Hartford Challenges Bond Obligations in Light of Byrd Amendment
Jan. 26, 2007
On December 21, 2006, Barnes/Richardson filed the lead case on behalf of Hartford Fire Insurance Company, a surety, challenging the enforceability of certain bond contracts in light of changes made to U.S. antidumping law by the Continuing Dumping and Subsidy Offset Act of 2000 (19 USC 1675c) —better known as the Byrd Amendment. Throughout the long history of antidumping law in the United States, Customs deposited monies collected as the result of an antidumping order into the general treasury. Customs had always collected this money as a way to protect revenue and to equalize the market in the face of an unfair trade practice and has always used the surety bond as the primary mechanism to ensure that these goals are fulfilled. Pursuant to the Byrd Amendment, however, monies collected pursuant to an antidumping order are not deposited in the general treasury, but are instead disbursed to domestic producers of the product which was the subject of the antidumping order.
It is Hartford’s position that the Byrd Amendment dramatically changed the nature of the relationship between the surety and Customs, which fills the role of obligee, and fundamentally altered the bond contract in such a way that any claims under that bond contract must be cancelled. Drawing from surety law, customs law, and general contract law, Hartford is proceeding with three main arguments.
First, in light of the decision in Huaiyin Foreign Trade Corp. v. Worldwide Line, Inc., 322 F.3d 1369, 1380 (Fed. Cir. 2003), Hartford claims that the payments under the Byrd Amendment to domestic producers amount to compensation to those producers. Since the bond contract does not cover the payment of compensation to or subsidization of the domestic industry, the bond contract must be cancelled. Congress amended the antidumping law. However, the Customs bond was not changed to reflect the amendments.
Second, Hartford argues that the Byrd Amendment imposes the additional obligation on importers to subsidize the domestic industry beyond that which is necessary to equalize the market. When agreeing to the bond contract and the rights and responsibilities reflected in the language contained within its four corners, Hartford did not promise to fulfill the Byrd Amendment’s additional obligation—the bond’s language references neither this additional obligation nor does it refer in any way to payment to or for the benefit of the domestic industry. Since this additional obligation is not enumerated within the four corners of the bond contract, it does not form a part of the agreement and any claims made pursuant thereto must be cancelled.
Third, Hartford claims that Customs’ demand for payment under the bond contract to the domestic industry is a material alteration of the bond contract and must be cancelled. It is a general rule that a surety is discharged from its obligations under a bond contract if the bond is materially altered or changed without the surety’s knowledge or consent and where the alteration caused prejudice to the surety. Moreover, because of the Byrd Amendment the U.S. increased the risks to Hartford under the bond contract without seeking Hartford’s consent. When an obligee acts to increase the secondary obligor’s risk of loss without that secondary obligor’s express consent, the secondary obligor is discharged from its obligations under the bond contract.