United States v. Utex International Inc., and Sentry Insurance Company
Docket: 87-1414
Court: Court of Appeals for the Federal Circuit; September 8, 1988; Federal Appellate Court
Sentry Insurance Company appeals a judgment from the United States Court of International Trade that awarded the U.S. $11,718 in liquidated damages related to a surety bond under 28 U.S.C. § 1582(2). The case involves Utex International Inc., which imported frozen shrimp from India. After the goods were released on February 1, 1980, the FDA issued a Notice of Detention due to concerns about contamination, stating the shrimp appeared to contain Salmonella and other violations of the Food, Drug, and Cosmetics Act. Despite this, the Customs Service liquidated the entry on February 29, 1980, and later issued a Notice of Refusal of Admission to Utex, demanding that the shrimp be exported, which Utex failed to do. On June 5, 1986, the government filed suit against Sentry and Utex, with Utex not responding. The central legal issue is whether the final liquidation of the goods relieved Sentry of its liability on the entry bond. Sentry argues that the liquidation is final and conclusive under 19 U.S.C. § 1514(a), and thus both the government and the surety are bound. However, the Court of International Trade held that liquidation pertains to duties, not admissibility, and cited a case where a surety remained liable despite liquidation. The court found no authority supporting the position that liquidation affects admissibility decisions, leading to the reversal of the lower court's judgment.
Long-standing customs law dictates that once goods are liquidated, they are considered admissible, as outlined in R. Sturm's "Customs Law." The finality of liquidation under 19 U.S.C. Sec. 1514(a) merges all findings from the district director's decisions, with only the liquidation being subject to protest, not preliminary customs decisions. Customs regulations mandate the suspension of liquidation for goods subject to FDA inspection until admissibility is confirmed (19 CFR Sec. 159.55). If goods are found inadmissible post-entry, Customs must demand their return before liquidation finalizes (19 CFR Sec. 141.113(b)), and such demands cannot occur after liquidation is final (19 CFR Sec. 114.113(f)). It is acknowledged that Customs' liquidation of Utex's shrimp on February 29, 1980, violated these regulations, enabling FDA refusals while goods remain under Customs authority. The government's argument that these regulations merely ease customs duties assessment contradicts established customs law. The government referred to Utex's liquidation as 'premature,' echoing the Court of Customs and Patent Appeals in United States v. A.N. Deringer, where liquidation occurred before a refusal of admission notice, violating regulations requiring suspension until admissibility is determined. However, the appellate court maintained that the legality of the liquidation could not be challenged due to failure to follow timely protest procedures as outlined in 28 U.S.C. Sec. 1582(c).
A ruling in Omni U.S.A. Inc. v. United States established that errors in duty liquidations by the Customs Service can only be corrected according to statutory procedures. Specifically, because no one alerted customs officials to the errors within one year of liquidation, the authority to correct them lapsed under 19 U.S.C. § 1520(c)(1). The court rejected the idea that the liquidation was void due to being ultra vires, emphasizing that failure to follow statutory procedures results in the finality of liquidation.
The Customs Service did not take any corrective actions, such as voluntary reliquidation or filing protests, which solidified the finality of the liquidation. The government's argument that FDA determinations of inadmissibility are irrelevant to customs law was also addressed. The Court of International Trade found that the exclusion of food based on FDA decisions does not negate the finality of customs liquidation. The ruling affirmed that Customs is responsible for implementing FDA decisions and that the finality of importation decisions under 19 U.S.C. § 1514 should not be interpreted to exclude FDA implications without explicit statutory language. There is no evidence suggesting that Congress intended to alter the established finality of importation decisions.
Customs' improper liquidation of the entry violated legal standards designed to protect consumers, particularly regarding the reexportation or destruction of contaminated foods. The record suggests that Utex did not place the shrimp into commerce, and the U.S. government criticized the premature duty assessment that risks public health by potentially allowing tainted food to enter the market. The obligation to ensure compliance lay with the FDA and Customs Service, which failed in this instance.
In a lawsuit against a surety on the entry bond, liability is governed by customs law, and challenges to the legality of liquidation must follow the protest procedure established by statute. Cases cited emphasize that governmental errors do not permit reliquidation or cancellation after the statutory timeframe. Consequently, the liquidation, although potentially incorrect, became final due to the lack of timely protest or reliquidation, binding the importer, surety, and government to its terms.
The government contends that the entry bond's paragraph 7 imposes liability on the surety independent of the liquidation's finality. Paragraph 4 of the bond requires redelivery of inadmissible goods upon Customs' demand, but no demand was made post-liquidation, negating liability under this paragraph. Paragraph 7 requires the importer to take necessary actions concerning non-compliant merchandise after proper notice, with Sentry arguing that compliance with regulatory requirements is essential for the bond’s enforcement and does not absolve the government from its regulations.
The government contends that paragraph 7 of the entry bond does not require a demand for redelivery to limit importer and surety liability, unlike paragraph 4, which specifies that demands must comply with relevant laws and regulations. This interpretation contradicts the principle that contract provisions should be read in conjunction, as supported by legal precedents. Both paragraphs address inadmissible goods and are subject to applicable customs laws and regulations, meaning the bond cannot be interpreted in violation of these laws. The court concludes that paragraph 7 does not create absolute liability free from statutory constraints and emphasizes that "proper notice," as referenced in paragraph 7, must comply with 19 CFR Sec. 114.113.
Regarding Sentry’s right to contest the government’s demand for liquidated damages, the court agrees with the government that Sentry needed to file a protest within 90 days and pay the demanded amount to preserve its contest rights. According to 19 U.S.C. Sec. 1514(c)(2), protests must be filed within 90 days of a payment demand, which is detailed in subsection (a) covering various customs-related decisions. Sentry disputes whether the demand for damages constitutes a "decision, order, or finding" under Sec. 1514(a)(3), arguing that such damages do not fall within the category of charges or exactions specified therein. This argument is supported by the distinction made in 28 U.S.C. Sec. 2637(a), which refers only to "liquidated duties, charges, or exactions," excluding "liquidated damages."
The demand for damages in this case was made four years after final liquidation. The government contends that Sentry is barred from challenging this demand due to its failure to file a protest and pay the demanded amount in advance. However, the court emphasizes that forfeitures are disfavored and that the government's position lacks clear statutory support in 19 U.S.C. Sec. 1514 and 28 U.S.C. Sec. 2637, which address the exhaustion of administrative remedies necessary for judicial review of liquidation items. The importer must file a protest to secure administrative review, but the current issue does not pertain to such a review as the time for it has passed.
The Customs Form 5955, issued to Utex in 1980, did not require a protest but allowed for a petition for mitigation within 60 days. The form indicated that non-payment would lead to referral to the United States Attorney. Previous case law, such as W.X. Huber v. United States, established that if a demand for merchandise return was untimely, the importer could choose to pay liquidated damages under protest or wait to be sued.
Sentry argues that prior to the 1980 Customs Courts Act, defendants in district court actions for damages were not required to protest or pay liquidated damages upfront. The legislative history does not show an intention to alter the surety's status in such cases. The 1980 Act introduced provisions allowing sureties to implead third parties or file cross-claims, contradicting the government's stance that the surety must pay in full before defending.
The court concludes that it is not customary in surety or contract law for a defendant to pay the demanded amount before a judicial determination of liability. There is no statutory mandate or clear intent from Congress imposing such a requirement. Although both parties cannot challenge the liquidation, historically, the surety was not required to protest or pay damages in advance to defend against liability claims. The court ultimately reversed the government's position, affirming that the surety was not obligated to file a protest or pay the assessed damages to defend against the charge.
