Slip Op. 23-20

UNITED STATES COURT OF INTERNATIONAL TRADE 

Before: Jennifer Choe-Groves, Judge 

Court No. 18-00128 

AMENDED OPINION AND ORDER 

[Granting Defendant’s motion for rehearing. After a bench trial, holding that the 

Warehousing Agreement is a lease or similar use agreement and a Phase Two 

bench trial shall proceed to determine whether the subject merchandise is eligible 

for duty-free treatment under subheading 9801.00.20 of the Harmonized Tariff 

Schedule of the United States. Amending the Court’s prior opinion to address the 

additional issue of whether there is a valid agreement under applicable Canadian 

corporate law.] 

Dated: February 17, 2023 

John M. Peterson and Patrick B. Klein, Neville Peterson, LLP, of New York, N.Y., 

argued for Plaintiff SGS Sports Inc. With them on the supplemental briefs was 

Richard F. O’Neill. 

Monica P. Triana, Trial Attorney, International Trade Field Office, and Edward F. 

Kenny, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. 

Department of Justice, of New York, N.Y., argued for Defendant United States. 

With them on the pretrial brief were John V. Coghlan, Deputy Assistant Attorney 

General of the Federal Programs Branch, Jeanne E. Davidson, Director, and Justin 

R. Miller, Attorney-in-Charge, International Trade Field Office, and with them on 

the supplemental brief were Brian M. Boynton, Acting Assistant Attorney General, 

Patricia M. McCarthy, Director, and Justin R. Miller, Attorney-in-Charge. Of 

SGS SPORTS INC., 

 Plaintiff, 

v. 

UNITED STATES, 

 Defendant. 
Court No. 18-00128 Page 2 

counsel on the trial and supplemental briefs was Sheryl A. French, Office of the 

Assistant Chief Counsel, International Trade Litigation, U.S. Customs and Border 

Protection, of New York, N.Y. 

 Choe-Groves, Judge: Plaintiff SGS Sports Inc. (“Plaintiff” or “SGS”) brings 

this action to contest the denial of its administrative protests by U.S. Customs and 

Border Protection (“Customs”) regarding swimwear and related accessories that 

Plaintiff entered into the United States in 2013 and 2014 (“subject merchandise”). 

The Court conducted a bench trial via videoconference to determine whether the 

subject merchandise was entitled to duty-free treatment under subheading 

9801.00.20 of the Harmonized Tariff Schedule of the United States (“HTSUS”), 

which states: 

9801.00.20.00 Articles, previously imported, with respect to which 

the duty was paid upon such previous importation . . . , if (1) reimported, 

without having been advanced in value or improved in condition by any 

process of manufacture or other means while abroad, after having been 

exported under lease or similar use agreements, and (2) reimported by 

or for the account of the person who imported it into, and exported it 

from, the United States. 

HTSUS subheading 9801.00.20.1

 The bench trial focused on the issue of whether 

the Warehousing Agreement between SGS and 147483 Canada Inc. (“Canada 

1

 Plaintiff stopped entering merchandise under HTSUS subheading 9801.00.20 in 

2015 and now enters merchandise under HTSUS subheading 9801.00.10,Trial Tr., 

Day 1, at 80, ECF No. 83, which was amended in 2016 to include “any other 

products when returned within 3 years after having been exported,” HTSUS 

subheading 9801.00.10. HTSUS subheading 9801.00.10 was amended after the 

subject merchandise was entered in 2013 and 2014. 
Court No. 18-00128 Page 3 

147483”) constituted a lease or similar use agreement under HTSUS subheading 

9801.00.20. The Court issued an Opinion and Order on March 21, 2022 (Slip. Op. 

22-26), in which the Court concluded after trial, based on findings of fact and 

conclusions of law, that the Warehousing Agreement is a lease or similar use 

agreement under HTSUS subheading 9801.00.20. 

Before the Court is Defendant’s Motion for a New Trial or Rehearing for 

Slip Op. 22-26, and for The Court to Amend its Findings of Fact and Conclusions 

of Law and Make Additional Ones (“Defendant’s Motion”), ECF No. 100. The 

Court grants Defendant’s Motion and sets aside Slip Opinion 22-26. This 

Amended Opinion and Order addresses the additional issue of whether there is a 

valid agreement under applicable Canadian corporate law. 

