Court Opinion

ID: 2713787
Source: CourtListenerOpinion
Date Created: 2014-08-05 21:00:38.774893+00
Date Added: 2024-06-11T10:01:35.693958
License: Public Domain

Slip Op. 13 - 84

           UNITED STATES COURT OF INTERNATIONAL TRADE

 HARTFORD FIRE INSURANCE COMPANY,
                                       Before: Donald C. Pogue,
           Plaintiffs,                         Chief Judge

                 v.                    Court No. 07-00067

 UNITED STATES

           Defendant.

                             OPINION

[Defendant’s motion to dismiss for failure to state a claim is
GRANTED]

                                               Dated: June 27, 2013

          Frederic D. Van Arnam, Jr., Eric W. Lander, and Helena
D. Sullivan, Barnes, Richardson & Colburn, of New York, NY for
the Plaintiff.

          Justin R. Miller, Trial Attorney, International Trade
Field Office, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of New York, NY, for the Defendant. With
him on the briefs were Stuart F. Delery, Acting Assistant
Attorney General, and Barbara S. Williams, Attorney-in-Charge,
International Trade Field Office. Of counsel on the briefs was
Beth C. Brotman, Office of the Assistant Chief Counsel,
International Trade Litigation, U.S. Customs and Border
Protection.

          Pogue, Chief Judge:   In this action, Plaintiff

Hartford Fire Insurance Company (“Hartford”) seeks to void

certain bonds securing entries of frozen cooked crawfish

tailmeat from the People’s Republic of China (“China”).     In its

Second Amended Complaint, ECF No. 88, Hartford alleges as its
Court No. 07-00067                                            Page 2

single cause of action that the Defendant, United States Customs

and Border Protection (“Customs”), abused its discretion by

either failing to require a cash deposit in lieu of a bond for

the entries in question or rejecting the entries altogether.

Customs moves, pursuant to USCIT Rule 12(b)(5), to dismiss the

Second Amended Complaint for failure to state a claim.   For the

reasons explained below, Customs’ motion to dismiss is GRANTED.

                           BACKGROUND1

          This action arises from Sunline Business Solution

Corporation’s (“Sunline”) importation into the United States of

eight entries of freshwater crawfish tailmeat, between July 30,

2003, and August 31, 2003 (the “Hubei entries”). Second Am.

Compl., ECF No. 88 at ¶¶ 2–3.   The entries were from Chinese

producer Hubei Qianjiang Houho Frozen.   The Hubei entries were

subject to an antidumping (“AD”) duty order covering freshwater

crawfish tailmeat from China, Second Am. Compl. ¶ 4, and were

entered following Customs’ approval of eight single entry bonds

designating Hartford as the surety. Second Am. Compl. ¶¶ 7–9.

Customs liquidated the Hubei entries at the 223% country-wide AD

rate for China, and, following Sunline’s failure to pay the

     1
       The facts of this case were summarized in the court’s
prior opinion, Hartford Fire Ins. Co. v. United States, __ CIT
__, 857 F. Supp. 2d 1356 (2012) (“Hartford I”). Familiarity
with that opinion is presumed, and only those facts necessary to
the disposition are reiterated here.
Court No. 07-00067                                            Page 3

duties owed, Customs made a demand for payment on Hartford.

Second Am. Compl. ¶¶ 12-13.

           Hartford did not pay the demand and, instead, filed

its orginal complaint in this action alleging that the bonds

were voidable.   According to Hartford, the bonds were voidable

because Customs was investigating Sunline for possible violation

of the import laws during the period in which the bonds were

secured and the Hubei entries were entered, and Customs did not,

at any time, inform Hartford about its investigation of Sunline.

Second Am. Compl. ¶¶ 20–24.

           Hartford’s First Amended Complaint, ECF No. 29,

alleged four causes of action: (1) material misrepresentation by

Customs; (2) material misrepresentation by the importer; (3)

impairment of suretyship; and (4) equitable subrogation or

setoff.   Customs moved to dismiss the First Amended Complaint in

its entirety. Def.’s Mot. to Dismiss for Failure to State a

Claim Upon Which Relief Can Be Granted, ECF No. 63.

