CIT Says Customs Broker Can Cross-Sue Importer as Part of Government Penalty Case

Majestic Mills had used UPS as its broker on 272 entries of apparel. Relying on information provided by Majestic Mills, UPS had claimed NAFTA preferential tariff treatment for the entries, CIT said. After Majestic Mills attempted to file a prior disclosure on the incorrect claims, CBP demanded payment from UPS and Majestic Mills for unpaid duties and fees. UPS and two sureties involved in the case settled, leaving Majestic Mills as the only defendant in the government’s Section 1592 case.

In addition to the government’s penalty claims, UPS filed its own cross-claims against Majestic Mills, seeking reimbursement from the importer for the penalties and unpaid duties, and suing for breach of contract, fraud and negligent misrepresentation. It pointed to indemnification provisions in the broker terms and conditions that Majestic Mills accepted when it entered into business with UPS.

Majestic Mills cited jurisdiction provisions in those same terms and conditions in its motion to dismiss UPS’s cross-claims. It said a provision specifying Georgia federal and state courts as the venue for “any action related to the services provided” by UPS means that the trade court isn’t the right forum for the case. Majestic Mills also argued that UPS is not allowed to bring an indemnification suit as a cross-claim, because cross-claims at CIT are only allowed if they specifically address the “imported merchandise that is the subject matter of the case.”

CIT declined to dismiss the indemnification claim, finding the relevant law says CIT has “jurisdiction to render judgment upon any counterclaim” in a CIT case, regardless of the UPS terms and conditions. That’s for good reason, because it reduces costs by allowing a “single court to hear all facts and circumstances related to the cross-claim as well as the underlying action,” the court said. “If UPS had commenced its own lawsuit outside of the main pleadings, it would be required to do so under the terms of the forum selection clause” in Georgia, CIT said. “However, as a cross-claim emanating from a civil action launched by the United States naming both UPS and Majestic Mills as defendants, UPS has a right to bring its cross-claim against Majestic Mills and have that claim heard by this Court,” it said.

CIT also disagreed that UPS’s indemnification claim should be dismissed because it doesn’t “involve the imported merchandise,” as argued by Majestic Mills. “Given the related scope and remedies between the cross-claim and the underlying action, the court holds that UPS’s cross-claim ‘involves the imported merchandise’ and falls” under CIT jurisdiction, the trade court said. “A cross-claim that has the same entries as the underlying action and seeks relief from liability in the underlying action is properly before the court under the grant of authority within [28 USC] 1583(1).”

But though it allowed the broker’s indemnification case to proceed, CIT dismissed UPS’s claims related to breach of contract, fraud and negligent misrepresentation. Each is subject to Georgia law, and the Georgia statute of limitations for each has passed, CIT said. UPS argued that it did not find out about Majestic Mills’ alleged fraud until the government filed its penalty case, but CIT disagreed, finding CBP had demanded payment years prior and UPS had even previously threatened to sue Majestic Mills for any penalties and duties demanded by CBP. CIT ordered UPS and Majestic Mills to agree to a schedule by mid-October for resolving the remaining indemnification claim.

(U.S. v. UPS Supply Chain Solutions, Inc., Slip Op. 17-134, CIT # 16-00010, dated 09/29/17, Judge Gordon)

(Attorneys: Erin Murdock-Park for plaintiff U.S. government; Lars-Erik Hjelm of Akin Gump for defendants UPS Supply Chain Solutions and Great American Alliance Insurance Company; John Brew of Crowell & Moring for defendant 4174925 Canada Inc. (dba Majestic Mills); Randolph Ferguson of Sandler Travis for defendant American Service Insurance Company)