PROCEDURAL HISTORY 

Plaintiff attempted to enter the subject merchandise pursuant to HTSUS 

subheading 9801.00.20. Final Pretrial Order (Phase One of Remote Bench Trial), 

Schedule C (Phase One Uncontested Facts) ¶ 59, ECF No. 74. Customs denied 

Plaintiff’s claim for duty-free treatment under HTSUS subheading 9801.00.20, 

reclassified the subject merchandise, and liquidated the entries. See id., Schedule 

D-1 (SGS Sports, Inc. Claims and Defenses) ¶ 2, Schedule D-2 (Def.’s Claims and 

Defenses) ¶¶ 2–3. Thereafter, SGS filed three timely protests challenging 

Customs’ classification determination. See id. Schedule B ¶ 1; Compl. ¶ 5, ECF 
Court No. 18-00128 Page 4 

No. 6. When denying SGS’ protests, Customs stated its determination that the 

subject merchandise had not been properly exported under a lease or similar use 

agreement as required under the duty-free HTSUS subheading 9801.00.20 because 

“no bailment occurred.” HQ H216475 (Jan. 16, 2015); HQ H276403 (Dec. 12, 

2017). SGS filed suit challenging the denial of its protests. Summons, ECF No. 1; 

Compl. 

 The Parties filed cross-motions for summary judgment. Pl.’s Mot. Summ. 

J., ECF No. 26; Mem. P. & A. Supp. Pl.’s Mot. Summ. J. (“Pl.’s Summ. J. Br.”), 

ECF No. 26-2; Def.’s Cross-Mot. Summ. J., ECF No. 30. The Court denied 

Plaintiff’s motion for summary judgment and granted the cross-motion for 

summary judgment filed by Defendant. SGS Sports[] Inc. v. United States, 44 CIT 

__, 463 F. Supp. 3d 1356 (2020). In an order granting Plaintiff’s Motion for 

Rehearing, ECF No. 41, the Court set aside its previous opinion and judgment, and 

scheduled the matter for trial. SGS Sports Inc. v. United States, 44 CIT __, Slip 

Op. 20-150 (Oct. 22, 2020). 

 The Court granted a motion to bifurcate the trial into Phase One and Phase 

Two. Am. Order (“Am. Bifurcation Order”) at 1, ECF No. 66. The Court ordered 

that the Phase One trial would resolve the sole issue of whether the Warehousing 

Agreement between SGS and Canada 147483, dated September 1, 2005, is a lease 

or similar use agreement. Id. If Phase One did not resolve the case in its entirety, 
Court No. 18-00128 Page 5 

Phase Two would encompass the remaining issues necessary to resolve the case. 

Id. The Court stayed the remaining issues reflected in Defendant’s Motion in 

Limine, ECF No. 52; Plaintiff’s Motion in Limine to Allow Introduction at Trial of 

an Evidence Summary Pursuant to FRE 1006 (“Plaintiff’s Motion in Limine”), 

ECF No. 54; and the deadline for Defendant to respond to Plaintiff’s Motion in 

Limine, pending the Court’s decision in Phase One. Am. Bifurcation Order at 1–2. 

The Parties filed pretrial briefs and schedules. Def.’s Pretrial Br., ECF No. 67; 

Pl.’s Pretrial Mem. (“Pl.’s Pretrial Br.”), ECF No. 68; [Proposed] Pretrial Order, 

ECF No. 71. 

 The Court conducted the Phase One trial on February 4 and 5, 2021. Docket 

Entries, ECF Nos. 81, 82. The Court heard testimony via videoconference from 

three fact witnesses: Anna Murdaca, Vice President of Finance and Chief Financial 

Officer of SGS since 1997 and part owner of SGS since 2007; Michael Couchman, 

Warehouse Manager of Canada 147483 for approximately ten years; and Steven 

Gellis, President of SGS since its incorporation in 1988 and President of Canada 

147483 since its incorporation in 1985. Trial Tr., Day 1, at 59–298, ECF No. 83. 

The witnesses provided testimony that appeared to be truthful based on each 

witness’ respective demeanor, inflection, length of employment in his or her 

position, and familiarity with the subject matter of the questions asked, and thus 

provided the Court with the necessary basis to conclude that they were credible 
Court No. 18-00128 Page 6 

witnesses. 

