AAEI Files Brief with Supreme Court to Overturn the Expansion of Corporate Officer Liability in Trek Leather Decision

On March 16, 2015, The American Association for Exporter and Importers (AAEI) filed an amicus brief arguing that the Supreme Court should hear and overturn the Court of Appeals decision to hold the President and sole shareholder of Trek Leather, Harish Shadadpuri, liable for Trek’s negligent omission on entry documentation.  By holding Shadapuri liable, the court subjects shareholders, executives, and compliance officers to penalties for their organizations’ negligence in filing customs entries.

Trek Leather, who is listed as the Importer of Record, provided its foreign manufacturers with fabric either free of charge or at a reduced cost to produce its suits.  When Trek imported the suits, they failed to include the fabric as an “assist” in determining the total dutiable transaction value.  By failing to include the assist’s value, Trek understated the dutiable value to CBP.  The court found Shadadpuri personally liable for violating §1592(a)(1)(A) under the theory that he negligently “introduced” the imported goods into U.S. commerce by means of false statements.  The court determined that Shadadpuri satisfied the definition of “introduced” under §1592(a)(1)(A) because he “sent manufactures’ invoices to the customs broker for broker’s use in completing entry filings to secure release from CBP.”  

According to the brief, AAEI argues that the court distorts the scope of liability intended by Congress in §1592(a) by expanding the definition of “introduce” to encompass all activities that necessarily “bring goods to the threshold of the process of entry.”  AAEI argues that by expanding the scope of liability, every negligent entry will always be accompanied by a negligent introduction by an importer’s employee or agent.  AAEI’s concern is that the Trek Leather case now subjects thousands of corporate importers’ employees to personal liability for making routine entries on behalf of their employer.

Furthermore, AAEI argues that the court misinterpreted the term “introduction” to include Shadadpuri’s negligent submission of invoices.  The submission of documents to a customs broker for the purpose of valuation is not the actual “introduction” of merchandise, but is rather related to the entry process.  The brief states that applying the term “introduction” to negligent submissions of entry documents eliminates the need for §1592(a)(1)(B) in which the court can apply personal liability to natural persons for fraudulently aiding and abetting in entry or introduction of merchandise with the knowledge and intent to further fraudulent conduct.  AAEI is concerned that removing the requirement for the court to find fraudulent intent before a natural person can be held personally liable relaxes the government’s burden of proof.  The brief explained that this will allow the government to pick and choose amongst any of an importer’s employers who took part preparing documentation or handling imported merchandise without those employees having requisite knowledge of the wrong doing. 

AAEI ultimately is concerned that the appellate opinion in Trek Leather puts an undue burden on importers which could ultimately result in their employees either requiring additional compensation or seeking jobs with lower associated risk of personal liability.  Due to this undue burden, importers may elect to let foreign suppliers act as non-resident importers of record and CBP could no longer enforce the penalties because those importers of record would be outside of Federal jurisdiction.  The brief states that either of these outcomes would be against the United States’ best interest.

Aaron Ambrite, Extern, Global Trade Expertise