Hartford Fire Ins. Co. v. United States

• Citation: 34 ITRD 1910,857 F.Supp.2d 1356
• Parties: HARTFORD FIRE INSURANCE COMPANY, Plaintiff, v. UNITED STATES, Defendant.
• Decision Date: 13 August 2012
• Court: U.S. Court of International Trade

857 F.Supp.2d 1356

34 ITRD 1910

HARTFORD FIRE INSURANCE COMPANY, Plaintiff,

v.UNITED STATES, Defendant.

United States Court of

International Trade.

Slip Op. 12–107.

Court No. 07–00067.

Aug. 13, 2012.

Frederic D. Van Arnam, Eric W. Lander, and Helena D. Sullivan, Barnes, Richardson & Colburn, of New York, NY, for the Plaintiff.

Justin R. Miller, Trial Attorney, International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY, for the Defendant. With him on the briefs were Stuart F. Delery, Acting Assistant Attorney General, Barbara S. Williams, Attorney–in–Charge, International Trade Field Office, and Claudia Burke, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC. Of counsel on the briefs was Beth C. Brotman, Office of the Assistant Chief Counsel, International Trade Litigation, U.S. Customs and Border Protection.

OPINION

POGUE, Chief Judge:

In its Amended Complaint, ECF No. 29, Plaintiff Hartford Fire Insurance Company (“Hartford”) asks the court to void or, in the alternative, to discharge certain bonds securing duties on entries of frozen cooked crawfish tailmeat from the People's Republic of China (“China”). Defendant U.S. Customs and Border Protection (“Customs”) moves, pursuant to Rule 12(b)(5) of this Court, to dismiss Plaintiff's Amended Complaint for failure to state a claim.

As explained below, the first and second causes of action stated in Plaintiff's complaint will be dismissed without prejudice for failure to state a claim; the third and fourth causes of action will be dismissed with prejudice because Plaintiff cannot state a claim for relief on the facts of this case.

The court has jurisdiction pursuant to 28 U.S.C. § 1581(i) (2006).

BACKGROUND

This action arises from Sunline Business Solution Corporation's (“Sunline”) importation into the United States of eight entries of freshwater crawfish tailmeat from Chinese producer Hubei Qianjiang Houho Frozen (the “Hubei entries”), between July 30, 2003, and August 31, 2003. Am. Compl. ¶¶ 2–3. The Hubei entries were subject to an antidumping duty order covering freshwater crawfish tailmeat from China, Am. Compl. ¶ 4, and were permitted to enter following Customs' approval of eight single entry bonds designating Hartford as the surety. Am. Compl. ¶¶ 7–9. The eight single entry bonds, which secured payment of the antidumping duties, were executed on July 27, 2003; August 6, 2003; August 7, 2003; and August 27, 2003. Am. Compl. ¶ 8 & app. 1.

Customs liquidated the Hubei entries, in July 2004 and March 2005, at the 223% country-wide rate for China, pursuant to the Department of Commerce's final results in the relevant administrative review. Am. Compl. ¶¶ 10–12. Following Sunline's failure to pay the duties owed, Customs made a demand on Hartford, on June 22, 2005, for payment on the eight single entry bonds. Am. Compl. ¶ 13. ¹

Hartford asserts that it learned the following facts, on which it premises its challenge to the enforcement of the eight single entry bonds, after receiving the demand for payment from Customs. On or around June 19, 2003, Shanghai Taoen International Trading Co. informed Customs of its belief that crawfish tailmeat from China was being imported illegally into the United States. Am. Compl. ¶ 14. This information led Customs to investigate Sunline, beginning sometime prior to August 15, 2003. Am. Compl. ¶ 15. Following the investigation, on November 25, 2003, two of Sunline's officers were indicted for importing crawfish tailmeat in violation of U.S. import laws. Am. Compl. ¶ 16. Customs did not, at any time, inform Hartford about its investigation of Sunline. Am. Compl. ¶¶ 20–24. Nor did Commerce inform Hartford that it was returning to Sunline, on August 27, 2003, and December 19, 2003, cash deposits unrelated to the Hubei entries. Am. Compl. ¶¶ 25–26.

