Interest: Equitable and Otherwise
The Federal Circuit has affirmed the Court of International Trade's holding that a surety is be liable for statutory interest but not for equitable interest when the importer defaults on the payment of antidumping duties. What follows is heavy on law, short on fact, and important to sureties and also importers. The case is United States v. American Home Assurance Company.
When importers fail to pay duties, taxes, and fees to the U.S. government, the government can collect interest on the unpaid portion. If the importer defaults, the surety becomes liable up to the value of the bond, unless the surety has a defense it can assert (and [spoiler] actually asserts it). In this case, the importer defaulted on the payment of antidumping duties and Customs tried to collect the duties and interest from the surety. There was no question about the liability for the duties. The questions presented has to do with interest.
There are multiple bases for the interest. First, interest is available to the United States under 19 U.S.C. 1505(d), which states:
Starting with equitable prejudgment interest, the United States appealed the Court of International Trade's decision to deny prejudgment equitable interest. The Federal Circuit held that equitable remedies are generally unavailable when there is an adequate statutory remedy. Section 580 would appear to provide a statutory remedy at the relatively high rate of 6%, making the government whole. There is, however, a wrinkle in this case in that the recent Trade Facilitation and Trade Enforcement Act of 2015 expressly permits the government to recover both equitable prejudgment interest and statutory interest under section 580.
Nevertheless, equitable interest remains equitable in nature. The fact that Congress recognized that the Court of International Trade might award equitable interest does not mean the CIT must do so. Here, the Federal Circuit held that the CIT properly considered the equitable factors and concluded that the government was sufficient compensated by the statutory interest. Thus, the denial of additional equitable interest was proper.
Regarding the section 580 interest, the issue was not the availability of the remedy, which is clearly permitted under the statute. Rather, the surety argued that the CIT improperly permitted section 580 interest to be calculated on top of the section 1505(d) interest, putting interest on interest. The surety also argued that the relevant date for when interest should start to run is the date of denial of the protest rather than the first demand for payment.
On the first question, the Federal Circuit interpreted section 508 as clearly permitting interest on the entire bond amount, including 1505 interest. This would obligate the surety to pay interest on interest up to the amount of the bond. Regarding timing, the Court said section 508 is "clear and unambiguous" that the interest clock begins to run on the government's first formal demand.
The issue with respect to section 1505 interest was different. This is the legal question of whether the surety waived its right to content the interest by failing to challenge the denial of the protest and pay the duties and fees owed. The underlying rationale here is that decisions by Customs imposing charges or exactions on an importer are final and conclusive unless a protest of law suit contesting the liquidation is properly commenced. A surety is permitted to challenge a charge or exaction through an administrative protest. The fact that the interest is assessed after liquidation, does not change its nature as a protestable charge. Here, Customs denied the protest. At that point, is the defendant wanted to challenge the charge, it needed to file a summons in the Court of International Trade. For whatever reason, AHAC chose not to exercise that right and the decision became final and conclusive.
The latter point is very important. Where an importer or surety disagrees with Customs' efforts to collect duties, taxes, fees or interest, it must challenge the charge or exaction. Failing to protest will result in a final and conclusive assessment and will divest the importer or surety of the right to challenge it when sued in the CIT. I'm not happy with this result. It produces a waiver of defenses that many importers may not understand or appreciate. It is, however, the law.
When importers fail to pay duties, taxes, and fees to the U.S. government, the government can collect interest on the unpaid portion. If the importer defaults, the surety becomes liable up to the value of the bond, unless the surety has a defense it can assert (and [spoiler] actually asserts it). In this case, the importer defaulted on the payment of antidumping duties and Customs tried to collect the duties and interest from the surety. There was no question about the liability for the duties. The questions presented has to do with interest.
There are multiple bases for the interest. First, interest is available to the United States under 19 U.S.C. 1505(d), which states:
If duties, fees, and interest determined to be due or refunded are not paid in full within the 30-day period specified in subsection (b), any unpaid balance shall be considered delinquent and bear interest by 30-day periods, at a rate determined by the Secretary, from the date of liquidation or reliquidation until the full balance is paid. No interest shall accrue during the 30-day period in which payment is actually made.
Upon all bonds, on which suits are brought for the recovery of duties, interest shall be allowed, at the rate of 6 per centum a year, from the time when said bonds became due.
Starting with equitable prejudgment interest, the United States appealed the Court of International Trade's decision to deny prejudgment equitable interest. The Federal Circuit held that equitable remedies are generally unavailable when there is an adequate statutory remedy. Section 580 would appear to provide a statutory remedy at the relatively high rate of 6%, making the government whole. There is, however, a wrinkle in this case in that the recent Trade Facilitation and Trade Enforcement Act of 2015 expressly permits the government to recover both equitable prejudgment interest and statutory interest under section 580.
Nevertheless, equitable interest remains equitable in nature. The fact that Congress recognized that the Court of International Trade might award equitable interest does not mean the CIT must do so. Here, the Federal Circuit held that the CIT properly considered the equitable factors and concluded that the government was sufficient compensated by the statutory interest. Thus, the denial of additional equitable interest was proper.
Regarding the section 580 interest, the issue was not the availability of the remedy, which is clearly permitted under the statute. Rather, the surety argued that the CIT improperly permitted section 580 interest to be calculated on top of the section 1505(d) interest, putting interest on interest. The surety also argued that the relevant date for when interest should start to run is the date of denial of the protest rather than the first demand for payment.
On the first question, the Federal Circuit interpreted section 508 as clearly permitting interest on the entire bond amount, including 1505 interest. This would obligate the surety to pay interest on interest up to the amount of the bond. Regarding timing, the Court said section 508 is "clear and unambiguous" that the interest clock begins to run on the government's first formal demand.
The issue with respect to section 1505 interest was different. This is the legal question of whether the surety waived its right to content the interest by failing to challenge the denial of the protest and pay the duties and fees owed. The underlying rationale here is that decisions by Customs imposing charges or exactions on an importer are final and conclusive unless a protest of law suit contesting the liquidation is properly commenced. A surety is permitted to challenge a charge or exaction through an administrative protest. The fact that the interest is assessed after liquidation, does not change its nature as a protestable charge. Here, Customs denied the protest. At that point, is the defendant wanted to challenge the charge, it needed to file a summons in the Court of International Trade. For whatever reason, AHAC chose not to exercise that right and the decision became final and conclusive.
The latter point is very important. Where an importer or surety disagrees with Customs' efforts to collect duties, taxes, fees or interest, it must challenge the charge or exaction. Failing to protest will result in a final and conclusive assessment and will divest the importer or surety of the right to challenge it when sued in the CIT. I'm not happy with this result. It produces a waiver of defenses that many importers may not understand or appreciate. It is, however, the law.
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