HQ 112978 - Protest No. 3801-3-101891; Trans Continental Airlines; User Fees; Bankruptcy; Bond Liability; 19 U.S.C. ? 58c - United States International Trade Commision Rulings

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HQ 112978

November 14, 1994

AIR-4-CO:R:IT:C 112978 GEV

CATEGORY: CARRIER

Patricia Moran
Acting Assistant District Director
Commercial Operations
U.S. Customs Service
477 Michigan Avenue
Detroit, Michigan 48226

RE: Protest No. 3801-3-101891; Trans Continental Airlines; User Fees; Bankruptcy; Bond Liability; 19 U.S.C. ? 58c

Dear Ms. Moran:

This is in response to your memorandum dated November 23, 1993, forwarding the above-cited protest and related documents. Our ruling on the issues raised therein is set forth below.

FACTS:

The U.S. Customs Service Regulatory Audit Division, North Central Region, Chicago Branch 311, conducted an audit of Trans Continental Airlines, Inc. ("TCA") of Ypsilanti, Michigan, during the period of May, 1989 through October, 1990. The purpose of the audit was to evaluate TCA's operations and internal controls to ensure that the proper amount of user fees was collected, reported, and remitted in accordance with ? 24.22(g), Customs Regulations (19 CFR ? 24.22(g)).

The audit disclosed that TCA's commercial passenger operations consisted of chartering two planes to various foreign and domestic tour operators, and to certain airlines including Hawaiian Airlines and Air Europe. Furthermore, the audit determined that TCA was liable for Customs and Immigration and Naturalization Service (INS) user fees in the total amount of $139,590 collected from eight tour operators, but failed to report or remit that amount to Customs or the INS notwithstanding the fact that the tour operators collected the fees and remitted them to TCA.

By letter to TCA dated May 3, 1991, the Office of Inspection and Control sought remittance of the delinquent fees for fiscal year 1990. Counsel for TCA, in a letter dated July 8, 1991, responded by asserting that not only was TCA unable to make payment, but that effective October 9, 1990, TCA had filed for Chapter 11 protection in the Eastern District of Michigan, United States Bankruptcy Court. (We note that TCA has subsequently converted the aforementioned bankruptcy filing to Chapter 7.) Consequently, Counsel maintained that the user fees in question were a pre-petition unsecured obligation of TCA.

The auditors' examination of TCA's flight records indicated that its passenger operations ceased on the date TCA filed for Chapter 11 protection. On January 22, 1992, TCA discontinued its air cargo service (the remainder of its flying operations) and reduced personnel to employees supporting their on-ground cargo operation which consisted of loading cargo between planes and trucks. Neither the cargo, planes, nor trucks were owned by TCA. TCA is currently in liquidation procedures and has surrendered its FAA certificate.

Intercargo Insurance Company ("Intercargo") is the surety of a continuous International Carrier Bond (listed in ACS as #398902486) held by TCA, as principal, in the amount of $100,000. The bond was effective March 30, 1989, and terminated on March 29, 1991, with a last rider date of April 3, 1991. By letter dated March 3, 1993, the Assistant Chief Counsel, U.S. Customs Service, Indianapolis, Indiana, made formal demand to Intercargo for payment of the delinquent user fees owed in the amount of $139,590. The audit report determined that one half of this amount ($69,795) consisted of Customs user fees, the other half INS user fees. (Protest Exhibit A) A proof of claim was filed in bankruptcy court on behalf of Customs in the amount of $69,795.

Counsel for Intercargo filed a protest, dated May 28, 1993, on the above-referenced formal demand for payment. The protest contains the following arguments: (1) Intercargo has no liability under its bond for Customs user fees because the bond principal (TCA) was not statutorily liable for the collection of the fees and their remittance to Customs; and (2) for the same reasons that Intercargo is not liable for Customs user fees, it is also not liable for INS user fees. Further in regard to this second argument, counsel asserts that Customs lacks the authority to demand payment of INS user fees.

In addition, the protest further noted that on March 9, 1993, Intercargo filed a request under the Freedom of Information Act ("FOIA") for documentation which would allow it to assess its liability for the payment demand made by Customs. On April 16, 1993, the Regional Commissioner, U.S. Customs Service, North Central Region, responded to Intercargo's FOIA request by
disclosing a copy of the User Fee Audit Report on TCA, dated November 27, 1992 (Report Control Number b2) performed by Customs Regulatory Audit Division, North Central Region. (Protest Exhibit B) Upon review of the report, Intercargo determined that it was not completely responsive to their request since it did not allow them to fully assess their liability for the user fees in question.

