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Case Note: United States v. Sterling Islands, Inc.

Case Note: United States v. Sterling Islands, Inc.[1]

Introduction:

            On May 20, 2019, the Honorable Judge James O. Browning of the United States District Court for the District of New Mexico, issued a notable Memorandum Opinion and Order in the case of United States v. Sterling Islands.[2]  The Opinion expands the list of criminal penalties facing those who have engaged in acts relating to deceptively selling foreign products as if those products were Native American made.  Specifically, the Court holds that regulation 19 C.F.R. § 134.43[3] constitutes a law for purposes of 18 U.S.C. § 545[4] smuggling.  The issues addressed in this Opinion were ones of first impression within the Tenth Circuit.[5]  Overall, this Opinion provides a potentially powerful new weapon in the arsenal of those prosecuting the sale of fraudulent Native American-style jewelry, arts, and crafts in New Mexico.

Summary of Relevant Facts and Procedural History:

            The case of United States v. Sterling Islands is still ongoing.[6]  The Court draws its facts from the Indictment for purposes of its Opinion; the Court specifically explains that these facts have not been established as true in this Opinion and Order.[7]  As a result, this Note will avoid an in-depth evaluation of the facts alleged and instead focus on the issues of law discussed in the Opinion.  This first requires an understanding of what charges were directed at Defendants and how they challenged certain charges to create these questions of law.      

Overall, the Indictment in this case alleges that “Defendants imported Native American-style jewelry, arts, and crafts from the Philippines into the United States.”[8]  The Defendants challenged one partial, and two full, counts of the Indictment, in a 12(b) motion.[9]  The Defendant’s 12(b) motion argues that these counts fail to charge them with qualifying as laws and instead rely on an unqualifying civil regulation.[10] It is therefore necessary to understand what the Defendants in this case were charged with, to understand the Court’s holding.

Count 1 of the Indictment, in part, charges all Defendants with committing “Conspiracy to Defraud the United States, by committing the offenses of smuggling goods into the United States.”[11]  Counts 2 and 3 of the Indictment then charged specific Defendants with importing, receiving, buying, concealing, selling, and facilitating the transportation of Native American-style jewelry, arts, and crafts, in an illegal manner.[12]  The Indictment alleged that these acts were in violation of 18 U.S.C. § 545.[13]  18 U.S.C. § 545 prohibits smuggling goods into the United States, by stating, in part:

Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported into the United States contrary to law…[s]hall be fined under this title or imprisoned not more that 20 years, or both.[14]

To violate 18 U.S.C. § 545 therefore requires that the merchandise at issue be “contrary to law” in some way.[15]  Also of note, are the harsh penalties available for violations of this section. 

The Indictment alleged that the merchandise at issue in this case was contrary to regulation 19 C.F.R. § 134.43, promulgated by the Department of the Treasury.[16]  19 C.F.R. § 134.43 sets out requirements for how foreign produced “Native American-style jewelry” and “Native American-style arts and crafts” are to be marked with their country of origin.[17]  19 C.F.R. § 134.43 states that “’Native American-style jewelry’ must be indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, or some other permanent method.”[18]  The same requirements are placed on “Native American-style arts and crafts.”[19]   The regulation defines affected products by stating:

1) Native American-style jewelry is jewelry which incorporates traditional Native American design motifs, materials, and/or construction and therefore looks like, and could possibly be mistaken for, jewelry made by Native Americans, 2) Native American-style arts and crafts are arts and crafts, such as pottery, rugs, kachina dolls, baskets and beadwork, which incorporate traditional Native American design motifs, materials and/or construction and therefore look like, and could possibly be mistaken for, arts and crafts made by Native Americans.[20]

While exceptions apply for instances of infeasibility and goods are produced in NAFTA countries,[21] these definitions are still incredibly broad.    

Defendants in this case argued that 18 U.S.C. § 545 is ambiguous as to whether Congress intended the “contrary-to-law element to extend to regulations…specifically, to regulations providing only civil remedies.”[22]  Defendants argue that because 18 U.S.C. § 545 is ambiguous in its meaning, and because 19 C.F.R. § 134.43 imposes only civil penalties for not including required markings, that the Rule of Lenity should be applied.[23]  The Rule of Lenity dictates that “[w]hen interpreting a criminal statute, ‘it must be strictly construed, and any ambiguity must be resolved in favor of lenity’” to the defendant(s).[24]

Holding:

            The Court disagreed with the Defendant’s arguments, instead holding that “the statute’s plain meaning at the time of enactment unambiguously indicates that ‘law’ for 18 U.S.C. § 545’s purposes is an unqualified term that encompasses all statutes and agency-promulgated regulations.”[25]  The Court clarifies that 19 C.F.R. § 134.43 constitutes a law for purposes of 18 U.S.C. § 545, and therefore the portions of the Indictment’s first three Counts that rely on this construction do not fail to charge Defendant’s with a valid criminal violation.[26]  The Court limits this by holding that for violations of 19 C.F.R. § 134.43 to be “contrary to law” requires that they also meet the “mens rea” requirements imposed by 18 U.S.C. § 545.[27]

