Trek Leather Owner Appeals Case on Corporate Officer Liability to Supreme Court

A Trek Leather executive who was recently found liable for the customs violations of his company appealed the case to the Supreme Court in a petition for a writ of certiorari filed Feb. 13. Harish Shadadpuri, the company's owner, argued he cannot automatically be held liable for over $500,000 in penalties and unpaid duties for his company’s negligent failure to declare assists on imports of men’s suits. Rather, the government has to prove he personally aided and abetted those violations, or “pierce the corporate veil” and make the case that Trek Leather’s corporate officers should be liable, of which the government did neither in the case, said Shadadpuri.

Shadadpuri, represented by Al Daniel, is appealing a September decision of the Court of Appeals for the Federal Circuit that found he “introduced” the men’s suits with undeclared assists, even though Trek Leather was actually listed as importer of record, and should therefore be held liable alongside Trek Leather for gross negligence (see 14091703). "The question before us is simply whether [Shadadpuri] engaged in any conduct respecting any of the suit shipments that constitutes entering, introducing, or attempting to enter or introduce merchandise into United States commerce under section 1592(a)(1)(A)," said the unanimous CAFC en banc review of its initial ruling (see 13073025), which it reversed. "We conclude that he did."

But Shadadpuri’s acts to “introduce” the merchandise were not uncommon actions for corporate officers to take, and as a result the CAFC’s decision greatly expands corporate officer liability for customs violations, said the Supreme Court appeal. “These were all ‘acts’ of the corporation Trek performed in the only way corporations can act—through the services of their shareholders, officers, or employees,” said Shadadpuri. “The government can now routinely disregard corporate entities large and small and impose joint and several liability for substantial penalties on corporate shareholders, officers, and employees of American-based importers of record.” Joint and several liability is the legal concept that each party is independently and fully liable up to the full value of any judgment, until that full value is collected.

CAFC’s ruling disregards the structure of the law on customs penalties at 19 USC 1592, according to Shadadpuri. Section 1592(a)(1)(A) “applies only to a ‘person’ who ‘may enter, introduce, or attempt to enter or introduce any merchandise’ ‘by fraud, gross negligence, or negligence;’ such a person is defined as the importer of record or a customs broker in 19 U.S.C. 1594(a)(1),” said the petition for certiorari. “The second subpart in 19 U.S.C. 1592(a)(1)(B) applies only to a ‘person’ who ‘may aid or abet any other persons to violate’ the first subpart, 19 U.S.C. 1592(a)(1)(A),” it said. By holding corporate officers liable for negligently “introducing” merchandise under (a)(1)(A), CAFC rendered meaningless the provision for aiding and abetting under (a)(1)(B), said Shadadpuri. Just because the government failed to allege that Shadadpuri aided and abetted, doesn’t mean the law should be bent to allow the collection of individual penalties anyway, he said.

“The en banc decision puts shareholders, officers, and employees of corporate importers at risk for enormous statutory penalties on the basis of negligence or gross negligence without regard to whether they satisfy the “aider or abettor” requirement established by Congress in 19 U.S.C. 1592(a)(1)(B) or were using the corporation as their alter ego,” said the petition for certiorari. CBP already appears to be taking advantage of the expanded liability for corporate officers, proposing in October to revise Form 5106 to collect new information from officers of corporate importers, “including phone numbers, email, social security numbers, and passport numbers,” it said (see 14100815). “The additional information sought to be collected by the government strongly indicates that Customs intends to pursue corporate officers as well as importers of record when Customs pursues penalty investigations and claims, as the Federal Circuit’s erroneous en banc decision allows,” said Shadadpuri.

A Justice Department official in December said CAFC’s decision in Trek Leather won’t result in an increase in penalty actions against middle managers and other “peripheral actors,” although he conceded CBP may use the decision as additional leverage in collection efforts (see 1412010018). The government response to Shadadpuri’s petition for certiorari, as well as any amicus briefs from outside parties, are due by March 16, according to Shadadpuri’s lawyer.

Email ITTNews@warren-news.com for a copy of the petition for a writ of certiorari.