Midwest-CBK, LLC v. United States
| Decision Date | 20 May 2022 |
| Docket Number | Slip Op. 22-51,Consol. Court No. 17-00154 |
| Parties | MIDWEST-CBK, LLC, Plaintiff, v. UNITED STATES, Defendant. |
| Court | U.S. Court of International Trade |
John M. Peterson and Patrick B. Klein, Neville Peterson, LLP, of New York, N.Y., argued for Plaintiff Midwest-CBK, LLC. With them on the reply brief was Richard F. O'Neill.
Monica P. Triana and Brandon A. Kennedy, Trial Attorneys, International Trade Field Office, U.S. Department of Justice, of New York, N.Y., argued for Defendant. With them on the brief were Brian M. Boynton, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Justin R. Miller, Attorney-in-Charge, International Trade Field Office. Of counsel on the brief was Mathias Rabinovitch, Office of Assistant Chief Counsel for International Trade Litigation, U.S. Customs and Border Protection. With them on the reply brief was Patricia M. McCarthy, Director.
Plaintiff Midwest-CBK, LLC ("Plaintiff") is a Minnesota-based retailer and wholesaler of Christmas ornaments, nutcrackers, wood carvings, and similar decorative articles that are manufactured in China. Plaintiff commenced this action to contest the denial by U.S. Customs and Border Protection ("Customs") of Plaintiff's protest against liquidation and reliquidation of subject merchandise imported into the United States. Compl. at 1, ECF No. 8. Plaintiff contends that Customs appraised its merchandise improperly on the basis of transaction value because Plaintiff's sales to customers were not "for exportation to the United States" under 19 U.S.C. § 1401a(b)(1), erred in its calculation during liquidation, and failed to liquidate certain entries that should have been deemed liquidated by operation of law. Id. at 7–12.
At the request of the Parties, this case was bifurcated into two phases. Order (May 10, 2021) ("Bifurcation Order"), ECF No. 52. Phase One is limited to the questions: (1) whether Plaintiff's import transactions reflect a sale "for exportation to the United States" and (2) whether the subject entries became deemed liquidated by operation of law. Id. at 1. Whether a sale is "for exportation to the United States" is a threshold question for determining the appropriate method of valuation. See 19 U.S.C. § 1401a. Phase Two will encompass all remaining issues, including the determination of the proper method of valuing the subject merchandise and whether Customs’ calculation of the transaction value during liquidation was correct. Bifurcation Order at 1.
Plaintiff filed a Motion for Partial Summary Judgment arguing that its subject merchandise cannot be appraised on the basis of transaction value because Plaintiff's sales to customers within the United States were not "sales for exportation to the United States." See Pl.’s Mot. Partial Summ. J. ("Plaintiff's Motion" or "Pl.’s Mot."), ECF No. 56; Pl.’s Mem. P. & A. Supp. Mot. Partial Summ. J. ("Plaintiff's Brief" or "Pl.’s Br."), ECF No. 56-1. Defendant United States ("Defendant") filed a Cross-Motion for Partial Summary Judgment arguing that Plaintiff's sales were "for exportation to the United States" under 19 U.S.C. § 1401a(b)(1), that transaction value is the proper basis of appraisal for the subject merchandise, and that the subject entries should not have been deemed liquidated by operation of law. See Def.’s Cross-Mot. Partial Summ. J. ("Defendant's Cross-Motion" or "Def.’s Cross-Mot."), ECF No. 61; Def.’s Mem. Opp'n Pl.’s Mot. Partial Summ. J. and Supp. Def.’s Cross-Mot. Partial Summ. J. ("Defendant's Brief" or "Def.’s Br."), ECF No. 61.
The Court concludes that under Phase One of the bifurcated action, Plaintiff's sales of the subject merchandise were sales "for exportation to the United States" and the subject entries should not have been deemed liquidated by operation of law. The proper method of valuing the subject merchandise is not a question within the scope of Phase One of this action. Accordingly, the Court denies Plaintiff's Motion for Partial Summary Judgment and grants Defendant's Cross-Motion for Partial Summary Judgment.
The Parties have submitted separate statements of undisputed material facts. See Pl.’s Statement of Material Facts Not in Dispute ("Pl.’s SMF"), ECF No. 56-2; Def.’s Statement of Undisputed Material Facts ("Def.’s SMF"), ECF No. 61-1; Def.’s Resp. Pl.’s Statement of Material Facts ("Def.’s Resp."), ECF No. 61-2; Pl.’s Resp. Def.’s Statement of Material Facts ("Pl.’s Resp."), ECF No. 64-1.
The following facts are not in dispute:
Plaintiff is a Delaware limited liability company. Pl.’s SMF ¶ 1 at 1; Def.’s Resp. at 1. Plaintiff was founded as Midwest of Cannon Falls, Inc. in 1953 as a wholesaler of seasonal items. Pl.’s SMF ¶ 2 at 1; Def.’s SMF ¶ 1 at 1; Def.’s Resp. at 1–2; Pl.’s Resp. at 1. Midwest of Cannon Falls, Inc. maintained its headquarters and warehouse facility in Cannon Falls, Minnesota. Def.’s SMF ¶ 2 at 1; Pl.’s Resp. at 1. Merchandise was imported from foreign suppliers and sold to customers in the United States through a catalogue and staff of sales representatives. Pl.’s SMF ¶ 3 at 1–2; Def.’s SMF ¶¶ 3–4 at 1–2; Def.’s Resp. at 2; Pl.’s Resp. at 1.
