Fabil Manufacturing Co. v. United States

Slip. Op. 99 - 55

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: RICHARD W. GOLDBERG, JUDGE



FABIL MANUFACTURING CO.,

Plaintiff,

v.

THE UNITED STATES,

Court No. 95-02-00174
Defendant,



[Plaintiff’s motion for summary judgment is denied. Defendant’s
cross-motion for summary judgment is granted. Judgment entered for
defendant.]

Dated: June 28, 1999

Irving A. Mandel; Thomas J. Kovarcik, of counsel, for
plaintiff.

David W. Ogden, Acting Assistant Attorney General; Joseph I.
Liebman, Attorney-in-Charge, International Trade Field Office,
Commercial Litigation Branch, Civil Division, United States
Department of Justice; Aimee Lee, Commercial Litigation Branch,
Civil Division, United States Department of Justice; Office of
the Assistant Chief Counsel, International Trade Litigation,
United States Customs Service (Chi S. Choy), of counsel, for
defendant.
Court No. 95-02-00174 Page 2

OPINION

GOLDBERG, Judge: This case comes before the Court on cross-

motions for summary judgment. Plaintiff Fabil Manufacturing Co.

("Fabil") challenges defendant United States Customs Service’s

("Customs") refusal to grant an allowance in the appraised value

of certain imported jackets under 19 C.F.R. § 158.12.

Specifically, Fabil asserts that because the merchandise

contained latent defects at the time of importation, Customs

should have granted Fabil an allowance in value and refund of

duties pursuant to section 158.12. Fabil claims the defective

merchandise was a total loss and requests an allowance in value

equal to the total duties paid on the imported merchandise.

Because Fabil cannot establish (1) that the imported

merchandise is the same as the merchandise returned, or (2) the

actual diminution in value due to the alleged defects, summary

judgment is granted in favor of Customs. The Court exercises

jurisdiction in this matter under 28 U.S.C. § 1581(a) (1994).
Court No. 95-02-00174 Page 3

I.
BACKGROUND
While in business, Fabil imported outerwear, including

jackets for children.1 In 1987, Fabil entered negotiations with

Murjani, Inc., a licensee of the Coca-Cola Company, for the

manufacture and sale of outerwear jackets bearing the Coca-Cola

logo. The parties agreed that Fabil could produce and sell

300,000 jackets with the Coca-Cola logo. According to Fabil, it

then contacted a Korean manufacturing agent, Booyang, Ltd., to

identify manufacturing sources. See Aff. of Robert Hammer, Vice
President of Fabil ("Hammer Aff."), ¶ 5. Fabil claims it

provided manufacturing specifications for the jackets to Booyang,

including colors, styles, sizes, and, most importantly, that the

jackets be machine washable. Fabil also represents that Booyang

provided samples from prospective manufacturers, which Fabil had

tested by "the U.S. Testing Laboratories in New Jersey." Hammer

Aff. ¶ 6.1. Fabil claims the laboratory tests showed that after

the jackets were machine washed, the colors in the jackets --

including the Coco-Cola logos -- did not run. In other words,

Fabil claims

1
Fabil ceased doing business in 1989. See Pl.’s Mem. in
Supp. of Mot. for Summ. J., at 7.
Court No. 95-02-00174 Page 4

the sample jackets were "color fast." Id.

Fabil then ordered 300,000 jackets from Hop Yick Garment

Factory and Centripower Company Ltd., both doing business in Hong

Kong, and from one supplier in Korea, Samdo Trading Co. Ltd. See

Hammer Aff. ¶ 7. Fabil entered the merchandise between June and

September, 1987. Fabil claims the total entered value of the

merchandise was $1,706,970.2 See id. at ¶ 9. Once entered,

Fabil sold the jackets to department stores, including Dayton

Hudson, Dillard’s, and Bullocks. But, Fabil asserts that

customers returned the jackets because they were latently

defective. Specifically, Fabil claims the jackets and the Coco-

Cola logos were not colorfast because, when washed, the jackets’

logos disintegrated and the colors therein ran together. See id.
Ex. D.

In May, 1988, Fabil filed its first claims with Customs,

alleging that because the merchandise was defective, it was due

an allowance in duties paid. Customs denied Fabil’s protests in

1994. Fabil then filed a timely appeal to this

2
Customs claims that the total F.O.B. value of the entered merchandise was
approximately $1,900,000. See Def.’s Resp. to Pl.’s Statement of Undisputed Facts Pursuant to
USCIT R. 56(i), ¶ 14.
Court No. 95-02-00174 Page 5

court. Fabil claims that because all 300,000 imported jackets

were defective, it was forced to dispose of the merchandise at a

total loss. To account for the defective nature of the imported

merchandise, Fabil seeks an allowance in value equal to the

amount of total duties paid on all entries.

