United States v. Aegis Sec. Ins. Co., Slip Op. 19–162

• Decision Date: 17 December 2019
• Docket Number: Consol. Court No. 11-00388,Slip Op. 19–162
• Citation: 422 F.Supp.3d 1328
• Parties: UNITED STATES, Plaintiff, v. AEGIS SECURITY INSURANCE COMPANY, Defendant, and Tricots Liesse 1983, Inc., Third-Party Defendant.
• Court: U.S. Court of International Trade

422 F.Supp.3d 1328

UNITED STATES, Plaintiff,

v.AEGIS SECURITY INSURANCE COMPANY, Defendant,andTricots Liesse 1983, Inc., Third-Party Defendant.

Slip Op. 19–162

Consol. Court No. 11-00388

United States Court of International Trade.

December 17, 2019

Stephen C. Tosini, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for Plaintiff. With him on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director, of Washington, DC. Of counsel on the brief was Matthew C. Landreth, Office of the Assistant Chief Counsel, U.S. Customs and Border Protection, of Buffalo, NY.

T. Randolph Ferguson, Sandler, Travis & Rosenburg, PA, of San Francisco, CA, argued for Defendant.

John B. Brew, Crowell & Moring LLP, of Washington, DC, argued for Third-Party Defendant. With him on the brief was Frances P. Hadfield.

OPINION and ORDER

Eaton, Judge:

This matter is before the court on cross-motions for summary judgment filed by Plaintiff the United States ("Plaintiff" or the "Government"), and by Defendant Aegis Security Insurance Company ("Aegis"), a surety company, and Third-Party Defendant Tricots Liesse 1983, Inc. ("Tricots"), an importer of knitted fabric from Canada (collectively, "Defendants").

The Government contends that there is no genuine issue of material fact that would preclude judgment in its favor for unpaid duties and fees, pursuant to 19 U.S.C. § 1592(d) (2012),¹ because Tricots, in violation of § 1592(a),² negligently misrepresented to U.S. Customs and Border Protection ("Customs") that 875 entries of knitted fabric from Canada qualified for the preferential tariff treatment afforded to "originating" goods under the North American Free Trade Agreement ("NAFTA") Rules of Origin.³ See Pl.'s Mem. Supp. Cross-Mot. Partial Summ. J., ECF No. 89 ("Pl.'s Br."); Pl.'s Reply Supp. Mot. Partial Summ. J. & Opp'n Defs.' Mot. Summ. J., ECF No. 112; see also Pl.'s R. 56.3 Stmt. Undisputed Facts, ECF No. 89-1 ("Pl.'s R. 56.3 Stmt."); Pl.'s Resp. Defs.' R. 56.3 Stmt., ECF No. 112-1 ("Pl.'s Resp. Defs.' R. 56.3 Stmt."). As a result, no duties or administrative fees, known as "merchandise processing fees," were paid on the entries. That is, all 875 of the entries were finally liquidated free of duties and fees.

After liquidation of the subject entries became final, Tricots sought to make a "prior disclosure" under 19 U.S.C. § 1592(c),⁴ to correct its claim that its goods were entitled to duty-free entry because they were NAFTA-originating, and to claim instead that they were entitled to duty-free entry under a quota program for textiles called the Tariff Preference Levels Program. Customs rejected the prior disclosure because Tricots failed to submit the Certificates of Eligibility,⁵ required to establish eligibility under the quota program, before liquidation became final, and failed to tender the duties owed. Plaintiff now seeks to recover the unpaid duties and fees from Tricots, as importer of record, and from Aegis as surety.

By their cross-motion, Defendants argue that the Government's unpaid duties claims must be dismissed for the same reason the court dismissed its penalty claim in United States v. Aegis Security Insurance Company , 42 CIT ––––, 301 F. Supp. 3d 1359 (2018) (" Aegis I "). Specifically, Defendants contend that Customs must comply with pre-penalty procedures before it may bring a claim for unpaid duties. See Defs.' Cross-Mot. Summ. J. & Resp. Pl.'s Cross-Mot. Partial Summ. J., ECF No. 105 ("Defs.' Br."); Defs.' Reply Pl.'s Resp. Defs.' Cross-Mot. Summ. J., ECF No. 116; see also Defs.' R. 56.3 Stmt. Material Facts Supp. Mot. Summ. J., ECF No. 105; Defs.' Resp. Pl.'s R. 56.3 Stmt., ECF No. 105 ("Defs.' Resp. Pl.'s R. 56.3 Stmt.").

Additionally, Defendants argue that they do not owe duties on any of the entries in question because, notwithstanding the timing of its prior disclosure, the subject entries were eligible to enter duty-free under the Tariff Preference Levels Program. Defendants also argue that the Government is not entitled to summary judgment because genuine issues of fact exist as to whether Tricots acted with reasonable care when it made erroneous preference claims in its entry paperwork, and whether its statements were materially false with respect to a subset of unidentified entries. Finally, Defendants contend that they have a valid equitable recoupment counterclaim against the Government.

