CBP regulations provide that an importer must use “reasonable care” in entering and classifying merchandise. Although the question of what constitutes “reasonable care” is the subject of much debate, the recent case of United States v. Optrex America, Inc., Slip Op. 08-63 (CIT June 9, 2008) provides the trade community with guidance regarding what does not constitute reasonable care.
The factual history leading to the Optrex decision reveals that Optrex, a subsidiary of a Japanese company that manufactures flat-panel display screens, was confronted with difficult decisions regarding how to classify its imports of LCD panels. The Optrex court itself noted that “classification of LCD modules has been difficult over the years in light of rapid advances in LCD technology.” The Federal Circuit, however, in 1997 provided guidance concerning the classification of LCD glass panels when it decided the case of Sharp Microelectronic Tech., Inc. v. United States, which had the potential to impact the proper classification of Optrex’ similar goods. After the Federal Circuit issued the Sharp opinion, Optrex’ outside counsel advised the company to, among other things, seek a binding CBP ruling regarding the proper classification of Optrex’ products to conclusively determine whether the classification guidance contained in Sharp should control the proper classification of Optrex’ similar products. Optrex, however, did not request a binding classification ruling from CBP as suggested by its counsel.
When the government later brought suit against Optrex for negligently misclassifying its imports of LCD glass panels, the Court of International Trade found that Optrex’ failure to follow the advice of its counsel constituted a lack of reasonable care because it could “find no justification for Optrex’ failure to act in accordance with the well informed advice of its attorneys.” Importantly, the court considered that Optrex’ counsel’s concerns placed the company under an “affirmative duty” to actively respond, so as to ensure that its imports were properly classified under the law. Because Optrex “disregarded the advice of its attorneys,” the court found that the company demonstrated a lack of reasonable care and was thus negligent in classifying its products. The court ordered Optrex to pay over $900,000 in unpaid duties, and assessed a civil penalty of over one million dollars. The court considered Optrex’ disregard of its counsel’s advice to be an aggravating factor in assessing the penalty amount.
The lesson of Optrex is simple and profound. To exercise reasonable care under the customs laws, it is not enough for an importer to merely seek guidance from the agency, a customs broker, customs consultant, accountant or an attorney. Rather, an importer must fulfill its “affirmative duty” to actively respond to advice received as a result of such consultation to show that it exercised reasonable care. As the Optrex case makes clear, an importer’s disregard of guidance received through expert consultation demonstrates a lack of reasonable care, and failure to heed the advice of a customs attorney may be viewed as an aggravating factor resulting in increased penalties should an importer be found to have acted negligently in entering merchandise.