Surety Case Law Note: What Is The Statute Of Limitations For Customs Bonds?
May 21, 2024
In this Surety Today: The Blog post we consider a Case Law Note addressing the issue of what is the statute of limitations for customs bonds? We first addressed Customs bonds generally in our Surety Today podcast back on August 9, 2021, in an interview with John J. Sheppard, II, V.P. with C.A. Shea & Company, Inc. We then converted that podcast into a blog post on March 19, 2024. One of the issues we discussed in the podcast and blog was limitations. Mr. Sheppard noted that “Customs is asserting a position where they are saying that, well, no, actually it could be forever. We can take as long as we want. Because while there is regulatory language that says how long Customs has to take in order to make a demand notice on the principal, there is no regulatory language that says how long Customs has to take to make a demand against the surety.”
In cases that C.A. Shea was involved with where this limitations issue came up, including the American Home Assurance case we will discuss below, the Surety and Fidelity Association of America and a number of other trade groups were engaged to file amicus briefs in those cases. So, this question is one that has been playing out in the industry. If you follow the Surety Today blog, you know that we usually only discuss one case, but in this post we will discuss two cases because they both address the same issue and were issued only a few months apart. The cases are:
UNITED STATES v. AEGIS SEC. INS. CO., 2024 CT. INTL. TRADE LEXIS 33 (CT. INT’L TRADE MAR. 18, 2024) and
UNITED STATES v. AM. HOME ASSURANCE CO., 653 F. SUPP. 3D 1277, 1286–95 (CT. INT’L TRADE 2023)
Both cases reached sensible results for the sureties, but they did it in ways that both conflicted and agreed and left a question as to which is the correct analysis. In addition, for some reason, the appeal to the Federal Circuit of the American Home case was dismissed on April 18, 2024, after the conflicting decision in Aegis Security was issued a month earlier in March. I don’t know if this dismissal was by the parties or the court. Thus, unless the Aegis case is appealed, we will be left with the conflict on this issue.
Both cases dealt with suits filed by Customs against sureties that were filed more than 8 years after the goods were imported. Naturally, the sureties asserted the statute of limitations as a defense to the claims. Therefore, both cases started with an analysis of the general statute of limitations for the federal government, Title 28 U.S.C. § 2415(a), which provides “every action for money damages brought by the United States … which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues.” 28 U.S.C. § 2415(a).
The primary difference between the two opinions centered around determining when “the right of action accrues” under § 2415(a).
The surety took the position in both cases that accrual began at what is known in the import industry as “liquidation,” and not after Customs first sends a bill for duties owed. According to the sureties, payment was due immediately on liquidation, which then started the six-year statute of limitations.
The government took the position in both cases that the government’s cause of action could not, and did not, accrue until the bill issued to the surety remained unpaid for 30 days. According to the government, payment was not due until the Government made a demand by sending a bill and the six year statute did not begin to run until that time.
The Aegis court took the position that Title 19 U.S.C. § 1505(b) governs when payment was due under the limitations statute. Section 1505(b) reads:
The Customs Service shall collect any increased or additional duties and fees due, together with interest thereon, or refund any excess moneys deposited, together with interest thereon, as determined on a liquidation or reliquidation. Duties, fees, and interest determined to be due upon liquidation or reliquidation are due 30 days after issuance of the bill for such payment.
19 U.S.C. § 1505(b).
The Aegis court noted that “[t]he critical language states that duties ‘are due 30 days after issuance of the bill[.]’ Id. (emphasis added). The plain text of the statute links the time duties become due with the billing date, not the liquidation date.” The court noted that the phrase in the sentence before “determined to be due upon liquidation” does not change this. “That phrase merely acknowledges that liquidation is when the amount of duty that will be due is fixed.”