II.
STANDARD OF REVIEW
This 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 (1986). Summary judgment is not appropriate, however, 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
Court No. 95-02-00174 Page 6

interrogatories, and admissions to file’, designate ‘specific

facts showing that there is a genuine issue for trial.’" Celotex

Corp. v. Caterett, 477 U.S. 317, 324 (1986) (citing Fed. R. Civ.

P. 56(e)).

III.
DISCUSSION
Under 19 C.F.R. § 158.12, a protestant qualifies for an

allowance in dutiable value where (1) imported goods are

determined to be partially damaged at the time of importation,

and (2) the allowance sought is commensurate to the diminution in

value caused by the defect. Specifically, section 158.12

provides as follows:

Merchandise partially damaged at time of
importation. (A) Allowance in value. Merchandise
which is subject to ad valorem or compound duties
and found by the district director to be partially
damaged at the time of importation shall be
appraised in its condition as imported, with an
allowance made in the value to the extent of the
damage.

19 C.F.R. § 158.12 (emphasis added). To qualify for an

allowance, a protestant must satisfy both elements of the above
provision by clear and convincing evidence. See Samsung Elecs.

America, Inc. v. United States, 23 CIT __, __, 35 F. Supp.2d 942,

946 (1999). The Court therefore reviews whether
Court No. 95-02-00174 Page 7

Fabil’s proffered evidence satisfies both elements of the

allowance provision.

Upon review, the Court grants Customs’ motion for summary

judgment. As an initial matter, Fabil is able to establish that

a genuine issue of material fact exists as to whether it actually

ordered defect-free merchandise  a precondition for a section

158.12 claim. Beyond this, however, Fabil’s claim fails because

it is unable to establish an issue of material fact that would

indicate it could satisfy either element of section 158.12.

First, Fabil is unable to show that the imported merchandise for

which it seeks an allowance is the same as that which was

returned as defective. Fabil offers no evidence to suggest that

it can link the allegedly defective merchandise to specific

entries. Second, Fabil’s claim fails because it offers no

measure of precision upon which an appropriate allowance in value

can be derived. Consequently, Fabil’s motion for summary

judgment fails, and defendant’s cross-motion for summary judgment

prevails.
Court No. 95-02-00174 Page 8

A. A Material Issue of Fact Exists As To Whether Fabil
Ordered Defect-Free Merchandise.

Fabil claims it ordered colorfast jackets from three foreign

suppliers. Fabil maintains this fact is undisputed and points to

the Hammer affidavit as support. Customs denies Fabil’s claim

for lack of knowledge and argues that summary judgment should be

granted in its favor because Fabil cannot establish that it

ordered defect-free merchandise.

As a preliminary matter, Fabil must establish that it

actually ordered colorfast jackets. If Fabil cannot establish

that it ordered colorfast jackets, the Court cannot determine

whether the merchandise was actually defective and, consequently,

whether an allowance is due Fabil. This Court was presented with

the same question of whether an importer actually contracted for

defect-free merchandise in Samsung Electronics America, Inc. v.
United States, 19 CIT 1307, 904 F. Supp. 1403 (1995). There, the

Court held the importer anticipated that some merchandise would

be defective and, thus, ordered a mix of defect-free and

defective merchandise. See Samsung, at 1309, 904 F. Supp. at
1405. The Federal Circuit reversed. See Samsung Elecs. America,

Inc. v. United States, __ Fed. Cir. (T) __, 106 F.3d 376 (1997)

("Samsung
Court No. 95-02-00174 Page 9

II"). Specifically, the Federal Circuit found the sales

contracts included Servicing Agent Agreements, which implied that

the importer ordered defect-free merchandise and insured against

the inevitability of defects with the inclusion of the service

agreements. Samsung II, at __, 106 F.3d at 379. The Federal

Circuit also considered the existence of consumer warranties as

evidence that defect-free merchandise was ordered. Id. And, the

Federal Circuit noted that, given the close relationship between

the importer and its parent, the foreign supplier, "it [made] no

commercial sense for Samsung to purposefully deal in defective

goods." Id.
Customs argues that, unlike Samsung, there is no sales

contract for the Court to interpret here. Because there is no

contract, Customs maintains that Fabil has failed to establish

that it actually ordered defect-free merchandise. Customs is

correct, in part: Fabil offers no evidence other than the Hammer

affidavit to support the assertion that it specifically

contracted for colorfast jackets. Yet, an affidavit alone is

sufficient to defeat a motion for summary judgment if it

designates specific facts showing there exists a genuine issue

for trial. See USCIT R. 56(d); see also Celotex, 477 U.S. at
Court No. 95-02-00174 Page 10

324. Here, the argument that Hammer’s affidavit fails to

designate facts specific enough to establish what Fabil actually

contracted for, is not without merit. Cf. Samsung II, at __, 106

F.3d at 381 (Mayer, C.J., dissenting) (concluding that

plaintiff’s "self-serving assertions [in an affidavit] add

nothing to our understanding of the contract or to the parties’

contemporaneous intentions"). Specifically, the Hammer affidavit

does not indicate whether the contracts were oral or written, or

whether the contracts even included manufacturing specifications.

