United States v. Trek Leather, Inc.

United States Court of Appeals for the Federal Circuit ______________________

UNITED STATES, Plaintiff-Appellee,

v.

TREK LEATHER, INC., Defendant,

AND

HARISH SHADADPURI, Defendant-Appellant. ______________________

2011-1527 ______________________

Appeal from the United States Court of International Trade in No. 09-CV-0041, Judge Nicholas Tsoucalas. ______________________

Decided: July 30, 2013 ______________________

STEPHEN C. TOSINI, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Depart- ment of Justice, of Washington, DC, argued for plaintiff- appellee. With him on the brief were STUART F. DELERY, Acting Assistant Attorney General, JEANNE E. DAVIDSON, Director, and FRANKLIN E. WHITE, JR., Assistant Director. Of counsel was SCOTT A. MACGRIFF, Trial Attorney.

2 US v. TREK LEATHER, INC.

JOHN J. GALVIN, Galvin & Mlawski, of New York, New York, argued for defendant-appellant. ______________________

Before DYK, PLAGER, and O'MALLEY, Circuit Judges. Opinion for the court filed by Circuit Judge O’MALLEY. Dissenting opinion filed by Circuit Judge DYK. O’MALLEY, Circuit Judge. Mr. Harish Shadadpuri (“Shadadpuri”) appeals the decision of the United States Court of International Trade granting in part the United States’ (“the government”) motion for summary judgment, finding Shadadpuri liable for gross negligence in connection with the entry of im- ported merchandise into the United States and imposing penalties under 19 U.S.C. § 1592(c)(2) for that conduct. Shadadpuri contends that corporate officers of an “im- porter of record” are not directly liable for penalties under § 1592(c)(2). In the circumstances presented here, we agree. We find that, absent piercing Trek’s corporate veil to establish that Shadadpuri was the actual importer of record, as defined by statute, or establishing that Shadadpuri is liable for fraud under § 1592(a)(1)(A), or as an aider and abettor of fraud by Trek under § 1592(a)(1)(B), we must reverse the penalty assessment against Shadadpuri. 1

US v. TREK LEATHER, INC. 3 I. The relevant facts are not in dispute. Trek Leather, Inc. (“Trek”) was the importer of record for seventy-two (72) entries of men’s suits between February 2, 2004, and October 8, 2004. Mercantile Electronics, LLC (“Mercan- tile Electronics”), which is not a party to this suit, was the consignee of the men’s suits. Shadadpuri is the president and sole shareholder of Trek, and is also a forty-percent (40%) shareholder of Mercantile Electronics. There is no evidence or even allegation that Shadadpuri is himself a licensed customs broker. Trek and Mercantile Electronics purchased a number of fabric “assists” and provided them to manufacturers outside the United States. An assist is defined by 19 U.S.C. § 1401a(h)(1)(A) as, among other things: “materi- als, components, parts, and similar items incorporated in the imported merchandise.” 19 U.S.C. § 1401a(h)(1)(A)(i). The foreign manufacturers used the assists to make men’s suits which Trek imported into the United States. In August 2004, the United States Customs and Border Protection (“Customs”) investigated Trek’s import activi- ties and determined that the relevant entry documenta- tion failed to include the cost of the fabric assists in the price paid or payable for the men’s suits which, in turn, lowered the amount of duty payable by Trek. In Novem- ber 2004, Customs informed Shadadpuri that Trek had failed to declare the value of the fabric assists when importing the merchandise. Shadadpuri previously failed to include assists in en- try declarations when acting on behalf of a corporate importer. In 2002, Customs discovered that Shadadpuri, acting on behalf of Mercantile Wholesale Inc. (“Mercan- tile”), failed to include in Mercantile’s entry documenta-

impose direct liability upon him for penalties under § 1592(c)(2).

4 US v. TREK LEATHER, INC. tion the cost of fabric assists and trim when identifying the price actually paid or payable for the merchandise. The same Customs Import Specialist that conducted the investigation currently at issue discovered the discrepan- cies in 2002 and explained to Shadadpuri that assists were dutiable and must be included on import documen- tation. As a result of the 2002 investigation, Mercantile paid $46,156.89 in unpaid duties after admitting it failed to add the value of the assists in the price actually paid or payable for merchandise. Customs did not take any action against Shadadpuri personally. When confronted in 2004 regarding the assists at is- sue in this case, Shadadpuri conceded he knew Trek should have included the value of the fabric assists in its duties. Neither Shadadpuri nor Trek paid the balance of the duties owed in connection with the assists. The government filed suit in the Court of International Trade, claiming that both Trek and Shadadpuri, in his personal capacity, were liable for a penalty of $2,392,307, for fraudulently, knowingly, and intentionally understating the dutiable value of the imported men’s suits. See Unit- ed States v. Trek Leather, Inc. and Harish Shadadpuri, Case No. 1:09-cv-00041-NT, Doc. No. 2 (“Complaint”). The government alternatively alleged that Shadadpuri and Trek were either: (1) grossly negligent and liable for a civil penalty of $534,420.32, or (2) negligent and liable for a civil penalty of $267,310.16. The government further sought the unpaid customs duties of $45,245.39. The statutory scheme which governs these claims and requests for penalties contains two relevant sections. First, § 1592(a) defines what conduct is subject to a penal- ty. It provides: (a) Prohibition (1) General Rule

