Tabacos USA, Inc. v. United States

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 7, 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
Court No. 18-00221 Page 2

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
Court No. 18-00221 Page 3

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
Court No. 18-00221 Page 4

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.
Court No. 18-00221 Page 5

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
Court No. 18-00221 Page 6

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.
Court No. 18-00221 Page 7

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);
Court No. 18-00221 Page 8

(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.
Court No. 18-00221 Page 9

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.
Court No. 18-00221 Page 10

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
Court No. 18-00221 Page 11

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
Court No. 18-00221 Page 12

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.
Court No. 18-00221 Page 13

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 7 , 2018

/s Thomas J. Aquilino, Jr.
Senior Judge