But, for the reasons set forth below, the Court finds that the

affidavit ultimately does raise a genuine issue of material fact

as to whether Fabil actually ordered defect-free merchandise.

As noted above, the Hammer affidavit asserts that Fabil

actually contracted for the purchase of colorsafe jackets. See
Hammer Aff. ¶ 10. And, on summary judgment, the Court must view

the evidence in the light most favorable to the non-moving party.

See Ugg Int’l, at 83, 813 F. Supp. at 852. Within this

framework, because the terms of the contract obviously could

resolve what was actually ordered, the affidavit’s simple

assertion that Fabil contracted for color-
Court No. 95-02-00174 Page 11

fast jackets is sufficient to create an issue of material fact.

At trial, the parties could illicit testimony from the affiant,

as well as the foreign suppliers, to clarify the terms of the

contract, including what, if any, manufacturing specifications

were included.

Importantly, the affidavit also successfully raises issues

of fact other than the precise terms of the contract, that bear

on whether Fabil ordered colorfast jackets. For example, the

affidavit suggests that Fabil’s U.S. customers anticipated

receiving colorfast jackets and, as support, notes that Fabil

ordered machine-washable labels for the jackets. See Hammer Aff.
at ¶¶ 10, 12, and Ex. C. While not entirely relevant to the

terms of Fabil’s contracts with the foreign suppliers, this

specific assertion nevertheless informs whether Fabil actually

ordered colorfast jackets. That is, testimony from the affiant,

the foreign suppliers, or even the U.S. customers, might help

define the commercial realities of the sale, such as whether it

would make economic sense to order machine-washable labels for

jackets that were not in fact machine washable. Therefore, when

viewed in its entirety, the affidavit raises genuine issues of

material fact
Court No. 95-02-00174 Page 12

as to what Fabil actually ordered from the three foreign

suppliers. This analysis is consistent with the approach taken

in Samsung II, where the Federal Circuit looked beyond the

contract to ascertain if plaintiff ordered defect-free

merchandise. See id. at __, 106 F.3d at 379 (finding that

consumer warranties and commercial reality, in addition to the

terms of the contract, indicated plaintiff ordered defect-free

merchandise). Accordingly, Customs’ motion for summary judgment

is denied in this respect.

B. Fabil Fails to Establish that the Imported Merchandise
Is the Same As the Merchandise Returned.
Fabil’s allowance claim nonetheless fails because it cannot

establish that the imported merchandise for which it seeks an

allowance is the same as the merchandise it claims is defective.

Specifically, Fabil offers no method to tie the allegedly

defective merchandise to any entries or group of entries.

Without this basic proof, the Court (and Customs) cannot

determine whether contested merchandise actually contained a

defect "at the time of importation." 19 C.F.R. § 158.12. Thus,

Fabil’s allowance claim must fail.

Fabil claims that when its major U.S. customers
Court No. 95-02-00174 Page 13

discovered the manufacturing defects in the jackets, they

returned them to Fabil. See Pl.’s Br. in Supp. of Mot. for Summ.

J., at 6. Fabil relies on the Hammer affidavit to support this

general assertion. See Hammer Aff. ¶ 12; but see Letter from S.

Ronay (Customs Consultant for Fabil) to Area Director of Customs,

U.S. Customs Service, dated May 17, 1988 (stating only that

"[m]uch of the merchandise was returned to the importer by its

customers due to the fact that, after washings the color ran"

(emphasis added)). At first blush, Hammer’s general assertion

that all merchandise was returned as defective alone might appear
sufficient to survive summary judgment. Fabil, however, has

indicated that because the company went out of business in 1989,

it cannot provide additional records relevant to the transactions

at issue in this case. See Pl.’s Reply Mem., at 5 ("[T]he

absence of alternative proof is explained by the fact that Fabil

is no longer in business."). Consequently, Fabil cannot provide

concrete evidence that its U.S. customers actually returned

jackets  much less all the jackets  because they were not

colorfast. For example, Fabil fails to indicate that it could

provide letters from customers, describing the merchandise
Court No. 95-02-00174 Page 14

ordered and the merchandise returned.

Moreover, even if the Court were convinced that Fabil could

prove that all jackets were returned because they were not

colorfast, Fabil offers no evidence to suggest that it could tie

the returns to a particular entry or group of entries. Indeed,

Fabil does not even suggest, either in the affidavit or

elsewhere, that it has internal records, which catalog the

reasons for returns or the number of jackets actually returned.