The Court’s Analysis and Reasoning:

            The Court reaches this holding by “employing the ‘well-established principles of statutory construction.’”[28] The Courts analysis begins by reviewing what other Circuits have held on similar issues.  After analyzing each of those decisions however, the Court declines to follow any of them.  The Court instead examines the meaning of the statute at the time it was enacted and finds that its plain meaning is unambiguous.[29] 

            First, the Court examines the approach taken by the Fourth Circuit Court of Appeals in the case of United States v. Mitchell.[30]  The Fourth Circuit there held that 18 U.S.C. § 545’s “‘contrary to law’ provision…encompasses substantive or legislative type regulations that have the force and effect of law.”[31] The Court in Mitchell draws on the case of Chrysler Corp. v. Brown,[32] for a three part test to determine whether a regulation has the “force and effect of law.”[33]  To have the “force and effect of law”  under this test, a regulations must: 1) “be ‘substantive’ or ‘legislative-type’ rules of agency organization, procedure, or practice,” 2) “have been promulgated pursuant to a congressional grant of quasi-legislative authority,” and 3) “have been promulgated in conformity with congressionally-imposed procedural requirements such as the notice and comment provisions of the Administrative Procedure Act.”[34] 

While the Court in this case finds 19 C.F.R. § 134.43 meets the requirements of the Chrysler/Mitchell test, meaning it is a regulation having the “force and effect of law,”  it concludes that this test does not apply under these circumstances.[35]  Although 19 C.F.R. § 134.43 passing the Chrysler/Mitchell test is therefore dicta, it lends support to the idea that the Defendants had notice 19 C.F.R. § 134.43 was a law for purposes of 18 U.S.C. § 545.

The Court next examines the Ninth Circuit’s approach to a similar issue in United States v. Alghazouli.[36]  There, the Ninth Circuit underwent a process of statutory construction for 18 U.S.C. § 545.[37]  It determined that the time of the statute’s enactment was 1875 and construed the plain meaning of it according to that time.[38]  Under this analysis, the Ninth Circuit held that “Congress intended the term ‘law’ in [18 U.S.C.] § 545 to include a regulation when, but only when, a statute…specifies that a violation of that regulation constitutes a crime.”[39]  This result therefore would find that 19 C.F.R. § 134.43 is not a “law”  for purposes of 18 U.S.C. § 545; 19 C.F.R. § 134.43 does not specify that violating it constitutes a crime.[40] 

The court in Sterling Islands declines to follow this reasoning, as it determines 18 U.S.C. § 545 was enacted in 1866, not 1875.[41]  The Court does so by determining 18 U.S.C. § 545 had a predecessor act, with substantially the same language, enacted in 1866.[42]  The Court then turns to a revised edition of “An American Dictionary of the English Language” from 1865, to determine the plain meaning of “law” in this statute, instead of the later edition used by the Ninth Circuit.[43]  In this definition, it finds law is defined to specifically include “a fixed regulation.”[44]  Further, the Court adds that the “fifth edition of Black’s Law Dictionary [published in 1979] expressly includes Secretary of the Treasury regulations within its definition of law;” this edition is published 25 years before the 8th edition the 9th circuit cites and is similar to earlier editions in its not limiting the definition of law to mean statutes.[45]  For these reasons, the Court finds that the plain meaning of 18 U.S.C. § 545 includes regulations.[46] 

Finally, the Court examines the case of United States v. Izurieta from the Eleventh Circuit Court of Appeals.[47]  In Izurieta, the Court “concluded that 18 U.S.C. § 545 [was] grievously ambiguous [specifically] regarding whether civil regulations constitute laws.”[48]  As a result of this, the Eleventh Circuit there determined that the rule of lenity should be applied to avoid “charging violation[s] of [] civil regulation[s] as [] crimes under 18 U.S.C. § 545.[49] 

Since the Court in this Case already determined through statutory construction that 18 U.S.C. § 545’s ‘contrary to law provision was unambiguous,[50] they do not find that the rule of lenity is proper.[51]  The Court holds that because the ‘contrary to law provision was not qualified by Congress at the time of its enactment, “all agency-promulgated regulations fall within its ambit, including 19 C.F.R. § 134.43.”[52] 

Conclusion:

In this manner the Court find that far more regulations are potentially included for purposes of what constitutes a law to be violated for 18 U.S.C. § 545; there exists now an expansive number of regulations that, if violated willfully,[53] may be charged criminally within the jurisdiction of the Federal District Court for the District of New Mexico.  The penalties it imposes are nothing to be discounted.  Under 18 U.S.C. § 545, penalties extend all the way to including the imposition of a combination of fines and 20 years of prison time for violators.[54]  This is all made more menacing by the broad definitions of what goods fall under the restrictions laid out in 19 C.F.R. § 134.43.[55]

