Samsung Electronics America, Inc. v. U.S., Slip Op. 99-3.

• Decision Date: 06 January 1999
• Docket Number: Slip Op. 99-3.,Court No. 91-04-00288.
• Citation: 35 F.Supp.2d 942
• Parties: SAMSUNG ELECTRONICS AMERICA, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

35 F.Supp.2d 942

SAMSUNG ELECTRONICS AMERICA, INC., Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 99-3.

Court No. 91-04-00288.

United States Court of International Trade.

January 6, 1999.

Irving A. Mandel, Aventura, FL; Thomas J. Kovarcik, New York, NY, and Jeffrey H. Pfeffer, Lake Worth, FL, of counsel, for plaintiff.

Frank W. Hunger, Assistant Attorney General; Joseph I. Liebman, Attorney-in-Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice; Bruce N. Stratvert, Commercial Litigation Branch, Civil Division, United States Department of Justice; Office of the Assistant Chief Counsel, International Trade Litigation, United States Customs Service (Mark G. Nackman), of counsel, Washington, DC, for defendant.

OPINION

GOLDBERG, Judge.

This case comes before the Court on cross-motions for summary judgment following a decision by the United States Court of Appeals for the Federal Circuit, reversing and remanding this Court's opinion in Samsung Electronics America, Inc. v. United States, 19 CIT 1307, 904 F.Supp. 1403 (1995) ("Samsung I"). See Samsung Elecs. Am., Inc. v. United States, ___ Fed. Cir. (T) ___, 106 F.3d 376 (1997) ("Samsung II"). Plaintiff Samsung Electronics America Inc. ("Samsung") challenges defendant the United States Customs Service's ("Customs") refusal to grant an allowance in the appraised value of imported electronic equipment under 19 C.F.R. § 158.12. Specifically, Samsung asserts that because the merchandise contained latent defects at the time of importation, Customs should have granted Samsung an allowance in value and refund of duties pursuant to section 158.12. Samsung claims an allowance in value of $1,938,451, the alleged difference between the appraised value at the time of importation and Samsung's own post-importation appraisal of the defective merchandise.

Because the Court concludes that Samsung cannot establish either the existence of latent defects in the subject entries with any specificity or the value of such claimed defects, it grants summary judgment in favor of defendant. The Court exercises jurisdiction in this matter under 28 U.S.C. § 1581(a) (1994).

I. BACKGROUND

Plaintiff, among other business ventures, imports substantial quantities of electronic goods manufactured by its foreign parent company, Samsung Electronics Company, Ltd. ("SEC"). This case involves merchandise Samsung entered between 1987 and 1990. The merchandise at issue is an array of electronic equipment, including televisions, stereos, video cassette recorders, and microwave ovens. According to Samsung, the subject merchandise "comprise[s] virtually all of the merchandise that [Samsung] imported for the period December 1987 to October 1990." Pl.'s Statement of Undisputed Facts Pursuant to USCIT R. 56.1, dated April 14, 1993 ("Pl.'s Undisputed Facts I"), at ¶ 2. Upon entry, Customs appraised the subject merchandise based on transaction value pursuant to 19 U.S.C. § 1401a (1988). See Samsung I, 19 CIT at 1308, 904 F.Supp. at 1404. After importation, Samsung sold the merchandise to customers throughout the United States. And periodically, customers would return the subject merchandise to Samsung, claiming the goods were defective.

On these general facts, Samsung filed a claim with Customs seeking an allowance for latent defects, and concomitant refund of duties, pursuant to 19 C.F.R. § 158.12. The cornerstone of its allowance claim is the fact that Samsung sold all the subject merchandise with a consumer warranty that specifically covered latent defects. Under the warranty, when Samsung confirmed that returned merchandise contained a latent defect, the company repaired or replaced the goods at no charge to the customer. Samsung's warranty was effective for a period ranging from ninety days to one year from the date of sale to the customer, and longer warranties were provided for isolated components of the merchandise. See Pl.'s Undisputed Facts I, at ¶¶ 14-15.

Typically, Samsung processed the defective merchandise claims through two channels: (1) it sold the defective merchandise "as is" to outside "jobbers" at a discount, who then repaired the merchandise, removed the Samsung labels, and resold the merchandise for their own accounts; or (2) Samsung either performed in-house repairs or contracted with unrelated service centers to repair defective merchandise, and then returned the repaired goods to the customers. See Pl.'s Undisputed Facts I, at ¶ 22; Pl.'s Statement of Undisputed Material Facts Pursuant to USCIT R. 56(i), dated May 26, 1997 ("Pl.'s Undisputed Facts II"), at ¶ 9. Importantly, the consumer warranty at issue excluded coverage for all damage caused by mishandling or consumer misuse. See Pl.'s Undisputed Facts II, at ¶ 3; Pl.'s Br. in Supp. of Mot. for Summ. J. ("Pl.'s Br."), at Ex. 1.

