Customs Brokers Have a Due Process Right in Filer Codes; Government Cannot Revoke Codes Without a Hearing

Due process requires that a professional license, such as that held by a Customs broker, cannot be revoked by an issuing agency without a hearing.  The Regulations take this into account and provide for certain procedural safeguards that protect a broker from arbitrary license revocation.  However, what about a broker’s filer code?

That issue was brought before the Court of International Trade in Lizzaraga Customs Broker v. CBP, Slip Op. 10-113 (Oct. 4, 2010).  CBP summarily deactivated Lizzaraga’s filer code due to suspected “misuse.”  Specifically, CBP believed that Lizzaraga used his filer code to smuggle narcotics into the United States and be used by Mexican nationals.  These are fairly strong accusations, and it is unclear what evidence the government had that Lizzaraga was engaged in wrongdoing.  What is clear is that Lizzaraga was not going to stand by and allow his filer code to be revoked without a contest.

First, Lizzaraga requested that the Court enter an injunction to prevent Customs from deactivating his code.  He argued that, in the modern commercial environment, stripping a broker of his filer code is tantamount to revoking his license – an act that would require a hearing to comport with due process.  He pointed out that 96% of all entries are filed electronically, and that among brokers, that figure is probably higher, insofar as those importers that file their own entries largely do so on paper.  By using the filer code via the Automated Broker Interface (ABI), Lizzaraga received 10 days from the date Customs released his clients’ goods to submit estimated duties, whereas he would be constrained to submit paper entries with estimated duties attached were Customs to revoke the electronic filing option.  To make matters worse, 90% of Lizzaraga’s clients imported FDA-regulated merchandise, such as flowers, and Customs required FDA-related documents to be submitted within a two-hour window on weekends, whereas they were freely submitted via ABI.  In short, Lizarraga argued that his business would collapse without use of his filer code, as his clients would defect to brokers that could more effectively transact Customs business.

CBP capitulated.  Without awaiting a ruling on the matter, CBP issued a confession of judgment concerning Lizarraga’s right to a hearing.  In a courtroom hearing, CBP acknowledged that Lizarraga had a due process right to his filer code, and stated that the agency would not again attempt to summarily deactivate it without a hearing.  Lizarraga still asked the Court to issue an injunction in his favor, arguing that the threat of deactivation still existed.  The Court disagreed, and held that CBP’s assertion that it would not again seek to revoke Lizarraga’s license in the absence of due process was sufficient to render the case moot.

Due process requires that a licensed broker be given an opportunity to be heard and have his or her arguments considered prior to license revocation.  Due process similarly requires that CBP consider a broker’s arguments in connection with penalty proceedings.  As the Lizarraga case illustrates, sometimes CBP operates without regard for due process considerations, and when this occurs it is entirely appropriate to push back.  Sometimes it takes a formal complaint to make the agency reverse course and do the right thing.



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