United States District Court, N.D. Illinois, Eastern Division
Roger B. Schagrin and Roger B. Schagrin, PC, doing business as Schagrin Associates, Plaintiffs,
LDR Industries, LLC; GB Holdings, Inc.; Larry Greenspon and Dennis Greenspon, Defendants.
MEMORANDUM OPINION AND ORDER
HONORABLE THOMAS M. DURKIN UNITED STATES DISTRICT JUDGE
manufacture and import steel pipe from China. Relators, Roger
Schagrin and his law firm, allege that Defendants misclassify
the pipe in order to avoid paying certain customs duties.
Relators claim that this works a fraud against the federal
government in violation of the False Claims Act. Defendants
have moved to dismiss for lack of subject matter jurisdiction
and for failure to state a claim pursuant to Federal Rules of
Civil Procedure 12(b)(1) and 12(b)(6), respectively. R. 44.
For the following reasons, that motion is granted and the
case is dismissed.
international trade, products are sometimes imported to the
United States and sold for less than their normal value. This
practice is referred to as “dumping, ” and can
hurt domestic companies who sell the same product at normal
value. Similarly, some imports are able to be sold at less
than normal value because of foreign government subsidies.
The federal government can counter these practices with
“anti-dumping” and “countervailing”
customs duties, respectively.
to Relators, around November 2007 the federal government
imposed such duties on “circular welded pipe”
(i.e., steel pipe of various specifications for use in
plumbing, among other uses) imported from China. R. 1
¶¶ 1, 27. These duties amount to at least 30% and
sometimes as much as 620%. Id. ¶ 27. After
these duties were imposed, steel pipe imports from China
decreased from 748, 181 tons in 2007 to only 2, 813 tons in
2009, representing only 0.6% of consumption in the United
States. Id. ¶ 30. The duty regulations exclude
“pipe suitable for use in boilers [and] superheaters,
” among other exceptions. Id. ¶ 2.
LDR Industries LLC, headquartered in Chicago, has imported
steel pipe from China “since at least 2010.”
Id. ¶ 3. It sells steel pipe and related
products to retail stores around the country including Home
Depot. Id. ¶ 13. LDR owns companies in Taiwan
and China that manufacture the pipe and prepare it for export
to the United States. Id. Defendant GB Holdings,
Inc. is the sole member of LDR, and has its headquarters at
the same Chicago address as LDR. Id. ¶ 14. GB
Holdings is owned by defendants Larry and Dennis Greenspon,
who are also LDR's managers. Id. ¶ 15.
Schagrin is an attorney experienced in the steel pipe
industry and related matters of international trade.
Id. ¶¶ 10-11. In 2010, Schagrin visited a
Home Depot store and noticed LDR pipe imported from China.
Id. ¶ 31. Based on his experience with the
steel pipe industry he surmised that this pipe did not fall
into any of the exceptions to the duty regulations, and was
the same type of pipe LDR imported from China prior to
implementation of the duty regulations. Id.
¶¶ 31-36. He also surmised that LDR had not paid
the duties because the prices were too low. Id.
¶ 37. Schagrin alleges that these conclusions would have
been obvious to anyone with sufficient knowledge of the
industry and regulations. Id. ¶ 38.
reported his suspicions to the United States Customs and
Border Protection Agency (“U.S. Customs”) in
2012. Id. ¶ 43. U.S. Customs investigated and
determined that LDR had misclassified its imported pipe in
order to avoid paying duties. Id. ¶ 44.
Relators allege that U.S. Customs “billed” LDR
for unpaid duties in the amount of $6.7 million, which was
later reduced to $4.85 million, covering pipe shipments in
2011 and 2012. Id. Relators also allege that U.S.
Customs “continues to investigate the matter.”
due to the penalties imposed by U.S. Customs, LDR declared
bankruptcy on September 2, 2014. U.S. Customs filed a proof
of claim in that proceeding on February 3, 2015. Defendants
have attached that proof of claim (and its amendments) to
their motion to dismiss. According to those documents, U.S.
claims the following:
The loss of revenue of $14, 376, 139.08 was a result of
incorrect classification in which LDR Industries, LLC
underpaid Customs duties on entries from November 2007 to
The penalty is being assessed for $38, 813, 848.70 due to the
findings that the entries were filed with incorrect
classification with no rate and/or lower rates of dumping
countervailing duties. The penalty also includes entries to
anti-dumping and countervailing. These findings are the
result of the penalty pursuant to 19 U.S.C. § 1592.
R. 45-4 at 8; R. 45-5 at 8; 45-6 at 10. Additionally, in the
initial proof of claim although not in subsequent
amendments), U.S. Customs stated that LDR “paid dumping
deposit rate of 3.39% for entries imported from Korea;
however, it turned out that the merchandise came from China
and the rate for dumping and countervailing should have been
at 68.24% and 39.01%.” R. 45-4 at 10.
did not file a proof of claim in LDR's bankruptcy
proceedings. Relators ...