           The court granted Customs’ Motion to Dismiss in

Hartford I, holding that (1) the claim of material

misrepresentation by Customs, premised on Customs failure to

inform Hartford of a confidential investigation pending at the

time the bonds in question were issued, was pre-empted by the

Freedom of Information Act; (2) the claim of material

misrepresentation by the importer did not contain sufficient
Court No. 07-00067                                              Page 4

facts to make the claim plausible; (3) the impairment of

suretyship claim was barred on sovereign immunity grounds; and

(4) the equitable subrogation or setoff claim failed because

Customs possessed no funds to which Hartford could stake an

equitable claim.    See generally Hartford Fire I, __ CIT __, 857

F. Supp. 2d 1356.    The court dismissed the third and fourth

causes of action with prejudice but permitted Hartford to amend

its complaint to plead an alternative theory that Customs abused

its discretion when it did not require the importer to post a

cash deposit in lieu of a bond or reject the entries and to

plead sufficient facts to make this claim of material

misrepresentation plausible.   Id.

          In its Second Amended Complaint, Hartford alleges only

this latter, remaining theory.   It claims that given the

existence of the Sunline investigation, Customs abused its

discretion by accepting the bonds on the Hubei entries.

Hartford alleges that due to the ongoing status of the

investigation into Sunline, Customs had the discretion to and

should have insisted on cash deposits in lieu of bonds, required

additional security, or rejected the Hubei entries altogether.

Hartford further alleges that because of the confidential nature

of Customs’ investigation, Customs should have known that

Hartford was not aware of the existence of an investigation and
Court No. 07-00067                                              Page 5

therefore unreasonably increased Hartford’s risk when it

approved the Hubei bonds.    Second Am. Compl. ¶¶ 50-52.

             The court has jurisdiction pursuant to 28 U.S.C.

§ 1581(i).

                          STANDARD OF REVIEW

             When reviewing an agency decision for abuse of

discretion, the court examines whether the decision “1) is

clearly unreasonable, arbitrary, or fanciful; 2) is based on an

erroneous conclusion of law; 3) rests on clearly erroneous fact

findings; or 4) follows from a record that contains no evidence

on which the [agency] could rationally base its decision.”

Sterling Fed. Sys., Inc. v. Goldin, 16 F.3d 1177, 1182 (Fed.

Cir. 1994) (quoting Gerritsen v. Shirai, 979 F.2d 1524, 1529

(Fed. Cir. 1992)); see also Robert Bosch LLC v. Pylon Mfg.

Corp., 659 F.3d 1142, 1147-48 (Fed. Cir. 2011) (noting that a

clear error of judgment occurs when an action is “arbitrary,

fanciful, or clearly unreasonable”).

             When deciding a motion to dismiss for failure to state

a claim, the court “must accept as true the complaint’s

undisputed factual allegations and should construe them in a

light most favorable to the plaintiff.” Bank of Guam v. United

States, 578 F.3d 1318, 1326 (Fed. Cir. 2009) (quoting Cambridge

v. United States, 558 F.3d 1331, 1335 (Fed. Cir. 2009)).
Court No. 07-00067                                              Page 6

            “To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007)).   To be plausible, the

complaint need not show a probability of plaintiff’s success,

but it must evidence more than a mere possibility of a right to

relief. Id. at 678.   “Threadbare recitals of the elements of a

cause of action, supported by mere conclusory statements, do not

suffice.” Id.

                             DISCUSSION

            Customs contends that under the prevailing scheme, it

could not abuse its discretion because it had none.   Citing the

statute that was in effect when Hartford issued the Hubei bonds,

19 U.S.C. § 1675(a)(2)(B)(iii), Customs asserts that it had no

authority to override a new shipper’s decision to submit bonds

rather than cash deposits, and therefore there was no discretion

to abuse.

            According to 19 U.S.C. § 1675(a)(2)(B)(iii), when a

new shipper such as Hubei2 was being reviewed,

     2
       Hartford does not contest that Hubei was a new shipper.
Mem. Of Law in Supp. Of Def.’s Mot. to Dismiss for Failure to
State a Claim Upon Which Relief Can Be Granted, ECF No. 93 at 7
(“Def.’s Mot.”).
Court No. 07-00067                                          Page 7

          The administering authority shall . . .
          direct the Customs Service to allow, at the
          option of the importer, the posting . . . of
          a bond or security in lieu of a cash deposit
          for each entry of the subject merchandise.

