19 U.S.C. § 1313(s); successorship; manufacturing drawback; bankruptcy

HQ H121815 July 12, 2013 DRA 2 OT:RR:CTF:ER H121815 CSO Mr. Richard A. Brow Chief, Drawback – Chicago U.S. Customs and Border Protection 9915 Bryn Mawr Ave., Room 311 Rosemont, Illinois 60018-5213 Re: 19 U.S.C. § 1313(s); successorship; manufacturing drawback; bankruptcy Dear Mr. Brow: On August 31, 2010, your office sent us an August, 27, 2010, request from Chrysler Group, LLC (Chrysler Group) requesting internal advice on whether it is entitled to claim drawback. Chrysler Group sent this office a second letter on August 2, 2012, setting forth additional arguments. We have considered the points raised by Chrysler Group and our decision follows. We regret the delay in our response. FACTS Chrysler LLC filed for Chapter 11 bankruptcy on April 30, 2009. Chrysler Group, via a Master Transaction Agreement (MTA), dated April 30, 2009, an agreement that was approved in order to transfer assets from Chrysler LLC as part of the bankruptcy proceedings acquired all of the assets, rights and liabilities of Chrysler LLC. Chrysler Group has unliquidated drawback claims based on merchandise acquired by Chrysler LLC. Chrysler Group does not have certificates of delivery (CDs) or certificates of manufacture and delivery with respect to these claims. The claims involve the following scenarios: Chrysler LLC imported merchandise and Chrysler Group manufactured and exported the article (scenario 1); Chrysler LLC imported merchandise, manufactured and exported the article (scenario 2); and Chrysler LLC imported and manufactured the merchandise but exportation was effected by Chrysler Group; (scenario 3). Chrysler Group provided our office with the relevant sections from the MTA between the bankrupt Chrysler LLC and the new Chrysler Group. Section 2.06(n) of the MTA provides that Chrysler Group acquired “any claim right or interest of any of the Purchased Companies in or to any refund, rebate, abatement or other recovery of Taxes for any taxable period.” The MTA defines Taxes as: ‘Tax’ or ‘Taxes’ means any and all taxes of any kind including any similar charges, levies or other similar assessments or Liabilities, including income, gross receipts, ad valorem, premium value-added, consumption, excise, real estate, real property, personal property, sales, use, transfer, withholding, employment, unemployment insurance, social security, business license, business organization, environmental, workers, compensation, profits, severance, stamp, occupation, windfall profits, customs, duties, payroll, franchise taxes or other taxes (together with any and all interest, penalties and additions to tax imposed with respect thereto) imposed by an Government Authority, or which are payable to any Government Authority. MTA, Definition Addendum at page 92 (emphasis added). On February 2, 2012, Chrysler Group’s counsel confirmed that the former Chrysler LLC is no longer in existence due to bankruptcy proceedings and thus, it would be impossible for it to issue CDs or CMDs to reflect that drawback rights were transferred from Chrysler LLC to Chrysler Group. Additionally, we note that on June 21, 2012, our office issued a modification to Chrysler LLC’s general manufacturing drawback ruling stating that Chrysler Group was the successor to Chrysler LLC for purposes of its general manufacturing drawback ruling. ISSUE Whether under the circumstances described Chrysler Group may claim drawback. LAW AND ANALYSIS Title 19, United States Code Section 1313(s)(1) allows a successor company to: designate imported merchandise used by the predecessor before the date of succession as the basis for drawback on articles manufactured by the drawback successor after the date of succession. 19 U.S.C. § 1313(s)(1). Thus, for those claims where Chrysler LLC imported merchandise and Chrysler Group manufactured and exported the article, the statute makes clear that Chrysler Group may receive drawback. See, e.g., HQ 228433 (Aug. 29, 2001) (stating that 1313(s)(1) allows for drawback when the “predecessor manufactures or produces an article using designated merchandise and the successor manufactures or produces the exported article”); HQ 230242 (March 26, 2004) (stating that 1313(s)(1) “addresses the situation in which a drawback successor may designate imported merchandise used by the predecessor before the date of succession as a basis for claiming drawback on articles manufactured by the successor after the date of succession.”). However, Section 1313(s)(1) is silent with regard to whether Chrysler Group is entitled to claim drawback where it does not manufacture and export the article.  We first discuss Chrysler Group’s claims where its predecessor imported, manufactured, and exported the article.  These drawback rights are “fully vested,” i.e., no further action is necessary but for filing of the drawback claim with CBP. For these “fully vested” rights that are transferred to the successor, both the regulations and previous rulings recognize these claims as valid when defining “drawback successor.” The relevant regulation states that “the drawback successor is an entity to which the predecessor has transferred the assets and other business interests, provided that the value of the transferred assets and interests exceeds the value of such drawback rights, whether vested or contingent.” 