*2 еr, provided in 19 U.S.C. MAYER, RADER, Before MICHEL and contracts, part As of the sales Judges. Circuit Servicing the manufacturer entered into (“service Agent Agreements agreements”) Opinion by for the court filed Circuit exported which stated “the Products Judge Dissenting opinion MICHEL. filed occasionally in United States are need of the by Judge Circuit MAYER. inspection, repair, rеfurbishing, and such oth- MICHEL, Judge. Circuit requested (empha- er ...” customer services added). (“Sam- America, agreements obligat- sis The service Electronics sung”) appeals from the Order of the United the manufacturer to reimburse up purchase price per year Court of International Trade entered 5% the total subject to ad valo- whiсh is repairs and Merchandise inspections, these cost of for the found compound duties and rem
refurbishings.
damaged
partially
director to be
at
district
sales
time covered
During the
importation shall be
the time of
agreements, some
contracts and
imported, with an allow-
in its condition as
*3
equipment was found
electronic
thе
in
to the extent of the
ance made
the value
im-
defects when
latent
contained
to have
damage.
sold the
Samsung either
ported.
at a
defects
containing such
asserted that
this
Customs has
label re-
the SAMSUNG
only
with
defective merchan
regulation applies
discount and
to
it in the United States
moved,
repaired
merchandise than that
dise that
is lesser
consumer
under the
agency charged
sale or
before
As the
either
which was ordered.2
sent
it back.
administering
when consumers
and
warranties
statute
related
with
the
system kept track
accounting
Samsung’s
cost
regulations, Customs’
con-
repair costs. When
Congress
and
regulation, assuming
of these losses
that
has
own
сon-
rights
issue,
under their
their
directly
sumers asserted
is entitled
spoken
not
the
to
to
only
Samsung,
those
long
sumer warranties
it is reasonable. See
deference so
as
importa-
time of
that existed at
v. Natural
U.S.A Inc.
Resources
Chevron
repair
repaired
Council, Inc.,
837, 843,
and considered
tion were
467 U.S.
104
Defense
system.
accounting
Sam-
Samsung’s
2781-82,
сosts in
what are now in con Samsung order the sales What did 1401a(b)(3)(A)(i)for the valuation of § U.S.C. only it merchandise? tracts? Was defect-free and, consequently, merchandise the defective it mix of and dеfective Or was a defect-free assessed, by a to be reduced rea- the duties analyzed merchandise? The trial court the diminished value allowance for sonable follows: manufacturing defects. the latent due to Having determined that C.F.R. Samsung’s rejected claim and both Customs only importer applies § an 158.12 when Samsung protest. thеn subsequent a receives is of lesser merchandise in the Court of brought instant action contracted, quality than that for which he granted the Trade. The court International the Court turns consider whether the to summary judgment for motion in regulation authorizes a reduction jur- timely appealed. Samsung We have and , subject When value of the merchandise. 2645(c) (1994). § 28 U.S.C. isdiction under subject purchased the America Korea, it merchandise from did DISCUSSION not contract for defect-free merchan- also entered into argues the dutiable value of dise. America Agreements must under which received be reduced defective repair compensation § costs re- pursuant 158.12 or 19 loss to either C.F.R. (PL’s 1401a(b)(3)(A)(i).1 regulation, sulting from U.S.C. 1.) J., Hence, (1990), For Ex. Sam- states: Mot. Summ. C.F.R. 158.12 clear, con- vided that the has submitted 1. resolve this case under section Since we 158.12, convincing support to reach section we decline evidence to a cise and claim argument. purchased that the merchandise quality.”). quality was fact of a lesser as one in ("This 2. rul- See Customs Service Decision 84-11 ing may pro- holds that authorized ... relief to receive the and we think the service sung America contracted (1) Samsung sought, following items from Korea: (2) merchandise; parent company, manufacturer, defect-free deliver, agreed wholly it had a contractual defect-free mer- merchаndise for which chandise, effectively guaranteeing by so repair. right compensation loss agreeing any defects, up to reimburse for in the merchandise arrived the Unit- When per year. 5% of total sales Samsung America received no less than that for which it had contracted. Second, Samsung expressly warranted de- Consequently, the Court finds that 19 fect-free merchandise to its customers. The § 158.12 does not entitle C.F.R. existence of these consumer warranties dem- America to a reduction value. onstrates the business of Thus, selling Samsung, 904 at 1405. merchandise and so holds *4 court, conclusory itself out. That was its intent single, paragraph, the trade and its cus- all, expectation. sоlely agree- tomers’ After based on the fact of the service the electronic ments, SAMSUNG, bore Samsung the brand name held that had ordered both linking Samsung both America and defect-free and defective merchandise. We Samsung Electronics of Korea. disagree in- with the trade court’s contract terpretation. Finally, corporate the close and functional relationship companies supports the two interpretation is ordinari
