Trade Court Says Importer Can't Prove Date of Discovery of Customs Fraud

The Court of International Trade in an Aug. 4 order denied defendant Greenlight Organic and Parambir Singh Aulakh's motion for summary judgment over the date that the U.S. discovered customs fraud for the purpose of finding whether the statute of limitations had run out. Judge Jennifer Choe-Groves ruled that the undisputed facts don't back any of three dates floated by the defendants as the date that the U.S. first received evidence of Greenlight's double invoicing scheme. In the scheme, Greenlight is accused of fraudulently misclassifying its Vietnam-origin knit garments.

The U.S. brought the case in 2017 to root out what it believed to be a misclassification scheme on behalf of Greenlight. Fraud was committed when the importer claimed its Vietnam-origin knit garments were misclassified as woven garments, dutiable at a lower rate, and undervaluing the goods. Greenlight originally argued that the suit was beyond the statute of limitations since Section 1592 cases can only be brought within five years after the date of the alleged violation. Fraud cases, though, must be brought within five years after the government discovers the fraud. In the 2018 decision, the court denied summary judgment, questioning when the government actually knew about the fraud.

So, Greenlight sought to use the court's discovery process to find out exactly that (see 2107260038). Having now done so, the importer feels strongly that the case can now be tossed as being time barred according to federal law. It floated three dates, each of which would see the case tossed: May 31, 2011, when Leslie Jordan, principal of a competing business gave her complaint to Immigration and Customs Enforcement; Oct. 31, 2011, when ICE opened a formal investigation; and Dec. 19, 2011, when CBP opened a formal investigation. The U.S., meanwhile, said that it discovered evidence of the fraud no earlier than Feb. 9, 2012, when the importer first handed over some of its internal business records showing the double invoicing.

Since the discovery of fraud is not defined in the statute, regulations nor opinions of the U.S. Court of Appeals for the Federal Circuit, the court turned to a 2000 CIT decision, U.S. v. Spanish Foods. In the case, the court defined the date of discovery of fraud as the date when the plaintiff first learns of the fraud or is sufficiently on notice as to the possibility of fraud to discover its existence with the exercise of due diligence. In light of this opinion, the defendants argued that the date Jordan sent materials to ICE that gave specific information which related to the claim stands as the date of discovery of fraud.

Choe-Groves said the reliance on this opinion is "misplaced," as that opinion found that the date of a meeting between the informer and CBP was the date of discovery of fraud since the informer gave customs double invoicing documents. "As the U.S. Court of Appeals for the Federal Circuit has upheld, double invoicing is a basis for a finding of fraudulent intent," the opinion said. "The undisputed facts do not establish that Ms. Jordan’s complaint alleged fraudulent intent, and contrary disputed facts suggest that Customs received double invoicing documents in 2012. Viewed in the light most favorable to Plaintiff, the undisputed facts do not establish that discovery of fraud occurred on May 31, 2011, when Ms. Jordan first provided information about Greenlight to the Government."

Looking at the defendants' second and third proposed dates of discovery, the judge ruled that since the parties "agree upon very few facts," the fact-specific inquiry of finding the date of when a statute of limitations begins to run cannot be conducted. "The question of when a plaintiff discovered fraud is not one that often lends itself to resolution by way of summary judgment," the opinion said. "The Court notes that there are more disputed material facts with respect to the statute of limitations than undisputed facts. The few undisputed facts agreed upon by the Parties do not establish that May 31, 2011, October 31, 2011, or December 19, 2011 was the date of discovery of fraud as alleged in Defendants’ Motion for Summary Judgment."

The judge then ordered that the parties file a joint proposed pre-trial order with the court. If the parties cannot agree on a pre-trial order, they shall file separate proposed orders.

(United States v. Greenlight Organic, Slip Op. 22-87, CIT #17-00031, dated 08/04/22, Judge Jennifer Choe-Groves. Attorneys: William Kanellis for plaintiff U.S. government; Robert Silverman of Grunfeld Desiderio for defendants Greenlight and Parambir Singh Aulakh)