On June 23, 2025, the Court of Appeals for the Ninth Circuit issued a decision holding that qui tam relators may pursue False Claims Act cases alleging customs fraud in United States District Courts even though the Court of International Trade (“CIT”) also affords the government a forum for recovering unpaid customs duties. See United States ex rel. Island Industries, Inc. v. Sigma Corp., No. 22-55063 (9th Cir. June 23, 2025).
The decision is important because the Ninth Circuit previously held that, pursuant to 28 U.S.C. § 1582, the CIT was the exclusive venue in which the government could bring suit to recover unpaid customs duties. See United States v. Universal Fruits & Vegetables Corp., 370 F.3d 829, 836-37 (9th Cir. 2004). Since 2004, then, there has been some question about whether a qui tam relator, acting on behalf of the United States, could bring a False Claims Act suit for customs fraud in the Ninth Circuit, which covers all of the major ports on the West Coast of the United States. Although the Island Industries court could not overrule Universal Fruits (because the appellate panel was not sitting en banc, see Island Industries, Slip Op. at 16 n.6), the Island Industries decision nonetheless removes any doubt that at least a qui tam relator can pursue a customs fraud False Claims Act case in a United States District Court.
The Island Industries case has a somewhat tortured procedural history, but here are the essential points from a False Claims Act perspective. In 2017, Island Industries filed a False Claims Act qui tam case in the Central District of California alleging that several of its competitors, including Sigma, were evading customs duties on imported Chinese-made “butt-weld pipe fittings” by mischaracterizing them as steel couplings, which were not subject to the same duties. The United States declined to intervene in the case, and Island Industries proceeding to litigate the case itself (with counsel from a large law firm that more commonly defends False Claims Act cases). A jury ultimately found Sigma liable. Sigma appealed, arguing, among other things, that 28 U.S.C. § 1582, as construed by the Universal Fruits court, precluded the case from proceeding in District Court, and that the evidence at trial did not support a finding that Sigma had acted with scienter, which is an essential element of a False Claims Act case.
The Court of Appeals affirmed the judgment against Sigma. The court held that, while Section 1582 requires that a case “commenced by the United States . . . to recover customs duties” must be brought in the CIT, a False Claims Act relator is not “the United States” and Section 1582 applies only to “a lawsuit in which ‘the United States’ filed the complaint.” Slip Op. at 16-17. Since Island Industries, not the United States, initiated that case against Sigma, Section 1582 did not apply. This holding further suggests that the United States could intervene in a False Claims Act case alleging customs fraud, since the United States would not have commenced such an action.
The court also rejected Sigma’s argument that it did not knowingly violate the law. Under the False Claims Act, the court noted, scienter encompasses “‘the ‘ostrich’ type situation where an individual has buried his head in the sand and failed to make simple inquiries which would alert him that false claims are being submitted.’” Slip Op. at 27 (quoting United States v. Bourseau, 531 F.3d 1159, 1168 (9th Cir. 2008)). Here, the evidence showed that there were various public orders on duties for steel products imported from China, and that “Sigma made no inquiry into whether it owed duties on its welded outlets before stating that it did not.” Id. Further, Island Industries had presented evidence that “Sigma called its products welded outlets in its product catalog and on its website but referred to them as steel couplings on customs forms,” thus providing the jury a basis to infer that Sigma was trying to hide information from customs authorities. Id. at 28. The court’s holding on scienter may be helpful to relators in non-customs cases, too, since it is often the case that a defendant fails to make even basic inquiry about the legality of its conduct or that it tells the government or an auditor one thing but otherwise says something else.