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Full Court of Appeals to Review Whether to Expand Customs Civil Penalty Liability to Corporate Officers and Employees




by:
Richard P. Ferrin
Douglas J. Heffner
Drinker Biddle & Reath LLP - Washington Office

Kathleen M. Murphy
William Randolph Rucker
Drinker Biddle & Reath LLP - Chicago Office

 
March 21, 2014

Previously published on March 19, 2014

In a potentially ground-breaking case, the Court of Appeals for the Federal Circuit (CAFC) announced that it will hear en banc the issue of whether corporate officers or shareholders can be held personally liable for duties and penalties imposed under 19 U.S.C. § 1592. If the CAFC broadly interprets the statute, its decision could expand liability for negligence and gross negligence under the Customs laws to individual employees of importers.

Background

Historically, U.S. Customs and Border Protection (CBP) has not imposed personal liability for civil penalties on employees of a corporate importer for negligent or grossly negligent acts involved in importing goods. Instead, it has limited the assessment of civil penalties to the company that acted as importer of record. The only exception was for officers or employees that aided or abetted wrongful acts; even then, the courts historically have allowed “aiding and abetting” liability only with regard to fraudulent conduct only.

Trek Leather

CBP’s primary civil penalty statute, 19 U.S.C. § 1592, provides that “no person,” by “fraud, gross negligence, or negligence” may “enter, introduce, or attempt to enter or introduce” merchandise into the United States by means of any affirmative submission of a document or data that is “material and false,” or through any “omission” that is “material.” The statute provides civil penalties for a “person” who violates this provision, or who may “aid or abet any other person” to violate this provision.

In a July 2013 opinion, a divided three-judge CAFC panel reversed a CBP assessment that attempted to hold the president and owner of a corporation that served as importer of record to be “jointly and severally liable” for customs penalties. The CAFC panel reasoned that where the importer of record was a corporation, the president/owner of the corporation could not be held personally liable unless: (1) the government either “pierced the veil” of the corporation; or (2) the president/owner personally aided and abetted fraud by the corporation. The concept of “piercing the corporate veil” is a basic principle of state corporate law, which in most jurisdictions requires the plaintiff asserting personal liability against a corporate owner, officer or employee to show that the individual was acting as the “alter ego” of the corporation, rather than merely as an ordinary agent of the corporation.

On March 5, 2014, the CAFC vacated the July 2013 panel opinion and ordered the parties to file new briefs to the CAFC en banc (meaning all active CAFC judges may participate). The CAFC plans to review the meaning of the term “person” for purposes of Section 1592(a) liability and, if corporate officers or shareholders qualify as “persons” under the statute, they can be held personally liable for duties and penalties under Section 1592(a) when acting within the course and scope of their employment. The order also asks that the briefs address the scope of “gross negligence” and “negligence” in Section 1592(a), and what is the relevant duty.

How This Affects You

If the CAFC rules in favor of the government, it would mean that CBP could hold individuals liable for the penalties assessed against a corporate importer. This would be a major shift in liability for employees of a company acting as importer of record.

Due to the ground-breaking nature of the issue, the CAFC has invited interested parties to submit amicus curiae briefs. Please contact any of the lawyers listed above if you would like further information regarding this issue.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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