CIT Finds Gross Negligence in Undeclared Assists for Men's Suits
The Court of International Trade has ruled in U.S. v. Trek Leather Inc., and Harish Shadadpuri that an importer of record along with its sole shareholder committed gross negligence by consistently failing to include the cost of fabric assists in the price actually paid or payable in their entry documents for men's suits imported into the U.S. The defendants were also found liable for unpaid customs duties and civil penalties, plus interest.
Trek Didn't Include Cost of Fabric Assists Imported with Suits in Entry Docs
Trek Leather Inc. was the importer of record for 72 entries of men’s suits between February 2, 2004, and October 8, 2004. Through his corporate entities, Harish Shadadpuri, the president and sole shareholder of Trek, purchased fabric assists and provided them to manufacturers abroad. These manufacturers incorporated the assists in the production of the men’s suits at issue which were imported into the U.S.
A CBP import specialist found that the entry documentation for the suits imported by Trek and Shadadpuri consistently failed to include the cost of fabric assists in the price actually paid or payable for the merchandise, thereby lowering the amount of duty paid to CBP by the importer. Shadadpuri admitted to the specialist that he knew that the assists should have been included in the price actually paid or payable for the men's suits for purposes of calculating duty; however, neither Trek nor Shadadpuri have paid the $45,245.39 remaining balance of duties owed to CBP.
(In 2002, CBP investigated entries filed by Shadadpuri for another company he owned, Mercantile Wholesale, Inc. During these investigations, CBP found that Mercantile Wholesale consistently failed to include the cost of the fabric assists and trim in the price actually paid or payable for the merchandise on its entry documentation. Mercantile Wholesale admitted to failing to add the value of the assists and paid $46,156.89 in unpaid duties.)
CBP Claimed Both Defendants Liable for Fraud, Gross Negligence, & Negligence
CBP claimed that both the defendants committed fraud and were liable for damages in the amount of $2,392,307 for fraudulently, knowingly, and intentionally understating the dutiable value of the imported merchandise.
Alternatively, CBP alleged the defendants were grossly negligent for their actions and sought imposition of a civil penalty in the amount of $534,420.32. As an additional alternative, CBP also alleged negligence and sought penalties in the amount of $267,310.16. CBP also sought a judgment for unpaid customs duties in the amount of $45,245.39.
Trek Conceded Gross Negligence, but Shadadpuri Says Not Personally Liable
Trek conceded liability for gross negligence, stating in court documents that their failure to ensure that the value of material assists was included in dutiable value may have been occasioned by negligence or grounded on reckless disregard or inattention to consequence, but denied committing intentional fraud. However, Shadadpuri contended that he cannot be personally liable for gross negligence because he did not act intentionally as an aider or abetter under 19 USC 1592(a)(1)(B).
CIT Found Trek & Shadadpuri Were Liable for Gross Negligence
The CIT concluded that Trek and Shadadpuri committed gross negligence in violation of 19 USC 1592(a). The CIT also found that Shadadpuri is a member of the class of persons subject to liability under 19 USC 1592(a), explaining that liability under this section is not limited to importers of record, but applies to any person who engages in the behavior prohibited by this section. Therefore, the CIT ruled that Shadadpuri is personally liable because the statute does not recognize an exception for negligent corporate officers. The CIT also noted that the defendants conceded that Shadadpuri had the responsibility and obligation to examine all appropriate documents, including all assists within the entry documentation, and to forward these assists to his customs broker.
CIT Did Not Grant Summary Judgment for Fraud
The CIT explained that Trek's admission of gross negligence directly implicated Shadadpuri. Defendants are liable for gross negligence under 19 USC 1592(a) if the violation results from an act or acts (of commission or omission) done with actual knowledge of or wanton disregard for the relevant facts with indifference to or disregard for the offender's obligations under the statute. Trek's gross negligence, could not have been conceded but for the direct involvement of Shadadpuri, the only person who had knowledge of the statutory obligation due to his involvement in the 2002 investigation to which Trek was not a party. However, Shadadpuri contended it was an error and that he did not intentionally omit the assists, therefore the CIT ruled that it cannot grant summary judgment as to fraud.
Rules Entries Were False & Material, Defendants Must Pay Duties & Penalties
The CIT found the defendant's entries filed for the suits were false because the declared value on the entries failed to reflect the cost of the dutiable fabric assists. In addition to being false, the CIT found that the omissions were also material because it had the natural tendency to influence or was capable of influencing agency action including, but not limited to a CBP action regarding determination of an importer's liability for duty.
The CIT ruled that the defendants are jointly and severally liable for $45.245.39 in unpaid customs duties, plus interest, as well as a civil penalty for gross negligence under 19 USC 1592(c)(2) in the amount of $534,420.32, plus interest.