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United States v. Sterling Islands Inc.

United States District Court, D. New Mexico

May 20, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
STERLING ISLANDS, INC.; AL-ZUNI GLOBAL JEWELRY, INC.; JAWAD “JOE” KHALAF; NADER KHALAF; NASHAT “NASH” KHALAF; ZAHER MOSTAFA, and TAHA “TOM” SHAWAR, Defendants.

          Mark T. Baker Carter B. Harrison, IV Peifer, Hanson & Mullins, P.A. Albuquerque, New Mexico Attorneys for Defendants Sterling Islands, Inc. and Jawad Khalaf

          Ahmad Assed Richard J. Moran Law Office of Ahmad Assed Albuquerque, New Mexico Attorneys for Defendant Nader Khalaf

          John W. Boyd Marry (Molly) E. Schmidt-Nowara Karen Grohman Freedman, Boyd, Hollander, Goldberg, Urias & Ward, P.A. Albuquerque, New Mexico Attorneys for Defendant Nashat Khalaf

          Matthew M. Beck Rodey, Dickason, Sloan, Akin & Robb, P.A. Albuquerque, New Mexico Attorney for Defendant Zaher Mostafa

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court on the Defendants' Joint Opposed Rule 12(b) Motion to Dismiss Counts 2 and 3, and to Partially Dismiss Count 1, of the Indictment, filed February 15, 2019 (Doc. 34)(“Motion”). The primary issues are: (i) whether, under 18 U.S.C. § 545, a regulation promulgated by the United States Department of the Treasury (the “Treasury Department”) constitutes a law for the purposes of 18 U.S.C. § 545's “contrary to law” element, 18 U.S.C. § 545; (ii) whether, if a regulation can constitute a law for the purposes of 18 U.S.C. § 545's contrary-to-law element, 19 C.F.R. § 134.43 constitutes such a law; and (iii) whether the Indictment, filed December 19, 2018 (Doc. 1), in Counts 2 and 3 and Count 1 to the extent it is based on a conspiracy to violate 18 U.S.C. § 545, fails to state an offense against Defendants Sterling Islands Inc., Al-Zuni Global Jewelry, Inc., Jawad Khalaf (“J. Khalaf”), Nader Khalaf, Nashat Khalaf, Zaher Mostafa, and Taha “Tom” Shawar (collectively, the “Defendants”), as required by rule 12(b)(3)(B)(v) of the Federal Rules of Criminal Procedure, because 19 C.F.R. § 134.43 fails to qualify as a law which the Defendants may be charged with violating. The Court concludes that (i) a Treasury Department regulation constitutes a law for the purposes of 18 U.S.C. § 545's contrary-to-law element, because the plain meaning of the word law in 18 U.S.C. § 545 includes both statutes and regulations; (ii) Treasury Department regulation 19 C.F.R. § 134.43 constitutes a law for 18 U.S.C. § 545's purposes; and (iii) the Indictment states an offense against the Defendants in Counts 1, 2, and 3. The Court denies the Motion.

         FACTUAL BACKGROUND

         The Court takes its facts from the Indictment. See generally Indictment. The Court does not set forth these facts as findings or the truth. The Court recognizes that the Indictment is largely the United States' version of events and that the Defendants are presumed innocent. Indictment at 1.

         Sterling Islands is a corporation registered in the Commonwealth of Virginia, with its primary business office in Albuquerque, New Mexico. See Indictment ¶ 1, at 1. Sterling Islands imports Native American-style jewelry, arts, and crafts, from a factory in the Republic of the Philippines -- a manufacturer called Fashion Accessories 4 U (“Fashion Accessories”) -- into the United States, and sells the imported merchandise to wholesale and retail businesses in the State of New Mexico and elsewhere. See Indictment ¶ 1, at 1. J. Khalaf is Sterling Islands' owner and president, and Nader Khalaf is a manager. See Indictment ¶ 1, at 1. Al-Zuni Global is a registered corporation in New Mexico, operating as a wholesale business in Gallup, New Mexico, “specializing in Native-American style jewelry, arts, and crafts.” Indictment ¶ 2, at 1-2. Nashat Khalaf is Al-Zuni Global's owner and president, and Mostafa is its vice-president. See Indictment ¶ 2, at 2. Shawar owns Bullion Jewelers, Inc., “a retail store in Breckenridge, Colorado, specializing in the sale of Native American-style jewelry.” Indictment ¶ 3, at 2.

