In United States v. Nitek Electronics, Inc., the Court of Appeals for the Federal Circuit (CAFC) affirmed a decision by the Court of International Trade (CIT) to dismiss a penalty claim against an importer when it sought the penalty claim in court for negligence but asserted gross negligence administratively.  In Nitek, CBP issued a pre-penalty notice to an importer for the alleged misclassification of pipe fitting components used for gas meters.  CBP also alleged a culpability level of gross negligence under 19 USC § 1592.  CBP later issued a final penalty claim, again asserting gross negligence.  The importer responded by stating that it had not acted with the wanton disregard for the law required for gross negligence and offered to pay all duties owed.  However, CBP referred the matter to the United States Department of Justice (DoJ) to bring the penalty claim in the Court of International Trade.  There the DoJ sought to recover the penalty for negligence under 19 USC § 1592 (not gross negligence).  The CIT dismissed the penalty based on negligence, reasoning that CBP had only issued a penalty for gross negligence while the claim for negligence is “an entirely new claim” that CBP did not allege administratively.  Thus the Government had not exhausted all its administrative remedies.  The CAFC upheld the decision, also noting that claims for negligence and gross negligence under 19 USC § 1592 are distinct claims.

If you have any questions about CBP penalty claims or pre-penalty notices, feel free to contact our firm.  You can also read the full decision on the CAFC’s website here.