Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 1 of 6 UNITED STATES COURT OF INTERNATIONAL TRADE UNITED STATES, Plaintiff, Court No. 15-00059 v. CHINA TIRE WAREHOUSE, INC., Defendant. COMPLAINT Plaintiff, the United States, by and through its undersigned attorneys, brings this action against defendant, China Tire Warehouse, Inc. (China Tire, and alleges the following: U.S.C. 1592. U.S.C. 1582. 1. This is an action to recover lost duties and civil penalties pursuant to 19 2. The Court possesses jurisdiction to entertain this action pursuant to 28 3. At all times relevant to this action, defendant China Tire was a California corporation in the business of importing and selling tires, with its principal place of business at 631 West Terrace Drive, San Dimas, California 91773. DEFENDANT S VIOLATIONS 4. From March 17, 2005 through September 12, 2005, China Tire imported 12 entries of new tires under two dutiable provisions of the Harmonized Tariff Schedule of the United States (HTSUS, covering bus or truck tires radial and non-radial
Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 2 of 6 respectively, using Ultimate Customs Brokers (Ultimate to file its entries with U.S. Customs and Border Protection (CBP. 5. In September 2005, China Tire asked Ultimate to reclassify the same merchandise under a duty free provision, and Ultimate refused, informing China Tire that its entries of tires were correctly classified as entered. 6. In response to Ultimate s refusal to change its classification, China Tire terminated Ultimate as its customs broker and retained the services of Phoenix International (Phoenix, a licensed customs broker, to file China Tire s entries with CBP. 7. Between September 23, 2005 and March 3, 2007, Phoenix filed 151 entries on behalf of China Tire. All of these entries were classified as used pneumatic tires used on vehicles, including tractors, for the on-highway transport of passengers or goods under HTS subheading 4012.20.6000/duty free. 8. CBP asked for information from China Tire regarding its entries of purported used tires, and China Tire provided CBP with a photograph depicting the merchandise as being new pneumatic tires... Of a kind used on motor cars... Radial as well as a written response that all the tires are new and for passenger car use only. This merchandise was properly classified under the entry from HTS subheadings 4011.10.30, 4011.10.40, 4011.10.50, and 4011.10.60, based on the diameter of the wheel of the tire all of which impose a four percent duty rate. 5. Despite having confirmed that its tires were new and for passenger car use only, China Tire immediately began entering the same merchandise under different duty-free provisions. Specifically, from March 29, 2007 through January 22, 2008, Phoenix filed approximately 107 entries on behalf of China Tire. All of these entries, 2
Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 3 of 6 except one, were classified under HTS subheading 4011.92.0000/free, which provides for, new pneumatic tires of a kind used on agricultural or forestry vehicles or machines. At least 103 of these entries did not contain tires that would fit under the above description. The other entry was filed under HTS subheading 4011.63.0000/free, which provides for, new pneumatic tires having herringbone or similar treat pattern of a kind used on construction or industrial handling vehicles and machines and having a rim size exceeding 61 cm. 6. CBP determined from China Tire s own website and sales literature that China Tire did not sell tires as described in its second set of misclassified entries. 7. Phoenix personnel informed CBP that China Tire directed the classification to use for the subject entries. 8. China Tire s false statements to CBP regarding the classification of its tires were material in that they resulted in a loss of revenue. PENALTY PROCEEDING 9. On July 25, 2011, CBP issued a pre-penalty notice proposing a penalty with the culpability level of fraud (and gross negligence or negligence in the alternative in the amount of $8,096,089.00 to China Tire, and Licheng Wang and John Zhen Cheng (China Tire officers 1, as jointly and severally liable for the misclassification of bus or truck tires in 253 entries filed between September 23, 2005 and January 22, 2008. 10. The domestic value of the subject entries was $16,888,211.73. 11. On September 22, 2011, CBP issued a penalty notice pursuant to 19 U.S.C. 1592, in the same amount and included the same parties. 1 We are not currently initiating an action against the corporate officers but may do so should sufficient evidence warranting personal liability come to light. 3
Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 4 of 6 COUNT I 12. The allegations contained in paragraphs 1 through 11 are restated and incorporated by reference. 13. China Tire s false classification of the 253 subject entries of tires was the result of fraud because China Tire knowingly misrepresented the merchandise as used tires and tires for agricultural uses, resulting in a loss of revenue, when China Tire knew that its imported tires were radial tires for road use. 14. Defendant s fraudulent violations resulted in a total loss of revenue of $404,082.95, of which $242,027.89 remains unpaid. 15. Defendant is therefore liable for a fraud penalty of $16,888,211.73, which represents the domestic value of the 253 subject entries. COUNT II 16. The allegations contained in paragraphs 1 through 15 are restated and incorporated by reference. 17. If China Tire s violations were not the result of fraud, then they were the result of gross negligence, because China Tire acted with reckless disregard for the truth when it misrepresented the merchandise as used tires and tires for agricultural uses, resulting in a loss of revenue, when China Tire knew that its imported tires were radial tires for road use. 18. China Tire s grossly negligent violations resulted in a total loss of revenue of $404,082.95, of which $242,027.89 remains unpaid. 19. Defendant is therefore liable for a penalty for gross negligence of $1,616,331.80, which represents four times the lost revenue stemming from its violations. 4
Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 5 of 6 COUNT III 20. The allegations contained in paragraphs 1 through 19 are restated and incorporated by reference. 21. If China Tire s violations were not the result of fraud or gross negligence, then they were the result of negligence, because China Tire did not exercise reasonable care when it misrepresented the merchandise as used tires and tires for agricultural uses, resulting in a loss of revenue, when China Tire knew that its imported tires were radial tires for road use. 22. China Tire s negligent violations resulted in a total loss of revenue of $404,082.95, of which $242,027.89 remains unpaid. 23. Defendant is therefore liable for a penalty for negligence of $808,165.90, which represents two times the lost revenue stemming from its violations. WHEREFORE, the United States respectfully requests that the Court enter judgment in its favor against defendants as follows: On Count I, against China Tire for civil penalties for fraud pursuant to 19 U.S.C. 1592(c(1 in the amount of $16,888,211.73, plus unpaid lost revenue of $242,027.89, pursuant to 19 U.S.C. 1592(d, plus prejudgment interest upon the lost revenue; and On Count II, in the alternative, against China Tire for civil penalties for gross negligence pursuant to 19 U.S.C. 1592(c(2 in the amount of $1,616,331.80, plus lost revenue of $242,027.89 pursuant to 19 U.S.C. 1592(d, plus prejudgment interest upon the lost revenue; and On Count III, in the alternative, against China Tire for civil penalties for negligence pursuant to 19 U.S.C. 1592(c(3 in the amount of $808,165.90, plus lost 5
Case 1:15-cv-00059-N/A Document 2 Filed 03/09/15 Page 6 of 6 revenue of $242,027.89 pursuant to 19 U.S.C. 1592(d, plus prejudgment interest upon the lost revenue, and Such other and further relief as this Court deems appropriate. Respectfully submitted, BENJAMIN C. MIZER Acting Assistant Attorney General JEANNE E. DAVIDSON Director /s/ Patricia M. McCarthy PATRICIA M. McCARTHY Assistant Director /s/ Stephen C. Tosini STEPHEN C. TOSINI Senior Trial Counsel /s/ Jason M. Kenner JASON M. KENNER Trial Attorney MEREDITH JOHNSON Department of Justice Attorney Civil Division Office of the Assistant Chief Counsel Commercial Litigation Branch U.S. Customs and Border Protection 26 Federal Plaza, Room 346 Long Beach, CA New York, New York 10278 tel.: (212 264-9230 email: jason.kenner@usdoj.gov March 9, 2015 Attorneys for plaintiff. 6