JC Penney Purchasing Corp. v. US

• Citation: 451 F. Supp. 973
• Decision Date: 08 May 1978
• Docket Number: Court No. R67/3007,C.D. 4741
• Parties: J. C. PENNEY PURCHASING CORPORATION et al. v. UNITED STATES.
• Court: U.S. Court of Customs and Patent Appeals (CCPA)

451 F. Supp. 973

J. C. PENNEY PURCHASING CORPORATION et al. v. UNITED STATES.

C.D. 4741, Court Nos. R67/3007, etc.

United States Customs Court.

May 8, 1978.

COPYRIGHT MATERIAL OMITTED

John B. Pellegrini and Joseph R. Krajci, New York City, for plaintiffs.

Barbara Allen Babcock, Asst. Atty. Gen., Washington, D. C. (Saul Davis, New York City, trial atty.), for defendant.

MALETZ, Judge:

These 58 consolidated appeals for reappraisement involve the proper dutiable value of various merchandise imported from Hong Kong and Japan during the period 1965 through 1970. The merchandise was entered at the ports of Seattle, San Francisco, Los Angeles, and Norfolk by J. C. Penney Company, Inc. (hereinafter Penney) or J. C. Penney Purchasing Corporation¹ (hereinafter Purchasing). The basis of appraisement is not in issue since it is agreed that export value as defined in section 402(b) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956 (19 U.S.C. 1401a), is the proper basis for appraisement. The parties also agree that each of the appraisements is separable and plaintiffs rely upon the presumption of correctness as to all elements of value except the alleged buying commissions.² Thus, the parties agree that the sole issue presented is whether certain charges listed on the invoices encompassed by the entry papers as "buying commissions" or "handling commissions" are properly included as part of the dutiable export value of the imported merchandise. Stated otherwise, the sole issue is whether a Japanese company, known as the Sanyei Corporation (hereinafter referred to as Sanyei), was a bona fide buying agent of Purchasing and whether the amounts paid to it by Purchasing were buying commissions.

The Statute

Section 402(b) of the Tariff Act of 1930, as amended (19 U.S.C. 1401(a), reads as follows:

(b) Export Value.—For the purposes of this section, the export value of imported merchandise shall be the price, at the time of exportation to the United States of the merchandise undergoing appraisement, at which such or similar merchandise is freely sold or, in the absence of sales, offered for sale in the principal markets of the country of exportation, in the usual wholesale quantities and in the ordinary course of trade, for exportation to the United States, plus, when not included in such price, the cost of all containers and coverings of whatever nature and all other expenses incidental to placing the merchandise in condition, packed ready for shipment to the United States.

The Record

We consider first the record which consists of the testimony of three witnesses on behalf of the plaintiffs³ and five exhibits also introduced by plaintiffs. Defendant presented no witnesses but introduced five exhibits. The official papers were received in evidence as unmarked exhibits.

In the circumstances of the present case, the record is best understood by summarizing the testimony of the witnesses.

Testimony of Robert Boulogne

Plaintiffs' first witness, Robert Boulogne, testified that from the latter part of 1964 through mid-1968 he was the manager of Penney's Far East buying operations, which operations had offices in Osaka, Tokyo and Hong Kong. He stated that in this capacity he was responsible for furnishing market information to Penney's central buyers and for providing full buying services and assistance in connection with Penney's purchases in the Far East.

Continuing, Mr. Boulogne testified to the following effect:

Purchasing was a wholly owned subsidiary of Penney and was established for the primary purpose of directly importing merchandise from overseas. The buyers employed by Penney purchased both domestic and imported merchandise; however, when these buyers purchased imports on a direct basis, they did so by instructing Purchasing as to what to buy, whereupon Purchasing entered into buying contracts with suppliers. As a result of this arrangement, the merchandise thus purchased was owned by Purchasing until such time as it was landed in the United States when Purchasing then sold it to Penney and title passed from Purchasing to Penney. Purchasing did not make a profit on its sales to Penney and therefore Penney paid the amount shown on the invoice.

