Ninth Circuit Affirms $26 Million Jury Verdict in FCA Customs Duty Case, Further Highlighting Enforcement Risks in Era of High Tariffs
Client Alert | June 27, 2025
The Ninth Circuit’s ruling against the importer defendant further opens the door for the government and private relators to police customs and tariff compliance through the FCA.
Overview
In April, Gibson Dunn published a Client Alert forecasting increased False Claims Act (FCA) enforcement of customs violations in the wake of President Trump’s new tariff regime. That alert previewed a pending case in the Ninth Circuit with jurisdictional implications for such uses of the FCA. The Ninth Circuit recently ruled against the importer defendant, further opening the door for the government and private relators to police customs and tariff compliance through the FCA and raising the stakes for importers and others in the import chain.
Case Summary
On June 23, 2025, the Ninth Circuit upheld an almost $26 million jury verdict against a pipe importer in a case alleging customs duty evasion under the FCA. In the case, Island Industries, Inc. (Island) alleged that its competitor Sigma Corporation (Sigma) made two types of false statements on customs forms to avoid antidumping duties. Island alleged that Sigma: (1) declared that antidumping duties did not apply to its imported products; and (2) described its products as “steel couplings” to customs officials but marketed them to customers as “welded outlets.”[1] The United States declined to intervene. At trial, a jury sided with Island and awarded an over $8 million verdict. The trial judge tripled the verdict and awarded penalties, as mandated by the FCA, resulting in almost $26 million in damages and civil penalties.[2]
On appeal, Sigma argued that the civil penalties provision of the Tariff Act, 19 U.S.C. § 1952, “displaces the FCA” as the sole mechanism for recovering antidumping duties an importer has fraudulently avoided paying.[3] Sigma also argued that it could not be liable under the FCA because it “had no obligation to pay antidumping duties” under the statute.[4] Sigma also challenged, in the Court of International Trade (CIT), a Department of Commerce ruling that its “welded outlets” fell within the scope of the relevant antidumping order. As a result, on appeal the Ninth Circuit was confronted not only with a question about whether a key element of the FCA was satisfied, but also with whether it had jurisdiction over the case at all—or whether, alternatively, the case “needed to be initiated in the CIT and then appealed (if at all) to the Federal Circuit.”[5]
The Ninth Circuit held as follows:
- Relators can bring FCA actions for customs duties violations in federal district court. Although under long-standing Ninth Circuit precedent[6] an FCA suit filed by the United States to recover damages for the improper avoidance of customs duties must be brought in the CIT, “a relator is not the United States” for purposes of that requirement—meaning there is “no jurisdictional obstacle” to such FCA actions brought by relators in federal district court.[7]
- The civil penalties provision of the Tariff Act is not the sole mechanism for recovering fraudulently avoided customs duties. Importers who improperly avoid customs duties are also subject to FCA liability. Neither statute’s text identifies it as the exclusive remedy for such conduct, and the statutes’ statutory and legislative histories suggest Congress “specifically intended the two statutes to coexist.”[8]
- An “obligation” to pay money to the government is an essential element of a reverse false claims action to recover customs duties, and the obligation begins at the time of import.[9] Sigma argued it had no obligation to pay antidumping duties because the amount owed had yet to be fixed and was thus contingent. The Court found that Sigma “became liable for antidumping duties when it imported its welded outlets . . . even though the amount due was not yet fixed through liquidation.”[10] This holding tracks the text of the FCA and prior caselaw interpreting the definition of “obligation.”[11]
- Consistent with the Supreme Court’s SuperValu decision, courts evaluating evasion of customs duties claims should evaluate the FCA’s scienter element from the defendant’s subjective point of view. The Court thus rejected Sigma’s argument that it lacked scienter because it would have been objectively reasonable for Sigma to believe that it did not owe antidumping duties.[12] The Court clarified that Sigma could not “escape liability by arguing that an objectively reasonable person could have believed that the statements [Sigma] submitted to the government were true.[13]
Implications
The Ninth Circuit’s ruling likely will encourage FCA enforcement of customs violations—by both the federal government and private relators. Particularly in the Ninth Circuit, which has jurisdiction over a number of the largest ports of entry in the United States, private relators may be further emboldened to pursue FCA cases against importers and others in the import chain, including in declined cases. Moreover, the Ninth Circuit’s decision highlights that importers accused of improperly avoiding customs duties face the twin risks of an enforcement action under the FCA and a separate one for civil penalties under the Tariff Act––which, in cases of fraud or gross negligence, can result in civil fines that are four times the value of the imported merchandise or the amount of the avoided duties.[14] Finally, the relator in the Sigma case was the defendant’s competitor—highlighting the risk that competitors may be incentivized to file qui tam suits against each other where they perceive (accurately or not) that they are being disadvantaged by violations of customs rules by others.
Given the sheer size of the import market in this country and the current elevated levels of custom duties, the risks for importers are enormous. Thus, as we wrote in April, companies should ensure they have robust compliance mechanisms to prevent, detect, and remedy customs violations—not only their own violations, but those of their upstream and downstream business partners.
[1] Island Indus., Inc. v. Sigma Corp., No. 22-55063, 2025 WL 1730271 (9th Cir. June 23, 2025).
[2] 31 U.S.C. § 3729(a)(1).
[3] Sigma Corp., at *18.
[4] Id. at *22.
[5] Id. at *16.
[6] See United States v. Universal Fruits & Vegetables Corp., 370 F.3d 829, 836 & n.13 (9th Cir. 2004) (holding that proper “venue” for a FCA case based on customs duties brought by the United States is the CIT); but see United States v. Universal Fruits & Vegetables Corp., 30 C.I.T. 706, 711 (2006) (the CIT is “not vested with the authority to grant Plaintiff’s claim for damages and penalties pursuant to the FCA”).
[7] Sigma Corp., at *16-17.
[8] Id. at *20-21.
[9] 31 U.S.C. § 3729(a)(1)(g).
[10] Sigma Corp., at *23.
[11] See 31 U.S.C. 3729(b)(3) (“obligation” means “established duty, whether or not fixed”); United States ex rel. Lesnik v. ISM Vuzem d.o.o., 112 F.4th 816, 821 (9th Cir. 2024) (“‘fixed’ referred to the amount of an obligation, not whether any obligation existed”).
[12] Sigma Corp., at *25.
[13] Id.
[14] 19 U.S.C. § 1592(c)(1).
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