Gallagher & Ascher Co. v. Simon

• Decision Date: 03 September 1982
• Docket Number: No. 81-2244,81-2244
• Citation: 687 F.2d 1067
• Parties: , 66 A.L.R.Fed. 264 GALLAGHER & ASCHER COMPANY, Plaintiff, and The Customs Brokers and Foreign Freight Forwarders Association of Chicago, Inc., Intervening Plaintiff-Appellant, v. William E. SIMON, Secretary of the United States Treasury, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1067

687 F.2d 1067

4 ITRD 1313, 66 A.L.R.Fed. 264

GALLAGHER & ASCHER COMPANY, Plaintiff,

and

The Customs Brokers and Foreign Freight Forwarders

Association of Chicago, Inc., Intervening Plaintiff-Appellant,

v.

William E. SIMON, Secretary of the United States Treasury,

et al., Defendants-Appellees.

No. 81-2244.

United States Court of Appeals, Seventh Circuit.

Argued June 8, 1982.

Decided Sept. 3, 1982. ^*

Wayne Jarvis, Chicago, Ill., for intervening plaintiff-appellant.

Joan C. Laser, Asst. U. S. Atty., Dan K. Webb, U. S. Atty., Chicago, Ill., for defendants-appellees.

Before CUDAHY and ESCHBACH, Circuit Judges, and EAST, Senior District Judge. ^**

CUDAHY, Circuit Judge.

In this case the plaintiffs, a customs broker and an association of customs brokers, challenge the procedures employed by the Customs Service in suspending the term special permits of customs brokers in the Chicago area. The district court upheld the lawfulness of the agency's practices. We affirm.

I.

The customs regulations in effect at the time this lawsuit commenced require that customs brokers file entry documents, post a bond, and pay duty fees before imported merchandise is permitted to enter the country. The regulations also contain, however, an exception to this general rule requiring payment of the duty prior to the release of the merchandise. Section 142 of the regulations, 19 C.F.R. § 142 (1976), allows for expedited entry of certain types of imported goods through the issuance of special permits. These special permits may be issued to cover a single transaction (single entry special permit) or they may extend to all of the covered merchandise of a particular broker for a period not to exceed one year (term special permit). Permit holders may secure the immediate release of imported goods under this regulation by submitting their invoices to the customs inspector for examination at the port of entry. If the documents are in order, the merchandise is released immediately without advance payment of the duty. The documents are then returned to the broker, who must thereafter make "timely entry," that is, complete the entry documents and pay the duty. The parties in the present case stipulated that exercise of the immediate release privilege is integral to the business of customs brokers.

"Timely entry" is defined by the regulation to mean entry within ten days after the day on which the imported merchandise is first released under a special permit. 19 C.F.R. § 142.11(a) (1976). If the customs broker fails to make timely entry, the transaction is charged against the bond which has been posted and the District Director of the Customs Service initiates a claim for liquidated damages. 19 C.F.R. § 142.15 (1976). ¹ The determination that an entry was not timely filed is subject to three levels of administrative review. The initial decision is made by the immediate delivery clerk, who forwards the documents to the import control officer if it appears that the entry was made after expiration of the ten day period. If the import control officer agrees that the entry was untimely, a claim for liquidated damages is served on the tardy customs broker. A copy of the pertinent documents is then submitted to the Fines, Penalties and Forfeitures Branch of the Customs Service for further review. Repeated violation of the timely entry rule by a broker may be brought to the attention of the District Director.

In addition to his authority to initiate claims for liquidated damages, the District Director is empowered to discontinue or suspend the special permits of brokers which have "repeatedly failed to make timely entry without sufficient justification." 19 C.F.R. § 142.7(a) (1976). In implementing this regulation, the District Director's practice is to commence formal action against a customs broker only when it has been guilty of five or more late entries in a given month. A warning letter is first issued to the offending broker, listing the untimely filings that are deemed to be excessive in number, and threatening suspension of the broker's special permit if its performance in succeeding months does not improve. If the broker's compliance with the timely entry requirement has not improved after another month, the District Director then issues a suspension notice, usually effective on a few days' notice. Although the regulations do not provide for a formal hearing in connection with the suspension of special permits, it has been the practice of the District Director to hear on an informal basis objections to warning letters and to suspension notices. The district court found, in a finding we cannot say is clearly erroneous, that the use of this avenue of redress had successfully resulted in the correction of agency errors associated with the suspension of special permits. By invoking this informal hearing procedure, an offending broker may either challenge the basis for the warning or suspension, or plead mitigating circumstances. Questions relating to the administration of the immediate release regulations can, in addition, be raised by customs brokers during their open meetings conducted bimonthly with the District Director.

