US Case Seeking to Collect 14-Year-Old Bond Barred Under Doctrine of Surety Impairment, Surety Argues
The U.S.'s case looking to collect on a bond due 14 years ago is prohibited under the doctrine of impairment of suretyship, surety Aegis Security Insurance Company argued in a reply brief at the Court of International Trade. Since CBP "unreasonably delayed" in looking to collect on a bond that liquidated in 2006, interest liability was created "that was entirely unnecessary, and impaired Defendant's rights against third parties." CBP's action barred any possible recourse against the main obligor and its reinsurer, so by the time Aegis was billed, "the importer was nowhere to be found," necessitating a finding of impairment of suretyship, the brief said (United States v. Aegis Security Insurance Co., CIT #20-03628).
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DOJ filed the case at the CIT to collect on 10 entries subject to antidumping duties on garlic from China that liquidated in 2006. However, CBP did not bill Aegis until 2014, despite what the surety argues is the six-year statute of limitations set by 28 USC 2415(a). CBP argues the six-year period runs from CBP’s demand for payment from a surety, but Aegis says this upends the surety industry’s understanding that it runs from the date of liquidation, and effectively removes any finality as to when CBP can collect on a customs bond (see 2109210086).
The U.S. argued that it timely commenced the action seeking the duties (see 2202280061). As established by the U.S. Court of Appeals for the Federal Circuit, the date of accrual runs from when a bond is breached. This leaves the question: When was the bond breached? In this case, a condition of the bond said that the principal and surety agree to pay "as demanded by CBP," DOJ said. The U.S. argued that this means the bond was not breached until CBP demanded payment and Aegis failed to pay the duties.
In its reply, Aegis argued that nothing in Section 1505(b) changes the fact that the U.S.'s cause of action runs from the date of liquidation. This law tells CBP to collect any "increased or additional duties" and fees due "as determined on a liquidation or reliquidation." Aegis said that by definition, entries deemed liquidated do not have increased or additional duties that are determined via liquidation, but that the "very nature of deemed liquidation" accepts the duties asserted by the importer at the time of entry.
Also, CBP is not required to send a bill of the deemed liquidation. "If a demand for payment were a prerequisite to the accrual of the United States’ cause of action, Congress would not have made it optional for Customs to send a bill," the brief said. "These provisions make clear that deemed liquidations do not fall within the collection parameters of Section 1505(b). Accordingly, entries that are deemed liquidated are not subject to demand by Customs, and any demand by Customs has no effect on the accrual of the statute of limitations."