Customs Law Advisory - US Trade Court Considers Personal Liability Against Owner for Import Duties Incurred By Company

February 4, 2009

The U.S. Court of International Trade (“CIT”) is moving forward with a case that may allow the collection of duties as a personal liability from the owner of an importing company.  As the U.S. government looks for ways to maximize import duty revenues and import compliance, this case could suggest whether and how additional collection efforts against owners may occur.

All importers into the United States are required to purchase a bond from a licensed surety in order to guarantee payment of import duties.  The importer always signs an indemnity agreement in which it promises to pay the surety any amount the surety is required to pay to U.S. Customs and Border Protection (“CPB”), plus interest, expenses, legal fees, etc. 

In 1999, Mainland, Inc. purchased a $50,000 continuous entry bond from Aegis Security Insurance Company (“Aegis”).  In May 2002, CBP began investigating Mainland’s imports.  CBP discovered that between May 2000 and December 2002, Mainland had been importing pencils from China without declaring that the pencils were subject to an antidumping duty order and without payment of the antidumping duties.  In March 2006, after Mainland failed to respond to CBP’s demands for payment of $104,625.03, the Government demanded payment from Aegis under the bond.  In September 2007, Aegis paid the U.S. government $57,410.61. 

Aegis added Matthew Fleming as a third-party defendant in the case.  In a motion for summary judgment, Aegis claimed that, as the sole manager and owner of Mainland, Fleming had misused the corporation and, consequently, the CIT should pierce the corporate veil and find Fleming personally liable.  Chief Judge Restani denied the motion for summary judgment, finding that Fleming’s testimony raised a genuine issue of material fact regarding whether he had engaged in fraudulent conduct.  Fleming’s testimony indicated that he was aware of the antidumping duty order, but that he mistakenly thought that the duty rate was zero, and therefore did not have to declare antidumping duties.  He also testified that he relied on brokers to submit entry documents; he was confused by the invoices submitted by them, and he was unable to scrutinize each of the entry documents.  Thus, the CIT determined that a fact-finder could conclude that Fleming had no intent to mislead or defraud the Government.

Because litigation may now proceed to an analysis of the factual questions raised by Fleming's testimony, the case may provide significant insight into an area of import law that is not often explored.  Assuming there is no settlement, a trial here may shed significant light on the facts and behavior will allow piercing of the corporate veil for personal collection of import duties from company owners.  All importers that seek to maintain CBP compliance and corporate form should keep an eye on this case.

The CIT’s summary judgment decision is available at: http://www.cit.uscourts.gov/slip_op/Slip_op08/Slip%20Op%2008-142.pdf

If you have any questions on U.S. Customs or import procedures, please contact: Greg McCue (gmccue@steptoe.com and 202.429.6421) or Cecily Rose (crose@steptoe.com and 202.429.6496).