By Dennis Crouch
US v. Trek Leather (Fed. Cir. 2014) (en banc rehearing)
The Federal Circuit today granted the US Government’s petition for en banc rehearing of a case stemming from the United States Court of International Trade. The USCIT is an Article III court formerly known as the US Customs Court that hears cases involving customs, duties, and anti-dumping rules. Appeals from the USCIT are heard by the Federal Circuit Court of Appeals – about fifty per year.
Although the meat of this case is the statutory interpretation of 19 U.S.C. § 1592, patent professionals (and corporate attorneys in general) will likely be interested in the veil piercing aspects of the case. The case is also an important reminder that someone’s status as a director or owner of a limited liability entity does not immunize that person from individual tort liability. See, e.g., Frances T. v. Village Green Owners Assn., 42 Cal.3d 490 (1986).
Briefly, Trek Leather’s president and majority owner, Mr. Harish Shadadpuri submitted false entry documents to Customs & Border Patrol (CPB) that undervalued the men’s suits being imported with the result being an under-collection of customs duties owed. The money-owed was later paid, but the US Government also filed suit under section 1592 – asking that Mr. Shadadpuri be personally fined for the misrepresentation. The USITC court awarded summary judgment to the US Government based upon a finding that Shadadpuri had been grossly negligent in his statements. On appeal, the Federal Circuit reversed – finding that the statute did not permit veil piercing of this sort. In particular, the appellate panel held that section 1592 penalties could not be imposed upon a person who was acting in his capacity as officer of a corporate “importer of record” for negligently filling out entry papers required of the corporation, absent a piercing of the corporate veil or a showing of fraud. (Opinion by Judge O’Malley). Judge Dyk dissented and argued that both the plain language of the statute and its legislative history would permit this action even absent veil piercing or fraud.
Here, the statute is fairly clear: “no person, by fraud, gross negligence, or negligence—(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of (i) any document … which is material and false.” 19 U.S.C. § 1592(a)(1). The statute seems to suggest that, since Shadadpuri is a person, then he would be liable for the submission. This result would also comply with the traditional notions of common law tort liability that would find the individual actor liable for negligence (even if someone else is also liable under an agency or joint tortfeaser doctrine). The majority opinion of the Federal Circuit recognized the section 1592 argument, but looked to other sections of Title 19 that discussed only the “importer of record” being the party who submits the entry documents – the result being that (by construction of law) the submission by Shadadpuri should be seen as coming only from his company Trek Leather and not from Shadadpuri personally.
The en banc rehearing will focus on the following set of questions:
A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into US commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision? How do other statutory provisions of Title 19 affect this inquiry?
B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2) and (3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?
C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?
Amicus briefs may be filed without leave in the case.