CIT Dismisses Customs Fraud Case for Failure to State a Claim, Gives US Chance to Amend Complaint

The Court of International Trade in a July 12 opinion denied a motion from Kevin Ho, owner and director of importer Atria, to dismiss a penalty action for lack of personal jurisdiction. Judge Timothy Reif said that the U.S. properly identified the "who, what, when, where, and how" of Ho's alleged fraud over the alleged illegal importation of HID headlight conversion kits, so personal jurisdiction was established. However, Reif denied in part and granted in part Ho's motion to dismiss for failure to state a claim, holding that the U.S. made insufficient factual allegations on Ho's knowledge and intent to violate customs law based on fraud, but giving the U.S. the opportunity to amend its complaint.

The government originally brought its case against Ho for illegally importing HID headlight conversion kits. In May 2020, CIT denied Ho's motion to dismiss the case against him in which he claimed that he never received a final penalty notice, as is required before the government seeks to collect penalties in court (see 2005180027), although he admitted to receiving the pre-penalty notice. The government said it sent the notice to two of Ho's last known addresses, and the notices were marked as delivered.

Ho then moved to dismiss the case for lack of personal jurisdiction and for failure to state a claim on which relief can be granted. Reif ruled that the U.S. cleared the personal jurisdiction hurdle. The complaint says that Ho personally took action, providing a basis for liability that's not based solely on his status as director of the offending company. "Accordingly, the court concludes that the complaint provides sufficient factual allegations as to Mr. Ho’s personal liability for the entry, introduction or attempt to enter or introduce the HID headlight conversion kits by way of a material and false statement," the opinion said.

Reif then turned to Ho's claim that the case should be dismissed for failing to state a claim on which relief can be granted. The judge said that a complaint must give sufficient allegations to infer the defendant's state of mind relating to the fraud claims, and that the complaint does not clear this standard. The U.S. merely describes the circumstances of the entries and alleges that Ho made classification declarations with the wrong classifications, knowing them to be false.

The judge ruled that the claims alleging fraud give little factual cover to support the claim that the misclassifications were made knowingly. Reif cited multiple other cases dealing in fraud claims that cited more evidence showing that the fraud was knowingly committed. "The allegations in the complaint as to Mr. Ho’s declaration of the wrong classifications and submission of documents with a false description alone do not allow the court to 'reasonably infer' defendant’s knowledge in violation of § 1592 to the degree of fraud of the introduction of the HID headlight conversion kits," the opinion said. "... Specifically, plaintiff does not point to any particular facts to allow the court to reasonably infer defendant’s knowledge despite plaintiff’s claim that Mr. Ho knew his declarations to be untrue."

However, Reif gave the U.S. the chance to amend its complaint to keep the case alive. The judge ruled that giving the U.S. the chance to do so would not be futile since the complaint "makes it apparent that there may have been fraud, even though the complaint fails to plead sufficient conditions of mind as to fraud." The court said it was "quite possible" that Ho knew that it was illegal to import HID headlight conversion kits.

(United States v. Chu-Chiang "Kevin" Ho, Slip Op. 22-81, CIT #19-00038, dated 07/12/22, Judge Timothy Reif. Attorneys: William Kanellis for plaintiff U.S. government; Elon Pollack of Stein Shostak for defendant Kevin Ho)