         The Indictment charges that the Defendants imported Native American-style jewelry, arts, and crafts from the Philippines into the United States without legally required indelible markings, and sold the imported merchandise to customers, falsely representing that Native Americans made the merchandise. See Indictment ¶ 4, at 2. According to the Indictment, from approximately 2009, to October, 2015, Sterling Islands, Al-Zuni Global, J. Khalaf, Nader Khalaf, Nashat Khalaf, Mostafa, and Shawar

knowingly, unlawfully, and willfully combined, conspired, confederated, agreed, and acted interdependently with one another and with others known and unknown to the Grand Jury to commit the offenses of smuggling goods into the United States, contrary to 18 U.S.C. § 545, and violating the Indian Arts and Crafts Act, contrary to 18 U.S.C. § 1159.

Indictment ¶ 5, at 2.

         Sterling Islands allegedly purchased and received large shipments of Native American-style jewelry, arts, and crafts from Fashion Accessories and imported them into the United States. See Indictment ¶ 6a, at 3. Al-Zuni Global received and distributed wholesale large quantities of the imported merchandise. See Indictment ¶ 6b, at 3. The imported merchandise bore no permanent country-of-origin markings, and the Defendants sold the imported merchandise to wholesale and retail customers in New Mexico and elsewhere, including to customers who placed orders to “copy and reproduce jewelry, arts, and crafts made by Indian artists.” Indictment ¶¶ 6c- e, at 3. The Defendants provided wholesale customers with Native American-style jewelry, arts, and crafts “with removable stickers indicating the items were made in the Philippines, ” but not with permanent country-of-origin markings, and the Defendants deceived retail customers by “misrepresenting Native American-style jewelry, arts, and crafts imported from the Philippines as made by Native Americans in the United States.” Indictment ¶¶ 6f-g, at 3. The Defendants received millions of dollars in revenue from their sales of the imported merchandise. See Indictment ¶ 6h, at 3.

         Regarding the Indictment's Count 1, charging the Defendants with violation of 18 U.S.C. § 371, Conspiracy to Defraud the United States, by committing the offenses of smuggling goods into the United States in violation of 18 U.S.C. § 545 and violating the Indian Arts and Crafts Act contrary to 18 U.S.C. § 1159, the Indictment charges that the Defendants “committed and caused to be committed” several overt acts, which the Indictment's paragraphs 7-31 outline. Indictment ¶¶ 7-31, at 4-7. On or about August 30, 2009, Shawar signed a check from his store, Bullion Jewelers, to J. Khalaf for $10, 000.00. See Indictment ¶ 8, at 4. On or about March 16, 2012, Shawar sent Nader Khalaf an email about a jewelry order, in which he asked him, “If I send you some samples do you think you could make them for us in the Philippines?” and told him, “I don't want the guy I get them from to freak” because “they are ‘his designs.'” Indictment ¶ 9, at 4 (internal quotation marks for emphasis and not for quotation). On or about May 29, 2012, Sterling Islands received from Fashion Accessories a shipment of Native American-style jewelry, including silver bracelets, without any permanent country-of-origin markings, which were “engraved with the letters ‘CR.'” Indictment ¶ 10, at 4. On or about July 23, 2013, Shawar emailed Nader Khalaf regarding a jewelry order, and asking Nader Khalaf to “make sure they ship the item with the letters E.Y.” Indictment ¶ 16, at 6. Then, on or about July 23, 2013, Nader Khalaf emailed Fashion Accessories, stating in the message, “please make but be sure to make initials E.Y. Not urgent, just send with next shipment.” Indictment ¶ 17, at 5. Shawar then displayed imported, Native American-style necklaces, rings, and bracelets for sale at Bullion Jewelers, and, on or about August 5, 2014, in Breckenridge, Shawar sold a necklace engraved with the letters “E.Y., ” but bearing no permanent country-of-origin markings, to undercover investigators posing as customers. Indictment ¶¶ 19-20, at 5. Shawar “falsely stated to the customer, in sum and substance, that ‘Edison Yazzie,' a Navajo artist, made the necklace in the United States.” Indictment ¶ 20, at 6. On the same day, Shawar sold a bracelet lacking permanent country-of-origin markings to undercover investigators posing as customers and falsely stated that a Zuni artist in the United States made the bracelet. See Indictment ¶ 21, at 6.