Nor does it suggest that it has internal records that might in

some manner link the returned merchandise to the imported

merchandise with any measure of reliability. Therefore, because

plaintiff utterly fails to designate specific facts that indicate

it might be able to prove (1) that all merchandise was returned,

(2) that all returned merchandise was defective, and (3) that all

returned merchandise was the same as the imported merchandise,

the Court grants Customs’ motion for summary judgment. To do

otherwise would set a dangerous precedent, whereby importers

might be able to claim an allowance in value for defective

merchandise simply by asserting that merchandise was either

returned or otherwise found to be defective and by pointing to
Court No. 95-02-00174 Page 15

an entry that matches the merchandise’s description.

C. Fabil Fails to Establish the Diminution in Value of the
Imported Merchandise.

Finally, Fabil’s claim fails because the company cannot

demonstrate with any precision what the claimed allowance in

value should be for the defective merchandise. In particular,

Fabil states that it donated some of the merchandise to various

charitable organizations, including the Salvation Army, Goodwill

Industries, and the National Council of Jewish Women. See Hammer
Aff. ¶ 13. Fabil asserts that it discarded the remainder of the

merchandise without compensation, resulting in a total loss. See

id.

Fabil thus asserts that it donated some merchandise to

charitable organizations, yet then claims the merchandise was a

total loss. Without more, the Court cannot determine if Fabil

derived any value from its charitable contributions. For

instance, it is unclear whether Fabil subsequently took a

deduction on its taxes for the contributions. Fabil provides no

receipts for its donations to these charitable organizations, nor

does it offer any relevant tax returns. And, in its affidavit,

Fabil offers no indication that it has
Court No. 95-02-00174 Page 16

any receipts or tax returns, much less that it could prove the

actual loss with the specificity needed to sustain an allowance

claim. Also, as noted earlier, Fabil has indicated that it has

no additional records relevant to the transactions at issue. See

Section III.B supra. Fabil thus fails to designate specific

facts, either in the Hammer affidavit or elsewhere, to suggest

that it is possible to calculate the actual loss.

Moreover, Fabil offers no evidence to suggest that any

diminution in value due to the claimed defect could be tied to a

specific entry or group of entries. Again, this is crucial

evidence needed to sustain an allowance claim.

If the Court were to accept otherwise, it runs the
risk of illegally assigning to the protested
entries value allowances for merchandise in non-
protested entries and, in so doing, would
contravene the rule from Alyeska Pipeline Serv. Co.
v. United States, 10 CIT 510, 643 F. Supp. 1128
(1986), reh’g granted, 11 CIT 931 (1987), vacated
as moot on other grounds, unpublished order (May
19, 1988). In Alyeska Pipeline, Customs had
advanced the value of merchandise in a single entry
to cover value advances (i.e., reappraisements)
relating to twenty four additional entries of
identical merchandise, including two of which were
not before the court. The court rejected this
action, finding that "[t]he law does not permit the
Customs Service to assign one entry the values of
merchandise in other entries or the duties owing to
them." The court went on to conclude that "a value
Court No. 95-02-00174 Page 17

adjustment to imported merchandise may be reflected
only on the entry or entries which cover the
imported merchandise. It follows that the only
proper value increase for the entry in question
would be one reflecting the value of the
merchandise covered by that entry and no other
merchandise." Similarly, it also follows here that
a value allowance must relate to the merchandise
entered under a specific entry(ies).

Samsung, at __, 35 F. Supp.2d at 949 (citations and footnote

omitted). In sum, Fabil wholly fails to establish, or indicate

that it could establish, its proof of loss with any certainty or

reliability. And, Fabil fails to link the diminution in value

due to defects in specific merchandise to any particular

entry(ies). It is thus impossible to calculate an appropriate

allowance in value for the allegedly defective merchandise.

Accordingly, even if the Court were to accept that Fabil could

tie the allegedly defective merchandise to entries of imported

merchandise, the Court still would grant summary judgment to

defendant because Fabil cannot establish an appropriate

allowance.
Court No. 95-02-00174 Page 18

V.
CONCLUSION
For the foregoing reasons, Customs’ decision not to grant

plaintiff an allowance for defective merchandise is sustained,

and summary judgment is granted in favor of defendant. Judgment

will be entered accordingly.

________________________________

Richard W. Goldberg
JUDGE

Date: June , 1999
New York, New York.
 ERRATA

Fabil Manufacturing Co. v. United States, Court No. 95-02-00174,
Slip Op. 99-55, dated June 28, 1999

On p. 11, line 2, change "illicit" to "elicit"

July 1, 1999