Tabacos USA, Inc. v. United States Customs and Border Protection

Slip Op. 18-170
UNITED STATES COURT OF INTERNATIONAL TRADE
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TABACOS USA, INC., 	:
Plaintiff, :
v. 	: Court No. 18-00221
UNITED STATES CUSTOMS AND BORDER 	:
PROTECTION,
:
Defendant.
:
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Opinion
[Upon defendant’s demand for a greater continuous entry bond,
judgment for the plaintiff importer.]
Decided: December 	, 2018
Neil 	B. 	Mooney 	and 	Shanshan 	Liang, 	Pennington 	P.A., 	of
Tallahassee, FL, for the plaintiff.
Monica 	P. 	Triana 	and 	Hardeep 	K. 	Josan, 	Trial 	Attorneys,
International 	Trade 	Field 	Office, 	Commercial 	Litigation 	Branch,
Civil 	Division, 	U.S. 	Department 	of 	Justice, 	of 	New 	York, 	NY, 	for
the 	defendant. 	With 	them 	on 	the 	papers 	Joseph 	H. 	Hunt, 	Assistant
Attorney General, and Amy M. Rubin, Assistant Director.
AQUILINO, 	Senior 	Judge: 	The 	plaintiff 	commenced 	this
action 	by 	the 	simultaneous 	filing 	of 	a 	summons 	and 	complaint 	and
applications 	for 	a 	temporary 	restraining 	order 	and 	preliminary
injunction. 	Upon initial consideration of those papers, the court
offered defendant’s counsel an immediate opportunity to be heard,
whereafter 	a 	temporary 	restraining 	order 	entered, 	setting 	the
7
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matter 	for 	a 	formal 	hearing 	in 	open 	court, 	at 	which 	the 	court
decided 	to 	consolidate 	it 	with 	a 	trial 	on 	the 	merits 	pursuant 	to
USCIT Rule 65(a)(2).
I
The 	object 	of 	plaintiff’s 	plea 	for 	relief 	is 	a 	formal
notice 	to 	it 	dated 	September 	28, 	2018 	from 	defendant’s 	Section
Chief, 	Surety 	Bonds 	& 	Accounts, 	Debt 	Management 	Branch, 	Revenue
Division, 	Office 	of 	Finance, 	that 	its 	continuous 	entry 	bond
numbered 18C000D1D in the amount of $300,000.00
has 	been 	determined 	to 	be 	insufficient 	to 	protect 	the
revenue 	and 	insure 	compliance 	with 	Customs 	and 	Border
Protection laws and regulations. 	Within 30 calendar days
from 	the 	date 	of 	this 	letter, 	you 	must 	schedule 	to
terminate this bond by 10/28/18 with a termination date
no 	later 	than 	11/12/18 	or 	it 	will 	be 	rendered
insufficient. 	Based 	on 	the 	previous 	12 	months 	of 	data
captured 09/25/17-09/24/18 a new continuous bond with a
limit 	of 	liability 	of 	not 	less 	than 	amount 	$400,000 	is
required.
Plaintiff’s Exhibit 1 (boldface deleted).
At trial, defendant’s Director, Revenue Division, Office
of Finance, which oversees CBP’s bond program, confirmed that his
agency’s 	continuing 	concern 	and 	responsibility 	is 	to 	protect 	the
revenue 	of 	The 	United 	States 	of 	America. 	See 	19 	U.S.C. 	§1202 	et
seq.; 	trial 	transcript 	(“Tr.”), 	pp. 	109-12, 	120. 	As 	a 	matter 	of
policy, 	goods 	are 	expedited 	into 	the 	customs 	territory 	of 	this
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country 	when 	entered 	and 	without 	having 	duties 	paid 	or 	other
liabilities 	imposed 	by 	law, 	or 	otherwise 	held 	awaiting 	the 	final
determination of duties owed or other liabilities. 	See 19 U.S.C.
