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The Ninth Circuit Court of Appeals has <a href="https://assets.law360news.com/2356000/2356434/22-55063.pdf" target="_blank" rel="noreferrer noopener">upheld</a> a $26 million fraud verdict against a pipe importer for violating the False Claims Act (FCA) by making false statements on customs forms to avoid paying antidumping duties on Chinese-made pipe fittings. The court rejected the importer&rsquo;s argument that the Tariff Act provides the exclusive remedy for customs fraud, affirming that the FCA can also be used to pursue such claims.
The case originated from a whistleblower lawsuit filed by a competitor.&nbsp;The complaint alleged that the importer at issue and its partners misclassified and misrepresented the products imported from China, declaring to customs that they are steel couplings, and later marketing them to its customers as welded outlets, in order to evade a 182.9% antidumping duty, depriving the U.S. government of significant revenue. In response, the importer contended that (1) its products were not subject to the tariffs and (2) that, regardless, the Tariff Act, not the FCA, should govern such disputes. However, the court found that Congress intended both statutes to coexist and that the FCA&rsquo;s broad scope covers customs duty evasion.
Under Section 1592 of the Tariff Act, the United States can pursue enforcement actions to recover unpaid customs duties and/or impose civil penalties for customs violations by fraud, gross negligence, or negligence.&nbsp;A customs violation by fraud is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise.&nbsp;The FCA, on the other hand, allows for civil penalties, including three times of the amount of suffered damages (the underpaid duties, in the case of customs violations). The whistleblowers who bring a qui tam action under the FCA can be awarded between 15%-25% of the total recovered amount.
The 9th Circuit&rsquo;s decision confirms that Section 1592 of the Tariff Act does not displace the FCA, and both statutes may operate in parallel to address customs duty evasions. The original jury verdict at issue found that the importer was liable for violating the FCA and that it owed $8 million in damages, which was tripled under the FCA, plus civil penalties, resulting in the $26 million judgment.

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SmarTrade

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Francesca M.S. Guerrero

Kerem Bilge

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Aaron C. Mandelbaum

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Kristina Shcheglazova

International Trade

9th Circuit Upholds a $26 Million Civil Penalty Against a Pipe Importer for Violating the False Claims Act