Jurisdiction is found under 28 U.S.C. § 1582 (2012). Because the dispositive issues in this case may be resolved as a matter of law, and there is no genuine issue of any material fact, the court grants summary judgment in favor of Plaintiff on its claims for unpaid duties and fees under 19 U.S.C. § 1592(d), plus interest, and denies Defendants' cross-motion for summary judgment.

BACKGROUND

I. Overview of Preferential Tariff Treatment Under NAFTA

NAFTA was implemented into U.S. law on December 8, 1993, for the purpose of promoting the free flow of goods among the United States, Canada, and Mexico. See North American Free Trade Implementation Act § 202, 19 U.S.C. § 3311 (1994) ; Corrpro Companies, Inc. v. United States , 433 F.3d 1360, 1362 (Fed. Cir. 2006). To accomplish this goal, the agreement provides for the elimination of most tariffs collected on goods originating from the three countries. Corrpro , 433 F.3d at 1362 ; see also 19 U.S.C. § 3332(a)(1) (setting out rules for determining when a good "originates in the territory of a NAFTA country"); NAFTA Rules of Origin Regulations, 19 C.F.R. pt. 181 app., pt. II, § 4; General Note 12(b), Harmonized Tariff Schedule of the United States.

A. Claiming Preferential Tariff Treatment Under NAFTA Rules of Origin

Preferential tariff treatment under NAFTA is not automatic—it must be claimed. For originating goods, preferential tariff treatment can mean the elimination of not only duties, but also merchandise processing fees.⁶ See 19 U.S.C. § 58c(a)(10). Customs' regulations set out the procedure to make a claim that a good is originating:

§ 181.21 Filing of claim for preferential tariff treatment upon importation

(a) Declaration . In connection with a claim for preferential tariff treatment, or for the exemption from the merchandise processing fee, for a good under the NAFTA, the U.S. importer must make a formal declaration that the good qualifies for such treatment. The declaration may be made by including on the entry summary, or equivalent documentation, including electronic submissions, the symbol "CA" for a good of Canada, or the symbol "MX" for a good of Mexico, as a prefix to the subheading of the HTSUS under which each qualifying good is classified. Except ... in the case of a good to which Appendix 6.B to Annex 300–B of the NAFTA applies^[7](see also 19 CFR 102.25 ), the declaration must be based on a complete and properly executed original Certificate of Origin ,^{[8 ]} or copy thereof, which is in the possession of the importer and which covers the good being imported.

19 C.F.R. § 181.21(a) (emphasis added); see also 19 C.F.R. § 181.0 ("[Part 181] implements the duty preference and related Customs provisions applicable to imported goods under [NAFTA]," and sets out "procedures and other requirements ... [that] are in addition to the Customs procedures and requirements of general application.").

Normally, a formal declaration is made "upon importation," as provided in 19 C.F.R. § 181.21(a). Customs' regulations provide, however, that "free entry" documentation may be filed after entry, so long as the filing is made before liquidation⁹ becomes final:

§ 10.112 Filing free entry documents or reduced duty documents after entry

Whenever a free entry or a reduced duty document, form, or statement required to be filed in connection with the entry is not filed at the time of the entry or within the period for which a bond was filed for its production, but failure to file it was not due to willful negligence or fraudulent intent, such document, form, or statement may be filed at any time prior to liquidation of the entry or, if the entry was liquidated, before the liquidation becomes final .

19 C.F.R. § 10.112 (emphasis added). In other words, once liquidation has become final, Customs' regulations provide that an importer may no longer seek to claim preferential tariff treatment of its entries.

In the event that an importer erroneously claims preferential tariff treatment under the NAFTA Rules of Origin, to avoid penalties, the importer may make a prior disclosure to self-report the error to Customs by filing a corrected declaration and paying any duties owing:

(5) Prior disclosure regarding NAFTA claims

An importer shall not be subject to penalties under [ 19 U.S.C. § 1592(a) ] for making an incorrect claim for preferential tariff treatment under [ 19 U.S.C. § 3332 (Rules of Origin) ] if the importer—

(A) has reason to believe that the NAFTA Certificate of Origin ... on which the claim was based contains incorrect information; and

(B) in accordance with regulations issued by the Secretary, voluntarily and promptly makes a corrected declaration and pays any duties owing.

19 U.S.C. § 1592(c)(5).¹⁰ Customs' regulations set out procedures for making a "corrected declaration":

(b) Corrected declaration . If, after making the declaration required under paragraph (a) of this section ..., the U.S. importer has reason to believe that a Certificate of Origin on which a declaration was based contains information that is not correct, the importer shall within 30 calendar days after the date of discovery of the error make a corrected declaration and pay any duties that may be due. A corrected declaration shall be effected by submission of a letter or other written statement to the [Customs] office where the original declaration was filed.

19 C.F.R. § 181.21(b). Thus, perfecting a prior disclosure requires an importer both to inform Customs of the error and to pay any duties owing on...