         Sterling Islands received another shipment from Fashion Accessories on or about July 30, 2012, containing a pendant and ring, both without permanent country-of-origin markings, inside packaging labeled “Al-Zuni Sample.” Indictment ¶ 11, at 4. On or about August 3, 2012, Mostafa sent a note to Nader Khalaf, requesting that Nader Khalaf ask “Uncle Joe” to make some silver canteens for Al-Zuni Global. Indictment ¶ 12, at 4. On or about August 3, 2012, Nader Khalaf sent an email to Fashion Accessories, attaching Mostafa's note requesting production of silver canteens along with a photograph depicting three Native American-style canteens. See Indictment ¶ 13, at 5. On or about September 10, 2012, Sterling Islands received a shipment from Fashion Accessories, containing approximately sixty Native American-style canteens lacking permanent country-of-origin markings. See Indictment ¶ 14, at 5. On or about October 13, 2012, Nader Khalaf emailed Fashion Accessories, attaching photographs pursuant to an email request from J. Khalaf. See Indictment ¶ 15, at 5. Nashat Khalaf signed a check from Al-Zuni Global to Sterling Islands, on or about June 6, 2014, for $96, 607.00. See Indictment ¶ 18, at 5. On August 29, 2014, Nashat Khalaf signed a check for $48, 940.00 from Al-Zuni Global to Sterling Islands, and on August 22, 2014, signed a check for $70, 219.00 from Al-Zuni Global to Sterling Islands. See Indictment ¶¶ 22-23, at 6. Al-Zuni Global displayed the imported miniature, Navajo-style canteens, lacking permanent country-of-origin markings, for sale in its shop in Gallup. See Indictment ¶ 24, at 6. On November 24, 2014, Al-Zuni Global sold four of the canteens to a customer, falsely stating that they were Navajo-made. See Indictment ¶ 25, at 6. Nashat Khalaf then signed several more checks from Al-Zuni Global to Sterling Islands: (i) on January 22, 2015, for $54, 275.00, see Indictment ¶ 26, at 6; (ii) on February 12, 2015, for $90, 000.00, see Indictment ¶ 27, at 6; (iii) on July 15, 2015, for $58, 166.00, see Indictment ¶ 28, at 6; and (iv) on August 1, 2015, for $62, 770.00, see Indictment ¶ 29, at 7. On or about October 2, 2015, Mostafa signed a check for $62, 770.00 from Al-Zuni Global to Sterling Islands. See Indictment ¶ 30, at 7. On or about October 28, 2015, Nashat Khalaf “attempted to mislead law enforcement by falsely stating to federal agents that the designs for [the] imported canteens” came from “jewelry books.” Indictment ¶ 31, at 7.

         In Count 2, the Indictment charges that, from approximately August 30, 2009, until approximately October 28, 2015, Sterling Islands, J. Khalaf, and Nader Khalaf

did willfully, fraudulently, and knowingly import and bring into the United States certain merchandise, that is Native American-style jewelry, arts, and crafts, contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43.

Indictment ¶ 32, at 7. In Count 3, the Indictment charges that, from approximately August 3, 2012, until approximately October 28, 2015, Al-Zuni Global, Nashat Khalaf, and Mostafa

did willfully, fraudulently, and knowingly receive, conceal, buy, sell, and facilitate the transportation, concealment, and sale of merchandise imported contrary to law, that is Native American-style jewelry, arts, and crafts, after the importation thereof, the defendants then knowing that said merchandise had been imported and brought into the United States contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43.

Indictment ¶ 33, at 7-8. Counts 4 and 5 are levied against all of the Defendants with the exception of Shawar (the “Sterling and Al-Zuni Defendants”). See Indictment ¶¶ 34-35, at 8-9. Count 4 charges that the Sterling and Al-Zuni Defendants

did knowingly display and offer for sale, and did sell, goods, specifically: Native American-style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2.

Indictment ¶ 34, at 8. Count 5 charges that the Sterling and Al-Zuni Defendants:

did knowingly display and offer for sale, and did sell for $1000 or more, a good, specifically: Native-American style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2.

Indictment ¶ 35, at 8-9. The Indictment also includes a forfeiture allegation, pursuant to 18 U.S.C. § 981(a)(1)(c) and 28 U.S.C. § 2461. See Indictment at 9-10.

         PROCEDURAL BACKGROUND

         The Defendants filed the Motion, arguing that, under the rule of lenity, 19 C.F.R. § 134.43, a Treasury Department regulation, does not qualify as a law for 18 U.S.C. § 545's purposes, and, that, accordingly, the Court should dismiss entirely Counts 2 and 3 of the Indictment, and should dismiss Count 1 to the extent it is premised on a conspiracy to violate 18 U.S.C. § 545. See Motion at 1-2. The United States responded, asking the Court to deny the Motion. See generally United States Response to Defendants' Motion to Dismiss (Doc. 34), filed March 11, 2019 (Doc. 41)(“Response”). The Defendants replied. See generally Defendants' Reply in Support of Their Rule 12(b) Motion to Dismiss Counts 2 and 3, and to Partially Dismiss Count 1, of the Indictment [Doc. 34], filed March 25, 2019 (Doc. 47)(“Reply”).

