Thursday, August 13, 2009

CAFC Remands Broker Penalty Case

On August 11, the Federal Circuit issued an opinion in UPS Customhouse Brokerage. We have covered this case a number of times including here, here, and here. The really interesting question in UPS is whether there is a statutory limitation on the penalties that can be assessed against brokers. UPS has argued that 19 U.S.C. § 1641(d)(2)(A) should be read to limit the liability for all violations prior to the notice of penalty to $30,000. Unfortunately, that issue is not decided in this decision.

Rather, the Court of Appeals first held that UPS had been using the wrong tariff classification. This is despite a fancy legal argument based on the last antecedent rule. That's one of my customs lawyer favorites. It posits that an adjectival phrase modifies the previous noun most close to it. So, according to UPS, when the HTSUS says "parts and accessories of machines of heading 8471: Not incorporating a cathode ray tube," it covers parts and accessories of machines that do not incorporate cathode ray tubes. The parts themselves might be chock full of CRTs. The Court rejected this and held that the modifier operates on "parts and accessories," not on "machines." This is easier to see if you have the tariff in front of you and can see the indents.

The next question had to do with how Customs and Border Protection determines whether a broker has exercised responsible supervision and control. The relevant regulation is 19 CFR § 111.1, which lists factors Customs "will consider." Apparently, Customs did not consider all of the factors listed. UPS argued, therefore, that CBP's determination is invalid. Customs, on the other hand, seemed to admit that it did not consider all of the factors, but argued that it had discretion to consider only those it viewed as relevant. Further, CBP argued that the Court of International Trade had to defer to that decision.

The Federal Circuit disagreed. It held that the regulation provides a clear mandate to consider all the factors. Customs has discretion in how it weighs each factor but, according to the Court, it has to consider all of them. Agencies must follow their own regulations and Customs failed to do so.

Unfortunately for UPS, the Court did not invalidate the penalty case entirely. Instead, it remanded the case for further proceedings. That means we can expect the CIT to remand the case to Customs to consider all the factors and report back with a new determination, which is likely to be the exact same decision.

Given this conclusion, the Federal Circuit found it to be premature to decide the interesting question. That means this issue is going to have to come back up the Court of Appeals and that might take a while.


Anonymous said...

john anganos owner of city fish and his family embezzeled 2.3 million dollars from the state of connecticut in 2001 and transfered it to an overseas account which now pays annuitys to all those involved. the fbi investigated but is having problems recovering the funds from the greek bank where anagnos serves as a board member. The money was funded from a Enron/CRRA fund during the rowland administration.

Larry said...

Anyone want to make an argument for how that comment relates? Just for fun?