9th Circuit Says FCA Liability Depends on Importer's Actual Knowledge of Duty Liability
The U.S. Court of Appeals for the 9th Circuit on June 23 upheld a jury's determination that importer Sigma Corp. is liable under the False Claims Act for lying about whether its imports were subject to antidumping duties. Judges Michelle Friedland and Mark Bennett said no errors of law were made against Sigma and that the federal district court, not the Court of International Trade, had jurisdiction in the case (Island Industries v. Sigma Corp., 9th Cir. # 22-55063).
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As a result, Sigma is liable for $8 million in unpaid duties, which is automatically multiplied by three under the FCA.
Sigma imported welded outlets from China from 2010 to 2018. The outlets are "nearly identical" to those identified in a 1992 scope ruling from the Commerce Department, which found the subject outlets fall under the antidumping duty order on carbon steel butt-weld pipe fittings from Taiwan.
From 2010 to 2018, Sigma said, its goods weren't subject to the AD order on carbon steel butt-weld pipe fittings from China. One of Sigma's competitors, Island Industries, filed an FCA suit as a qui tam relator against Sigma, alleging that the company knowingly made two types of false statements: Sigma said its imports weren't subject to AD and described its products as "steel couplings even though it marketed them to customers as welded outlets."
Sigma requested a scope ruling from Commerce, which was eventually litigated before the trade court and the U.S. Court of Appeals for the Federal Circuit. The result subjected the importer's goods to the AD order.
Friedland, writing for the 9th Circuit, first established that the case was properly before the court. The 9th Circuit had previously held that FCA cases brought by the government belonged at CIT, since Section 1582 says the trade court has exclusive jurisdiction over any civil case arising out of an import transaction and that's commenced by the U.S. to recover customs duties.
The appellate court ruled that Section 1582 "poses no jurisdictional obstacle to a relator’s FCA action in federal district court to recover customs duties." Friedland noted that the Supreme Court has interpreted the term "the United States" in another jurisdictional statute to mean that the U.S. "is a party to a privately filed FCA action only if it intervenes." Since the U.S. didn't intervene in this suit, jurisdiction is proper at the 9th Circuit, the decision said.
Sigma made a host of legal claims against Island's case, including the argument that Section 1592, which lets the U.S. recover "fraudulently avoided customs duties," displaces FCA suits against avoided customs duties. The 9th Circuit disagreed, finding there to be "no carveout for customs duties" in the FCA. When duties are skirted by "fraud or negligence," Section 1592 "provides an exception to the general rule that liquidation is 'final and conclusive,'" the court said. Only the U.S. can open a Section 1592 case, but a "whistleblower may be awarded up to a quarter of any recovery that the government obtains."
Friedland said Section 1592 "undoubtedly overlaps with the FCA," but it's the duty of the courts to regard overlapping laws as effective, "absent a clearly expressed congressional intention to the contrary." The judge found there to be "no irreconcilable conflict" between the two statutes here, since Section 1592 doesn't say it's an exclusive remedy and the FCA "expressly contemplates that FCA cases can proceed in parallel with the government’s pursuit" of alternate remedies.
Sigma additionally argued that it can't be held liable, since it had no obligation to pay AD given that Commerce only plans to recover additional duties for "entries from recent years" and not entries from older years like Sigma's. Friedland rejected this claim, finding that Commerce's collection of duties only on recent entries doesn't mean duties were never owed or that the government couldn't open a suit to collect the duties.
"In sum, an importer cannot evade duties, wait until its entries are liquidated, and then assert based on that liquidation that its actions did not deprive the government of money," the court said.
Lastly, Sigma said it can't be found to have knowingly made a false statement, since a reasonable importer "could have believed that no duties were owed." The 9th Circuit said this defense is barred by the Supreme Court's 2023 decision in U.S. ex rel. Schutte v. SuperValu, in which the court said the FCA's scienter element refers to a defendant's "knowledge and subjective beliefs -- not to what an objectively reasonable person may have known or believed.”
Even if the AD order was ambiguous enough that "some hypothetical reasonable person could have believed that it did not cover Sigma’s welded outlets," that doesn't extend to whether Sigma itself knew it was subject to the duties.
Friedland added that there was sufficient evidence for the jury to find that "Sigma acted with either deliberate ignorance or reckless disregard for the truth when it declared on customs forms that it did not owe antidumping duties on its welded outlets." For instance, Sigma "made no inquiry into whether it owed duties" and Island showed it would have been very easy to discover such liability, including via Google searches and contacting Commerce analysts.
Judge Paul Watford originally sat on the three-judge panel overseeing the case but left the court at the end of May in 2023, leaving Friedland and Bennett to decide the case.