Court Dismisses Country-of-Origin Marking Whistleblower Case Brought by 'Fraud Investigation' Company
The Eastern Pennsylvania U.S. District Court recently dismissed a whistleblower lawsuit brought against an importer by a company that appears to have been founded solely to find cases of customs fraud. Customs Fraud Investigations (CFI) alleged that Victaulic Company imported iron and steel pipe fittings without properly marking them, and then left payment of marking duties off of its entry documentation. District Judge Mary McLaughlin ruled CFI’s allegations, which were based on research conducted on eBay listings, were too threadbare to prevail.
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Most whistleblower suits are brought by an employee or someone with a relationship with a defendant. But in its complaint, CFI did not say it had any connection with Victaulic, describing itself only as a Maryland company that “conducts confidential research and analysis related to potential customs fraud.”
According to CFI, a six-month survey of over 200 listings of eBay of Victaulic pipe fittings showed that the company was not marking its products with the country of origin. Manifest data obtained from Zepol showed that Victaulic imports the majority of the pipe fittings it sells from China and Poland, said CFI. It follows that the pipe fittings on eBay were probably imported from China and Poland, and should have been marked, argued CFI. Victaulic’s failure to mark the pipe fittings also means it should have paid a 10% marking duty. CFI argued that not only did Victaulic not pay the duty, but also that it falsified entry documentation by not listing the duty under estimated duties owed.
In August 2013, the government told the court it wouldn’t participate in the case. Two months later Victaulic asked the court to dismiss. It said False Claims Act cases cannot be filed for failure to mark goods or pay marking duties. Courts have previously ruled that False Claims Act lawsuits can only be filed if false statements are made to avoid an obligation, but the failure to mark or pay marking duties only becomes an obligation if the government decides to impose fines or penalties, it said. CFI countered that the law was changed in 2009 to cover “contingent obligations” like the failure to mark and marking duties.
In her Sept. 4 opinion, Judge McLaughlin didn’t get to the “novel question” of whether failure to mark is covered by the amended False Claims Act, finding CFI’s allegations weren’t specific enough to build a case. Even if the Zepol data showed that the majority of Victaulic’s pipe fittings are imported, that doesn’t prove that the pipe fittings listed on eBay were, said the judge. And CFI also presented no hard evidence that, even if the pipe fittings on eBay were imported without the proper markings, Victaulic did not pay marking duties, she said.
(U.S. ex rel. Customs Fraud Investigations, LLC v. Victaulic Company, E.D. Pa. 13-2983, dated 09/05/14, Judge McLaughlin)