CIT Discovery Ruling Should Concern Corporate Officers, Compliance Personnel, Barnes Richardson Lawyer Says
A recent Court of International Trade ruling on a Justice Department request for discovery regarding the involvement of company executives "should send a shiver of concern up the spine of corporate officers and compliance personnel," Barnes Richardson lawyer Lawrence Friedman said. The lawsuit involves Greenlight Organic and allegations that the company illegally misclassified and undervalued merchandise. Within that litigation, the government sought information on the personal finances and the role of two corporate principals that "appear directed at determining whether those individuals were responsible for the alleged fraud or negligence," Friedman said on his blog.
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Greenlight argued that the personal financial information requests fall "outside the scope of appropriate discovery" because the corporate officers aren't named as defendants in the case, Friedman said. CIT ruled otherwise because "discovery rules are liberally interpreted to permit discovery on any matter that may bear on an issue that is or may be an issue in the case," Friedman said. The DOJ made clear that its purpose for seeking the financial information was "to assist it with determining whether to amend its complaint to include charges of individual liability against Greenlight’s officers," CIT said.
That finding is notable in that "the original complaint does not fix the scope of the claims that can be brought," Friedman said. But, a CIT penalty case isn't "an empty hook" on which the DOJ "can hang any theory of liability against the importer and the individuals involved," he said. The U.S. is seeking to "recover the penalty Customs already assessed in the administrative process" and "absent a perfected administrative claim against an individual or entity, there is no claim to assert in Court," he said.
Much can still happen within the litigation, but the decision is a "stark reminder of the importance of legal compliance both for corporate entities and for individuals," Friedman said. The precedent of the Trek Leather (see 14091703) decision shows "that Customs need not pierce the corporate veil to assert liability against individuals who were personally involved in making material false statements or omissions," he said. "Continue to document your compliance efforts and push back wherever you perceive potential non-compliance."