United States v. Token Group, LLC et al

Slip Op. 21-
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
v.
GREEN PLANET, INC.,
and
TOKEN GROUP, LLC,
Defendant.
Before: Gary S. Katzmann, Judge
Court No. 16-00221
OPINION
[Plaintiff’s motion for the entry of default judgment is granted.]
Dated: February 16, 2021_
P. Davis Oliver, Senior Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, D.C., for plaintiff. 	With him on the brief were Jeffrey
Bossart Clark, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Claudia
Burke, Assistant Director. Of Counsel Andrew V. Sperry, Senior Attorney, Office of the Chief
Counsel, U.S. Department of Customs and Border Protection.
Katzmann, Judge: The case before the court involves an importer’s excise tax compliance
that turns out to be smoke and mirrors. 	Plaintiff the United States (“Government”) brings this
action against Defendant Token Group, LLC, an importer of cigarette rolling papers from the
People’s Republic of China (“China”), to recover unpaid taxes and a civil penalty, as permitted by
Section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (“Section 1592”). Compl. ¶
1, Oct. 18, 2016, ECF No. 1. 1 	The Government alleges that Token Group negligently entered
1 The Government originally brought this action against both Green Planet, Inc. and Token Group,
LLC. Compl. However, pursuant to a settlement agreement, the Government dismissed the counts
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merchandise into the commerce of the United States by means of materially false information, in
violation of 19 U.S.C. § 1592(a)(1)(A). 	Id. ¶¶ 67–69. 	Because Token Group failed to timely
appear, plead, or otherwise defend, default was entered. Clerk’s Entry of Default, Sept. 20, 2017,
ECF No. 18. The Government now moves for default judgment pursuant to USCIT Rule 55(b).
Pl.’s Mot. for Entry of Default J., Oct. 16, 2020, ECF No. 36 (“Pl.’s Br.”).
As further explained below, because the Government’s well-pleaded complaint and
supporting evidence adequately establish the defaulting Defendant’s liability for negligent
violations of Section 1592 as a matter of law, the Government’s motion for a default judgment is
granted. Judgment shall be entered against Token Group for the unpaid duties owed as a result of
these violations. In addition, because the Government’s adequately documented claim for a civil
penalty against Token Group is for a sum certain within the statutory limit for such violations,
judgment shall also be entered for the Government on its penalty claim.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to 28 U.S.C. § 1582(1). The court reviews all issues de
novo in actions under Section 1592. 28 U.S.C. § 1592(e)(1).
DISCUSSION
In a motion for default judgment, the moving party must first demonstrate to the Clerk of
the Court by affidavit or otherwise that the opposing party has failed to plead or otherwise defend.
USCIT R. 55(a). Upon such a showing, the Clerk must enter default, as has occurred here. Id.
USCIT Rule 55(b) mandates that “[w]hen the plaintiff’s claim is for a sum certain or for a sum
that can be made certain by computation, the court -- on the plaintiff’s request with an affidavit
against Green Planet on December 18, 2019, leaving Token Group, LLC as the only remaining
Defendant. Stipulation of Partial Dismissal, ECF No. 31.
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showing the amount due -- must enter judgment for that amount and costs against a defendant who
has been defaulted for not appearing.”
A defendant who defaults thereby admits all well-pleaded factual allegations contained in
the complaint. 	United States v. NYCC 1959, Inc., 40 CIT __, __, 182 F. Supp. 3d 1346, 1347
(2016) (citing City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011));
United States v. Deladiep, Inc., 41 CIT __, __, 255 F. Supp. 3d 1326, 1336 (2017) (citing Au Bon
Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)). The defaulting party’s admission of
liability for all well-pleaded facts, however, does not also function as an admission of damages.
United States v. Freight Forwarder Int’l, Inc., 39 CIT __, __, 44 F. Supp. 3d 1359, 1362 (2015)
(citing Cement & Concrete Workers Dist. Council Welfare Fund v. Metro Found. Contractors Inc.,
699 F.3d 230, 234 (2d Cir. 2012); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973
F.2d 155, 158 (2d Cir. 1992)); Deladiep, 255 F. Supp. 3d at 1336. 	Thus, when considering a
motion for default judgment, the court accepts as true all well-pleaded facts in the complaint, but
must reach its own legal conclusions. United States v. Callanish, Ltd., 37 CIT 462, 464 (2013);
United States v. Scotia Pharm. Ltd., 33 CIT 638, 642 (2009). This suit was timely initiated within
five years of the alleged violations pursuant to 19 U.S.C. § 1621. See Compl.; 19 U.S.C. § 1621(1)
(“in the case of an alleged violation of section 1592 or 1593a of this title, no suit or action . . . may
be instituted unless commenced within 5 years after the date of the alleged violation”).
Accordingly, the court must enter judgment against Token Group if (1) the Government’s
allegations establish Token Group’s liability as a matter of law, and (2) “the plaintiff’s claim is for
a sum certain or for a sum that can be made certain by computation,” USCIT R. 55(b). See NYCC
1959, Inc., 182 F. Supp. 3d at 1347.
