CIT Refuses to Impose Negligence Penalty for Misclassification, Says Broker May Have Been Responsible
The Court of International Trade on July 24 denied a request from the government to impose penalties on an importer for negligently misclassifying entries of plywood (here). The government had asked the court to forego a trial and order the importer to pay $324,540 for declaring its plywood duty-free. However, the importer’s use of a customs broker raises questions as to who actually bore responsibility for the violation, and those questions must be decided at trial, said CIT.
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The misclassification had cost the government $120,254 in unpaid duties. Horizon did not dispute that it owed unpaid duties in the amount of $70,254, after its surety had picked up the tab for another $50,000. CIT ordered Horizon to pay the reduced amount, as well as prejudgment interest dating from CBP’s final demand for payment in December 2012.
However, Horizon argued that it should not be held liable for failure to exercise reasonable care, because it used a customs broker to file the misclassified entries “using the best possible tariff classification” to Horizon’s co-owner’s knowledge. Although the government pointed to communications between Horizon and its broker that appeared to show Horizon told its broker to use an incorrect classification on at least some of the entries, CIT said it could not infer that the responsibility for the mistake rested completely on the shoulders of the importer. “Customs brokers, after all, have statutory and regulatory responsibilities to classify merchandise correctly,” it said.
The court also refused to affirm the government’s requested penalty amount of $324,540, which is twice the $162,270 in total duties (including potential revenue loss) that Horizon should have paid on entry. CIT said it would consider at trial whether to mitigate the penalty, given indications that it would bankrupt Horizon and force it to go out of business.
(United States v. Horizon Prods. Int'l, Inc., Slip Op. 15-80, CIT # 14-00104, dated 07/24/15, Judge Gordon)
(Attorneys: Daniel Volk for plaintiff U.S. government; Peter Herrick for defendant Horizon Products International Inc.)