[00:00:00] Speaker 00:
Okay, the first argued case this morning is number 15, 1166, United States against Niger Electronics, Incorporated.

[00:00:14] Speaker 00:
Mr. Tassini.

[00:00:23] Speaker 03:
May it please the court?

[00:00:25] Speaker 03:
The Justice Department did not violate section 1592 by mitigating NITEC's culpability level from gross negligence to negligence here.

[00:00:34] Speaker 03:
Neither the trial court nor NITEC have identified any procedural violation in the decisions or in the briefs.

[00:00:42] Speaker 00:
And nothing... They did suggest a procedural violation.

[00:00:46] Speaker 00:
They suggest a lack of specificity in stating what the charge was.

[00:00:52] Speaker 03:
There was nothing in the statute that requires the Department of Justice to file a complaint that mirrors the penalty notice by customs.

[00:01:04] Speaker 01:
Rather... Well, but in the absence of a penalty notice that we're operating on, there's no basis to file a complaint, right?

[00:01:11] Speaker 03:
Well, there's a notice of a violation of Section 1592, and if you look at the legislative history of Section 592,

[00:01:17] Speaker 03:
A violation of Section 592 involves a material false statement in the entry or introduction.

[00:01:25] Speaker 01:
And has various penalty levels.

[00:01:29] Speaker 03:
It has various penalty levels, yes, which are entirely up to the court's discretion.

[00:01:35] Speaker 03:
And let me add, in this case, negligence was always before customs and it was before the trial court.

[00:01:45] Speaker 03:
In fact, the trial court even

[00:01:47] Speaker 03:
was going to hold a trial on negligence even though NITEC was not going to be required to pay a penalty for its own negligence.

[00:01:58] Speaker 02:
The trial court was going to hold a trial on negligence?

[00:02:02] Speaker 02:
The trial court would have held a trial... You said it was going to hold a trial?

[00:02:06] Speaker 03:
We were going to end up with a trial on negligence because until NITEC

[00:02:14] Speaker 03:
Until NITEC stipulated to judgment under Section 592D, we would have had to have had a trial to determine whether NITEC was negligent and would have been required to pay lost duties.

[00:02:24] Speaker 01:
But you talk about negligence, but there's no culpability level spelled out in 592D, correct?

[00:02:30] Speaker 03:
That's true.

[00:02:31] Speaker 03:
All there is is a violation of Section 1592A, which if you look at the statute as a whole, it shows that there's a unitary violation.

[00:02:40] Speaker 02:
Can I ask a question about the process here?

[00:02:42] Speaker 02:
This seems to me to be an instance in which a statute got written and you got customs on the one hand, which is in the Department of Homeland Security and Justice.

[00:02:51] Speaker 02:
Justice are the lawyers for homeland, but the lawyers and the clients never talk until after the charges are brought.

[00:02:58] Speaker 02:
Isn't that what's happening here?

[00:02:59] Speaker 02:
I mean, so obviously here what happened was that justice decided we don't think we can win a gross negligence case, so we want to try a negligence case.

[00:03:08] Speaker 02:
But the agency wants you to try a gross negligence case, so there's no communication.

[00:03:14] Speaker 02:
Ordinarily, in the real world, the client talks to the lawyer, and the lawyer says, I can't win one of those cases, let's bring one of these, right?

[00:03:23] Speaker 03:
that I'm talking about?

[00:03:25] Speaker 02:
I mean, isn't this going to happen all the time?

[00:03:29] Speaker 03:
Well, yes, but for, I think, a different reason than what you're inferring.

[00:03:36] Speaker 02:
There's no factual limitation problem here, because if you had, if justice had discovered in time that it didn't think it could win a gross negligence case, it could have gone back to customs and said, charge them with negligence.

[00:03:49] Speaker 02:
Right?

[00:03:50] Speaker 03:
In theory, yes, but there are thousands of penalty proceedings every year, and the vast majority of them settle.

[00:03:57] Speaker 02:
So these are... The vast majority of them settle because there's a fair and open opportunity for the importer to talk with the charging official about whether or not there's a case here.

[00:04:10] Speaker 03:
And that's exactly what happened.

[00:04:11] Speaker 02:
And that's what I thought the trials had been saying.

[00:04:14] Speaker 02:
This importer was entitled to have that opportunity to duke it out with customs on a negligence charge.

[00:04:20] Speaker 02:
as well as a gross negligence charge.

[00:04:23] Speaker 03:
And that's what happened here.

[00:04:26] Speaker 03:
NITEC did argue before customs that it exercised reasonable care.

[00:04:30] Speaker 02:
Yeah, but that wasn't saying that it wasn't negligent.

[00:04:34] Speaker 03:
Yes, yes it did.

[00:04:34] Speaker 03:
It argued.

[00:04:36] Speaker 02:
Well, there's a disagreement.

[00:04:37] Speaker 02:
We've got the judge thinking that they're going to flat out statement it when you read what was actually said and it doesn't square up with what the judge said.

[00:04:47] Speaker 03:
Well, if you look at JA 121, I respectfully disagree.

