Wednesday, February 10, 2010

What Did Brown Do Wrong?

I'm going to do this quickly to get it off my chest. In United States v. UPS Customhouse Brokerage, the United States sought to impose monetary penalties on UPS for failing to exercise the required level of supervision with respect to its brokering activities.

For more background, look here and here. Note that I am disclaiming my prior standard of review analysis. This is a de novo case. There is no review. The standard of review was not really a question in the first place.

Procedurally, the case is complicated. It has been before the Court of International Trade on motions for summary judgment by both parties and there was an unsuccessful effort to get the main legal question before the Court of Appeals for the Federal Circuit in an interlocutory appeal. There was a trial on the merits, which the United States won. That judgment was appealed and the Federal Circuit vacated the judgment in part and remanded to the CIT for further proceedings.

The basis for the Federal Circuit's decision was that Customs improperly failed to consider all ten factors specified in 19 CFR 111.1 in the definition of "responsible supervision and control." When the regulations says Customs "will consider" the listed factors, that is mandatory language that Customs cannot ignore.

That left open the interesting question of exactly what the Court should do on remand. One option available to the Court would be a remand back to Customs to consider all the relevant factors. Or, the Court could order additional proceedings to let the government create a full record for review in light of the Federal Circuit's interpretation of 111.1.

The Court of International Trade looked at this in the context of a request for a rehearing. In other words, ,was there surprise, accident, or mistake in the first trial? The Court found that the Federal Circuit's interpretation of the regulation was not new or surprising. Rather, because of the very novelty of the question, plaintiff should have anticipated that its interpretation was not necessarily correct. According to the opinion, "This is not a case in which Plaintiff could rely upon a long-established interpretation of the law in planning its legal strategy, but rather a case in which Plaintiff knew well in advance of trial that the success of its case could depend upon establishing evidence to satisfy either of two potential outcomes on the applicability of the [sec.] 111.1 factors."

Thus, what we have here is a failure of the government to prove its case under the legal standard set down by the Federal Circuit. Having tried to make its case and failed, the Court of International trade refused to give the government an opportunity to cure the defects through either administrative of further judicial proceedings. Judgment for the defendant.

And, we're all very likely to see this case once again in the Federal Circuit. Perhaps, if a penalty is ever assessed, we will get the answer to the far more interesting question of whether the penalty statute imposes a limitation on the total liability brokers face. That question is still out there, isn't it?


5 comments:

Lowell DeFrance said...
This comment has been removed by the author.
Anonymous said...

Larry -

Although we'll probably never see it, there should be NO limitation on broker penalties. Brokers are licensed by Customs to conduct Customs business for their clients and hold themselves out as "experts in Customs matters." If they are so "expert," why should they not be at least equally culpable with the importers they represent? The brokerage industry has long had it both ways, telling their clients what "experts" they are and then, when they screw up badly, telling Customs "Gee, I'm only the broker, I didn't know."
If you're going to dance, the old adage says, you must pay the piper.

Your faithful Customs retiree.

Lowell DeFrance said...

Do you think the issue, of whether or not $30,000 is the maximum broker penalty allowed by statute, will come up before the CAFC in our life time?

Possibly, considering your bicycle riding and healthy living, you will have the longevity for it. I doubt, however, I will live that long.

Maybe you know something I don't, but broker penalties are few and far between. There are plenty opportunities to file petitions to mitigate those penalties as well. Even then, normally customs blames the importer first. This penalty only occurred because, I believe there were likely hundreds of importers of computer parts being entered through the UPS hub. It takes an egregious error to get this far. The combination of a large brokerage house, a recurring error, and an almost indifference to solving the problem lead to this result. I personally do not think we are likely to see this situation again anytime soon.

But I don't know, how many, or who gets broker penalties. Customs stopped publishing penalties in 2005. I think it would be interesting if one of your followers with customs knew how likely this would be.

iBobChicago said...

To respond to the retired Customs officer: no, we don't have it both ways, and in fact, as a 20 year veteran of the industry, I hold out that CBP actually works against brokers more often than not. Yes, we try to be experts, but unless CBP will enforce the rules across the board, we will forever hear importer mea culpa's (I hope that is used correctly) like "my other broker never made me do that" and "my brother gets it in duty free." Moreover, when CBP can't stop importers from breaking the law, it goes after the only party it can do something against - the broker. Maybe the real issue should not be whether brokers have it both ways, but whether or not CBP can actually do the work it is charged with and not hold brokers to standards it works to undermine.

Anonymous said...

Yeah...at $80 an entry you want the broker to be liable? That would cost more like $500 an entry. Anonymous, you are WAY off base.