STANDARD OF REVIEW

When reviewing a motion to dismiss for failure to state a claim, the court “must accept as true the complaint's undisputed factual allegations and should construe them in a light most favorable to the plaintiff.” Bank of Guam v. United States, 578 F.3d 1318, 1326 (Fed.Cir.2009) (quoting Cambridge v. United States, 558 F.3d 1331, 1335 (Fed.Cir.2009)).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To be plausible, the complaint need not show a probability of plaintiff's success, but it must evidence more than a mere possibility of a right to relief. Id. at 678, 129 S.Ct. 1937. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

DISCUSSION

In its Amended Complaint, Hartford alleges four causes of action, or counts, all of which Customs moves to dismiss for failure to state a claim. In counts one and two, Hartford asserts that the eight single entry bonds are voidable under the common law theory of material misrepresentation. In counts three and four, Hartford claims, in the alternative, that its obligation on the bonds should be discharged in the amount of $270,256.92, the value of cash deposits that Customs, without Hartford's knowledge, returned to Sunline. The court will first address Hartford's claims for voidability and then Hartford's claims for discharge.

I. Hartford's Amended Complaint Fails to State a Claim for Material MisrepresentationA. Material Misrepresentation by Customs

A bond is voidable by a surety, “[i]f the [surety or] secondary obligor's ² assent to the [bond] is induced by a fraudulent or material misrepresentation by the obligee³ upon which the [surety or] secondary obligor is justified in relying....” Restatement (Third) of Suretyship and Guaranty § 12(1) (1996).⁴ An obligee's failure to disclose facts unknown to the surety is defined as a material misrepresentation if: (1) such facts “materially increase the risk beyond that which the obligee has reason to believe the [surety] intends to assume”; (2) the obligee “has reason to believe that these facts are unknown to the [surety]”; and (3) the obligee “has a reasonable opportunity to communicate [these facts] to the [surety].” Id.§ 12(3); see also United States v. Martinez, 151 F.3d 68, 73 (2d Cir.1998).

In its first cause of action, Hartford asserts a material misrepresentation claim against Customs. In particular, Hartford claims that (1) Customs failed to disclose to Hartford the investigation of Sunline; (2) such failure to disclose materially increased Hartford's risk on the bonds; and (3) Customs knew or should have known that failure to disclose the information would cause Hartford to assume a level of risk beyond that it intended in issuing the bonds. Am. Compl. ¶¶ 34–35.

Customs argues for dismissal of Hartford's first count on three grounds: (1) Customs could not have made a timely disclosure because it did not become aware of the surety's identity until after the bonds were executed; (2) Hartford failed to plead its exercise of due diligence and, therefore, cannot claim justifiable reliance on disclosures from Customs; and (3) Customs was prohibited by law from disclosing the Sunline investigation. Mem. Supp. Def.'s Mot. to Dismiss at 7–18, ECF No. 63 (“Def.'s Mot. to Dismiss”). We consider in turn each of Customs' arguments.

1. Customs Had a Timely Opportunity to Disclose Material Facts before the Bonds Became Effective

Customs first argues that any lack of disclosure could not have been a material misrepresentation because the bonds were executed without its involvement; therefore, there was no “reasonable opportunity to communicate” with Hartford prior to the execution of the bonds. Def.'s Mot. to Dismiss at 15. Customs argues, in essence, that a customs bond is a contract solely between the importer and the surety, with Customs functioning as a third party beneficiary. SeeRestatement (Third) of Suretyship and Guaranty § 2(d).

Customs' argument is unpersuasive because, pursuant to its own regulations, bonds must be approved by Customs prior to entry of the merchandise. 19 C.F.R. § 113.11 (2012) (“The port director will determine whether the bond is in proper form and provides adequate security for the transaction(s).”); Antidumping or Countervailing Duties; Acceptance of Cash Deposits; Bonds, or Other Security to Obtain Release of Merchandise; Revision of T.D. 82–56, T.D. 85–145, 19 Customs Bull. 331, 332 (1985) (“[T]he U.S. Customs Service will accept cash deposits, bonds or other security, as specified below, prior to releasing for consumption in the customs territory of the United States merchandise that is or may be subject to the assessment of antidumping or countervailing duties....”). Without Customs' approval of the bond, merchandise does not enter the United States, no duty is assessed, and no obligation exists for the surety to assume upon default.

Thus, Customs' acceptance of the surety's offer is necessary to the formation of the surety agreement. SeeRestatement (Third) of Suretyship and Guarantee § 8 cmt. a (“An offer to become a secondary obligor commonly invites the offeree to accept by advancing money, goods, or services on credit.”). Because Customs' approval functions as an acceptance necessary to formation of the contract, Customs would have the opportunity at any point prior to approval of the bond to inform the surety of material facts.⁵ For this reason, Customs may have had an opportunity to disclose information to Hartford prior to approving the bond, and dismissal is not warranted on this ground.

2. Hartford's Failure to Plead Due Diligence Does Not Undermine Its Material Misrepresentation Claim

In its second argument for dismissing the first cause of action, Customs...