Jay-Arr Slimwear Inc. v. US

• Citation: 681 F. Supp. 875
• Decision Date: 18 February 1988
• Docket Number: Court No. 85-01-00003.
• Parties: JAY-ARR SLIMWEAR INC., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. Court of International Trade

681 F. Supp. 875

JAY-ARR SLIMWEAR INC., Plaintiff, v. UNITED STATES of America, Defendant.

Court No. 85-01-00003.

United States Court of International Trade.

February 18, 1988.

Soller, Singer & Horn, Raymond F. Sullivan, Jr., New York City, for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, U.S. Dept. of Justice, Kenneth N. Wolf, New York City, for defendant.

MEMORANDUM OPINION AND ORDER

TSOUCALAS, Judge:

This matter is before the Court, after trial, to determine whether certain payments representing commissions and consular fees were properly considered dutiable in the appraisement of the imported merchandise; and whether the imported merchandise consisting of brassieres with a lace edging, were properly classified as ornamented garments.

BACKGROUND

At trial plaintiff produced two witnesses, the first of whom was Mr. Jack Rosenbaum, the president of Jay-Arr Slimwear. According to his testimony, plaintiff shipped precut fabric and accessories to Caribbean Contractors in Haiti to be assembled into the subject brassieres. Trial Transcript at 7-8 (hereinafter "Tr. at ___"). Plaintiff's other witness was Mr. Alain Turnier, the principal of Caribbean Contractors. Over fifteen years ago the two men established a business relationship, wherein Mr. Turnier's company would assemble plaintiff's goods. For each order shipped to Haiti, the two negotiated a price for assembly. Tr. at 8, 67.

In addition, Mr. Turnier agreed to act as plaintiff's representative in Haiti, for which he was compensated. As part of these special services rendered to plaintiff, Turnier secured enough quota for plaintiff's goods. Tr. at 13-15, 48. Turnier applied for quota (on behalf of Caribbean Contractors), which he distributed to his customers. Tr. at 76. Although Turnier did not have to pay for the quota directly, he had access to the quota allocation, Tr. at 15, 76, and was reimbursed for the "indirect" costs he incurred for this function. Tr. at 77. Turnier was also to expedite the release of plaintiff's goods from Haitian Customs and eliminate any interference in the import and re-export of plaintiff's goods from Haiti, such as minimizing the amount of time the plant was closed for a "work off";¹ controlling stealing; and arranging for pick up of the merchandise upon importation. Tr. at 15, 48, 78. Mr. Turnier achieved these results by "speaking with the right people" in Haiti. The two witnesses testified that as a result of Mr. Turnier's previous experience as a commercial counsel at the Haitian Embassy in Washington, as Commerce and Finance Minister in Haiti, and as a well known business man in Haiti, he was able to exert influence in order to ease the way for the assembly of plaintiff's goods. Tr. at 11-13, 48-50, 66. Mr. Turnier was not given explicit instructions by plaintiff, but was advised of any problem and obtained the assistance of people in Haiti to avoid delays in the production of plaintiff's goods. Tr. at 49, 51.

The amounts to be paid Turnier were negotiated between he and Mr. Rosenbaum on a style by style basis, but equalled approximately one-third the cost of assembly. Tr. at 12, 20-21, 75. Plaintiff generated pro forma invoices representing these commissions; apparently separate from those invoices reflecting the transactions for the assembly, Tr. at 16-18, 20; and plaintiff issued checks to Mr. Turnier distinct from those issued to Caribbean Contractors. Tr. at 52-53. However, Turnier endorsed some of these payments over to Caribbean Contractors. See Plaintiff's Exhibits 2 and 3; Defendant's Exhibit A. Turnier explained that these were loans to his company to meet expenses. Tr. at 94.

As to the payment of consular fees, the Haitian government assesses this charge on goods entered for assembly, based on the value of the materials. The payment of these fees is a precondition to the release of the goods. Tr. at 101. Mr. Rosenbaum stated that plaintiff did not pay the consular fees, rather Caribbean Contractors made the payments, and would be reimbursed by plaintiff upon receipt of the invoices and consular receipts. Tr. at 42-44. However, there were instances where these charges were paid directly by plaintiff, Tr. at 100, and Mr. Turnier was of the opinion that payment was ultimately plaintiff's responsibility. Tr. 55-57, 80.

