U.S. Court of International Trade

CIT ALLOWS BROAD DISCOVERY INQUIRY IN PENALTY CASE

Officers and employees of corporate importers may have reason to be concerned about their personal liability for Customs penalties and withheld duties, based on the sweeping discovery which the Court of International Trade recently granted the government in a pending lawsuit.

In United States v. Greenlight Organics Inc., Slip Op. 17-168 (December 19, 2017), the Court held that the government could conduct extensive discovery concerning the affairs of two individual officer of a corporate importer, requiring them to disclose all of their sources of income for a period of more than 10 years.  Holding that the scope of discovery was broader than the scope of the complaint, the Court held that the government could take discovery regarding the officers’ individual affairs, even though they had not been named parties to the lawsuit. The government claimed that the discovery was necessary to allow it to explore its claims of fraud in the classification and valuation of imported wearing apparel, and to determine whether the individual officers should be added as defendants to the case.

The CIT also outlined an incredibly broad theory of liability, under which corporate employees of an importer could be held liable for 19 U.S.C. §1592 civil penalties and withheld duties:

Liability for claims brought under Section 1592 is not limited to companies. Under principles of agency law, “an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal.” United States v. Trek Leather, Inc., 767 F.3d 1288, 1299 (Fed. Cir. 2014) (citing Restatement (Second) of Agency § 343 (Am. Law Inst. 1958); Restatement (Third) of Agency § 7.01 (Am. Law Inst. 2006)). An officer of a corporation may be liable personally for violating Section 1592, even when the conduct falls within the scope of the officer’s authority. Trek Leather, Inc., 767 F.3d at 1299. The court will allow discovery into the officers’ sources of income and the companies with whom the officers have conducted business, in order to determine whether Greenlight’s officers may be liable individually in the Government’s Section 1592 case.

This sweeping language goes beyond merely “piercing the corporate veil”, which might be used to hold corporate owners liable, and beyond the holding in the Trek Leather case (which held a company President separately liable for “introducing” merchandise by means of false statements), to suggest that corporate employees must be responsible for corporate Section 592 violations simply by virtue of being considered “agents” of the company.

It should also be borne in mind that recently, in United States v. Greenlight Organic Inc., Slip Op. 17-126 (September 15, 2017), the CIT ruled that the corporate defendant’s decision to file bankruptcy did not trigger the “automatic stay” under the Bankruptcy Code and prevent the government from pursuing its case.  Perhaps fearing difficulties in collecting against the corporate defendant, the government may now be looking for other pockets to hit.

The Court also directed the corporate defendant to review its records and supplement its responses to discovery, after the government charged that the defendants’ responses had been incomplete.

CIT Directs Government to Correct Claims of “Deliberative Privilege” in Penalty Case

In a simultaneously issued opinion, the Court of International Trade directed the government to respond to discovery requests propounded by the defendant in a Section 592 penalty proceeding. In United States v. Greenlight Organic Inc., Slip Op. 17-167 (December 19, 2017), the government asserted “deliberative process” privilege with respect to some 145 documents sought by the defendant and provided an “enhanced” privilege log. However, the Court found that the privilege log did not describe the documents in sufficient detail to enable the court to determine whether the privilege was properly asserted. The court directed the government to revise the log to provide the required detail, and indicated that it would thereafter rule on the privilege claims.

Final Decision on Garlic Remanded in Part

In Shenzen Xinboda Industrial Co., Ltd. v. United States et al., Court No. 11-267, Slip Op. 17-66 (December 15, 2017), plaintiff Shenzen Xinboda Industrial Co.., Ltd. (“Xinboda”) challenged the Final Determination in the U.S. Department of Commerce’s fifteenth administrative review of the antidumping duty order covering fresh garlic from the People’s Republic of China.  Specifically Xinboda contested: Commerce’s selection of surrogate financial statements used to derive surrogate financial ratios, Commerce’s calculation of the surrogate value for labor (i.e., the surrogate wage rate), and Commerce’s calculation of the surrogate value for whole raw garlic bulbs, as well as Commerce’s application of its “zeroing” methodology in calculating Xinboda’s dumping margin.

For purposes of the surrogate value for the raw bulbs, Xinboda argued that the contemporaneous Azadpur Market prices for A-grade garlic bulbs that Commerce is using already reflect prices for garlic bulbs that previously would have been classified as grade S.A., and that this improperly inflates Commerce’s calculated surrogate value for whole raw garlic bulbs.  Instead, Commerce needs to adjust the values using price data from an Indian garlic processor and trader, Garlico which closely matches Xinboda’s experience. However, Commerce has discounted the use of a Xinboda’s consultant’s declaration which provided the condition of the garlic bulbs sold at the Azadpur market.as not being similar to those delivered to Dadi, an affiliated producer which supplied garlic products from local Chinese garlic farmers.  According to the Court, “If the garlic bulbs sold at the Azadpur APMC Market were at a more advanced level of trade (i.e., had been subjected to more processing) than the garlic bulbs that were delivered to Dadi (as all existing record evidence indicates), the Azadpur Market prices cannot reasonably be used as a surrogate value for the garlic bulbs that were delivered to Dadi at least not without further adjustment.”  Slip Op. at pg. 47.  Moreover, adjustment should be made for intermediary expenses. The decision regarding the surrogate value of the bulbs was remanded.

As for the surrogate financial statements, the Court held that this decision should be remanded to fully consider the evidence of alleged subsidies and explain the rational for its determination.

Finally, the Final Results were sustained as to Commerce’s determination on the surrogate value for labor and Commerce’s application of zeroing.