Ultimately, the holding of this Opinion and Order reaches what appears to be a just result for the facts alleged.  At first glance, it appears that Defendants in this case, as a practical matter, lacked notice that their actions constituted smuggling in violation of 18 U.S.C. § 545; additional analysis, as the Court has done in this case, demonstrates otherwise for legal purposes.  Even for practical reasons notice appears to be present.  The harms have been widely recognized for importing goods designed to capitalize on markets seeking genuine Native American produced goods, and is criminalized specifically in other ways.[56]  Additionally, the Court goes out of its way in this case to clarify that 18 U.S.C. § 545 criminalizes only willful or knowing violations of  19 C.F.R. § 134.43.[57]  This seems to exclusively criminalize instances where persons already know they are selling goods in a manner that violates the law; as this case demonstrates, smuggling illegal goods to the United States has been criminalized for well over a century.[58]  With 18 U.S.C. § 545 already criminalizing other actions barred explicitly by regulation,[59] it seems the only notice lacking was a case of precedent in this jurisdiction explicitly finding 19 C.F.R. § 134.43 constituted a law for purposes of 18 U.S.C. § 545.  Ultimately, Sterling Islands may prove to be another substantial victory for those hoping to stop the deceptive sale of Native American goods in New Mexico. 

Peter Armijo is a 3L at the University of New Mexico School of Law.  Peter was born in Albuquerque and grew up in Los Alamos. Peter looks forward to continuing to live and work in New Mexico.


[1]United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027 (D.N.M. May 20, 2019).

[2] Id.

[3] 19 C.F.R. § 134.43 (1996).

[4] 18 U.S.C. § 545 (2006).

[5] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1050 (D.N.M. May 20, 2019).

[6] Id.

[7] Id. at 1029.

[8] Id. at 1030.

[9] Id. at 1029.

[10] Id.

[11] Id. at 1030.

[12] Id. at 1032.

[13] Id. at 1033.

[14] 18 U.S.C. § 545 (2006) (emphasis added).

[15] Id.

[16] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1033 (D.N.M. May 20, 2019).

[17] 19 C.F.R. § 134.43 (1996).

[18] Id.

[19] Id. Note, the wording is changed slightly to say “means of cutting” and “other equally permanent method.”

[20] Id.

[21] Id.

[22] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1033 (D.N.M. May 20, 2019).

[23] Id.

[24] Id. at 1038 (quoting United States v. Garcia, 939 F. Supp. 2d 1216, 1227 (D.N.M. 2013)).

[25] Id. at 1052.

[26] Id. at 1029.

[27] Id. at 1038-1039, 1058-1059.

[28] Id. at 1050 (quoting Colo. High Sch. Activities Ass’n v. Nat’l Football League, 711 F.2d 943, 945 (10th Cir. 1983)).

[29] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1052 (D.N.M. May 20, 2019).

[30] United States v. Mitchell, 39 F.3d 465 (4th Cir. 1994).

[31] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1042 (D.N.M. May 20, 2019) (quoting United States v. Mitchell, 39 F.3d at 476).

[32] Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705 (1979).

[33] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1035 (D.N.M. May 20, 2019).

[34] United States v. Mitchell, 39 F.3d at 470.

[35] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1059 (D.N.M. May 20, 2019).

[36] United States v. Alghazouli, 517 F.3d 1179 (9th Cir. 2008).

[37] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1046 (D.N.M. May 20, 2019).

[38] Id. at 1050-1051.

[39] United States v. Alghazouli, 517 F.3d 1179, at 1187 (9th Cir. 2008).

[40] See 19 C.F.R. § 134.43 (1996).

[41] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1050 (D.N.M. May 20, 2019).

[42] Id. at 1051 (See also Stewart v. khan for the proposition that a “change of language in a revised statute will not change the law from what it was before, unless it be apparent that such was the intention of the legislature”). 

[43] Id.

[44] Id.

[45] Id. at 1046-1047, 1051-1052, 1056-1057.

[46] Id. at 1052.

[47] United States v. Izurieta, 710 F.3d 1176 (11th Cir. 2013).

[48] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1052 (D.N.M. May 20, 2019).

[49] Id.

[50] Id.

[51] Id. at 1059.

[52] Id. at 1056

[53] Id. at 1038-1039, 1058-1059.

[54] 18 U.S.C. § 545 (2006).

[55] 19 C.F.R. § 134.43 (1996).

[56] See e.g., 18 U.S.C. § 1159 (2010).

[57] United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1038-1039, 1058-1059 (D.N.M. May 20, 2019).

[58] Id. at 1050.

[59] See e.g., United States v. Mitchell, 39 F.3d 465 (4th Cir. 1994).

By Tribal Law Journal Blog

The Tribal Law Journal was established in fall 1998 for the purpose of promoting indigenous self-determination by facilitating discussion of the internal law of the world’s indigenous nations. The internal law of indigenous nations encompasses traditional law, western law adopted by indigenous nations, and a blend of western and indigenous law. Underscoring this purpose is the recognition that traditional law is a source of law.

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