US v. TREK LEATHER, INC. 5 Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negli- gence, or negligence— (A) may enter, introduce, or at- tempt to enter or introduce any merchandise into the commerce of the United States by means of— (i) any document or elec- tronically transmitted data or information, written or oral statement, or act which is material and false, or (ii) any omission which is material, or (B) may aid or abet any other per- son to violate subparagraph (A). 19 U.S.C. § 1592(a). Section 1592(c) then describes the penalties which may be assessed, depending on the level of an offender’s culpability. It provides, in relevant part: (c) Maximum penalties (1) Fraud A fraudulent violation of subsection (a) of this section is punishable by a civil penal- ty in an amount not to exceed the domes- tic value of the merchandise. (2) Gross negligence A grossly negligent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed—

6 US v. TREK LEATHER, INC. (A) the lesser of— (i) the domestic value of the merchandise, or (ii) four times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 40 per- cent of the dutiable value of the merchandise. (3) Negligence A negligent violation of subsection (a) of this section is punishable by a civil penal- ty in an amount not to exceed— (A) the lesser of— (i) the domestic value of the merchandise, or (ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 20 per- cent of the dutiable value of the merchandise. 19 U.S.C. § 1592(c). The government moved for summary judgment on all claims, and Trek and Shadadpuri cross-moved for partial summary judgment on the fraud claim. Shadadpuri also cross-moved for summary judgment with respect to the negligence claims, contending that, because he was not

US v. TREK LEATHER, INC. 7 the “importer of record”—and was, instead, only a corpo- rate officer thereof—no such cause of action could lie against him. During oral argument before the Court of International Trade, Trek conceded it had been grossly negligent, but denied having committed intentional fraud; Shadadpuri continued to deny liability on all counts. Shadadpuri argued that, because Trek, a corporation, was the importer of record, he could only be liable person- ally if the government either pierced Trek’s corporate veil or established that Shadadpuri either had committed fraud or aided and abetted fraud by Trek, making him liable under § 1592(a)(1)(B) (“[no person] may aid or abet any other person to violate subparagraph (A)”). Shadad- puri contended—relying on our decision in United States v. Hitachi America, Ltd., 172 F.3d 1319 (Fed. Cir. 1999) (“Hitachi”)—that, because one cannot “aid and abet” negligent conduct, he cannot be liable for Trek’s admitted negligence unless the government proves he was acting as Trek’s alter ego, rather than as an officer of the corpora- tion acting in his capacity as such. Given Trek’s concession of gross negligence, the gov- ernment abandoned its fraud claim against Trek and asked for judgment on the gross negligence claim and a penalty under § 1592(c)(2). As for Shadadpuri, the gov- ernment declined his invitation to either pierce Trek’s corporate veil or to prove that Shadadpuri had aided or abetted a fraud by Trek. Instead, the government claimed it could prevail on its negligence claims against Shadadpuri in the absence of such proofs solely because Shadadpuri is a “person” within the meaning of § 1592(a) generally. The Court of International Trade agreed with the government on all points. As to Trek, the court granted summary judgment in favor of the government and as- sessed a $534,420.32 penalty under §1592(c)(2), for gross negligence in connection with its import documentation.

8 US v. TREK LEATHER, INC. The Court of International Trade then found Shadadpuri jointly and severally liable for the same penalty, finding that Shadadpuri is a member of the class of “persons” subject to liability under § 1592(a), whether or not he is the “importer of record,” and that the plain language of § 1592(a) “does not recognize an exception for negligent corporate officers.” See United States v. Trek Leather, Inc. and Harish Shadadpuri, Case No. 1:09-cv-00041, Slip Op. 11-68 at 9 (Doc. No. 44) (citations omitted). The Court of International Trade reasoned that Shadadpuri was per- sonally responsible for examining all appropriate docu- ments before forwarding them to a customs broker, and that Trek could not have been grossly negligent but for Shadadpuri’s involvement in that negligence. Id. at 9. The court found the parties’ motions for summary judg- ment on the fraud claim to be moot and entered an order dismissing those claims. Id. at 10-11. Shadadpuri timely appealed; the government has not appealed the dismissal of the fraud claims. On appeal, Shadadpuri argues that only “importers of record” may be directly liable for a penalty assessed under § 1592(c)(2) or (c)(3), based solely on assertions of negli- gence. Sections 1484 and 1485 of Title 19 set forth the level of reasonable care required in conjunction with the entry of merchandise, and, relying on Hitachi, Shadad- puri contends that those sections are directed at requiring “importers of record” to use reasonable care in providing Customs with true and correct documentation regarding the value of imported merchandise. And, because §§ 1484 and 1485 only apply to “importers of record,” parties other than the importer of record cannot be directly liable for a penalty under § 1592(c)(2) or (c)(3) for negligent failure to comply with those provisions. He asserts that liability for corporate officers of an importer of record may only arise: (1) where those officers are liable for fraud under 19 U.S.C. §§ 1592(a)(1)(A) or (a)(1)(B), or (2) by way of the common law principle of piercing the corporate veil so as

