Two years ago, a Ninth Circuit panel surprised the government, trade experts, and whistleblower specialists by questioning whether federal district courts had jurisdiction to hear whistleblower-filed cases involving customs fraud. On June 23, that panel essentially said, “never mind.”
In its significant decision in Island Industries, Inc. v. Sigma Corp., the Ninth Circuit affirmed that district courts have jurisdiction over False Claims Act (FCA) suits involving customs‐duty fraud brought by private whistleblowers, or qui tam relators. The ruling confirms the interplay between the FCA, the Court of International Trade (CIT), and enforcement of customs, duties, and tariffs.
The Island Industries Case
Island Industries, a U.S. manufacturer of pipe fittings, brought a FCA suit in a federal district court against its competitor Sigma Corporation, alleging that Sigma evaded U.S. customs duties by falsely labeling Chinese-made pipe fittings as products of other countries. Sigma moved to dismiss the case, arguing that only the CIT had jurisdiction over customs-related issues—not the federal district court where the case was brought. The district court agreed and dismissed the case, and Island Industries then appealed to the Ninth Circuit. In its June 23 decision, the Ninth Circuit reversed the decision of the district court.
Defendants Sought to Eliminate Customs-Related FCA Suits Entirely
While the FCA grants federal district courts jurisdiction over FCA claims (whether filed by the government or private whistleblowers), 28 U.S.C. § 1582(3) assigns exclusive jurisdiction to the CIT for customs-related civil lawsuits “commenced by the United States.” The question at the heart of Island Industries was whether an FCA case brought by a qui tam relator that seeks recovery of customs duties is a case “commenced by the United States” and falls under the exclusive jurisdiction of the CIT or can be properly heard in federal district court. A prior decision of the Ninth Circuit, Universal Fruits, had held that when the U.S. commences an FCA action, the CIT has exclusive jurisdiction.
The question was significant because the CIT lacks the power to hear FCA suits. If district courts also lacked jurisdiction over those suits, then customs-related FCA suits would be barred completely, because there would be no place to bring them. That would frustrate the intent of Congress, which enacted provisions of the FCA specifically to enable customs-related suits.
Ninth Circuit Holds District Courts Have Jurisdiction Over Whistleblower-Initiated Customs Fraud Actions
In Island Industries, the Ninth Circuit rejected Sigma’s jurisdictional challenge and confirmed that 28 U.S.C. § 1582(3) does not strip district courts of jurisdiction over whistleblower‑initiated FCA suits. According to the Ninth Circuit, because the case was not one “commenced by the United States,” the CIT’s exclusive jurisdiction under 28 U.S.C. § 1582 is inapplicable.
Citing Supreme Court precedent, the panel emphasized that FCA qui tam cases— those filed by private whistleblowers—are not converted into government-commenced suits simply because the U.S. has the option to intervene after the relator files the case. Thus, district courts are proper venues for relator-initiated customs fraud FCA actions.
Overlapping Remedies Are Not Prohibited
Sigma also argued that because § 1592 provides an administrative remedy for customs fraud, it bars whistleblowers from filing FCA claims in federal district courts. The Ninth Circuit disagreed, stating that § Section 1592 and the FCA can coexist—they are “complementary,” and that Congress intended the FCA to encompass customs duty fraud.
According to the Ninth Circuit, §1592 does not “displace” the FCA, nor does it prohibit whistleblower suits. The court emphasized that overlapping statutes must be read to give both effect when feasible—and no clear congressional intent exists to override the FCA.
Noteworthy Implications for Whistleblowers and Trade Policy
Island Industries has now affirmed that qui tam relators may pursue customs‐duty fraud in federal district courts. However, Island Industries did not overturn prior Ninth Circuit precedent that if the U.S. initiates an FCA suit based on customs fraud, the CIT has exclusive jurisdiction over the case and the U.S. must file the case there.
Island Industries ended two years of uncertainty about whether whistleblowers could file FCA cases alleging customs fraud in the Ninth Circuit, which includes the entirety of the West Coast. Because most freight originating from many of the U.S.’s largest trading partners arrives at West Coast ports, that uncertainty likely discouraged many whistleblowers from filing lawsuits in the courts best suited to hear them. The uncertainty may have also impeded the enforcement of U.S. trade policies, including tariffs, which have been a priority for the Trump Administration.
Whistleblowers serve a critical role in tariff enforcement by bringing hard-to-detect fraud to the government’s attention. By confirming that whistleblowers may file customs-related FCA suits, Island Industries ensures that the U.S. may continue to rely on the assistance of whistleblowers in securing the payment of tariffs and customs duties. In fact, because the FCA provides for enhanced recovery of tariffs and customs duties—up to three times the amount improperly avoided—FCA whistleblower suits in district courts are a far more effective enforcement tool than government-initiated lawsuits in the CIT under § 1592.
The ruling heads off a potential jurisdictional catch-22 that could have eliminated customs-related qui tam suits altogether. Importers are now clearly on notice: If you dodge antidumping duties with false customs filings, you can be sued in district court by private whistleblowers.
Whistleblower attorneys for customs fraud cases
Before you decide whether to file a qui tam lawsuit, it is important to talk to an experienced whistleblower attorney about the risks and benefits of pursuing a case. When choosing a whistleblower lawyer, consider Phillips & Cohen, which has represented whistleblowers in qui tam cases and other government whistleblower reward programs for more than 30 years. We are the most successful whistleblower law firm, with more than $13 billion in recoveries from our cases, and we have extensive expertise in customs, duties, and tariff-related FCA suits. Contact Phillips & Cohen for a free, confidential review of your matter.
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