On May 18 and 19, 1993, Intercargo's counsel requested the Office of Regional Counsel, North Central Region, to retrieve additional documents for the purpose of supplementing their protest if such additional documents were determined to be subject to release under FOIA. Specifically, counsel requested copies of certain contracts between TCA and the tour operators referenced in the audit report. On July 13, 1993, the Regional Commissioner of Customs, Chicago, Illinois, completed Customs response to Intercargo's FOIA request by forwarding a copy of the only contract between TCA and a tour operator (National Rosary Confraternity of U.S. Pilgrimage to Lourdes, otherwise known as "Catholic Travel") that was discovered during a review of the available records.

Counsel requested that Customs hold Intercargo's protest in abeyance at least thirty (30) days following supplementation of Intercargo's FOIA request (see p. 2 of the protest dated May 28, 1993). In addition, pursuant to ? 174.28, Customs Regulations (19 CFR ? 174.28), counsel requested that Customs consider his letter of August 5, 1993, as supplementing Intercargo's protest. We have honored both of these requests. The aforementioned letter contains the following additional arguments: (1) based on the evidence, it is not possible to state, with any degree of legal certainty, that TCA was contractually obligated to remit any user fees to Customs; and (2) any third party contractual undertaking by TCA is invalid to create bond liability against Intercargo.

Subsequent to Customs receipt of the protest and supplemental information filed by counsel on behalf of Intercargo, additional documentation regarding the eight tour operators and their relationship with TCA was sought by the Regulatory Audit Division, North Central Region. Although no additional documentation was obtained from two of the tour operators (DecWorld and C&C), five of the remaining six provided Customs with the following:

AMERPOL International - copies of two charter agreements with TCA; a letter to Customs stating that the user fees in question were collected by AMERPOL and remitted to TCA which issued the travel documentation; copies of four TCA invoices to AMERPOL listing the total Customs/INS user fees due for specific flights; copies of AMERPOL reconciliation
sheets showing payments of the fees to TCA supported by copies of bank debit advices; and copies of a cashier's check and a company check to TCA for the cost of a specific charter (including Customs/INS user fees) with a copy of a receipt of payment from TCA for the cashier' check.

Go Voyages, Inc. - copies of two charter agreements with TCA; copies of seven TCA invoices to Go Voyages, Inc. listing the total Customs/INS user fees due for specific flights; and a copy of a document from TCA to Go Voyages, Inc. acknowledging receipt of wire transfers of money covering certain flights.

Azores Express - a copy of a charter agreement with TCA; and copies of all wire transfers to TCA including Customs/INS fees.

Mundial Tours - a copy of a charter agreement with TCA; a copy of a fax from TCA to Mundial Tours providing the account number for a wire transfer of the total amount (including Customs/INS fees) for a charter; a copy of the outgoing wire transfer form from Mundial Tours to TCA covering the cost of a charter; and a copy of an invoice from TCA to Mundial Tours listing the total Customs/INS user fees due for a specific flight.

Nacel International - a copy of an addendum to a charter agreement with TCA.

ISSUES:

1. Whether TCA is liable to Customs for the payment of user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5) for passengers arriving in the United States from foreign when the TCA aircraft on which the passengers arrived were, at the time of arrival, under charter to tour operators which collected the fees and remitted them to TCA.

2. If TCA is liable to Customs for the payment of user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5) as discussed above, whether Intercargo, as surety for the International Carrier Bond held by TCA, is liable for such fees in view of TCA's bankruptcy filing.

LAW AND ANALYSIS:

ISSUE 1

During the time period of the Customs audit in question (May, 1989 through October, 1990), title 19, United States Code, Customs processing of passengers as follows:

"For the arrival of each passenger aboard a commercial vessel or commercial aircraft from a place outside the United States (other than a place referred to in subsection (b)(1)(A) of this section), $5."

Pursuant to ? 521 of Public Law 103-182 (the North American Free Trade Agreement Implementation Act), effective December 8, 1993, 19 U.S.C. ? 58c(a)(5) was amended to read as follows:

"For fiscal years 1994, 1995, 1996, and 1997, for the arrival of each passenger aboard a commercial vessel or aircraft from outside the customs territory of the United States, $6.50."

Notwithstanding the above discrepancies in the statutory language with regard to the amount of the fee assessed and any limitations thereon (the latter not herein applicable), the statutory requirements with respect to the collection of the fee have remained unchanged. In this regard, 19 U.S.C. ? 58c(d)(1) requires, inter alia, (1) that the fee prescribed under subsection (a)(5) be collected by "[e]ach person that issues a document or ticket to an individual for transportation by a commercial vessel or commercial aircraft into the customs territory of the United States"; (2) that such collection take place "at the time the document or ticket is issued"; and (3) "[t]he person who collects fees...shall remit those fees..."