         1.The Motion.

         The Motion's primary issues are: (i) whether, under 18 U.S.C. § 545, a Treasury Department regulation constitutes a law for the purposes of 18 U.S.C. § 545's “contrary to law” element, 18 U.S.C. § 545; (ii) whether, if a regulation can constitute a law for the purposes of 18 U.S.C. § 545's contrary-to-law element, 19 C.F.R. § 134.43 constitutes such a law; and (iii) whether the Indictment, in Counts 2 and 3, and in Count 1 to the extent it is based on a conspiracy to violate 18 U.S.C. § 545, fails to state an offense against the Defendants, as rule 12(b)(3)(B)(v) requires. See Motion at 1-2.

         The Defendants argue that 18 U.S.C. § 545 is ambiguous, because the statute's text, structure, history, and purpose do not illuminate whether Congress intended 18 U.S.C. § 545's contrary-to-law element to extend to regulations and, specifically, to regulations providing only civil remedies. See Motion at 15. The Defendants argue that it is unclear whether the word law's plain meaning includes regulations or only statutes, so the Court should look to the word's meaning in the legal context, in which “law” is not generally defined to include agency-promulgated regulations. See Motion at 16. The Defendants aver that courts split how to resolve the ambiguity related to law's definition for 18 U.S.C. § 545's purposes. See Motion at 16. The Defendants contend that only the United States Court of Appeals for the Eleventh Circuit has addressed the question in the context of a regulation providing only civil liability for its violation. See Motion at 16. The Defendants aver that the Eleventh Circuit, concluding that § 545 is ambiguous regarding whether, pursuant to § 545, civil regulations may constitute laws, concluded that, in the criminal context, “faced with the rule of lenity, § 545's ‘contrary to law' provision does not include such civil regulations.” Motion at 16-17 (quoting 18 U.S.C. § 545). The Defendants aver that the Eleventh Circuit's decision followed a split between the United States Court of Appeals for the Fourth Circuit and the United States Court of Appeals for the Ninth Circuit. See Motion at 17. The Defendants contend that the Ninth Circuit concluded only regulations providing criminal liability for their violation may constitute laws for § 545's purposes, whereas the Fourth Circuit concluded that any regulation with the force and effect of law may constitute a law for § 545's purposes. See Motion at 17. The Defendants aver that the Eleventh Circuit declined to follow the Fourth Circuit's broad interpretation because it was “derived from a non-criminal context, ” and, in a criminal context, the rule of lenity renders the Fourth Circuit's approach untenable. Motion at 17 (internal quotation marks omitted)(quoting United States v. Izurieta, 710 F.3d 1176, 1181-82 (11th Cir. 2013)(“Izurieta”)). The Defendants, in a footnote, advance an argument that the changing composition of the Supreme Court of the United States suggests that Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)(“Chevron”), deference “almost certainly will be reconsidered, ” and, per the Defendant's prognostication, eliminated in favor of less deference to agency-made regulations -- even civil ones. See Motion at 17 n.2.

         The Defendants argue that 19 C.F.R. § 134.54 is an exclusively civil regulation, because, like the civil regulation at issue in Izurieta, which the Eleventh Circuit concluded was not a law: (i) it contains a contractual liquidated damages term; (ii) Congress and the Treasury Department expressly provided that it is not aimed at punishment; (iii) its text indicates to the average person that liability is strictly civil and monetary, “because it sets forth terms of the contract delineating the obligations of the importer upon a breach of § 134.43's requirements”; and (iv) the regulation provides violators with an opportunity to correct their violation under administrative supervision. Motion at 19-21.

         The Defendants argue that Congress provided fair warning that removal or obfuscation of a legally required country-of-origin marking would result in criminal liability, whereas Congress provided no warning that failing to add a country-of-origin marking would result in criminal liability. See Motion at 22. The Defendants argue, therefore, that the rule of lenity counsels that 19 C.F.R.§ 134.43 cannot be a law, because it provides that the penalty for failure to add country-of-origin markings where required is only civil liability: “withholding of the articles until properly marked, administrative supervision of that marking, contractual damages for failure to do so, and an additional duty.” Motion at 23. The Defendants argue that the canons of statutory construction support their conclusion. See Motion at 23. Namely, the Defendants contend that specific provisions prevail over general provisions, and that 19 U.S.C. § 1304, “the enabling statute pursuant to which § 134.43 was promulgated, ” imposes civil liability for specific conduct, prevailing over the “possible criminal liability for the general importation of ‘any merchandise contrary to law, '” which 18 U.S.C. § 545 imposes. Motion at 23 (quoting 18 U.S.C. § 545). The Defendants also contend that 19 U.S.C. § 1304 demonstrates that “Congress clearly knew how to, and, indeed, specifically did, subject certain violations of § 1304 and Part 134's marking requirements to criminal liability, ” but that the “Government doesn't allege Defendants engaged in this criminal activity.” Motion at 24. The Defendants conclude that, because the charges in Counts 2 and 3, and in Count 1 in part, are based on the assertion that the Defendants' alleged conduct was contrary to law, the Court should dismiss those Counts, because the rule of lenity and the canons of statutory construction support resolving § 545's ambiguous contrary-to-law language in favor of the Defendants -- in other words, the Court should conclude that 19 C.F.R. § 134.43 cannot be a basis for criminal liability under 18 U.S.C. § 545. See Motion at 26-27.