US v. TREK LEATHER, INC. 9 to equate the corporate officer with the importer of record. He therefore argues that, because he was not the importer of record (Trek was) and has not been charged with fraud, or aiding and abetting fraud, he cannot be directly subject to a penalty under § 1592(c)(2). Shadadpuri further contends, citing both Hitachi and United States v. Action Products, International, 25 CIT 139, 144 (Ct. Int’l Trade 2001), that, when an importer of record is liable only for negligence or gross negligence (as distinct from fraud), a third party cannot be liable for aiding and abetting that negligence. His premise is that someone cannot be liable for negligent aiding and abetting because aiding and abetting requires a demonstration of knowledge or intent. See Hitachi, 172 F.3d at 1337-38. The government counters that the plain language of § 1592 mandates that “no person” shall import merchan- dise into the United States by means of materially false statements or omissions and that the provision is not limited to “importers of record” or those committing fraud, but also includes corporate officers of a corporate importer of record. On this basis, the government contends that the Court of International Trade properly held Shadad- puri liable for a direct violation of § 1592(a) and properly imposed penalties under § 1592(c)(2). We have jurisdic- tion pursuant to 28 U.S.C. § 1295(a)(5). II. We review legal determinations from the Court of In- ternational Trade without deference and review factual questions for clear error. NEC Elecs., Inc. v. United States, 144 F.3d 788, 790 (Fed. Cir. 1998). We agree with the government that the word “person,” as it appears in 19 U.S.C. § 1592(a), should be read broadly. Section 1592 is not a free standing criminal sanction, however. Ac- cordingly, the operative question is not simply whether Shadadpuri is a “person” as defined in § 1592, but wheth- er a corporate officer can be personally liable for a corpo-

10 US v. TREK LEATHER, INC. rate importer of record’s negligent violation of §§ 1484 and 1485 and punished under § 1592(c)(2) therefor. We first turn to the statutory structure of the Tariff Act. Section 1484 of Title 19 sets forth the requirements and timing for making entry of imported merchandise into the United States: (a) Requirement and time (1) Except as provided in sections 1490, 1498, 1552, and 1553 of this title, one of the parties qualifying as “importer of record” under para- graph (2)(B), either in person or by an agent au- thorized by the party in writing, shall, using reasonable care— (A) make entry therefor by filing with the Bureau of Customs and Border Protection such documentation or, pursuant to an au- thorized electronic data interchange sys- tem, such information as is necessary to enable the Bureau of Customs and Border Protection to determine whether the mer- chandise may be released from custody of the Bureau of Customs and Border Protec- tion; (B) complete the entry, or substitute 1 or more reconfigured entries on an import activity summary statement, by filing with the Customs Service the declared value, classification and rate of duty ap- plicable to the merchandise, and such oth- er documentation or, pursuant to an electronic data interchange system, such other information as is necessary to ena- ble the Customs Service to— (i) properly assess duties on the merchandise,

US v. TREK LEATHER, INC. 11 (ii) collect accurate statistics with respect to the merchandise, and (iii) determine whether any other applicable requirement of law (other than a requirement relating to release from customs custody) is met. 19 U.S.C. § 1484(a). Section 1484 provides that a party qualifying as an “importer of record,” either in person or via an authorized agent, must use “reasonable care” in completing and submitting entry documentation to enable Customs to properly assess duties on the merchandise. An “importer of record” is defined as the owner or purchaser of the merchandise, or a customs broker with a valid license under 19 U.S.C. § 1641 designated by the owner, or a purchaser or consignee of the merchandise. 19 U.S.C. § 1484(a)(2)(B). The importer of record is required to use reasonable care when providing Customs documents demonstrating the declared value and rate of duty appli- cable to the merchandise so that Customs can, among other things, properly assess duties on the merchandise. 19 U.S.C. § 1484(a)(1)(B). An importer of record making entry under the provisions of § 1484 must also declare under oath that all the statements in the entry documents are true and correct. 19 U.S.C. § 1485(a)(3). Notably, the obligations of §§ 1484 and 1485 are also imposed on any agent “authorized in writing” by the importer of record to act on its behalf with respect to its duties under those sections. Section 1592 provides specific penalties for failing to make a proper entry, whether through fraud, gross negli- gence, or even mere negligence. As the Court of Interna- tional Trade observed in United States v. Rockwell Automation, Inc., 462 F. Supp. 2d 1243, 1246-47 (Ct. Int’l Trade 2006), “[i]n the event that Customs believes an