[00:04:51] Speaker 03:
They contended that they exercised reasonable care, and on top of that, contended that there was a reasonable disagreement with regard to the classification of the merchandise.

[00:05:04] Speaker 03:
And that's exactly an absolute defense to a negligence charge.

[00:05:08] Speaker 00:
But that was the argument before customs.

[00:05:11] Speaker 00:
And would you agree that there's a difference between being charged with gross negligence

[00:05:17] Speaker 00:
and establishing the grounds of gross negligence and saying, however, we'll impose only two times, not four times, the penalty as compared with simple negligence where there are differences in the burdens of proof, in the items of the offense on the shifting of the burden of coming forward.

[00:05:39] Speaker 00:
This is really what they're complaining about.

[00:05:43] Speaker 00:
And I would, one would think that in something as rigorous as this kind of procedure, they would be entitled to rely on the statute, don't you think?

[00:05:55] Speaker 03:
And they still have not pointed to any particular violation of the statute.

[00:06:01] Speaker 03:
Yes, they're entitled to rely on the statute, but they haven't identified any particular provision that was violated here.

[00:06:09] Speaker 00:
So you say in this case we should forget the statute?

[00:06:13] Speaker 03:
No, not at all because the statute provided a process that customs was to comply with and the agency did comply with the statute.

[00:06:24] Speaker 01:
The agency complied with the statute.

[00:06:28] Speaker 01:
The agency charged gross negligence.

[00:06:30] Speaker 01:
But then the assessment occurred as to whether there was gross negligence.

[00:06:36] Speaker 01:
There was a whole opportunity to consider that.

[00:06:39] Speaker 01:
And that whole period, that whole discussion was exhausted.

[00:06:45] Speaker 01:
But then the Department of Justice decided that it could put itself in the shoes of commerce of the charging agency and just come up with a whole different charge.

[00:06:53] Speaker 03:
First of all, yes, because the Department of Justice has plenary authority over litigation.

[00:07:00] Speaker 03:
So DOJ certainly has the authority to allege a different culpability level under Section 592.

[00:07:09] Speaker 01:
Not if there's an administrative exhaustion requirement that hasn't been satisfied.

[00:07:13] Speaker 01:
DOJ just can't pluck something out of the air.

[00:07:15] Speaker 03:
But there is no administrative exhaustion requirement under Section 592.

[00:07:22] Speaker 03:
It requires customs to take certain actions, which it did here.

[00:07:27] Speaker 03:
But there's nothing that precludes the United States from raising a different level of culpability.

[00:07:33] Speaker 03:
And in fact, as a factual matter, NYTEC always knew that its negligence was on the table.

[00:07:41] Speaker 03:
Negligence was an issue with respect to Section 1592D.

[00:07:44] Speaker 03:
And under this court's language in Ford, negligence was necessarily, quote, an issue considered in the proceedings before customs.

[00:07:53] Speaker 01:
So there really is a difference between being negligent for purposes of paying the duties and actually suffering a penalty for that.

[00:08:03] Speaker 03:
Yes, there is a difference.

[00:08:04] Speaker 03:
And because the penalty levels are less for negligence than they are for gross negligence, or at least a maximum penalty level.

[00:08:13] Speaker 03:
However, that brings us back to section 1592e, which says that all issues are tried de novo.

[00:08:21] Speaker 03:
And in the legislative history, in the Senate report, the committee said that this provision would change existing law by permitting the court to make its own judgment about the appropriate remedy.

[00:08:32] Speaker 01:
But we went through that in detail in Ford.

[00:08:35] Speaker 01:
And the court here, the CIT, analyzed that issue in detail.

[00:08:41] Speaker 01:
And what it said is that

[00:08:43] Speaker 01:
that E was designed to allow the court to assess de novo the factual underpinnings as it relates to the penalty, not to simply institute a totally different proceeding.

[00:08:58] Speaker 01:
De novo review still implies review.

[00:09:02] Speaker 03:
Review of the facts on the record, we believe, that before the court made in trial.

[00:09:07] Speaker 01:
Based on the charge that was presented below.

[00:09:12] Speaker 01:
But we review things de novo all the time, but we can't come up with new claims of infringement or new claim constructions that never occurred below in a patent case, even if we're reviewing certain things de novo.

[00:09:26] Speaker 03:
But nothing in the statute

[00:09:28] Speaker 03:
prevents the Department of Justice from raising, from filing a complaint that alleges a lower, lesser included culpability level.

[00:09:38] Speaker 03:
And NYTEC was always on notice that... You're saying nothing in the statute prevents it.

[00:09:43] Speaker 02:
What in the statute permits it?

[00:09:46] Speaker 02:
Well, the Court of International Trade... This is naturally what the National Trade was saying, is that there's no permission to do this and there is an administrative process here in one file.

[00:09:56] Speaker 03:
Well, if you look at section 1592 as a whole, once customs has alleged a violation, authority with respect to litigating over that violation turns to the Department of Justice.

[00:10:08] Speaker 03:
And the trial court has jurisdiction under section 1582 over any matter to recover a penalty.

[00:10:15] Speaker 03:
It does not require that the penalty requested be exactly the same as that.

[00:10:22] Speaker 01:
So you're saying we have to, you're asking this panel to overturn four.