19 C.F.R. §191.32(f) (emphasis added). Hence, the regulation recognizes a vested right to drawback. Moreover, in HQ 229251 (May 30, 2002), CBP explained that: The right to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed under its authority have been met (Romar Trading Co., Inc. v. United States, 27 Cust. Ct. 34 (1951); General Motors Corporation v. United States, 32 Cust. Ct. 94 (1954)). Specifically, the inchoate or accruing right [to the drawback claim] ripens, until upon exportation of the merchandise or article in accordance with the statute and regulations pertaining thereto, the inchoate or accruing right becomes an absolute right to receive payment, as drawback, of the amounts specified by the statute. (Campbell v. United States, (107 U.S. 407, 27 L. Ed. 592, 2 S. Ct. 759 (1882)); see also General Motors Corp. v. United States, 32 Cust. Ct. 94, 97 Cust. Ct. (1954)). Further, drawback claimants must strictly adhere to the requirements set forth in the statutes and applicable regulations (United States v. Lockheed Petroleum Services, Ltd., 1 Fed. Cir. (T) 63, 709 F.2d 1472 (1983)). However, a successor may only claim drawback on those vested rights when it has first established that under the operative succession document it is entitled to claim drawback on merchandise and articles received from the predecessor.  In HQ 229251, although CBP recognized that the right to drawback was created when the article was exported, we denied drawback because there was “no clear evidence that either claimant has succeeded to the right of MX2” after MX2 dissolved. However, in the case at hand, only Chrysler Group would be considered eligible as it is the only entity listed in the MTA as receiving the drawback rights. The MTA evidences that Chrysler Group succeeded to the drawback rights previously held by Chrysler LLC. The MTA transferred all of the assets and liabilities and states “any claim, right or interest of any of the Purchased Companies in or to any refund, rebate, abatement or other recovery of Taxes for any taxable period…” MTA, Section 2.06(n). The definition of taxes in the MTA includes customs duties. MTA, Definition Addendum at pg. 92. Further, because Chrysler LLC no longer exists, it would be impossible for it to claim any of the fully vested drawback rights. Hence, for all of the claims where the drawback rights are fully vested, Chrysler Group is the only company entitled to claim drawback. Finally, Chrysler Group’s remaining drawback claims include those articles that were exported by Chrysler Group after the succession but imported/manufactured by the predecessor; as well as those claims that are based upon merchandise imported, but not used by the Chrysler LLC before the date of succession and where no CDs or CMDs were provided. In HQ 229251 (May 30, 2002), we stated that “[c]ustoms has recognized that the right to claim drawback may be transferred” as long there is an undisputed transfer of the rights. (citations omitted). Unlike in HQ 229251 where there were two companies disputing the transferred drawback rights, Chrysler Group is the only possible company to claim the drawback rights at issue. This is because all of the refund of “customs duties” flowed from Chrysler LLC to Chrysler Group via the MTA. Chrysler LLC’s rights and existence were extinguished. Therefore, Chrysler Group may claim drawback on these as well. Additionally, we note that recognizing the right to claim drawback under these circumstances creates an exception to the requirements in 19 C.F.R. § 191.10 and 19 C.F.R. § 191.24 that CMDs and CDs be provided to CBP for all articles and merchandise that are transferred from a manufacturer or importer to another party. The CMDs and CDs demonstrate that the potential rights to drawback on those articles and merchandise are assigned to the transferee. See 19 C.F.R. §§ 191.10(a)(3) and 191.24(d). In this case because of the transfer agreement and the fact that Chrysler LLC has ceased to exist, it is apparent that Chrysler Group has demonstrated its right to claim drawback and there is no possibility that Chrysler LLC could also do so. We find that the decision in HQ 228433 (August 29, 2001), is not applicable to this case. In HQ 228433 there were a series of asset purchase agreements of a bomb-making subdivision of a company where the drawback rights were transferred multiple times and where it was unclear which party was entitled to claim the specific drawback rights. In that ruling, we held that 19 U.S.C. § 1313(s)(1) did not apply to claims where the predecessor continued to exist and retained the right to issue CDs and CMDs to another party. HQ 228433 was based on the scope of 19 U.S.C. §1313(s)(1). Because we conclude that a transfer of drawback rights may be effected under scenarios not covered or addressed by 1313(s), the ruling is not a bar to the conclusion we reach here. Finally, each of Chrysler’s outstanding claims that fall within the three scenarios are subject to the verification by the Drawback Center. The verification is done in order to confirm that the claims are proper and that in accordance with the facts described above. HOLDING Since, the drawback rights were clearly transferred from Chrysler LLC to Chrysler Group under the MTA and Chrysler LLC has ceased to exist, Chrysler Group may claim drawback in each of the scenarios described above. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division