CAFC Rules on Prejudgment Interest in Case Involving Voluntary Tender of Unpaid MPF
In U.S. v. National Semiconductor Corporation, the Court of Appeals for the Federal Circuit affirmed the Court of International Trade's penalty award under 19 USC 1592 for underpayment of merchandise processing fees (MPFs), but reversed the award of prejudgment interest.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
This is the sixth case involving NSC and the appropriate penalty for negligence and any interest that may apply to the underpayment of MPF.
Background
According to the CAFC, NSC had voluntarily tendered unpaid MPFs in the amount of $948,159.13, after it had discovered during an internal compliance review that it had undervalued certain imports of integrated circuits, micro-assemblies, and parts.
After accepting the tender, Customs also assessed a negligence penalty under 19 USC 1592 in the amount of $250,840.21, the maximum amount allowed by 1592(c)(4)(B) (which states that the maximum penalty for a voluntary disclosed violation that occurred as a result of negligence or gross negligence cannot exceed the amount of interest due). NSC then filed a protest.
In the first case, the CIT dismissed motions for summary judgments by both parties, stating the matter needed further fact finding and interpretation (See NSC I CIT Slip Op. 05-9).
On review, the CIT awarded the government compensatory interest under 19 USC 1505(c) and a $10,000 penalty under 1592(c)(4)(B), stating that several factors favored mitigation. (See NSC II CIT Slip Op. 06-90).
On reconsideration of this decision, the CIT ruled that the final judgment should be $260,840.21, consisting of a compensatory interest award of $250,840.21 under 1505(c), which equaled the amount of interest Customs had calculated on MPF fees, plus a $10,000 penalty award (See NSC III CIT Slip Op. 06-138).
On appeal, the CAFC ruled that the CIT had erred in awarding compensatory interest under 1505(c), vacating that part of the award, and remanded the case back to the CIT to determine any negligence penalty under 19 USC 1592(c)(4)(B) and, in addition, whether any prejudgment interest should be applied to such award (See NSC IV CAFC 07-1028).
On remand the CIT ruled, the economic benefit gained through the violation and the adequacy of compensation to the government, no longer supported mitigation. As a result, the CIT awarded a penalty of $250,840.21, the maximum under 19 USC 1592(c)(4)(B), plus prejudgment interest on that amount (See NSC V CIT Slip Op. 07-178).
Decision
In this sixth case, the CAFC reviewed the CIT's award of the maximum penalty for negligent violation and agreed that amount of the penalty was within the CIT's discretion. However, the CAFC noted that the plain language of 19 USC 1592 supported the position that the 1592(c) penalty award is punitive and prejudgment interest may not be awarded in addition to the punitive damages. In addition, the CAFC stated that uncertainty as to the amount of penalty award until the final decision by the CIT is also grounds for denying prejudgment interest.
The CAFC affirmed the penalty award but reversed the award of prejudgment interest.
(See ITT's Online Archives or 11/01/07 news, 07110130, for BP summary of CAFC decision 07-1007 dated 07/27/07, with links to CIT Slip Op. 05-9 dated 01/26/05; CIT Slip Op. 06-90 dated 06/16/06; and CIT Slip Op. 06-138 dated 09/08/06.)
CAFC decision 08-1195 (dated 11/13/08) available at http://www.cafc.uscourts.gov/opinions/08-1195.pdf
Slip Op. 07-178 (dated 12/12/07) available at http://www.cit.uscourts.gov/slip_op/Slip_op07/07-178.pdf