12 US v. TREK LEATHER, INC. importer failed to meet its obligations under [the Tariff Act of 1930], Customs may seek civil penalties under Section 592 of [the Tariff Act of 1930].” Section 1592(a) focuses on particular conduct: the en- try of merchandise into the United States. Specifically, § 1592(a) bars “person[s]” from entering, introducing, or attempting to enter or introduce, merchandise into the United States by way of fraud, gross negligence, or negli- gence. 19 U.S.C. § 1592(a). The provision focuses on such improper entry, introduction, or attempted entry or introduction of merchandise by means of any written or oral statement or act that is materially false, or contains a material omission. Id. Section 1592 does not punish all fraud or negligence in dealings with Customs, it punishes such acts only when they occur in connection with the “entry” of merchandise into the United States and only when they are of such character as to affect Customs’ decision-making when assessing duties in connection with such entry. See United States v. Thorson Chem. Corp., 795 F. Supp. 1190, 1197-98 (Ct. Int’l Trade 1992). In this context, entry is defined as filing information to enable Customs to determine whether the subject merchandise may be released from custody and enable Customs to assess duties on the merchandise, collect accurate statis- tics, and determine whether any other applicable re- quirements are met. 19 U.S.C. § 1484(a); see also 19 C.F.R. § 141.0a (defining “entry” as the documentation required to be filed with Customs or the act of filing such documentation.). The penalties assessed under § 1592(c)(2) and (c)(3) are for gross negligence or negligence in connection with such acts of “entry.” Negligence is not defined separately in the statute. Accordingly, we must assume it carries its ordinary common law meaning when used in the Tariff Act. See, e.g., Neder v. United States, 527 U.S. 1, 21 (1999) (“It is a well-established rule of construction that where Congress uses terms that have accumulated settled

US v. TREK LEATHER, INC. 13 meaning under . . . the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.”) (citations omitted); Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 59 (1911) (“[W]here words are employed in a statute which had at the time a well-known meaning at common law or in the law of this country, they are presumed to have been used in that sense unless the context compels to the contrary.”) (citations omitted). That meaning implies a duty, the breach of that duty, and harm causally flowing from breach of that duty. See Huffman v. Union Pacific R.R., 675 F.3d 412, 418 (5th Cir. 2012) (“negligence . . . requires proof of breach of a standard of care, causation, and damages.”) (citing Con- solidated Railroad v. Gottshall, 512 U.S. 532, 540 (1994)); Zimmerman v. Norfolk Southern Corp., 706 F.3d 170, 189 (3d Cir. 2013) (“The well-worn elements of common-law negligence are . . . duty, breach, causation, and damag- es.”); Tufariello v. Long Island R. Co., 458 F.3d 80, 87 (2d Cir. 2006) (identifying “the traditional common law ele- ments of negligence: duty, breach, foreseeability, and causation.”). The only “duties” regarding the filing of documents in connection with the entry of merchandise set forth in the Tariff Act which could give rise to a negli- gence claim are those spelled out in §§ 1484 and 1485. Section 1592(c)(2) and (c)(3) are thus inextricably tied to §§ 1484 and 1485. The government recognized this interaction between §§ 1484 and 1485 and the penalties which can be assessed under § 1592 when filing its summary judgment motion at the Court of International Trade. See United States v. Trek Leather, Inc. and Harish Shadadpuri, No. 1:09-CV- 00041-NT, Doc. 30 at 11. In its motion, under the section heading “[f]or [v]iolation [o]f 19 U.S.C. § 1592(a),” the government first sets out §§ 1484 and 1485, and related Customs regulations, to demonstrate the procedures and requirements importers must follow—i.e. their “duties”

