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HQ 229251

May 30, 2002

HRL 229251 RDC

Port Director of Customs
P. O. Box 025280
Miami, Florida 33102-5280
Drawback Office: Room 102
ATT: Joyce Mikalunas

RE: Drawback rights; Right to drawback claim; Florida corporation; Sale of assets.

Dear Sir or Madam:

This is in response to your letter dated July 30, 2001, requesting guidance as to whom has the right to the proceeds of drawback claim 032-xxxxx07-7. According to your letter, two parties, Hazel Jones (president and shareholder of MX2, Inc. (“MX2”)), and Darren Apel both claim that they are entitled to the proceeds of this drawback claim. We note that Darren Apel states that he is the son of Michael Apel who was the secretary and shareholder of MX2 and the president of Fashion Concepts, Inc. (“FCI”). Since Darren Apel is not named in any of the documents you provided, we cannot comment on his relationship, if any, to the drawback claim.

The following is a narrative of the facts as understood by this office from the documents enclosed with your letter.

FCI is and MX2 was a Florida corporation. MX2 imported men’s knitwear in 1996. On June 10, 1997, A. J. Arango, Inc., attorney in fact for MX2, filed drawback claim 032-xxxxx07-7 which claimed drawback per 19 USC § 1313(j) (direct identification unused merchandise drawback) on 291 pieces of the men’s knitwear imported by MX2 in 1996. The duty paid on the knitwear by MX2 was stated as $1,390.16; the amount of drawback claimed is $1,193.84. The knitwear was exported on or about June 14, 1997, by MX2, and the drawback claim was liquidated on September 8, 2000.

According to the Agreement for Purchase and Sale of Business, Hazel Jones owned 55 percent of the issued and outstanding shares of MX2; Jones was also its president and director. Michael Apel was the owner of 45 percent of the issued and outstanding shares of MX2 and was also its vice president and director. Apel was also the president, shareholder and director of FCI. MX2, Jones and Apel sold some or all of the assets, specifically enumerated below, of MX2 to FCI and Apel. As evidence of the transaction between Jones and Apel the following documents are included:

A Bill of Sale executed on July 16, 1997, by Jones as president of MX2 states that MX2, sells and transfers such property as is named in “Exhibit A” to FCI, for the sum of ten dollars. The assets enumerated in “Exhibit A” are: All product labels, mailing lists, customer lists, supply lists, operating records, advertising, catalogs necessary to operate MX2 as a going concern. All rights of MX2 with respect to Marcello. All account receivable per Exhibit A-1.
All inventories of merchandise and stock in trade per Exhibit A-2. All intangible rights to MX2 as a going concern, including goodwill, and all of MX2’s right, title and interest in any and all of its various agreements with its customers and all customer accounts and records thereof. The name MX2.

The Buyer’s Closing Statement, dated July 21, 1997, signed by Michael I. Apel, as President of FCI, represents that FCI paid for: 1) inventory; 2) accounts receivable; and 3) goodwill. Also FCI paid MX2 for certain “merchandise and expenses” listed in “Exhibit A” to that document.

On July 22, 1997, a Corporate Resolution was adopted by Michael Apel as secretary, shareholder and director of MX2 and Hazel Jones as president, shareholder and director of MX2, directing the execution of documents necessary to the sale and transfer of MX2 per the Agreement for Purchase and Sale of Business.

An Agreement for Purchase and Sale of Business, dated May 23, 1997, but executed by Jones and Apel on July 23, 1997, is also included. This Agreement states that the following assets of MX2 were transferred:
all product labels all rights of MX2 with respect to Marcello all accounts receivable all inventories of merchandise and stock in trade the intangible rights to the business as a going concern, including goodwill and all seller’s rights in all agreements with its customers, all customer accounts and records thereof.

On November 1, 2000, in response to an inquiry from the Miami drawback office, Hazel Jones by letter informed that office that she, as majority shareholder and president of MX2 when the “drawback took place” was entitled to the drawback amount. The Jones letter states that FCI “happened to purchase certain assets of MX2” after the “drawback took place.” Jones states, FCI “did not take on any rights to the corporation of MX2.” This letter also states that MX2 was dissolved subsequent to the sale of the assets to FCI. By letter dated November 6, 2000, Michael Apel informed the Miami drawback office that the sale of MX2 to FCI took place on July 23, 1997.

The first issue to determined is when did the right to payment of drawback per 19 USC § 1313(j) become fixed or perfected; that is, when were all actions required by the statute and regulations as a condition precedent to the payment of a drawback claim completed?

It is well established that drawback laws confer a privilege, not a right (Swan & Finch Company v. United States, (190 U.S. 143, 47 L. Ed. 984, 23 S. Ct. 702) and that there is no absolute or vested right to drawback (Romar Trading Co., Inc. v. United States, (27 Cust. Ct. 34, C. D. 1344). When merchandise, such as the knit menswear at issue here, is imported and a drawback statute like § 1313(j)(1), may potentially be applicable, an accruing or inchoate right may be said to arise. 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)).

Per § 1313(j)(1): if imported merchandise is exported or destroyed under Customs' supervision, within three years from the date of importation, and not used within the U.S. before such exportation or destruction, the importer may claim drawback on such imported merchandise (19 USC § 1313(j)). The knitwear at issue here was imported in 1996 and, according to the CF 7539, exported on or about June 14, 1997. Under Campbell v. United States (107 U.S. 407) and General Motors Corp. v. United States (32 Cust. Ct. 94) the right to drawback on the knitwear accrued, i.e. became complete, upon the exportation of the knitwear on June 14, 1997; per the requirements of 19 USC § 1313(j) the exporter had the right to claim drawback at this time because all the requirements had then been met. Thus, when the right to drawback on this claim became perfected on June 14, 1997, prior to the sale of MX2, the drawback payable on this claim belonged to MX2.

While Customs has recognized that the right to claim drawback may be transferred (see C.S.D. 79-257, 79-354, and 83-10), there is no undisputed transfer in this case. Therefore, since MX2 has been dissolved and there is no clear evidence that either claimant has succeeded to the right of MX2 to make that claim the claim should be denied. Any protest resulting from the denial of the claim should also be denied so as to permit the parties to seek judicial review before the Court of International Trade.


John Durant, Director

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