United States Court of International Trade:   

Bankruptcy Stay Does Not Bar Action to Determine 19 U.S.C. §1592 Penalties

The automatic stay on lawsuit and actions to collect debts which attaches to a bankruptcy filing does not operate to block the government from pursuing a lawsuit to determine Customs penalties under Section 592 of the Tariff Act, according to recent decision of the United States Court of International Trade.

In United States v. Rupari Food Services, Slip Op. 17-104 (August 10 2017), Customs sued an importer to recover withheld duties and penalties arising out of an alleged pattern of activities designed to evade antidumping duties on crawfish. Administrative and judicial proceedings relative to the case had been in progress for nearly two decades. After the lawsuit was filed, Rupari, the importer, filed for Chapter 11 bankruptcy protection, and asserted that the automatic stay which applies in bankruptcy cases [11 U.S.C. §362(a)] required the Court to stay action in the case.

Describing the issue as one of first impression, Judge Gary Katzmann ruled that the “19 U.S.C. § 1592 civil penalty action is exempt from the automatic stay in bankruptcy under 11 U.S.C. § 362(b)(4), insofar as it constitutes an action for the entry, rather than the enforcement, of a money judgment. The court held that a suit to determine liability for a penalty and to liquidate the government’s claim to a certain amount did not improperly give the government an advantage over other creditors. On the other hand, the Court suggested that a suit to collect the judgment would have violated the stay.

Defects Did Not Invalidate Customs Surety Bonds, Court Rules

Technical defects in certain Customs single entry bonds did not render the bonds invalid, nor preclude Customs from suing to recover on them, according to a recent decision by the United States Court of International Trade.

Hartford Insurance Co. v. United States, Slip Op. 17-103 (August 10, 2017) was a consolidated action protesting demands on the surety under some 53 discrete single entry bonds, most to secure entries subject to antidumping duties. Hartford sought to recover some $2.2 million paid in duties with respect to the bonds.

Initially, Hartford had contended that errors in the execution of some 45 bonds rendered the bonds invalid, but subsequently withdrew that argument. The court dismissed the claims as moot.

In addition, the Court dismissed two claims because Hartford had not paid all liquidated duties, taxes and fees prior to the commencement of suit. The court  restated the well-established rule that prepayment of all monies owed in Customs protest cases is an absolute prerequisite to invoking the Court’s jurisdiction, which cannot be modified or waived. In these cases, Hartford had paid the estimated duties demanded, rather than the full penal amounts of the bonds.

With respect to Hartford’s claim that certain bonds were void for failure to meet the technical requirements of Part 113 of the Customs regulations (missing information, missing signatures, etc), the court ruled that these provisions were directory rather than mandatory, and that they were intended for the benefit of Customs rather than the surety. The court found irrelevant a report from CBP’s Office of the Inspector General (OIG) finding that Customs had written off some $46.3 million in revenues, due to bond defects, holding that the report was not the position of the agency.

If Customs accepted the bonds despite the technical defects, the surety was not prejudiced thereby, noting that the liabilities did not arise from the technical defects, but from the defaults of the various secured principals.

Finally, the court rejected Hartford’s argument that the single entry bonds were not binding contracts, holding that technical defects in the completion or execution of the contracts did not prevent contract formation under established legal principles.