Surety Co. Opposes US Reconsideration Bid on Implied Reasonableness Term in Customs Bonds

A U.S. motion to reconsider a Court of International Trade decision (see 2404180041) finding that CBP defied the implicit contractual term of reasonableness in waiting eight years to demand payment under a customs bond from a surety company is "both procedurally and substantively flawed," surety Aegis Security Insurance Co. said (U.S. v. Aegis Security Insurance Co., CIT # 20-03628).

Filing a reply brief April 29, Aegis argued that the government's claim it was "blindsided" by the court's finding of a reasonableness requirement is "demonstrably false." The company added that the "absence of contractual language and statutory or regulatory restrictions on the time for Customs to act" doesn't "abrogate implied contractual" terms of reasonableness and that the government's "breach is material" since issuing a timely demand is a "condition precedent" on the surety's "obligation to pay on the bond."

The case concerns a bond issued by Aegis for exporter Linyi Sanshan Import & Export Co. in 2002, under which Linyi Sanshan entered garlic from China, then didn't pay the bill. The entries liquidated in 2006 and sat untouched until CBP demanded payment from the importer in 2014, then the surety in 2015.

The trade court said that while the six-year statute of limitations on customs bonds runs from the date CBP issues a bill and not the date of liquidation for the entries, CBP violated the "implied contractual term" of reasonableness in waiting so long to issue the bill (see 2403180059).

In response, Aegis pointed to two questions asked by Judge Stephen Vaden on whether an implied contractual term of reasonableness applies. The surety also cited the oral argument transcript, which shows counsel for the U.S. conceding that the government doesn't dispute that the implied reasonableness contractual term applies.

"In short, it defies credulity to suggest that the Court kept the parties in the dark about the potential basis for its eventual ruling," the brief said.

The surety said that the U.S. not only could have anticipated the issue, it "anticipated and conceded it as evidenced by the Court’s minute order, dozens of pages of briefing, and hours of oral argument time consumed." Aegis said what's worse is that "the United States seeks to retract its concession" now "five months after it was made in open court with Customs’ counsel present and, importantly, after the Court issued its opinion citing the United States’ concession that customs bonds carried with them an implied contractual requirement of reasonableness."

Aegis also argued that the government's argument falls flat substantially for two reasons, the first of which is that the absence of contractual or statutory restrictions on CBP's ability to demand payment is irrelevant to whether an implied contractual term of reasonableness applies. "To suggest otherwise cuts against overwhelming caselaw to the contrary," the brief said.

And the breach of the reasonableness term here is "material" because a timely payment demand is a "condition precedent" to the obligation to pay the bond. Here, the U.S. looks to impose an obligation on Aegis to show that the breach was material beyond a simple showing that it "failed to fulfill all conditions precedent to its ability to demand performance on the bond." This obligation isn't required by law and CBP's failure to satisfy its condition of making a timely demand, "standing alone, is sufficient to excuse Defendant's performance."

This case is a "textbook example of the need for intervention by the third branch of government," the brief said. The U.S. "wants unfettered discretion to act in perpetuity against the surety industry."