[00:10:26] Speaker 03:
No, not at all, because Ford is very, very different from this case.

[00:10:32] Speaker 03:
Ford involved the case where

[00:10:36] Speaker 03:
there was an issue that was never considered in the proceedings before customs.

[00:10:40] Speaker 03:
But here, negligence was necessarily considered and it was decided.

[00:10:44] Speaker 01:
That's not what you just argued.

[00:10:46] Speaker 01:
You argued that justice has plenary authority to decide what it's going to charge as it relates to the penalty.

[00:10:51] Speaker 01:
So under Ford, we would have to wipe all that out because we'd have to say Ford's wrong because justice was allowed to charge whatever penalty it wanted, higher or lower.

[00:11:02] Speaker 03:
These are, well, Ford, first of all, the facts of Ford are very, very different from the facts of this case.

[00:11:08] Speaker 03:
So Ford can live in harmony with this case in allowing the Department of Justice to allege a lesser included penalty.

[00:11:17] Speaker 02:
Just because it's lesser?

[00:11:19] Speaker 02:
With respect to- I think what Judge Malley's asking of it, what's the source of the power?

[00:11:24] Speaker 02:
And the source of the power, if you win this case, would also implicate the source of the power in Ford.

[00:11:31] Speaker 02:
If you have the authority to control the case, if you will, once it's handed to you by your client, then what's the difference between upping and lowering?

[00:11:46] Speaker 03:
Well, at that point, there might be other considerations that the court would look at.

[00:11:52] Speaker 02:
Let's take Dozier-Malley's question right where it is.

[00:11:55] Speaker 02:
I mean, in theory, what is the difference on your power theory, your statutory power theory?

[00:12:01] Speaker 03:
Well, the difference in our statutory power here is applying the lens of Ford is that there needs to be an issue considered in the proceedings before customs.

[00:12:13] Speaker 03:
And that's exactly what we have here with respect to a lesser included offense.

[00:12:19] Speaker 03:
That would not

[00:12:21] Speaker 03:
Under Ford, the issue that was not considered was the amount of duties owed were final and conclusive and it was the defendant that sought an offset of its penalty based on

[00:12:37] Speaker 03:
based on a different inner value.

[00:12:38] Speaker 02:
What's the practical problem here?

[00:12:40] Speaker 02:
I mean, I'm surprised in a way that justice is investing as much time and energy in this case as it is.

[00:12:47] Speaker 02:
Is it that there are thousands and thousands of these cases and then justice feels that customs overreaches and charges gross negligence in too many cases and you lose all the penalties, so you'd rather dial them all back?

[00:13:02] Speaker 02:
What's going on here?

[00:13:03] Speaker 03:
No, well, no, not at all.

[00:13:05] Speaker 03:
First,

[00:13:07] Speaker 03:
First and foremost, the government shouldn't have to specifically allege every lesser included charge in first and customs penalty notices.

[00:13:19] Speaker 03:
Why not?

[00:13:21] Speaker 02:
You say in your brief it's a simple matter to do.

[00:13:24] Speaker 02:
Apparently, everybody thinks that customs can charge in the alternative.

[00:13:30] Speaker 02:
I don't quite understand why that's so, but you agree in your brief that this problem is easily remediable in the future by whenever customers charge us gross negligence, just make certain they also charge negligence.

[00:13:44] Speaker 02:
Then there's no going to be any problem, right?

[00:13:46] Speaker 03:
Well, we agree that customers can charge in the alternative, and in a case where customers does charge in the alternative, then there's no problem.

[00:13:52] Speaker 02:
And shouldn't that be the rule going forward so these cases don't ever happen again?

[00:13:57] Speaker 03:
But the administrative difficulties here are going to basically allow a certain number of violators to be off the hook.

[00:14:11] Speaker 02:
You have some pipeline cases.

[00:14:13] Speaker 02:
That's why I was asking.

[00:14:14] Speaker 02:
You've got a bunch of cases where custody charged gross negligence, and justice says, I can't prove those.

[00:14:19] Speaker 02:
And so we're going to lose whatever penalty we could get.

[00:14:22] Speaker 02:
because the statutes run and nobody's going to wave off the statute.

[00:14:26] Speaker 03:
I'm not currently aware of any pipeline cases, but there are hundreds of ports of entry, large numbers of penalties, and... All of which can be cured in the future by charging in the alternative.

[00:14:37] Speaker 03:
But it imposes an additional administrative burden on the agency.

[00:14:41] Speaker 01:
We never... Doesn't the 1592E specifically say that justice can seek recovery of any penalty charged under the statute?

[00:14:51] Speaker 01:
implying that there had already been a charge under the statute.

[00:14:55] Speaker 01:
It doesn't say that justice can come up with a new charge under the statute.

[00:15:01] Speaker 03:
It says, correct, it says, any proceeding commenced by the United States for the recovery of any monetary penalty claimed under this section.

[00:15:09] Speaker 03:
Well, once the penalty makes it to the Court of International Trade, the claim is by the United States, and it's raised by the Department of Justice.

[00:15:17] Speaker 01:
So the United States can essentially change it

[00:15:20] Speaker 01:
whatever it wants.

