CIT Rules CEO Not Personally Liable in 592 Negligence Case

In U.S. v. Tip Top Pants, Inc. and Saad Nigri, the Court of International Trade dismissed for lack of evidence any claims against Mr. Nigri, in his personal capacity as a corporate officer of a two-person firm, for 19 USC 1592 negligence involving a single entry of apparel that Tip Top imported and claimed NAFTA benefits for.

On May 24, 2002, an entry was filed claiming duty free entry under NAFTA using subheading 6203.42.40 and 9802.00.9000 for a shipment of men's and boys' denim cotton shorts valued at $215,398. The importer of record was identified as Tip Top Pant Inc.

On November 19, 2002, Customs issued a request for information to Tip Top asking documentation to substantiate their duty free entry. On January 16, 2003, Customs issued a notice of proposed action (CF 29), stating that it was proposing to disallow the claim for duty free entry for failure to respond to the CF 28 request for information. The form also included a statement that Tip Top had made false claims under this program and it was subject to possible penalties.

Over the next five years, Customs issued a pre-penalty notice, a penalty notice, and an amended penalty notice alleging material false statements, acts and/or omissions, regarding Tip Top's entry under 9802.00.9000. In the amended penalty notice, dated January 9, 2006, Customs included the following statement: "The fact that the fabric was cut and assembled in Mexico disqualifies you from 9802.00.9000, therefore your 9802.00.9000 claim is false."

On May 18, 2007, Customs filed a summons and complaint bringing the issue to the Court. On June 9, 2009, Tip Top moved to dismiss the complaint as to Mr. Nigri for failure to state a claim upon which relief can be granted. Two days later, Customs requested summary judgment against both Tip Top and Mr. Nigri for a civil penalty of $55,636.90 and unpaid duties and interest of $1,640.53.

The CIT reviewed the complaint filed with the Court, noting that even if it accepted as true all the facts in the complaint, the court still would conclude that the complaint did not state any claim against Mr. Nigri. Although identifying Mr. Nigri as Tip Top's Chairman and Chief Executive Officer at the time of the 2002 importation, the Court stated that the complaint did not allege that Mr. Nigri did, or failed to do, anything.

Customs cited three court cases: U.S. v. Priority Products, Inc., U.S. v. Matthews, and U.S. v. Golden Ship Trading., in support of its argument that corporate officers have been held liable for violations that were committed in the capacity of their employment.

The CIT, however, stated that U.S .v. Priority Products Inc. did not hold that a party's serving as an officer of a corporation at the time corporation imports merchandise was, by itself, sufficient to establish that officer's liability for acts committed by the corporation in violation of Section 592.

In the other two cases, the CIT noted they were readily distinguishable from the subject case. In Matthews, the CIT cited specific acts committed by the individual defendants in providing false statements of origin on entry documentation to avoid payment of antidumping duties on imports of silicon metal from China. In Golden Ship Trading, the individual defendant signed the country of origin declaration falsely stating the country of origin.

Customs also argued that Mr. Nigri was not only the founder, chairman and CEO, but also one of two 50 percent shareholders, one of two corporate officers, and one of only two employees of the company. Further, Customs stated that Mr. Nigri was the most knowledgeable of the day-to-day operations of Tip Top.

The CIT ruled that these arguments by Customs failed in two respects. First, the allegations were not in the complaint and second, even if they were in the complaint, there was no evidence presented that demonstrated that Mr. Nigri, in his personal capacity, would have incurred any liability for a negligent violation of Section 592 that Tip Top may have committed.

In summary, the CIT ruled that the case could not go to trial against Mr. Nigri based on the complaint before the Court. The CIT ordered all claims in the complaint be dismissed to the extent that they sought relief against Mr. Nigri.

Slip Op. 10-5 (dated 01/13/10) available at http://www.cit.uscourts.gov/slip_op/10-5.pdf