A Hard Lesson Learned: What Capella v. United States Teaches Us

On January 4th, 2018, the United States Court of Appeals for the Federal Circuit reaffirmed the decision of the United States Court of International Trade in regard to Capella Sales & Services LTD v. United States, Aluminum Extrusions Fair Trade Committee. In its affirmation, the court decision highlighted the importance of importers staying current with countervailing duty (CVD) legislation and Timken notices.

Background: The United States Department of Commerce is empowered to impose CVD’s on imported goods when they find a country is directly or indirectly subsidizing a given good. Under this authority, a 2010 investigation by the Department of Commerce found the People’s Republic of China (PRC) guilty of said subsidies for aluminum extrusions and assessed an all-others rate CVD of 374.15%. Numerous aluminum importers challenged this CVD in the Court of International Trade (“CIT”) in MacLean-Fogg Co. v. United States. The CIT ruled in favor of the importers, which resulted in a new all-others rate of 7.37% for imports of aluminum extrusions from the PRC. However, Capella was not a party to this legislation.

Following the CIT’s decision, the Department of Commerce issued a Timken notice notifying the public that the court’s decision differed from its original final determination. As a result of this notice, some importers requested and received an administrative review of 2011 and 2012 entries subject to Commerce’s original determination. However, Capella never requested administrative review for its entries.

Considering that Capella’s entries were not enjoined by the court due to legislation and they did not request an administrative view within the appropriate period, Capella was charged the original CVD of 374.15%. This case was the final failure in their attempt to avoid payment.

The Court of Appeals reaffirmation of the Capella decision upholds the status quo in regard to CVD’s. Importers must stay up to date on current legislation. If they do not join legislation, they must file for an administrative review within the proper time period. Simply attempting to benefit retroactively without said actions will not fly, as Capella roughly discovered. Importers have plenty of time to join legislation and request administrative reviews. They should be considered with the utmost priority as they can often result in significant savings.

Supreme Court Denies to Hear Trek Leather Case

On May 26, 2015, the Supreme Court denied a petition to hear an appeal of Trek Leather, firmly establishing the lower court’s decision to hold corporate officers and employees of companies listed as the importer of record liable for customs violations.  The denial comes amidst a long list of other cases denied without explanation or comments.  The Supreme Court’s denial effectively lets stand the U.S. Court of Appeals decision finding that Harish Shadadpuri is personally liable for the corporation’s failure to declare assists on entry documentation. 

Although Shadadpuri was not listed as the importer of record, the U.S. Court of Appeals found him personally liable because he introduced goods into the United States by providing invoices that did not report assists provided to the manufacturer.  The court found that the transmission of the inaccurate invoices to the customs broker amounted to the “introduction” of the merchandise into United States commerce under 19 USC 1592.  Shadadpuri argued that he could not be held personally liable for a corporate importer of record unless he was found to have personally “aided and abetted” the violation, but, ultimately, the court sided with the government.

The decision has garnered significant criticism from importers and their representing bodies as the judgment is expected to dramatically expand the scope of liability for corporate executives, compliance officers, and other employees involved in daily import transactions or transmissions.  One such representing body, the American Association of Exporters and Importers (AAEI), filed a brief in support of Shadadpuri stating that the court’s decision has effectively lowered the government’s burden of proof for finding a natural person liable for customs violations by eliminating the requirement for the court to prove fraudulent intent. Further, AAEI feels that the term “introduce” has been wrongly reinterpreted to include “all activities to bring goods to the threshold of the process of entry,” so that, in effect, “every negligent entry by a corporate importer of record will always be accompanied by a negligent introduction.”  AAEI is concerned that this court decision will increase the trade industry’s risk and cost of doing business due to subjecting import compliance managers to massive penalties.  Some employees may not wish to work in jobs associated with higher personal risk of liability, or employees might seek additional compensation for their duties.  Further, AAEI suggested that some importers might choose to allow foreign suppliers to act as non-resident importers of record in order to have import transactions handled outside the reach of US jurisdiction.

Importers anxiously awaiting a Supreme Court hearing on Trek Leather are likely to be disappointed by the denial as the decision will have definite repercussions for the trade community.  Importers will surely continue to watch other cases to determine how far the court will take the Trek Leather case in applying it to other importers.   

Aaron Ambrite, Extern, Global Trade Expertise

Importer Faces $17 Million Fraud Penalty For Misclassifying Tires

According to a complaint filed in the United States Court of International Trade on March 9, 2015, an importer faces nearly $17 million in penalties for fraudulently misclassifying Chinese tires under duty free tariff subheadings. The importer’s false statements are considered material by CBP as they resulted in a loss of revenue over $400,000.