§1484. 	In 	order 	to 	satisfy 	an 	importer’s 	obligations 	when
subsequently determined to be due (because the goods will have been
released 	from 	CBP’s 	custody), 	Congress 	has 	delegated 	CBP 	the
authority 	to 	require 	“such 	bonds 	or 	other 	security 	as 	. 	. 	.
deem[ed] necessary for the protection of the revenue or to assure
compliance 	with 	any 	provision 	of 	law 	which 	the 	Secretary 	of 	the
Treasury 	or 	[CBP] 	may 	be 	authorized 	to 	enforce.” 	19 	U.S.C.
§1623(a).
As developed, with the input of the import and insurance
communities, CBP’s policy is to require single transaction bonds or
continuous bonds that cover, at a minimum, 10% of the duties, taxes
and fees that could be owed on an importation. 	Due to disparities
in 	the 	manner 	in 	which 	the 	bonding 	process 	had 	been 	previously
administered by individual U.S. ports, CBP has centralized it.
The United States, as beneficiary to the contract between
a 	surety 	and 	bond 	principal, 	is 	not 	itself 	a 	party 	to 	their
contract. 	CBP 	does 	not 	set 	the 	fees 	charged 	by 	the 	sureties 	for
the 	bonds 	they 	provide, 	nor 	do 	its 	bond 	requirements 	entail 	any
payments to the U.S. government. 	Rather, those bonds are obtained
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from private surety companies, which charge the importers based on
the risks involved.
Before 	imported 	merchandise 	will 	be 	released 	from 	the
custody of the United States, importers must provide evidence that
they 	have 	obtained 	either 	single 	transaction 	or 	continuous 	entry
bonds, or deposited cash or an authorized obligation to the United
States 	in 	lieu 	of 	surety 	on 	a 	bond, 	for 	the 	entry 	or 	entries 	in
question. 	And its September 28, 2018 notice, supra, explained that
CBP conducts bond sufficiency review on a monthly basis.
To avoid a bond stacking liability issue[1 ], it is in the
importers 	best 	interest 	to 	forecast 	their 	import
activities for the next 12 months to determine if a bond
increase beyond the minimum amount stated above[ ] will
be more appropriate.
In order to gain a better understanding of the reason(s)
for this increase, please refer to the information about
current 	bonding 	formulas 	posted 	on 	our 	website 	. 	. 	..
This bond increase is based on the formula described as
“Reviewers (1)”. 	Customs and Border Protection requires
that 	each 	entry 	must 	be 	covered 	by 	a 	valid, 	continuous
bond 	or 	a 	single 	transaction 	bond 	(19 	CFR 	Part 	113).
Notify 	your 	Customs 	or 	insurance 	broker 	and 	provide 	a
copy of this letter to them. 	. . .
Plaintiff’s Exhibit 1 (boldface deleted).
1 	Such 	issue 	occurs 	when 	a 	surety 	has 	open exposure over
multiple 	bond 	periods 	for 	a 	particular 	importer. 	A 	bond 	period
remains open so long as unliquidated entries covered by that bond
remain.
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The 	plaintiff 	importer 	sought 	reconsideration 	by 	CBP,
which was ultimately denied. 	See Plaintiff’s Exhibit 8. Whereupon
the 	plaintiff 	instituted 	this 	action 	seeking 	the 	aforementioned
injunctive 	relief 	from 	termination 	of 	its 	existing 	$300,000
continuous 	bond 	coverage 	and 	requiring 	a 	new 	such 	bond 	in 	the
amount of $400,000.
