Customs Laws Push State Unfair Trade Remedies Aside, Court Rules

When can State unfair trade practice laws be used to punish alleged importing violations? Not often, according to a recent decision from the United States District Court for the District of Connecticut.

Wind Corporation v. Wesko Locks, Ltd., No. 3: 18-cv-292 (D. Conn) was a lawsuit brought by a Connecticut distributor of furniture hardware (Wind) against a Canadian competitor (Wesko) under the broadly-couched Connecticut Unfair Trade Practices Act (CUTPA). Wind alleged that Wesko had claimed NAFTA-originating treatment for certain furniture locks which did not qualify for that status.  As a result, Wind claimed, Wesko was able to sell locks for less than it otherwise would have, constituting an unfair trade practice in violation of CUTPA.  It sued, seeking unspecified damages.

The case was based on the dubious proposition that an increase in Customs duty costs (or any other costs) automatically had to be passed on to Connecticut consumers, or an unfair trade practice would result. [This would come as a shock to the system of many importers who, currently struggling with 25% duty assessments on steel or aluminum products, or certain Chinese products, are finding out that these are not so easily passed along to consumers].

CUTPA applies to unfair acts in “trade or commerce”. It does not apply when the conduct in question is the subject of comprehensive substantive and procedural regulation by a State or Federal agency.  Wesko moved to dismiss the suit, claiming (1) that the filing of tax returns (including Customs entries) was not an activity in “trade or commerce” and (2) that NAFTA issues were already comprehensively regulated through the Customs laws.

The court granted Wesko’s Motion to Dismiss the case. It disagreed with Wesko that the acts complained of were not in the scope of “trade and commerce”, viewing the unfair act not as the filing of Customs entries, but rather as marketing locks whose provenance had not been correctly representative. But the Court agreed with Wesko that issues relating to import duties, including claims for NAFTA treatment, were already comprehensively regulated by the Federal government under the Customs laws.  In addition to reviewing the myriad of Custom laws which deal with entry, assessment of duties, penalties and claims for recovery of withheld duties, the Court noted that Section 337 of the Tariff Act [19 U.S.C. §1337] prohibits “unfair practices in import trade”.

The Court concluded that:

Thus, it appears that the process by which persons import foreign-made products into the United States is provided for by statute and that it is regulated expressly by a “pervasive statutory scheme” that “carefully balances both the procedural and substantive remedies.” City of Danbury, 249 Conn. at 20. Moreover, as in Connelly, “holding that a CUTPA remedy, lacking the procedural prerequisites and specifically tailored remedies” provided for under the Tariff Act of 1930, governs unlawful conduct relating to the import of foreign-manufactured goods would upset the carefully crafted equilibrium between the competing interests of the various people and entities involved in the importation of foreign-made goods into the United States.

Thus, a party aggrieved by a competitor’s import practices will generally need to look to the Federal Customs laws for its remedy.

John Peterson and Maria Celis of Neville Peterson LLP represented Wesko Locks in this action, together with Calvin Woo of Verrill Dana LLP, Westport CT.