14 US v. TREK LEATHER, INC. under the Act—and documents that must be filed at the time of entry. Id. Only after setting forth these require- ments does the government provide the details of § 1592 and the relevant levels of culpability and penalties which attach when an “entry” is fraudulent or negligently false. Id. at 11-12. When the government withdrew its fraud claims against both Trek and Shadadpuri, moreover, it obligated itself to prove the existence of and breach of a definable duty under the Act. Thus, the allegations in the government’s complaint and the complete record in this case reveal that the government alleged that Trek and Shadadpuri were negligent in “making entry” of the men’s suits under §§ 1484 and 1485—i.e., failed to use reasona- ble care in connection with its entry documentation—and should be liable for a penalty under § 1592(c)(2) or (c)(3) as a result. Under the facts of this case, it is undisputed that Trek is the importer of record because it is the owner of the merchandise which was entered into the United States and as to which Customs assessed duties. The govern- ment does not contend that Shadadpuri was an “importer of record or customs broker.” Nor does it assert that Shadadpuri had any independent duty under §§ 1484 and 1485 with respect to Trek’s entries. It concedes that Trek is a corporation and that, even as its sole shareholder, Shadadpuri is not chargeable with its acts generally. The government cannot reasonably contend otherwise given long-standing principles of limited liability for sharehold- ers and corporate officers when acting on behalf of a corporation. See Anderson v. Abbott, 321 U.S. 349, 361-62 (1944) (“[n]ormally the corporation is an insulator from liability on claims of creditors. The fact that incorpora- tion was desired in order to obtain limited liability does not defeat that purpose.”); Burnet v. Clark, 287 U.S. 410, 415 (1932) (“[a] corporation and its stockholders are generally to be treated as separate entities.”). Of course, Trek is chargeable with Shadadpuri’s actions because he

US v. TREK LEATHER, INC. 15 is a corporate officer (i.e., he is an “agent” of the corpora- tion in the common law sense of that term); the question posed is whether Shadadpuri, under the circumstances here, can be personally chargeable with negligence for the actions he took in his capacity as a corporate officer and on behalf of the corporation. Under basic principles of corporate law, he cannot. See O’Neal and Thompson’s Close Corporations and LLCs: Law and Practice, § 8.22 (Rev. 3d ed.) (stating that when an officer of a corporation acts, his action is that of the entity). In Hitachi, for instance, we found that because §§ 1484 and 1485 apply by their terms only to importers of record, the corporate parent of an importer could not be directly liable for violations thereof, even where it had played “an active role” in the importer’s entry of mer- chandise. Hitachi, 172 F.3d at 1337-38. We held, moreo- ver, that the corporate parent could not be liable for aiding and abetting the importer’s violations of §§ 1484 and 1485 because one cannot, as a matter of legal theory, “aid and abet” the negligence of another. Id. Thus, it would seem that, absent a showing that pierces Trek’s corporate veil, Shadadpuri is as much a third party to Trek’s activities as an “importer of record” as was the corporate parent in Hitachi and, thus, cannot be directly chargeable with penalties under § 1592(c)(2) or (3) for Trek’s negligence. As Shadadpuri concedes, he could be chargeable with a penalty under § 1592(a)(1)(B) for aiding and abetting corporate fraud had the government chosen to prove that Trek engaged in such fraud, but the gov- ernment abandoned that claim. And, under Hitachi, aiding and abetting liability only applies to intentional acts, not negligent ones. The government seeks to avoid the result that seems compelled by the structure of the Tariff Act and our decision in Hitachi by arguing that § 1592(a) defines “person[s]” subject to the penalties more broadly than §§ 1484 and 1485 define an “importer of record.” And, the

16 US v. TREK LEATHER, INC. government argues that Hitachi only addressed the liability of parent “exporters” under § 1592(a) and did not mean to apply its holding to other potential “person[s]” under § 1592(a). We are not persuaded on either score. While the word “person” generally carries a broad connotation, it cannot be divorced from the remainder of the language in § 1592. The word “person” must be read in context and “‘with a view to [its] place in the overall statutory scheme.’” Roberts v. Sea-Land Servs., Inc., __ U.S. __, 132 S.Ct. 1350, 1357 (2012) (quoting Davis v. Michigan Dept. of Treasury, 489 U.S. 803 (1989)); United States v. Morton, 467 U.S. 822, 828 (1984) (“[w]e do not, however, construe statutory phrases in isolation; we read statutes as a whole.”). As noted above, § 1592(a) does not simply prohibit persons from lying to customs—though there may be other civil or criminal provisions which address that activity—it only bars persons from making misstatements to Customs in connection with the entry of merchandise into the United States, and only from doing so in a way that might tend to affect Customs’ assessment of duties on that merchandise. See Thorson Chem. Corp., 795 F. Supp. at 1197-98. And, penalties under § 1592(c)(2) and (c)(3) for negligent conduct can only be assessed against those with definable “duties” under the Tariff Act relating to such entries. The word “person” in this context must be read to encompass those who are authorized to enter merchandise into the United States and who have duties imposed upon them which are con- comitant with such entry. We do not read “person” as a disembodied term untethered to the conduct for which Congress deemed a penalty to be appropriate. Nor do we read into it an unstated purpose of Congress to repeal the common law principle of corporate-shareholder immuni-

