CAFC Remands Lawsuit, Says Surety Claim Accrued After Protest Period Expired

CBP Sought Payment from Surety for AD Duties on Crawfish Imports from China

During the summer of 2003, Sunline Business Solutions Corporation imported eight entries of frozen cooked crawfish from China (referred to as the Hubei entries). Sunline procured its required eight single entry bonds for the Hubei entries from Hartford.

At the time of entry, the Hubei entries were subject to an existing antidumping (AD) order (A-570-848-036) that, following an administrative review, were liquidated at a higher AD duty rate, with additional AD duties due. By June 22, 2005, Sunline had not made a payment for these additional duties, so CBP sought to obtain payment from Hartford.

Surety Learned Importer had been Arrested for Use of False Invoices

In May 2005, Hartford's counsel learned from an individual connected with a customs brokerage firm that personnel from Sunline had been arrested for using false invoices. In June 2005, Hartford undertook an investigation into the matter. Based on the filed criminal case, Hartford believed it learned of potential grounds upon which it could deny liability regarding CBP's demand for payment.

CBP Knew of Criminal Investigation Before Surety Had Issued Bonds to Importer

Within the filed criminal case was a letter to U.S. Customs and Border Protection dated June 19, 2003 (more than a month before Hartford began issuing surety bonds to Sunline for the Hubei entries), in which a Shanghai company alleged that illegal importations of crawfish tailmeat from China were occurring. After receipt of this letter, CBP began an investigation.

Hartford Claimed CBP's Failure to Disclose Criminal Info Made its Bonds Voidable

Hartford argued that the failure of CBP to disclose its crawfish tailmeat investigation to Hartford prior to its issuance of the Sunline surety bonds constituted a material misrepresentation by CBP, thus making the bonds voidable at Hartford’s election.

Pursuant to 19 USC 1514, Hartford had 90 days in which to file an administrative protest with CBP from the mailing date of CBP’s notice of demand for payment against its bonds, which Hartford did not do. Instead, on February 7, 2007, Hartford filed suit under 28 USC 1581(i) in the CIT, seeking to have its surety bonds with Sunline voidable at Hartford’s option because of the information it discovered after investigating the filed criminal case. Hartford argued that because it did not learn of the basis for its cause of action until after the protest period expired, it was not possible for it to bring an administrative protest.

CIT Barred Lawsuit, Said Hartford Should've Known of Claim When Filing Protest

The CIT disagreed with Hartford and held that Hartford could and should have reasonably known of the existence of its present claims against CBP in May 2005, when it first heard about the criminal case involving Sunline personnel. Additionally, because Hartford’s claims were within the scope of protestable claims under 19 USC 1514(c)(3), a law suit pursuant to subsection 1581(i) was unavailable. Hartford timely appealed.

CAFC Says Claims Can Sometimes Accrue After Protest Period Expires

The CAFC explained that a claim accrues when the aggrieved party “reasonably should have known” of the existence of a claim. In the unusual situation where a claim does not accrue until after the protest period has expired, CAFC has found that no administrative protest procedure exists.

Furthermore, the CAFC stated that because a surety must have some grounds for objecting to the government's demand, it cannot simply file a placeholder protest while it searches for a protestable basis.

Such Was the Case with Hartford, Potential Protest Ground Couldn't be Anticipated

The CAFC stated that the CIT's conclusion fails to fully appreciate the circuitous route involved before Hartford was able to discover its alleged causes of action. First, Hartford only indirectly learned of the criminal matter from a third party. Second, Hartford’s surety bonds did not cover the same shipments as those being investigated in the criminal case, so it would be unlikely for Hartford to be following that action.

Additionally, the criminal case was brought against two individuals who worked for Sunline and not against the company itself, which was never named as a party to the criminal case. Therefore, even if Hartford had established some sort of internet or court monitoring system to check for CBP suits against potential customers such as Sunline, the criminal suit would likely still have gone unnoticed.

Even if Hartford might have suspected something was going on with Sunline based on the criminal case, that does not necessarily mean that Hartford would have reason to suspect that a potential protest ground for its unrelated bond demand would exist amongst the publicly available documents filed in the criminal case.

Therefore, the CAFC reversed the CIT's judgment and remanded the case to the CIT for further proceedings consistent with the CAFC's opinion.

¹Hartford Fire Insurance Company v. U.S. This case also includes a desist by one judge.

(See ITT's Online Archives or 12/28/09 news, 09122860, for BP summary of the CIT's decision that Hartford was fully liable for the AD duties on the crawfish entries.)

(Appeal Number 2011-1198, dated 08/11/11)