## Facts

- Nitek Electronics, Inc. imported 36 shipments of gas meter pipe-fitting components from China between 2001 and 2004.
- Customs asserted the merchandise was misclassified under the HTSUS and demanded payment of unpaid duties and asserted antidumping duties liability.
- Customs issued a 2005 pre-penalty notice under 19 U.S.C. § 1592 alleging entry by material false statements/documents and/or omissions, identifying “tentative culpability” as gross negligence.
- Customs stayed penalty proceedings while related litigation over the antidumping order proceeded, based on Nitek’s waiver of the statute of limitations.
- After the antidumping order was sustained, Customs issued a final penalty claim again identifying gross negligence and referred the matter for judicial enforcement.
- In the Court of International Trade, the Government’s complaint sought recovery of unpaid duties and antidumping duties and sought a civil penalty characterized as based on negligence, not gross negligence.
- Nitek moved to dismiss the negligence-based penalty claim, arguing Customs had never asserted a negligence-level penalty administratively.

## Issues

1. Whether § 1592 permits the Government to seek a civil penalty in court based on negligence when Customs’ pre-penalty notice and final penalty claim asserted gross negligence.
2. Whether the § 1592 administrative notice-and-response scheme requires exhaustion as to the same culpability level later pursued in a judicial enforcement action.

## Decision

- The Court of International Trade dismissed the Government’s negligence-based penalty claim for failure to exhaust administrative remedies because the administrative penalty demand asserted only gross negligence.
- The Court of International Trade allowed the Government’s claims for unpaid duties and antidumping duties to proceed.
- The Federal Circuit affirmed, holding that § 1592’s statutory framework does not allow the Government to change the culpability level alleged by Customs in the administrative penalty claim when suing to enforce the penalty.

## Legal Principles

- Section 1592 establishes a graduated culpability scheme (fraud, gross negligence, negligence) tied to required administrative procedures, including pre-penalty notice and a penalty notice stating the alleged violation, culpability level, and proposed monetary penalty.
- Judicial enforcement of a § 1592 civil penalty is limited to the culpability level asserted in Customs’ administratively issued penalty demand; pursuing a different level in court is not permitted.
- A penalty theory asserted for the first time in court at a different culpability level is treated as an unexhausted claim because it bypasses § 1592’s notice-and-opportunity-to-respond framework.
- Challenges regarding culpability-level consistency under § 1592 do not necessarily bar separate government claims to recover unpaid duties or antidumping duties.

## Conclusion

The Federal Circuit held that the Government cannot switch culpability levels between Customs’ administrative penalty process and a Court of International Trade enforcement action under 19 U.S.C. § 1592; a negligence-based penalty claim was barred where Customs had proceeded administratively only on gross negligence, though the Government could continue pursuing recovery of duties and antidumping duties.


United States v. Nitek Elecs., Inc., 806 F.3d 1376 (Fed. Cir. 2015)