United States District Court, Northern District of Illinois, E.D
April 3, 1980
UNITED STATES OF AMERICA, PLAINTIFF,
R.I.T.A. ORGANICS, INC., DEFENDANT.
The opinion of the court was delivered by: Marovitz, District Judge.
Motion for Summary Judgment
Plaintiff United States of America brings this action
against defendant R.I.T.A. Organics, Inc. under section 592 of
the Tariff Act of 1930, 19 U.S.C. § 1592, alleging, inter alia,
that defendant made false statements in connection with the
importation of certain quantities of pearl essence*fn1 during
the period from June 22, 1970 to February 4, 1974. Plaintiff
instituted this action on March 16, 1979. Plaintiff seeks
recovery of the total domestic value of the subject
merchandise. This Court's jurisdiction is invoked pursuant to
28 U.S.C. § 1345 and 1355.
Pending before the Court is defendant's motion for partial
summary judgment as to 28 of the 32 challenged importations of
pearl essence. In support of the instant motion, defendant
argues that plaintiff's action is barred by the applicable
statute of limitation. 19 U.S.C. § 1621. For the reasons set
forth below, defendant's motion is denied.
Customs law requires the disclosure of certain information
upon importation of merchandise in order to properly estimate
customs duties and otherwise enforce the customs laws.
See, e.g., 19 U.S.C. § 1481-90. See generally, Note,
Anachronism Laid To Rest: Customs Reform Act Accomplishes Long
Overdue Reform of Section 592 of the Tariff Act of 1930, 10 Law
& Pol'y Int'l Bus. 1305 (1978) (hereinafter cited as Note).
Section 592 makes it unlawful to make any false and material
statement or omission in connection with the importation of
merchandise.*fn2 19 U.S.C. § 1592. Moreover, section 592
imposes liability up to the total domestic value of the subject
merchandise without regard to whether the importer's
culpability is based upon fraud, negligence, or gross
negligence. 19 U.S.C. § 1592. See S.Rep.No. 778, 95th Cong., 2d
Sess. reprinted in  U.S.Code Cong. & Admin.News, pp.
2211, 2228-29; see generally Note, supra. Contra, United States
v. Wagner, 434 F.2d 627, 629 (9th Cir. 1970) (intent to defraud
is an essential element of a section 592 action); accord,
United States v. E.K. Products, Inc., Civ.No. B-78-297
(S.D.Tex., June 25, 1979).*fn3 The instant
complaint does not specifically aver defendant's alleged
degree of culpability.*fn4
The applicable statute of limitation provides that no action
brought under section 592 may be commenced more than five
years after discovery of the alleged violation. 19 U.S.C. § 1621;
see Pub.L. 95-410 § 110(f)(2). In support of its
motion, defendant's brief sets forth various facts as to each
of the subject 28 importations which, it argues, constituted
sufficient facts in each case to alert plaintiff to any
violation of section 592 more than five years before the
commencement of this action. In response, plaintiff makes the
argument that while it may have had notice of the falsity of
defendant's import documents more than five years prior to the
institution of this action, because plaintiff was unaware of
any alleged fraud by defendant until April, 1974, this action
is not time-barred.
The Court prefaces its discussion of the merits of
defendant's motion by noting the Court's disagreement with
plaintiff's interpretation of the applicable statute of
limitation. First, as noted above, section 592 makes
actionable negligent, as well as fraudulent, misstatements at
the time of the importation of merchandise. Thus, it is absurd
to argue that a section 592 violation becomes actionable only
upon discovery of a fraud. In this connection, defendant's
hypothetical as set forth in its memorandum of March 18, 1980
addressing plaintiff's interpretation of the statute of
limitation is well-taken. Defendant's Memorandum (March 18,
1980), pp. 7-8.
Second, plaintiff affords too grudging an interpretation to
the discovery exception to the general rule with respect to
statutes of limitation that they begin to run at the time the
wrong is committed. See 51 Am.Jur.2d § 20. The rule that
statutes of limitation for actions based upon fraud do not
begin to run until the fraud is discovered or could have been
discovered through the exercise of due diligence is based upon
the sound judgment that a statute of limitation may not operate
as a shield in favor of one who conceals a wrongful act.
Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90
L.Ed. 743 (1945); Bailey v. Glover, 88 U.S. (21 Wall.) 342,
349, 22 L.Ed. 636 (1875). See generally, Dawson, Undiscovered
Fraud and Statutes of Limitation, 31 Mich.L.Rev. 591 (1933).
Presumably, the instant statute of limitation, since it applies
to negligent violations of section 592 as well as fraudulent
ones, employs a discovery rule for the additional reason that
discovery of section 592 violations, whether done negligently
or fraudulently, is difficult in view of the volume of
importations which Customs must process.*fn5
The discovery rule, however, may not be invoked by a
plaintiff who fails to exercise "reasonable care and diligence
in seeking to learn the facts which would disclose" the
alleged wrong. Morgan v. Koch, 419 F.2d 993, 997 (7th Cir.
1969). The making of false statements or omissions in
connection with the importation of goods is an essential
element of a section 592 violation. Therefore, knowledge that
an importer has made false statements or omissions should alert
Customs to the possibility of a section 592 violation. This is
especially true since even a negligently made false statement
can trigger section 592 liability. Once the falsity of import
documents is discovered, a reasonable investigation should
inform Customs whether a violation of section 592 has in fact
Plaintiff's offered interpretation of the discovery rule
would effectively eliminate the "constructive discovery" facet
of that rule. This facet of the discovery rule provides that
"the means of knowledge are the
same thing in effect as knowledge itself." Id. at 998 (quoting
Wood v. Carpenter, 101 U.S. 135, 140, 25 L.Ed. 807 (1879)).
Under plaintiff's interpretation, Customs could be made aware
of the falsity of import documents and then sleep on this
information virtually forever without risking that the statute
of limitation would bar an action under section 592, unless and
until plaintiff became aware that the false documentation was
the product of a fraudulent intent. The purpose of the
discovery rule, however, is to delay the running of a statute
of limitation against an aggrieved party only until that party
discovers or possesses the means to discover the alleged wrong,
whichever occurs first.
Statutes of limitation are statutes of repose, and reflect
the basic notion of fairness that litigants and courts should
not be involved in actions where the search for truth may be
seriously impaired by the passage of time. United States v.
Kubrick, 444 U.S. 111, 117, 100 S.Ct. 352, 357, 62 L.Ed.2d 259
(1979). While the discovery exception reflects important
countervailing considerations which will in certain
circumstances prevail over the above general considerations
underlying all statutes of limitation, the Court is of the
opinion that the plaintiff's view of the discovery rule creates
an exception which threatens to swallow the rule. Id. In short,
the Court finds that knowledge of the falsity of import
documents is a means to discovery of a section 592 violation
and, therefore, causes the statute of limitation to begin to
Turning to the facts of the instant case, however, the Court
finds summary judgment to be inappropriate. Rule 56(c) of the
Federal Rules of Civil Procedure provides, in pertinent part,
that summary judgment is appropriate when "there is no genuine
issue as to any material fact and . . . the moving party is
entitled to judgment as a matter of law." Any doubt as to the
existence of a material fact is to be resolved against the
movant. Moutoux v. Gulling Auto Electric, Inc., 295 F.2d 573,
576 (7th Cir. 1961).
The question of when a plaintiff discovered or reasonably
should have discovered a fraud is not one which often lends
itself to resolution by way of summary judgment. Dzenits v.
Merrill, Lynch, Pierce, Fenner & Smith, Inc., 494 F.2d 168
(10th Cir. 1974); United States v. Alcatex, Inc., 328 F. Supp. 129
(S.D.N.Y. 1971); Geo. H. McFadden & Bro., Inc. v.
Home-Stake Production Co., 295 F. Supp. 587 (N.D.Okla. 1968).
Such is the case here. The Court has carefully examined the
several assertions and arguments made by each party with
respect to the subject 28 entries. Without discussing the
particular facts of each entry with which the instant motion is
concerned, the Court notes that although defendant has
marshalled some rather persuasive facts in support of its
position, the Court finds that plaintiff's rebuttal has raised
genuine factual issues as to each entry. Accordingly, these
entries are not subject to summary judgment, and, therefore,
defendant's motion is hereby denied.