Int'l Fid. Ins. Co. v. Sweet Little Mexico Corp.

• Decision Date: 22 December 2011
• Docket Number: No. 11–40449.,11–40449.
• Citation: 665 F.3d 671
• Parties: INTERNATIONAL FIDELITY INSURANCE COMPANY, Plaintiff–Appellee, v. SWEET LITTLE MEXICO CORPORATION, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

665 F.3d 671

INTERNATIONAL FIDELITY INSURANCE COMPANY, Plaintiff–Appellee,

v.SWEET LITTLE MEXICO CORPORATION, Defendant–Appellant.

No. 11–40449.

United States Court of Appeals, Fifth Circuit.

Dec. 22, 2011.

Mary Searcy Marrero, Rachel J. Stroud, Stroud & Welch, P.L.L.C., Austin, TX, for Plaintiff–Appellee.

Lawrence W. Hanson, Law Office of Lawrence W. Hanson, P.C., Houston, TX, for Defendant–Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before CLEMENT, OWEN and HIGGINSON, Circuit Judges.

OWEN, Circuit Judge:

The district court granted summary judgment in favor of International Fidelity Insurance Co. (IFIC), a surety, against Sweet Little Mexico Corp. (SLM), the principal on a bond pursuant to which IFIC paid United States Customs and Border Protection (Customs) import duties assessed against SLM. SLM appeals asserting that (1) the Court of International Trade (CIT) has exclusive jurisdiction over IFIC's claims, (2) in the alternative, because IFIC initiated proceedings in the CIT prior to filing suit in the district court, the district court should have followed the first-to-file rule and dismissed, transferred, or stayed the case, and (3) until the CIT decides whether SLM owed the duties assessed by Customs and paid by IFIC, fact questions remain as to whether SLM should be required to indemnify IFIC. We affirm.

I

SLM imported various food products from Mexico into the United States for distribution and sale. IFIC, as surety, issued single entry Customs bonds to SLM, as principal, to secure the payment of Customs duties. Seventy entries containing products made from peanuts are at issue in proceedings currently pending before the CIT. When these products were imported, SLM did not pay duties because it claimed the products were of Mexican origin and eligible for duty-free treatment under the North American Free Trade Agreement (NAFTA). Customs requested SLM to provide NAFTA Certificates of Origin for the seventy peanut entries in order to prove the products came from Mexico. When SLM failed to provide documentation, Customs assessed various duties, fines, and penalties on SLM, which SLM did not pay. Customs made a formal demand on IFIC, as surety, for payment of $1,273,517.34, the duties that Customs asserted were owed on the seventy entries, and IFIC filed a protest. SLM did not file a protest regarding the seventy entries with Customs. IFIC exhausted its protest within Customs, and then paid $1,368,030.94 in full satisfaction of the duties Customs contends were owed as a prerequisite to filing a contest in the CIT of Customs' denial of the protest. IFIC also brought suit in federal district court against SLM seeking indemnification for and reimbursement of the amounts it had paid to Customs.

Subsequently, Customs made an additional demand on IFIC for $1,339,578.82 in liquidated damages pertaining to twenty-seven different claims arising out of bonds issued by IFIC to SLM. Twenty-six of the claims arose out of SLM's failure to redeliver to Customs' custody food products that were refused admission by the Food and Drug Administration; the twenty-seventh arose out of SLM's late filing of an entry summary. IFIC paid $114,268.85 as a compromise amount in settlement of Customs' claims regarding twenty-four of the twenty-seven entries. It paid $120,134.37 in full satisfaction of the other three entries. In total, IFIC has paid $1,602,434.16 to Customs on behalf of SLM with regard to the seventy entries and twenty-seven other claims.

In the district court action, SLM filed a Motion to Dismiss or Abate for improper venue on the basis that IFIC had previously filed a summons with the CIT contesting the denial of NAFTA treatment of the seventy imports. The district court denied the motion. Subsequently, IFIC filed its First Amended Complaint to reflect the additional amounts it had paid to Customs with regard to the twenty-seven other entries. SLM moved to join Customs as a third-party defendant. The district court granted the motion, and SLM filed a third- party complaint against Customs. However, Customs moved to dismiss the district court proceeding against it for lack of subject matter jurisdiction. The district court granted Customs' Motion to Dismiss, concluding that the contested matters between SLM and Customs fell within the exclusive jurisdiction of the CIT.