 In its pretrial brief, Plaintiff repeated its argument from its summary 

judgment response brief that Customs was bound by its previous rulings to treat the 

Warehousing Agreement as a similar use agreement under HTSUS subheading 

9801.00.20 because Customs had not modified or revoked its previous rulings 

under the 19 U.S.C. § 1625(c) notice and comment procedure. Pl.’s Mem. P. & A. 

Opp’n Def.’s Cross-Mot. Summ. J. and Reply Supp. Pl.’s Mot. Summ. J. at 9–15, 

ECF No. 32; Pl.’s Pretrial Br. at 7–13. Defendant objected to the 19 U.S.C. 

§ 1625(c) argument at the January 21, 2020 pretrial conference and renewed its 

objection at trial. Trial Tr., Day 1, at 6–8, 27; Trial Tr., Day 2, at 340; Docket 

Entry (Jan. 21, 2021 Pretrial Conference), ECF No. 72. The Court ordered 

supplemental briefing and held oral argument on the 19 U.S.C. § 1625(c) issue on 

January 12, 2022. Order (Oct. 8, 2021), ECF No. 85; Pl.’s Suppl. Br. Concerning 

19 U.S.C. § 1625(c) (“Pl.’s Suppl. Br.”), ECF No. 86; Def.’s Suppl. Submission 

(“Def.’s Suppl. Br.”), ECF No. 89; Pl.’s Reply Br. Concerning 19 U.S.C. § 1625(c) 

(“Pl.’s Reply Br.”), ECF No. 90; Docket Entry (Jan. 12, 2022 Oral Arg.), ECF No. 

94; Oral Arg. (on file with the U.S. Court of International Trade). 

JURISDICTION AND STANDARD OF REVIEW 

The Court has jurisdiction pursuant to 28 U.S.C. § 1581(a). The Court 

reviews classification cases based on the record made before the Court. 28 U.S.C. 
Court No. 18-00128 Page 7 

§ 2640(a). 

A two-step process guides the Court in determining the correct classification 

of merchandise. First, the Court ascertains the proper meaning of the terms in the 

tariff provision. See Schlumberger Tech. Corp. v. United States, 845 F.3d 1158, 

1162 (Fed. Cir. 2017) (citing Sigma-Tau HealthScience, Inc. v. United States, 838 

F.3d 1272, 1276 (Fed. Cir. 2016)). Second, the Court determines whether the 

subject merchandise falls within the parameters of the tariff provision. See id. 

(citing Sigma-Tau HealthScience, Inc., 838 F.3d at 1276). The former is a 

question of law and the latter is a question of fact. See id. “[W]hen there is no 

dispute as to the nature of the merchandise, then the two-step classification 

analysis ‘collapses entirely into a question of law.’” Link Snacks, Inc. v. United 

States, 742 F.3d 962, 965–66 (Fed. Cir. 2014) (quoting Cummins Inc. v. United 

States, 454 F.3d 1361, 1363 (Fed. Cir. 2006)). 

The Court reviews classification cases de novo. See 28 U.S.C. § 2640(a)(1). 

The Court has “an independent responsibility to decide the legal issue of the proper 

meaning and scope of HTSUS terms.” Warner-Lambert Co. v. United States, 407 

F.3d 1207, 1209 (Fed. Cir. 2005) (citation omitted). The Court must determine 

“whether the government’s classification is correct, both independently and in 

comparison with the importer’s alternative.” Jarvis Clark Co. v. United States, 733 

F.2d 873, 878 (Fed. Cir. 1984). 
Court No. 18-00128 Page 8 

FINDINGS OF FACT 

The Court makes the following findings of fact based on a review of the 

documents admitted into evidence and the credible testimony of the witnesses 

during the bench trial: 

1. SGS is and has always been an importer and distributor of swimwear, 

sports apparel, and related merchandise. Schedule C ¶ 7; Trial Tr., 

Day 1, at 63, 117. 

2. SGS is a Canadian corporation that was incorporated under the 

Canada Business Corporations Act on January 19, 1988 by Mr. Gellis. 

Schedule C ¶ 5; Pl.’s Ex. 1; Def.’s Ex. 1; Trial Tr., Day 1, at 63–64, 

116. 

3. From incorporation of SGS in 1988 until 2007, Mr. Gellis was the 

sole owner and sole officer of SGS. Schedule C ¶¶ 8–9; Trial Tr., 

Day 1, at 117. 

