Laxmi Enterprises v FSM Department of Finance & Administration [2018] FMSC 23; 21 FSM R. 601 (Chk. 2018) (15 June 2018)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2017-1017

LAXMI ENTERPRISES d/b/a CASH N’ )
CARRY STORES, )
)
Plaintiff, )
)
vs. )
)
FSM DEPARTMENT OF FINANCE AND )
ADMINISTRATION and FEDERATED )
STATES OF MICRONESIA, )
)
Defendants. )
__________________________________________ )

ORDER DENYING DISMISSAL

Larry Wentworth
Associate Justice

Hearing: April 27, 2018
Decided: June 15, 2018

APPEARANCES:

For the Plaintiff: David C. Angyal, Esq.
Ramp & Mida Law Firm
P.O. Box 1480
Kolonia, Pohnpei FM 96941

For the Defendants: Craig D. Reffner, Esq.
Jonathan D. Buckner, Esq.
Assistant Attorneys General
FSM Department of Justice
P.O. Box PS-105
Palikir, Pohnpei FM 96941

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HEADNOTES

Customs
Civil penalties and interest for understating the amount of duty due on imported goods cannot be avoided through lack of knowledge, however innocent the importer’s lack of knowledge may be. Laxmi Enterprises v. FSM Dep’t of Fin. & Admin., 21 FSM R. 601, 603 (Chk. 2018).

Customs
Unlike most goods, the customs duty for cigarettes is based on the number of cigarettes imported, not on the imported cigarettes’ monetary value. Laxmi Enterprises v. FSM Dep’t of Fin. & Admin., 21 FSM R. 601, 603 n.1 (Chk. 2018).

Customs; Equity Estoppel
If an importer, correctly reporting the types, quantities, and values of the dutiable goods, were to prove that it was affirmatively misled by customs officials to understate the amount of duty due, it may have an equitable estoppel claim against the government. Laxmi Enterprises v. FSM Dep’t of Fin. & Admin., 21 FSM R. 601, 603 (Chk. 2018).

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COURT’S OPINION

LARRY WENTWORTH, Associate Justice:

On April 27, 2018, the court heard the defendants’ Motion to Dismiss, filed September 15, 2017, and the plaintiff’s Opposition to Motion to Dismiss, filed October 3, 2017. The motion is denied.

I.

The plaintiff, Laxmi Enterprises d/b/a Cash N’ Carry Stores, is an importer of cigarettes for resale. It protests the duty penalty that the FSM Customs and Tax Administration’s Chuuk office levied on it and which levy the FSM Department of Finance and Administration upheld over its protest. It now seeks judicial review of that administrative ruling.

In its complaint, filed July 31, 2017, naming the FSM Department of Finance and Administration and the Federated States of Micronesia as defendants, it alleges that in 2016 it imported ten cases (30 cartons per case) of USA Gold cigarettes; that it accurately declared the type, quantity, and value of these dutiable goods; that it declared these ten cases of cigarettes on a Separate Electronic Self-Assessment Declaration ("ESAD") after being instructed to do so by a Customs officer; that the Customs officer represented that the ESAD that it was using was correct and had the correct duty rate; that it paid the $2,100 duty that the ESAD showed; that on November 29, 2016, it was informed that it was using an outdated ESAD with the old duty rate and that it owed $900 more duty and because it had understated the duty amount it owed a further $1,800 (200%) in penalties for a total of $2,700; that on December 29, 2016, the Customs and Tax Administration issued a Duty Assessment that the importer owed the $900 duty and a $900 (100%) penalty; that, on January 26, 2017, it timely filed its Protest of Duty Penalty; and that on May 19, 2017, the Secretary rendered her decision denying its protest.

II.

The defendants move to dismiss this case for failure to state a claim for which the court can grant relief because the penalty statute imposes strict liability on an importer who understates the amount of duty due. The penalty statute provides:

The following penalties and interest shall be separate from and in addition to the criminal penalties imposed elsewhere in this chapter. It is the duty of an importer to know and declare, fully and accurately, the types, quantities, and values of all dutiable goods which he or she imports, and civil penalties and interest may not be avoided through lack of knowledge, however innocent such lack of knowledge may be.

(1) Understatement. If the amount of duty due on goods is understated when reasonably calculated on the basis of the documentary and other information provided to Customs officers, there shall be added to the amount of the understatement a penalty equal to the following percentage of the amount of the understatement:

(a) 100% if the understatement is discovered by Customs officials before release of the goods;

(b) 100% if the understatement is discovered and reported to Customs by an importer or owner and the full and correct duty, including penalties and interest, is paid within ten days after release of the goods; or

(c) 200% otherwise.

54 F.S.M.C. 227. In particular, the defendants direct the court’s attention to the provision that "civil penalties and interest may not be avoided through lack of knowledge, however innocent [the importer’s] lack of knowledge may be." Id. The defendants contend that the importer’s complaint shows that this strict statutory liability was properly imposed since it concedes that the duty was originally understated and underpaid and that therefore the importer’s complaint does not state a claim for relief.

The importer contends that the penalty should not be imposed because it complied with its statutory duty "to know and declare, fully and accurately, the types, quantities, and values of all dutiable goods" which it imported, but it was misled by a Customs official into thinking that the ESAD that was provided had the correct duty rate for cigarettes.^[1] The importer contends that it had had no notice that the customs duty for cigarettes had gone up and if it had known that, it would have declared and paid the higher rate.

The defendants do not dispute that the importer fully and accurately declared the types, quantities, and values of the dutiable goods the cigarettes which it imported, but rely on the understatement of the amount of duty due. The importer concedes that the duty amount was understated, but contends that this understatement was the result of a customs official’s affirmative action that misled it to understate the duty due and that therefore the defendants should be estopped from imposing the penalty. The importer suggests that the government realizes this and that is why the original 200% penalty assessment was later reduced to a 100% penalty assessment.

III.

The court concludes that if the importer were to prove all of its material allegations, it may have an equitable estoppel claim against the government. AHPW, Inc. v. Pohnpei, 14 FSM R. 188, 191-92 (Pon. 2006) (party seeking to invoke the equitable estoppel doctrine must prove that 1) a defendant made representations or statements; 2) the plaintiff reasonably relied upon the representations; and 3) the plaintiff will be harmed if estoppel is not allowed; but a party asserting equitable estoppel against the government must prove more than is required when it is asserted against a private entity since government may not be estopped on the same terms as any other litigant, "affirmative misconduct" is required); see also Chuuk v. Actouka Executive Ins. Underwriters, 18 FSM R. 111, 120 (App. 2011). The court therefore, at this point, can only conclude that there may be a set of facts which could be proven that would entitle the plaintiff-importer to relief.

IV.

Accordingly, the defendants’ motion to dismiss is denied and they have ten days to file and serve their answer. FSM Civ. R. 12(a).

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^[1] Unlike most goods, the customs duty for cigarettes is based on the number of cigarettes imported, not on the monetary value of the imported cigarettes. See 54 F.S.M.C. 221(1) (duty is per cigarette).