Domestic ADD Parties are not Beneficiaries of Surety Contracts

Usually, I stay away from antidumping cases. This is, after all, the Customs Law Blog. I leave it to others to run the trade law blog. But, Sioux Honey v. Hartford is an interesting case from many perspectives despite the underlying issues having to do with trade relief.

The theory in this case is that many sureties negligently issued bonds to new shippers of products subject to antidumping and countervailing duty orders and, as a result, caused injury to the domestic industry. That injury resulted, I gather, from the continued ability of the companies to export to the U.S. market at less than normal value when the importers were likely to subsequently default on the duties owed. Or something like that. As a result, the U.S. collected less in duties and distributed less to the domestic industries under the Continued Dumping and Subsidy Offset Act of 2000 (the "Byrd Amendment").

At base, the theory is that the domestic parties in a dumping case are third-party beneficiaries of the surety contract and, therefore, the surety owes a duty of care to the domestics. There is some logical sense to this. The dumping law, and in particular the CDSOA, is intended to protect the domestic industry from unfair competition and offset the expense of pursuing remedial measures. If a surety acts in a way that undercuts that protection, it seems that there might be some cause of action for relief.

At least so far, it seems that there is not. In this decision, the Court knocked some of the windout of the plaintiffs' sails by finding that the domestic industry is not a third-party beneficiary to a new shipper bond. In summary, the Court said that the contract is between the importer and the surety. The contract is intended to protect Customs and Border Protection by ensuring the collection of antidumping duties. That makes Customs the third-party beneficiary. Nothing in the contract, the customs regulations or the law makes the domestic industry a third-party beneficiary.

Having made that determination, the Court dismissed the claims that relate to the sureties or to the sureties and the United States together. The Court left in place claims against the United States.

One different claim was based on the alleged negligence of the sureties in issuing the bonds and, thereby, causing damage to the domestic industry. On this point, the Court could find no authority for the proposition that the sureties owed the domestics a duty of care. Without a duty of care, there can be no breach of that duty and, therefore, no negligence. Thus, that claim was also dismissed.

For my purposes, the more interesting issue had to do with whether the Court of International Trade had jurisdiction to hear the case in the first place. Almost every case in the CIT has the United States as the primary plaintiff or defendant. You may have noticed that this case is primarily a dispute between private parties: the domestic industries and the sureties. There are claims against the United States, but they were not considered at this stage of the litigation.

The jurisdiction theory is that the claims against the United States and against the private parties arise out of the same facts and, therefore, the Court has pendant-party jurisdiction. This common law concept is intended to vex law students and also allow federal courts to resolve all the related aspects of a single case in one action rather than require the parties to pursue claims in multiple courts. The Court disagreed on the grounds that common law pendant-party jurisdiction has been supplanted by a statutory grant of "supplemental jurisdiction" in 28 USC 1367.

The problem with this is that 1367 never mentions the Court of International Trade. Rather, it identifies only the district courts. This conundrum might solved by the fact that another provision of federal law gives the CIT all the powers in law and equity of a district court. The Court next faced an interesting question of whether the ability to exercise supplemental jurisdiction under 1367 is a power in law and equity. To cut to the chase, it is; although the question was close. Part of the reason for this is that the CIT is an Article III court, just like a district court, and, therefore, can reasonably be said to have possessed this power without the benefit of a statute. The statute granting it to district courts, when combined with the statute giving the CIT the same powers in law and equity imply that one way or another the CIT can hear the case.

Based on that analysis, the Court found that it had jurisdiction over all the claims. Nevertheless, because the plaintiffs could not prove that they are beneficiaries of the contract, they ultimately lacked standing to pursue claims against the sureties. As a result, as discussed at the top of this post, those claims were dismissed.