Wednesday, April 25, 2012

I'm Exhausted

The Court of International Trade has handed down an interesting penalty decision in United States v. Nitek Electronics, Inc. concerning an importer who allegedly failed to properly deposit antidumping duties on malleable iron pipe from China. For our purposes, the interesting issue has to do with the scope of the administrative penalty case as compared with the court action.

In the administrative process, Customs and Border Protection issued both a pre-penalty and a penalty notice that asserted a "tentative culpability" of gross negligence. This means that the potential penalty was four times the duties owed. It also means that, to collect, Customs would have to show evidence of gross negligence such as a willful disregard of the rules. However, when the case came to Court, the Justice Department asserted a claim based on simple negligence. This requires only evidence that the importer failed to act with the degree of care a similarly situated, reasonably prudent importer would exercise. That's a different thing. Consequently, the defendant importer made the clever argument that because this is a different claim, Customs and Border Protection has failed to go through the full administrative process and, therefore, is improperly in Court. The defendant moved to dismiss claiming a lack of subject matter jurisdiction and that CBP failed to exhaust its administrative remedies.

On jurisdiction, there was considerable discussion over whether exhaustion is a jurisdictional requirement. The Court noted that exhaustion is not usually jurisdictional unless Congress has stated so in clear language. In this case, the penalty statute (19 USC 1592) does not include clear language making exhaustion jurisdictional. Thus, the Court found that it had jurisdiction to hear the case, meaning it has the power to review the matter. That is not the same as saying that Customs properly made the claim.

Turning to the claim itself, the Court found that its role in a penalty case is not to impose a penalty. Rather, these are collection cases in which the government is seeking to recover a penalty the government already imposed imposed. [I'm not sure a review of the case law would convince me of that, but take it as true for now.] According to the defendant, the fact that Customs never imposed a penalty based on simple (as opposed to gross) negligence means that the claim was not properly exhausted administratively. As I said, this is a clever argument. Kudos to the lawyers involved.

The government took the reasonable position that because the defendant had notice of a claim based on gross negligence, it necessarily had notice of a claim based on simple negligence. In the criminal world, I think this counts as the lesser included offense theory. We know from a case called U.S. v. Optrex, that Customs cannot increase the level of culpability once in Court. But, according to the United States, the same rule should not apply when moving downward.

The Court did not agree. Rather, it held that the statute requires more specificity in the claim and precision in the administrative process. Customs is required to notify the potential defendant of the change in the claim and Customs failed to do that here. Having failed to provide that notice, the Court found that Customs did not properly exhaust the administrative process. Further, in the absence of any asserted reason to grant a waiver, the Court held that the penalty claim against Nitek was barred.

There was still the matter of the collection of duties, as opposed to the penalty. On that front, the Court found the Customs had no need to exhaust administrative remedies or even to make a penalty claim. Thus, with the exception of six entries not properly included in the case, the duty collection case was permitted to proceed.


Sarah said...

Again, like the Ford issue, this seems a case based on deciding how much power the government really has. I’m not a legal expert by any means, and therefore I really don’t know, but I’m not sure there’s enough evidence of what is right here.

Robert Rogers said...

How will this impact the customs penalties in the future? Does it result is a change to the statute or a change in the practice of Customs?