CBP Ruling H269529

February 7, 2017 HQ H269529 DRA-4 OT:RR:CTF:ER HQ H269529 SMS Sarah Stroth N.F. Stroth and Associates 150 California Street, Suite 225 San Francisco, CA 94111 Dear Ms. Stroth: This is in reference to your request concerning LAM Research Corp., being the drawback successor to Novellus Systems, Inc., pursuant to 19 U.S.C. §1313(s). Our decision is as follows. FACTS: In a letter dated June 2, 2014, LAM Research Corp. (“LAM”) requested a ruling identifying it as the drawback successor to Novellus Systems, Inc. (“Novellus”). The letter indicated that LAM, a Delaware Corp., was the sole owner of Novellus, a California Corporation, effective June 4, 2012. Certain declarations regarding the transfer of rights, privileges, immunities, powers, duties, and liabilities were provided. However, the June 2, 2014, letter was not accompanied by any supporting documentation. On June 1, 2015, N.F. Stroth submitted an electronic copy of an Asset Purchase Agreement (“APA”), between LAM and Novellus, which indicated an effective date of July 26, 2013, a different date than the one referenced in the June 2, 2014 letter. Furthermore, there were blank spaces in the section titled, Promissory Note, regarding the sum to be paid, and blank witness signature spaces. On June 8, 2015, we contacted N.F. Stroth and specifically requested official documentation, such as would be received from a state entity, to support the application for successorship. On July 2, 2015, N.F. Stroth submitted a revised application, containing updated language; however, no additional documentation was provided. After numerous unsuccessful attempts to procure supporting documentation, our office administratively closed the successor application, under case HQ H255103, dated July 14, 2015. On September 1, 2015, we received a letter again requesting a ruling identifying LAM as successor to Novellus, indicating that effective June 4, 2012, LAM was the sole owner of Novellus. In the letter, LAM made certain declarations and certifications, it declared that Novellus has transferred to LAM, by written merger, its rights, privileges, immunities, powers, duties, and liabilities; the assets and other business interests of a “division plant, or other business unit of Novellus.” As support, the file contained a, June 4, 2012, Agreement of Merger of Novellus and BLMS, Inc. This Agreement of Merger purports that BLMS, Inc., merged into Novellus, leaving Novellus as the “surviving corporation.” This Merger Agreement did not provide proof that Novellus merged into LAM, and made no mention of LAM as a successor to Novellus. The Agreement of Merger, labeled LAM as the “parent company” of Novellus, and made reference to a December 14, 2011, Merger Agreement between LAM, Novellus, and BLMS. The Agreement of Merger, states that these two merger agreements are intended to be construed together; however, the December 14, 2011 Merger Agreement was not provided to our office. Further, BLMS, Inc., Officer’s Certificate of Approval of Merger, which purports to approve the Merger of BLMS into Novellus, contained blank signature spaces for the Vice President of BLMS. On October 28, 2015, we contacted N.F. Stroth and specifically requested a copy of the December 14, 2011 Merger Agreement, and official documentation, such as would be received from a state entity, to support the application for successorship. On February 26, 2016, N.F. Stroth submitted a revised application, containing updated language; another copy of the June 4, 2012 Agreement of Merger between BLMS and Novellus; the APA, dated July 26, 2013; an Amendment to the APA, dated September 19, 2013; and a February 17, 2016, certificate from the Assistant Secretary of Novellus, certifying the sale, transfer, and assignment of assets from Novellus to LAM. The February 26, 2016, letter indicated that on July 26, 2013, as part of the integration of Novellus’ semiconductor operations into LAM, Novellus transferred all of its drawback rights and all other rights and obligations related to past, current, and future import and export activity of its semiconductor business to its parent company LAM, pursuant to the APA. LAM explained that “[t]he APA was a private transaction and none of the contract documents were filed with or recorded by any official federal or state entity.” The APA again contained blank spaces in the sections titled, Purchase Price and Promissory Note, regarding the sum to be paid, and blank LAM witness signature spaces. The Amendment to the APA, effective September 19, 2013, adjusted the purchase price of the APA; however again the purchase prices were blank. ISSUE: Whether LAM Research Corp., has established itself as the drawback successor to Novellus Systems, Inc., pursuant to 19 U.S.C. §1313(s). LAW AND ANALYSIS: Section 313 of the Tariff Act, as amended (19 U.S.C. §1313(s)(2)), provides that for purposes of §1313(j)(2), a drawback successor may designate: (1) imported merchandise that the predecessor, before the date of succession, imported; or (2) imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise for which the predecessor received, before the date of succession, from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to the predecessor such merchandise; as the basis for drawback on merchandise possessed by the drawback successor after the date of succession. A “drawback successor” is an entity to which another entity (referred to as the “predecessor”) has transferred by written agreement, merger, or corporate resolution all or substantially all of the rights, privileges, immunities, powers, duties, and liabilities of the predecessor; or the assets and other business interests of a division, plant, or other business unit of such predecessor, but only if in such transfer the value of the transferred realty, personalty, and intangibles (other than drawback rights, inchoate or otherwise) exceeds the value of all transferred drawback rights, inchoate or otherwise. 19 U.S.C. § 1313(s)(3).  In order to claim drawback under 19 U.S.C. §1313(s), there is the requirement that either the predecessor or the drawback successor (who shall also certify that it has the predecessor’s records) certifies that the transferred merchandise was not and will not be claimed by the predecessor, and the predecessor did not and will not issue any certificate to any other person that would enable that person to claim drawback. The implementing regulations require that the predecessor or successor must certify in an attachment to the drawback claim that the successor is in possession of the predecessor’s records that are necessary to establish the right to drawback under the law and regulations with respect to the imported and/or commercially interchangeable merchandise and the predecessor or successor must certify in an attachment to the drawback claim, that the predecessor has not and will not designate, nor enable any other person to designate, the imported and/or commercially interchangeable merchandise as the basis for drawback. See 19 C.F.R. § 191.32(f)(3)(i) and (ii). In instances in which assets and other business interests of a division, plant, or other business unit of a predecessor are transferred, the predecessor or successor must specify, and maintain supporting records to establish, the value of the drawback rights and the value of all other transferred property. See 19 C.F.R. § 191.32(f)(3)(iii). Further, the written agreement, merger, or corporate resolution, and the records and evidence, must be retained by the appropriate entity for three years from the date of payment of the related claim and are subject to review by CBP upon request. See 19 C.F.R. § 191.32(f)(3)(iv). As stated in the legislative history to the amendments to the drawback law under 19 U.S.C. 1313, House Report 103-361, 103d Cong., 1st Sess., 132 (1993), “the Committee does not intend to create a ‘market’ for drawback rights” H. Rep. 103-361, at 130; see also the Report Language on the “successorship” provision in 19 U.S.C. 1313(s): “In all cases, the value of the realty and personalty transferred must exceed the value of the drawback rights transferred to prevent pure sales of drawback rights.” See HQ 225228 (December 23, 1994) (internal citations omitted). In HQ 229251, dated May 30, 2002, CBP emphasized that it is well established that drawback law confers a privilege, not a right. The privilege to recover drawback ripens only when all provisions of the statute and applicable regulations prescribed under its authority have been met. See HQ 229251 (May 30, 2002) (citing Swan & Fitch Co., v. United States, 190 U.S. 143, 147 (1903); other internal citations omitted). In HQ 229251, two individuals claimed the rights to proceeds of the drawback claim of MX2, a dissolved company. A Bill of Sale and Agreement for Purchase and Sale of Business, executed by the President of MX2, transferred the inventory, accounts receivable, and goodwill, of MX2 to FCI, for the sum of ten dollars. Over three years after the dissolution of MX2, its President, informed the Miami drawback office that as majority shareholder and president when the drawback took place, she was entitled to the drawback amount. The President argued that FCI did not take any rights to MX2, and that the sale of MX2 occurred after the drawback took place. We denied drawback, finding there was no clear evidence of succession to the right of the dissolved company, by either claimant. CBP has recognized that the right to claim drawback may be transferred, as long as there is an undisputed transfer of rights. HQ 229251 (May 30, 2002). In HQ 228433, dated August 29, 2001, LMS was the initial owner of a bomb program claimed for drawback purposes, BLU-109. Documentation was provided to CBP to demonstrate a merger between Lockheed into Lockheed Martin, which included LMS. Claimant asserted that LMS dissolved and that its assets were transferred to LMAS; however, documentation regarding dissolution of LMS and the restructuring of its assets into LMAS, was not provided to CBP. Pursuant to an