In a recent decision, the US Court of Appeals for the Ninth Circuit determined that its decades-long ban on customs-based False Claims Act actions does not apply to qui tam relator actions. The decision leaves the ban in place for actions initiated by the United States, and along with that, the possibility of plaintiff-side gamesmanship in future cases.
In an era of increased enforcement of customs violations under the False Claims Act (FCA), qui tam relators pursuing such claims were handed a reprieve via the US Court of Appeals for the Ninth Circuit’s recent decision in Island Industries Inc. v. Sigma Corp., 2025 WL 1730271 (9th Cir., June 23, 2025).
In that case—a non-intervened qui tam action brought by Island Industries against its business competitor, Sigma—a jury found Sigma liable for knowingly failing to pay antidumping duties on certain pipe fittings. On appeal, the Ninth Circuit, on its own accord, questioned whether it had jurisdiction over the action given the 2004 holding in United States v. Universal Fruits and Vegetables Corp., 370 F.3d 829 (9th Cir. 2004), that the Court of International Trade has exclusive jurisdiction over actions by the United States to recover customs duties.
The Ninth Circuit panel held that the Universal Fruits decision did not apply to relator actions because relators are distinct from the United States. The panel also held that customs violations can be pursued via the FCA, rejecting the argument that a customs statute, 19 USC § 1592, provides the exclusive remedy for customs violations.
While the Ninth Circuit’s decision may be welcome news for relators, the fact remains that—under the binding Universal Fruits decision—courts within the Ninth Circuit do not have jurisdiction to adjudicate customs-based FCA claims pursued by the United States rather than a qui tam relator.
The underlying qui tam action in this case involved Sigma’s import of certain pipe fittings from China. Island Industries alleged that the pipe fittings fell within the scope of an antidumping duty and that Sigma not only knowingly avoided an obligation to pay the duty, giving rise to reverse false claims liability under FCA Section 3279(a)(1)(G), but also that Sigma falsely described the fittings as steel couplings rather than welded outlets.
At trial, Sigma argued (1) its product did not fall within the scope of the antidumping duty order, (2) it lacked scienter given ambiguity over the order’s scope, and (3) the government sustained no damages because it later determined that duties were only owed on product liquidated after the imports in question.
After the district court instructed the jury that the falsity had been established, the jury returned a verdict for Island Industries, finding $8 million in single damages (which are subject to trebling under the FCA). On appeal, after oral argument, the Ninth Circuit sua sponte ordered supplemental briefing on the question of whether it had jurisdiction over the action following the decision in Universal Fruits which held that, pursuant to 28 USC § 1582, the Court of International Trade has exclusive jurisdiction over any action “commenced by the United States” to recover customs duties arising out of an import transaction. 370 F.3d at 834.
Two years later, the remaining two members of the panel (one had retired) issued the Island Industries opinion holding that relator actions are not subject to the Universal Fruits decision and otherwise affirming the district court’s judgment for relator.
In 2004, in Universal Fruits, the Ninth Circuit held that FCA actions brought by the United States fall within the exclusive jurisdiction of the Court of International Trade pursuant to 28 USC § 1582. Accordingly, because the district court and the Ninth Circuit lacked jurisdiction, the Universal Fruits court ordered that the case be transferred to the Court of International Trade.
Notably, the Court of International Trade, following the transfer, determined that it lacked jurisdiction over FCA claims, finding that the CIT’s jurisdiction is limited to the recovery of “customs duties” and does not extend to the recovery of damages and penalties. United States v. Universal Fruits and Vegetables Corp., 30 CIT 706, 712 (Ct. Int’l Trade 2006). The Universal Fruits case ended without any resolution of this jurisdictional conflict.
However, the Ninth Circuit’s Universal Fruits holding remains in effect. Thus, the threshold jurisdictional question before the Ninth Circuit in Island Industries was whether the lack of jurisdiction over customs-related FCA actions commenced by the United States extended to actions commenced by relators. The Ninth Circuit held that relators are exempt from the ban.
The panel rationalized its decision by finding that relators and the United States are not synonymous for purposes of 28 USC § 1582. Pointing to the US Supreme Court’s decision in US ex rel. Eisenstein v. City of New York, 556 US 928 (2009)—wherein the Court held that for purposes of a timing provision in the Federal Rules of Appellate procedure, a relator does not receive the benefit of the extended appeal period available to the government—the panel held that relators also are distinct from the United States for purposes of Section 1582. Island Industries, 2025 WL 1730271 at *6.
The panel further relied on language in the Ninth Circuit’s decision in US ex rel. Kelly v. Boeing, 9 F.3d 743 (9th Cir. 1993)—which found that relators “effectively stand in the shoes of the United States” and have Article III standing under an assignment theory—as evidence that the two must be distinct entities (i.e., an assignor and an assignee) and not the same. Oddly, for this proposition, the panel did not cite to the Supreme Court’s subsequent decision in Vermont Agency of Natural Resources v. US ex rel. Stevens, 529 US 765 (2000), which made clear that relators have Article III standing in qui tam actions precisely because the FCA effects a partial assignment of the government’s injury.