         2. The Response.

         The United States responds that “there is no question” that defendants charged with violating certain federal regulations can act contrary to law within 18 U.S.C. § 545's meaning, when several federal courts have previously concluded that, for 18 U.S.C. § 545's purposes, federal regulations may qualify as laws. See Response at 2 (citing Izurieta, 710 F.3d at 1184; United States v. Place, 693 F.3d 219, 228-29 (1st Cir. 2012); United States v. Alghazouli, 517 F.3d 1179, 1181 (9th Cir. 2008)(“Alghazouli”), and United States v. Mitchell, 39 F.3d 465, 576 (4th Cir. 1994)(“Mitchell”)). The United States argues that, contrary to the Defendants' analysis of the meaning of the word “law, ” the word “law” “is commonly defined to include administrative regulations.” Response at 3 (internal quotation marks omitted)(quoting Mitchell, 39 F.3d at 468). The United States contends that the Defendants, by concluding that a federal regulation may not constitute a law, undercut their own argument to apply the rule of lenity based on 18 U.S.C. § 545's plain language, because the Defendants recognize that one legitimate interpretation of the word “law” includes federal regulations. See Response at 3.

         The United States argues that the Court should look to Chrysler Corp. v. Brown, 441 U.S. 281 (1979)(“Chrysler”), and Mitchell, and conclude, based on Chrysler's and Mitchell's guidance, that the Indictment properly charges the Defendants with violating 18 U.S.C. § 545. See Response at 3. The United States urges the Court to adopt the Fourth Circuit's formulation, whereby regulations having the force and effect of law, and passing a three-part test that Chrysler articulates, are “proper predicates for criminal prosecutions under 18 U.S.C. § 545.” Response at 4. The United States avers that Chrysler's three-part test states that, to be properly promulgated, regulations must: (i) be substantive or legislative rules affecting individual rights and obligations; (ii) arise from a legislative grant of quasi-judicial authority; and (iii) conform with Congressionally imposed procedural requirements such as the Administrative Procedure Act, Pub. L. 79-404, 60 Stat. 237 (1946)(“APA”)'s notice and comment provisions. See Response at 3-4.

         The United States contends that 19 C.F.R. § 134.43 passes Chrysler's test and meets Mitchell's requirements. The United States argues that 19 C.F.R. § 134.43 passes the Chrysler test's first part, because

this regulation is substantive in mandating Native American-style jewelry, arts, and crafts must be “indelibly marked with the country of origin by means of cutting, die-sinking, engraving, stamping, or some other equally permanent method.” This regulation imposes an obligation on importers and subsequent recipients to deal in properly marked goods. This affects their individual rights with respect to importation and possession.

Response at 4 (quoting 19 C.F.R. § 134.43). The United States argues that 19 C.F.R. § 134.43 passes the Chrysler test's second requirement and that the Treasury Department promulgated it pursuant to a Congressional grant of quasi-judicial immunity, where it “specifically references 19 U.S.C. § 66, which gives the Secretary of the Treasury the power and authority to ‘prescribe . . . rules and regulations . . . relating to raising revenue from imports, or to duties on imports[.]'” Response at 4 (quoting 19 U.S.C. § 66). The United States contends that 19 C.F.R. § 134.43 passes the Chrysler test's third requirement, because it

was promulgated in conformity with congressionally imposed procedural requirements. The entries from the Federal Register for the amendments to 19 C.F.R. § 134.43 pertaining to Native American-style jewelry (attached as Exhibit 1) and Native American-style arts and crafts (attached as Exhibit 2) show these amendments were adopted following public notice and opportunity for comment.

Response at 4.