US v. TREK LEATHER, INC. 17 ty. 2 We also decline to parse Hitachi as finely as the government asks that we do. In Hitachi, we rejected the government’s argument that § 1592(c)(2) and (c)(3) should be read broadly to encompass entities or individuals who, though not im- porters of record, are actively involved with the funding and control of the entry of merchandise by that importer of record. Hitachi, 172 F.3d at 1336-38. The position the government takes here, though phrased differently, is to the same effect; if we accept it, we would simultaneously overrule the result in Hitachi. We may not do that, nor do we wish to. We did not limit either our discussion or holding in Hitachi to exporters; our focus was on the fact that, as a corporate parent, Hitachi Japan was not the importer of record and had no duties as such, despite findings by the Court of International Trade that it was actively involved with and even directed the activity. As here, what we did in Hitachi was both respect the corpo- rate form and recognize that a claim of negligence must be predicated upon a defensible legal duty; the govern- ment’s effort to characterize our focus differently is un- persuasive. The government had at least two separate avenues to hold Shadadpuri personally liable for penalties under § 1592 in connection with the duties owed for Trek’s 2004 entries. It could have proven that Trek committed fraud and that Shadadpuri aided and abetted that fraud. Or, it could have pierced Trek’s corporate veil and charged

18 US v. TREK LEATHER, INC. Shadadpuri with Trek’s admitted negligence as Trek’s alter ego. It is possible, moreover, that the government could have proven that Shadadpuri personally committed fraud and is liable for that conduct under § 1592(a). 3 While all of these routes seem viable—indeed readily available—on the record before us, the government has steadfastly eschewed them all. Instead, the government has asked us to adopt a broad legal principle that would expose all corporate officers and shareholders to personal liability for negligent acts they undertake on behalf of their corporation. Absent an explicit statutory basis for doing so, we decline to believe Congress intended to supplant the common law so completely. 4 And, we decline to reverse or dilute our holding in Hitachi.

US v. TREK LEATHER, INC. 19 Thus, while we may not fully understand the strategy choices the government made here, we hold it to them and reverse the judgment of the Court of International Trade to the extent it imposed penalties under § 1592(c)(2) upon Shadadpuri while acting in his capacity as a corporate officer of Trek, a corporate “importer of record.” 5

20 US v. TREK LEATHER, INC. REVERSED COSTS No costs.

statements made by a corporation if the officer knowingly participated in the deception or failed to correct the false statements upon learning of them” Dissent at 4, quoting Islip, 18 F. Supp. 2d at 1061, there is no doubt they can be. Section 1592(a)(1)(B) makes clear that is so; all the government must do is prove that the importer of record committed fraud through those officers and that the corporate officer “knowingly participated in that decep- tion” or covered it up, i.e., aided and abetted it. It is possible, alternatively, that the government could prove direct acts of fraud and attempt to assess a penalty under § 1592(c)(1) therefore. What the government may not do is shortcut its burden of proof in a way that ignores both the statutory scheme of the Tariff Act and an importer of record’s corporate form.

United States Court of Appeals for the Federal Circuit ______________________

UNITED STATES, Plaintiff-Appellee,

v.

TREK LEATHER, INC., Defendant,

AND

HARISH SHADADPURI, Defendant-Appellant. ______________________

2011-1527 ______________________

Appeal from the United States Court of International Trade in No. 09-CV-0041, Judge Nicholas Tsoucalas. ______________________ DYK, Circuit Judge, dissenting. The majority holds that only an importer of record or agent authorized in writing—as defined by 19 U.S.C. § 1484 of the customs statutes—may be liable for negligence as a “person” under § 1592(a)(1)(A). Absent piercing of the corporate veil, it holds that corporate officers (agents of the corporation) like Shadadpuri are not liable for negligently submitting false customs forms.

2 US v. TREK LEATHER, INC. In my view, the majority’s interpretation is incon- sistent with the plain language of the statute and its legislative history. I respectfully dissent. I The majority suggests that § 1592 is designed solely to impose penalties for violations of §§ 1484 and 1485, arguing that “[t]he only ‘duties’ regarding . . . entry . . . are those spelled out in §§ 1484 and 1485,” and that “Section 1592(c)(2) and (c)(3) are thus inextricably tied to §§ 1484 and 1485.” Maj. Op. at 13. It argues that, since § 1484 only imposes duties on “importers of record” and “agents authorized by the [importer of record] in writing,” those are the only persons who can be liable for penalties under § 1592. But § 1592 contains no reference to § 1484 and broadly sanctions any “person . . . [who] by fraud, gross negligence, or negligence . . . enter[s], introduce[s], or attempt[s] to enter or introduce any merchandise . . . by means of . . . any document . . . which is material and false, or . . . any omission which is material.” 19 U.S.C. § 1592(a). Alternatively, the majority urges that importers of record and written agents are the only persons who could make an “entry” within the meaning of § 1592. But this cannot be correct. Any importer of record typically acts through agents. The statutory scheme requires that an “entry” of merchandise is made by filing specific docu- ments with the customs service. See 19 U.S.C. §§ 1484, 1485. Those who submit those documents have a duty to ensure that they are accurate. Section 1592(a)(1)(A) is designed to impose liability on agents of importers of record who breach this duty in submitting the required documents for entries on behalf of the importer of record. This is clear from the history of § 1592(a)(1)—not dis- cussed or even acknowledged by the majority. The current language of the statute, which refers to a “person,” was adopted in 1978. See Customs Procedural Reform and