[00:15:23] Speaker 02:
That's just statutory interpretation.

[00:15:25] Speaker 02:
If you were to say claimed under the statute, you're saying claimed under the statute is not what customs claims, it's what justice chooses to claim.

[00:15:33] Speaker 02:
That's correct.

[00:15:33] Speaker 02:
And if you look at your basis for interpreting the statute that way, instead of interpreting claim to mean claimed by the claimer.

[00:15:41] Speaker 02:
Well, once the case makes it to the court... When you talk about a claim in a lawsuit, do you ordinarily think that the claim is being made by the lawyer who's representing the claimant, or is the claim made by the claimant?

[00:15:54] Speaker 03:
And the claim is made by the claimant, which is the United States.

[00:15:59] Speaker 02:
The claimant is the United States?

[00:16:01] Speaker 02:
The claimant is customs, the branch of the United States.

[00:16:06] Speaker 03:
We respectfully disagree.

[00:16:08] Speaker 02:
Is the claim made by the Department of State?

[00:16:13] Speaker 03:
It's made by the United States.

[00:16:15] Speaker 02:
Made by the Army?

[00:16:17] Speaker 02:
It's made by customs, isn't it?

[00:16:20] Speaker 03:
No, the client of the Department of Justice is the United States as a whole, not any particular agency.

[00:16:25] Speaker 01:
But the logical implications of your argument are amazing, because if you take it to its logical extreme, that means that any agency

[00:16:33] Speaker 01:
can have all of its procedures and do whatever charges it wants, and justice can come in and say, you know, I don't like that.

[00:16:40] Speaker 01:
And I'm the United States, so I can charge anything I want.

[00:16:43] Speaker 01:
I mean, you throw the whole administrative procedures act and everything under it into a tizzy under this argument.

[00:16:52] Speaker 03:
Well, first of all, this is not an APA case.

[00:16:54] Speaker 03:
It's a de novo case.

[00:16:55] Speaker 03:
And I think that that parade of horribles would not really occur.

[00:17:00] Speaker 03:
If you look at our

[00:17:02] Speaker 00:
Secondary argument.

[00:17:05] Speaker 00:
To try and simplify where we are, isn't the issue, and the issue that I think has been joined in the briefings, whether when you get to the enforcement proceeding, which brings in the Department of Justice, after the administrative procedures are over, and in fact, the Justice Department believes in all good faith that the charge

[00:17:29] Speaker 00:
was too extreme for gross negligence and also perhaps that for enforcement simple negligence is easier to resolve and perhaps a more just result.

[00:17:42] Speaker 00:
Can that change be made in the enforcement proceeding?

[00:17:47] Speaker 00:
There undoubtedly are mechanisms for returning to the administrative process if in fact the

[00:17:57] Speaker 00:
Department of Justice believes that the charge was too dramatic or too extreme, but skipping, can all of these steps be skipped because they're different grades of violation?

[00:18:14] Speaker 00:
And it seems that that's a difficult position to take when this is in fact an administrative process that reaches us.

[00:18:23] Speaker 03:
Well, first of all, yes, Department of Justice can certainly refer a matter back to customs to take a second look at culpability level.

[00:18:35] Speaker 03:
But as a practical matter, importers generally are required to

[00:18:43] Speaker 03:
follow what's called shared compliance.

[00:18:46] Speaker 03:
Because of the millions upon millions of entries made every year, customs really has to rely on importers to be truthful and accurate in all of their statements.

[00:18:55] Speaker 00:
That's not before us, as I see the record, whether they were truthful and accurate.

[00:19:04] Speaker 00:
Is it a matter of negligence or gross negligence?

[00:19:10] Speaker 03:
NITEC has stipulated to enter entry of judgment under section 1592 D. Therefore, it's conceded that it violated section 1592.

[00:19:19] Speaker 00:
Judgment for liability for the excess duties, not an entry of judgment for negligence or gross negligence.

[00:19:27] Speaker 03:
Noah, we see that as an entry of judgment for negligence because NYTEC conceded a violation of section 1592A, which proscribes entry or introduction of merchandise through grossly negligent, negligent or fraudulent material false statements.

[00:19:48] Speaker 00:
How can you say that they have conceded negligence but not conceded gross negligence, therefore you will

[00:19:57] Speaker 00:
reduce the charge to negligence and seek the penalty or obtain the penalty.

[00:20:04] Speaker 00:
But if it is a de novo proceeding, don't you have to then prove the elements of simple negligence with all of the shifting of the burdens?

[00:20:17] Speaker 03:
Yes, generally we would.

[00:20:18] Speaker 03:
And that brings up what we see as the absurd result of the trial court's opinion, which was,

[00:20:26] Speaker 03:
In order for the government to obtain a recovery under Section 1592D, which is the recovery of lost duties, there has to be a judge, a finding of at least negligence.

[00:20:38] Speaker 03:
There has to be a violation of Section 1592A.

[00:20:42] Speaker 03:
What happened here was the trial court said, United States, you may not recover a penalty against NYTEC, but

[00:20:54] Speaker 03:
we are going to hold further proceedings on whether NITEC was at least negligent.

