Summary
The Ninth Circuit Court of Appeals affirmed a lower court’s judgment, holding that the False Claims Act (FCA) is a valid and available legal avenue for the federal government to recover antidumping duties that an importer has fraudulently evaded paying. The court confirmed that a relator’s qui tam action, which seeks to recover customs duties, is not within the exclusive jurisdiction of the Court of International Trade, as the action was not “commenced by the United States.” The ruling also supported the jury’s finding that the importer’s liability for antidumping duties constituted a specific, legal “obligation” to the government under the FCA as soon as the merchandise arrived, regardless of whether the final duty amount had been officially calculated through liquidation. Furthermore, based on the Supreme Court’s decision in United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023), the court foreclosed the importer’s argument that an “objective reasonableness” defense could negate the scienter (knowledge) element of an FCA claim, focusing instead on the defendant’s actual knowledge, deliberate ignorance, or reckless disregard for the truth.
Why It Matters
This decision is a significant victory for the U.S. government and qui tam relators, as it affirms the broad applicability of the False Claims Act as a powerful tool for prosecuting customs fraud. It definitively establishes that the FCA reaches beyond traditional fraud involving government payments to encompass “reverse false claims”—specifically, the fraudulent evasion of legally mandated duties and tariffs, even where alternative remedies exist under the Tariff Act. The ruling on jurisdiction solidifies the ability of relators to bring these types of customs fraud cases in federal district court. By rejecting the “objective reasonableness” defense to scienter, the court has made it more difficult for importers to use ambiguous regulations as a shield against FCA liability, ensuring that a company’s internal knowledge and reckless behavior can lead to treble damages and penalties for defrauding the U.S. Treasury.
Background Facts and Holding
The case originated as a qui tam action filed by Island Industries, Inc., a competitor acting as a relator, against Sigma Corporation and others under the False Claims Act. The relator alleged that Sigma knowingly made false statements on customs forms to avoid paying antidumping duties on welded outlets imported from China. Antidumping duties are tariffs imposed to protect domestic businesses from “dumping,” which is the practice of importing goods at less than fair market value. Sigma’s welded outlets were products subject to a 1992 antidumping duty order for certain carbon steel butt-weld pipe fittings from China. Island Industries alleged that Sigma violated the FCA by falsely declaring that its imports were not subject to these duties and by misclassifying the product as “steel couplings” on customs forms, despite referring to them as “welded outlets” in its own product catalogs. The District Court entered a judgment for the relator based on a jury verdict finding Sigma liable for violating the FCA. On appeal, the Ninth Circuit upheld the verdict and the District Court’s denial of Sigma’s post-trial motions. The appellate court concluded that sufficient evidence, including testimony that Sigma made no inquiry into its duty obligations despite importing products frequently subject to such orders, supported the jury’s finding that Sigma acted with the requisite knowledge or reckless disregard.