New Trends, Inc. v. United States, 81-4-00465.

• Decision Date: 29 September 1986
• Docket Number: No. 81-4-00465.,81-4-00465.
• Citation: 645 F. Supp. 957,10 CIT 637
• Parties: NEW TRENDS, INC., Plaintiff, v. The UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

645 F. Supp. 957

10 CIT 637

NEW TRENDS, INC., Plaintiff, v. The UNITED STATES, Defendant.

No. 81-4-00465.

United States Court of International Trade.

September 29, 1986.

Johnson, Johnson & Johnson (Ralph Perry-Miller, Dallas, Tex., at the trial and on the brief), for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, International Trade Field Office, Commercial Litigation Branch (Judith M. Barzilay, New York City, at the trial and on the brief), for defendant.

MEMORANDUM OPINION AND ORDER

RE, Chief Judge:

The question presented in this case pertains to the proper valuation, for customs duty purposes, of certain giftware, furniture, and decorative accessories of bamboo, rattan, and other fibrous materials imported from the Philippines, Hong Kong, Japan, and Taiwan.

The Customs Service appraised the merchandise on the basis of export value, in accordance with section 402(b) of the Tariff Act of 1930, 19 U.S.C. § 1401a(b) (1976) (amended 1979).

The Tariff Act defines export value as: 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.

Tariff Act of 1930 § 402(b), 19 U.S.C. § 1401a(b) (1976) (amended 1979).

The parties agree that the export value is the proper basis for valuation. See 19 U.S.C. § 1401a(b). Plaintiff, however, contends that the export value of the merchandise improperly included bona fide buying commissions paid to its overseas agents. Defendant contends that "the alleged `agents' were actually the sellers of the merchandise, and New Trends' agency agreements were sham agreements designed to avoid the payment of duties."

The question presented is whether certain buying commissions, included by the Customs Service in determining the dutiable value of the merchandise, were bona fide commissions paid to plaintiff's agents. If the amounts were bona fide commissions, they were not a proper element of dutiable value, and should not have been included. See, e.g., United States v. Nelson Bead Co., 42 CCPA 175, 183, C.A.D. 590 (1955); Oriental Exporters, Inc. v. United States, 4 CIT 1, 3 (1982); J.C. Penney Purchasing Corp. v. United States, 80 Cust.Ct. 84, 95, C.D. 4741, 451 F.Supp. 973, 982 (1978).

After careful examination of the evidence adduced at trial, the arguments of the parties, and the relevant case law, it is the determination of the Court that plaintiff has not overcome the presumption of correctness which attaches to the government's determinations of dutiable value. See 28 U.S.C. § 2639(a)(1) (1982); Diamex Hawaii, Ltd. v. United States, 4 CIT 162, 165-66 (1982). Therefore, the valuation of the imported merchandise by the Customs Service is affirmed.

At trial, numerous exhibits were entered by the parties, and the Court heard the testimony of the plaintiff's sole witness, Mr. Robert Edward Parker, owner of New Trends, Incorporated. On direct examination, Mr. Parker testified that New Trends obtained a wide range of merchandise from approximately 300 manufacturers located throughout the Far East.

Mr. Parker asserted that New Trends had the capability to deal directly with the manufacturers. Nevertheless, he testified that New Trends employed the services of 10 overseas buying agents, who were to be paid 10 percent of the ex-factory price of the imported merchandise.

Mr. Parker testified that once a product design was conceived by New Trends, it was forwarded to an agent who located manufacturers capable of producing the desired merchandise. Mr. Parker would then travel to the Far East to examine samples of the merchandise, and would negotiate directly with the foreign manufacturers, who were frequently local villagers who worked at their homes. Mr. Parker stated that the agents lacked authority to bargain on behalf of New Trends, and that their function was limited to arranging the meetings and, at times, serving as interpreters.

After a price was agreed upon with the manufacturer, New Trends would forward a purchasing order together with a letter of credit, payable to the agent, who proceeded with the transaction with the manufacturer. Although it was "customary" to prepare the documentary transactions in the name of the agent, Mr. Parker testified that it was beyond the authority of the agent to purchase on behalf of New Trends without express instructions.