Purchasing had a staff in the Far East which, in addition to Mr. Boulogne, consisted of approximately 12 people in Osaka, seven or eight people in Tokyo, and three to five people in Hong Kong. These employees were known as market representatives, and each of them was assigned a commodity and a territory. The market representatives were foreign nationals who could speak English and act as translators for buyers. As a further part of their duties, they handled correspondence for the merchandise within their respective areas of responsibility; conducted inspections in order to ensure that merchandise conformed to specifications; and researched the market in an attempt to discover which products in their respective areas were suitable for Penney's buyers. In fact, if a Penney buyer wanted to purchase directly from a manufacturer, it was done through Purchasing's market representatives.

Although Purchasing performed the same functions as a buying agent, its staff and facilities were not adequate to cope with the large volume of business Penney conducted in the Far Eastern area. Thus, in order to provide the necessary buying services in that marketplace for "sundry" merchandise such as that involved here (i. e., merchandise comprised of small items manufactured, in some instances, by small, difficult to reach factories), Purchasing would have needed a staff of 150 people and would have had to expand its facilities. Purchasing, however, desired to maintain flexibility in its Far Eastern operations, and to that end it did not expand but rather chose to keep its staff small and its overhead low. In light of this policy, Purchasing needed a buying agent to handle its volume and therefore entered into agency agreements with Sanyei to provide the necessary buying services, particularly for "sundry" merchandise, in Tokyo, Osaka, and Nagoya, Japan, as well as in Hong Kong. In this connection, one large manufacturer of sundry merchandise attempted to sell Penney on a direct basis, but Penney chose not to do so because it felt it didn't have the personnel and facilities to perform the services Sanyei provided.

The first "Agency Agreement" between Purchasing and Sanyei was dated June 26, 1963 and was entered into by Purchasing and Sanyei's Hong Kong office, while the second, dated July 6, 1964, was entered into by Purchasing and Sanyei's Tokyo office. The language of the two agreements was identical and the agreements in their entirety provided as follows:

This is to confirm our arrangements made with you whereby you agreed to purchase merchandise for our account, as specified in our orders and contracts forwarded &/or to be forwarded to you. Upon receipt of our orders and contracts you will purchase merchandise for our account for which service we will pay you varying percentages of buying commission depending on the merchandise bought and the maximum commission will be 5%. If purchased from vendors who usually quote on an "ex-factory" basis the commission will be based on the "ex-factory" price—or if purchased from vendors who usually quote on an "F.O.B." basis, the commission will be based on the "F.O.B." price. The names of the manufacturers for each items sic invoiced must also appear on the invoices.

A third "Agency Agreement," dated August 13, 1969, was entered into by Purchasing and Sanyei's Osaka office and superseded the first two agreements. This third agreement was in the form of a letter from Purchasing to Sanyei which was agreed to by Sanyei and read as follows:

This letter designates you as one of our buying agents.

This agency agreement is non-exclusive. The relationship between you and us is subject to the terms and conditions set forth below and in each of our import contracts placed with you.

1. You shall perform for us the following services:

(a) You will actively investigate buying possibilities which might be of interest to this Company both on your own initiative and as requested by us.

(b) You will purchase and forward to our Far East offices or our United States buyers samples of merchandise as requested by our Far East offices or our United States buyers.

(c) We will send you import contracts for merchandise we desire to purchase. You will purchase the merchandise described in the contract at the cost as stated in the contract, and will charge to us a commission equal to the percentage of the rate stated in the contract. You will purchase the merchandise described in the contract from the supplier designated in the contract, and the name/s of the manufacturer/s of each item must appear on such invoice/s. You agree to indemnify and hold us harmless against and from all claims of suppliers.

(d) All merchandise purchased by us under contract with you as aforesaid shall first be inspected and approved by you before being shipped to us, and our letters of credit or other methods of payment will be subject to your approval as a condition of payment. You agree that your approval will be granted only if such merchandise (i) conforms to our specifications as set forth in the applicable contract (and all amendments thereto) and is not defective in any respect, (ii) meets the requirements of all U.S. Government laws and regulations as specified in the applicable contract, (iii) is packaged, labeled, priced and invoiced in accordance with the instructions set forth in the applicable contract, and (iv) is packaged in a manner which will insure its safe transportation to this Company's stores or warehouses.

(e) In the case of claims of this Company resulting from defective or rejected merchandise (including, but without limitation, defects discovered after receipt and resale by J. C. Penney Company), you will reimburse us for such defective

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