4. Mr. Gellis is and has always been the President of SGS. Schedule C 

¶¶ 9, 101; Trial Tr., Day 1, at 102, 272, 287–88. 

5. SGS modified its ownership structure and reorganized the shares of 

the company in 2007 and 2013, both of which occurred subsequent to 

the execution of the Warehousing Agreement. Schedule C ¶ 91; Trial 

Tr., Day 1, at 201–03. 
Court No. 18-00128 Page 9 

6. Canada 147483 is a Canadian corporation that was incorporated under 

the Canada Business Corporations Act on October 22, 1985 at the 

direction of Mr. Gellis. Schedule C ¶¶ 1–2; Pl.’s Ex. 2; Def.’s Ex. 2; 

Trial Tr., Day 1, at 72, 114. 

7. From incorporation of Canada 147483 in 1985, Mr. Gellis is and has 

always been the sole owner and officer of Canada 147483. Schedule 

C ¶¶ 3, 101; Trial Tr., Day 1, at 115. 

8. Beginning in 2001, SGS leased real property located at 6400 Cote de 

Liesse Road, St-Laurent, Quebec, which has continuously been the 

address of SGS’ office. Schedule C ¶ 25; Pl.’s Ex. 10; Def.’s Ex. 14; 

Trial Tr., Day 1, at 69, 118–20. 

9. In 2005, SGS leased additional real property adjacent to 6400 Cote de 

Liesse Road, with an address of 6450 Cote de Liesse Road, StLaurent, Quebec, which has continuously been the location of the 

warehouse since 2005. Schedule C ¶ 26; Pl.’s Ex. 10; Def.’s Exs. 14, 

16; Trial Tr., Day 1, at 69–70, 98, 118–20. 

10. Canada 147483 does not pay any rent to SGS or any other entity for 

use of the warehouse. Schedule C ¶ 67; Trial Tr., Day 1, at 175. 

11. All of the property, inventory, and equipment in the warehouse are 

owned by SGS and were identified as assets of SGS on its financial 
Court No. 18-00128 Page 10 

statements. Schedule C ¶ 68; Trial Tr., Day 1, at 176; see Def.’s Exs. 

6–10. 

12. The utility bill for the real property located at 6450 Cote de Liesse 

Road, which is separate from the utility bill for the real property 

located at 6400 Cote de Liesse Road, is paid by SGS. Schedule C 

¶ 70; Trial Tr., Day 1, at 177. 

13. The insurance policy on all of the merchandise and equipment in the 

entirety of the real property located at 6400 and 6450 Cote de Liesse 

Road is held by SGS. Schedule C ¶ 71; Trial Tr., Day 1, at 176–77. 

14. On September 1, 2005, Mr. Gellis reviewed, approved, and executed a 

document entitled “Warehousing Agreement” by signing on behalf of 

both SGS and Canada 147483 in his capacity as President and sole 

officer of both companies. Schedule C ¶¶ 40, 45, 57; Pl.’s Ex. 8 

(“Warehousing Agreement”); Def.’s Ex. 12 (“Warehousing 

Agreement”); Trial Tr., Day 1, at 160, 295–96. 

15. Mr. Gellis was not required, according to the bylaws of either 

company, to obtain approval from any other person in order to execute 

the Warehousing Agreement. Schedule C ¶ 44. 

16. In the Warehousing Agreement, SGS and Canada 147483 mutually 

agreed that: 
Court No. 18-00128 Page 11 

(1) “[SGS] may, from time to time request that [Canada 147483] take 

delivery of merchandise on behalf of [SGS] and to hold said 

merchandise pending the instructions of [SGS] regarding the 

disposition of the merchandise.” 

(2) “[Canada 147483] agrees that in taking delivery of said 

merchandise it will perform the following functions: 

 (a) provide all necessary labor for the handling, storage and safe 

 keeping of the property deposited for storage; 

 (b) assist [SGS] and its agents in the transportation of the 

 merchandise both to and from the warehouse; 

 (c) create and maintain inventory records of all merchandise 

 delivered to [Canada 147483]; 

 (d) maintain perpetual inventory records; 

 (e) assist [SGS] in the issuance of samples from the inventory 

 on deposit; 

 (f) take periodic inventory of the merchandise deposited; 

 (g) provide, at [SGS’] request, all of the services typically 

 provided by a Warehouseman in the ordinary course of 

 business, including, but not limited to, ‘pick & pack’ services.” 

