into

evidence, the loss of revenue must be apportioned pro rata over all

the entries. See id. at 30. Thus, Ford argues the loss of revenue

for the admitted entry summary is $39,760.48. See id. The Court

has already determined that there is substantial evidence

establishing the prices Ford stated on its entry summaries.

Accordingly, the Court finds Ford’s argument is without merit.

Ford argues that it submitted evidence of various adjustments

Case No. 02-00106 Page 59

in support of its proposed valuation. See Def.’s Post-Trial Br. at

28-30. These adjustments include: United States costs paid to

third party vendors, audit credits, FN-36 entries made by OAC, and

entries of FN-36 functional panels. See id. The Court finds that

Ford has failed to show that such adjustments were part of the

price actually paid or payable for the FN-36 dies. Ford’s proposed

United States costs paid to third party vendors do not have a

sufficient indicia of reliability that they were included in the

cost of the FN-36 dies. See Def.’s Ex. III. Ford’s proposed audit

credits include an audit adjustment that was listed on amendment 17

to the base tool order, which was captured in Customs’ Regulatory

Audit report. See Pl.’s Ex. 40; Def.’s Ex. KKK. Ford also

proposed an audit credit payment made on Ford’s FN-10 program,

which is unrelated to the FN-36 program and not sufficiently

explained by Ford. See Def.’s Ex. KKK. The third adjustment Ford

claims is for FN-36 entries made by OAC, which are not relevant

because Ford was not the importer of record for these entries. See

CCC, EEE, FFF. The fourth adjustment claimed is for entries of FN-

36 functional panels, imported by Ford, see Def.’s Ex. PP,

Collective Def.’s Ex. QQ, which do not clearly indicate that they

are part of the FN-36 dies. Ford claims that the functional panels

were purchased under amendment 15 to the base tool order. See

Def.’s Post-Trial Br. at 29-30. The Court, however, is not

persuaded by testimony and there is no supporting link between the

Case No. 02-00106 Page 60

tooling breakdown description on amendment 15 and the functional

panels. See TT at 788-91; Pl.’s Ex. 24; Def.’s Ex. PP, Collective

Def.’s Ex. QQ. Customs considered various adjustments that Ford

proposed and revised its numbers for the undeclared value and loss

of revenue. See Pl.’s Ex. 43. The adjustments that Ford claims do

not establish a truer value of the FN-36 dies.

Ford also argues that it is entitled to recoup any

overpayments it has made to reduce or satisfy any loss of revenue

and/or penalties assessed in its counterclaim.10 See Def.’s Post-

Trial Br. at 30-31. The Court, however, finds that Ford’s

appraisement is incorrect and no overpayment exists. Therefore,

Ford’s counterclaim is dismissed. Based on the documentary and

testimonial evidence, the Court determines that Ford undervalued

the FN-36 dies by $21,314,111, the loss of revenue to the United

States was $874,270, and Ford owes $184,495 for unpaid duties.

E. Assessment of Penalties

For grossly negligent violations of 19 U.S.C. § 1592(a), the

maximum penalty is the lesser of the domestic value of the

merchandise or four times the loss of duties. See 19 U.S.C. §

1592(c)(2); see also 19 C.F.R. § 162.73(a)(2). The plain language

10

Ford derives its overpayment of $415,186.07 from the

$689,775 tendered to Customs on November 22, 1991, minus its loss

of revenue calculation of $274,588.93. See Def.’s Post-Trial Br.

at 31.

Case No. 02-00106 Page 61

of the statute only sets maximum penalties and does not establish

minimum penalties, nor does it require the Court to begin with the

maximum and reduce that amount in light of mitigating factors. See

United States v. Modes, Inc., 17 CIT 627, 635, 826 F. Supp. 504,

512 (1993). The court “possesses the discretion to determine a

penalty within the parameters set by the statute.” See id. at 636,

826 F. Supp. at 512 (citations omitted). This court has identified

a number of factors to be considered when assessing a penalty in

Modes, 17 CIT at 636, 826 F. Supp. at 513 and United States v.

Complex Mach. Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307,

1315 (1999). Those factors are:

1. The defendant’s good faith effort to comply with the

statute

2. The defendant’s degree of culpability.

3. The defendant’s history of previous violations.

4. The nature of the public interest in ensuring compliance

with the regulations involved.

5. The nature and circumstances of the violation at issue.

6. The gravity of the violation.

7. The defendant’s ability to pay.

8. The appropriateness of the size of the penalty to the

defendant’s business and the effect of a penalty on the

defendant’s ability to continue doing business.

9. That the penalty not otherwise be shocking to the

conscience of the Court.

10. The economic benefit gained by the defendant through the

violation.

11. The degree of harm to the public.

12. The value of vindicating the agency authority.

13. Whether the party sought to be protected by the statute

had been adequately compensated for the harm.

