Trek Leather Case on Import Compliance Employee Liability to Stand as Supreme Court Denies Appeal
The Supreme Court on May 26 denied a petition to hear an appeal of Trek Leather, setting in stone a controversial court ruling that some importers fear will expand the liability of corporate officers and employees for customs violations. Tucked without comment in a lengthy order sheet also denying a hearing to scores of other cases (here), the denial of certiorari lets stand a September decision from the U.S. Court of Appeals for the Federal Circuit that found Harish Shadadpuri liable for penalties for his corporation’s failure to declare assists on entry documentation, even though the corporation acted as importer of record (see 14091703).
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Shadadpuri had argued that penalties under 19 USC 1592 can only be imposed on employees of a corporate importer of record if the government alleges that the employee personally aided and abetted the violation, or takes the extra step of “piercing the corporate veil” based on the facts of the individual case (see 1502190022). A brief filed by the American Association of Exporters and Importers in support of Shadadpuri’s case said the Federal Circuit’s ruling, if allowed to stand, would subject import compliance managers to “ massive penalties,” increasing the trade industry’s risk and cost of doing business (see 1503170027). Al Daniels, who represented Shadadpuri in the Supreme Court case, declined comment, and John Peterson, who represents AAEI, was not immediately available.
The Federal Circuit had found Shadadpuri liable because, even though he wasn’t the importer of record that entered the merchandise, he introduced the goods into the U.S. by providing invoices that did not report assists provided to the manufacturer of the imported men’s suits. However, by including the transmission of invoices to the customs broker as an act related to the “introduction” of merchandise, the Federal Circuit has created a situation where “every negligent entry by a corporate importer will always be accompanied by a negligent introduction by the importer’s employees or agents because a corporation can only act through natural persons,” said the AAEI brief.
A Justice Department lawyer said in December that the Federal Circuit’s Trek Leather ruling won’t result in an increase in liability for middle managers and “other peripheral actors” (see 1504200023). The Federal Circuit’s decision merely confirmed the government’s long held interpretation on Section 1592 penalties, he said. Middle managers will only find themselves liable for behavior “beyond the pale,” with individual cases mostly brought against serial violators of customs laws that are not serving as importers of record, as well as owners of undercapitalized companies that go under the day they are hit with duties, he said. The Justice Department did not immediately respond for comment.