Warehousing Agreement at 1–2; see Schedule C ¶ 41; Trial Tr., Day 
Court No. 18-00128 Page 12 

1, at 254. 

17. SGS does not manufacture the merchandise it sells; the merchandise is 

imported from foreign suppliers, who are primarily located in China. 

Schedule C ¶ 27; Trial Tr., Day 1, at 66. 

18. Beginning in 2005, SGS’ foreign suppliers shipped SGS’ 

merchandise, by sea or by air, to Canada. When sent by combined 

transport utilizing sea and rail, the goods were transported “through 

Montreal,” and when sent by air, the airport of destination was 

Montreal. From Montreal, the merchandise was then transported by 

truck, in bond, to Champlain, New York. Order (Feb. 2, 2021) at 1, 

ECF No. 80 (granting the Parties’ joint motion to amend Schedule C 

¶ 33); Trial Tr., Day 1, at 67, 127, 130–36. 

19. When the in-bond merchandise was brought into New York, SGS 

would file a consumption entry in the United States and duties were 

assessed on the price “paid or payable” to the foreign supplier. Order 

(Feb. 2, 2021) at 1; Trial Tr., Day 1, at 67–68, 128, 136–37. 

20. Beginning in 2005 and up until at least the date the subject 

merchandise entered the United States, containers that were imported 

into the United States by SGS from its foreign suppliers were 

immediately exported, unaltered, from the United States to SGS’ 
Court No. 18-00128 Page 13 

warehouse at 6450 Cote de Liesse Road in Canada by truck. Schedule 

C ¶¶ 26, 34; Trial Tr., Day 1, at 63, 67, 128. 

21. As to the transactions from the United States to Canada, SGS acts as 

both the exporter (from the United States) and importer (into Canada). 

Schedule C ¶ 34; Trial Tr., Day 1, at 137, 139. 

22. The physical handling of the merchandise by Canada 147483 began 

when the merchandise arrived at the loading dock for the SGS 

warehouse. Legal title to that merchandise did not pass from SGS to 

Canada 147483. Order (Feb. 2, 2021) at 2 (granting the Parties’ joint 

motion to amend Schedule C ¶ 62); Trial Tr., Day 1, at 63, 67, 140, 

163–64, 252. 

23. When merchandise reached the SGS warehouse, Canada 147483 

employees confirmed the number of cartons in the shipment; 

documented any open or broken boxes and notified SGS; segregated 

the merchandise by style, color, and size; and placed the merchandise 

in appropriate areas. Trial Tr., Day 1, at 67, 74, 217, 252, 254–57. 

24. When a customer placed an order, SGS entered the order into its 

system. The allocation system compared the order to the inventory on 

hand and automatically allocated inventory to the orders. The SGS 

allocation manager reviewed the allocation and an SGS employee 
Court No. 18-00128 Page 14 

printed a picking ticket and placed it in a basket in the SGS front 

office. Schedule C ¶¶ 64–65; Trial Tr., Day 1, at 91–92; see Pl.’s Ex. 

14. 

25. Two or three times per day, a Canada 147483 employee entered the 

SGS front office, retrieved the accumulated pick tickets, and took the 

pick tickets to Mr. Couchman. Schedule C ¶¶ 65–66; Trial Tr., Day 1, 

at 92–94, 235, 258–59; see Pl.’s Ex. 14; Def.’s Ex. 32. 

26. Mr. Couchman placed the pick tickets in order of priority. Trial Tr., 

Day 1, at 258–60. 

27. A Canada 147483 employee retrieved the inventory by style and color 

as indicated on the pick ticket, packed the merchandise, and arranged 

for the carrier to ship the merchandise to the customer. Schedule C 

¶¶ 65–66; Trial Tr., Day 1, at 92–94, 235, 258–59; see Pl.’s Ex. 14; 

Def.’s Ex. 32. 

28. The Warehouse Manager for Canada 147483, Mr. Couchman, 

interacted with SGS’ suppliers—both warehouse supply companies 

and transport companies, such as FedEx and UPS—on behalf of SGS, 

identifying himself as Warehouse Manager for SGS. Mr. Couchman 

was an authorized user on the SGS purchasing accounts for many 

such vendors. Schedule C ¶ 75; Trial Tr., Day 1, at 180–82, 246–48. 
Court No. 18-00128 Page 15 

29. A Canada 147483 employee indicated by circling that all the 

inventory on a pick ticket had been picked and returned the fulfilled 

pick tickets back to the SGS front office. The fulfilled pick tickets 

were used to invoice SGS for Canada 147483’s services. Schedule C 

¶ 66; Trial Tr., Day 1, at 94–99, 109–10; see Pl.’s Ex. 12; Def.’s Exs. 

