Court Rules CBP Must Follow Regulations in Determining Broker's Exercise of Supervision

On August 11, 2009, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision in U.S. v. UPS Customhouse Brokerage, Inc., remanding the case to the U.S. Court of International Trade (CIT) for further proceedings. The case involved the Bureau of Customs and Border Protection's (Customs) action against UPS Customhouse Brokerage, Inc. (UPS). 

In 2000, Customs initiated eight penalty actions against UPS for misclassifying the goods on customs entry documents on behalf of its clients. The pre-penalty notices in all eight cases alleged that UPS failed to exercise responsible supervision and control required by 19 USC §1641 by repeatedly misclassifying parts under subheading HTSUS 8473.30.9000. 

In 2004, Customs brought suit against UPS in the CIT seeking the unpaid portion of the penalties totaling $75,000. The CIT ruled in favor of Customs and ordered payment of penalties. 

On appeal, CAFC affirmed CIT's holding that UPS misclassified certain parts under subheading HTSUS 8473.30.9000. 

On the issue of whether the broker exercised responsible supervision and control under 19 CFR §111.1, CAFC agreed with Customs that an agency has discretion in interpreting its own regulations, but pointed out that in this case, the Customs' interpretation of 19 CFR §111.1 was inconsistent with the regulation itself. The Court stated: 

Customs, of course, has discretion in how it weighs each of the factors listed in §111.1. Additionally, the regulation makes clear that Customs is free to consider other factors in addition to those listed. However, this discretion does not absolve Customs of its obligation under the regulation to consider at the least the ten listed factors.

As a result of Customs' failure to consider all ten factors listed in 19 CFR §111.1 in evaluating the exercise of reasonable supervision and control, the Court vacated that portion of the CIT's judgment and remanded the case for further proceedings.