Forwarder Had Fiduciary Duty to Ensure Duty Payment for Importer, District Court Says

A freight forwarder breached its fiduciary responsibility to pay customs duties and refund overpayments, even though it is not a broker licensed to perform customs business, the Northern Illinois U.S. District Court said in a decision issued Dec. 20. Pactrans did not have a fiduciary duty as a customs broker to Union Pacific to pay $5.8 million in antidumping and countervailing duties, but the power of attorney allowing Pactrans to act as Union Pacific’s agent mentioned duty payment, and the forwarder breached that fiduciary duty as an agent when it kept the money for itself, the court said.

According to the court’s decision, Pactrans performed services since 2010 for Union Pacific related to the imports of 53-foot containers. Under a series of POAs, the last of which was issued by the railroad to Pactrans in 2015, Pactrans hired customs brokers on Union Pacific’s behalf. Nissin acted as broker on the shipments at issue in this case: 53-foot containers from China, subject to AD/CV duties due to an ongoing investigation, for which Union Pacific transmitted $5.8 million to Pactrans to forward to CBP as cash deposits.

Union Pacific alleges, and Pactrans admits, that the forwarder never sent the duties to Nissin for payment to CBP. That resulted in a customs penalty of $4,359, the railroad said. After the ITC issued a negative injury determination (see 1505200023), ending the AD/CV duty investigations with no duties imposed, Pactrans then failed to refund Union Pacific the $5.8 million, the court said. Union Pacific filed suit in August 2016 (see 1608170010).

Union Pacific said Pactrans agreed in the 2015 POA to “serve as its agent, attorney, and customs broker,” the court said in its ruling. By failing to pay customs duties on its behalf, Pactrans “breached its fiduciary duties as a matter of law.” Pactrans acknowledged that Union Pacific may have a restitution claim, but said it is not a licensed broker “and so was unable to provide the customs services described in the POA.” Since it was not acting under the POA when it invoiced, collected and handled the money Union Pacific owed, it had no fiduciary responsibilities to Union Pacific, Pactrans said. Union Pacific was trying to “invent” the claim of fiduciary responsibility to hold Pactrans’s owners individually liable and give it a leg up in the event of a bankruptcy, Pactrans said.

Pactrans had no fiduciary responsibility to transmit the AD/CV duties as a customs broker as it was not a licensed broker, the district court said. “The Court finds that the Customs POA did not give rise to a broker-principal relationship between the parties sufficient to trigger a fiduciary duty on Pactrans’ part pursuant to the customs laws.”

“That does not end the inquiry, however,” because the 2015 POA “still created an agent-principal relationship between Pactrans and Union Pacific,” the court said. The POA clearly states that Pactrans is Union Pacific’s “true and lawful agent” with “full power and authority” to do whatever is necessary on Union Pacific’s behalf, it said. Subcontracting out the brokerage services did not relieve Pactrans of the duty to ensure Nissin paid all required duties on Union Pacific’s behalf, the court said. As a result, Pactrans owed Union Pacific a fiduciary duty under the POA relating to payment of the customs duties, and breached that fiduciary duty when it failed to ensure payment, the district court said.

The court also ruled in favor of Union Pacific in its claim that Pactrans “converted” the $5.8 million it sent for AD/CVD purposes. Under Illinois law, to show conversion, which means taking another person's property without any cause or permission, the property must be specifically identifiable. The $5.8 million Union Pacific gave to Pactrans was specific and not a general debt, demonstrated by invoices and itemized lists of payments made to Pactrans specifically for customs duty purposes, it said. But the district court ruled against Union Pacific’s attempt to “pierce the corporate veil” and bring suit against Pactrans’s owners, finding the railroad did not bring enough evidence that the owners had “commingled” Union Pacific’s payment with their personal funds. Pactrans and Union Pacific did not comment.

(Union Pacific Railroad v. Pactrans Air & Sea, Inc., N.D. Ill. 16-8092, dated 12/20/17, Judge Finnegan)

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