19 U.S.C. § 1675(a)(2)(B)(iii).3   Customs correctly argues that

given the statutory framework in effect at the time of Hubei’s

entries, it had no option to demand a cash deposit in lieu of

the bonds issued by Hartford.   Therefore, because Customs had no

discretion, there is no abuse of discretion in Customs failure

to have insisted on cash deposits rather than bonds.

          Plaintiff concedes that the new shipper bonding

privilege is an option that the shipper may elect.   See Pl.’s

Resp. to Def.’s Mot. Dismiss for Failure to State a Claim Upon

Which Relief Can be Granted, ECF No. 101 at 7 (“Pl.’s Br.”).

However, it contends that 19 U.S.C. § 1623(a) empowers Customs

to require additional security when circumstances establish that

a bond is insufficient.   19 U.S.C. § 1623(a) states that when

          [a]   bond   or   other   security  is  not
          specifically required by law, the Secretary
          of the Treasury may by regulation or
          specific instruction require, or authorize
          customs officers to require, such bonds or
          other security as he, or they, may deem
          necessary for the protection of the revenue
          or to assure compliance with any provision
          of law, regulation, or instruction,

     3
       Congress suspended the option of bonds for new shippers
and required cash deposits between April 1, 2006 and June 30,
2009.
Court No. 07-00067                                            Page 8

19 U.S.C. § 1623(a).     Hartford relies extensively on National

Fisheries Institute, Inc. v. United States, __ CIT __, 637 F.

Supp. 2d 1270 (2009), for the proposition that Customs had the

discretion to require additional bonding in addition to the new

shipper bonding rate.4    The National Fisheries court discussed 19

U.S.C. § 1623(a) when determining that Customs acted

unreasonably in applying an enhanced bonding requirement for

shrimp importers and noted that § 1623(a) might be read to grant

Customs discretion to collect additional antidumping duties.

National Fisheries, __ CIT __, 637 F. Supp. 2d at 1287-91.

However, because the statute is ambiguous, 19 U.S.C. § 1623(a)

could easily be interpreted as merely granting Customs broad

authority to require some form of security from an importer –

security which had been provided here --    rather than

contemplating additional security.    Here Customs appears to have

adopted the more restrictive interpretation.    See, e.g., Sioux

Honey Ass’n v. Hartford Fire Ins. Co., __ CIT __, 700 F. Supp.

2d 1330, 1347 (2010) (discussing how 19 U.S.C. § 1623(a) should

be read in conjunction with 19 U.S.C. § 1675(a)(2)(B)(iii))

(aff’d in part, vacated in part on other grounds 672 F.3d 1041,

cert. denied, 133 S.Ct. 126 (2012)); see also Chevron USA v.

     4
       Additionally, Hartford argues that § 1623 grants Customs
the authority to override a new shipper’s bond option under 19
U.S.C. § 1675(a)(2)(B)(iii). Given that the statutory scheme in
force when the Hubei bonds were issued clearly granted the bond
option to a new shipper, this argument fails.
Court No. 07-00067                                              Page 9

Nat’l Res. Def. Council, 467 U.S. 837 (1984) (holding that an

agency’s reasonable reading of an ambiguous statute must be

affirmed).    The National Fisheries court ultimately concluded –

and this court agrees - that the real issue is not how to

interpret    19 U.S.C. § 1623(a), but whether Customs “acted in

accordance with law” when making its determination.    Id. at

1291.   Here Customs interpretation cannot constitute an

erroneous conclusion of law and therefore cannot be the basis

for an allegation of abuse of discretion.