[00:20:59] Speaker 03:
And if NITEC was at least negligent, then NITEC will owe the lost duties.

[00:21:06] Speaker 03:
So although determining that NITEC was free of any obligation to pay a penalty, it still had to go through negligence proceedings.

[00:21:16] Speaker 00:
But you haven't done that.

[00:21:17] Speaker 00:
This is an enforcement proceeding.

[00:21:20] Speaker 03:
That's correct and we're enforcing under section 1592 A and D. So we're seeking a penalty which the maximum penalties are identified in section 1592 C.

[00:21:35] Speaker 03:
And we're seeking lost revenue under Section 1592D.

[00:21:38] Speaker 01:
What you're also missing here is one of the reasons these things settle is because a party like NYTEC here might have the incentive to go ahead and say, okay, we don't think we did anything wrong here, but we'll go ahead and pay the lost duties because the government didn't seek

[00:21:57] Speaker 01:
to impose a penalty on us except for gross negligence.

[00:22:00] Speaker 01:
And we know they can't prove that.

[00:22:02] Speaker 01:
So we'll just agree to the law's duties, and we'll move on.

[00:22:06] Speaker 01:
But then the Justice Department sweeps in and says, well, you know, you can't have that kind of settlement because we've decided that you should get a penalty based on your agreement to pay those duties.

[00:22:18] Speaker 01:
That's sort of a misunderstanding of how this stuff works.

[00:22:23] Speaker 01:
And you would actually upend.

[00:22:25] Speaker 01:
any interest in settlements in these kinds of circumstances?

[00:22:30] Speaker 03:
Well, first of all, we respectfully disagree with that because NYTEC had the opportunity to submit a mitigation petition, and it submitted a letter, which was not, in our view, a petition.

[00:22:46] Speaker 03:
It had the opportunity to avail itself of that permissive remedy, and it did not do so.

[00:22:51] Speaker 01:
But again, that was on the assumption that they were mitigating a gross negligence claim.

[00:23:00] Speaker 03:
And one benefit that

[00:23:04] Speaker 03:
alleged violators get if they submit a petition under section 1618 is that they get a fresh look at the penalty, the culpability level, everything by customs.

[00:23:18] Speaker 03:
And at that point, the agency could have mitigated the penalty or the culpability level to gross negligence.

[00:23:25] Speaker 03:
Everything was still on the table.

[00:23:28] Speaker 00:
Let's hear from the other side and we'll save you some time.

[00:23:31] Speaker 03:
Thank you.

[00:23:38] Speaker 03:
I do want to start with a few comments about things that have been said by the Department of Justice here.

[00:23:51] Speaker 03:
It's important to remember when he's saying that there's nothing in the statute that forbids them from claiming a new level of culpability.

[00:23:59] Speaker 03:
he's ignoring the requirements of 2368, which is an exhaustion requirement.

[00:24:02] Speaker 03:
And granted, that's not in 1592.

[00:24:05] Speaker 03:
But it clearly applies, as numerous courts have said, as the court below felt.

[00:24:09] Speaker 03:
The court said, obviously, that it has grounds, in some instances, from waiving the exhaustion requirement.

[00:24:14] Speaker 03:
It said it didn't believe those were appropriate here.

[00:24:17] Speaker 03:
And it said that justice waived all of those.

[00:24:19] Speaker 03:
So in essence, this case does present the issue where justice was required and that customs is required to exhaust administrative remedies and the penalty

[00:24:28] Speaker 03:
that was then sought in the court, had to be consistent with that notion of exhaustion.

[00:24:34] Speaker 03:
So I think that's important.

[00:24:35] Speaker 01:
The best argument that they really have is that in order for you to pay the duties, there has to be at least a minimum level of negligence, correct?

[00:24:44] Speaker 03:
That is correct.

[00:24:45] Speaker 01:
Or you at least have to concede a minimum level of negligence.

[00:24:48] Speaker 03:
Yes.

[00:24:49] Speaker 03:
But as the court below said, the proceedings under 5092D for negligence

[00:24:55] Speaker 03:
are not the same as they are under 1592B.

[00:24:59] Speaker 03:
So just because, I mean, customs could bring a penalty, could decide to bring a negligent case on its own, or a duty recovery case on its own, and not assess the penalty.

[00:25:10] Speaker 01:
Well, they do all the time, right?

[00:25:11] Speaker 01:
Right.

[00:25:12] Speaker 01:
Right.

[00:25:12] Speaker 01:
And here... So what's the difference between negligence under 1592B and negligence under 1592B?

[00:25:18] Speaker 03:
There's probably not a difference in terms of those.

[00:25:22] Speaker 03:
There is, however, a difference in the context of the case when that's being done.

[00:25:29] Speaker 03:
It's important to realize that what happened here, and this goes back to the earlier point of why we settled, which Justice is now trying to say is a concession that we owed some kind of a penalty.

[00:25:40] Speaker 03:
In fact, we disagreed throughout that we had been grossly negligent.

[00:25:44] Speaker 03:
We wanted to bring that issue

[00:25:46] Speaker 03:
And in essence, the issue as to whether it could change the level of culpability to this court.

