CAFC to Revisit Issue of Corporate Officer Liability for Negligent Import Docs
The full U.S. Court of Appeals for the Federal Circuit will take another look at whether corporate officers are liable for negligent misstatements on entry documentation, granting on March 5 the government’s request for a rehearing en banc on the issue. The Appeals Court will revisit its decision in Trek Leather, where it found Harish Shadadpuri was not liable for his company’s undervaluation of entries of men’s suits (see 13073025).
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By the time the Trek Leather case came about, one company run by Shadadpuri had already been found guilty of undervaluation. CBP hadn’t sought penalties directly from Shadadpuri at that time, collecting unpaid duties only from the company. But when another company owned by Shadadpuri called Trek Leather was suspected of undervaluation, the government decided to go after Shadadpuri as well as his company. Both times the undervaluation issues resulted from the failure to declare assists. In Trek Leather’s case, the company didn’t declare as an assist some fabric it had provided to the manufacturer to make men’s suits. The omission resulted in underpayment of customs duties by $45,245.39.
CIT in 2011 found both Trek Leather and Shadadpuri guilty, finding them jointly liable for the unpaid duties as well as a penalty of over $500,000 (see 13073025). But CAFC reversed the trade court in July 2013, finding corporate officers may be held liable for their companies’ fraudulent misstatements on entry documentation, but not negligent misstatements.
The government says the decision would open a major loophole for dishonest importers. “En banc review is warranted because the Panel’s error will likely have exceptionally far-reaching consequences, including encouraging widespread evasion of the customs laws,” said the government in its request for the rehearing. “The Panel’s decision provides a roadmap for importers to negligently violate the customs laws; one individual can transact the same importing business using multiple shell companies as importers of record, allowing evasion of personal liability for duties and penalties in all but the most egregious situations.”
Judge Timothy Dyk had dissented from the original CAFC opinion that reversed the lower court. And it appears some other judges must have found some merit in the government’s protestations as well. The court on March 5 decided to reopen the case to further argument over the issue. Specifically, the court will consider (i) who or what is a “person” that can be liable for negligence under Section 592 of the Tariff Act; (ii) whether corporate officers or shareholders qualify as “persons” that can be held personally liable, and under what circumstances; and (iii) what duty must importers fulfill to avoid negligence. The full 11-judge court will then decide. Briefing on the issue will take place over the next 60 days.
(U.S. v. Trek Leather, CAFC No. 2011-1527, dated 03/05/14)