SDNY Judge Lets Whistleblower Suit Proceed on Undervalued Footwear Imports

The law says a person is liable for violating the FCA when they knowingly make, use or cause a "false record or statement 'to be made or used,'" the judge noted. Since the allegation is that GMI and Belovefine caused false information about its footwear shipments to be submitted to CBP via its customs broker, Michael R. Spano & Co., the complaint survives the dismissal bid.

The suit was brought by Devin Taylor, former production manager at importer GMI Corp., against GMI, importer Belovefine, and the CEO of both companies, Stefano Maroni.

Taylor originally brought suit only against GMI under the FCA to recover civil penalties and damages, alleging that the company conspired to and engaged in a scheme to "misrepresent the tariff classifications and customs duties" owed for footwear imports. The government intervened in the suit and named the importer of record, Samsung C&T America, as the only defendant. The U.S. settled its charges against Samsung for $1 million in restitution and penalties. Taylor then dropped Samsung as a defendant and added Belovefine and Maroni.

In a bid to dismiss the case, the defendants said that Taylor's complaint is "riddled with internal inconsistencies," making its allegations not well pled under modern pleading standards. The companies advanced five supposed inconsistencies, including "allegations that Samsung imported the footwear vs. allegations that Defendants imported the footwear" and "allegations that Defendants reported foxing-like band where none existed vs. allegations that Defendants failed to report foxing-like band when present."

Lehrburger found none of the "inconsistencies" to render the complaint "insufficiently well-pled." For instance, while Samsung may be the importer of record, that "doesn't mean that defendants could not also be deemed to have imported or participated in importing the footwear."

The judge found the inconsistency regarding the "foxing-like band" to carry the most weight. The complaint alleges that the defendants misrepresented that footwear had foxing when it didn't, and that the imports didn't have foxing when it did. The court said it isn't clear how "a misrepresentation and its converse both would result in" lowering the amount of customs duties owed. The complaint said misrepresentations, and their converse, were either made individually or in combination with other misrepresentations.

Despite the defendants' claim that certain features of the shoes, such as the foxing-like band, increase the duties owed on the footwear, "the Court cannot conclude at this juncture that any one statement necessarily only drives the amount of duties up or down in every context or combination of representations."

The companies also said that the case should be dismissed because Taylor does not have possession of the customs entry documents. The court found the claim that the misconduct "can only be known by consulting the entry documents" to be "unavailing" since Taylor has "first-hand knowledge of many of the facts alleged" since she worked for GMI. She also gave information to the government that was used against Samsung. The complaint also alleges information from "specific entry documents," the court noted.

The court also sided with Taylor regarding her conspiracy claims, finding that the complaint "alleges sufficient facts that make a meeting of the minds to conspire plausible, not merely possible." The complaint identifies a co-conspirator in Samsung, who admitted to working with GMI to misclassify the footwear. The judge lastly said that the claims were sufficient against Maroni himself due to his alleged personal role in overseeing the companies and their business activities.