Rulings, remedies and court proceedings for customs and trade professionals

Trade Court Tosses 'Premature' Motion to Strike Parts of Complaint in Negligence Action

The Court of International Trade in a Sept. 20 order denied a motion from John Liu and GL Paper Distribution, defendants in a Section 592 penalty case, to strike a portion of the complaint. Liu moved to toss elements of the complaint he deemed to not be relevant to the imports at issue. Judge Jane Restani ruled that striking these parts of the complaint would be "premature," since the matter of relevancy is a "question of evidence" and not meant to be subject to a motion to strike.

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Liu is a Florida resident who operated or was an agent of multiple Florida-based companies, including co-defendant GL Paper Distribution and NC Supply, NC Supply Group, CEK Group, Garment Cover Supply (GCS) and AB MA Distribution Corp. (ABMA). Liu began creating companies to import steel wire hangers from China in 2004. In 2008, though, an antidumping duty order was placed on the hangers, imposing an 186.98% China-wide rate on the imports. Liu created CEK in 2012, then participated in a new shipper review of two Chinese steel wire hanger manufacturers in 2013 as president of the new company. Liu then formed GCS in 2013 and GL Paper in 2016, allegedly importing hangers he claimed were from Malaysia but were in fact made in China.

In 2017, GL Paper faced an Enforce and Protect Act allegation that said the company transshipped the hangers through Malaysia. The EAPA case prompted a site visit from the U.S. where it was purportedly discovered that GL Paper was not making wire hangers. GL Paper dissolved as a corporation in 2017. Liu then formed ABMA, using this company to allegedly import wire hangers claimed to be from India and Thailand but that were made in China. Liu then caused CEK to import wire hangers he claimed were made in Thailand just a week after ABMA's last importation of steel wire hangers in 2019, the U.S. said.

The U.S.'s complaint, however, while detailing the workings of many of Liu's businesses, only seeks to collect penalties on GL Paper's imports, which the U.S. claims skirted antidumping duties as a result of negligence by Liu and GL Paper (see 2207220042). Liu then moved to strike 12 paragraphs from the complaint, arguing that the allegations have no impact on negligence, are potentially prejudicial and were not made in good faith.

In its reply, the U.S. said that Liu's motion fails to meet the standard laid out in court rule 12(f), which governs striking motions (see 2209090038). This rule says that a paragraph may be struck if it is redundant, immaterial, impertinent or scandalous. DOJ said that the contested paragraphs are none of these things and are actually "directly relevant" to Liu's negligence since they show his knowledge of customs rules, the wire hanger industry and his resolve to import wire hangers while ignoring past COO issues with his prior companies.

The trade court denied Liu's motion to strike, noting that a motion to strike constitutes an "extraordinary remedy." Liu said that the challenged parts of the complaint deal with entities and transactions not involved with the imports at issue. "Relevancy, as the Government properly notes, is not in the focus of USCIT Rule 12(f)," the opinion said. "To strike such references as irrelevant to the case at hand would be premature, as the relevancy of these references is a question of evidence." Dismissing parts of the complaint as immaterial also would be "inappropriate at this stage in the proceeding," the court said, since Liu's knowledge of the industry -- the subject of the contested parts of the complaint -- is "material" to this claim.

Liu also said that since the contested elements of the complaint are "irrelevant," they are prejudicial and could mislead -- factors that can be part of a strike analysis. However, Restani ruled that if Liu is not involved with the companies he says are irrelevant to the case, then this should be proven through evidence and not excluded through a motion to strike.

(United States v. Zhe "John" Liu, Slip Op. 22-110, CIT #22-00215, dated 09/20/22, Judge Jane Restani. Attorneys: William Kanellis for plaintiff U.S. government; David Craven of Craven Trade Law for defendants Liu and GL Paper)