Georgia Court Finds Customs Broker Not Liable for Gross Negligence for Misfiling TRQ

A customs broker is off the hook for a filing error that caused an importer to miss a sugar tariff-rate quota and pay more than $100,000 in duties. A Georgia state appeals court On Oct. 19 ruled against the importer, Peachtree Playthings, in a lawsuit that claimed damages for the broker’s gross negligence, as well as punitive damages and attorney fees. The power of attorney appointing the broker, D.J. Powers Company, was a contract for the broker’s services, and any lawsuit for the mishap had to proceed under the contract’s terms, the court said.

Peachtree had hired D.J. Powers as its broker in 2014 specifically to ensure it qualified for the low rate under the specialty sugar TRQ. The importer entered its specialty sugar into a warehouse and held it there until each tranche of the quota opened. To qualify for the specialty quota, the importer must submit to CBP a certificate from the Agriculture Department certifying that the sugar has been tested and meets certain qualifications. Peachtree provided the broker with a copy of its sugar certificate, which said Peachtree was allowed to enter specialty sugar under the TRQ’s low rate on specified dates, the last of which was a tranche that opened July 10, 2015.

D.J. Powers then successfully filed entries on Peachtree’s behalf, qualifying the importer for the low rate. But when the July 10, 2015, tranche opened, all five quota withdrawal entries submitted by the broker on Peachtree’s behalf were rejected by CBP because the broker failed to attach the certificate or include the certificate number. By the time the broker realized its mistake the tranche had closed, and Peachtree ended up paying $108,891.34 in duties to meet its customers’ needs.

Peachtree sued, seeking damages for its losses as a result of D.J. Powers’ alleged gross negligence. The broker argued the importer’s “tort” claim for damages wasn’t valid, because the power of attorney that initially appointed D.J. Powers as Peachtree’s broker was a contract. Under the “economic loss doctrine,” tort claims can’t be filed to recover damages for economic losses if a contract is in place, unless there has been physical injury to a person or property, the broker said. The importer’s only recourse was a breach of contract case, and the POA included a “Terms and Conditions of Service” document that limited the broker’s liability to $50 per entry, D.J. Powers said.

The appeals court agreed, reversing a lower court decision that found against the broker. First, contrary to Peachtree’s arguments, the power of attorney was a valid contract. The POA appointed the broker to act on Peachtree’s behalf to make entry, and after it was signed the broker filed on Peachtree’s behalf in exchange for a fee. “Underlying each of the five withdrawal entries at issue here, was an enforceable contract that was facilitated and governed by the POA and the referenced Terms and Conditions of Service document,” the appeals court said.

Because a contract was in place, Peachtree could not make a tort claim against D.J. Powers for damages for its losses due to the broker’s gross negligence, the court said. “Because the Sugar Importer was thus in a contractual relationship with the Customs Broker, because the Sugar Importer's sole substantive claim alleged the breach of contractual duties (to properly file the quota withdrawal entries), and because the damages being sought were for purely economic losses, the economic loss rule relegated the Sugar Importer to remedies of contract law,” it said.

(D.J. Powers Company, Inc. v. Peachtree Playthings, Inc.; Ga. Ct. App. A18A1305; dated 10/19/18)