[00:25:51] Speaker 03:
So in order to not have a trial, in order to avoid the expense of a trial, the expense of this being for my client sufficiently high, we went ahead to settle to take that issue off the table for the sole purpose of getting the issue here as to whether justice could alter after the customs proceedings the level of culpability.

[00:26:14] Speaker 03:
It's important to understand why in many instances that will be prejudicial to and why it could have been prejudicial here.

[00:26:23] Speaker 03:
When justice alleges gross negligence, it is required to prove wanton disregard for the statute and for one's duties.

[00:26:35] Speaker 03:
And so one can rebut that, in essence, by saying simply, I didn't have the requisite state of mind.

[00:26:42] Speaker 03:
And if that is correct, then the case is over on that level.

[00:26:46] Speaker 03:
If that's all that customs has alleged, then all you are required to say under that point to refute it is,

[00:26:53] Speaker 03:
I didn't have the state of mind.

[00:26:55] Speaker 03:
And look back at the facts here.

[00:26:57] Speaker 03:
This was a classification fight, which has been up and down in customs and in front of the Federal Circuit once as well, in terms of taking these gas meter swivels, which we had said were iron parts, not elsewhere specified or indicated, and which they had said were threaded tubes, and which other people had said were gas meter parts.

[00:27:17] Speaker 03:
And it was an issue, in essence, of some sort of a disagreement about what was going on, but hardly a case

[00:27:23] Speaker 03:
for saying that we had simply just not cared about what the appropriate classification was and had want and disregard.

[00:27:32] Speaker 03:
And so when you go to the critical letter, which doesn't use the words reasonable care as the way the court said, but instead, and this was a letter that was sent to customs 26 or 7 days before they filed suit.

[00:27:48] Speaker 03:
And it was an offer of settlement to more or less end the issue.

[00:27:52] Speaker 03:
And in arguing for why that should be done, it said, look, none of the courts that looked at any of this as it went back and forth said that we had acted with wanton disregard.

[00:28:04] Speaker 03:
We had a reasonable disagreement over classification.

[00:28:07] Speaker 03:
And that was their position, was in essence that they didn't have the state of mind.

[00:28:12] Speaker 03:
It does state in passing, but not in any sense that can be talked about really bringing its argument that

[00:28:21] Speaker 03:
that in fact, let me find this, well at least it says that there's a difference in issue over classification that's hardly gross negligence, hardly negligence much less gross negligence.

[00:28:34] Speaker 03:
So they said that simply in passing.

[00:28:37] Speaker 03:
But in all of this, none of that was ever addressed by customs.

[00:28:41] Speaker 03:
What they did was essentially they turned this over to the Department of Justice.

[00:28:45] Speaker 03:
Your point

[00:28:46] Speaker 03:
When justice got this and looked at it and said, whoa, this is not a case where we could prove negligence or gross negligence.

[00:28:54] Speaker 03:
This is, I mean, it's a small part.

[00:28:56] Speaker 03:
There's hard to figure out what the classification is.

[00:28:58] Speaker 03:
This is going to be a tough one.

[00:29:00] Speaker 03:
It remained possible, I believe, for them to go back to customs and say, you could issue a penalty notice, reissue a penalty notice on negligence at this point.

[00:29:08] Speaker 00:
But from the practical viewpoint, indeed,

[00:29:11] Speaker 00:
Why can't the prosecuting entity, the Department of Justice, come into the enforcement proceeding and say, no, we are going to ask for four times the duty.

[00:29:24] Speaker 00:
We're only going to ask for twice the duty.

[00:29:27] Speaker 00:
That's a lesser burden on you.

[00:29:28] Speaker 00:
That's easier.

[00:29:31] Speaker 03:
Actually, when they do that, they shift the burden at that point.

[00:29:36] Speaker 03:
If they were doing gross negligence, they would have to prove all of the elements.

[00:29:45] Speaker 03:
By taking that, now the burden has been shifted to me to disprove that I wasn't negligent.

[00:29:51] Speaker 03:
In fact, you know, they keep saying that we had notice by the gross negligence, we had notice of everything in front of them.

[00:29:59] Speaker 03:
When we didn't have notice that they could go in, we had notice that they were going to try to prove all the elements of gross negligence.

[00:30:05] Speaker 03:
We didn't have notice that we would wind up being in a situation where we had to prove that we were not negligent.

[00:30:10] Speaker 03:
So that shifting of the burden of proof is essential here and it causes a prejudice to the client who believed that it addressed the issue before customs by saying that it didn't have the requisite state of mind.

[00:30:23] Speaker 03:
Customs, the Department of Justice obviously believed that, didn't believe it could win that, and so instead of going back and trying to fix that process, it filed the suit.

[00:30:35] Speaker 03:
As the court has noted, this is a simple matter.

[00:30:38] Speaker 02:
Rather than having to worry about, from the point of view of an importer... Were they out of time to go back?

[00:30:44] Speaker 02:
Hadn't the statute of limitations run?

[00:30:46] Speaker 02:
What's the implication of the statute of limitations?

[00:30:49] Speaker 03:
Well, the statute of limitations had run four years ago, and NITAC had waived the statute of limitations three times.

