CIT Dismisses Surety Co.'s Claims of CBP Misrepresentation, but Allows a Redo

The Court of International Trade dismissed Hartford Fire Insurance Company’s attempt to void or discharge bonds securing duties on entries made by an importer that violated U.S. import laws. The bonds at issue secured duties on entries subject to the antidumping duty order on frozen cooked crawfish tailmeat from China (A-570-848). Sunline, the importer, failed to pay the duties owed, and CBP made a demand on Hartford for payment on eight single entry bonds. But Hartford said, among other things, that CBP should have told it that Sunline was under investigation at the time, and that CBP’s silence constituted misrepresentation that voided the bonds. CIT said CBP was not required to disclose the investigation, and the decision to allow bonds in lieu of cash deposits was at CBP’s discretion. Because Hartford did not claim that CBP abused this discretion, CIT dismissed Hartford’s claim without prejudice. CIT also dismissed three other claims, two with prejudice.

(After Sunline failed to pay AD duties on eight entries at the China-wide rate of 223%, CBP demanded payment from Hartford in June 2005. But CBP had begun an investigation of Sunline in mid-2003, and had indicted two of Sunline’s officers for importing crawfish tailmeat in violation of U.S. import laws in November 2003. CBP did not inform Hartford about its investigation, CIT said, and the Department of Commerce did not inform Hartford that it was returning, in August and November 2003, $270,256.92 in cash deposits unrelated to the entries for which Hartford issued bonds. In this action, Hartford argued that (1) its bonds are voidable because of misrepresentation by CBP and Sunline; and (2) its obligation on the bonds should be reduced by the amount of the cash deposits refunded to Sunline, $270,256.92.)

Hartford Failed to Adequately Argue Misrepresentation, but Gets a Redo

Hartford said CBP failed to disclose its investigation of Sunline, which materially increased Hartford’s risk on the bonds. Furthermore, Hartford said, CBP should have known that failure to disclose the investigation would cause Hartford to assume a level of risk beyond what it intended in issuing the bonds.

In its motion to dismiss Hartford’s claims, CBP said, among other things, that it couldn’t have made a timely disclosure because it didn’t become aware of Hartford’s identity until after the bonds were executed, and that it was in any case prohibited by law from disclosing the Sunline investigation.

CIT disagreed that CBP did not know Hartford’s identity and couldn’t have disclosed the investigation. Pursuant to its own regulations, bonds must be approved by CBP prior to entry of the merchandise, CIT said. Thus, CBP’s acceptance of the surety’s offer is necessary to the formation of the surety agreement.

But CIT said CBP did not have to disclose the information. The investigation was covered by the Freedom of Information Act, CIT said, which preempts Hartford’s common law claim of misrepresentation. FOIA allows an agency to withhold information about a law enforcement investigation unless and until a request for disclosure is made and such request is determined not to fall within an exception to disclosure, CIT said.

In the alternative, Hartford argued, CBP should have avoided misrepresentation by requiring cash deposits from Sunline instead of allowing bonds, in light of the investigation. But it is at CBP’s discretion to require cash deposits, CIT said, and Hartford failed to argue that CBP abused its discretion in allowing bonds, as required to survive a motion to dismiss. Therefore, Hartford’s argument that the bond should be voided due to CBP’s misrepresentation was dismissed, without prejudice, for failure to state a claim. CIT said Hartford is free to amend its complaint to allege that CBP abused its discretion.

Hartford’s Claim for Refunded Cash Deposits Barred by Sovereign Immunity

However, Hartford’s arguments for discharging the bonds in the amount of the cash deposit refunded to Sunline failed, CIT said. Hartford said that by returning the cash deposits to Sunline, CBP impaired collateral that Hartford could have applied to the debt owed on the bonds. But CIT said this claim is barred by sovereign immunity because the U.S. government has not waived sovereign immunity for implied-in-law contract claims such as impairment of suretyship.

Therefore, CIT dismissed Hartford’s claims for discharge of the bonds in the amount of the refunded cash deposits with prejudice.

(Slip Op. 12-107, dated 08/13/12, Judge Pogue)