Asset Purchase and Sale Agreement, substantially all of LMAS’ assets were sold to General Dynamics, the drawback claimant. We held that the dissolution documents of LMS into LMAS were essential to determine that the requirements of 19 C.F.R. § 1313(s) were met. “Specifically, the documents must show that by written agreement, merger, or corporate resolution, LMAS acquired all or substantially, all of the rights, privileges, immunities, powers, duties, and liabilities of LMS, or that the transferred assets and other business interests of LMS exceeds the value of all transferred drawback rights, inchoate and otherwise.” HQ 228433 (August 29, 2001). Additionally, we stated that the fact that LMS was included with the merger, was not relevant, as it did not establish that LMAS was successor to LMS for the purposes of 19 C.F.R. § 1313(s). Id. In HQ H121815, dated July 12, 2013, CBP reiterated that a successor may only claim drawback 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 H121815, we granted a claim for drawback even though it would have been impossible to obtain certificates of manufacturer and delivery or certificates of delivery to reflect that drawback rights were transferred, as the original company was no longer in existence due to bankruptcy. We held that there was sufficient evidence that the rights were transferred, in the Master Transaction Agreement, which transferred “‘any claim, right or interest . . . to any refund, rebate, abatement or other recovery of taxes,’” which specifically included custom duties. Further, because the predecessor no longer existed, we found it would be impossible for it to also claim drawback rights. HQ H121815 (July 12, 2013). In this instance, the Asset Purchase Agreement between LAM and Novellus indicates that LAM acquired Novellus and its subsidiaries on June 24, 2012, and that Novellus “desires to sell, convey, transfer, and assign to Buyer [LAM], and Buyer wishes to purchase, acquire and assume from Seller, the Assets and the Liabilities” associated with the business of designing, manufacturing, marketing, refurbishing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits in the United States. See Exhibit A. The Agreement defined assets as “all of Seller’s assets, properties and rights,” with the exception of the “Excluded Assets” found in Exhibit B of the APA. The excluded assets included the rights, titles, and interests in a variety of properties, subsidiaries, and other referenced financial agreements. The listed assets included in the APA did not refer to drawback or the refund of duties. The provided Agreement of Merger between Novellus and BLMS indicated that BLMS merged into Novellus, leaving Novellus as the surviving corporation. Additionally, the APA and amended APA contained blank spaces in the sections titled, Purchase Price and Promissory Note, regarding the sum to be paid, and blank LAM witness signature spaces. As, LAM did not indicate whether the transfer of assets, other than drawback rights, exceeded the value of all the transferred drawback rights, as required pursuant to 19 U.S.C. § 1313(s)(3), and the provided documents fail to establish such values, LAM does not meet the requirements to claim drawback as a successor to Novellus and designate imported merchandise used by Novellus. Pursuant to 19 C.F.R. § 191.32(f)(3)(iii), in instances in which assets and other business interests of a division, plant, or other business unit of a predecessor are transferred, as is the case here, the predecessor or successor must specify, and maintain supporting records to establish, the value of the drawback rights and the value of all other transferred property. The companies did not specify the value of the assets transferred to LAM, and it is not clear if substantially all of Novellus’ assets were transferred to LAM, as many of its subsidiaries and assets were excluded from the purchase. As CBP held in HQ 229251 and HQ 228433, drawback is only allowed if clearly supported by the evidence, and LAM has repeatedly failed to provide documentation with clear evidence of its succession to Novellus. Despite its certifications, unlike in HQ H121815, Novellus did not cease to exist, and it could potentially claim drawback rights. The merger documentation, which indicates that BLMS merged into Novellus, and the APA between LAM and Novellus, do not provide sufficient evidence that the transferred assets and other business interests of Novellus exceed the value of all transferred drawback rights, inchoate and otherwise. Accordingly, we find that LAM Research Corp., has not established that it is the drawback successor to Novellus Systems, Inc., pursuant to 19 U.S.C. § 1313(s) and 19 C.F.R. 191.32(f)(3)(iii). HOLDING: LAM Research Corp., has not proven its right of successorship, pursuant to 19 U.S.C. §1313(s), to designate merchandise which was imported by Novellus Systems, Inc. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” Sincerely, Monika R. Brenner, Acting Chief Entry Process and Duty Refunds Branch