         The United States argues that the Court should, like the court in Mitchell, decline to apply the rule of lenity, because the Defendants had fair warning as “importers and distributors of Native American-style jewelry, arts, and crafts that their alleged criminal conduct could lead to criminal prosecution under 18 U.S.C. § 545.” Response at 5. The United States argues that 18 U.S.C. § 545's text alerted the Defendants that they could not import goods or receive imported goods contrary to law, and that, because at least one plain meaning of the word “law” encompasses federal regulations, the Defendants had fair warning that they should consult applicable federal regulations and ensure their businesses' compliance with those regulations. See Response at 5.

         The United States contends that no “other statute or regulation so directly on point” exists such that “it would have confused them into thinking ‘contrary to law' meant anything other than importing these goods without indelible markings of their country of origin.” Response at 5 (quoting 18 U.S.C. § 545). The United States argues, furthermore, that “it is appropriate to presume” Congress adopted the Chrysler and Mitchell test as 18 U.S.C. § 545's criminal liability definition, because Congress amended 18 U.S.C. § 545 in 2006, after Mitchell, and “Congress is presumed to be aware of . . . judicial interpretation of a statute and to adopt that interpretation when it enacts a statute without change.” Response at 6 (internal quotation marks omitted)(quoting Lorillard, a Div. of Loew's Theatres, Inc. v. Pons, 434 U.S. 575, 580 (1978)(“Lorillard”)).

         The United States also argues that the Defendants' reliance on Izurieta is misplaced, because, in Izurieta, the Eleventh Circuit acknowledged that instances exist in which a federal regulation may constitute a law and provide a proper basis for criminal prosecution. See Response at 6-7. The United States contends that, in Izurieta, the Eleventh Circuit's conclusion that the regulation at issue did not constitute a law was “not because it has no effect as a law but because that law is civil only, and in particular reflects contractual requirements.” Response at 7 (emphasis added by Response)(quoting Izurieta, 710 F.3d at 1184). The United States argues that Izurieta did not resolve whether federal regulations unrelated to contractual matters may support criminal prosecutions. See Response at 7.

         The United States argues that, to argue that Congress' failure to establish criminal penalties within 19 U.S.C. § 1304 indicates Congress' intent to preclude criminal prosecution for violations of 19 C.F.R. § 134.43, the Defendants “would need to show that Congress repealed 18 U.S.C. § 545 by implication when it made the relevant amendments to 19 U.S.C. § 1304, ” because of the following timeline of the enactment of the states and regulations at issue:

Congress originally enacted 18 U.S.C. § 545 in 1948. The Department of the Treasury amended 19 C.F.R. § 134.43 to add the provision about Native American-style jewelry in 1989 and the provision about Native American-style arts and crafts in 1990. Congress originally enacted 19 U.S.C. § 1304 in 1930 and amended it most recently in 2016.

Response at 8. The United States argues that there are compelling reasons to conclude that Congress intended for 18 U.S.C. § 545, 19 U.S.C. § 1304, and 19 C.F.R. § 134.43 to complement each other, because, together, they create an effective scheme of punishment to deter conduct that Native American handicraft industry representatives reported of jewelry and craft dealers, and wholesalers, removing country-of-origin labels from imported goods and selling them as authentic Native American products. See Response at 8. The United States argues that “[o]nly the prospect of meaningful criminal punishment . . . would discourage such an offender from breaking the ‘law,' and, therefore, it is fair to conclude that Congress intended to criminally punish conduct such as that which the Indictment's Counts 1, 2, and 3 describe.” Response at 9 (quoting 18 U.S.C. § 545).

         3. The Reply.

         The Defendants argue that, since the Fourth Circuit decided Mitchell, no other Court of Appeals has adopted the “force and effect of law” test for determining when a regulation constitutes a law for 18 U.S.C. § 545's purposes. Reply at 2 (internal quotation marks omitted)(quoting Mitchell, 39 F.3d at 468). The Defendants argue that, rather than follow the Fourth Circuit's approach, the Court should consider that Alghazouli accords with the United States Court of Appeals for the Tenth Circuit's precedent in United States v. Baldwin, 745 F.3d 1027 (10th Cir. 2014)(Gorsuch, J.)(“Baldwin”), in which the Tenth Circuit “concluded that a regulation may be a basis for imposition of criminal penalties, but only if Congress delegates explicitly to the agency the ability to impose criminal penalties.” Reply at 2. The Defendants argue that the Court should disregard Mitchell, because the Fourth Circuit also did not consider canons of statutory construction, and because 19 C.F.R. § 134.43's surrounding statutory and regulatory framework indicate that it is exclusively civil. See Reply at 2-3. The Defendants argue that, in 19 U.S.C. § 1304 and in 19 U.S.C. § 66, Congress included no delegation to an agency to prescribe criminal penalties for violating country-of-origin marking regulations. See Reply at 6. The Defendants also argue that, whereas in Baldwin, “agency-imposed criminal penalties were included within the same subpart as the regulations on which the charges were based, ” 19 C.F.R. § 134 imposes criminal penalties for obfuscating or removing a country-of-origin marking but imposes only civil remedies for failure to add a country-of-origin marking. Reply at 8.