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The Government, supported by evidence in the form of a declaration from a U.S. Customs
and Border Protection (“Customs”) Fines, Penalties & Forfeitures Officer and associated Customs
documentation, adequately alleges the following: Token Group entered five entries of cigarette
rolling papers in booklet form from China through the port of Los Angeles/Long Beach, CA
between October 17, 2011 and October 10, 2012 using Buscemi Co., Intl LLC as customs broker
for all five entries. Compl. ¶¶ 39, 45, 50, 56, 61; Decl. of Lee M. Baxley ¶ 2, Oct. 16, 2020, ECF
No. 36-1 (“Baxley Decl.”). 	The entries were subject to excise taxes pursuant to 26 U.S.C. §§
5701(c), 5703. 	Compl. ¶¶ 40; Baxley Decl. ¶ 3. 	Token Group failed to identify on its entry
documents for all five entries that the imported cigarette rolling papers in booklet form were
subject to excise taxes under 26 U.S.C. § 5701, and instead stated that it did not owe any amount
of tax on the entries. Compl. ¶¶ 42, 47, 52, 58, 63; Baxley Decl., ¶ 3. Token Group did not pay
any excise taxes owed under 26 U.S.C. § 5701 for its five entries of cigarette rolling papers upon
filing of the imports. Compl. ¶¶ 43, 48, 53, 59, 64; Baxley Decl. ¶ 5, 7, 9, 11, 13. Customs timely
liquidated each of Token Group’s entries and calculated excise taxes on each. Baxley Decl. ¶¶ 5,
7, 9, 11, 13. Token Group’s surety, Great American Alliance Insurance Company, paid the excise
tax for the first two entries, paid in part the excise tax for the third entry, and Token Group paid
the excise tax for the fourth and fifth entries. Compl. ¶¶ 44, 49, 54, 60, 65; Baxley Decl. ¶¶ 6, 8,
10, 12, 14. Customs issued a formal demand for payment for unpaid excise taxes with respect to
the third entry. Compl. ¶ 73; Baxley Decl. ¶ 19. Token Group continues to have an outstanding
balance of $5,296.37 in unpaid excise tax. Compl. ¶ 74; Baxley Decl. ¶ 10. After notifying Token
Group and initiating an investigation, Customs issued a pre-penalty notice to Token Group stating
that Token Group potentially deprived the Government of $119,973.20 in excise taxes through its
negligence in connection with its five entries of cigarette rolling papers. 	Compl. ¶ 70; Baxley
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Decl. ¶¶ 15, 18. Token Group did not respond, and, on February 7, 2014, Customs issued a penalty
notice to Token Group in the amount of $239,946.40 for negligent culpability. 	Compl. ¶ 71;
Baxley Decl. ¶¶ 18, 20. 	In April and May of 2014, Customs sent Token Group three formal
demands for payment for the negligence penalty. Baxley Decl. ¶ 21.
I. 	Admitted as True, the Government's Factual Allegations Establish Token
Group’s Liability as a Matter of Law.
“In examining a penalty enforcement action, ‘the court must consider both whether the
penalty imposed has a sufficient basis in law and fact, and whether Customs accorded the
[importer] all the process to which [it] is entitled by statute and regulation.’” 	United States v.
NYWL Enter., 44 CIT __, __, 476 F. Supp. 3d 1394, 1398–99 (2020) (quoting United States v.
Puentes, 41 CIT __, __, 219 F. Supp. 3d 1352, 1357 (2017)). Section 1592 prohibits the entry of
merchandise into the commerce of the United States by means of “any document or electronically
transmitted data or information, written or oral statement, or act which is material and false,” if
the responsible person acted with “fraud, gross negligence, or negligence.” 	19 U.S.C. §
1592(a)(1)(A)(i). 	As necessary in cases of default, the court accepts the Government’s factual
allegations as true. 	Callanish, Ltd., 37 CIT at 464. 	Furthermore, as a matter of law, the
merchandise -- cigarette rolling papers -- was subject to excise taxes pursuant to 26 U.S.C. §§
5701(c), 5703. See also Compl. ¶ 40. Here, the Government adequately alleges that Token Group
entered merchandise into the commerce of the United States using entry documents that falsely
indicated to Customs that the merchandise in question was not subject to excise taxes and that
Token Group was afforded the proper process. Compl. ¶¶ 42, 47, 52, 58, 63, 70–71; Baxley Decl.
¶ 3, 18, 20.
The false entry information was material to Customs’ evaluation of Token Group’s tax
liability for these entries because it affected Custom’s ability to collect lawful excise taxes upon
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entry. See 19 C.F.R. pt. 171, app. B(B); United States v. Rockwell Int’l Corp., 10 CIT 38, 42, 628
F. Supp. 206, 210 (1986) (“[T]he measurement of the materiality of the false statement is its
potential impact upon Customs’ determination of the correct duty for the imported merchandise.”)
