CBP Must Allow In-Person Hearing Before Issuing Section 1592 Penalties, CIT Says

CBP had sought the penalty for Tricots Liesse’s alleged failure to pay duties on entries of knit fabric it had initially entered under NAFTA but that were subsequently the subject of prior disclosures filed with CBP after discovering not all of the yarn used to produce the fabric was considered NAFTA-originating goods. In prior disclosures and offers in compromise, Tricots argued it owed merchandise processing fee on the entries, but that the textiles were still duty-free because they qualified for the NAFTA Tariff Preference Level program.

CBP had disagreed, holding that the entries did not fall under the TPL because of the agency’s policy that importers must submit Certificates of Eligibility by the time of liquidation to receive TPL benefits. That issue is currently being contested in a related (now combined) lawsuit filed in 2011 involving Tricots’ surety, Aegis. In the meantime, CBP filed another lawsuit in 2016 seeking $4,498,392.08 in penalties and $2,249,196.04 in unpaid duties from Tricots.

Under 19 USC 1592, CBP has to provide “a reasonable opportunity … to make representations, both oral and written, seeking remission or mitigation of the monetary penalty.” In the run-up to CBP’s final penalty determination, as negotiations between Tricot and the agency failed to resolve the dispute, Tricots’ lawyer twice requested an oral hearing. CBP declined, telling Tricots that the administrative penalty case against Tricots was on hold until the underlying issues were resolved in the court case involving Aegis.

That refusal prior to CBP’s issuance of its final penalty notice in 2014 means that CBP did not complete its administrative case and is barred from filing a lawsuit to enforce the penalties, CIT said. CBP “did not provide Tricots with the statutorily required opportunity to be heard. Accordingly, Customs failed to perfect its penalty claim and thus is barred from bringing it,” the court said.

CBP argued that phone calls between a Tricots representative and CBP during the settlement phase of the administrative case amounted to an oral hearing. On those calls, which lasted five to 10 minutes, that representative, not an attorney, had argued CBP should accept the importer’s offer in compromise.

But “this post Notice of Penalty telephone call was not conducted in the usual, more formal, manner in which Customs proceeds with penalty cases, and no officials from Customs’ Fines, Penalties & Forfeitures Office (the office generally charged with conducting any requested oral hearings during the pre-penalty and penalty phases of [Section] 1592 claims) participated in the telephone call,” CIT said. “The requirement that an oral opportunity be provided means a face-to-face meeting between representatives of the party charged with a violation and Customs,” the court said. “This is what exporters and importers have come to expect, and Customs has established procedures to fulfill its responsibilities.”

However, though it ruled in favor of Tricots on the penalty issue, CIT has held in the past that a Section 1592 claim for unpaid duties “may proceed even if the penalty portion of the action is dismissed due to Customs’ failure to exhaust its administrative remedies,” the court said. CIT stayed the government’s unpaid duties claims “until such time as the issues relating to the monetary penalty have been finally resolved.”

(U.S. v. Aegis Sec. Ins. Co., Slip Op. 18-29, CIT # 11-00388, dated 03/26/18, Judge Eaton)

(Attorneys: Chad Readler for plaintiff U.S. government; Frances Hadfield of Crowell & Moring for defendant Tricots Liesse 1983, Inc.)