         The Defendants argue that the Mitchell majority[1] improperly inquired -- contrary to statutory construction canons, the rule of lenity, and the vagueness doctrine -- whether Congress clearly intended 18 U.S.C. § 545's contrary-to-law provision should be limited to statutory violations, as opposed to inquiring whether contrary to law may objectively be read to include only statutory violations. See Reply at 11-12. The Defendants also note that the Mitchell dissent, [2]which the Defendants assert accords with Ninth and Tenth Circuit precedent, suggests that the cases on which the majority relied constitute further evidence of contrary-to-law's phrasal ambiguity, because the cited precedent does not provide “definitive guidance in the choice between ‘contrary to law' on the one hand and ‘law and regulations' on the other.” Reply at 12 (quoting Mitchell, 39 F.3d at 478 (Murnaghan, J., dissenting).

         The Defendants next argue that 19 C.F.R. § 134.43's surrounding statutory and regulatory framework create an “exclusively civil remedial scheme, ” composed of statutes and regulations including 19 U.S.C. § 1484, Customs Form 4647, 19 C.F.R. § 134.51-134, and 18 U.S.C. § 1001. Reply at 15-19. The Defendants argue that they could not have had fair warning that their conduct could lead to criminal prosecution, where 19 U.S.C. § 66, 19 U.S.C. § 1304, and 19 C.F.R. Part 134 prescribe exclusively civil remedies for their conduct. See Reply at 20. The Defendants also note that the United States cites no authority in support of its proposition that Congress intended for 18 U.S.C. § 545, 19 U.S.C. § 1304, and 19 C.F.R. § 134.43 to complement each other. See Reply at 21.

         LAW REGARDING CONSTRUCTION OF FEDERAL CRIMINAL STATUTES

         “The Supreme Court has long recognized a ‘presumption' grounded in our common law tradition that a mens rea requirement attaches to ‘each of the statutory elements that criminalize otherwise innocent conduct.'” United States v. Games-Perez, 695 F.3d 1104, 1119 (10th Cir. 2012)(quoting United States v. X-Citement Video, Inc., 513 U.S. 64, 72 (1994), and citing Staples v. United States, 511 U.S. 600, 610-12 (1994); United States v. U.S. Gypsum Co., 438 U.S. 422, 437-38 (1978); Morissette v. United States, 342 U.S. 246, 250-53 (1952)). “To be sure, a longstanding precept of criminal law is that, except in the case of ‘public welfare' or ‘regulatory' offenses, criminal statutory provisions should not be read to impose strict liability and should instead be construed as carrying a mens rea element when they are silent.” United States v. Ray, 704 F.3d 1307, 1312 (10th Cir. 2013)(quoting Staples v. United States, 511 U.S. at 605-06). Observance of this principle helps to avoid “criminaliz[ing] a broad range of apparently innocent conduct.” Staples v. United States, 511 U.S. at 610. See United States v. Apollo Energies, Inc., 611 F.3d 679, 685-86 (10th Cir. 2010)(“The Court in Staples held that strict liability crimes ‘generally are disfavored,' and suggested some indicia of congressional intent, ‘express or implied,' is necessary before courts can dispense with the traditional mens rea requirement.” (quoting Staples v. United States, 511 U.S. at 606)). The Tenth Circuit follows “a common-law presumption against penalizing defendants who have ‘knowledge only of traditionally lawful conduct.'” United States v. Saavedra, 523 F.3d 1287, 1289 (10th Cir. 2008)(quoting Staples v. United States, 511 U.S. at 617). “When interpreting a criminal statute, ‘it must be strictly construed, and any ambiguity must be resolved in favor of lenity.'” United States v. Garcia, 939 F.Supp.2d 1216, 1227 (D.N.M. 2013)(Browning, J.)(quoting Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393, 408 (2003)). See United States v. Peshlakai, 618 F.Supp.2d 1295, 1320 (D.N.M. 2007)(Browning J.)(“[T]he rule of lenity suggests that the Court employ the more narrow interpretation.”)(citing United States v. Timbers, 232 Fed.Appx. 820, 823 (10th Cir. 2007)(unpublished)[3](“It is true, when there are two rational readings of the law, one harsher than the other, the courts are to choose the harsher only when Congress has made its intentions clear.”)). The rule of lenity's application, however, “‘is limited to cases where, after reviewing all available relevant materials, the court is still left with an ambiguous statute.'” United States v. Fillman, 162 F.3d 1055, 1058 (10th Cir. 1998)(quoting United States v. Wilson, 10 F.3d 734, 736 (10th Cir. 1993)).

