Minnesota Court Allows Importer's Fraud Claims Against Sourcing Agent
The Minnesota U.S. District Court on July 9 let an importer’s lawsuit against a sourcing agent to proceed, dismissing its breach of contract claim because it was filed too late but allowing claims related to fraudulent misrepresentation. Liberty Diversified International imported and sold hand trucks from China under its Safco trade name. When the hand trucks became subject to antidumping duties of over 300 percent, it asked its Hong Kong-based sourcing agent, Denson International, to shift production to a factory with a lower rate. But Liberty says it later found out Denson lied about where it was getting the hand trucks, costing it nearly $2 million in duties and customs penalties.
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The charges were filed as a counterclaim to a lawsuit brought by Denson against Liberty in 2012. Denson says Liberty misappropriated its trade secrets by secretly obtaining information from a high-ranking Denson employee related to Denson’s arrangements with Chinese factories to manufacture for export. The Hong Kong company alleges Liberty used that information to cut out Denson as the sourcing agent and get its product straight from the factory.
In its counterclaim, Liberty says Denson arranged for a Chinese company to make hand trucks for export to Liberty. That company became subject to a 383.6% AD duty rate when an order on hand trucks from China was issued in 2004, so Liberty asked Denson to find another manufacturer. Denson told Liberty it was switching to a producer named Taifa that had a much lower duty rate of 26.59%, and provided invoices to Liberty saying the product was made by Taifa. Liberty paid the lower duty rate for four years. But in 2008, after hitting a snag with CBP, Liberty asked Denson where the hand trucks came from and was told they were not from Taifa at all. Instead, they came from a different company also subject to the 383.6% rate. After an investigation, CBP held Liberty liable for $709,360.21 in AD duties, as well as a penalty of $1,252,045 for its noncompliance. Denson sued for fraudulent misrepresentation, fraudulent omission, and breach of contract.
In his July 9 ruling, District Judge David Doty dismissed the breach of contract claim, finding it was beyond the statute of limitations. Under the Minnesota Uniform Commercial Code, breach of contract claims have to be filed four years after the event at issue, in this case the last sale of hand trucks in 2008. Even though Liberty didn’t find out about the breach until later, its 2013 lawsuit came more than four years after the breach actually occurred. But despite moves to dismiss Liberty’s other claims, the District Judge allowed them to stand, although he didn’t rule on them either way.
(Denson International Limited v. Liberty Diversified International, D. Minn. 12-3109, dated 07/17/14, Judge Doty)
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