[00:30:55] Speaker 02:
You waived it up to a particular point in time?

[00:30:57] Speaker 03:
Each time, each time, customs in, customs coming in.

[00:30:59] Speaker 02:
What I'm trying to say is, look to me on this record, like the point in time that you'd waived to is gone.

[00:31:05] Speaker 03:
Not at the time, they filed the court, they filed the case,

[00:31:11] Speaker 03:
26, 27 days after our letters, which was the date on which our last waiver of the statute of limitations expired.

[00:31:19] Speaker 03:
But there had been a number of statute of limitations waivers in this so that the whole issue of what was going on, which is, as you noted from the record, went up to the federal circuit as everybody was trying to figure out what to call these.

[00:31:31] Speaker 03:
because they hadn't done that in a proper fashion.

[00:31:34] Speaker 03:
There had been a scope to terminate.

[00:31:36] Speaker 02:
It looked to me like in this particular case, there might not have been time for justice to come back and talk with the agency and get a different charge, but in the ordinary course, you say there may well be time to do that.

[00:31:48] Speaker 03:
I should think that in a case like this, that there were, in essence, 26 days left.

[00:31:52] Speaker 03:
I mean, that is a short period of time, but I think that's plenty of time to go back in

[00:31:58] Speaker 03:
into customs and to sort of readjust that issue at this point.

[00:32:03] Speaker 02:
Justice hasn't begun to look at the case until it's referred over to them.

[00:32:08] Speaker 02:
There isn't any cooperation.

[00:32:10] Speaker 03:
But it's got to look at the cases in the 26 days

[00:32:13] Speaker 03:
to be to file it under rule eleven i mean it's got a it's got to make some sort of decision within that if it comes to that period of time i did i scarcely believe it comes to that determination the day before it filed it makes that determination i think relatively early in that in that case uh... i could be wrong but i thought part of the reason why justice is pushing it as hard as it is on this case is because it has statute of limitations cases

[00:32:36] Speaker 02:
problems in many, many of these cases and they're cured.

[00:32:40] Speaker 03:
It may, but that's not in the record here.

[00:32:46] Speaker 03:
Indeed what one can't, I mean this is, as everybody I think understands, is easily, the prejudice to the importer is easily fixed

[00:32:56] Speaker 03:
by customs alleging all three alternate levels.

[00:32:59] Speaker 03:
And we cited cases where they've done that.

[00:33:01] Speaker 01:
I know they've done that, and there never really seems to have been a challenge to that.

[00:33:08] Speaker 01:
Don't you think you could conjure up an argument that there's some impropriety in doing that because you're not really putting the order on notice as to what it is they're actually being charged with?

[00:33:21] Speaker 03:
No, I think at that point you have, as an advocate looking at it, then I know essentially I'm going to have to argue all of these things in front of customs.

[00:33:32] Speaker 03:
And I'll respond to that.

[00:33:33] Speaker 03:
If they discharge fraud, which

[00:33:35] Speaker 03:
which happens, and you go in with one thing, and they charge negligence.

[00:33:38] Speaker 03:
And you're going to try to base your arguments with customs in a way that is an efficient use of legal resources, an efficient use of the importer's time, and you're going to argue against what they charge.

[00:33:52] Speaker 03:
If they charge all three, then you'll understand that you have to do that.

[00:33:56] Speaker 03:
So I think cases have said that they can allege those alternate levels of culpability.

[00:34:03] Speaker 03:
And they certainly have done that, and I'm unaware of any court that has challenged their ability to do that.

[00:34:09] Speaker 03:
If they do that, this problem never arises here.

[00:34:14] Speaker 03:
Whereas by not doing it, it puts somebody in a situation where they're going to make one argument.

[00:34:19] Speaker 03:
And indeed, even on the basis of that argument, later go in and settle and pay the duties as we did here.

[00:34:25] Speaker 03:
And then, in essence, have justice continue to argue that settlement is a concession of negligence.

[00:34:33] Speaker 03:
I think it's easily solved by doing that.

[00:34:43] Speaker 03:
It's also important to understand that the threat of the government's argument about de novo review and the legislative history throughout is, as the court pointed out, one that ultimately says that justice can go back in and charge both higher and lower levels, depending upon what it likes.

[00:35:00] Speaker 03:
That's the thrust of its argument.

[00:35:02] Speaker 03:
It says so a number of times in the brief where it says there need not be any symmetry between the charge and what we find.

[00:35:09] Speaker 03:
In an effort to try to get around that, it says, okay, it comes up with a lesser included offense notion which it tries to import from criminal law.

[00:35:17] Speaker 03:
There's nothing, there's no cases that support that.

[00:35:20] Speaker 03:
Indeed, it's hard to imagine that would come in because the statute doesn't say that it can recover an amount of a penalty claimed unless it's not claimed but is a lesser included offense.

[00:35:33] Speaker 03:
The statute says that they recover the amount claimed, which I think is relatively clear at that point.

[00:35:41] Speaker 03:
Nor is there anything in there that suggests

[00:35:46] Speaker 03:
that charging one of these in essence gives complete notice to the other of all of those items.

