Thursday, August 18, 2011

Surety Not Too Late

The Federal Circuit has reversed a decision of the Court of International Trade involving whether the surety on a customs bond should have filed a protest to challenge Customs' collection efforts. Hartford Fire Insurance Co. v. United States is interesting for a couple reasons. First, the courts don't see a lot of suretyship cases. Second, this one was handled successfully by my partner Rick Van Arnam; so I say it is interesting.

This is one of those cases that is all about whether the Court of International Trade has jurisdiction to review a decision. The underlying issue is whether the surety is liable for the importer's default. Hartford, the surety, filed a suit in the CIT seeking to prove that it was not liable for the debt due to what might have been criminal acts by some employees of the importer. Customs defended that claim by arguing that Hartford should have raised the issue in an administrative protest at Customs rather than in Court. For administrative law students, that is an exhaustion argument. For Customs lawyers, that is the argument that you can't get into the CIT based on its broad grant of residual jurisdiction when you could have gotten into court on the basis of a denied protest.

Hartford, however, argued that it did not know that it might have a defense to the claim until after the  protest period expired. Consequently, no protest was possible and there was no need to exhaust the administrative remedies.

A majority of the Federal Circuit reviewed the facts and agreed with Hartford. The key facts are that during the protest period Hartford had knowledge that there was a criminal indictment relating to the importation of this merchandise. The indictment, however, was of a named individual and the related documents did not implicate the importer or the shipments secured by Hartford. Thus, the question comes down to whether that information was sufficient notice of a claim to require the filing of a protest. Two out of three Federal Circuit judges said it was not. The dissenting judge believes that the information available to Hartford during the protest period was sufficient to find that Hartford should have known of its possible claim.

Obviously, this is a very fact-specific case and the outcome was a close call. All of which means, Rick did a good job. Congratulations.

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