Appeals court overturns CBP-UPS decision
The U.S. Court of Appeals for the Federal Circuit earlier this month reversed a lower court ruling in favor of U.S. Customs and Border Protection's decision to impose multiple penalties on UPS Supply Chain Solutions for allegedly failing to exercise responsible supervision and control at its customs brokerage division.
The appeals court sided with the Court of International Trade's decision that UPS misclassified a computer part in 2000 while calculating import tariffs, but said it erred in allowing CBP to penalize the company for poor oversight of its customs compliance operation because the agency did not follow proper steps for making such a determination.
The customs broker community is closely watching United States v. UPS Customshouse Brokerage Inc., because of the widespread belief that CBP was overzealous in its issuance of penalties. The appeals court, however, did not rule on the question of whether CBP was justified in issuing multiple penalties for a single classification error that appeared on multiple customs entries or whether the maximum penalty amount for a single violation prior to notification of an offense is limited to $30,000.
The appeals court said CBP did not examine 10 criteria listed in federal law for determining whether a licensed customs broker has sufficient quality control mechanisms in place. It overturned the Court of International Trade's ruling that CBP could use its discretion to selectively consider which factors constituted a breach of broker responsibilities. Among the criteria for determining a broker's supervisory capacity are whether the company issues written instructions and guidelines to employees, maintains updated versions of the Harmonized Tariff Schedule as well as CBP regulations and rulings, and the frequency of visits by licensed managers to satellite offices that do not have a licensed broker on staff.
The National Customs Brokers and Forwarders Association of America, which filed a brief in the case supporting UPS's position, is pleased with the result because the court basically told CBP it had to follow its own regulations, said Alan Klestadt, the group's customs counsel and a partner in the New York law firm of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt.
'They can't cherry-pick the regulations when it comes to deciding when a broker has exercised responsible supervision and control,' he said.
The UPS case underscores that 'Customs has not been following the administrative protocol as closely as it should when regulating brokers, particularly when it comes to penalties and disciplinary actions,' Klestadt said.
A CBP spokesperson said the agency could not discuss ongoing litigation.
The appeals court decision vacates the entire case and sends it back to the Court of International Trade, where the multiple penalty issue will be revisited too. Brokers hope the court will clarify the issue of broker liability limits, which are not defined in the section of federal code that regulates the industry.
The NCBFAA negotiated an understanding on broker liability with the government a quarter-century ago, but the subsequent legislation amending the statute didn't explicitly spell out how penalties would be capped, according to association officials. The legislation was an attempt to provide the legacy Customs Service a less draconian tool for enforcing broker rules, which to that point was limited to suspension or revocation of a broker's license. After agreeing to introduce a monetary penalty regime, industry and Customs officials reached a tacit agreement that broker liability would be limited to a single $30,000 penalty for repeating the same violation before receipt of a warning letter. The broker community assumed that CBP would interpret the informal agreement that way, but the trial judge said there is nothing in the law or the legislative record supporting the brokers' claim.
Brokers consider the case a watershed event because it was the first time in memory that CBP tried to issue penalties for multiple violations of the same offense.
UPS paid $15,000 for the original three penalties it received, but was sued by the government in 2004 for failing to pay the remaining $75,000 balance in penalties. ' Eric Kulisch