Penalty Procedures Not Required in Unpaid Duty Claims, CIT Says

CBP does not need to go through the same procedures for unpaid duty claims that are required for penalties, the Court of International Trade said in a Dec. 17 ruling. The lawsuit involves 875 entries filed by Tricots Liesse that were wrongly declared as eligible for NAFTA treatment. CIT previously dismissed a related suit over Section 1592 penalties because CBP did not allow for a face-to-face meeting before imposing the penalties, as required (see 1803260022).

Aegis Security Insurance, Tricots' surety, and Tricots argued that the unpaid duties claim should be dismissed because CBP “must comply with pre-penalty procedures before it may bring a claim for unpaid duties.” The court disagreed and said that the procedures are only required as it relates to the penalties. “Nowhere does the statute set out a procedure that the United States must follow before it seeks to recover unpaid duties,” CIT said.

It also seems clear that Tricots acted negligently when it filed the entries, the court said. “Based on Tricots’ admissions, there can be little doubt that it failed to act with 'reasonable care and competence' when declaring at the time of importation that each of its 875 entries qualified for preferential tariff treatment under the NAFTA Rules of Origin,“ CIT said. While Tricots said it acted as “other similarly situated importers would have acted,” CIT responded that “a finding that an act is reasonable or not does not rely on consensus in the community but on the application of reason.”

Aegis and Tricots argued that the U.S. was not deprived of duties because the entries might have qualified for duty-free treatment under the Tariff Preference Levels program. While that might be the case, the company's failure to file for such treatment “leaves it liable for regular duties.” As a result, “the court finds that the United States has been deprived of lawful duties and fees as a result of Tricots’ violation of § 1592(a), and that the unpaid duties and merchandise processing fees are due and owing to the Government from Tricots and from Aegis, as surety,” CIT said. Preferential NAFTA treatment “is not automatic; it must be claimed in compliance with Customs’ regulations,” CIT said.

The court ruled that “Tricots is liable for $2,249,196.04, representing $2,206,596.05 in duties and $42,599.99 in merchandise processing fees.” The surety's liability “under the bond amounts to $500,113.32,” based on the $230,000 annual bonds that were in place during the periods that the entries were filed. The government is also owed interest “from Aegis at the rate of six percent per year from May 18, 2011, the date on which Customs demanded payment from Aegis on the 604 entries,” it said.

(U.S. v. Aegis Sec. Ins. Co., Slip Op. 19-162, CIT # 11-00388, dated 12/17/19, Judge Eaton)

(Attorneys: Stephen Tosini for plaintiff U.S. government; Randolph Ferguson of Sandler Travis for defendant Aegis Security; Frances Hadfield of Crowell & Moring for defendant Tricots Liesse 1983, Inc.)