On June 25, 2025, in a decision upholding a nearly $26 million verdict against an importer for submitting false customs declarations to avoid paying antidumping duties, the Ninth Circuit Court of Appeals (Ninth Circuit) confirmed that the False Claims Act (FCA) could be used as an enforcement tool by private parties to combat customs fraud, alongside the government's historically relied upon penalty provisions of the Tariff Act, 19 U.S.C. § 1592 (Tariff Act).
At a time when the U.S. government has made tariffs a policy priority, this opinion opens the door to increased scrutiny of importers by private qui tam relators. It also makes it easier for competitors to bring qui tam cases against importers suspected of illegally avoiding tariffs.
The FCA allows private parties to file qui tam, or whistleblower, lawsuits on behalf of the government against parties who (1) knowingly submit false or fraudulent claims for payment to the government, and (2) knowingly submit "reverse false claims" by making false or fraudulent statements to avoid an obligation to pay money to the government. The Island Industries, Inc. v. Sigma Corp. decision clarified that relators, or private parties acting on behalf of the government, may pursue "reverse false claims" actions based on the underpayment of customs duties.
The Ninth Circuit's decision now provides both the government and private parties with an opportunity to pursue enforcement of customs duties against importers; thus, heightening the exposure for companies that import merchandise into the United States.
Background
In this case, Sigma Corporation (Sigma) imported welded outlets from China between 2010 and 2018. The outlets were subject to antidumping duties. However, on the entry documents submitted to United States Customs and Border Protection (CBP), Sigma declared its products as steel couplings, widgets that are not subject to antidumping duties. A competitor, Island Industries, Inc. (Island Industries), filed a qui tam complaint under the FCA, alleging that Sigma falsely claimed (1) its products were not subject to antidumping duties and (2) misclassified the products as steel couplings rather than welded outlets.
The United States declined to intervene. At the conclusion of the trial, a jury found Sigma liable under the FCA and imposed an $8 million verdict for unpaid duties. However, because the FCA imposes treble damages and statutory penalties for each false claim, a judgment of nearly $26 million was entered against Sigma.
Ninth Circuit's Decision
Sigma appealed the verdict, arguing that (1) that the Tariff Act, not the FCA, should govern such disputes; (2) it had no "obligation" to pay antidumping duties on its products; and (3) it lacked the scienter requirement under the FCA because it would have been objectively reasonable to believe that the welded outlets were not subject to antidumping duties.
Before addressing the substantive appeals, the Ninth Circuit first considered whether it had jurisdiction over this case at all.
Jurisdiction
The Ninth Circuit examined whether federal courts retain jurisdiction over FCA qui tam lawsuits seeking to recover money owed to the government for false representations involving customs duties, or whether such actions must be brought in the Court of International Trade (CIT).
The opinion settled this dispute, finding that a relator is not barred from filing an FCA customs action in federal court. While the CIT retains exclusive jurisdiction over actions commenced by the United States to recover customs duties, a relator is not considered "the United States" for jurisdictional purposes.
Simply put, there is no jurisdictional obstacle for relators in bringing an FCA action in federal district court.
FCA v. Tariff Act
In addressing the first of Sigma's substantive arguments, the Ninth Circuit held that the Tariff Act's penalty provision, which authorizes the government to recover duties and impose penalties for materially false statements or omissions in connection with import transactions, is not the sole enforcement tool to recover fraudulently avoided customs duties.
The Tariff Act of 1930 and FCA may operate concurrently — the Tariff Act may only be enforced by the government, while the FCA allows private parties to file qui tam lawsuits when the government fails to act. The Tariff Act does not preclude relators from bringing qui tam suits to remedy reverse false claims.
Obligation to Pay
A reverse false claims action requires an "obligation" upon the defendant to pay money to the government.
Sigma argued there was no such obligation because the amount owed on the welded outlets had not yet been fixed. However, the Ninth Circuit rejected this argument, finding that Sigma's duty to properly declare and pay antidumping duties arose at the moment its imports entered the United States. Sigma's failure to do so deprived the government of money, in violation of the FCA.
Scienter
Lastly, the Ninth Circuit rejected Sigma's "objective reasonableness" defense, relying on the Supreme Court's 2023 decision in United States ex rel. Schutte v. SuperValu Inc., which held that FCA scienter is based on a specific defendant's actual knowledge and belief, i.e., its "subjective point of view." Under SuperValu, a defendant cannot escape liability by arguing that an objectively reasonable person could have believed that the statements it submitted to the government were true.
Even if the antidumping order was ambiguous, Sigma could still be liable if it acted with deliberate ignorance or reckless disregard for the truth when it declared on customs forms that it did not owe antidumping duties on its welded outlets. Both standards were met in this case, as evidenced by Sigma's failure to investigate its duty obligations and the ease with which the antidumping order and prior rulings could have been found.
Key Takeaways
The Ninth Circuit's ruling will likely introduce a new era of trade enforcement with private parties acting against competitors and others in the import market. FCA matters — notably in defense, life sciences, and healthcare fields — have attracted an active relators' bar motivated by the potential for large whistleblower awards. Trade enforcement actions will likely follow this trend, with importers and U.S. manufacturers pursuing claims. And, given the FCA's treble damages and penalties, as well as whistleblower awards equaling anywhere from 15% to 30% of the government's potential recovery, competitors of companies that duck tariffs will be motivated to bring qui tam actions in this area.
The Ninth Circuit's decision here has lowered the jurisdictional and procedural hurdles that the qui tam plaintiffs must clear in a customs enforcement case. But in applying the SuperValu standard here, the court's opinion also demonstrated that importers cannot avoid FCA liability by putting their heads in the sand and failing to investigate their tariff obligations.
Importers are likely to face increased FCA scrutiny from qui tam lawsuits. And competitors who suspect their rivals of illegally avoiding or underpaying tariffs should consider taking the law into their own hands and filing an FCA complaint.
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