[00:36:02] Speaker 03:
The other important thing I think in terms of assessing this is to assess the impact upon and the statutory impact of shifting of the burden of proof as each of these is set up.

[00:36:15] Speaker 03:
The justice department wants to say, in essence, I have said that you misclassified the goods and that's all I need to say and everything else is essentially at that point on the table.

[00:36:33] Speaker 03:
And in fact, when it

[00:36:38] Speaker 03:
by saying that later that having done that, I can up the level of culpability.

[00:36:46] Speaker 03:
It's going against precisely what this court said in Ford and what was said in Optrex, which was that in fact what the de novo review provision means is that we don't accord any deference to what customs found in the proceedings below.

[00:37:01] Speaker 03:
It does not, however, permit us to open up

[00:37:05] Speaker 03:
the proceeding to any other theory of liability that could subsequently be determined or alleged by the Department, by the Department of Justice.

[00:37:14] Speaker 02:
Over 26 years, I've seen a lot of customs classification cases where the importance of raising customs is the classification, which is how this case started.

[00:37:25] Speaker 02:
How in the practical world, how do cases morph from classification cases into penalty cases?

[00:37:31] Speaker 03:
I mean it does so in a number of issues.

[00:37:37] Speaker 03:
I think that what happens is that they morph into these cases because in this instance, customs came in with a very large penalty and it looked at it.

[00:37:49] Speaker 03:
It felt that it could get gross negligence and it was seeking to recover that revenue.

[00:37:54] Speaker 03:
And although, as you can see from the joint appendix below, NYTAC tried on numerous occasions to pay both the past duties and a penalty.

[00:38:08] Speaker 03:
Those are rejected by customs.

[00:38:10] Speaker 03:
I'm not clear why.

[00:38:12] Speaker 03:
The record doesn't disclose why those offers at that point were rejected and how we got to that situation.

[00:38:22] Speaker 03:
In sum, it seems to me that

[00:38:24] Speaker 03:
that ultimately the government's position that a lesser included offense can simply be recharged doesn't have a basis in the statute.

[00:38:33] Speaker 03:
I don't believe it's consistent with the language that this supports language in Ford.

[00:38:39] Speaker 03:
I believe it causes an unfairness to the importer who really doesn't know what he's arguing at that point and may not have his arguments placed in front of the administrative agency.

[00:38:52] Speaker 00:
Okay.

[00:38:53] Speaker 00:
Thank you, Mr. Byrne.

[00:38:54] Speaker 03:
Thank you.

[00:38:56] Speaker 00:
Okay, Mr. Succini, you get the last word.

[00:39:06] Speaker 03:
Just wanted to make two quick points.

[00:39:09] Speaker 03:
First, NITEC spoke about shifting of the burden.

[00:39:13] Speaker 03:
The shifting of the burden already occurred because the government filed a complaint under 1592D.

[00:39:22] Speaker 03:
So the burden had already shifted to NITECH to demonstrate that it was not negligent.

[00:39:31] Speaker 02:
That's talking about the burden that it faces in front of the customers.

[00:39:36] Speaker 03:
Well, it always faces the burden if it doesn't want to pay lost duties under Section 1592 to demonstrate reasonable care.

[00:39:46] Speaker 02:
It's just saying when I go to Gallagher when I got to build up my negation my arguing positions I'm going to go and talk to somebody in customs.

[00:39:54] Speaker 02:
I'd like to know You know what it is.

[00:39:57] Speaker 02:
I have to prove disparate And in this case customs is only saying we're going after you for the enhanced penalty That's all they have to come prepared well that in this case that's exactly what did not happen because

[00:40:13] Speaker 03:
Nitech had to come forward.

[00:40:16] Speaker 03:
If it wanted to escape paying any duties, it had to come forward and demonstrate reasonable care.

[00:40:22] Speaker 03:
So the issue of Nitech's negligence was always on the table.

[00:40:30] Speaker 02:
I believe they

[00:40:40] Speaker 03:
offered to pay duties.

[00:40:41] Speaker 02:
Yeah, I'm just talking about trying to put it, because you were talking about when does the burden shift.

[00:40:46] Speaker 02:
I understood Mr. Burns' argument.

[00:40:50] Speaker 02:
He's talking about fairness to him when he's in front of the deciding of the person who's charging.

[00:40:55] Speaker 02:
That's what I understood him to be saying.

[00:40:57] Speaker 03:
And our view is, and I think it's the correct view, is that they were always on notice of the requirement that they have to prove reasonable care.

[00:41:12] Speaker 03:
And one aspect of imposing such a rigid system on the agency is, as we noted in our brief,

[00:41:24] Speaker 03:
Importers who don't respond to penalty notices, maybe they've waived affirmative defenses that they could have raised to customs back during the administrative process.

[00:41:33] Speaker 03:
And we certainly don't move to strike defenses on that basis.

[00:41:46] Speaker 03:
For these reasons, we respectfully request that the court reverse.

[00:41:51] Speaker 00:
Thank you.

[00:41:51] Speaker 00:
Thank you, counsel.

[00:41:52] Speaker 00:
The case is taken in this commission.