CIT Grants Nearly $3.4M Penalty After Default Judgment in Customs Case on Innersprings
The Court of International Trade on July 18 granted the government's motion for default judgment against importer Rayson Global and its owner Doris Cheng for negligently failing to pay ordinary, Section 301 and antidumping duties on its innerspring entries. Judge Timothy Stanceu granted the motion, after previously rejecting it for insufficiently pleaded facts, ordering Rayson and Cheng to pay a nearly $3.4 million penalty and all unpaid duties, taxes and cash deposits on the unliquidated entries in the case (U.S. v. Rayson Global, Inc. and Doris Cheng, CIT # 23-00201).
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The U.S. brought the suit in 2023, alleging that Rayson and Cheng negligently entered Chinese-origin innersprings by falsely declaring their country of origin to be Thailand, skirting ordinary 6% duties, Section 301 duties ranging from 10% to 25%, and 234.51% antidumping duties (see 2309220056). The government moved for default judgment in the case after Rayson and Cheng failed to file an answer to the complaint (see 2405280055).
The U.S. sought a penalty for negligence, the maximum for which is twice the loss of revenue or the domestic value, whichever is lower.
The U.S. initially alleged that the actual loss of revenue totaled $205,723.83, though the "potential" loss of revenue amounted to $2,225,501.10, for a total loss of revenue of $2,431,225.93. Multiplying this final figure by two went beyond the nearly $3.4 million alleged domestic value of the merchandise, leading the government to seek a civil penalty totaling $3,381,607.03. Stanceu rejected the government's valuation of the merchandise due to its lack of factual support (see 2501090041).
Specifically at issue are 46 entries made for consumption between 2018 and 2019. For four of the entries, entered in 2018 with an entered value of $82,122, the U.S. said it lost $205,723.83 in revenue via 6% ordinary duties, 10% Section 301 duties and 234.51% AD. For the other 42 entries, which were valued at $945,922, the government said it lost $2,225,502.10 in revenue due to lost ordinary, Section 301 and antidumping duties.
By negligently declaring the goods' origin to be Thailand, Rayson and Cheng avoided the ordinary duties, since Thai innersprings classified under Harmonized Tariff Schedule subheading 9404.29.90 are entitled to enter duty-free under the Generalized System of Preferences benefits program, while Chinese goods entering under this subheading aren't. The innersprings are also clearly covered by Section 301 and antidumping duties, the U.S. said.
This time around, Stanceu said the government showed its work, accepting as "well-pled facts" that the U.S. lost $2,431,225.93 due to the defendants' negligence due to the "false declarations of origin," adding that the false declarations were thus "material" under the customs penalty statute. The negligence allegation went unrebutted and was thus accepted by the court.
The U.S. alleged that the domestic value of the merchandise is $3,381,607.03, which is the sum of the goods' declared value, duties, taxes and fees. Stanceu said this allegation "is sufficient for purpose of determining the amount of a penalty set at the domestic value of the imported merchandise," noting that the government didn't include any "freight or other incidental charges, or any profit," in the calculation.
Stanceu said he wasn't granting any relief from this penalty for the defendants' mitigation efforts, noting that Rayson and Cheng haven't responded to the default judgment motion. In addition, the U.S. alleged unrebutted facts showing that Cheng "directed the importation of innersprings" and that Cheng has imported innersprings from China since 2004. Also, Cheng admitted to past violations of customs laws while working as principal and co-owner of importer Tower Grow, the court noted.