CIT Orders Importer to Pay $500K for Negligent Misclassification

The Court of International Trade on Jan. 18 ordered an importer to pay more than $500,000 in penalties and unpaid duties for misclassifying goods that should have been subject to antidumping and countervailing duties, though it declined to impose the full amount requested by the government. Six Star Wholesale allegedly imported wire hangers and polyethylene retail carrier bags from China under the wrong tariff classifications, then failed to defend itself in court against the penalty action.

According to the government, in 2009 and 2010, Six Star imported 27 entries of wire hangers that its customs broker instead classified as duty-free clothing racks of heading 9403. It also imported 14 entries of polyethylene retail carrier bags as other kinds of plastic bags. Imported from China, both the hangers and the retail bags were subject to AD/CV duties, but the broker did not mark the entries type 03. In total, Six Star failed to pay $243,228.02 in duties. Its surety subsequently paid $100,000 of that sum.

The statutory maximum customs penalty for negligence under 19 USC 1592 is the lesser of the domestic value or two times the amount of unpaid duties, taxes and fees. Here, the domestic value exceeded $700,000, so CBP sought the most it could: two times the unpaid duties in the amount of $486,456.04. Six Star did not respond to CBP’s penalty notices, nor did it appear to defend itself in the resulting court case.

For Six Star’s lack of participation, CIT declared the company in “default,” causing it to accept all of the government’s reasonable accusations as truth. As alleged, Six Star’s actions merited a customs penalty, CIT said. Six Star did not exercise reasonable care, and “even a modicum of effort on the part of Six Star” would have uncovered the erroneous descriptions and classification and the failure to pay AD/CV duties. Six Star also demonstrated a pattern of disregard given that the violations occurred on 41 entries over a period of two years, the trade court said.

But CIT declined to accept the full penalty amount requested by the government. Six Star’s surety already paid $100,000, reducing some of the harm from the unpaid duties. On the other hand, Six Star “shirked its responsibility” as the importer of record to pay all duties, causing the government to have to expend resources to obtain payment from the surety. CIT set the penalty at two times the amount of unpaid duties outstanding, $143,228.02, plus one time the duties already paid by the surety, for a total penalty of $386,456.04. It also ordered Six Star to repay the unpaid duties and any interest that has accrued since the date of entry. The total judgment amount is $529,684.06.

(U.S. v. Six Star Wholesale, Inc., Slip Op. 19-08, CIT # 14-00252, dated 01/18/19, Judge Gordon)

(Attorneys: Stephen Tosini for U.S. government; defendant Six Star Wholesale, Inc. in default)