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HQ 222402


July 26, 1990

CAR-3-02-CO:R:C:E 222402 PH

CATEGORY:

Mr. John S. Wetherill
Vice President
Hatboro Delivery Service, Inc.
Post Office Box 269
Warminster, Pennsylvania 18974

RE: A corporation may not be licensed as a Customs cartman when a second corporation provides the vehicles and drivers under a lease arrangement; 19 U.S.C. 1565; 19 CFR Part 112; C.S.D. 82-26.

Dear Mr. Wetherill:

Your letter of May 18, 1990, concerns the application of your corporation to become a licensed and bonded cartman. Our ruling on this matter follows.

FACTS:

You state that Hatboro Delivery Service, Inc. ("Hatboro"), is a corporation of the State of Pennsylvania. The company was founded by James C. Wetherill in 1952 and incorporated in 1970. A few years after Hatboro was started, the brother of the founder of that corporation, Joseph B. Wetherill, Sr., founded J.W. Rental, Inc. ("J.W.").

You state that the two brothers "went into business together." Hatboro is the certified common carrier. It "hold[s] all of the authorities and handle[s] all of the insurances and bonds for the operations." J.W. owns the vehicles and employs the drivers. J.W. "solely leases it's service to [Hatboro]." All operations of the corporations are "done in the same office together and are run by the same office personnel and corporate board members."

You state that James C. Wetherill, the founder of Hatboro, is the president and treasurer of that corporation and is also the secretary of J.W. Joseph B. Wetherill, Sr., is the president and treasurer of J.W. You are the vice president and secretary of Hatboro and the vice president of J.W.

You state that on May 4, 1990, Hatboro applied to the Customs office in Philadelphia for a cartman's bond. You were notified on May 16, 1990, that the application was being denied because of the corporate structure of Hatboro and J.W. (i.e., that "only one bond can be issued, and there are two corporations"). With the encouragement of Customs in Philadelphia, you have written us for advice in this matter.

ISSUE:

May a corporation be licensed as a Customs cartman under 19 CFR Part 112 when a second corporation, founded and the president of which is a brother of the first corporation, provides the vehicles and employs the drivers under a lease arrangement with the first corporation?

LAW AND ANALYSIS:

The law governing Customs cartage, section 565 of the Tariff Act of 1930, as amended (19 U.S.C. 1565) provides that:

The cartage of merchandise entered for warehouse shall be done by cartmen to be appointed and licensed by the appropriate customs officer and who shall give a bond, in a penal sum to be fixed by such customs officer, for the protection of the Government against any loss of, or damage to, such merchandise while being so carted. The cartage of merchandise designated for examination at the appraiser's stores and of merchandise taken into custody by the customs officer as unclaimed shall be performed by such persons as may be designated, under contract or otherwise, by the Secretary of the Treasury, and under such regulations for the protection of the owners thereof and of the revenue as the Secretary of the Treasury shall prescribe.

The Customs Regulations on the licensing of cartmen issued under the authority of this law are found in Part 112 of the Customs Regulations (19 CFR Part 112). A "cartman" is defined in 19 CFR 112.1(b) as "one who undertakes to transport goods or merchandise within the limits of the port." Under 19 CFR 112.2(b), "[a] bond and license provided for in this part [i.e., Part 112] are required to transact business as a cartman ... for the cartage ... of merchandise entered for warehouse, designated for examination, taken to container stations, or taken into custody as unclaimed."

Subpart C of Part 112 of the Customs Regulations provides for the licensing of cartmen. Under section 112.21, a customhouse cartage license is required to perform Customs cartage, with certain exceptions inapplicable in this case. Section 112.22 contains the requirements for applying for a cartage license. An applicant for such a license is required to file with the appropriate district director: (1) a bond on Customs Form 301 containing the conditions provided in 19 CFR 113.63 in an amount specified by the District Director; (2) a fee of $100; and (3) if required by the District Director, a list of the names and addresses of the managing officers and members of the organization or of the persons who will receive or transport imported merchandise which has not been released from Customs custody, or a list of all such persons and their addresses. In addition, a cartman licensed by city or State authorities is required to present to the district director his city or State license. Vehicles licensed by Customs for cartage must be marked with the Customs license number (19 CFR 112.27). Customs may require licensed cartmen to make, keep, and submit to Customs records of cartage and a current list of the organization's managing directors and persons who will receive or transport imported merchandise which has not been released from Customs custody (19 CFR 112.29). Customs may require licensed cartmen and each employee thereof who handles imported merchandise which has not been released from Customs custody to carry, and display upon request, an identification card (19 CFR 112.41).

It is a basic principle of corporate law that a corporation is a separate and distinct legal being (i.e., a "legal person") (see, e.g., Moberly v. United States, 4 Cust. Ct. 91 (C.D. 294, 1940) (two corporations with the same name, same president, same secretary-treasurer, and interlocking directorates, and engaged in the same business, held to be separate and distinct entities). The Customs Regulations pertaining to Customs bonds explicitly provide for co-principals (see 19 CFR 113.34; see also Treasury Decision 84-213, "[t]wo separate corporations may be co- principals on the same bond and it makes no difference whether they have a common owner"). This is not the case with the Customs Regulations pertaining to cartmen. There is no provision permitting two entities to be a cartman. Accordingly, the binding of one corporation or legal person to the conditions of a cartman's license cannot bind another corporation (i.e., a separate and distinct legal being) to those conditions.

In this case it is proposed that one corporation would be the licensed and bonded cartman and another corporation would own the vehicles and employ the drivers. The first corporation would lease the services of the second. Thus, the corporation which is not bound to the conditions of the cartman's license would be the responsible entity with regard to many, if not most, of the requirements for cartmen under the Customs Regulations (i.e., provision of the names and addresses of the managing officers and persons who will handle imported merchandise which has not been released from Customs custody, marking of the vehicles with the Customs license number, keeping of records of cartage, and carrying and displaying of identification cards by the cartman and employees who will handle imported merchandise which has not been released from Customs custody). We concur with Customs in Philadelphia in its denial of your application for a cartman's license for Hatboro in the described situation.

For an analogous case, see Customs Service Decision 82-26, copy enclosed for your information. In that case a Customs cartman who owned a bonded warehouse desired to let its warehouse customers deliver bonded merchandise from the cartman's warehouse to vessels located in the same port under its cartage license. Customs held that "[a] bonded cartman may not use vehicles belonging to another person nor persons who are employees of another firm to conduct its own cartage operations."

For your general information, we can think of no way in which Hatboro could qualify for a cartman's license under its current corporate structure. We suggest that you may wish to consider restructuring Hatboro and J.W. (e.g., by merging the corporations).

HOLDING:

A corporation may not be licensed as a Customs cartman under 19 CFR Part 112 when a second corporation, founded and the president of which is a brother of the first corporation, provides the vehicles and employs the drivers under a lease arrangement with the first corporation.

Sincerely,

John Durant
Director, Commercial
Rulings Division

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