Gallagher & Ascher Company ("Gallagher") was at the time this case began a licensed customs broker in Chicago. It had enjoyed immediate release privileges for many years under a series of term special permits. On July 23, 1976, District Director Herz issued a warning letter to Gallagher, accusing it of making nine late entries in the preceding month. The warning letter stated that this number of violations was unacceptably large and advised that if Gallagher's performance did not improve its term special permit would be suspended in September. Gallagher took no action to contest the basis of this warning or to seek clarification so as to avoid the threatened suspension. When Gallagher made twenty-one untimely entries in August, District Director Herz, in a letter dated September 13, 1976, issued an order suspending Gallagher's term special permit for a period of thirty days commencing at the close of the business day on September 17, 1976. Upon receiving the suspension notice, Gallagher for the first time requested a meeting with agency officials. Herz was unavailable so a meeting was arranged with Acting District Director White on September 17, 1976. After hearing argument by Gallagher's lawyer in mitigation of the penalty, White ordered the suspension reduced to fifteen days. This was the first time Gallagher had been forced to undergo a suspension of its term special permit. ² Because the suspension applied only to the immediate release of merchandise under Gallagher's own term special permit, Gallagher was free to use during its suspension the special permits of its importer customers. Most of Gallagher's larger customers possessed their own special permits and, hence, undisputed testimony reflects that Gallagher's suspension affected the business of only twenty-five percent of its clients.

Alltransport, Inc., another licensed customs broker, also received a thirty day suspension in a letter dated September 13, 1976. Alltransport's suspension followed two warning letters, dated March 15, 1976, and July 22, 1976, and twenty-four untimely entries in August. Like Gallagher, Alltransport took no action in response to the agency's warnings until after suspension was imposed. Acting District Director White granted Alltransport's request for a meeting on September 21, 1976, after which he reduced the suspension to fifteen days. The suspension affected only three percent of Alltransport's business.

Gallagher filed the instant action in the district court on September 21, 1976. Its complaint challenged the suspension of its term special permit as well as the constitutionality of the regulations dealing with special permits. The complaint sought declaratory and injunctive relief on the grounds that the regulations were unconstitutionally vague and violative of substantive due process and that both the due process clause and the Administrative Procedure Act mandated a full trial-type hearing prior to the imposition of suspension. Alltransport filed a similar complaint on September 24, 1976. On October 27, 1976, the Customs Brokers and Foreign Freight Forwarders Association of Chicago, Inc. (the "Association") was granted leave to intervene in Gallagher's case. The Association is a non-profit corporation composed of thirty licensed customs brokers (including Gallagher) all of which hold special permits. By agreement of the parties, Alltransport's complaint was dismissed when the Association's motion to intervene was granted.

The district court on September 23, 1976, entered a temporary restraining order prohibiting the suspension of Gallagher's term special permit; the defendants agreed in addition not to suspend the special permits of the Association's other members during the pendency of the litigation. This prohibition on suspensions continued in effect until June 29, 1981, when the district court entered judgment in favor of the defendants (the "government"). ³ Only the Association appeals from this judgment. ⁴

II.

Our review of the district court's decision begins with the government's claim that the instant case is now moot. Gallagher was adjudicated a bankrupt on November 24, 1980, and is no longer in business as a customs broker. Alltransport has already completed its suspension. Thus, it remains for the Association to demonstrate that it has a sufficient stake in the outcome of this litigation to render this a justiciable case or controversy. The government argues that the requisite interest is lacking because there is no evidence that any broker member of the Association faces a real and immediate threat of suspension and because recent amendments to the customs laws and regulations reduce the likelihood that term special permits will be suspended by the District Director.

We reject the government's...