(citations omitted). 	See also Pl.’s Br. at 10; Baxley Decl. ¶ 17. 	Therefore, the Government’s
factual allegations, deemed admitted by the defaulting Defendant, establish that Token Group
entered merchandise into the commerce of the United States by means of information that was
both material and false. 	Accordingly, admitted as true, the Government’s factual allegations
establish Token Group’s liability under Section 1592 as a matter of law. 	See 19 U.S.C. §
1592(a)(1)(A)(i). Judgment must therefore be entered against Token Group for the unpaid excise
taxes that resulted from these violations. See Compl. ¶¶ 93–95 (Count IV).
Moreover, in the absence of any defense by the Defendant, the Government’s uncontested
factual allegations are sufficient to establish Token Group’s liability under Section 1592 for a
monetary penalty based on negligence. See Compl. ¶¶ 88–92 (Count III); 19 U.S.C. § 1592(e)(4)
(“Notwithstanding any other provision of law, in any proceeding commenced by the United States
in the Court of International Trade for the recovery of any monetary penalty claimed under
[Section 1592] . . . if the monetary penalty is based on negligence, the United States shall have the
burden of proof to establish the act or omission constituting the violation, and the alleged violator
shall have the burden of proof that the act or omission did not occur as a result of negligence.”).
Accordingly, the next question before the court is the claimed penalty amount.
II. 	The Government’s Claim for Unpaid Duties and Penalty Amount Are Certain
and Within Statutory Authority.
Section 1592 provides a maximum civil penalty amount for penalties based on negligent
violations. 19 U.S.C. § 1592(c)(3). Where, as here, the material misrepresentation that forms the
basis of the negligent violation concerned the assessment of taxes, the amount of the penalty may
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not exceed “the lesser of the domestic value of the merchandise, or two times the lawful duties,
taxes, and fees of which the United States is or may be deprived.” See id. § 1592(c)(3)(A).
Here the Government alleges, providing supporting evidence, that the total domestic value
of the entries in question was $1,412,456.73. See Compl. ¶70; Baxley Decl. ¶ 2; Pl.’s Br. at 11.
The Government also provides evidence that the potential excise tax loss was $119,973.20. 2 See
Compl. ¶ 70; Baxley Decl. ¶ 18. Accordingly, Customs calculated the penalty amount for Token
Group’s negligent violation of Section 1592 to be $239,946.40, two times the lawful taxes of which
the United States is or may be deprived, $119,973.20 in potential excise tax lost. Compl. ¶ 70;
Baxley Decl. ¶ 18; Pl.’s Br. at 11. 	This represents the maximum allowable penalty amount for
Token Group’s negligent violation of Section 1592, as it the lesser of the domestic value of the
merchandise or two times the lawful taxes. See 19 U.S.C. § 1592(c)(3)(A).
After taking appropriate preliminary steps, Compl. ¶ 70; Baxley Decl. ¶ 15, Customs
ultimately issued to Token Group a formal demand for payment of the $5,296.37 in unpaid excise
tax and a penalty of $239,946.40, both of which remain unpaid. Compl. ¶¶ 71–73; Baxley Decl.
¶¶ 19, 21–22. Because the amount of the claimed penalty falls within the statutory cap set by the
lesser of the merchandise’s domestic value and two times the potential excise tax loss, the
Government’s assessed penalty amount in this case is within the scope of authority provided by
19 U.S.C. § 1592(c)(3)(A). 	Because Defendant has defaulted, it raises no equitable claim,
2 The potential excise tax loss of $119,973.20 is the sum of the excise tax owed on each of the five
entries at issue -- $20,901.89 plus $29,308.37 plus $25,988.00 plus $28,307.54 plus $15,467.40.
See Baxley Decl. ¶¶ 5, 7, 9, 11, 13. Of the excise tax owed, $70,901.89 of this amount was paid
by Token Group’s surety, Baxley Decl. ¶¶ 6, 8, 10, and $43,774.94 was paid by Token Group,
Baxley Decl. ¶¶ 12, 14. 	Thus, while only $5,296.37 remains in actual lost revenue, the statute
contemplates the full amount of the potential duty loss. See 19 U.S.C. § 1592(c)(3)(A)(ii) (“two
times the lawful duties, taxes, and fees of which the United States is or may be deprived”)
(emphasis added).
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argument, or factual allegations supportive of a lesser penalty amount. Judgment shall therefore
be entered for the unpaid excise taxes and the penalty as claimed, plus post-judgment interest, see
28 U.S.C. § 1961(a), and costs. 	See USCIT R. 55(b) (requiring the entry of judgment for the
plaintiff, plus costs, when the plaintiff’s claim is for a sum certain against a competent defendant
who has been defaulted for not appearing).
CONCLUSION
For the foregoing reasons, the Government’s motion for default judgment against Token Group
for a negligent violation of 19 U.S.C. § 1592(a) is granted. Judgment shall be entered in the amount
of $245,242.77 ($5,296.37 in unpaid excise taxes plus $239,946.40 in penalty), plus post-judgment
interest computed in accordance with 28 U.S.C. § 1961(a)-(b), and costs.
SO ORDERED.
/s/ 	Gary S. Katzmann
Gary S. Katzmann, Judge
Dated: February 16, 2021__
New York, New York
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