Trek Leather Decision on Corporate Officer Liability Confirms 40 Years of Precedent, Says Government
The recent court decision in Trek Leather on corporate employee liability for customs violations does nothing to expand the coverage of customs penalties to employees of corporate importers of record, said the U.S. government in a brief filed April 15 opposing a Supreme Court hearing of the case. Despite consternation from the trade industry that a September 2014 decision of the Court of Appeals for the Federal Circuit will cause upheaval by subjecting import compliance professionals to “massive penalties” for negligent misstatements on entry documentation (see 1503170027), the controversial decision merely served to confirm over 40 years of Court of International Trade precedent and the plain language of 19 USC 1592, said the government’s brief.
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The government is opposing a request for a Supreme Court hearing filed in February by Harish Shadadpuri, the owner of Trek Leather (see 1502190022). A ruling from the full Federal Circuit in September found Shadadpuri liable for penalties under Section 592 for his company’s failure to declare assists on invoices provided to the company’s customs broker for filing as entry documentation (see 14091703). By subjecting a corporate importer of record’s employees to penalties for negligence, the ruling has made import compliance a “dangerous profession,” said the American Exporters and Importers in a brief filed in support of Shadadpuri’s petition (see 1503170027). “Every negligent entry by a corporate importer will always be accompanied by a negligent introduction by the importer’s employees or agents because a corporation can only act through natural persons,” said AAEI’s brief.
However, according to the government’s April 15 brief, the Federal Circuit’s ruling in Trek Leather was nothing new, and merely acted to restore the situation that existed before a panel of the same court had restricted corporate officer liability (see 13073025). Section 1592 imposes penalties for negligent or fraudulent customs violations committed by “any person,” said the government’s brief. If Congress had wished to restrict negligence penalties to importers of record, it could have done so by writing the law to punish violations committed by any “importer of record,” it said.
In Shadadpuri’s case, the Federal Circuit did not find him liable just because he was a corporate officer of Trek Leather, said the government’s brief. Shadadpuri had the “responsibility and obligation to examine all appropriate documents,” and was the only person at Trek Leather who had the knowledge to ensure the costs of assists were added to the value of the imported goods, it said. The court’s finding that Shadadpuri was negligent was based on his “deficient performance of his own responsibilities,” said the brief.
The holding that Shadadpuri could be held individually liable under Section 1592 is backed up by “more than 40 years” of CIT precedent, said the government brief. As recently as 2001, CIT found the owner of a t-shirt importer, Golden Ship Trading, liable for negligence for misstating the country of origin on entry documents (here). A Justice Department lawyer recently said the Trek Leather decision merely confirmed an interpretation long held by the Justice Department and CBP on who can be held liable for customs violations (see 1412010018).
Concern Among Import Compliance Community ‘Legitimate’
The government’s brief appears to confirm concerns of increased liability for import compliance managers, said John Peterson of Neville Peterson, who represents AAEI in the case. “If corporate Import Managers, Compliance Directors and others can be held liable for corporate negligence, simply by virtue of handling an entry document which contains inaccuracies, they will be subjected to extraordinary financial risks,” he said in response to the government’s brief. “The concern would appear to be legitimate. On page 9 of its brief, the Government sets out its position that Section 592’s prohibition is sufficiently broad to ensnare: ‘. . . an individual who, acting on behalf of a corporate importer of record, prepares or files an inaccurate customs form,’” he said, quoting the brief.
The activities that formed the basis of the charges against Shadadpuri are undertaken every day in import compliance departments, said Peterson. “As Shadadpuri is charged only with handling an invoice, we must assume that invoices or other commercial documents which relate to imports constitute a ‘customs form’ in the government’s view,” said Peterson. “This is an activity which corporate import managers and compliance personnel undertake every day,” he said. “The government’s sweeping view of individual liability should be worrying to everyone working in the trade community.” The Justice Department did not immediately respond to a request for comment.
Al Daniel, who is representing Shadadpuri, plans to file a reply brief to respond to the government’s brief opposing a Supreme Court hearing. The reply brief is due in 14 days, he said. After the reply brief is filed, it will be distributed to the Supreme Court along with the original petition for certiorari and the government’s brief in opposition, said Daniel, and will be added to a Conference List of cases to be considered by the court.
Email ITTNews@warren-news.com for a copy of the government’s brief.