United States: International Trading Services Case Reaffirms Expansion Of U.S. Importer Liability

Last Updated: July 18 2017
Article by Derrick Kyle and Jordan Jensen

Two recent U.S. court decisions will increase corporate officers' and compliance professionals' risks for personal liability for Customs law violations. Specifically, the decisions relate to fraudulent, grossly negligent, or negligent activity under the Customs penalty statute, 19 U.S.C. § 1592. 

In May 2017, the United States Court of International Trade heard a suit brought by U.S. Customs and Border Protection ("CBP") against an importer of record named International Trading Services, LLC ("ITS") and its CEO Mr. Julio Lorza.1 Through ITS, Mr. Lorza imported eight shipments of sugar into the U.S. under an improper subheading of the Harmonized Tariff Schedule of the United States ("HTSUS").2 Although ITS classified the sugar shipments under a subheading specific to "[c]ane or beet sugar and chemically pure sucrose" which carries a lower duty rate per kilogram of sugar, none of the ITS shipments contained sugar that met those requirements.3 ITS' sugar shipments actually fell under another subheading with a higher duty rate.4 Thus, ITS owed the difference in duty due to the incorrect classification.

The Court of International Trade held that because neither ITS nor Mr. Lorza could offer evidence rebutting their negligence in misclassifying the shipments, both parties were "jointly and severally liable for unpaid duties, penalties, and applicable interest."5 After considering a 14-factor analysis for determining penalties under 19 U.S.C. § 1592(c)(3), which grants the court complete discretion in awarding judgments, the Court of International Trade found the defendants had acted negligently and awarded CBP $691,311.54, which was double the calculated value of the unpaid customs duties i.e., the penalty for negligence under §1592(c)(3).6 The court reasoned that the penalty was appropriate because ITS and Mr. Lorza were exceedingly negligent by making material false statements or omissions in the misclassification of the sugar shipments.7 This decision reaffirms the expansion of U.S. importer liability that began with the earlier Trek Leather decision of the U.S. Court of Appeals.

In 2014, the U.S. Court of Appeals for the federal circuit heard an appeal on a suit brought by CBP against Trek Leather Inc. and its sole shareholder and president, Mr. Harish Shadadpuri.8 In Trek Leather, the goods were undervalued because Mr. Shadadpuri failed to declare certain assists. CBP defines assists as items, such as materials or tools, that "the buyer of imported merchandise provides directly or indirectly, free of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States."9

Mr. Shadadpuri, through either Trek Leather or another company, supplied the manufacturer of the imported suits with free fabric.10 Because the fabric used in the production of the imported suits was provided to the manufacturer free of charge, the fabric assist cost should have been included in the value of the entered merchandise.11 However, Mr. Shadadpuri did not include the assist in the Customs declaration, resulting in violations.12 The goods were undervalued by $133,605.08.13

Mr. Shadadpuri contested the penalty under § 1592 by arguing that he was not a "person" under the penalty statute.14 The Court of Appeals reviewed Mr. Shadadpuri's appeal and considered two issues: (1) whether Mr. Shadadpuri was a "person" under 19 U.S.C. § 1592; and (2) whether Mr. Shadadpuri's actions fell under the activities listed in the statute.15 The Court of Appeals looked to § 1592(1)(A) to determine if Mr. Shadadpuri's actions constituted "enter[ing], introduc[ing], or attempt[ing] to enter or introduce any merchandise into the commerce of the United States . . . ."16 In response to both issues, the Court of Appeals held that the answer was affirmative.17

In the first issue, the Court of Appeals held that, while the term "person" in the penalty statute has traditionally referred to the importer of record, because Mr. Shadadpuri was found to be grossly negligent in the undervaluation of the suits, and the term "plainly covers a human being," Mr. Shadapuri's argument that he was not a "person" under the statute failed.18 For the second issue, the Court of Appeals ignored the term "enter" in § 1592(1)(A) and relied on the word "introduce."19 In focusing on the term "introduce," the Court of Appeals cited to Panama Hats, an earlier Supreme Court decision that explained the reason legislators originally added the term "introduce" to the statute.20 In Panama Hats, the Supreme Court interpreted "introduce" to "enlarge the scope of conduct" under the statute to include activities other than simply "enter[ing]."21 Thus, the U.S. Court of Appeals found Mr. Shadadpuri liable under the "flexible and broad" language of the penalty statute.22

Historically, no direct liability has been imposed on "employees of a corporate importer" who are not listed as the importer of record "for negligent or grossly negligent acts" in importing goods into the United States.23 Thus, the holdings in Trek Leather and International Trade potentially expand personal liability for U.S. importers. Additionally, the courts' decisions further the ongoing discussion of what activities are covered under § 1592 and how violations of the statute are penalized. These decisions practically increase an importer's responsibilities by broadening the meaning of the penalty statute 19 U.S.C. § 1592 and opening the doors for more litigation in the future for importers whose activities might not have previously fallen under the statute.


1. United States v. Int'l Trading Servs., 222 F.Supp.3d 1325, 1329 (Ct. Int'l Trade 2017).

2. Id.at 1329-30.

3. Id.

4. Id.

5. Id. at 1333.

6. Id. at 1336.

7. Id. at 1336.

8. Trek Leather, Inc. v. Shadadpuri, 767 F.3d 1288, 1290 (Fed. Cir. 2014).

9. https://www.cbp.gov/sites/default/files/documents/icp001r2_3.pdf

10. Id. at 1292.

11. Id.

12. Id.

13. Id. at 1291.

14. Id. at 1294.

15. Id. at 1295.

16. 19 U.S.C.A. § 1592(1)(A) (West, Westlaw through P.L. 115-40).

17. Trek Leather, Inc., 767 F.3d at 1296.

18. Id.

19. Id. at 1297.

20. Id.

21. Id. at 1297.

22. Id. at 1298.

23. Kathleen M. Murphy, Full Federal Circuit Court of Appeal Finds Customs Civil Penalty Statute Applies to Corporate Employee, Nat'l L. Rev., Sept. 24, 2014, http://www.natlawreview.com/article/full-federal-circuit-court-appeals-finds-customs-civil-penalty-statute-applies-to-co.

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Derrick Kyle
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