Rosenthal-Netter, Inc. v. US

• Decision Date: 28 January 1988
• Docket Number: 83-6-00842.,No. 83-5-00678,83-5-00678
• Citation: 679 F. Supp. 21,12 CIT 77
• Parties: ROSENTHAL-NETTER, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

679 F. Supp. 21

12 CIT 77

ROSENTHAL-NETTER, INC., Plaintiff, v. UNITED STATES, Defendant.

Nos. 83-5-00678, 83-6-00842.

United States Court of International Trade.

January 28, 1988.

Murray Sklaroff, New York City, for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, International Trade Field Office, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, (Michael P. Maxwell), New York City, for defendant.

OPINION

TSOUCALAS, Judge:

These consolidated actions challenge Customs' appraisement of three entries of "rattanware." Plaintiff, importer, claimed the charges, denominated "buying commission" and "handling charges" in the appraised value, are bona fide buying commissions properly excludable from the dutiable value of the subject merchandise. Customs maintains that the entity paid the commissions and handling charges was not a bona fide agent of plaintiff but a seller of the merchandise. It is agreed that the proper basis of appraisal is export value¹ or transaction value as defined in § 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, (19 U.S.C. § 1401a(b) (1982)). Thus, the sole issue presented is whether a bona fide agency relationship existed between plaintiff and its intermediary.

Trial

At the trial of this action, two witnesses testified on behalf of plaintiff: Mr. Alvin L. Rosenthal, co-founder and former President of Rosenthal-Netter, Inc., and Mr. Wong Tai Choi (hereinafter "Mr. Wong"), founder and owner of Hongson Arts Company, the alleged buying agent in Hong Kong. Defendant produced Mr. Paul Garretto, a National Import Specialist for the United States Customs Service as an expert witness.

Mr. Rosenthal testified that he began purchasing and importing "rattanware" directly from the People's Republic of China (hereinafter "PRC") in 1974. However, Mr. Garretto contradicted plaintiff's assertions by testifying that between the years 1975 and 1978, it was not credible that anyone could buy or ship merchandise directly from the PRC without the use of an intermediary. He further stated that the banking systems were not set up for a United States buyer to purchase directly from the PRC.

The parties stipulated that Mr. Rosenthal attended the biannual Commodities Fair with Mr. Wong in Canton, China. Mr. Rosenthal added that even though he could have purchased the goods directly from the suppliers at the Fair, he chose to enter into an oral agency agreement with Hongson in 1975. This agreement was allegedly reduced to writing one year later on September 28, 1976.

Mr. Wong's duties as an agent were allegedly to obtain samples, place orders, and speak with the PRC trading companies. Mr. Wong also was to receive the subject merchandise in Hong Kong, transport it to his warehouse, unpack the goods, check the markings, check for damage, maintain quality control, consolidate the merchandise for shipping, and then ship the merchandise to plaintiff. Trial Transcript at 26-27 (hereinafter "Tr. at ___"). Mr. Wong was authorized to negotiate with the freight companies with respect to price and as to what steamship line to use. In exchange for these services, Mr. Wong received a "5% Commission" and a "10% Handling Charge."

Mr. Wong testified that he traveled to the PRC nearly every week on behalf of plaintiff and that plaintiff made the final selection as to quality, price and style. He further testified that the agency agreement required Hongson to absorb the loss on damaged merchandise. Mr. Wong added that he purchased in bulk on many occasions because he functioned as an agent for many purchasers, who bought the same merchandise as plaintiff.

Discussion

It is well settled that bona fide buying commissions are not a proper element of dutiable value. 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). Plaintiff has the burden of proving the existence of a bona fide agency relationship and that the charges paid were, in fact, bona fide buying commissions. B & W Wholesale Co. v. United States, 58 CCPA 92, 97, C.A.D. 1010, 436 F.2d 1399, 1403 (1971); New Trends, Inc. v. United States, 10 CIT ___, ___, 645 F.Supp. 957, 960 (1986); J.C. Penney, 80 Cust.Ct. at 94, 451 F.Supp. at 982. If plaintiff does not clearly establish that such a relationship existed, then the relationship is not that of agency. Globemaster Midwest, Inc. v. United States, 67 Cust.Ct. 539, 545, R.D. 11758, 337 F.Supp. 465, 470 (1971).

It is not disputed that Hongson did engage in activities indicative of an agency relationship. Mr. Wong accompanied Mr. Rosenthal to the Canton Fair. Tr. at 16. He helped plaintiff obtain samples, place orders, compare trading companies, translate, take measurements and acquire quotes on prices. These services are typical of those rendered by buying agents. 80 Cust.Ct. at 97, 451 F.Supp. at 984. However, "one may submit to a degree of control by another without being his agent...." 10 CIT at ___, 645 F.Supp. at 961 (quoting Mathews Conveyor Co. v. Palmer-Bee Co., 135 F.2d 73, 81 (6th Cir. 1943)).

