United States v. Toth, No. 15-00206 (C.I.T. June 20, 2016), involved whether the Government could allege a penalty claim in a complaint that CBP did not allege in the earlier penalty notices. In Toth, the Government alleged that Leslie M. Toth and LBS Marketing, Inc. (Toth) fraudulently entered crawfish meat as langostino. U.S. Customs and Border Protection (CBP) alleged that Toth knew the merchandise was crawfish meat from China subject to antidumping duties. CBP issued both a pre-penalty and penalty notices alleging fraud. But, when the Government filed the court complaint against Toth, it contained three separate counts alleging all three levels of culpability: Count I alleged fraud; Count II alleged gross negligence; and Count III alleged negligence.

Toth filed a partial motion to dismiss Counts II and III for failure to state a claim upon which relief can be granted. Toth alleged that pursuant to United States v. Nitek Electronics, Inc., 806 F.3d 1376 (Fed. Cir. 2015), the court must dismiss the counts because CBP did not allege them in either the pre-penalty or penalty notices. The Government responded by requesting a voluntary remand to amend the notices.

The court explained that pursuant to 19 U.S.C. § 1592(b), CBP must inform the importer in both the pre-penalty and penalty notices of the levels of culpability that CBP is alleging. Further, the court held that pursuant to Nitek, the Government does not have the power to bring a claim that CBP did not allege. Thus, the court held it could not consider Counts II or III because CBP did not allege gross negligence or negligence in either the pre-penalty or penalty notices.

The Government further argued that instead of dismissing the counts, the court should grant a voluntary remand for CBP to amend the notices. The Government cited SKF USA, Inc. v. United States for the notion that the court should issue a voluntary remand absent bad faith when an agency changes it practices with respect to a statute. Since, CBP’s understanding before Nitek was that lesser-included culpability levels were included in a penalty notice and that since that understanding conflicts with Nitek, the court should remand the counts.

The Court denied the government’s request because SKF involved a private litigant challenging the decision of a government agency. In response, the Government sought a remand to reconsider the decision. According to the court, since this was a de novo proceeding, there was no challenged decision to issue a remand. The court only had two options: to grant or deny the motion. Since CBP did not allege gross negligence or negligence in the pre-penalty or penalty notices, the claims did not exist before the court and it granted Toth’s motion.

This case should be a reminder to importers to pay close attention to both the pre-penalty and penalty notices issued to them from CBP. If CBP did not allege a level of culpability in either notice, then the Government cannot allege it in court.  You can read the Court’s decision here.  You can also read the firm’s prior post on Nitek here.