Ever wonder if a customs broker can kill two birds with one stone and seek indemnification from an importer client, while already appearing before the Court of International Trade in a penalties case? The answer is yes! This is the case even if the broker’s terms and conditions expressly provide that claims asserted against them related to their services will be handled in a specified court. On Sep. 29, CIT said it has jurisdiction to hear all cross-claims relating to the entries already under consideration in a trade case before it.
In the case at hand, CIT allowed a defendant to cross-claim against the other named defendant for indemnification in the same proceeding, even though the original contract between the two defendants contained a forum selection provision.
Majestic Mills was sued by Customs for nonpayment of duties and civil penalties after it falsely informed its broker, UPS Supply Chain Solutions, that it qualified for duty-free treatment under NAFTA. Customs named UPS and others as defendants, and all defendants settled except Majestic Mills. The trouble came when UPS filed a cross-claim in CIT against Majestic Mills for reimbursement of the duties and fees owed to Customs, breach of contract, fraud, and negligent misrepresentation.
Majestic Mills moved to dismiss the UPS cross-claim for lack of subject-matter jurisdiction because the contract between the two parties specifically laid out a provision that any causes of action arising from the contractual relationship would be limited to courts in Georgia.
What Majestic Mills didn’t anticipate was UPS claiming appropriate forum under 28 U.S.C. § 1583, which provides that CIT shall have exclusive jurisdiction over counterclaims, cross-claims, and third-party actions IF “(1) such claim or action involves the imported merchandise that is the subject matter [of the original civil action], or (2) such claim or action is to recover upon a bond or customs duties relating to such merchandise.”
CIT subsequently dismissed UPS’s breach of contract, fraud, and misrepresentation claims because those actions were time-barred, applying Georgia law. However, CIT granted proper forum for UPS’s reimbursement claim. The court reasoned that because the cross-claim only involved reimbursement for the duties it had to pay only for the imported merchandise that was the subject of the original suit, both elements of § 1583 were met.
Had UPS not been a party to the original suit, the forum selection provision of their contract with Majestic Mills would have ruled, but that was not the case.
This holding serves as a lesson to the trade community that CIT will construe § 1583 broadly in the interest of judicial expediency and justice. It also means that CIT does not give deference to the contract between the parties when it comes to its jurisdictional reach. Going forward, it would behoove traders and brokers to maintain open lines of communication and civility because actions brought by Customs in CIT could easily turn into actions against trade partners and intermediaries.
CIT just made it less expensive and more convenient for scorned brokers to go after importers by allowing a single court to hear all the issues, when the issues involve the merchandise originally in question and relate to recovering upon the bond or applicable customs duties.
United States v. UPS Supply Chain Sols., Inc., 16-00010, 2017 WL 4338376 (Ct. Int’l Trade Sept. 29, 2017).