             Rather, Customs correctly notes that it was in full

compliance with the governing statues and regulations when it

accepted the bonds.    It argues that its acceptance of the

Sunline bonds was in accordance with the requirements laid out

in 19 U.S.C. § 1675(a)(2)(B)(iii), 19 U.S.C. § 1623(e), and 19

C.F.R. § 113.40(a).    Plaintiff, on the other hand, asserts that

Customs’ actions were unlawful because they were contrary to

Customs’ statutory mandate to “protect the revenue of the U.S.”

because they deprived the sureties of the opportunity to cancel

what would prove to be risky bonds.    However, this argument

fails because Customs is directed to protect, among other

things, the revenues of the United States, but not the revenues

of the sureties.    19 U.S.C. § 1484(a)(2)(C).   See Cam-Ful

Indus., Inc. v. Fid. & Deposit Co., 922 F.2d 156, 162 (2d Cir.

1991) (“[t]he policy behind surety bonds is not to protect a
Court No. 07-00067                                              Page 10

surety from its own laziness or poorly considered decision.”).

While the sureties’ revenues are arguably a part of the revenues

of the United States, in the same sense that every domestic

industry’s revenues must be, Plaintiff’s reading of Customs’

mandate is simply too broad.

             Hartford further alleges that Customs abused its

discretion when it approved the Hubei bonds because it was aware

that Sunline was being investigated at the time.    Hartford

claims that Customs had begun its investigation into Sunline by

August 15, 2003 and therefore was the sole party that knew of

and was in a position to take preventative measures against

Sunline’s criminal activities “based on its knowledge of

Sunline’s contemporaneous bad acts involving the same class of

merchandise from the same country of origin.”    Second Am. Compl.

¶¶ 16, 62.    But Plaintiff fails to provide any basis for the

court to plausibly infer abuse of discretion in Customs failure

to take broader action in response to its investigation.      See

Iqbal, 556 U.S. at 678.    Even construed in the light most

favorable to the Plaintiff, there is nothing in the pleadings

here to plausibly suggest that Customs’ investigation had

proceeded to the stage where Customs had reason to believe the

Hubei entries were problematic or that new shipper bonds would

be insufficient security.    Hartford merely pleads that the

investigation into Sunline had begun two weeks before the last
Court No. 07-00067                                            Page 11

Hubei bond was issued.    But the investigation did not involve

the Hubei entries, but rather involved the entries of an

entirely different supplier.     Def.’s Mot. at 13.   Without any

connection to the Hubei entries, a bare allegation that Customs

was investigating Sunline is insufficient to plausibly suggest

abuse of discretion because it does not indicate any basis to

infer that Customs’ failure to require extra security or reject

the bonds was clearly unreasonable, arbitrary, fanciful or in

bad faith.    See Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at

570; Sterling, 16 F.3d at 1182.

             Finally, Hartford argues at length that Customs abused

its discretion when it did not reject the Hubei entries

altogether because Customs had investigated and ultimately

rejected another set of Sunline entries that preceded the Hubei

entries without violating the confidential nature of the Sunline

investigation. See Pl.’s Br. at 14;    Second Am. Compl. ¶¶ 19-21.

These entries are referred to as the “World Commerce” entries

and were rejected when Customs concluded that Sunline had, with

regard to those entries, falsified documents to reflect a

different manufacturer.    Id.   This claim fails because the World

Commerce entries suffered from a different flaw that was

independent of, and not logically connected to, Sunline’s

default on the Hubei entries.    Plaintiff’s pleadings indicate no

rational connection between the Hubei entries, Sunline, and the
Court No. 07-00067                                            Page 12

World Commerce entries other than conclusory allegations of the

potential for violations.   Plaintiff’s pleadings do not even

suggest   how Customs’ investigation of false documentation in

one set of entries can plausibly lead to the conclusion that

Sunline would default on the Hubei entries.   Accordingly,

Plaintiff has failed to plead facts that plausibly suggest a

rational connection between the Sunline investigation, the false

documentation in the World Commerce entries, and the eventual

default on the Hubei entries.   Therefore, there is no basis for

the court to plausibly infer an abuse of discretion.

                            CONCLUSION

           For the reasons stated above, Customs’ motion to

dismiss for failure to state a claim is GRANTED.   Judgment will

be entered accordingly.

                                      _____/s/ Donald C. Pogue____
                                      Donald C. Pogue, Chief Judge

Dated: June 27, 2013
       New York, NY