SDNY Says Amazon Didn't Knowingly Violate FCA on Fur Clothing Imports

The U.S. District Court for the Southern District of New York on Jan. 3 dismissed a False Claims Act suit against Amazon, which alleged that the online retail giant conspired with Chinese manufacturers to avoid paying fees and tariffs on fur products. Judge Edgardo Ramos held that importer Henig Furs, the company that brought the suit on behalf of the U.S., failed to adequately allege that Amazon knowingly violated the FCA or was engaged in a conspiracy to violate the statute (United States, ex rel. Mike Henig v. Amazon.com, S.D.N.Y. # 19-05673).

At issue were various shipments of fur clothing, which were purchased off Amazon's website but for which different companies served as the importer of record. Henig alleged that the fur products were shipped to Amazon's warehouses and distribution centers in violation of various U.S. customs and environmental protection laws.

Henig alleged that numerous Chinese manufacturers undervalued the fur products and falsely labeled their shipments as not containing fur products to avoid customs and Section 301 duties. The importer also said the Chinese companies, with Amazon's knowledge, failed to import the products at ports designated by the Fish and Wildlife Service, as required by law, and failed to submit a required declaration to import wildlife, thereby avoiding the accompanying inspection fee.

Henig sought a $13,946 penalty and $27,894 for each FCA violation, along with a cut of the damages for itself. The company alleged that Amazon "knew, deliberately ignored, or recklessly disregarded that the furs were imported" with packing slips that "falsely reported the nature and value of the products." The company added that Amazon illegally avoided paying tariffs and inspection fees and conspired with the Chinese firms by "committing reverse false claims over the course of more than 15 years."

The complaint faulted Amazon for advertising the illegal imports; processing sales of the goods; collecting payments on them; monitoring communications between itself, the Chinese companies, freight handlers and customers; and handling customer service complaints on the products. The online retailer moved to drop the case, arguing that Henig failed to allege that it had knowledge of the violations and engaged in a conspiracy to violate the FCA.

Ramos agreed on both points, first finding that Amazon didn't have actual knowledge of the violations, wasn't deliberately ignorant of the scheme or recklessly disregarded the scheme. Regarding Henig's claim that Amazon had actual knowledge of the scheme, the judge said the allegations "depict nothing more than a 'generalized profit motive,'" which is not enough to "advance Henig's actual knowledge theory."

For the "deliberate ignorance" standard, Ramos established that, under the FCA, the plaintiff must establish that the defendants intentionally avoided taking steps to confirm their statements' truth or falsity if they are aware of a substantial risk that their statements are false. To this, Ramos said Henig didn't allege that Amazon's statements were false or give "any specific allegation that Amazon was conscious of a substantial risk that the Non-parties made false statements." The importer didn't explain why Amazon had a duty to investigate whether any packages it received complied with import obligations, and, in fact, the duty seemingly falls with the importer, the decision said.

On the claim that Amazon recklessly disregarded the FCA, Ramos held that all of the allegations taken together "do not create a strong inference of Amazon's knowledge of the false claims." The judge said "Henig only cursorily alleges that Amazon 'monitors and controls all communications between'" the Chinese parties and U.S. customers by directing that all such talks take place through the online sales and messaging platform on Amazon.com. The importer said "Henig fails to pinpoint to any specific false report or statement that would have reasonably prompted Amazon to investigate."

The court next said that to show a conspiracy to commit reverse false claims, the plaintiff must show an unlawful agreement by the defendant to violate the FCA and at least one overt act performed to further that agreement.

Ramos first said "Henig fails to allege any facts plausibly suggesting an agreement or conspiracy beyond noting the existence of an ongoing business relationship" between Amazon and the Chinese manufacturers from which Amazon profited. This isn't enough to "infer a meeting of the minds to defraud the government." Regarding whether there was an overt act, the court said "Henig offers no facts beyond those already alleged in support of the reverse false claim."

The sole point where the court sided with Henig concerned Amazon's obligation to pay the government under the FCA. Instead of ruling that Amazon didn't have that duty here, Ramos said that "Amazon was not exempt from the obligation to pay the government just because" Amazon and the Chinese exporters said the exporters were the sole "importer of record." So long as Amazon presented false records to the government to "lower the customs duties over the fur, the duty exists."