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Fed. Cir. Grants En Banc Review, Must Corp. Veil Be Pierced?

By Gabriella Khorasanee, JD on March 13, 2014 | Last updated on March 21, 2019

Last week, the Federal Circuit granted a petition for a rehearing en banc, in a case that brings up interesting issues of individual, and corporate, liability. Harish Shadadpuri is the president and only shareholder of Trek Leather, Inc., a company that imported men's suits. Mercantile Electronics, LLC ("ME") was the consignee of the suits, and Shadadpuri also happens to own 40% of ME's shares.

Failure to "Assist"

Under 19 U.S.C. § 1401a, an "assist" includes materials, an item that Shadadpuri failed to include on customs documentation, with the result of lowering the amount of duties paid. When brought to his attention in 2002, Shadadpuri paid the unpaid duties, and Customs officials did not pursue an action against him personally.

Two years later, Shadadpuri continued to not include the value of the assist, and he, nor his company, paid the unpaid duties owed. As a result the Government initiated an action against Trek, and Shadadpuri personally.

District Court Opinion

At the trial level, Shadadpuri argued that the Government would have to pierce the corporate veil to find him liable, or that he committed fraud, or aided and abetted Trek's commission of fraud. The district court disagreed, and found Shadadpuri personally liable as he was a "person" under 19 U.S.C. § 1592.

A Divided Federal Court

On appeal, Shadadpuri argued that under § 1592, "person" means "importer of record" when the other provisions of Title 19 are read together. He further argued that as a corporate officer of an importer of record, he may only be held personally liable if fraud has been committed, or if the corporate veil is pierced. On the other hand, the government argued that § 1592 plainly states "no person" and is not limited to "importers of record." A divided panel found for Shadadpuri and reversed the district court's opinion.

In his dissent, Circuit Judge Timothy B. Dyk, relied solely on § 1592, and its legislative history, which gave "person" a much broader meaning, noting "The majority's interpretation is demonstrably incorrect." That the court granted a rehearing en banc is not dispositive, but it shows that there may be members of the panel that disagree with the majority's decision. The outcome of this case will have important ramifications on the personal liability of corporate officers. Stay tuned.

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