Command Communications v. Fritz Cos., No. 00CA1209.

• Citation: 36 P.3d 182
• Decision Date: 27 September 2001
• Docket Number: No. 00CA1209.
• Parties: COMMAND COMMUNICATIONS, INC., Plaintiff-Appellee and Cross-Appellant, v. FRITZ COMPANIES, INC., Defendant-Appellant and Cross-Appellee.
• Court: Court of Appeals of Colorado

36 P.3d 182

COMMAND COMMUNICATIONS, INC., Plaintiff-Appellee and Cross-Appellant, v. FRITZ COMPANIES, INC., Defendant-Appellant and Cross-Appellee.

No. 00CA1209.

Colorado Court of Appeals, Div. II.

September 27, 2001.

James A. Reed, P.C., James A. Reed, Colorado Springs, CO; Simons & Wiskin, Jerry P. Wiskin, New York, NY, for Plaintiff-Appellee and Cross-Appellant.

Daniel Stageman, P.C., Daniel B. Stageman; Law Offices of Randy Allen, Randy G. Allen, Colorado Springs, CO, for Defendant-Appellant and Cross-Appellee.

Opinion by Judge CASEBOLT.

In this action concerning the duties customs brokers owe to importers of foreign goods, defendant, Fritz Companies, Inc., appeals the judgment in favor of plaintiff, Command Communications, Inc., on plaintiff's claim for breach of fiduciary duty. Plaintiff cross-appeals the damage award and the judgment in favor of defendant on plaintiff's claims for negligence and breach of contract. We affirm in part, reverse in part, and remand.

Plaintiff imports a product known as a "fax switch" from Asia into the United States at the port of Denver. The switch allows the receipt of both voice and facsimile transmissions on the same telephone line and thus avoids the necessity of employing separate dedicated lines for each.

The United States Customs Service promulgates a harmonized tariff schedule that contains classification listings for over fifty thousand imported goods, including goods such as those that plaintiff imports. Although the Customs Service strives for uniformity in the application of the schedule, the directors of different ports of entry may classify similar goods differently. In part because of the complexity of this scheme, importers typically hire customs brokers to prepare documents for importation of the product, to assist in coordinating with various regulatory agencies and in classifying goods, and to collect and remit tariffs to the Customs Service.

An importer must use the classification dictated by the receiving port's Customs director, unless the importer protests the director's decision or requests a "binding ruling" from Customs headquarters. When the Customs Service issues such a binding ruling, the Customs Service is bound by that decision on that specific product at all ports, but the ruling does not control the classification of other, similar products. Nevertheless, importers and brokers may use binding rulings as persuasive authority in protests and requests for rulings filed with respect to similar products.

In a given year, there may be thousands of binding rulings. The Customs Service publishes a selected portion of the binding rulings in its weekly Customs Bulletin and allows other rulings to be published in the form of books and computer disks. None of these sources publishes all of the rulings every year, and before 1996 when the Customs Service established its official web site on the internet, there was no central database or compendium of such rulings.

If an importer or broker does not request a binding ruling, the broker typically interviews the importer and reviews the tariff schedule to see whether the product fits unambiguously into one of its classifications. A broker may research the classification given to similar products and then recommend a classification for a product. The Customs Service makes the final classification at the port of entry for the product.

The Customs Service occasionally changes its position about the classification of a particular product or type of product. Accordingly, even when the classification of a particular product has been ruled upon by the Customs Service in a protest, periodic review of binding rulings that are issued for similar products may yield a decision that is helpful to an importer wishing again to challenge the classification of its product.

In 1989, plaintiff hired defendant as its customs broker. Subsequently, plaintiff began importing its fax switch into the port of Denver. The Customs Service approved a classification of plaintiff's product as "other telephonic switching apparatus," for which a tariff rate of 8.5% was imposed.

In 1991, plaintiff protested this classification with some assistance from counsel, arguing that its fax switch was more appropriately classified under a "telegraphic" designation, which was subject to a lower tariff. The Customs Service denied plaintiff's protest.

Plaintiff did not appeal the denial or seek a binding ruling. Plaintiff also told defendant it would not require its assistance to pursue the protest and did not ask defendant to take any action on its behalf. Subsequently, however, in 1993 and 1994, other competitors obtained binding rulings classifying similar devices as "other telegraphic switching apparatus" with a tariff of 4.7%. These binding rulings were published in Customs Rulings Packets, but not in the Customs Bulletin, the official weekly publication of the Customs Service.

