Hartford Fire Ins. Co. v. United States, Slip Op. 17-103

CourtU.S. Court of International Trade
Writing for the CourtKatzmann, Judge
Decision Date10 August 2017
Docket NumberConsol. Court No. 09-00122,Slip Op. 17-103


Slip Op. 17-103
Court No. 09-00122


August 10, 2017

Before: Gary S. Katzmann, Judge


Plaintiff's motion for summary judgment is denied and defendant's cross-motion for summary judgment is granted in part and denied in part.

Frederic Deming Van Arnam, Jr., Barnes, Richardson & Colburn, LLP of New York, NY, and William Horace Jeffress, Jr., Baker Botts, LLP of Washington, DC argued for plaintiff.

Edward Francis Kenny, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY argued for defendant. With him on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Amy Rubin, Assistant Director, and Beverly A. Farrell, Trial Attorney. Of counsel on the brief was Beth C. Brotman, Office of the Assistant Chief Counsel for International Trade Litigation, U.S. Customs and Border Protection, of Washington, DC. With them on the reply brief was Chad A. Readler, Acting Assistant Attorney General.

Katzmann, Judge: This case concerns a surety company that issued bonds to multiple importers to cover duties imposed, under the United States' customs laws, on entries of the importers' goods into the national commerce. Despite billing the importers premium on these bonds, and accepting premium as to each bond, the surety now challenges the United States Customs agency's demands for payments on the bonds. The surety alleges that, for a variety of reasons, defects in each of the bond forms at issue in this case void those bonds, nullifying

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Customs' charges and releasing the surety from the obligations it assumed under the bonds. The United States Government, on behalf of Customs, opposes these contentions, and argues that the bonds are valid, and that sovereign immunity bars the surety's defensive theory that its obligations are discharged because its suretyship rights have been impaired.

Before the court are plaintiff Hartford Fire Insurance Company's ("Hartford") motion for summary judgment, in which it seeks refund of $2.2 million paid to United States Customs and Border Protection ("Customs") upon demands on sixty-one Single Entry Bonds ("SEBs" or "bonds"), and Defendant United States' (or "the Government") cross-motion for summary judgment. See Pl.'s Mem. in Supp. of the Mot. for Summ. J., July 15, 2016, ECF No. 67 ("Pl.'s Br."); Def.'s Mem. in Supp. of the Cross Mot. for Summ. J., Nov. 3, 2016, ECF No. 92 (Def.'s Br."). The court holds that the bonds at issue are valid, and that while the United States has waived sovereign immunity as to the defensive theory of impairment of suretyship rights in the context of cases contesting the denial of a protest, Hartford's claim in that respect fails.

Hartford is the undisputed surety on these SEBs, which insured several entries, imported on or about December 1, 2003 through December 31, 2006, previously subject to antidumping duty orders. Liquidation on the entries was suspended during the course of various relevant administrative reviews. Following the conclusion of those reviews Customs made demands on the resulting import duties, but the importers in each case failed to pay. Thus during 2007 and 2008, Customs demanded that Hartford perform on the SEBs. Hartford protested Customs' demands pursuant to 19 U.S.C. § 1514(a)(3) (2006),1 which Customs denied in each case. Hartford paid Customs in satisfaction of the demands and commenced various lawsuits before the Court of International Trade pursuant to 28 U.S.C. § 1581(a) (2006), eventually consolidated into the thirty-

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count complaint central to this test case. Hartford seeks, inter alia, that its payments of Customs' demands be refunded with interest as allowed by law. See 28 U.S.C. §§ 2643-2644.


Per USCIT Rule 56.3, Hartford and the Government submitted separate statements of material facts and responses thereto. See Statement of Material Facts as to Which no Genuine Issue Exists, July 15, 2016, ECF No. 67 ("Pl.'s Facts"); Def.'s Resp. Pl.'s Statement of Material Facts as to Which no Genuine Issue Exists, Nov. 3, 2016, ECF No. 92 ("Def.'s Resp. Facts"); Def.'s Statement of Material Facts as to Which no Genuine Issue Exists, Nov. 3, 2016, ECF No. 92 ("Def.'s Facts"); Pl.'s Resp. Def.'s Statement of Material Facts as to Which no Genuine Issue Exists, Feb. 6, 2017, ECF No. 101 ("Pl.'s Resp. Facts"). The following facts are not in dispute.

A customs bond or other security is required in order to import merchandise into the United States. Def.'s Facts ¶ 3; Pl.'s Resp. Facts ¶ 3. One permissible type of bond is an SEB, which covers a single import transaction. See generally 19 C.F.R. Part 113. Prior to release of imported merchandise into the commerce of the United States, the importer, or a customs house broker acting as the agent of the importer, must submit the SEB to Customs for approval. Pl.'s Facts ¶ 4; Def.'s Resp. Facts ¶ 4. Customs, in accepting SEBs, requires that they be submitted to the agency in writing on Customs Form ("CF") 301. Pl.'s Facts ¶ 2; Def.'s Resp. Facts ¶ 2; Def.'s Facts ¶ 2; Pl.'s Resp. Facts ¶ 2. The SEBs are submitted to Customs as part of an entry package, which also

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includes a Customs Form 7501, the Entry Summary,2 and may include a Customs Form 3461, the Entry/Immediate Delivery form.3 Def.'s Facts ¶ 4; Pl.'s Resp. Facts ¶ 4.