16, 18, 39. 

30. Canada 147483 on its own could not decide to direct any merchandise 

to leave the SGS warehouse. No merchandise left the SGS warehouse 

except according to a pick ticket from SGS. Trial Tr., Day 1, at 263. 

31. Canada 147483 employees did not “use” merchandise for any purpose 

other than to provide “pick and pack” services. Trial Tr., Day 1, at 

264–65. 

32. In 2013 and 2014, SGS imported the subject merchandise into the 

United States under various consumption entries and paid duties on 

the price paid or payable to the foreign supplier. See Compl. ¶ 8; 

Order (Feb. 2, 2021) at 1; Trial Tr., Day 1, at 67–68, 128, 136–37. 

33. SGS exported the subject merchandise immediately to Canada. See 

Compl. ¶ 9; Schedule C ¶¶ 34–35; Trial Tr., Day 1, at 63, 67, 128. 

34. SGS and Canada 147483 understood the terms of the Warehousing 

Agreement to apply to Canada 147483’s handling of the subject 
Court No. 18-00128 Page 16 

merchandise. See Trial Tr., Day 1, at 79, 241. 

35. Canada 147483 handled the subject merchandise at the warehouse in 

the same manner in which it generally handled all of SGS’ 

merchandise. See Order (Feb. 2, 2021) at 2; Schedule C ¶¶ 64–66, 75; 

Trial Tr., Day 1, at 67, 74, 91–94, 217, 235, 252–60, 264–65; see Pl.’s 

Ex. 14; Def.’s Ex. 32. 

36. SGS imported the subject merchandise into the United States, 

asserting that the merchandise was properly classified under HTSUS 

subheading 9801.00.20. Schedule C ¶ 59. 

37. Customs denied SGS’ claim for duty-free treatment under HTSUS 

subheading 9801.00.20, liquidated the subject entries, reclassified the 

merchandise under HTSUS Chapters 61 through 63, and assessed 

duties. Compl. ¶ 24; Trial Tr., Day 1, at 100; see Pl.’s Ex. 16. 

CONCLUSIONS OF LAW 

I. HTSUS Subheading 9801.00.20 

The Court conducts de novo review of whether the subject merchandise 

qualifies for duty-free treatment under HTSUS subheading 9801.00.20. The Court 

specifically addresses only the Phase One bifurcated trial issue of whether the 

Warehouse Agreement is a lease or similar use agreement. 
Court No. 18-00128 Page 17 

A. Legal Framework 

In construing the terms of the HTSUS headings, “[a] court may rely upon its 

own understanding of the terms used and may consult lexicographic and scientific 

authorities, dictionaries, and other reliable information sources.” Carl Zeiss, Inc. v. 

United States, 195 F.3d 1375, 1379 (Fed. Cir. 1999) (citing Baxter Healthcare 

Corp. v. United States, 182 F.3d 1333, 1337–38 (Fed. Cir. 1999)). Ordinarily, the 

Court may also consult the Harmonized Commodity Description and Coding 

System’s Explanatory Notes (“Explanatory Notes”), which “are not legally binding 

or dispositive,” Kahrs Int’l, Inc. v. United States, 713 F.3d 640, 645 (Fed. Cir. 

2013), but here the tool is unavailable because Chapter 98 does not have 

Explanatory Notes. Tariff terms are defined according to the language of the 

headings, the relevant section and chapter notes, the Explanatory Notes, available 

lexicographic sources, and other reliable sources of information. 

B. Analysis of the Terms of HTSUS Subheading 9801.00.20 

The Court first ascertains the proper meaning and scope of HTSUS 

subheading 9801.00.20. See Bausch & Lomb, Inc. v. United States, 148 F.3d 

1363, 1365 (Fed. Cir. 1998). 

