One of the most important benefits of forming a corporation or other business entity is the protection of owners and managers from personal liability for acts performed on behalf of the business. Holding a shareholder or officer liable is known as “piercing the corporate veil.” This may occur for acts found to be illegal or grossly negligent. A series of decisions from the Court of International Trade (CIT) and the Federal Circuit Court of Appeals addressed the liability of a corporate president, who was also the sole shareholder, for failure to pay customs duties on imported goods. The Federal Circuit ultimately applied a broad interpretation of the statute in question and held that the corporation and the shareholder may be held jointly and severally liable.
The corporation, Trek Leather, Inc., imported a number of men’s suits during a period of about eight months in 2004. According to U.S. Customs and Border Protection (CBP), Trek Leather’s sole shareholder and president used other corporate entities to purchase materials for foreign manufacturers. The manufacturers used the materials, known as “assists” in federal customs law, to produce the suits that he imported. CBP alleged that he failed to include the cost of these assists in the total price that he reported to customs officials. A lower price meant a lower customs duty.
CBP brought an action against Trek Leather and the shareholder in the CIT for misrepresenting the value of imported goods under 19 U.S.C. § 1592(a). The shareholder argued that he could not be held personally liable because he was not the “importer of record.” The CIT found that the statute applied to him as well as the corporation. It granted CBP’s motion for summary judgment and ruled that Trek Leather and the shareholder were jointly and severally liable for unpaid customs duties and related civil penalties. United States v. Trek Leather, 781 F.Supp.2d 1306 (USCIT 2011).