Lawyers Seeing 'Uptick' in Importer Lawsuits Against Brokers
RANCHO MIRAGE, California -- Lawyers are seeing a rise in cases filed against customs brokers for failing to meet their fiduciary duties, said Cameron Roberts, a Roberts & Kehagiaras trade attorney. Many of the cases involve importers who allege their brokers didn’t correctly advise them about issues related to forced labor, Section 301 tariffs and certain agriculture imports, he said. “All of these issues are being put at the foot of the broker,” Roberts said, speaking during the Oct. 15 Western Cargo Conference.
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Roberts said brokers are increasingly wrestling with how far their fiduciary duties extend. Many are being found at fault for “not informing somebody of their obligation to ensure that there was no forced labor used to manufacture” a product. “There can also be an argument that you didn't tell me about the exclusion that I could have utilized,” Roberts said, “or you did not tell me how to protest it in the right way.”
But determining whether forced labor was used to make a product increasingly is becoming a gray area, said Michael Roll, a Roll & Harris trade lawyer. Although the International Labor Organization lists 11 indicators of forced labor, Roll said it’s unclear how many of those indicators must be present for a good to qualify. “If one out of the 11 are present and you know that as an importer, is that enough? Is it now forced labor? Where do you draw the line?” he said during the conference. “That's the hardest part to me.”
Importers are arguing that their brokers “have the fiduciary duty, that you are the expert, that you have the duty of correspondence, and that you have the duty to exercise reasonable care” for importers, Roberts said. “We’re seeing an uptick in the number of cases that are being filed against customs brokers for alleged violations of their duty under the law.”
Roberts said the most “egregious examples” have been associated with the Section 301 tariffs on China. “Those are largely motivated by a financial interest, because you've got a 25% exposure there, and if you're importing a million dollars worth of goods,” Roberts said, “you’ve got a six-figure problem.”
Roberts’ practice has also seen a “dramatic increase” in errors and omissions (E&O) claims against customs brokers, which may allege the broker misclassified a good or made another mistake that harmed the importer. He said his firm has seen an “aggregate” increase of about $5 to $8 million in E&O claims. “That's the exposure being faced by importers right now,” Roberts said, adding that he normally only saw an “odd claim here and there” in past years. “That has never happened in 25 years.”
Brokers are also facing increased liability from the U.S. Department of Agriculture for certain imports, including meat products, that are subject to USDA de minimis regulations. “We're talking about everything from duck necks to bird nest soup to various other imported products,” Roberts said, which will be “regularly” imported during the upcoming holiday season. “You can expect an uptick in this,” he said. “Brokers are going to be looked at as being held responsible if they're not proactively warning and advising the importers that you can’t import these foods.”
Roberts said brokers may need to raise their due diligence efforts on imported goods so they can “exercise reasonable care and give people warnings, and help them understand the liability they're creating.” But he acknowledged that diligence is growing more challenging. “How can you do that when you’ve got 10,000 line items on an [Entry Type] 86?”