Ninth Circuit Holds Private Parties Can Bring Claims Against Importers Under the False Claims Act for Antidumping Duty Evasion

The United States Court of Appeals for the Ninth Circuit has issued a significant ruling with potentially far-reaching consequences for companies that import merchandise, including but not limited to those subject to antidumping or countervailing duty (AD/CVD). These orders imposed by the Department of Commerce (DOC) establish additional tariffs on specific products from certain countries to protect domestic industries from unfairly priced or subsidized imports.

In Island Industries, Inc. v. Sigma Corporation, the court affirmed a USD24 million treble damages award against Sigma for knowingly making false declarations on entry documentation submitted to US Customs and Border Protection (CBP) regarding certain Chinese products, which resulted in an underpayment of duties. The case was brought under the False Claims Act (FCA), a federal statute originally enacted during the Civil War to combat fraud against the government. The FCA empowers private individuals, known as relators or whistleblowers, to file qui tam lawsuits on behalf of the United States government against parties who knowingly submit false or fraudulent claims for payment to the federal government, as well as those who knowingly submit “reverse false claims” by making false or fraudulent statements to avoid an obligation to pay money to the federal government. The financial incentives available to private plaintiffs (called relators under the FCA) are significant: a relator may be awarded up to 30 percent of the government’s recovery.

The Ninth Circuit’s opinion clarifies that relators (without the United States government intervening) may pursue “reverse false claims” cases based on the underpayment of customs duties in federal court. This ruling is significant because it confirms the FCA as a powerful tool against customs fraud, even when other customs statutes (such as 19 U.S.C. §1592) may apply. By allowing unpaid customs duties to form the basis of FCA liability, the decision increases potential exposure for importers who misrepresent their goods at entry to avoid tariffs. It also highlights the need for accurate customs declarations and a strong import compliance program, as substantial penalties may be imposed under both the FCA and customs law. The Ninth Circuit held that relators may bring such lawsuits in federal court, despite that the Court of International Trade (CIT) has exclusive jurisdiction over actions “commenced by the United States” to recover customs duties.

Below, we look at the implications of the ruling and key takeaways for businesses.

Background

Between 2010 and 2018, Sigma imported products from China subject to AD/CVD. On its entry documents submitted to CBP, Sigma allegedly mischaracterized the merchandise and affirmatively declared that no antidumping duties applied, thereby avoiding tariffs imposed under the AD/CVD on certain Chinese products. A competitor, Island Industries, stepped into the shoes of the government and filed a qui tam action under the FCA alleging that Sigma’s entry summaries contained two sets of misrepresentations:

1. The imported products were not subject to antidumping duties, and
2. The product descriptions masked the nature of the merchandise.

After a three-week trial, a federal jury in California found Sigma liable, and the district judge entered judgment for treble damages and statutory penalties. Statutory penalties under the FCA are fixed amounts prescribed by law for each false claim (or reverse false claim) submitted. In addition to these penalties, the FCA mandates treble damages, meaning that the violator must pay three times the government’s damages as a result of the fraudulent conduct.

Key holding

The Ninth Circuit’s opinion resolves an issue that has dominated customs-related FCA litigation: whether federal courts have jurisdiction over FCA qui tam suits seeking to recover money owed to the government for false representations involving customs duties, or whether such actions must be brought in the CIT, which has exclusive jurisdiction over actions “commenced by the United States” to recover customs duties.

The dispute centered on whether a relator, suing on behalf of the government under the FCA when the United States has not intervened, should be considered “the United States” for jurisdictional purposes. The Ninth Circuit held that when the relator brings the action, the United States is not a party initiating the suit, and, therefore, a whistleblower is not barred from filing an FCA action in federal court by the CIT’s exclusive jurisdictional grant.

Practical implications for importers

The decision materially heightens exposure for companies that import merchandise into the United States – especially those that are subject to additional duties, such as AD/CVD, section 232 duties (imposed for national security reasons), section 301 duties (imposed in response to unfair trade practices), and/or the reciprocal tariffs.

The FCA’s treble damages, per-claim penalties, and private enforcement incentives now stand beside traditional customs penalties as parallel enforcement avenues. A rival or disgruntled employee can bring suit, triggering discovery and potential liability years after liquidation. Moreover, regarding AD/CVD, once the DOC or the courts determine that merchandise falls within the scope of an AD/CVD, any prior “no duty” declarations are deemed false for FCA purposes and the finality of liquidation provides no shelter.

Importers should also be aware that the statute of limitations for FCA actions is notably long: under 31 U.S.C. § 3731(b), a civil action under the FCA may be brought within either six years of the date of the violation or three years after the government knows or should have known about the violation, but in no event more than ten years after the violation. This extended look-back period significantly increases the risk that past conduct – potentially stretching back a decade – could be subject to FCA scrutiny and enforcement, even after the underlying customs entries have been liquidated and would otherwise be considered final under customs law.

Key takeaways

Companies are encouraged to:

1. Ensure that reasonable care is exercised when making declarations to CBP regarding imports into the United States
2. Review trade operations and applicability of tariff regimes, and strengthen import compliance programs with written SOPs (such as documenting the assessment of potentially applicable AD/CVD)
3. Consult outside experts and regulatory agencies (with guidance by outside counsel) as needed. For example, seek prospective scope rulings from DOC where doubt exists as to whether imported goods are subject to AD/CVD
4. Ensure product descriptions on commercial invoices are accurate and consistent with how the items are marketed domestically (since the commercial invoice is often used to determine the data elements declared to CBP when making entry), and
5. Monitor executive orders, rulings, Federal Register notices, and International Trade Commission investigations to keep abreast of changes to the tariff landscape in view of the fluid United States tariff environment.

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