No Increased Liability for Managers After Trek Leather Court Decision, Says Justice Official

NEW YORK -- A recent court decision on the individual liability of employees and corporate officers for their companies’ customs violations won’t result in an increase in penalty actions against middle managers and other “peripheral actors,” said Joshua Kurland, a Justice Department lawyer, during remarks at the Judicial Conference of the Court of International Trade on Dec. 1. The U.S. Court of Appeals for the Federal Circuit’s September decision in U.S. v. Trek Leather merely confirmed an interpretation long held by the Justice Department and CBP on who can be held liable for customs violations, said Kurland. ”As far as we’re concerned it’s business as usual,” he said. “It’s unlikely to expect a significant change in practice as a result of the Trek Leather decision.”

In its Sept. 16 opinion in Trek Leather, CAFC held Harish Shadadpuri liable for penalties under Section 1592 for the violations of the company he owned, Trek Leather (see 14091703). Even though Trek Leather was the importer of record on the violative entry, CAFC found Shadadpuri was a “person” under Section 1592 that was also responsible for introducing the merchandise, and was thus also liable for penalties. Although some have said the decision expanded the definition of “person’ beyond the importer of record – including potentially to import compliance managers -- Kurland said Justice and CBP have long held the more expansive, literal definition of “person” in Section 1592.

The government is facing two major issues that hamper its revenue collection efforts and may lead to customs penalty cases against individuals, said Kurland, who works in the DOJ's Commercial Litigation Branch. First, there are serial violators of customs laws that are not serving as the importer of record, he said. Second, the government is struggling with how to deal with undercapitalized companies that go under the day they are hit with duties. Although the company may no longer exist, its former principal often does, said Kurland.

Beyond those circumstances, there is “little incentive” for the government to pursue proceedings against middle management, he said. For larger companies, it is usually unnecessary to pursue middle managers or individual executives in order for the government to collect, said Kurland. And even for smaller and midsize companies, the government usually enforces the penalty against the importer itself or the principal, especially if the company no longer exists, he said. Nonetheless, there may be exceptions, such as where a middle manager’s behavior is so “beyond the pale” or someone is committing repeated violations, he said. Kurland conceded that the decision in Trek Leather may be used as additional leverage by CBP in penalty collection efforts, but the decision will not “change tremendously” the way the government approaches penalty situations, he said.

Individual Liability Opens Lawyers Up to Liability

Some at the conference disagreed with Kurland’s characterization as “business as usual.” With larger importers having largely improved their customs compliance, CBP is now turning to smaller companies that may not have the resources to get their acts together, said Joel Junker of Junker & Natachi, who also spoke in the panel discussion. It is “not unforeseeable” that CBP could begin sending messages, he said. “These could be interesting times ahead of us.”

Lawyers representing clients in customs penalty cases need to be especially careful after Trek Leather, said Junker. Especially when representing smaller companies, questions may arise as to whether the lawyer represents the company or its individual principals, corporate officers, and employees. Lawyers could be held liable for claims they did not warn or adequately represent employees subject to individual claims, he said.

In response, customs lawyers need to be clear about who they represent in their initial retainer or engagement letters, said Cynthia Godsoe, a professor at the Brooklyn Law School. It is also important to interview potential individual clients to make sure no conflicts of interest exist, and set clear procedures for when future conflicts arise, said Godsoe. If an individual is not being represented by the lawyer, then the lawyer has to clearly communicate that to the employee and make sure not to advise that employee in the future and create “implied” representation, she said.