Contract only the inference that law, defect-free merchan- ly pure an which we issue review dise was ordered these sales contracts. Son, entirely de novo. C. Sanchez & v. Samsung essentially America is (Fed.Cir. the Ameri- States, 1539, 6 F.3d 1544 United can Samsung distributor for Electronics of 1993); v. Interstate Gen. Gov’t Contractors Korea. It no makes commercial sense for (Fed.Cir.1992). Stone, 1433, F.2d 1434 980 purposefully deal in defective contract, interpreting In written intent goods, thereby risking customer dissatisfac- parties, of the for instance as evidenced upon receiving goods despite tion such pur- contract, forming the written instruments chasing equipment. brand-name For Sam- primary is of concern. Rolden Partner See sung to order defective merchandise from its States, ship v. 891 F.2d United parent company extremely poor would be (Fed.Cir.1989). Here, the trial court miscon practice. business contracts, ignoring strued the sales Sam warranties, sung’s relationship consumer Since all indications are that or- manufacturer, reality. and commercial only dered defect-free merchandise and we nothing supports see that the trade court’s First, very agreements relied contrary interpretation, contract we hold that interpretation. tradе court belie these sales call for contracts defect-free that The do not show ordered defective as well as Rather, they show that authority upon by The the trial sole relied only perfect court, ordered merchandise and con- Esprit Corp de v. United (C.I.T. (at 1993), specifically supports tracted to address the inevitabili- least dicta) that, order, ty “occasionally” despite its some Customs’ that sec- applies only of the merchandise delivered would contain tion 158.12 when an manufacturing goods latent The contract’s receives lesser than it ordered. How- ever, because, reality explicit recognition of the of mass the decisiоn is irrelevant (or, matter, above, production any that for that kind of noted we hold Customs’ inter- production), namely products pretation regulation that in some is reasonable. defects, Esprit not The cannot aid our there will be does decision therefore disposition that of this which turns in- mean “ordered” defective mer- of the contracts chandise or both defect-free stead government agrees at hand. Neither can' it the trade merchandise. The specifically the contracts did not call for “de- court’s of the sales contracts (or terms), equivalent has not shown to fective” merchandise because the decision been importatiоn. after Value subse- Therefore we comparable contracts. involve quently is not ruling added the United States below and agree with cannot (d)(3)(A)(v) Esprit dutiable. 19 U.S.C. argument here that See rejection claim. compels “Samsung did states The dissent therefore reverse the trial court’s sum- We merchandise, but it did order
order defective mary judgmеnt that section 158.12 does not knowing of it would con- some merchandise apply, and remand for a determination of the is, Samsung ex- That tain latent defects.” made in the value to the [to be] “allowance pected some defective merchandise. damage.” of the 19 C.F.R. 158.12.4 extent from this that section concludes dissent AND REMANDED. REVERSED apply. Thе difference be- 158.12 does not analysis and our own is the dissent’s tween COST “ordered” de- that we believe by requesting brand fect-free party costs. Each to bear its own contractually ensur- name merchandise delivery of defect-free merchandise ing the MAYER, Judge, dissenting. Circuit through servicing reimbursement of International Trade Because Court Samsung paid for defect-free agreements.3 correctly Electron- concluded is, through reimburse- merchandise and *5 America, (“Samsung”) ics received the ment, effectively received. what ordered, goods I affirm. quality of it would recognition not believe that the mere We do that, part at moment of on the Samsung purchased impоrted and televi- una- importation, some of the merchandise sions, stereos, recorders, cassette mi- video voidably contain latent would ovens, de-humidifiers, crowave and other defects, of the mutual intent Sam- vitiates electronic articles from Electronics sung manufacturer to contract for and the (“manufacturer”) Cо., Ltd. in Korea. Both in- Customs’ defect-free merchandise. Since parties Servicing Agent entered into annual correctly terpretation regulation the focus- of Agreements requiring the manufacturer to ordered, we believe the focus es what was monthly reimburse on a basis for expected to of on what was the dissent Samsung’s inspeсtion, repair, the cost of re- Thus, incorrectly the dissent fo- mistaken. furbishing and other customer-related ser- “Samsung thought cuses on what it would vices. This reimbursement was limited to “anticipated.” it receive” and what percent imported of five the total value of the year. products over the course of each Furthermore, the fаct that 1401a(b), ultimately equivalent the economic Pursuant to 19 U.S.C. the Cus- received reimbursement) (through appraised perfect goods of toms Service the policy. law or chandise on the basis of the transaction val- does no violence to Customs ue, actually undisputed goods using price Samsung paid It of the the the that some Sam sung imported contained latent manufactur manufacturer for the merchandise. Sam- They sung paid ing importation. defects at the time of the assessed duties