According to the complaint, importer, China Tire Warehouse of San Dimas, CA, requested their Customs Broker, Ultimate Customs Brokers, to reclassify their imported “new tires” as “used tires” to avoid duties.  New tires impose a duty of 4%, while used tires are duty free.  When Ultimate Customs Brokers refused to reclassify the tires, China Tire retained Phoenix International to file their entries.  Phoenix filed all entries under the duty free subheading, “used tires.”  

CBP requested information from China Tire regarding the used tire entries.  China Tire declared that the tires were new and were properly classified with a 4% duty.  Despite having confirmed that the tires were new, China Tire immediately began entering the same merchandise under a different duty-free subheading. Phoenix International informed CBP that China Tire directed the classification to use for the subject entries. CBP determined from China Tire’s website and sales literature that China Tire did not sell tires as described in its misclassified entries. 

The United States seeks $16,888,211.73 in penalties for fraud, which represents the domestic value of the merchandise imported. If fraud is not found, the United States seeks four times the lost revenue or $1,616,331.80 for gross negligence. If fraud and gross negligence are unfounded, the government seeks damages totaling two times the lost revenue or $808,165.90 for negligence.

Aaron Ambrite, Extern, Global Trade Expertise

All Duty Drawback Claims Filed Prior to December 2004 Deemed Liquidated by CIT

On January 13, 2015, the Court of International Trade ruled that all duty drawback claims filed prior to December 3, 2004 are to be deemed liquidated at the amount declared by the claimant at the time of the claim.  The CIT, finding in favor of the Ford Motor Company, deemed the claims liquidated pursuant to 19 U.S.C. § 1504(a)(2), which was enacted by Congress in 2004 as part of the Miscellaneous Trade and Technical Corrections Act.  

As stated by the CIT, due to the growing number of aging duty drawback claims, 19 U.S.C. § 1504(a)(2) was enacted in an effort to “both put in place a one-time mechanism for the swift resolution of the then-existing (i.e., pre-December 3, 2004, or pre-enactment) drawback claims and, in addition, establish a framework for the liquidation of all future (i.e., post-enactment) drawback claims.”  Subsection (A) of 19 U.S.C. § 1504(a)(2) establishes the general rule that all duty drawback entries that are not liquidated within one year of its filing are to be deemed liquidated at the amount asserted by the claim.  Subsection (B) offers an exception to subsection (A) that gives the claimant the option to have their drawback claims deemed liquidated, even if the underlying import entries are not yet final.  To have the claim deemed liquidated under subsection (B), the claimant must deposit the estimated duties on the unliquidated merchandise, file a written request for liquidation of the drawback, and file a waiver to the right to refund under the law.  Subsection (C) offers a second exception to Subsection A that applies to all drawbacks filed prior to December 3, 2004.  According to 19 U.S.C. § 1504(a)(2)(c) “An entry or claim for drawback filed before December 3, 2004, the liquidation of which is not final as of December 3, 2004, shall be deemed liquidated on the date that is 1 year after December 3, 2004 [i.e., on December 3, 2005], at the drawback amount asserted by the claimant at the time of the entry or claim.” 

Ford had filed 17 drawback claims prior to December 3, 2004 and obtained accelerated payment, in which Customs paid the estimated drawback amount prior to liquidation.  Although Ford was under the impression that these drawback claims were liquidated under 19 U.S.C. § 1504(a)(2)(c) on December 3, 2005 and finalized, Customs began to approach Ford for refunds where they had determined overpayments were made.  Customs argued that because some of the underlying import entries were not final on the 17 drawback claims by December 3, 2005, subsection (B) should apply.  According to Customs, the drawback claims were not liquidated because Ford had not provided the written request for liquidation and did not provide the waiver to right of a refund required by subsection (B).

The CIT, however, sided with Ford, ruling that 19 U.S.C. § 1504(a)(2)(c) should apply to the 17 drawback claims.  The court determined that the language of subsection (C) is clear, and should apply to all drawback claims made prior to December 3, 2004.  The court concluded that there is no language in 19 U.S.C. § 1504(a)(2) that would limit the application of subsection (C) to only claims that were finalized, and that subsection (B) is to be applied as an exception for drawbacks filed after December 3, 2004. 

(Ford Motor Company v. U.S., Slip Op. 15-02, CIT # 09.00375, dated 01/13/15, Judge Ridgway)

Aaron Ambrite, Extern, Global Trade Expertise, January 16, 2015