Trade Court Rejects US Reconsideration Bid in Lost Customs Bond Penalty Suit Against Surety

The Court of International Trade on May 28 rejected the government's motion for partial reconsideration of the court's decision finding that the government violated the "implied contractual term" of reasonableness in waiting eight years to demand payment from surety Aegis Security Insurance Co. on a customs bond.

Judge Stephen Vaden said the U.S. only raises arguments it "could have made earlier." The court's rule allowing for reconsideration isn't "an avenue to undo strategic litigation decisions the losing party comes to regret," the judge said.

In March, Vaden said the government violated an implied reasonableness contract term for an unpaid customs bond on Chinese garlic imports that entered in 2004 when it demanded payment on that bond eight years later (see 2403180059). While the judge said the six-year statute of limitations doesn't run until CBP makes demand on the payment, he said it's implicitly unreasonable for the government to wait that long to make a demand.

The U.S. sought partial reconsideration of this decision, arguing that it couldn't anticipate the issue of whether an implied contractual term existed (see 2404180041). The government advanced two claims: the reasonable time requirement is inconsistent with the statutory and regulatory scheme governing customs bonds and the U.S. can recover even if it breached this requirement since any breach wasn't material.

The court said the government had "ample opportunity" to make these two claims, but instead it waived the first claim and forfeited any claim it could recover despite the breach.

Vaden pointed to three sources that put the government on notice that the implied contractual reasonableness term applies: supplemental briefing in the case, the trade court's decision in United States v. American Home Assurance Co. (see 2308220054) and the court's order setting up the third oral argument in the case.

In the supplemental briefing, the court asked for any argument regarding the "duty of the Government to make demand within a reasonable time.” Vaden said this by itself was enough to put the U.S. on notice. Beyond this, the decision in AHAC involved a similar case, in which the court said the demand for payment was made beyond the statute of limitations but, even if it wasn't, the U.S. failed to act in a reasonable time. The government "was well aware" of this decision, the opinion said.

Despite this notice, the government waived the right to claim that the reasonableness requirement doesn't apply here. The arguing attorney for the U.S. "conceded at oral argument that the implied reasonable time requirement exists and applies in this case." This concession wasn't an "off-the-cuff response to a 'gotcha' question," but was instead a "strategic litigation decision made on-the-record after the Government received actual notice of the questions 'it should be prepared' to answer," the opinion said.

The U.S. then forfeited its claim that its breach was immaterial, since it could have made the claim "in its extensive briefing or during the lengthy exchange between the Government’s counsel and the Court at oral argument regarding the implied reasonable time requirement." Instead, it made the "strategic decision" to center on claiming that the delay was reasonable.

(United States v. Aegis Security Insurance Co., Slip Op. 24-63, CIT # 20-03628, dated 05/28/24; Judge: Stephen Vaden; Attorneys: Beverly Farrell for plaintiff U.S. government; T. Randolph Ferguson of Sandler Travis for defendant Aegis Security Insurance Co.; Gilbert Sandler of Sandler Travis for amicus curiae led by the Customs Surety Coalition; and Michael Coursey of Kelley Drye for amici curiae led by Adee Honey Farms)