HTSUS subheading 9801.00.20 covers reimported merchandise: (1) upon 

which duty was paid at the time of previous importation; (2) that has not been 

advanced in value or improved in condition by any process of manufacture or other 
Court No. 18-00128 Page 18 

means while abroad; (3) that was exported under a lease or similar use agreement; 

and (4) that is reimported by or for the account of the person who imported the 

merchandise into, and exported it from, the United States. See HTSUS subheading 

9801.00.20; Skaraborg Invest USA, Inc. v. United States, 22 CIT 413, 417, 9 F. 

Supp. 2d 706, 709 (1998). 

Generally, an importer must pay a duty on previously imported merchandise 

that was exported and then reimported into the United States. 19 C.F.R. § 141.2. 

HTSUS subheading 9801.00.20 provides an exception to this general rule by 

allowing duty-free treatment if the subject merchandise was originally imported 

into the United States and duties were paid, the merchandise was exported outside 

the United States under a lease or similar use agreement, and then reimported back 

into the United States. The purpose of this provision is to prevent the imposition 

of double duties for merchandise that meets the specific requirements of HTSUS 

subheading 9801.00.20. Customs determines whether to allow for duty-free 

treatment under HTSUS subheading 9801.00.20, as set forth in the relevant 

implementing regulation as follows: 

Entry of reimported articles exported under lease. 

Free entry shall be accorded under subheading 9801.00.20, 

Harmonized Tariff Schedule of the United States (HTSUS), whenever 

it is established to the satisfaction of the Center director that the article 

for which free entry is claimed was duty paid on a previous importation 

. . . , is being reimported without having been advanced in value or 

improved in condition by any process of manufacture or other means, 
Court No. 18-00128 Page 19 

was exported from the United States under a lease or similar use 

agreement, and is being reimported by or for the account of the person 

who imported it into, and exported it from, the United States. 

19 C.F.R. § 10.108. 

 C. Lease or Similar Use Agreement 

Phase One of this bifurcated trial involves only the third element, whether 

the Warehousing Agreement constitutes a lease or similar use agreement. Am. 

Bifurcation Order at 1; see HTSUS subheading 9801.00.20. Plaintiff argues that 

its Warehousing Agreement is a bailment agreement, which Customs has 

previously recognized as a “lease or similar use agreement[].” See Pl.’s Pretrial 

Br. at 3; Trial Tr., Day 2, at 330, 338–39. The Court notes at the outset that 

Plaintiff’s characterization of its arrangement with Canada 147483 as a “bailment 

agreement” presupposes a legal conclusion, and the Court does not entertain an 

analysis of whether there is a bailment agreement in this case. The Court confines 

its analysis to whether the facts ascertained at trial establish a lease or similar use 

agreement under a statutory analysis of HTSUS subheading 9801.00.20. 

The Court looks to dictionary definitions to construe the tariff terms “lease 

or similar use agreement[].” “Lease” is defined as “[a] contract by which a rightful 

possessor of personal property conveys the right to use that property in exchange 

for consideration.” Lease (5), Black’s Law Dictionary (11th ed. 2019). “Similar” 

is defined as “alike in substance or essentials.” Similar, Merriam-Webster’s 
Court No. 18-00128 Page 20 

Collegiate Dictionary at 1161 (11th ed. 2020). “Use” as a noun is defined as “[t]he 

application or employment of something.” Use (noun) (1), Black’s Law 

Dictionary (11th ed. 2019). “Use” as a verb is defined as “[t]o employ for the 

accomplishment of a purpose.” Use (verb) (1), Black’s Law Dictionary (11th ed. 

2019). “Use” is also defined as “to carry out a purpose or action.” Use, MerriamWebster’s Collegiate Dictionary at 1378. “Agreement” is defined as “[a] mutual 

understanding between two or more persons about their relative rights and duties 

regarding past or future performances; a manifestation of mutual assent by two or 

more persons.” Agreement (1), Black’s Law Dictionary (11th ed. 2019). 

Accordingly, the Court construes the terms “lease or similar use 

agreement[]” under HTSUS subheading 9801.00.20 in light of these relevant 

dictionary definitions as follows: 

The Court construes the term “lease” to mean a contract by which a rightful 

possessor of the subject merchandise conveys the right to employ the subject 

merchandise for the accomplishment of a purpose or action in exchange for 

consideration. 

The Court construes the terms “similar use agreement” and “use agreement 

similar to a lease” to be synonymous in the context of HTSUS subheading 

9801.00.20, because “similar” compares the use agreement to a lease. 

