Non-Cooperation in Court Case Doesn't Affect Importer's Penalty for Tariff Misclassification, CIT Says
An importer’s conduct in a court case does not affect the amount of penalties that should be assessed for tariff misclassification, the Court of International Trade said in a decision issued June 7 (here). Although the government had sought $324,540 in penalties from Horizon Products International for the importer’s negligent misclassification of its plywood imports in a duty free tariff subheading, CIT instead authorized half that. A “significant penalty” was warranted for “slow-playing the Government,” but failure to cooperate in a court case should instead be addressed by other means, it said.
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Horizon had stopped cooperating after CIT issued a ruling in July 2015 that ordered the importer to pay unpaid duties on its misclassified plywood imports, but left open the question of whether Horizon’s reliance on a customs broker should lessen its responsibility for the violation for penalty purposes (see 1507270083). Horizon “did not follow through” with the court’s instructions for next steps, ultimately advising the government and CIT that it would no longer defend itself in the case.
Seeking the maximum allowable penalty of twice the amount of revenue loss from the misclassification, the government argued that Horizon “failed to make a good faith effort to comply with the customs laws.” The subheadings listed by Horizon conflicted with the species of wood listed on the underlying invoices, and Horizon continued to misclassify its plywood imports for months after receiving a notice of action from CBP, it said. The government also cited Horizon’s “dilatory conduct” throughout the underlying administrative process, and its decision not to participate during the subsequent court case in a pretrial schedule that it had itself jointly proposed.
CIT found no reason to reduce the penalty just because Horizon used a customs broker. There’s no evidence Horizon met its duty of reasonable care by taking any steps “on its own or by a customs broker acting on Horizon’s behalf, to ascertain the correct classification of the imported plywood either before or after notification from Customs,” CIT said. “Additionally, Horizon failed to demonstrate that it made a good faith effort to assert the correct classification in entering the subject merchandise. As a result, the record lacks any evidence to suggest a reason for Horizon’s actions other than an unlawful effort to obtain a duty-free rate for its entries.”
Horizon’s behavior at the administrative level “was not optimal or to be emulated,” CIT said. But even though its subsequent non-cooperation in the subsequent court case “has further exhausted Government resources unnecessarily,” a Section 1592 penalty for negligent misclassification “is not the remedy for contumacious behavior, dilatory tactics, or a lack of cooperation on the part of a litigant,” it said. The government should have instead confronted the issue through other means, including sanctions available under CIT rule 16. “Here, rather than the statutory maximum, the court believes that a civil penalty in the amount of $162,270,” equal to the amount of revenue loss, “is appropriate,” CIT said.
(U.S. v. Horizon Prods. Int’l, Inc., Slip Op. 17-68, CIT # 14-00104, dated 06/07/17)
(Attorneys: Daniel Volk for plaintiff U.S. government; Peter Herrick for defendant Horizon Products International, Inc.)