Civil Penalty Liability for Owners, Officers, and Employees of Corporate
Importers: The Federal Circuit Takes a New Look at an Old Issue in
U.S. v. Trek Leather

May 13, 2014

Can an employee of a corporate importer be personally liable for civil penalties and duties for negligent or gross negligent violations of 19 U.S.C. § 1592 (the civil fraud provision) for supplying U.S Customs and Border Protection (“CBP”) with materially false (incorrect) import documents or statements, or for omitting relevant information?

This is the question that will be considered by the Court of Appeals for the Federal Circuit (“CAFC”) when they take up the case of U.S. v Trek Leather, Case No. 2011-1527 (2013) (“Trek Leather”) on an en banc motion for rehearing. If the CAFC reverses itself, employees and 3rd parties who, according to CBP, are involved in a non-fraudulent violation of § 1592 by a corporate importer may be held personally liable for civil penalties and duties.

The potential impact of a reversal in Trek Leather may have a far ranging effect on the liability of employees of importers and third party service providers. For example, CBP frequently alleges that the classification of the goods by an importer on the 7501 entry summary that is contrary to an existing ruling is negligence and would permit collection of past duties and penalties for up to five years. A reversal of Trek Leather could make parties other than the Importer of Record, including employees and third parties responsible for the classification, individually liable for duties and penalties.

What’s All the Fuss About?

In the Trek Leather, the company president and sole shareholder, Harish Shadadpuri (“Shadadpuri”), had knowledge of the company’s failure to declare the cost of fabric assists he provided to foreign contract manufacturers in the price actually paid or payable for the merchandise. Shadadpuri, when employed with another company, failed to declare assists, and the company paid a mitigated § 592 penalty claim in that case. However, in Trek Leather, Shadadpuri argued that he cannot be held personally liable for gross negligence because Trek Leather was the importer of record, and he did not act intentionally and was not an “aider or abettor” under 19 U.S.C. § 1592(a). In response, the trial court said:

“[t]he language of § 1592 leaves room for those other than the importer of record to be held accountable for violations,” and that Shadadpuri “was personally liable under the statute because ‘[t]he plain language, which proscribes negligent false entries by a person, does not recognize an exception for negligent corporate officers … [A] corporate officer who is negligent can be held liable under § 1592(a).’”

The CAFC, however, overruled the trial court in a split 2-1 decision, noting it had rejected personal liability of third parties where the importer was a corporation and the violation was non-fraudulent. The CAFC said that CBP could have attempted to pierce the corporate veil of the corporation to establish that Shadadpuri was the actual importer of record; that Shadadpuri was liable for intentional fraud; or, that Shadadpuri was an aider and abettor of intentional fraud committed by Trek – choices the CAFC noted that CBP chose not to pursue.

The Reach of § 1592 to Persons Involved in Import Transactions

§1592, provides that “no person,” by fraud, gross negligence, or negligence, may enter or attempt to enter merchandise into the commerce of the United States . . . by means of a document or electronically transmitted data which is material and false, or by any omission of information that is material. Taken alone, §1592 broadly includes any person, including employees and officers who are involved in a customs transaction and supply CBP with false import documentation. 

The issue, CAFC stated, was not whether Shadadpuri is a “person” as defined in § 1592, but whether a corporate officer can be personally liable for a corporate importer of record's negligent violation of §§ 1484 and 1485 and punished under § 1592(c)(2). The CAFC was not willing to read § 1592 quite so broadly, but instead, read it in connection with 19 U.S.C. 1484, which provides that a party qualifying as an “importer of record” must use “reasonable care” in completing and submitting entry documentation to enable CBP to properly assess duties on the merchandise. The CAFC explained that § 1592(a) focuses on particular conduct – the entry of merchandise into the United States – by a particular person, the importer of record. It noted that the statutedoes not punish all fraud or negligence in dealings with CBP. The statute punishes such acts only when they occur in connection with the “entry” of merchandise into the United States and only when they are of such character as to affect CBP’s decision-making when assessing duties in connection with such entry:

§ 1592(a) does not simply prohibit persons from lying to Customs — though there may be other civil or criminal provisions which address that activity — it only bars persons from making misstatements to Customs in connection with the entry of merchandise into the United States, and only from doing so in a way that might tend to affect Customs' assessment of duties on that merchandise.

The CAFC rejected the government's argument that § 1592 should be read broadly to encompass entities or individuals who, though not importers of record, are actively involved with the funding or control of the entry of merchandise by the importer of record. The court expressly declined to adopt a broad legal principle that would expose all corporate officers and shareholders to personal liability for negligent acts they undertake on behalf of their corporation and also declined to reverse or dilute its holding in United States v. Hitachi America, 172 F. 3d 1319 (1999).

