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March 18, 2004 FraudMail No. 04-03-18
Civil False Claims Act: Ninth Circuit Holds District Court Lacks Jurisdiction
Over FCA Case Based on Customs Law Violations
The Justice Department suffered a stinging defeat yesterday when a panel of the Ninth Circuit Court of Appeals reversed on
jurisdictional grounds a nearly $2 million False Claims Act judgment arising from an alleged scheme to avoid payment of
customs duties. The Court of Appeals held that the Court of International Trade has exclusive jurisdiction over an action
brought by the government to recover customs duties, even when that action is filed under the FCA, if that FCA action is
based on allegedly false statements made to reduce an obligation to pay customs duties. United States v. Universal Fruits and
Vegetables Corp., No. 02-55340, 2004 WL 515644, at *3, 5 (9th Cir. Mar. 17, 2004).
Provisions granting exclusive
jurisdiction in the Court of
International Trade over actions to
recover certain customs duties and civil
penalties under customs law are found
in 28 U.S.C. § 1582. Moreover, 28
U.S.C. § 1340 confers original jurisdiction
on district courts for certain civil actions
"except matters within the jurisdiction of
the Court of International Trade." The
defendant in this case argued that the
district court did not have jurisdiction
over the FCA case because the recovery
actions should have been brought in the
CIT. The jurisdictional question was
critical because, inter alia, the case may
be barred under the five-year statute of
limitations for cases seeking recovery of
customs duties. The government's FCA
claims, on the other hand, were brought
within the FCA's six-year statute of
limitations. Id. at *1 n.4.
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The Universal Fruits decision may have
ramifications that extend well beyond the
international trade context. It raises
serious issues for the Justice Department
regarding the interaction between the
False Claims Act and the substantive
statutes upon which FCA violations are
commonly based. Most importantly, the
Universal Fruits decision holds that it
does not matter if the Justice Department
characterizes its action as one for the
recovery only of FCA damages, rather
than customs duties or some other form of
recovery, if those duties are in fact the
basis of the recovery.
Damages were measured in the Universal
Fruits case by the duties that defendant
allegedly sought to avoid, and that reality
drove the court's assessment of the
jurisdictional issue. The government
conceded that it could not seek recovery
of fraudulently avoided duties twice – first
under the FCA and then under customs
laws – because the customs-based
recovery would represent a double
recovery that would be offset by the
government's recovery on the FCA claim.
Id. at *4 n.12. The court noted that
[a]llowing the government to
alter this reality by incorporating
"customs duties" into "damages"
runs counter to the principle that
a party "may not, by creatively
framing [its ] complaint,
circumvent a congressional grant
of jurisdiction . . . . A
[c]ongressional grant of
exclusive jurisdiction cannot be
so easily circumvented."
Furthermore, if the government
could bring an FCA claim in
district court whenever a party
Copyright © 2004. Fried, Frank, Harris, Shriver & Jacobson LLP. All rights reserved.
fraudulently withholds customs
duties, then the exclusive
jurisdiction over actions to
recover customs duties in all
such instances would become a
virtual nullity: The government
could simply recast the withheld
duties as damages and proceed in
district court under the FCA.
Id. at *4 (footnotes and citations omitted).
This holding may have equal application
when a statute confers exclusive
jurisdiction for the recovery of damages,
penalties, or some other form of recovery
on an adjudicative body other than federal
district courts. It may be, as the court
suggested in the Universal Fruits
decision, that the entity with jurisdiction
over the matter will have concurrent
jurisdiction to consider FCA allegations,
and that such claims would not
necessarily be barred as they apparently
might be under the facts of this case.
Moreover, the court declined to decide
whether a qui tam relator could bring an
action to recover customs duties in federal
district courts. Id. at *5 n. 14. The
Universal Fruits decision stands for the
proposition, however, that the exclusive
grant of jurisdiction to another
adjudicative entity is one that may not be
circumvented by re-casting a recovery
arising under another statute or regulation
as False Claims Act damages.
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Copyright © 2004. Fried, Frank, Harris, Shriver & Jacobson LLP. All rights reserved.