Hartford Fire Insurance v. United States

918 F. Supp. 2d 1376, 2013 CIT 84, 2013 WL 3242701, 35 I.T.R.D. (BNA) 1700, 2013 Ct. Intl. Trade LEXIS 86

• Court: United States Court of International Trade
• Decided: June 27, 2013
• Docket: Slip Op. 13-84; Court 07-00067
• Status: Published

Opinion

OPINION

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 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.

BACKGROUND 1

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 át ¶¶ 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 tail-meat 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% countrywide AD rate for China, and, following Sunline’s failure to pay the 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 original 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 surety-ship; and (4) equitable subrogation or set-off. 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 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 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®.

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)).

“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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To be plausible, the' complaint need not show a probability of plaintiffs success, but it must evidence more than a mere possibility of a right to relief. Id. at 678, 129 S.Ct. 1937. “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 Hubei 2 was being reviewed,

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 thé 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,

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)) (affd in part, vacated in part on other grounds 672 F.3d 1041, cert. denied, — U.S.-, 133 S.Ct. 126, 184 L.Ed.2d 28 (2012)); see also Chevron USA v. Nat’l Res. Def. Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (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 statutes 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 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, Plaintiffs 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, 129 S.Ct. 1937. 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 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, 129 S.Ct. 1937; Twombly, 550 U.S. at 570, 127 S.Ct. 1955; 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. Plaintiffs pleadings indicate no rational connection between the Hubei entries, Sunline, and the World Commerce entries other than conclusory allegations of the potential for violations. Plaintiffs 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.

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.

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.”).

3 . Congress suspended the option of bonds for new shippers and required cash deposits between April 1, 2006 and June 30, 2009.

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.