Samsung and SEC also entered service agreements related to the subject merchandise, whereby SEC reimbursed Samsung for costs associated with defective merchandise purchased from SEC. Under the service agreements, SEC limited potential reimbursement to an amount equal to five percent of SEC's annual sales to Samsung. For the years in question, SEC reimbursed Samsung for an amount equal, on average, to 4.7% of total annual sales of subject merchandise. See Samsung II, ___ Fed. Cir. (T) ___, 106 F.3d at 378 (1997).

For purposes of this case, Samsung derived an allowance figure from three separate accounting records that track warranty costs and losses: (1) a combined record of total in-house repair costs and costs paid to unrelated service centers to repair merchandise; (2) a record of the cost of replacement goods; and (3) a record of the discount prices at which defective goods were sold. From this data, Samsung calculated its total warranty costs and losses for the year.¹ Samsung then used the total warranty costs and losses figure to calculate the "Defective Merchandise Factor" ("DMF"), derived "by dividing the total warranty costs and losses per year by the total FOB value of merchandise for that year." Pl.'s Undisputed Facts II, at ¶ 17. Samsung claims that the DMF is an accurate measure of the value allowance it should receive from Customs on the protested entries. It asserts that the average DMF for the years 1987 through 1990 is 6.37%, and using that DMF, it should be awarded an allowance, and concomitant refund of duties, in the amount of $ 1,938,451. See Pl.'s Undisputed Facts II, at ¶ 21.

On prior cross-motions for summary judgment, this Court ruled that Samsung was not due a section 158.12 allowance. The Court held that when Samsung purchased the subject merchandise from SEC, it contracted for merchandise that contained latent defects and, hence, no allowance from transaction value was appropriate.² See Samsung I, 19 CIT at 1309, 904 F.Supp. at 1405. The Federal Circuit reversed this decision, concluding that Samsung had ordered defect-free goods and therefore could maintain an allowance claim for latent defects. See Samsung II, ___ Fed. Cir. (T) at ___, 106 F.3d at 379. The Federal Circuit, however, did not reach the question of whether particular entries actually contained defective merchandise and, if so, what the appropriate allowance should be for the defects. Instead, the Federal Circuit remanded the case for this Court to ascertain whether "defects [were] in existence at the time of importation," id. at ___, 106 F.3d at 380 n. 4, and "for a determination of the `allowance [to be] made in value to the extent of the damage.'" Id. at ___, 106 F.3d at 380 (quoting 19 C.F.R. § 158.12).

On remand, Samsung filed a partial summary judgment motion, requesting that the Court endorse the average DMF of 6.37% as the appropriate measure of allowance. Customs' filed a cross-motion for summary judgment, contending that, notwithstanding Samsung II, plaintiff is still not entitled to an allowance in value because (1) Samsung's evidence fails to demonstrate that subject entries actually contained latent defects at the time of importation; and (2) the evidence fails to establish the extent to which any defects that may have been present decreased the value of the merchandise.

II. STANDARD OF REVIEW

This test case is before the Court on cross-motions for summary judgment. The court will grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." USCIT R. 56(d); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment, however, is not appropriate when a party presents "a dispute about a fact such that a reasonable trier of fact could return a verdict against the movant." Ugg Int'l, Inc. v. United States, 17 CIT 79, 83, 813 F.Supp. 848, 852 (1993) (citation omitted). And, a party opposing summary judgment must "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions to file', designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed.R.Civ.P. 56(e)).

While it is true that Customs' appraisal decisions are entitled to a statutory presumption of correctness, see 28 U.S.C. § 2639(a)(1), when a question of law is before the Court, the statutory presumption of correctness does not apply. See, e.g., Universal Elecs., Inc. v. United States, ___ Fed. Cir. (T) ___, ___, 112 F.3d 488, 492 (1997). There are no genuine issues of material fact at issue in this case nor are there factual elements of Customs' decision at issue and, hence, the statutory presumption of correctness is inapplicable. Thus, the Court must consider whether Customs' underlying appraisal decision here is correct as a matter of...