State Unfair Trade Practices Law Can't Be Used Against Importer for Customs Violations, District Court Says

An importer can’t be held liable under a Connecticut unfair trade practices law for violations of customs regulations, the Connecticut U.S. District Court said in an Aug. 24 decision. Activities subject to a comprehensive regulatory scheme, such as importation, are exempt from the state law, and allowing use of the state law would “upset the carefully crafted equilibrium” provided for in the Tariff Act of 1930, the court said.

Wind Corporation, a Canada-based hardware manufacturer, had filed the lawsuit seeking damages against its competitor Wesko Locks. It alleged Wesko had engaged in unfair competition by improperly declaring its imported locks as NAFTA-originating and taking advantage of its ill-gotten duty savings to sell its locks for cheaper than Wind’s. That unfair advantage was a violation of the Connecticut Unfair Trade Practices Act, Wind said.

But even taking Wind’s allegations to be true, Wesko’s conduct would be exempt from the state unfair trade law. The statute specifically exempts “transactions or actions otherwise permitted under law as administered by any regulatory board or officer acting under statutory authority of the state or of the United States,” the court said. Because the NAFTA rules of origin and customs processes in general are “regulated expressly by a ‘pervasive statutory scheme’ in the Tariff Act of 1930, import violations are exempt from allegations of unfair competition under the Connecticut law, the court said.

If it wants to challenge the allegedly unfair competition, the court said Wind Corporation could file a complaint under Section 337 of the Tariff Act, which is mainly used in patent disputes but also provides remedies for unfair competition and unfair acts related to importation into the United States.

“‘Holding that a [Connecticut Unfair Trade Practices Act] remedy, lacking the procedural prerequisites and specifically tailored remedies’ provided for under the Tariff Act of 1930, governs unlawful conduct relating to the import of foreign-manufactured goods would upset the carefully crafted equilibrium between the competing interests of the various people and entities involved in the importation of foreign-made goods into the United States,” the court said, dismissing the case.

In essence, the decision stands for the principle that the state unfair trade practices law should not be relied upon when there’s an federal framework already in place, said John Peterson of Neville Peterson, who represented Wesko. Though the court dismissed the case before reaching the NAFTA issue, Peterson said his client’s NAFTA claims at issue in the case were for the most part legitimate, with the exception of some that were the subject of a disclosure and duty payment. And his client only had about $300 in sales in the state of Connecticut, Peterson said. The lawyer representing Wind did not comment.

Email ITTNews@warren-news.com for a copy of the decision.