UNITED STATES COURT OF INTERNATIONAL TRADE

Slip Op. 24-100

The government’s Complaint was sufficient to make an importer respond to a demand for 19 U.S.C. §1592(a) withheld duties, the Court of International Trade held in United States v.
Katana Racing, Inc., Court No. 19-00125, Slip Op. 24-100 (September 9, 2024). Before the court was the defendant’s renewed motion to dismiss the complaint, and a government cross-
motion for summary judgment. The CIT had previously dismissed the complaint in 2022, but its decision was overturned last year by the Federal Circuit, which invited Katana to re-submit its Motion to Dismiss. In the interim, the case was reassigned from Senior Judge Thomas Aquilino to recently-confirmed Judge Lisa Wang, who was issuing her first published opinion.

The case was initially brought by the United States government to collect unpaid duties  “stem[ming] from violations of 19 U.S.C. § 1592(a), with respect to 386 entries of certain
passenger vehicles and light truck tires (‘PVLT’) from [the People’s Republic of] China into the United States from November 20009 through August 2012” via “false statements” on entry
forms filed with Plaintiff’s U.S. Customs and Border Protection. (“CBP” or “Customs”). Compl. ¶1, 13. The issues before the court were whether the government’s complaint (1) failed to
properly identify the person liable for a violation of 19 U.S.C. § 1592(a), and the level of culpability attributable to such person; (2) failed to allege exhaustion of available administrative
remedies; (3) alleged claims barred by laches; and (4) alleged claims barred by the statute of limitations due to the government’s purported affirmative misconduct in obtaining a statute of
limitations waiver by deceit.  The Court denied Katana’s motion to dismiss, and denied the government’s motion for partial summary judgment.

The issue turned on the government’s allegations that Katana, a California-based distributor of wheels and tires, was the importer of record of 386 entries of PVLT from China between November 2009 and August 2012. The government has argued that Katana undercalculated the amount of safeguard duties, regular customs duties, harbor maintenance fees, and merchandise processing fees it owed Customs by $5,742,483.80. Once Customs conducted an audit and identified the unpaid duties amount, Katana waived the statute of limitations three times in 2014, 2016, and up to and including July 15, 2019. Katana asserts that it was the victim of identity theft, and that it had not made the allegedly false entry statements. Katana asserted that the government failed to state a claim when it failed to plead a violation of 19 U.S.C. § 1592(a), a prerequisite to collecting penalties or withheld duties. Additionally, it claimed that Customs failed to exhaust administrative remedies because it had not referred the company’s prior disclosure to CBP’s Office of Investigations for verification, as required by the Customs Regulations.

The Court held that the Complaint adequately pleaded a violation, since it alleged that Katana had failed to exercise “reasonable care”, even though it did not use the statutory terms “negligence”, “gross negligence” or “fraud in its complaint”. In the court’s view, this description was sufficient to state a claim. The Court also held that the Complaint sufficiently identified Katana as the alleged violator, since Katana had been named as importer of record on the subject entries. The court also held that Customs was not required to exhaust administrative remedies before suing for “withheld duties” (as opposed to penalties). The court held that Katana had not adequately pleaded laches as an affirmative defense.

In its renewed motion to dismiss on statute of limitations ground, the Court held that there were triable issues of fact concerning whether the government had engaged in affirmative
misconduct by inducing Katana to agree to a waiver of the statute of limitations in exchange for a promise to make a presentation to CBP. Thus, the issue could not be disposed of by motion to
dismiss or motion for summary judgment.

The court denied both the plaintiff’s partial summary judgment motion and the defendant’s motion for summary judgment because the defendant’s claims regarding the
government’s purported affirmative misconduct and the level of culpability in light of its allegation that it was a victim of identity theft, presented an issue of material fact.