II
At 	trial, 	the 	plaintiff 	proved 	that 	it 	opened 	for
business 	in 	2003; 	that 	since 	2007 	it 	has 	imported 	“value 	priced”
tobacco products; that prior to receipt of the above-quoted demand
it 	had 	been 	requested 	“only 	a 	few 	times” 	to 	increase 	its 	bond
amount 	and 	had 	done 	so 	accordingly; 	that 	it 	filed 	with 	CBP
continuous bond number 18C000D1D covering the period April 23, 2018
through 	April 	22, 	2019; 	that 	for 	that 	bond 	implicated 	in 	this
matter, the surety holds the equivalent in value of a certificate
of deposit raised by the plaintiff; that plaintiff’s business has
been 	“in 	a 	general 	downturn 	since 	2014” 	and 	that, 	as 	such, 	its
sureties 	have 	required 	it 	to 	fully 	collateralize 	its 	bonds; 	that
the 	plaintiff 	has 	on 	deposit 	with 	surety 	providers 	$1.1 	million;
that subsequent to a termination herein it would not receive return
of collateral for at least six months; that in order to post a new
$400,000 	bond 	it 	would 	have 	to 	find 	that 	amount 	in 	new 	cash 	to
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collateralize 	such 	a 	bond 	and 	that 	it 	does 	not 	have 	and 	cannot
raise that amount; that, in objecting to CBP’s demand to increase
the value of its current bond, the plaintiff provided proof that it
is 	presently 	sufficient 	and 	will 	remain 	sufficient 	for 	the
foreseeable future, i.e., that the bond had always been sufficient
during 	the 	twelve 	months 	in 	question 	but 	for 	delay 	of 	a 	single
container that should have arrived in August 2017 but which through
no 	fault 	of 	the 	plaintiff 	was 	delayed 	in 	shipment, 	arriving 	in
October 	2017 	and 	resulting 	in 	CBP’s 	aforementioned 	insufficiency
determination 	based 	on 	its 	12-month-data-capture-look-back
conducted on or about September 23, 2018. 2
The 	record 	adduced 	at 	trial 	by 	the 	plaintiff 	reflects
significant 	proprietary 	information 	that 	need 	not 	be 	recited
herein. 	It indicates such current inventory in a bonded warehouse
that the plaintiff will not order more imports for months to come,
thereby continuing to ensure the future sufficiency of its current
continuous entry bond.
2 	According to defendant’s formulation, plaintiff’s delayed
shipment 	could 	have 	led 	to 	some 	$17,000 	in 	additional 	duties,
taxes, 	and 	fees, 	but 	a 	fraction 	of 	the 	$100,000.00 	in 	demanded
supplemental coverage. 	See Tr., pp. 145-47.
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A
Defendant’s 	Directive 	3510-004, 	as 	amended 	October 	24,
2013, provides:
Activity 1 - Importer or Broker - Continuous
The bond limit of liability amount shall be fixed in an
amount 	the 	district 	director 	may 	deem 	necessary 	to
accomplish the purpose for which the bond is given. 	The
non-discretionary 	bond 	amount 	minimum 	is 	$50,000. 	To
assist 	the 	district 	director 	in 	fixing 	the 	limit 	of
liability amount, the following shall be used. . . .
Over 	$1,000,000 	duties 	and 	taxes 	- 	the 	bond 	limit 	of
liability amount shall be fixed in multiples of $100,000
nearest to 10 percent of duties, taxes and fees paid by
an importer or broker acting as importer of record during
the calendar year preceding the date of the application.
Guidelines for determining the amount of a bond are set forth in 19
C.F.R. §113.13(b), namely:
. 	. 	. 	In 	determining 	whether 	the 	amount 	of 	a 	bond 	is
sufficient, CBP will consider:
(1) The prior record of the principal in timely payment
of 	duties, 	taxes, 	and 	charges 	with 	respect 	to 	the
transaction(s) involving such payments;
(2) The prior record of the principal in complying with
CBP demands for redelivery, the obligation to hold unexamined
merchandise 	intact, 	and 	other 	requirements 	relating 	to
enforcement and administration of customs and other laws and
CBP regulations;
(3) The value and nature of the merchandise involved in
the transaction(s) to be secured;
(4) 	The 	degree 	and 	type 	of 	supervision 	that 	CBP 	will
exercise over the transaction(s);
