DOJ Must Show Intentional Misclassification Even With Nonresponsive Defendant, CIT Says

The government must go beyond merely asserting intentional misclassification even when dealing with a nonresponsive defendant, Court of International Trade Judge Mark Barnett said in an Oct. 30 ruling. The Department of Justice requested a default judgment in a case against NYWL Enterprises. DOJ alleged that the company purposefully and misclassified 107 entries of Siamese coaxial cable, and sought “a penalty in the amount of $3,760,070.00 (equal to eight times the total lost revenue) plus interest" for fraud.

After discovering classification discrepancies from a commercial invoice, CBP in 2016 issued pre-penalty notices demanding “$379,665.83 and a penalty notice in the amount of $3,760,070.00 for fraudulent misclassification.” DOJ subsequently filed suit against NYWL and requested a default judgment after the company did not respond to the complaint.

DOJ alleged that NYWL knew the merchandise was Siamese coaxial cable and it intentionally used a different classification to avoid higher duties. But, those claims lacked the required underlying facts that would indicate “NYWL’s knowledge of the falsity of the declared classification,” the CIT said.

CIT rules require “a party alleging fraud to state the circumstances constituting the fraud with particularity, while intent or knowledge 'may be alleged generally,'” Barnett said. “While the Government’s Complaint states with particularity the facts regarding NYWL’s materially false statements and adequately alleges compliance with administrative procedural requirements, the Complaint lacks sufficient factual allegations demonstrating NYWL’s culpability for fraud,” Barnett said. As a result, Barnett rejected the motion for default judgment without prejudice.