US v. TREK LEATHER, INC. 3 Simplification Act of 1978, Pub. L. No. 95-410, § 110, 92 Stat. 888, 893-94. The Supreme Court has made clear that “‘person’ often has a broad[] meaning in the law.” See Clinton v. City of New York, 524 U.S. 417, 428 n.13 (1998) (citing 1 U.S.C. § 1). The history of § 1592(a) shows that the term “person” has such a broad meaning in that statute. The precursor to § 1592(a)(1)(A) imposed liability for false statements to Customs on a wide range of indi- viduals, including corporate representatives like Shadad- puri. Specifically, the prior version of the statute conferred liability on any consignor, seller, owner, importer, consignee, agent, or other person or persons [who] enters or introduces, or attempts to enter or introduce . . . any imported merchandise by means of any fraudulent or false invoice, declaration, affidavit, letter, paper, or by means of any false statement, written or verbal . . . . 19 U.S.C. § 1592 (1976) (emphasis added). Shadadpuri would clearly be liable under this earlier statute. As the majority concedes, Shadadpuri qualifies as an agent of Trek. See Maj. Op. at 15 (conceding that Shadadpuri “is an ‘agent’ of the corporation in the common law sense of that term”). And Shadadpuri clearly provided false information to Customs that omitted the value of certain fabric assists. The question is whether the change in the statute’s language—using the word “person” in the current version of § 1592(a) to replace the list of covered persons in the predecessor statute—changed the meaning of the statute. It is quite clear that the substitution of the word “person” for the list appearing in the predecessor statute was not designed to make a substantive change. The legislative history stated explicitly that “[t]he persons covered . . . [we]re intended to remain the same as they [we]re under [the previous] law,” and “emphasize[d] that . . . the com-

4 US v. TREK LEATHER, INC. mittee d[id] not change the scope of [the existing law] with respect to the persons potentially liable” under the provision. S. Rep. No. 95-778, at 18, 20 (1978); see also H.R. Rep. No. 95-1517, at 10 (1978) (Conf. Rep.) (noting that “the persons covered . . . [we]re intended to remain the same”). Shortly after the current version of § 1592(a) was adopted, the Court of International Trade (“Trade Court”), explained that, in changing the language of the statute, the new version placed “[n]o limitation . . . on whether such persons were corporations or natural persons,” and it concluded that there is nothing in the Act []or its legislative his- tory to indicate that the Congress intended to re- strict the applicability of the penalties [in § 1592] to corporations and to exclude from the applicabil- ity of the penalties officers of corporations merely because of a claim that they were acting in their corporate capacities. United States v. Appendagez, Inc., 560 F. Supp. 50, 55 (Ct. Int’l Trade 1983). More recently, the Trade Court has stated that “[a] corporate officer may be liable for false statements made by a corporation if the officer knowingly participated in the deception or failed to correct the false statements upon learning of them.” United States v. Islip, 18 F. Supp. 2d 1047, 1061 (Ct. Int’l Trade 1998) (altera- tion in original) (quotation marks omitted). Unsurprising- ly, then, the Trade Court has noted that “[t]he language of section 1592 leaves room for those other than the import- er of record to be held accountable for violations,” and that it has “consistently allowed corporate officers to be held [jointly and severally] liable for violations that were committed in the capacity of their employment,” as was the case for Shadadpuri below. United States v. Matthews, 533 F. Supp. 2d 1307, 1313-14 (Ct. Int’l Trade 2007).

