Monday, February 25, 2013

Customs Law from the 11th Circuit

Sometimes interesting customs law cases come from outside the Court of International Trade and the Court of Appeals for the Federal Circuit. In this case, it comes from the Eleventh Circuit, with a special guest appearance from the Court of International Trade.

The case is United States v. Izurieta, which involved two individuals (both named Izurieta), who started a trading company to import food products from Central America for distribution in the United States. It turns out that several entries of food products were contaminated with a number of nasty pathogens including E. coli and Salmonella. The legal problem for the defendants stems from their failure to redeliver the merchandise to Customs and Border Protection when demanded.

Keep in mind what happens to food when it arrives for entry. First, the paperwork or electronic data is examined by U.S. Customs and Border Protection. The goods then go through approval and possible inspection by the Department of Agriculture. Finally, food is subject to inspection by the FDA. Customs permits importers to take possession of the imported goods prior to FDA review on a conditional basis, pending release by the FDA. To make that work, Customs requires importers to post a bond. Under the Customs regulations and the terms of the bond, the importer may be required to redeliver the merchandise to Customs.

The question in this case is what happens if the importer fails to make redelivery. As most commercial importers know, the breach of the bond terms can result in a claim for liquidated damages. See 19 C.F.R. § 141.113. The United States Attorney for the Southern District of Florida believed that the failure to redeliver, export, destroy or make available for examination also constituted a criminal offense and charged the Izurietas with 18 U.S.C. § 545,which states, in part:

Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law
Shall be fined under this title or imprisoned not more than 20 years, or both.
 Is the failure to redeliver an importation that is contrary to law?
The problem for the government is that all of the above procedure is based on regulations rather than statutes. Further, another portion of the criminal law (18 U.S.C. § 554) covers smuggling goods out of the United States contrary to "law or regulation." Does that mean that it is not a crime to import goods contrary to a regulation?
The underlying issue here is that everyone has a right to a fair warning as to what the government considers to be illegal and that Congress, not the courts, has the job of defining criminal activity. This is a legal principal known as the "rule of lenity."
Applying this rule, the 11th Circuit found that the failure of Congress to include regulations in the statute creates some ambiguity as to its scope. Several Courts, however, have held that regulations may have the full force and effect of law when they are:
  • Legislative or substantive in nature,
  • Created as a result of a delegated "quasi-legislative" authority, and
  • Issued in conformity with congressionally-imposed procedural requirements such as notice and comment.

In this case, the regulation is substantive in that it clearly establishes the obligations of the importer. Further, it was the subject of significant notice and public comment.

Nevertheless, according to the Court of Appeals, nothing in the regulation creates a criminal liability. Rather, it establishes the purely civil terms of the contractual relationship between the importer and Customs as set out in the bond. So, even though the regulation has the force and effect of law, the liability it creates is entirely civil in nature and capped at three times the value of the merchandise. Because nothing in the regulatory framework or the allegedly corresponding criminal statute provides notice that the the failure to comply with a Notice to Redeliver invokes a potential criminal penalty, the indictment of these defendants for violating the regulation was invalid. Consequently, the Court vacated the convictions, including the related conviction for conspiracy.

An interesting side note is that the opinion was written by the Honorable Jane A. Restani, United States Court of International Trade, sitting by designation. CIT judges, as federal judges under Article III of the Constitution may, with the consent of the Chief Justice, sit in other federal courts. This, by the way, is a valuable service to the other Courts and also helps to keep the judges involved in a variety of legal issues. It does, however, raise the question of whether a CIT judge sitting in another court really wants a case about the conditional release of merchandise by Customs and Border Protection and the Food and Drug Administration. That strikes me as kind of like a mechanic having to work on her own car while visiting another dealership.

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