Mr. Rosenthal, by attending the Fair, meeting suppliers and participating in negotiations engaged in activities which undoubtedly support an agency relationship. See J.C. Penney, 80 Cust.Ct. at 96, 451 F.Supp. at 983-84. Likewise, being able to purchase directly without the assistance of Mr. Wong also evidences an agency relationship.² Id.

However, the Court must examine all relevant factors in deciding whether a bona fide agency relationship exists. J.C. Penney, 80 Cust.Ct. at 95, 451 F.Supp. at 983. These factors include: the right of the principal to control the agent's conduct; the transaction documents; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the intermediary was operating an independent business, primarily for its own benefit; and, the existence of a buying agency agreement. Although no single factor is determinative, the primary consideration is the "right of the principal to control the agent's conduct with respect to the matters entrusted to him." Id.; accord B & W Wholesale, 58 CCPA at 95, 436 F.2d at 1402; Globemaster, 67 Cust.Ct. at 546, 337 F.Supp. at 470.

There are several aspects of Mr. Wong's conduct plaintiff failed to control. First, plaintiff did not control from which factory Hongson selected the subject merchandise. Hongson's quote sheet on its own invoice paper to plaintiff omits the name of any manufacturer. Therefore, plaintiff could not have known from which factory Hongson purchased the goods. A factor which negates the existence of an agency relationship is the lack of control over the choice of factories. See B & W Wholesale, 58 CCPA at 95, 436 F.2d at 1402; J.C. Penney, 80 Cust.Ct. at 95-96, 451 F.Supp. at 983-84. Failure to substantiate the names of manufacturers is evidence that no agency relationship existed. New Trends, 10 CIT at ___, 645 F.Supp. at 960.

Second, Hongson purchased quantities up to ten times greater than the amount ordered by plaintiff.³ The larger shipments make it apparent that the manufacturers could not have known that one-tenth of the order was purchased on behalf of Rosenthal-Netter, a factor which militates against an agency relationship. See J.C. Penney, 80 Cust.Ct. at 96, 451 F.Supp. at 983.

Third, plaintiff did not control the amount of discretion exercised by Hongson in the purchasing process. In New Trends, the court held that no agency relationship existed because the alleged agent retained a great deal of discretion and authority in the purchasing process. 10 CIT at ___, 645 F.Supp. at 960. Specifically, no instructions were given with respect to how the goods were to be handled or shipped. Id. Similarly, Hongson retained all discretion to negotiate price and to negotiate the means of transport with the freight companies. Additionally, Hongson bought in bulk, making it unlikely that plaintiff exerted control over the purchasing process. Cf. J.C. Penney, 80 Cust.Ct. at 95, 451 F.Supp. at 983 (the agent "was given no discretion in the purchase of the subject merchandise") (emphasis added).

Fourth, plaintiff allowed Hongson to absorb the cost of shipping and handling. A critical factor in New Trends, which detracted from the agency relationship was that the alleged agent absorbed the cost of shipping and handling as part of its commission. New Trends, 10 CIT at ___, 645 F.Supp. at 960. In the instant action, plaintiff claimed the "10% Handling Charge" compensated Hongson for these charges. But upon closer examination, the nature of the handling charge is extremely suspect. The government introduced into evidence three of Hongson's invoices, all of which included a breakdown of the handling charges as follows:

(1) the cost of moving the goods to the warehouse from the piers;

(2) the packing charge;

(3) the cost of moving the goods back to the pier from the warehouse;

(4) goods from warehouse loading to container;

(5) fumigation.

These costs always equalled exactly 10% of the total invoice cost of the goods. See Defendant's Exhibit A-3. According to Mr. Rosenthal, the flat 10% charge was to offset any losses Hongson might suffer from damaged or defective merchandise, as well as the cost of shipping and handling. Tr. at 50. Mr. Wong, however, stated that 10% was not enough compensation to cover Hongson's losses. Tr. at 120. Therefore, when the damaged merchandise equalled or exceeded the "10% Handling Charge," the shipping and handling expenses necessarily were taken out of the "5% Commission."⁴ The fact that the intermediary absorbs the cost of shipping and handling out of its commission is evidence that the agency relationship did not exist. New Trends, 10 CIT at ___, 645 F.Supp. at 960.

Fifth, plaintiff did not control the manner of payment. The letters of...