IFIC moved for summary judgment in the district court against SLM on its common law indemnification and breach of contract claims as well as for attorneys' fees. The district court granted IFIC's Motion for Summary Judgment. In a later order, the district court granted IFIC's request for attorneys' fees of $28,690.50. SLM requested reconsideration of the district court's order and a stay of execution, which the district court denied.

After the district court granted summary judgment but before that judgment was final, the United States initiated an action in the CIT against SLM seeking to impose penalties, contending that SLM, through fraud, gross negligence, or negligence, improperly asserted that the seventy peanut-product entries were exempt from duties under NAFTA.¹ On SLM's motion, the CIT consolidated IFIC's action against the United States with the United States' penalty action against SLM.

SLM has appealed to this court the summary judgment rendered against it by the district court. We first consider SLM's assertion that the CIT has exclusive jurisdiction over all of IFIC's claims in the district court.

II

SLM relies on 28 U.S.C. §§ 1581–1583 in asserting that the CIT has exclusive jurisdiction over all IFIC's claims under the bonds and for indemnification. Challenges to a district court's jurisdiction are reviewed de novo.²

Under § 1581, the CIT has “exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930.”³ The CIT has exclusive jurisdiction under § 1581 over IFIC's contest of the denial of its protest of the duties assessed by Customs on the seventy peanut-containing items imported by SLM. The pleadings and orders in the proceeding before the CIT confirm this.

The question, then, is whether the CIT also has exclusive jurisdiction under § 1583 of counterclaims, cross-claims, or third-party actions that IFIC could or might have brought against SLM in connection with its contest under § 1581. The statute at issue provides:

[The CIT] shall have exclusive jurisdiction to render judgment upon any counterclaim, cross-claim, or third-party action of any party, if (1) such claim or action involves the imported merchandise that is the subject matter of such civil action, or (2) such claim or action is to recover upon a bond or customs duties relating to such merchandise.⁴

While there is little doubt that Congress intended that in many circumstances the CIT would have exclusive jurisdiction over disputes among Customs, a principal on a bond, and the surety,⁵ the present case is not within the CIT's exclusive jurisdiction due to the procedural posture of the proceedings before the CIT.

In the action initiated in the CIT by IFIC, the only other party is the United States. IFIC, even were it inclined to do so, could not bring a “counterclaim” or a “cross-claim” against SLM because SLM is not a party to the contest of Customs' denial of IFIC's protest. Nor could IFIC bring a third-party action against SLM in that proceeding. The commonly understood meaning of a third-party action is that it is one brought by a defendant against a third party.⁶ Technically speaking, the United States is the defendant in the action that IFIC initiated in the CIT. The CIT's rules of procedure provide that a defendant may bring in a third party “who is or may be liable to it for all or part of the claim against it.”⁷ The United States has not joined SLM as a third-party defendant, so there is no basis on which IFIC could assert a third-party action against SLM under Rule 14(a)(3) of the CIT's rules of procedure,⁸ which mirrors Rule 14(a)(3) of the Federal Rules of Civil Procedure.⁹ The CIT's rules of procedure permit a plaintiff to bring in a third party when a claim is asserted against it and if the rules would permit a defendant to do so,¹⁰ which again mirrors the Federal Rules of Civil Procedure.¹¹ No claims have been asserted against IFIC in the proceeding it initiated before the CIT. SLM has cited no authority, even when requested to provide supplemental briefing, that supports its argument that IFIC could have brought its claims against SLM as a third-party action in IFIC's contest of the denial of Customs' protest that is pending in the CIT. We conclude, based on the express terms of § 1583, that the claims that IFIC has asserted in district court are not within the exclusive jurisdiction of the CIT by virtue of §§ 1581 and 1583.

SLM also relies on § 1582 read in conjunction with § 1583 to attempt to establish exclusive jurisdiction in the CIT. Section 1582 grants the CIT exclusive jurisdiction over “any civil action which arises out of an import transaction and which is commenced by the United States.” The pending action brought by the United States is a claim against SLM, not IFIC, for fraud, gross negligence, or negligence, pursuant to § 1582(1).¹² While the action between the United States and SLM invokes the exclusive jurisdiction of the CIT, IFIC is not a party to that action. Because IFIC is not a party to that action before the CIT, IFIC could not bring its claim for indemnity in the penalty action against SLM as a “counterclaim, cross-claim, or third-party action” within the meaning of § 1583 for the reasons similar to those just discussed in connection with the interplay between § 1581 and § 1583.

In sum, although the CIT has exclusive jurisdiction over both actions presently before it regarding, collectively, IFIC, the United States, and SLM, the claims that IFIC has brought against SLM in the...