14. And such other matters as justice may require.

See Complex Mach., 23 CIT at 949-50, 83 F. Supp. 2d at 1315 (citing

Modes, 17 CIT at 636, 826 F. Supp. at 513; United States v. Ven-

Case No. 02-00106 Page 62

Fuel, Inc., 758 F.2d 741, 764-65 (1st Cir. 1985)(applying an

earlier version of 19 U.S.C. § 1592)). The first ten factors

relate to deterrence, the next three are public policy concerns,

and the final factor is a general discretion provision. See

Complex Mach., 23 CIT at 950, 83 F. Supp. 2d at 1316. Given the

clear Congressional preference for deterrence, the Court will, give

more weight to the deterrence factors than the public policy

factors. See id. Under 19 U.S.C. § 1592(c), the maximum penalty

is the lesser of four times the loss of revenue or the domestic

value of the merchandise. See 19 U.S.C. § 1592(c). The lawful

duty which the United States was deprived of is $874,270,

considerably less than the domestic value of the merchandise, which

is approximately $84 million. See Pl.’s Ex. 43. The maximum

penalty the Court may assess is $3,497,080, four times $874,270.

Based on an analysis of the deterrence and public policy factors,

the Court determines that $3,000,000 represents a just penalty in

this case.

1. Analysis of the Deterrence Factors Place Ford in

the Higher Range of Potential Penalties

Of the deterrence factors, the first three are indicia of the

defendant’s character. See Complex Mach., 23 CIT at 950, 83 F.

Supp. 2d at 1316. Ford’s practices and procedures when entering

the FN-36 dies indicates a minimal good faith effort in complying

with the statute. Ford was a large sophisticated importer making

Case No. 02-00106 Page 63

hundreds of entries each year, and had intimate experience with the

Customs laws. See TT at 964. Here, however, Ford blatantly failed

to follow its provisional value policy, internally and with its

broker; failed to account for and promptly report the engineering

purchase orders to Customs; and had no mechanisms in place to

verify whether all dutiable values had been reported to Customs.

In slight mitigation, Ford had internal customs policies with

manuals and training videos to apprise its employees of Ford’s

statutory obligations. See e.g., Def.’s Ex. C, D, F, G, H, M.

While Ford made an effort to comply with Customs’ obligations, Ford

did not have mechanisms in place to check whether its policies were

working. Good faith cannot merely be the appearance of an effort

before entries are made, but also must encompass post-entry

procedures to ensure effectiveness. Ford’s conduct rises to an

indifference that cannot be characterized as a good faith effort to

fulfill its Customs obligations truthfully and correctly.

Ford is also highly culpable. Ford was systematically

indifferent to properly declaring the value of the engineering

purchase orders. Ford states that its failure to issue the

purchase orders as amendments to the base tool order was “to

expedite work to meet the launch date of the FN-36.” Pl.’s Ex.

105. Regardless, Ford had the burden to ensure that all dutiable

values were captured and declared to Customs upon entry or “at

Case No. 02-00106 Page 64

once” after receiving knowledge that the value had changed. See 19

U.S.C. §§ 1401a, 1484, 1485. Ford’s conduct related to the

importation of the FN-36 dies implies an internal problem at Ford

from 1988 through 1991, which is also evidenced by Ford’s multiple

Customs violations during the same period. At trial, documentary

and testimonial evidence established that Ford was being

investigated for other violations occurring contemporaneously to

the FN-36 investigation. For example, the primary purpose of

Ford’s meeting with Seattle Customs in late 1990 was to finalize

Ford’s penalties in an unrelated Fuji dies case. See TT at 872-74

& 897. Ford was also being investigated on whether it had declared

all of its assists and indirect payments for vehicles and vehicle

components. See Def.’s Ex. CCCC. Customs’ audit report of the FN-

36 program also included an audit of Ford’s Tempo project, and

concluded a loss of revenue in that project. See Pl.’s Ex. 40.

Overall, during the subject entries, Ford exhibited an indifference

to whether its minimal procedures were carried out correctly, which

weighs towards a heavier penalty.

The fourth through sixth factors speak to the seriousness of

the offense. See Complex Mach., 23 CIT at 950, 83 F. Supp. 2d at

1316. The public interest at issue is the accurate submission of

documentation to Customs and the prompt disclosure of information

that affects the proper assessment of duties required on imported

Case No. 02-00106 Page 65

merchandise. “These are weighty interests, contravention of which

necessitates the imposition of a penalty of some substance.” Id.

at 952, 83 F. Supp. 2d at 1317. The nature and circumstances of

the violations at issue present a picture of repeated indifference

to reporting the engineering purchase orders resulting from poor

internal systems designed to ensure proper compliance with Customs

laws. Ford repeatedly missed opportunities to correct the value of

the FN-36 dies. The nature and the circumstances surrounding

Ford’s entry of the subject merchandise weighs heavily in favor of

a significant penalty. The gravity of the violation may be

considered in terms of frequency of the violations, amount of

duties lost to the United States, and the domestic value of the

imported goods. See id. at 953, 83 F. Supp. 2d at 1317. Here,

Ford failed to properly account for the engineering purchase orders

and repeatedly failed to disclose them to Customs. The final

domestic value of the FN-36 dies was $84,393,564. See Pl.’s Ex. 43

& 75. The duties evaded totaled $874,270, of which $184,495

remains unpaid. See id. Thus, the gravity of the violation is

serious and supports a significant penalty.