US v. TREK LEATHER, INC. 5 II The majority seems to distinguish these Trade Court cases as involving fraud rather than negligence. See Maj. Op. at 18 n.4, 19 n.5. But the same language in § 1592(a) (referring to liability of “persons”) applies to both fraud and negligence. See 19 U.S.C. § 1592(c) (defining liability under § 1592(a) for fraud, gross negligence, and negli- gence). There is nothing in the statutory text that would distinguish between an agent’s direct liability for fraudu- lent entries and negligent ones. The majority’s effort to suggest that the statutory text might cover fraud and not negligence is misguided. See Clark v. Martinez, 543 U.S. 371, 386 (2005) (rejecting “the dangerous principle that judges can give the same statutory text different mean- ings in different cases”). 1 The construction of § 1592 mandated by the legisla- tive history is not contrary to our decision in Hitachi, which did not address the question of whether a “person” other than an importer of record could be liable for mate- rial false statements or omissions under § 1592(a)(1)(A), which is at issue here. It merely held that Hitachi Japan, which was not the importer of record in that case, could not be liable for aiding and abetting negligent false statements made to Customs by the importer of record under 19 U.S.C. § 1592(a)(1)(B). 172 F.3d at 1336. The government did not argue and the case did not decide whether an agent or other individual could be a “person” liable for negligence. III Here, the record clearly showed that Shadadpuri signed the required entry documentation on Trek’s behalf,

¹ To be sure under United States v. Hitachi Ameri- ca, Ltd., 172 F.3d 1319 (Fed. Cir. 1999), an individual could aid and abet a fraud, but not a negligent act.

6 US v. TREK LEATHER, INC. Supp. J.A. 31-32, 79-88, and Shadadpuri conceded at oral argument in the Trade Court that he “had the responsibil- ity and obligation to examine all appropriate documents including all assists within the [required] entry documen- tation.” United States v. Trek Leather, No. 09-00041, slip op. at 9 (Ct. Int’l Trade June 15, 2011). But the documen- tation Shadadpuri authorized had material omissions and therefore contained false representations. Because Shadadpuri had been responsible for the submission of similarly false entries in the past, the Trade Court rea- sonably deemed Shadadpuri’s actions negligent, rendering him individually liable for his actions. This holding was consistent with the statute. The Trade Court’s interpretation of the statute is cor- rect. The majority’s interpretation is demonstrably incor- rect. I respectfully dissent.

Footnotes

[1] While it appears from the record that the govern- ment would have been able to allege one or more of these theories of liability, it chose not to do so below and has expressly chosen not to seek an additional opportunity to do so here on appeal. The government relies solely on its claim that it can avoid having to make the showings Shadadpuri contends it must make by, instead, seeking to

[2] We agree that the term “person” in § 1592(a) is broader than the term “importer of record.” Indeed, there is no doubt that a variety of “persons,” including corporate officers, may be liable for aiding and abetting fraud by an importer of record, even though they are not themselves the designated importer, or may be liable for their own direct acts of fraud.

[3] The dissent makes a factual argument that may well support a finding that Shadadpuri either committed a personal act of fraud or aided and abetted fraud by Trek. Dissent at 5–6. While we do not disagree with the facts described, they support legal theories the govern- ment expressly has chosen not to pursue. The govern- ment never sought to establish that either Shadadpuri or Trek committed fraud. While Shadadpuri’s conduct was reprehensible, we cannot endorse creating legal shortcuts for the government to impose a penalty in this case because that would free the government to employ that same shortcut in all other cases. We do not want to fall into the trap of letting bad facts make bad law, and, thus, decline the invitation to do so.

[4] When Congress intends to impose personal liabil- ity on corporate officers for conduct taken in their capaci- ty as such, it says so expressly. See, e.g., 18 U.S.C. § 1350 (fraud provisions of Sarbanes-Oxley Act). The dissent argues that corporate officers should be liable personally for the cost of penalties assessed under § 1592, even when acting in their capacity as officers, and even when their conduct was merely negligent. In support of this proposi- tion, it cites to United States v. Islip, 18 F. Supp. 2d 1047, 1061 (Ct. Int’l Trade 1998), which, in turn, relies on United States v. Appendagez, Inc., 560 F. Supp. 50 (Ct. Int’l Trade 1983), which relies on Herm v. Stafford, 466 F. Supp. 439 (W.D. Ky. 1979) and United States v. Wise, 370 U.S. 405 (1962). Those two cases do not address the circumstances at issue here, however. Those inapt cases have nothing to do with the liability of corporate officers accused of negligently filling out entry papers required of their corporation by §§ 1484 and 1485. Nothing in them supports the conclusion that Congress intended to put the personal assets of such corporate officers at risk based on negligent conduct that falls short of affirmative acts of fraud or the aiding and abetting of fraud. Herm is a securities fraud case from Kentucky that discusses a corporate officer’s culpability when knowingly participat- ing in a corporation’s fraudulent acts. Wise is a case interpreting the criminal provisions of the Sherman Act; its holding rests on a careful assessment of the scope of that provision and the class of entities and individuals historically within its reach, including corporate officers who knowingly engage in the illegal acts proscribed. There are neither criminal nor fraud claims asserted against Shadadpuri in this action. And, the Tariff Act is fundamentally different from and shares no common history with the Sherman Act. 5To the extent the dissent is concerned with mak- ing sure that corporate officers be held “liable for false