By George W. Thompson
We’re starting to see some of the fallout from the appellate decision in United States v. Nitek, which I covered here. In that case, the Federal Circuit placed limits on the level of culpability (negligence, gross negligence or fraud) that may be asserted in judicial penalty cases brought under 19 U.S.C. § 1592. Specifically, unless U.S. Customs and Border Protection has asserted a particular ground for the violation in administrative penalty proceedings, it cannot thereafter raise it for the first time in court. Instead, the exhaustion of administrative remedies principle warrants dismissal of such belated claims.
Applying Nitek, the Court of International Trade has dismissed the negligence and gross negligence counts of a section 592 penalty case in United States v. Toth, because CBP failed to raise these claims administratively. CBP alleged in the administrative case that the importer had fraudulently misclassified imported merchandise to avoid payment of antidumping duties. In the CIT, it added negligence and gross negligence counts. After the defendant moved to dismiss those for failure to state a claim under Nitek, the government sought a voluntary remand to permit CBP to fill in the administrative gap.
No Do-Overs
The CIT rejected the request, correctly noting that voluntary remands are used when the government is the defendant in an action and seeks approval to reconsider the challenged agency action and that “in this de novo proceeding that the Government brings against a private party, there is no challenged agency decision upon which the court may issue an order of remand. Instead, because the case is in the pleading stage, the sole question now before the court is whether Counts II and III in the Complaint state claims upon which relief can be granted.” Granting a remand at that point was not a permissible option.
Indeed, in my candidate for judicial comment of the year, the CIT stated that “The Government exhibits great chutzpah to propose this third option.”
Accordingly, the negligence and gross negligence claims were dismissed.
While I expect CBP will assert all three levels of culpability in future section 592 administrative cases, its failure to have done so in penalty collection actions that are now pending in court should lead to more Nitek-based dismissals.
