CIT Sets Oral Argument Over Move to Dismiss 'Fraudulently' Misclassified Metal Lid Imports
The Court of International Trade set a date -- March 22, 2022 -- for in-person oral argument date to discuss importer Crown Cork & Seal's motion to dismiss the first two counts of a customs fraud case brought by the Department of Justice. DOJ launched its case following a 10-year investigation, seeking more than $18 million over misclassified metal vacuum closures, alleging fraud, gross negligence and negligence. CCS moved to dismiss these first two counts, holding that the U.S. only has the facts to support a claim of negligence (The United States v. Crown Cork & Seal, USA, Inc. et al., CIT #21-361).
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DOJ is seeking unpaid duties due to the alleged misclassification of 543 entries of "metal lids for food, beverage, household and consumer products" from Europe brought in during 2004-2009. DOJ argues that the goods are properly classified under Harmonized Tariff Schedule subheading 8309.90.0000 and are dutiable at that 2.6% rate, while CCS attempted to classify its metal lids under HTS subheading 7326.90.1000, which is free of duty.
The government conducted an investigation into the alleged criminal conduct for over a decade. This extensive investigation, which included interviews with CCS employees and discussions with CCS's counsel, led the importer to move to dismiss the first two counts of the case. DOJ only bases its claims of fraud and gross negligence on the mere fact that the imports were misclassified, CCS said in its motion to dismiss.
"The Government says that is sufficient to state a claim for fraud and gross negligence; Defendants believe it is not, especially where, as here, there has been a decade-long investigation leading up to the filing of the Complaint," the brief said. "Indeed if the table attached to the Complaint -- without more -- is sufficient to state a claim for fraud and gross negligence, the implications will be groundbreaking. Every inadvertent misclassification of a HTSUS subheading would be susceptible to such claims, effectively weaponizing conduct that is, at best negligence."
In its complaint, DOJ argued that the misclassification was fraudulent since CCS applied the heading 8309 classification for its metal lid imports from Canada during the same period (see 2107290022). CCS did this since its Canadian metal lids could be entered duty-free under NAFTA at this time. This led the importer to file allegedly material false statements in which it "knowingly misdescribed and misclassified the metal lids as 'Other articles of iron or steel: Other: Of tinplate' under the duty-free HTSUS subheading 7326.90.1000," DOJ said in the complaint.
CCS countered by arguing that the government overreached in this conclusion. "The Government’s argument ignores that common ownership [between the Canadian and European exporters] is insufficient to impute knowledge of one company’s classifications to another, as the Government asserts," the brief said. "... Though the Crown Companies are related and owned by the same holding company, the 'apparent implications' of this fact alone are insufficient to establish a conspiracy to commit fraud or even gross negligence."