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(5) 	The 	prior 	record 	of 	the 	principal 	in 	honoring 	bond
commitments, including the payment of liquidated damages; and
(6) 	Any 	additional 	information 	contained 	in 	any
application for a bond. 3
The 	plaintiff 	takes 	the 	position 	that 	an 	agency 	must
follow its own regulations, e.g., Fort Stewart Schools v. Federal
Labor 	Relations 	Authority, 	495 	U.S. 	641, 	654 	(1990); 	that 	United
States 	v. 	UPS 	Customhouse 	Brokerage, 	Inc., 	575 	F.3d 	1376, 	1382
(Fed.Cir. 	2009), 	effectively 	holding 	“will” 	of 	19 	C.F.R. 	§111.1,
defining “Responsible supervision and control” of customs brokers,
a 	mandatory 	term 	and 	not 	one 	of 	discretion 	with 	respect 	to 	the
factors 	listed 	therein 	that 	are 	to 	be 	considered 	by 	CBP, 	is
relevant 	to 	the 	“will” 	as 	it 	appears 	in 	19 	C.F.R. 	§113.13(b),
supra; and that applying the six factors thereof to its situation
favors maintaining the bond current amount, to wit, (1) plaintiff’s
“impeccable” record of paying its duties, taxes, and other charges
3 	19 C.F.R. §113.13(c) provides that CBP will periodically
review each bond on file to determine whether the bond is adequate
to 	protect 	the 	revenue 	and 	ensure 	compliance 	with 	applicable 	law
and regulations. If CBP determines that a bond is inadequate, the
principal 	and 	surety 	will 	be 	promptly 	notified 	in 	writing. 	The
principal will have 15 days from the date of notification to remedy
the deficiency. Notwithstanding the foregoing, where CBP determines
that a bond is insufficient to adequately protect the revenue and
ensure 	compliance 	with 	applicable 	law 	and 	regulations, 	CBP 	may
provide 	written 	notice 	to 	the 	principal 	and 	surety 	that, 	upon
receipt thereof, additional security in the form of cash deposit or
single 	transaction 	bond 	may 	be 	required 	for 	any 	and 	all 	of 	the
principal’s transactions until the deficiency is remedied.
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in full and on time, (2) full compliance with any CBP demands and
absence 	of 	any 	custodial 	problems 	during 	the 	company’s 	nearly 	15
years 	of 	existence, 	(3) 	inexpensive 	product, 	(4) 	held 	in 	the
constructive custody of CBP at all times prior to entry and release
into consumption by means of plaintiff’s periodic withdrawals from
inventory 	held 	in 	a 	bonded 	warehouse 	(which 	fact 	is 	essentially
“double 	assurance” 	of 	CBP’s 	concerns), 	(5) 	unblemished 	record 	of
honoring bond commitments, and (6) the only reason plaintiff’s bond
was triggered as insufficient according to CBP’s bond formula was
due 	to 	the 	late 	delivery 	of 	a 	single 	container, 	an 	aberrant 	fact
that 	“will 	never 	repeat”; 	that 	the 	plaintiff 	risks 	bankruptcy 	in
the absence of an injunction, which would mean the loss of a number
of 	U.S.-resident 	jobs 	as 	well 	as 	the 	loss 	of 	$2-$3 	million 	in
duties, 	federal 	excise 	taxes 	and 	fees 	in 	annual 	revenue 	to 	the
government; 	and 	that, 	on 	balance, 	the 	United 	States 	will 	not 	be
harmed 	“in 	any 	way” 	by 	enjoining 	CBP 	from 	enforcing 	its 	demand
letter 	because 	plaintiff’s 	bond 	is 	presently 	and 	will 	be 	for 	the
foreseeable 	future 	sufficient 	and 	thus 	there 	is 	no 	harm 	to 	the
collection of revenue.
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B
At trial, and in its excellent Supplemental Submission,
the defendant has presented a vigorous defense. See Tr., pp. 107-
80. 	Indeed, this court can adopt it, in pertinent part, at length:
The 	standard 	of 	review 	for 	actions 	commenced 	under 	28
U.S.C. 	§1581(i) 	is 	governed 	by 	the 	Administrative 	Procedure 	Act.
See 28 U.S.C. §2640(e)(citing 5 U.S.C. §706). 	Under the APA, the
court 	will 	“hold 	unlawful 	and 	set 	aside 	agency 	action, 	findings,
and conclusions found to be . . . arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law.” 	5 U.S.C.
§706(2)(A); Consol. Bearings, Co. v. United States, 412 F.3d 1266,
1269 (Fed.Cir. 2005).
