No Customs Inspection Fees for CBP Where No Inspection Took Place, CIT Says
CBP is not entitled to Customs Passenger Processing Fees paid by individual passengers that cancel their tickets and never actually travel to the U.S., the Court of International Trade held on March 18. Siding with Southwest Airlines, Judge Gary Katzmann said that the statute, 19 U.S.C. 58c(a), doesn't allow CBP to collect the fees where the customer doesn't travel to the U.S. and no customs inspection services are performed.
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Katzmann also held that CBP's guidance letters requiring airlines to pay the fees, when collected by the passenger but the passenger doesn't fly, can't usurp the agency's lack of an interest in the fees, according to the statute. The judge lastly said that Southwest doesn't hold the collected fees in a "constructive trust" for CBP, since the agency has no "equitable interest in a fee where no passenger travels."
The Customs Passenger Processing Fee is paid by airline passengers, collected by the airlines, then paid to CBP as a means to compensate the agency for providing customs services to international air passengers landing in the U.S. In 2017, CBP audited Southwest's fee compliance for flights from 2014 to 2017, relying on two CBP Guidance Letters that say when fees are collected for unused tickets and not refunded to the passengers, the fees are considered to be held in trust for the U.S. and must still be paid to CBP by the airline.
At issue were tickets canceled by the passenger for which Southwest issued a residual travel fund, essentially, a travel voucher, that the passenger didn't redeem. Southwest kept the Customs Passenger Processing Fees paid by the customer for these tickets, which CBP said violated the statute and its Guidance Letters, telling the airline to pay $378,081.75 plus interest. The airline challenged the move as violating the statute (see 2205090026).
Katzmann began his analysis with the statute, which tells CBP to collect fees "for the provision of customs services in connection with" the "arrival of each passenger aboard a commercial vessel or commercial aircraft from a place outside the United States." The judge said that based on this language, "CBP is only entitled to a fee for the provision of customs services in connection with the arrival of a passenger." Where a customer cancels their ticket, there's no arriving passenger, CBP "provides no customs services and thus CBP is not entitled to a fee," the court said.
While the U.S. argued that the statute's collection provision, which compels airlines to "remit those fees" to the agency, requires Southwest to pay collected fees to the agency, the court thought otherwise. Katzmann said that while the terms "shall remit those fees" imply that the airline must pay any fees it collects, this view doesn't comport with the "overall statutory scheme." The scheme "as a whole provides that CBP is entitled to the fee based on the provision of customs services in connection with the arrival of a passenger, not upon the carrier’s collection of the funds," the court said.
The government's theory rests on a "single, isolated provision within the statute," while ignoring the rest of the statute, the court said. The U.S. position also cuts against CBP's own actions and claims related to refunds, the judge said. CBP only calculated fee underpayment on the tickets for which the travel vouchers expired and not tickets for which the vouchers were issued and later used. But the government's view of the statute "suggests that CBP would be entitled to a fee regardless of whether the carrier issues a refund."
The judge also held that the guidance letters are irrelevant. "Where Congress established a clear line within the relevant statute -- empowering CBP to collect fees for the provision of customs services in connection with arriving passengers -- the Guidance Letters cannot empower CBP to collect fees where no customs services are provided and no passenger arrives," the decision said.
Lastly, Katzmann said the airline doesn't hold collected fees in a "constructive trust" for the government. The court defined a constructive trust as an "equitable remedy by which a court recognizes that a claimant has a better right to certain property than the person who has legal title to it.” The court noted that a constructive trust is rooted in a "theory of unjust enrichment," where one acquires property "at the expense of the claimant or in violation of the claimant's rights."
As a means to "remedy unjust enrichment," constructive trusts cannot be used to salvage the government's position, the court said. Since CBP isn't entitled to the fees, given that no customs services were performed, "it is irrelevant whether Southwest refunds the funds collected as fees upon cancellation of a ticket, and the Government cannot claim to be the beneficiary of a constructive trust based on Southwest’s unjust enrichment," the court said.
(Southwest Airlines Co. v. United States, Slip Op. 25-26, CIT # 22-00141, dated 03/18/25; Judge: Gary Katzmann; Attorneys: Adam Feinberg of Miller & Chevalier for plaintiff Southwest Airlines; Guy Eddon for defendant U.S. government)