This consolidated action involves sixty-one SEBs submitted to Customs through various ports, for shipments entered during the period of December 1, 2003, through December 31, 2006. Def.'s Facts ¶ 5; Pl.'s Resp. Facts ¶ 5. Hartford, a surety company, was the surety for these SEBs. Consolidated Complaint ¶¶ 3, 7, 34, 47, 59, 71, 84, Jan. 13, 2012, ECF No. 32 ("Compl."); Pl.'s Facts ¶1; Def.'s Resp. Facts ¶ 1; Def.'s Facts ¶ 1; Pl.'s Resp. Facts ¶ 1. During the operative period, Hartford's customs bond business was administered by its General Agent, James Gorman

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Insurance, Inc. ("JGII"), and JGII's president, James M. Gorman. Def.'s Facts ¶ 6; Pl.'s Resp. Facts ¶ 6. The relationship between JGII and Hartford was set forth in a General Agency Agreement that was entered into on or about September 4, 2002, and renewed on or about September 3, 2004. Def.'s Facts ¶ 8; Pl.'s Resp. Facts ¶ 8; Def.'s Ex. 10 ("GAA"). Hartford terminated the GAA with JGII in 2008, and no longer actively markets Customs bonds. Def.'s Facts ¶ 22; Pl.'s Resp. Facts ¶ 22.

The physical SEBs at issue were originally printed by Hartford's vendor and mirrored the standard Customs Form 301, comprising five parts with different colors: Part 1, the original bond submitted to Customs, which was white; Part 2, the Surety's Copy, which was blue; Part 3, the Principal's Copy, which was yellow; and Parts 4 and 5, two Brokers' Copies. Pl.'s Ex. F ("CF 301"); Def.'s Facts ¶¶ 24-26; Pl.'s Resp. Facts ¶¶ 24-26. These SEBs were designed to allow information written thereon to transfer via carbonless chemical process from the top Part 1 original through to the bottom Part 5 copy. Def.'s Facts ¶ 27; Pl.'s Resp. Facts ¶ 27. Hartford had its printing vendor preprint Hartford's surety address on all five parts, but Gorman's signature, as Hartford's attorney-in-fact, and Hartford's corporate seal, only appeared on the Part 1 original submitted to Customs. Def.'s Facts ¶ 28; Pl.'s Resp. Facts ¶ 28. Gorman also requested that Hartford have its commercial printing vendor imprint a seven-digit unique identifying number preceded by the letters "SEB" on the lower left hand margin of all preprinted Hartford bonds. Def.'s Facts ¶ 30; Pl.'s Resp. Facts ¶ 30. Hartford kept track of these unique identifying numbers. Def.'s Facts ¶ 33; Pl.'s Resp. Facts ¶ 33.

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JGII distributed4 the Hartford SEBs to retail insurance brokers, from whom importers, or customs brokers on behalf of importers, obtained them. Def.'s Facts ¶ 23; Pl.'s Resp. Facts ¶ 23. Under the GAA, JGII had a duty to maintain complete copies of all bonds, the term "complete copies" meaning a fully executed copy of the original that was submitted to Customs. Def.'s Facts ¶¶ 13, 14; Pl.'s Resp. Facts ¶¶ 13, 14; GAA at Art. VII. The customs brokers, or importers, were responsible for completing the bonds by providing the importer's information. Def.'s Facts ¶ 31; Pl.'s Resp. Facts ¶ 31. Gorman was responsible for premium billing duties, premium collecting duties, premium accounting duties, and possessed limited underwriting authority with regard to

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customs bonds issued by JGII for which Hartford was surety.5 Def.'s Facts ¶ 9; Pl.'s Resp. Facts ¶¶ 9, 12; GAA at Arts. I, II. Gorman maintained a list of hundreds of customs brokers he had approved for the use of the retail insurance brokers beneath him. Def.'s Facts ¶ 39; Pl.'s Resp. Facts ¶ 39. As part of the process of billing customs brokers and importers for premiums on these bonds, JGII generally reviewed the blue surety copy of the multiform CF 301, provided by the retail insurance brokers. Def.'s Facts ¶¶ 32, 42; Pl.'s Resp. Facts ¶¶ 32, 42. Gorman testified that during the operative time period, Hartford charged the importer principals $25 per every $1,000 the SEBs covered. Def.'s Ex. 8, Deposition of James M. Gorman ("Gorman Dep.") at 125-29.6

Gorman had instructed the customs brokers to complete the bonds in accordance with the applicable federal regulations, but never stopped doing business with a given customs broker because of the broker's failure to complete bonds correctly. Def.'s Facts ¶¶ 41, 47; Pl.'s Resp. Facts ¶¶ 41, 47. On occasion, Gorman would discover a pattern of specific error common to multiple Hartford SEBs issued by a given customs broker, and would call the customs broker to complain about the manner in which they were completing the bond. Def.'s Facts ¶ 43; Pl.'s Resp. Facts ¶ 43. Gorman would also on occasion alert Hartford's Account Representative, Raymond...

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