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Court to Re-examine Liability of Corporate Officers for Company Negligence

Tuesday, March 18, 2014
Sandler, Travis & Rosenberg Trade Report

The Court of Appeals for the Federal Circuit has agreed to revisit a court case in which it ruled last summer that a corporate officer is not personally liable for his/her company’s gross negligence under 19 USC 1592(a).

In a July 30, 2013, split decision, the CAFC cited the “basic principles of corporate law” to hold that Harish Shadadpuri cannot be personally chargeable with negligence for the actions he took in his capacity as a corporate officer and on behalf of Trek Leather Inc. because he was not the importer of record. The majority also upheld the proposition that when an importer of record (i.e., Trek) is liable for negligence with respect to making entry, a third party (i.e., Shadadpuri) cannot be liable for aiding and abetting that negligence because such liability requires a demonstration of knowledge or intent.

In reaching this conclusion the majority rejected the government’s argument that the word “person” in 19 USC 1592(a), which prohibits the entry of merchandise by fraud, negligence or gross negligence, should be construed more broadly than “importer of record” is defined in 19 USC 1484 and 1485, which set forth the level of reasonable care required in conjunction with the entry of merchandise. Such a principle, the court states, “would expose all corporate officers and shareholders to personal liability for negligent acts they undertake on behalf of their corporation.”

The dissenting judge, however, pointed out that 19 USC 1592 contains no reference to 1484 and broadly sanctions any person who uses fraud, gross negligence or negligence to enter or attempt to enter merchandise into the U.S. The dissent also accuses the majority of ignoring the history of 19 USC 1592, asserting that its precursor “imposed liability for false statements to Customs on a wide range of individuals, including corporate representatives like Shadadpuri,” and that when the language of this provision was changed there was no intent to alter the range of persons covered.

The CAFC has now accepted the U.S. government’s petition for rehearing en banc, vacated its previous ruling and asked the parties to this case to file new briefs on the following issues. Briefs from third parties will be accepted as well.

- the meaning of “person” under 19 USC 1592(a) and how other statutory provisions in Title 19 affect this inquiry

- if corporate officers or shareholders qualify as persons under 1592(a), whether they can be held personally liable for duties and penalties imposed under 1592(c)(2) and (3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the U.S. by their corporation (and, if so, under what circumstances)

- the scope of “gross negligence” and “negligence” in 19 USC 1592(a) and the relevant duty, and how other statutory provisions in Title 19 affect this inquiry

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