The panel’s reasoning can be viewed as shaky. The facts that a relator “stands in the shoes” of the government and is pursuing the government’s claim for injury should be paramount, as these facts show an identity of interests between the relator and the government. This is not a question of appeals timing—as in Eisenstein—nor is it a question of standing—as in Kelly. To the contrary, in an FCA case, the relator is asserting a substantive right of recovery on behalf of the United States for damages sustained solely by the United States. While a relator may be entitled to a share of the government’s recovery, the judgment in a qui tam case is entered for the United States and all damages and penalties are paid directly to the United States. In these circumstances, for purposes of jurisdiction under 28 USC § 1582, there should be no meaningful distinction between an FCA action for recovery of customs duties that is “commenced by the United States” versus one that is commenced by a relator.
Indeed, the scenario created by the Ninth Circuit’s dichotomy can lead to gamesmanship. The jurisdictional bar preventing the United States from filing affirmative FCA actions for violations of import duties in district courts within the Ninth Circuit may lead the Justice Department to outsource such cases to relators who have no such jurisdictional bar. It is unclear whether the bar would apply if the United States sought to intervene in a qui tam action or seek to amend a relator complaint to add such violations.
As it stands now, however, following the Ninth Circuit’s decision, the United States cannot commence a customs-based FCA action in the district courts within the Ninth Circuit due to the Universal Fruits precedent, while relators face no such jurisdictional impediment.
After determining that it had jurisdiction, the Ninth Circuit panel addressed Sigma’s contention that 19 USC § 1592 provides the exclusive statutory remedy for violations of customs laws. Section 1592(d) states that, “if the United States has been deprived of lawful duties, taxes, or fees . . ., the Customs Service shall require that such lawful duties, taxes, and fees be restored, whether or not a monetary penalty is assessed.”
The court rejected this argument, finding that in the absence of express statutory language exempting customs laws violations from the FCA—such as the exemption under Section 3729(d) for claims based on violations of the Internal Revenue Code—the two statutory remedies can coexist. In arriving at this result, the panel noted that § 1592’s plain language does not state that it provides the exclusive remedy for customs violations. The panel noted further that the FCA’s “alternate remedy” provision in Section 3730(c)(5) demonstrates that the FCA actions can be pursued “in parallel” with an action under Section 1592. Island Industries, 2025 WL 1730271 at *8.
The court did not directly address Sigma’s argument that because FCA damages would be measured, at least in part, on the avoided “customs duties,” allowing an FCA remedy to acquire those damages also would conflict with the Ninth Circuit’s holding in Universal Fruits, 370 F.3d at 835–36, that the government cannot recast withheld duties as damages and sue for them under the FCA.
While the panel’s overall conclusion—that Section 1592 remedies do not displace the FCA—may find support in both statutes, the reference to the “alternate remedy” provision is misplaced. That provision only applies to actions brought by a relator, which is the scenario in Island Industries. And when the government pursues an alternate remedy regarding the same conduct at issue in a qui tam action, this FCA provision clearly contemplates that the relator’s complaint cannot continue. 31 USC § 3730(c)(5) (affording the relator the same rights in the alternate remedy proceeding as it would have had if the qui tam “action had continued”). In other words, the alternate remedy provision indicates that a relator action and a Section 1592 claim by the United States for the same underlying import violation cannot “coexist.”
The Ninth Circuit rejected the remainder of Sigma’s challenges to the jury verdict. Of particular interest is the panel’s handling of Sigma’s argument that it had no “obligation” to pay the duties—for purposes of reverse false claims liability under FCA Section 3729(a)(1)(G)—because the US Department of Commerce later ruled that duties would only be imposed on entries of product after the entries at issue in the qui tam action. Island Industries, 2025 WL 1730271 at *9.
The panel held the duty to pay under the antidumping duty order in effect at the time of the entries was in fact an obligation, notwithstanding certain regulatory considerations that caused Commerce to collect them only on later entries. According to the panel, even if Sigma had a reasonable belief at the time of the entries that the duties were not owed, that position would only be relevant to scienter, not whether the obligation existed.
As to scienter, according to the panel, Sigma’s contention that its interpretation of the antidumping duty order was objectively reasonable is foreclosed by the Supreme Court’s subsequent decision in US ex rel. Schutte v. Supervalu Inc., 598 US 739 (2023).
Finally, the panel gave short shrift to Sigma’s compelling argument, as a matter of law and fairness, that damages had not been proven given Commerce’s determination that no additional duties were owed on the entries at issue in the case.
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