Prior Court Decisions Finding or Rejecting Officer and Employee Liability Under § 1592

In United States v. Appendagez, Inc., 5 C.I.T. 74 (1983), the Court of International Trade (the “CIT"), which has exclusive jurisdiction over § 1592 penalty actions, held that § 1592 applies to “all persons.” That is, the court said, the statute’s application is not limited only to corporations or to natural persons. Since then, the CIT has ruled that any person who violates the statute can be held liable, whether or not he or she is the importer of record. There has been, however, a question of whether a person, acting for or on behalf of a company, can be named in a penalty case if the level of culpability does not amount to more than gross negligence or negligence.

§ 1592 liability for non- importers was limited by the CAFC in Hitachi America. The government brought an action against Hitachi America as the importer to recover penalties and lost duties under § 1592, asserting claims in the alternative of fraud, gross negligence, or negligence in connection with the undervaluation of imported merchandise. The government asserted that Hitachi America’s foreign parent, Hitachi Japan, was also liable as an aider and abettor. The trial court (the CIT) dismissed the claims alleging fraud and gross negligence, and found that Hitachi America was negligent in filing entries for undervalued merchandise. The court also said that Hitachi Japan was liable under § 1592 for aiding or abetting the negligent acts of Hitachi America. On appeal, the CAFC reversed and dismissed the claim against Hitachi Japan. The court said that Hitachi Japan could not be held liable for a violating § 1484 (entry requirements) and §1485 (declarations) because it was not the importer of record. The court further ruled that civil liability for aiding or abetting requires proof of knowledge of unlawfulness of the action and that a party cannot be held liable for negligently aiding and abetting a negligent act. Rather, the actions of the violator must be intentional.

Notwithstanding Hitachi America, there have been cases where owners or officers of a corporation were held liable for violating § 1592. In Golden Ship Trading (22 C.I.T. 950 (2001)), the government brought an action against the importer of record, Golden Ship Trading Company, Incorporated (“Golden Ship”) and a principal of the company, Joanne Wu (“Ms. Wu”), to recover civil penalties for misrepresenting the country of origin of imported wearing apparel. Ms. Wu had signed the entry papers and the declaration stating that the country of origin of the tee-shirts was the Dominican Republic. Ms. Wu argued that as a corporate officer acting on behalf of a company, which was the importer of record, she could not be held personally liable for negligence for supplying CBP with false import documentation. The CIT disagreed, and said that “[t]he plain language [of § 1592], which proscribes negligent false entries by a person, does not recognize an exception for negligent corporate officers.” The CIT also held that even if Ms. Wu had no knowledge of the falsified information provided on import documentation, she could still be named personally in a lawsuit for negligence along with the importer of record, Golden Ship Trading. There had been no appeal filed.

Subsequently, in United States v. Matthews, 31 CIT 2075, 533 F. Supp. 2d. 1307 (2007), corporate and individual defendants were found jointly and severally liable for violations of § 1592 based on fraudulent false statements of origin on entry documentation to avoid payment of antidumping duties. The CIT found that the individual defendant, Matthews, was engaged in specific acts in furtherance of the fraudulent scheme, and found him liable.

In contrast, in United States v. Tip Top Pants, Inc., 32 Slip Op. 2010-5 (2010) the CIT dismissed a case against an individual defendant who had no involvement in the importations other than serving as Chairman and Chief Executive Officer of the corporation. The government alleged that Nigri was a person who negligently violated § 1592(a).

The Implication of a Reversal of Trek Leather to Business Owners, Corporate Officers, Employees and 3rd Parties

If the CAFC reverses its decision in Trek Leather, then it means that that business owners and corporate officers and employees may also be jointly and severally liable for duties and penalties for non-fraudulent violations of § 1592.

But what about liability for customs brokers and consultants? If the en banc panel broadly construes the word “persons” in § 1592 to extend to employees, owners and corporate officers, such liability could also extend to 3rd parties that provide negligent or grossly negligent advice or guidance to the corporate importer in connection with the filing of Customs entries.

Traditionally, CBP has attributed acts of negligence or gross negligence by a customs broker, such as the misclassification of the merchandise, as the acts of the principal — the importer of record. Currently, a customs broker that is filing an entry on behalf of an importer is potentially liable for failure to exercise responsible supervision and control under 19 U.S.C. § 1641(b)(4) rather than a penalty under § 1592. While we do not expect a change, a licensed broker or other party that is providing non-entry filing consulting services could potentially be liable as a “person” under § 1592.  

A reversal by the CAFC of its decision in Trek Leather, has exceedingly broad and potentially far-reaching consequences for employees, owners, and officers of corporate importers, and for licensed brokers and other professionals that provide non-entry filing consulting services, as they could be jointly and severally liable for non-fraudulent violations of § 1592.

A decision is expected later this year and the losing party can be expected to petition the Supreme Court with a writ of certiorari to review the en banc decision of the CAFC.

If you have any questions about this or other customs matters, please contact either George R. Tuttle, III, at, or George R. Tuttle, Sr., at, or by telephone at (415) 986-8780.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2014 by the Law Offices of George R. Tuttle, APC.

All rights reserved. Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.



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