CIT Says No Summary Judgment, Genuine Dispute on Importer of Tires in Unpaid Duties Suit

The Court of International Trade on Sept. 9 rejected importer Katana Racing's renewed motion to dismiss the govenrment's action against it seeking over $5.7 million in unpaid duties on passenger vehicle and light truck tires from China, after the U.S. Court of Appeals for the Federal Circuit reversed the trade court's previous dismissal of the case. In her first opinion since being confirmed to the court, Judge Lisa Wang said the U.S. didn't fail to properly identify the "person" liable for the violation, exhaust administrative remedies or bring the case on time (U.S. v. Katana Racing, CIT # 19-00125).

Wang also rejected both the government's partial motion for summary judgment and Katana's motion for summary judgment in the alternative, finding there to be genuine issues of material facts -- namely, who the importer of the goods is.

The customs violations stem from 386 entries of tires imported during 2009-2012 for which duties had not been paid. Katana said the entries were the result of identity theft, with suppliers or individuals falsely declaring Katana as the importer of record. The importer waived the statute of limitations while it worked with CBP to sort out the issue. The company was eventually assessed $5.7 million for the unpaid duties, leading it to attempt to revoke the waiver on the basis that it was promised to be part of an administrative proceeding with CBP in lieu of the payment demand.

In its first decision, the trade court said the importer properly revoked the statute of limitations waiver, dismissing the case for lack of jurisdiction (see 2203280047). The Federal Circuit reversed the dismissal, finding that the statute of limitations isn't a jurisdictional issue but rather an "affirmative defense" (see 2308030034). The case was sent back to CIT to let the court rule on the affirmative defense claims first.

Katana renewed its motion to dismiss at CIT, making four distinct claims against the case. The first said that the U.S. failed to properly identify the "person" liable for the violation and the "level of culpability" assigned to this person. Wang surveyed the three possible levels of culpability -- negligence, gross negligence and fraud -- and said that while the U.S. didn't use the word "negligence," it alleged the violation of the culpability level for negligence, which is the "exercise of 'reasonable care and competence.'" The judge said this claim, "paired with the sufficient factual allegations of the claimed violation, satisfies a claim for negligence."

The importer argued the case should be tossed because the U.S. failed to name the "person" liable for the duties in its initial complaint. Wang rejected this claim, finding that there are "sufficient factual allegations pleaded to show that the government belies that Katana, as the alleged importer of record, is culpable" for the violations. However, a defense of identity theft can be raised later, just not at the "threshold stage of this proceeding," Wang held.

The court next said the U.S. didn't need to exhaust administrative remedies, because CAFC has said the government's bid for unpaid duties doesn't require exhaustion. Wang also said the claim isn't barred by laches, or unreasonable delay in bringing the claim, citing the U.S. Supreme Court's decision in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, which said courts can't apply laches where a congressionally mandated statute of limitations exists.

Using the Federal Circuit's ruling that a claim of government misconduct can be used as an affirmative defense, Katana argued it properly revoked the statute of limitations waiver after the government went back on its promise. Wang said the dispute on this issue "relies on matters outside the initial pleading," making it "appropriate to analyze" the company's claims "under the rubric of a motion for summary judgment."

The court lastly denied both parties' motions for judgment on the basis that there were genuine disputes about material facts. Since no discovery has taken place nor has Katana replied to the government's complaint, there are no undisputed facts on which to rule on the summary judgment motions, the court said.

The U.S. argued it gave evidence which would be admissible at trial establishing Katana's negligence and that the importer hasn't offered any admissible evidence. However, Wang held that when considering a motion for summary judgment, the court can consider evidence that would be inadmissible at trial. The judge also said that while emails from Katana's employees regarding its claim of identity theft as a defense may be hearsay, they can be made admissible by having the authors of the email testify. Katana said the authors are willing to testify, so the emails can be made admissible.

Regardless of the form of the evidence, the emails' existence speaks to a genuine dispute on a key fact in the case: "the person or entity who is liable under 19 U.S.C. § 1592(a) for the claim of unpaid duties." The judge said summary judgment isn't appropriate when "such a significant material fact is in dispute."