That is no longer the case. The current understanding is that civil penalty cases are collections cases in which Customs is attempting to collect the penalty it already assessed through the administrative process. This is a significant change. It means, for example, that if during the administrative process CBP only asserts that the importer was negligent , it cannot come into court asking the Court of International Trade to impose a penalty based on fraud. See, U.S. v. Optrex (CIT 2005) and U.S. v. Ford Motor Co. (Fed. Cir. 2006). By the same token, if the government goes all in and administratively asserts that the violation occurred as a result of fraud, and only fraud, it cannot fall back to gross negligence or negligence in Court. See U.S. v. Nitek Electronics, Inc. (Fed. Cir. 2015). There are no lesser included offenses in administrative penalty cases.
The reason for this is that CBP has failed to "exhaust" the administrative process. As a result, the future defendant has not had notice of the claim against it. Nor has the defendant had a full opportunity to respond to the claim. Absent that opportunity, CBP has not perfected its claim as required by the statute.
The fact that the Court of International Trade decides the matter de novo only means that the government must present admissible evidence of the violation to the Court. Defendants can then introduce admissible evidence showing either that no violation occurred or that it exercised the required degree of care. This is distinct from the "on the record" judicial review of other administrative matters in which the Court is limited to the record made in the administrative proceeding. The Court of International Trade also sets the penalty amount.
United States v. Aegis Security Insurance Co. and Tricots Liesse 1983, Inc., a recent decision of the Court of International Trade adds even more heft to the exhaustion requirement.
The underlying issue here is a messy series of NAFTA claims, a prior disclosure, followed by an offer in compromise, and a penalty notice. The critical issue is that the Pre-Penalty Notice included the statement that the importer had the right to make an oral presentation as to why the penalty should not be imposed. There were some telephone calls between non-lawyer representatives for the importer and Customs that appear to have been related to the offer in compromise and a subsequent offer in compromise.
Counsel for the importer then sent a letter to Customs seeking a face-to-face meeting concerning the penalty claim. Customs put off the proposed meeting while litigation was pending with the surety. No meeting occurred and CBP issued the final penalty determination. When the importer did not pay, the government filed a suit in the CIT seeking to collect the assessed penalty.
In Court, the defendant contended that Customs' failure to provide the requested meeting means that it had failed to perfect a valid penalty claim. As a result, the entire claim should be dismissed. For its part, the Government contends that the multiple phone calls were sufficient opportunity for the defendant to address the issues.
The Court found that the requirement for exhaustion applies to CBP civil penalty cases. Moreover, the Court found it to be "undisputed that Customs failed to perfect its claim for a monetary penalty." In holding that the phone calls between company representatives and Customs were insufficient to satisfy the statutory requirement, the Court said (citations omitted):
The record evidence demonstrates that this post Notice of Penalty telephone call was not conducted in the usual, more formal, manner in which Customs proceeds with penalty cases, and no officials from Customs’ Fines, Penalties & Forfeitures Office (the office generally charged with conducting any requested oral hearings during the pre-penalty and penalty phases of § 1592 claims) participated in the telephone call. In addition, it is undisputed that following the issuance of the Notice of Penalty, the August 3, 2013 telephone conversation, and Customs’ June 13, 2014 rejection of Tricots’ second offer in compromise, Tricots made requests for a § 1592(b) oral presentation on September 15, 2014, October 30, 2014, and November 21, 2014, more than one year before Customs issued its November 24, 2015 Final Penalty Determination. Moreover, Tricots signed waivers of the statute of limitations, “in order that [it] might obtain the benefit of the orderly continuation and conclusion of an administrative proceeding,” which effectively waived the statute of limitations through August 18, 2016. Notwithstanding Tricots’ requests and concerns, and a lack of urgency for Customs to make its Final Penalty Determination, Tricots was told that “any meeting at this time would be premature.”
This is consistent with the legislative history, which notes that the importer would have the right to make oral and written representations in a mitigation proceeding before the decision on mitigation is decided. The importer needs an opportunity to "fully resolve a penalty" before proceeding to court as a defendant. According to the Court of International Trade, that means the importer (or party charged in the penalty action) must have a meaningful opportunity for an oral presentation. The Court points to testimony characterizing this as a "hearing," which might be overstating the case, but it makes the point. The oral presentation requirement means there should be a formal meeting at which there is a full opportunity for the importer to be heard.
This is such an important part of the administrative process that the CIT did not require that the defendant show prejudice. The Court, therefore, granted summary judgment with respect to this portion of the case.
What do we learn from this? If you are in the private bar, ALWAYS ASK FOR A MEETING. If you are at CBP, ALWAYS GRANT A MEANINGFUL MEETING.