In 2009, Midwest of Cannon Falls, Inc. was acquired by Blyth, Inc. and merged with CBK Holdings Group, forming Midwest-CBK, Inc. Pl.’s SMF ¶ 4 at 2; Def.’s Resp. at 2. Midwest-CBK, Inc. maintained its headquarters, operations, and sales offices in Cannon Falls, Minnesota and relocated its warehouse and inventory to Union City, Tennessee. Pl.’s SMF ¶ 4 at 2; Def.’s Resp. at 2. In December 2012, the assets of Midwest-CBK, Inc. were acquired by the Ganz family, a group of Canadian investors. Pl.’s SMF ¶ 6 at 2; Def.’s SMF ¶ 7 at 2; Def.’s Resp. at 2–3; Pl.’s Resp. at 2. The assets of Midwest-CBK, Inc. were transferred to Plaintiff Midwest-CBK, LLC. Pl.’s SMF ¶ 6 at 2; Def.’s SMF ¶ 8 at 2; Def.’s Resp. at 2–3; Pl.’s Resp. at 2.
Following its acquisition by the Ganz family, Plaintiff maintained its corporate office in Cannon Falls, Minnesota, which housed the product development, supply chain, procurement, purchasing, compliance, financial analysis, planning, accounting, and sales management departments. Def.’s SMF ¶ 13 at 3; Pl.’s Resp. at 3. Plaintiff relocated its inventory, distribution, warehousing, invoicing, and order control departments to Ontario, Canada, where it leased a warehouse, storage space, and a two-story office building from other entities controlled by the Ganz family. Def.’s SMF ¶¶ 14–18 at 3–4; Pl.’s Resp. at 3–4. Plaintiff also operated a data center and showroom in Ganz-owned properties in Ontario, Canada. Def.’s SMF ¶¶ 23–25 at 5; Pl.’s Resp. at 5. Approximately twenty-two employees worked in the Ontario, Canada facility in the order processing, inventory control, customer service, key accounts, information technology, and customer accounts departments. Def.’s SMF ¶ 19 at 4; Pl.’s Resp. at 4. Plaintiff opened Canadian bank accounts for payroll, rent, and other expenses associated with its Canadian operations. Pl.’s SMF ¶ 8 at 3; Def.’s Resp. at 3.
Plaintiff's business model involved purchasing merchandise from foreign suppliers for exportation to Canada. Pl.’s SMF ¶ 11 at 3; Def.’s SMF ¶ 27 at 5; Def.’s Resp. at 4; Pl.’s Resp. at 6. Merchandise was imported into Canada at the Port of Vancouver, British Columbia and transported to Plaintiff's Ontario, Canada warehouse. Pl.’s SMF ¶ 11 at 3; Def.’s SMF ¶ 27 at 5; Def.’s Resp. at 4; Pl.’s Resp. at 6. Plaintiff employed a United States sales staff to solicit orders from customers within assigned geographic territories. Pl.’s SMF ¶ 14 at 4; Def.’s SMF ¶ 30 at 6; Def.’s Resp. at 5; Pl.’s Resp. at 6. Sales representatives accepted orders using electronic devices loaded with two point-of-sale software systems, Enum and WhereOWare. Def.’s SMF ¶¶ 31–32 at 6; Pl.’s Resp. at 7. When a completed order was accepted into either system, it was made available to Plaintiff's personnel in Cannon Falls, Minnesota and Ontario, Canada. Def.’s SMF ¶ 33 at 6; Pl.’s Resp. at 7. Purchase orders provided to customers included the language: "All prices [Free on Board ("FOB")] Buffalo, New York as defined by the New York State Uniform Commercial Code." Def.’s SMF ¶¶ 36–38 at 7; Def.’s Resp. at 7–8.
Purchase orders were usually first accessed and reviewed by Plaintiff's Order Processing Department in Canada. Def.’s SMF ¶ 35 at 7; Pl.’s Resp. at 7; see also Pl.’s Mot. Partial Summ. J., Ex. B ("Pl.’s Basis of Appraisement Letter") at 4, ECF No. 56-3. Employees at the Canadian facility confirmed the availability of merchandise located in Canada in an inventory control system, collected merchandise from the Canadian warehouse, packaged merchandise for shipment, attached waybills for customers’ designated domestic carriers, and loaded shipments onto trucks for transport to the United States. Pl.’s SMF ¶¶ 18, 20–22, 24 at 5, 6; Def.’s SMF ¶¶ 41, 43–51 at 7–8; Def.’s Resp. at 6–7; Pl.’s Resp. at 8–10.
Plaintiff engaged a third-party overland truck carrier to transport merchandise from its facility in Ontario, Canada to Buffalo, New York. Pl.’s SMF ¶¶ 23, 25 at 5, 6; Def.’s Resp. at 7. Plaintiff acted as the importer of record for the merchandise and was responsible for all duties. Pl.’s SMF ¶ 26 at 6; Def.’s SMF ¶ 59 at 10; Def.’s Resp. at 7; Pl.’s Resp. at 11. Upon arrival in Buffalo, New York, merchandise was delivered to domestic carriers designated by Plaintiff's customers or to a facility rented by Plaintiff from United Parcels Service ("UPS"). Pl.’s SMF ¶ 27 at 6; Def.’s Resp. at 7–8. UPS employees deconsolidated shipping boxes, scanned shipping labels, and shipped merchandise to Plaintiff's United States customers. Def.’s SMF ¶¶ 60–61 at 10–11; Pl.’s Resp. at 12.
Invoices were prepared in Ontario, Canada and couriered to Buffalo, New York for mailing. Def.’s SMF ¶¶ 63–65, 67 at 11; Pl.’s Resp. at 12, 13. Customers were directed to remit physical payments to a post office box in...
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