The seventh, eighth, and ninth factors go to the practical

effect of the imposition of the penalty. See Complex Mach., 23 CIT

at 950, 83 F. Supp. 2d at 1316. Given that the maximum possible

penalty is $3,497,080, no evidence was presented to the Court

Case No. 02-00106 Page 66

showing Ford’s inability to pay the maximum amount. The maximum

penalty is appropriate considering the little effect it will likely

have on Ford’s ability to continue doing business. Furthermore,

given that the FN-36 dies were valued over $84,000,000, the amount

of the maximum penalty pales in comparison and is not shocking to

the conscience.

The tenth factor considers the economic benefit gained by the

importer through the violation. See id. The parties presented no

evidence related to this factor. Circumstantially, however, Ford

stated that the engineering purchase orders were numbered

separately from the base tool order for expedition so that the dies

could be shipped to Michigan. See Pl.’s Ex. 105. A delay in the

shipment of the dies would have set back production of the 1990

Lincoln Town Car and cost Ford lost profits. See id. Thus, the

Court will weigh the economic benefit gained by Ford in considering

the appropriate penalty.

2. The Public Policy Factors Also Weigh Against Ford

While the first ten factors relate to deterrence, the

eleventh, twelfth, and thirteenth factors are public policy

concerns which “consider compensation for harm to society.” See

Complex Mach., 23 CIT at 950, 83 F. Supp. 2d at 1316. While

deterrence is the weightier concern when imposing 19 U.S.C. § 1592

penalties, see id., the public policy concerns are also important

Case No. 02-00106 Page 67

and weigh against Ford. The amount of harm suffered to the public

is not limited to the dollar value of the duties lost, but can also

be the depletion of government resources in investigation and

enforcement of an importer’s violations. See id. at 955, 83 F.

Supp. 2d at 1319 (citations omitted). Customs has expended

significant resources and man hours investigating Ford’s

violations. The value of vindicating agency authority is also

important. Importers should not let their Customs obligations go

to the wayside as Ford did here. “The penalty must be high enough

to deter others from committing these customs violations.” See id.

at 956, 83 F. Supp. at 1310. In totality, analysis of the public

policy factors also weigh against Ford and are accordingly

considered in the penalty.

After careful consideration of the evidence and testimony

presented at trial, the Court has determined that the penalty

imposed upon Ford must be a substantial one. The Court, however,

chooses not to impose the maximum penalty of $3,497,080. Rather,

based on the foregoing analysis, the Court determines that

$3,000,000 represents a just penalty in this case.

Case No. 02-00106 Page 68

CONCLUSION

The Court finds that Customs has established all the elements

of 19 U.S.C. § 1592 proving that Ford’s conduct in entering the FN-

36 dies was grossly negligent. Ford violated 19 U.S.C. § 1484 by

failing to include the engineering changes in the FN-36 prices

declared at entry and to notify Customs that the price listed on

the entry documents was not the full and final price of the dies

through its provisional value policy. Ford also violated 19 U.S.C.

§ 1485 by failing to disclose value of the 204 engineering purchase

orders “at once.” Ford knew it had communication problems among

its internal units and did not have sufficient post-entry

mechanisms to catch all dutiable costs, which together illustrate

a reckless disregard for its Customs obligations. Furthermore,

Ford does not qualify for prior disclosure treatment because

Customs had already commenced its investigation of Ford when Ford

finally disclosed the 204 engineering purchase orders in its August

6, 1991, letter. Ford’s grossly negligent conduct led to an

undervaluation of the FN-36 dies by $21,314,111. The United States

was deprived $874,270 for lawful duties, of which $184,495 remains

unpaid. Considering the gravity of Ford’s conduct and possible

mitigating factors, the Court determines that $3,000,000 represents

a just penalty in this case. The Court accordingly grants judgment

Case No. 02-00106 Page 69

for plaintiff, and orders Ford to tender $184,495 for unpaid

duties, and assesses Ford a civil penalty in the amount of

$3,000,000, plus lawful interest.

/s/ Nicholas Tsoucalas

NICHOLAS TSOUCALAS

SENIOR JUDGE

Dated: July 20, 2005

New York, New York