Prejudment Interest Awarded Against Surety
I have been sitting on two decision from the Court of International Trade for a while. I will now act like a grownup and get one of them off my virtual desk.
United States v. American Home Assurance Co. is, as you might guess from the names of the parties, an action by the government to recover unpaid antidumping duties from a customs bond surety. In addition, the government is trying to collect both equitable prejudgment and interest pursuant to 19 USC 580.
The case involves unpaid antidumping duties on crawfish tail meat form China. As the surety, AHAC is jointly and severally liable for unpaid duties up to the amount of the bond, which in this case was $600 thousand. At the time the importer entered the merchandise, it declared a zero percent rate in the dumping case. Subsequently, Commerce determined that the applicable liquidation rates was 223%, ad valorem. Customs and Border Protection demanded $1.15 million from the importers. Customs initially liquidated the relevant entries in in June of 2004. The importer protested those liquidations. However, at the conclusion of other unrelated litigation involving crawfish tail meat in June of 2005, while the protests were pending, Customs reliquidated the entries. When the importer failed to pay, Customs brought this action to collect from the surety.
In its defense, AHAC argued that the demands were legally void and the it is not obligated to pay under the bond. The reasoning for this is that the erroneous reliquidations in June of 2005 cancelled the 2004 liquidation and because the 2005 reliquidations were void, they do not bind the importer. That leaves an initial liquidation that was cancelled and a void subsequent reliquidation. According to AHAC, that means the entries should be deemed liquidated by operation of law as entered; that is, without dumping duties.
The Court of International Trade did not buy this argument. The problem for AHAC is that the original liquidations were not final because the protests remained pending with Customs and Border Protection. The reliquidation, therefore, voided the original liquidation and became final when not protested. Further, the Court noted that AHAC's argument depends on the inconsistent premises that (1) the reliquidation was effective enough to void the original liquidation but (2) not effective enough to require a protest to prevent it from becoming final and conclusive. The Court rejected that interpretation. Note also that the Court referred to prior decisions in which importers were held responsible for protesting even erroneous liquidations.
With respect to interest, the Government had two theories. First, 19 USC 580 provides that when the government sues to collect duties on a bond, interest shall be allowed from the time the bond became due. According to the Government, "duties" in the statute includes antidumping duties. The Court disagreed on the basis of the historical record.
The interest statute at issue was first enacted in 1799, well before the first antidumping law of 1921. Thus, the (nearly Continental) Congress, not being psychic, could not have meant to include antidumping duties in the scope of the law. However, in other contexts, the unmodified term "duties" has been held to include antidumping duties. But, the Court noted that Commerce, not Customs administers the dumping laws and determines the rate of dumping duties deposited and assessed. Further, customs duties and dumping duties serve different purposes. Customs duties are largely rooted in revenue generation while antidumping duties are intended to remedy unfair competition. Based on this analysis, the Court held that the 1799 Congress did not clearly intend section 580 to apply to all forms of duties, no matter how distinct from regular customs duties. Consequently, no interest was applicable under the statute.
The Government's second theory was that it is entitled to interest as a matter of equity. Under this theory, a Court can award pre-judgment interest on the ground that it would be inequitable (read that as "unfair") for the government to have made an interest-free loan of the money from the date of the demand to the date of the judgment. This is an important point because sureties are usually only liable up to the bond limit. But, sureties may be subject to interest beyond the bond cap where the surety unjustly withholds payment after the principal defaults. In prior cases, the Court has limited this to situations in which the surety exhibits some misconduct in delaying payment. However, in this case, the Court held that unjust delay does not mean bad faith.
Given that, the last question was whether an award of prejudgment interest was warranted. That, according to the Court, had been considered to depend on balancing of the relative equities. But, a review of Supreme Court authority, indicated to the Court of International Trade that prejudgment interest is now awarded "as a matter of course." Finding no fault on the part of the government (despite this case resulting from erroneous liquidations), the Court found that equity favored awarding interest to the Government.
This result will make sureties very unhappy. As a result, we can expect to see whether the Court of Appeals agrees with this analysis.