The Aegis court observed that Section 1505(b)’s history further supports its reading. Section 1505(b) previously established when import duties became due using the liquidation date. Before changes made in the laws in 1993, § 1505(b) read “duties determined to be due upon liquidation … shall be due 15 days after the date of that liquidation.” 19 U.S.C. § 1505(c). Under this prior version, there was a definite due date based on the liquidation date. However, post 1993, § 1505(b) now reads “[d]uties … are due 30 days after issuance of the bill for such payment.” 19 U.S.C. § 1505(b) (emphasis added).
The Home Assurance court did not address § 1505(b), but instead stated that case law has long held that the cause of action on an entry bond accrues at liquidation. In United States v. Great American Insurance Company of New York, the Court held that Customs’ claim for antidumping duties from the surety “accrues from the date of liquidation. The Government’s right to collect additional duties attaches when the entry liquidates.” 35 C.I.T. 1130, 1140, 791 F. Supp. 2d 1337, 1350 (2011), aff’d 738 F.3d 1320 (Fed. Cir. 2013). Indeed, the Home Assurance court stated that “there does not appear to be any support in the statutory or case law for Customs’ claim that its cause of action accrued against the importers only after bills had been sent to them and they had failed to pay. Or for the proposition that Customs’ cause of action accrued against American Home only after it failed to pay the importers’ debts for duties following issuance of the bills.” Rather, the court stated, as noted, cases in the court have identified liquidation as the starting date for the limitations period in which Customs must bring an action to collect against a surety under a bond.
Why would the Home Assurance court not discuss 19 U.S.C. § 1505(b) as the Aegis court did? Another odd thing here is that the Aegis court was aware of the Home Assurance case, but simply made reference to the case and that both cases reach the same result but by different paths. Why would the Aegis court not explain the differences or why it choose to address the issue completely differently? Why would it not address the prior case law cited in Home Assurance? That makes no sense.
Another fundamental difference between the two cases is how the cases treated suretyship in general. In Aegis the surety is seen as a guarantor, one who becomes liable after the default of the principal and demand is made upon the bond. In Home Assurance the surety is treated as jointly liable at the same time as the principal. So, when the liquidation occurs both the principal and surety are simultaneously liable. Which is why the Home Assurance court looks to the liquidation date as the trigger. Personally, I think the Aegis approach is more accurate. While the potential damages for the surety are defined at liquidation, the surety is only legally responsible if the principal fails to perform i.e. there is a default and demand is made. The surety is secondarily liable, contingent on the default. As noted, these two cases are directly opposed to each other on this analysis and leave a question as to which analysis is correct. While the Aegis statutory analysis seems persuasive, the bottom line is that the opinion was unreported and established case law relied upon by Home Assurance should prevail.
Regardless of the differences between to the two opinions as to the trigger under the federal limitations statute, both courts did address, and did agree in their analysis, that if the limitations trigger required a bill to be issued, i.e. a demand to be made, Customs must make such demand within a reasonable time. Both courts acknowledged that contracts, like a bond, with a demand requirement contain an implied reasonable time requirement for making demand. Even if the contract is silent as to when the demand must be made, the law will imply that the demand be made in a reasonable time period. In both cases, the government conceded that the implied reasonable time requirement applies against the United States.
The question then becomes what is a reasonable time in which to make a demand on a Customs’ bond? The courts noted that there is no bright-line rule for what constitutes a reasonable time to make demand. Some sources suggest a reasonable time equals the relevant statute of limitations. That rule, however, is not universally recognized. Other sources suggest reasonableness depends on the parties’ expectations. Regardless, of how one measures reasonableness, under the facts of both cases the courts held that the delay was unreasonable. In Aegis, the relevant entries were deemed liquidated by operation of law in 2006 and Customs did not bill Aegis until 2015 — more than eight years later. The Home Assurance case had an even longer time period. So, the question of reasonableness was relatively easy in both cases, but what about closer cases. The courts did not really provide much help on that question. Limitations is still a bit murky in light of these two decisions. The only thing you can take away for sure is that the implied duty to act reasonably applies to the government and eight years is not reasonable.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Wright, Constable & Skeen, Surety and Fidelity Practice Group.