The protestant avers that the tickets or travel documents in question were not issued by TCA but rather by the tour operators which chartered TCA aircraft (a contention disputed by at least two of the tour operators). Counsel therefore maintains that TCA is not statutorily liable for the collection of the fees. Consequently, it is contended that Intercargo, as surety for the International Carrier Bond held by TCA, should not be held liable under the bond for the fees. (Protest at p. 3) We note that counsel does not dispute the finding of the audit report that the tour operators collected the fees from the passengers and remitted them to TCA which did not remit them to Customs. (Protest at p. 4)

Upon reviewing the record in its entirety, it is unclear as to which party (TCA or the tour operators) issued the tickets or travel documentation. However, what is clear from the record, particularly the charter agreements between TCA and six of the tour operators, is that Customs user fees were included as part of the charter prices paid to TCA in advance of the flights. We reiterate that the protestant does not dispute the fact that the tour operators collected the fees and remitted them to TCA which did not remit them to Customs.

Accordingly, we are of the opinion that the documentation submitted establishes that six of the eight tour operators in question acted as collecting agents for TCA. Consequently, we further believe that the record has created a prima facie case that TCA issued the tickets and therefore was responsible for the remission of the prepaid fees included in the cost of these tickets to Customs pursuant to 19 U.S.C. ? 58c(d)(1). Notwithstanding their statutory liability, TCA's failure to remit these fees to Customs constitutes unjust enrichment for which restitution must be made. (See 66 Am.Jur. Restitution and Implied Contracts ? 3 (1973)) Restitution, in the context of this case, takes the form of remittance of unpaid user fees to Customs.

ISSUE 2

Section 111 of the Customs and Trade Act of 1990 (Public Law 101-382) amended 19 U.S.C. ? 58c(g) to provide that all administrative and enforcement provisions of the Customs laws and regulations, except those relating to drawback, shall apply with respect to any fee prescribed under ? 58c(a) (which includes the arriving passenger fees in question), and with respect to persons liable therefor, as if such fee is a customs duty.

Section 113.64 of the Customs Regulations (19 CFR ? 113.64) includes the terms of the International Carrier Bond (held in this case by TCA as principal and Intercargo as surety). The provisions of ? 113.64(a) guarantee payment by the bond obligors of all duties, taxes and other charges which are provided by law or regulation. Customs may make a demand against the principal and surety, under the terms of the bond, for any fees that should have been collected and remitted by the carrier to Customs.

The provisions of ? 113.64(e) require the principal and surety to "exonerate the United States and its officers from any risk, loss or expense arising out of entry or clearance of the carrier, or handling of the articles on board." Clearance of passengers includes the collection of fees and is an activity relating to the entry or clearance of the carrier.

Accordingly, since TCA is liable for the Customs user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5) as discussed above, Intercargo, as surety for the International Carrier Bond held by TCA, is liable to Customs for such fees in view of TCA's filing bankruptcy.

Finally, we note that this protest encompasses claims not only with respect to Customs user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5), but also with respect to fees assessed pursuant 8 U.S.C. ? 1356(d) in connection with passenger inspection services provided by the INS. Counsel states that for the same reasons discussed above that Intercargo is not liable for Customs user fees, it is also not liable for INS user fees. Furthermore, counsel contends that the collection of the INS fee is outside the jurisdiction of Customs and outside the scope of the bond and therefore Customs lacks authority to demand payment of INS fees from Intercargo.

Upon further review of this matter, we concur with counsel's position that the INS fee is outside of Customs jurisdiction. Accordingly, we are amending our formal demand for payment of delinquent user fees assessed pursuant 19 U.S.C. ? 58c(a)(5) to reflect those Customs fees covered by the documentation discussed above (copies of which are enclosed). In regard to those delinquent INS fees assessed pursuant to 8 U.S.C. ? 1356(d) which are noted in the audit report, Customs defers to that agency as to the validity of the protestant's claims with respect to those fees.

HOLDINGS:

1. TCA is liable to Customs for the payment of user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5), as reflected in the enclosed documentation, for passengers arriving in the United States from foreign when the TCA aircraft on which the passengers arrived were, at the time of arrival, under charter to six tour operators.

2. Since TCA is liable for user fees assessed pursuant to 19 U.S.C. ? 58c(a)(5) as discussed above, Intercargo, as surety for the International Carrier Bond held by TCA, is liable for such fees in view of TCA's bankruptcy filing.

Accordingly, the protest is denied in part and granted in part.

In accordance with ? 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any new billing (the equivalent of the reliquidation of an entry) in accordance with the decision must be accomplished prior to
mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Sub- scription Service, Freedom of Information Act and other public access channels.

Sincerely,

Stuart P. Seidel
Director, International Trade

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