Defendant did not research the body of binding rulings and thus did not learn of these classifications. It continued to classify plaintiff's product at the higher rate and collected and remitted tariffs based on the telephonic classification.

After plaintiff learned that similar goods had been classified as "telegraphic," it initiated a protest through counsel, obtained a reclassification for its own switches, and then brought this action against defendant. Alleging that defendant had a duty to research and be aware of analogous rulings on similar products that might be used to persuade the Customs Service to change its fax switch classification, plaintiff sought to recover the difference in tariffs between the higher rate and the lower rate from the time the "telegraphic" rulings were published until the classification for its own product was changed.

After a bench trial, the court found in favor of plaintiff on its claim for breach of fiduciary duty, but did not impose the duty plaintiff asserted. Instead, it concluded that defendant should have advised plaintiff to seek a binding Customs ruling or should have done so itself, and it awarded damages of $88,608. However, concluding that there was insufficient evidence to support the existence of a specific contractual promise or warranty, the court found for defendant on the claims for breach of contract and breach of warranty. Determining that defendant owed no duty to plaintiff gratuitously to research and find the rulings reclassifying similar goods, it also found for defendant on plaintiff's negligence claim. This appeal and cross-appeal followed.

I.

Defendant contends the trial court erroneously concluded that it had a fiduciary duty to advise plaintiff to seek a binding ruling from the Customs Service concerning its fax switches. We agree.

Before there can be a breach of a fiduciary duty, a fiduciary relationship or a confidential relationship must exist. A fiduciary duty arises between parties through a relationship of trust, confidence, and reliance. Turkey Creek, LLC v. Rosania, 953 P.2d 1306 (Colo.App.1998).

An agency relationship creates a fiduciary relationship. City & County of Denver v. Fey Concert Co., 960 P.2d 657 (Colo.1998); Stortroen v. Beneficial Finance Co., 736 P.2d 391 (Colo.1987); Cole v. Jennings, 847 P.2d 200 (Colo.App.1992). Customs brokers act as agents for importers and therefore act in a fiduciary capacity. See United States v. Yip, 930 F.2d 142 (2d Cir. 1991)

; American Customs Brokers Co. v. United States Customs Service, 10 C.I.T. 385, 637 F.Supp. 218 (1986) (customs broker enters goods into the United States as importer's agent).

The court determines as a matter of law the nature and scope of the duty owed by a fiduciary. Turkey Creek, LLC v. Rosania, supra; DeBose v. Bear Valley Church of Christ,

890 P.2d 214 (Colo.App.1994),

rev'd on other grounds,

928 P.2d 1315 (Colo.1996); see also, e.g., Van Schaack Holdings, Ltd. v. Van Schaack, 867 P.2d 892 (Colo.1994)(court defines fiduciary duty of officer of close corporation selling stock to minority shareholder); Lacy v. Rotating Productions Systems, Inc., 961 P.2d 1144 (Colo.App.1998)(fiduciary duty of officer to corporation can include duty to assign patent rights). The fact finder decides whether there has been a breach of any fiduciary duty defined by the court. DeBose v. Bear Valley Church of Christ, supra.

In determining the scope of a fiduciary duty, a court may consider statutes, regulations, or customs that have been adopted for the protection of customers. See Rupert v. Clayton Brokerage Co., 737 P.2d 1106 (Colo.1987)

; see also United Blood Services v. Quintana, 827 P.2d 509 (Colo.1992)(source of legal duty may be a legislative enactment).

Here, the trial court concluded that defendant was on notice that plaintiff was dissatisfied with the classification of its fax switch and that defendant had promised to handle plaintiff's importing business properly. It concluded that defendant should have advised plaintiff to seek a binding ruling or should have done so itself, in an effort to obtain a lower tariff for the fax switches, noting that a similar product had been classified as "telegraphic." Although not explicitly stated, it appears that the trial court found the duty to arise as of July 1991.

It is undisputed that defendant owed plaintiff a fiduciary duty as plaintiff's agent. To that extent, we agree with the trial court. However, we disagree that the scope of such duty included advising plaintiff to seek a binding ruling or doing so itself. We so conclude for a number of reasons.

First, the court presumed that plaintiff would have obtained a binding ruling had it been advised to do so. However, the undisputed evidence established that plaintiff declined to appeal the denial of its 1991 protest, after being informed of such an available avenue by counsel, apparently because of cost factors and because of its belief that it would not prevail. Indeed, we note that another binding ruling issued in the...