The court reviews CBP’s interpretations of statutes under
the 	two-step 	analysis 	articulated 	in 	Chevron 	U.S.A., 	Inc. 	v.
Natural 	Resources 	Defense 	Council, 	Inc., 	467 	U.S. 	837 	(1984).
First, the court determines “whether Congress has directly spoken
to the precise question at issue.” 	Id. at 842. 	“If the intent of
Congress is clear, that is the end of the matter; for the court, as
well as the agency, must give effect to the unambiguously expressed
intent of Congress.” 	Id. at 842-43. 	To evaluate whether Congress
has unambiguously expressed its intent, the court evaluates the
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words 	of 	the 	statute 	“in 	their 	context 	and 	with 	a 	view 	to 	their
place in the overall statutory scheme.” 	FDA v. Brown & Williamson
Tobacco 	Corp., 	529 	U.S. 	120, 	133 	(2000)(internal 	quotation 	marks
omitted). 	Here, Congress has not directly addressed how to set the
minimum 	amount 	of 	a 	continuous 	bond. 	Congress 	has, 	instead,
delegated 	to 	CBP 	the 	authority 	to 	establish 	a 	framework 	for 	that
purpose. 	19 U.S.C. §1623.
If 	a 	reviewing 	court 	determines 	a 	particular 	issue 	was
not 	addressed 	by 	Congress, 	“the 	court 	does 	not 	simply 	impose 	its
own 	construction 	on 	the 	statute,” 	rather, 	“the 	question 	for 	the
court 	is 	whether 	the 	agency’s 	answer 	is 	based 	on 	a 	permissible
construction of the statute.” 	Chevron, 467 U.S. at 843. 	Indeed,
when 	“Congress 	has 	explicitly 	left 	a 	gap 	for 	the 	agency 	to 	fill,
there 	is 	an 	express 	delegation 	of 	authority 	to 	the 	agency 	to
elucidate a specific provision of the statute by regulation.” 	Id.
at 843-44. 	These “regulations are given controlling weight unless
they are arbitrary, capricious, or manifestly contrary to statute.”
Id. at 844.
The 	wisdom 	of 	an 	agency’s 	legitimate 	policy 	choices,
therefore, 	should 	be 	respected. 	Suramerica 	de 	Aleaciones
Laminadas, 	C.A. 	v. 	United 	States, 	966 	F.2d 	660, 	665 	(Fed.Cir.
1992). 	Although 	Tabacos 	is 	challenging 	the 	application 	of 	the
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minimum 	bonding 	formula 	in 	one 	specific 	instance, 	its 	arguments
implicate the entirety of CBP’s framework for setting the amounts
of continuous bonds[ 4 ], a framework that is entitled to deference.
Because 	CBP’s 	methodology 	is 	a 	reasonable 	application 	of 	the
discretion 	granted 	to 	it 	by 	statute 	and 	is 	not 	arbitrary,
capricious or contrary to statute, it must be upheld.
Defendant’s Supplemental Submission, pp. 2-3 (Nov. 21, 2018).
In 	reciting 	this 	analysis, 	this 	court 	cannot 	and
therefore 	does 	not 	disregard 	the 	compelling 	evidence 	adduced 	in
this 	action 	that 	proves 	beyond 	any 	doubt 	that 	continuing
plaintiff’s entry bond 18C000D1D in its current amount of $300,000
will not endanger the revenue of the United States. 	Of course, if
and when plaintiff’s business were to materially change, CBP would
be 	able 	to 	require 	greater 	surety, 	but 	demanding 	that 	herein 	on
September 28, 2018 leaves this court unable to conclude that such
demand 	was 	not 	an 	abuse 	of 	discretion 	within 	the 	purview 	of 	5
U.S.C. §706(2)(A), supra.
4 	The 	court 	does 	not 	necessarily 	concur 	with 	this
particular point.
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III
In view of the foregoing, judgment must enter in favor of
the plaintiff, vacating defendant’s demand of September 28, 2018.
Decided: 	New York, New York
December 	, 2018
/s Thomas J. Aquilino, Jr.
Senior Judge
7
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