and sold the along were worth less than defect-free merchandise with limited warranties to therefore goods. Duties are assessed on the value of its customers. Some оf the merchandise was Here, goods imported. the value added to returned as defective under the warranties. (via goods repair) the added in the Unit- The manufacturer reimbursed for was remand, specially purposes we note 3. We decline to comment on the of 4. For of the those defects in existence at the time of might there not be service contracts where importation qualify for an “allowance” in value. any or the or consumer warranties of proving, thus bears the of for burden legal ques- other factors we consider here. The instance, repair costs to defects under the tion, by as mandated Customs repair consumer warranties were incurred to regulation, though, remains same: of the not, importation, at for defects instance, existence what did the order? mishandling by those caused its own equipment. consumer misuse of the quality forth standards for the merchan- repair costs associated with losses provided warranty dise for their enforcement returns. obligating tо [the manufacturer] reimburse sought a in Customs’ reduction [Samsung] any repair losses costs of for, of, and a concomitant refund appraisal [Samsung] incurred as a result of paid for the amount of duties it the merchandise. adjust merchandise. Customs refused price of International Trade Such merchandise was not worth the duties. The Court refusal, finding that [Samsung] paid Sam- had [the affirmed Customs’ manufac- goods it ordered sung quality received the of turer] it. manufacturer. under its contract with the self-serving nothing Tesi’s assertions add America,
Samsung Electronics Inc. v. Unit- understanding our of the or to the contract (C.I.T.1995). As parties’ contemporaneous intentions. With- below, Samsung argues it did explanation why out some about how or quality bargained for first defect-free mer- goods imposed cost was on one that under 19 It believes C.F.R. other, party and not the Tesi’s statements 158.12, the existence of latent defects re- party’s interpretation cannot favor one over quires to reduce the duti- Customs the other’s. Nor do his statements serve as able value of the merchandise refund Samsung’s intentions, evidence of absent difference. contemporaneous explanation why some as to ques is a Because contract Samsung thought it would receive defect-free law, must determine de novo tion we industry goods practices when standard inev- Samsung and the contraсt between whether itably delivery resulted in of some defective anticipated delivery its manufacturer wholly merchandise or the deliv statements, unhelpful In contrast to these ery of some defect-free merchandise as well following Servicing Agency clauses may Hughes as some that be defective. *6 Agreements parties illustratе that the antici- Galaxy, Inc. v. United Communications pated delivery of both defect-free and (Fed.Cir.1993). States, F.2d We some defective merchandise. plain language of the contract and look to the exported Whereas the Products to the interpret gives meaning it in a manner that occasionally in United States are neеd of provisions all of its and makes sense. inspection, repair, refurbishing, Inc. v. United McAbee Constr. requested such other customer ser- (Fed.Cir.1996). 1431, 1435 F.3d vices. ... argument In that the con- [by Samsung] For the rendered Services quality mer- tract called for first hereunder, pay shall [the manufacturer] chandise, Samsung points only affida- [Samsung] monthly a basis Tesi, Manager vit оf Thomas General charge the amount of which shall not ex- National Distribution. This affidavit states (5%) percent total amount ceed five part: in relevant exported of the Products to the United The entered value of the merchandise was year.... in a relevant price paid payable quality, for first or defect-free merсhandise. fact, by Samsung, In and as confirmed paid payable price That did not contain Samsung received first class merchandise any deduction or allowance for latent de- defect-free, as defective that was as well fects in the merchandise. amounting four-point-seven (4.7%) guaranteed percent of the total amount of the [The manufacturer] [Sam- subject exactly sung] products; almost what it had antici- that the merchandise would facts, imag- quality pated. or- these it is difficult to be of first and defect-free as On claim that it or- guaranty dered. This was set forth in a ine how can now anticipated completely defect-free manufacturer] contract between dered or [the paid Agree- merchandise or that it duties based known as ‘Service ment’_ receipt merchandise. Both Agreements The Service set of defect-free manufacturer. did not order reality specifics of these commercial merchandise, knew exact- it did order mer- show but transactions anticiрated and that it ordered ly what knowing some of it would contain chandise contrast, In this court it received. what latent defects. by relying post on the ex facts denies party about self-serving statements of a facto like in a to have received would
what it by creating a false choice
perfect world ordering possibilities: defect-
between two ordering
free merchandise accurately possibility de- Neither Samsung and between the contract
scribes