         “[D]etermining the mental state required for commission of a federal crime requires ‘construction of the statute and . . . inference of the intent of Congress.'” Staples v. United States, 511 U.S. at 605 (citation omitted). The Supreme Court has stated that, normally, “a phrase in a criminal statute that introduces the elements of a crime with the word ‘knowingly'” applies “to each element” in the statute. Flores-Figueroa v. United States, 556 U.S. 646, 652 (2009)(quoting United States v. X-Citement Video, Inc., 513 U.S. at 79). For example, in Liparota v. United States, 471 U.S. 419 (1985), the Supreme Court construed a federal food stamp statute that said “whoever knowingly uses, transfers, acquires, alters, or possesses coupons or authorization cards in any manner not authorized by [law]” is subject to imprisonment, to criminalize only a person who both knowingly “uses, transfers, acquires, alters, or possesses, ” and knowingly does so “in any manner not authorized by [law].” 471 U.S. at 423. The Supreme Court construed the statute in this manner, notwithstanding the general premise that “ignorance of the law is no excuse.” Flores-Figueroa v. United States, 556 U.S. at 652 (citing Liparota v. United States, 471 U.S. at 433). The Supreme Court explained that to not require a person's knowledge that the law does not authorize his or her use, transfer, acquisition, alteration, or possession would criminalize a wide swath of innocent conduct, including, for example, imposing criminal liability upon a person for that person's inadvertent receipt of food stamps through administrative error. See Liparota v. United States, 471 U.S. at 426-27. The Supreme Court additionally explained that requiring a mens rea of illegality is consistent with its “longstanding recognition of the principle that ‘ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.'” Liparota v. United States, 471 U.S. at 427 (quoting Rewis v. United States, 401 U.S. 808, 812 (1971)).

         The Supreme Court has applied these principles to interpret 18 U.S.C. § 1028A, which criminalizes aggravated identity theft. See Flores-Figueroa v. United States, 556 U.S. at 647-48. The statute reads: “Whoever, during and in relation to any felony violation enumerated in subsection (c), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.” 18 U.S.C. § 1028A(a)(1). The Supreme Court interpreted 18 U.S.C. § 1028A to require the United States to prove that the defendant “knew that the ‘means of identification' he or she unlawfully transferred, possessed, or used, in fact, belonged to ‘another person.'” Flores-Figueroa v. United States, 556 U.S. at 647 (emphasis in original)(quoting 18 U.S.C. § 1028A(a)(1)). The Supreme Court reasoned that, “[a]s a matter of ordinary English grammar, it seems natural to read the statute's word ‘knowingly' as applying to all the subsequently listed elements of the crime.” 556 U.S. at 650 (quoting 18 U.S.C. § 1028A(a)(1)). Although the United States contended that the statute did not require it to prove that the defendant knew that the identification he possessed belonged to another person, the Supreme Court explained that

the Government has not provided us with a single example of a sentence that, when used in typical fashion, would lead the hearer to believe that the word “knowingly” modifies only a transitive verb without the full object, i.e., that it leaves the hearer gravely uncertain about the subject's state of mind in respect to the full object of the transitive verb in the sentence.

Flores-Figueroa v. United States, 556 U.S. at 651-52 (quoting 18 U.S.C. § 1028A(a)(1)). The Supreme Court noted that its interpretation of 18 U.S.C. § 1028A(a)(1) would create practical enforcement problems, because proving a defendant's knowledge that a means of identification belongs to another person is more difficult than proving a defendant's knowledge of possession without lawful authority. See Flores-Figueroa v. United States, 556 U.S. at 655-56. The Supreme Court stated, however, that, “had Congress placed conclusive weight upon practical enforcement, the statute would likely not read the way it now reads.” 556 U.S. at 656-57. The Supreme Court, thus, held that the United States must prove that the defendant had knowledge that “the means of identification at issue belonged to another person” to convict under 18 U.S.C. § 1028A(a)(1). Flores-Figueroa v. United States, 556 U.S. at 657.

         Similarly, in United States v. X-Citement Video, Inc., the Supreme Court interpreted 18 U.S.C. § 2252 to require a defendant's knowledge of the subparts of the statute, which criminalizes certain activities relating to material involving the sexual exploitation of minors and reads:

(a) Any person who --
(1) knowingly transports or ships using any means or facility of interstate or foreign commerce or in or affecting interstate or foreign commerce by any means including by computer ...

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