Finally, there was evidence adduced pertaining to one style of the imported brassieres, which was considered by Customs to be ornamented. This garment, represented by Plaintiff's Exhibit 7, has a strip of tiny scalloped lace, approximately three-eighths of an inch wide, trimming the top of the cup to cover the raw edge of rubber. Less than one-eighth of an inch of lace extends out from the edge of the cup. Some material was necessary to cover that edge and it was the designer's choice to use this fabric. Tr. at 24-25. Mr. Rosenbaum testified that the marketability of this style was not affected by the lace. Tr. at 26-28. Although of the opinion that in the industry, the lace would not be considered to have a decorative effect, Mr. Rosenbaum stated that the scalloping did serve a decorative purpose. Tr. at 28-29, 58.

DISCUSSION

The merchandise was appraised on the basis of transaction value under § 402 of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a (1982)). 19 U.S.C. § 1401a(b) provides:

(1) The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to —

(A) the packing costs incurred by the buyer with respect to the imported merchandise (B) any selling commission incurred by the buyer with respect to the imported merchandise;

(C) the value, apportioned as appropriate, of any assist;

(D) any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and

(E) the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.

* * * * * *

(4)(A) the term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

The amounts enumerated in subsection (b)(1) will be added to the price actually paid or payable only to the extent not already included in that price, and only if based on sufficient information. 19 U.S.C. § 1401a(b)(1).

The first issue is the dutiability of Turnier's commission. Plaintiff claims that the activities of Turnier, in exerting his influence on plaintiff's behalf in Haiti, are distinguishable from the mere assembly activities of Caribbean Contractors, Turnier's company. Defendant argues that Turnier and Caribbean Contractors are one and the same and the commissions are in fact part of the cost of the merchandise.

The nature of the services performed by the agent giving rise to the commission determines whether that cost should be included in the market value of the merchandise. A bona fide buying commission is exempt from dutiable value. Rosenthal-Netter, Inc. v. United States, 12 CIT ___, ___, 679 F.Supp. 21, 26 (1988) (citing United States v. Nelson Bead Co., 42 CCPA 175, 183, C.A.D. 590 (1955); J.C. Penney Purchasing Corp. et al. v. United States, 80 Cust.Ct. 84, 95, C.D. 4741, 451 F.Supp. 973, 982 (1978)). In comparison, selling commissions are included within the dutiable value. 19 U.S.C. § 1401a(b)(1)(B); Dorf Int'l, Inc., et al. v. United States, 61 Cust.Ct. 604, 611, A.R.D. 245, 291 F.Supp. 690, 695 (1968). The distinction is whether the expense is associated with selling or producing the merchandise, rather than some ministerial function in procuring the goods. See Norco Sales Co. v. United States, 65 Cust.Ct. 778, 782, R.D. 11732 (1970).

In assessing whether Turnier's commission should be included in the appraised value of the merchandise, the initial inquiry must focus on whether this fee was a bona fide buying commission. Plaintiff bears the burden of proof in establishing that this relationship was a bona fide buying agency and must demonstrate the non-dutiable nature of the commission. B & W Wholesale Co. v. United States, 58 CCPA 92, 97, C.A.D. 1010, 436 F.2d 1399, 1403 (1971); Rosenthal-Netter, 12 CIT at ___, New Trends Inc. v. United States, 10 CIT ___, ___, 645 F.Supp. 957, 960 (1986).

Examples of services which are characteristic of those rendered by a bona fide agent include: compiling market information, gathering samples, translating, placing orders based on the buyer's instructions, procuring the merchandise, assisting in factory negotiation, inspecting and packing the goods, and arranging for shipment and payment. Bushnell Int'l, Inc. v. United States, 60 CCPA 157, C.A.D. 1104, 477 F.2d 1402 (1973); United States v. Nelson Bead Co., 42 CCPA 175, C.A.D. 590 (1955); J.C. Penney Purchasing Corp. et al. v. United States, 80 Cust.Ct. 84, C.D. 4741, 451 F.Supp. 973 (1978); United States v. Knit Wits (Wiley) et al., 62 Cust.Ct. 1008, A.R.D. 251 (1969); Carolina Mfg. Co. v. United States, 62 Cust.Ct. 850, R.D. 11640 (1969).

Regardless of how the parties characterize the relationship, whether a bona fide agency exists is to be determined by examining the actual transaction. Shalom Baby Wear, Inc. v. United States, 62 Cust.Ct. 856, 864, R.D. 11641 (1969). Since the agent must represent the buyer only, Nelson Bead, 42 CCPA at 176, the agent's relationship with the seller or manufacturer is a critical factor to consider in...