Mr. Parker further testified that it was the responsibility of the agent to prepare the merchandise for shipment, and that the agent would bear the cost of shipping preparations. He added that New Trends preserved the right to pursue claims against its agents for defective or damaged merchandise. If a claim arose, New Trends would either delay disbursement of the funds set aside for the letter of credit until the claim was settled by the agent, or New Trends would reduce the amount paid to the agent. Mr. Parker assumed that the agent was reimbursed for these claims by the manufacturer, yet, he could neither substantiate nor support this assumption with testimony or documentation. Nor could Mr. Parker substantiate that the agent actually paid the negotiated price to the manufacturer since the letters of credit were made payable to the agent.

The record discloses that an employee of New Trends, in response to a questionnaire submitted by Customs, admitted that: (1) New Trends did not specify the manufacturers or factories from which the agent was to make purchases; (2) New Trends could not purchase the merchandise directly from the manufacturer; (3) New Trends bought only F.O.B. from the buying agent; (4) New Trends did not participate in negotiations, and the agent conducted all negotiations with the factories while New Trends dealt only with the agent; (5) New Trends did not know if the manufacturers were aware that New Trends was the actual purchaser; and (6) New Trends did not know how much the agent paid the manufacturers for the merchandise.

Mr. Parker attempted to refute this document, and testified that the employee who prepared it had no authority to answer Customs' request for information. Defendant, however, introduced a letter which indicated that, at the time, the employee was the Import Manager for New Trends. Mr. Parker denied that the employee had ever held the position of Import Manager for New Trends.

Defendant introduced into evidence documentary exhibits consisting of the purported agents' letterheads, commercial invoices, and customs' invoices in which the agents designated themselves as "sellers" and "manufacturers." Mr. Parker suggested that the designation was a misnomer because these specific agents were financially incapable of functioning as selling companies. He added that it was the custom of Far Eastern business persons to characterize themselves as sellers.

Plaintiff contends that the evidence adduced at trial confirms the principal-agency relationship exhibited in the buying agency agreement. Plaintiff asserts that New Trends exerted the degree of control over its overseas agents necessary to establish an agency relationship. Plaintiff also maintains that the record establishes that the commissions paid to the agents inured solely to the benefit of New Trends and not to the manufacturers.

It is the determination of the Court that plaintiff's evidence is not sufficient to support its contention that a bona fide principal-agency relationship existed between New Trends and its overseas agents.

It is fundamental that a buying commission paid to a bona fide agent of the importer is not a proper element of dutiable value. See United States v. Nelson Bead Co., 42 CCPA 175, 183, C.A.D. 590 (1955); J.C. Penney Purchasing Corp. v. United States, 80 Cust.Ct. 84, 95, C.D. 4741, 451 F.Supp. 973, 982 (1978). The existence of a bona fide agency relationship, however, is not determined by any single factor. Whether a buying commission is bona fide depends upon the relevant facts of each case. E.g., Oriental Exporters, Inc. v. United States, 4 CIT 1, 1-3 (1982); J.C. Penney 80 Cust.Ct. at 95-102, 451 F.Supp. at 983-88.

It is not questioned that plaintiff has the burden of proof as to the existence of a bona fide agency relationship. See, e.g., B & W Wholesale Co. v. United States, 58 CCPA 92, 97, C.A.D. 1010, 436 F.2d 1399, 1403 (1971). On this important issue, it has been stated that "if the existence of an agency relationship is not clearly established, the legal relationship is not that of agency." Globemaster Midwest, Inc. v. United States, 67 Cust.Ct. 539, 545, R.D. 11758, 337 F.Supp. 465, 469 (1971). The essence of an agency relationship is the exercise of control by the principal over the conduct of the agent as to those matters entrusted to the agent's care. See Globemaster Midwest, Inc. v. United States, 67 Cust.Ct. 539, 546, R.D. 11758, 337 F.Supp. 465, 470 (1971) (citing Restatement (Second) of Agency §§ 1 comment b, 14 comment b (1958)).

Plaintiff relies upon J.C. Penney Purchasing Corp. v. United States, 80 Cust.Ct. 84, C.D. 4741, 451 F.Supp. 973 (1978), to support its contention that New Trends exhibited the requisite control over its agents to establish a bona-fide agency relationship. In the J.C. Penney case, the importer contended that the Customs Service, in determining dutiable value, improperly included commissions paid to the importer's buying agent. Defendant asserted that since the importer lacked control over the agent's actions, there was no principal-agency relationship. The court held that a...