The Case of Trek Leather, Inc. (decided September 16, 2014)
If you’ve ever heard the phrase, “it’s just business, nothing personal,” it’s time you learned that when it comes to U.S. Customs and Border Protection (Customs), things can get real personal. In other words, Customs can exact what they owe from you, the importer, personally, forget the business. Furthermore, according to a recent decision of the Court of Appeals for the Federal Circuit’s (CAFC), the “importer” is not necessarily the “importer of record.”
In the Trek Leather case, decided by the CAFC on September 16 of this year, the ruling essentially turned on the proper interpretation of 19 U.S.C. 1592(a)(1), which reads as follows:
1. Without regard to whether the United States is, or may be, deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence—
- May enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of—
- Any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or
- Any omission which is material, or
- May aid or abet any other person to violate subparagraph (A)
The case was originally initiated by Customs in the Court of International Trade against Trek Leather, Inc. and its President and sole shareholder, Mr. Harish Shadadpuri, after its penalty action against Mr. Shadadpuri was not paid in full. The claim alleged that Mr. Shadadpuri had undervalued his merchandise, (men’s suits), by leaving out fabric assists (subsidized components), consequentially paying less in duties. Citing 1592 (a), the Court of International Trade found against Trek Leather, Inc. , and Mr. Shadadpuri, finding both guilty of gross negligence and therefore liable for the duties owed and penalties assessed.
Mr. Shadapuri appealed to the Court of Appeals for the Federal Circuit, alleging that section 1592(a)(1) applies only to importers of record. The CAFC reversed the Court of International Trade’s decision, however, Customs wasn’t finished with Mr. Shadapuri just yet. The government requested a rehearing, which concluded with the Court vacating its prior decision and granting an en banc rehearing (in other words, before all the judges assigned to the court). At the rehearing, the CAFC found Mr. Shadapuri liable under section 1592(a)(1).
Here is what CAFC had to say about Customs getting personal. First, a “person” under 1592(a)(1) has an expansive definition, and is not necessarily the importer of record. Second, you do not need to complete every step of formal entry to “introduce” merchandise into U.S. commerce, relying on the Supreme Court holding in United States v. 25 Packages of Panama Hats. Thus, although Mr. Shadapuri was not the importer of record, and had not completed formal entry, he was still personally liable.
Another important aspect of the case is that, the CAFC noted that finding Mr. Shadapuri liable did not rest on “piercing of the corporate veil,” rather it pointed to “long standing agency law that an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal.” The CAFC further stated, “We do not hold Mr. Shadadpuri liable because of his prominent officer or owner status in a corporation …We hold him liable because he personally committed a violation.” In short, Mr. Shadapuri was held liable because he personally introduced the merchandise, even if it was on behalf of another.
In conclusion, the effects of this holding will be seen with time, but it can be understood that brokers, freight forwarders, importers, and anyone else who plays a role in importing merchandise should note the following three things:
- You don’t have to be the importer of record to be held liable under Customs law. If you facilitate the importation of an entry, and you have a duty of reasonable care, you can be held liable.
- You do not need to make complete formal entry of merchandise to have “introduced” merchandise.
- The corporate veil doesn’t protect employees who act as agents on behalf of the company. By personally introducing merchandise, you can be held liable and responsible for paying resulting penalties.
With this in mind, we hope that you will take the necessary steps to keep your relations with Customs from getting personal.