The Court construes the synonymous terms “similar use agreement” and 
Court No. 18-00128 Page 21 

“use agreement similar to a lease” to mean a mutual understanding between two or 

more parties to employ the subject merchandise for the accomplishment of a 

purpose or action that is alike in substance to a lease. Both a lease and a similar 

use agreement require that the subject merchandise be employed for the 

accomplishment of a purpose or action. 

Few cases at the U.S. Court of International Trade have opined on a lease or 

similar use agreement. In Werner & Pfleiderer Corp. v. United States (“Werner”), 

17 CIT 916 (1993), the court held that consideration is not required for a valid 

similar use agreement. 17 CIT at 918. The Court of International Trade defined a 

“similar use agreement” under HTSUS subheading 9801.00.20 as a loan for 

temporary use. Skaraborg, 22 CIT at 418; Werner, 17 CIT at 918. In Werner, the 

subject merchandise machine was reimported to the United States after it was 

loaned by the plaintiff to Ogilvie Mills Limited and several test runs of the subject 

merchandise machine were performed at Ogilvie Mills Limited’s facilities in 

Canada. 17 CIT at 916. The Werner court determined that the agreement to 

“loan” the machine “for testing purposes” was “either a lease or a similar use 

agreement.” Id. at 918–19. This is consistent with the Court’s definition of a 

similar use agreement because testing requires operating the subject merchandise 

for the accomplishment of a purpose or action. 
Court No. 18-00128 Page 22 

Legislative history also supports the Court’s statutory interpretation. In the 

1963 version of the Tariff Schedule of the United States (“TSUS”), which followed 

the enactment of the Tariff Classification Act of 1962, Pub. L. No. 87-456, Item 

801.00 of the TSUS appeared as follows: 

Articles, previously imported, with respect to which the duty was paid 

upon such previous importation, if (1) reimported, without having been 

advanced in value or improved in condition by any process of 

manufacture or other means while abroad, after having been exported 

under lease to a foreign manufacturer, and (2) reimported by or for the 

account of the person who imported it into, and exported it from, the 

United States. 

Tariff Classification Act of 1962, Pub. L. No. 87-456, Schedule 8, Item 801.00, 

77A Stat. 403, 406 (1962) (emphasis added). Item 801.00 of the TSUS was 

amended by the Trade and Tariff Act of 1984, Pub. L. No. 98-573, to language 

identical to the language of HTSUS subheading 9801.00.20, as follows: 

SEC. 118. REIMPORTATION OF CERTAIN ARTICLES 

ORIGINALLY IMPORTED DUTY FREE. 

Item 801.00 is amended— 

. . . 

(2) by striking out “lease to a foreign manufacturer” in clause (1) and 

inserting in lieu thereof “lease or similar use agreements.” 

Trade and Tariff Act of 1984, Pub. L. 98-573, § 118, 98 Stat. 2948, 2953–54 

(1984) (emphasis added). The legislative intent is recorded in a Ways and Means 

Committee Report of stand-alone bill H.R. 5448, as the amendment was originally 
Court No. 18-00128 Page 23 

introduced, and later a House of Representatives Report of the amendment as 

combined with other bills in omnibus bill H.R. 6064: 

Section 1 of H.R. 5448, if enacted, would extend the duty-free treatment 

of item 801.00 of the Tariff Schedules of the United States (TSUS) to 

the reimportation of articles which were imported into the United States 

and then exported under lease or similar use agreement to an entity 

other than a foreign manufacturer. . . . The intent of this legislation is 

to extend the coverage of that provision to the reimportation of goods 

which were exported under lease to someone other than a foreign 

manufacturer; of particular concern are exportations under lease to a 

government or service industry. . . . 

Item 801.00 may be applied to any type of article. However, it appears 

to be primarily applied to the reimportation of injection molds for 

plastic or rubber products, such as combs, plastic houseware items, 

toys, or tires. The molds are manufactured of steel and generally range 

in price from $8,000 to $80,000. Other reimported articles entered 

under item 801.00 include dies of all kinds and general tooling 

equipment such as jigs, fixtures, and CNC machine lathes. . . . 

Report on Miscellaneous Tariff and Customs Bills Before the Subcomm. on Trade 

of the H. Comm. on Ways and Means, 98th Cong. 34, 157–59 (1984) (emphasis 

added); see also H.R. Rep. No. 98-1015, at 1, 24 (1984), reprinted in 1984 

U.S.C.C.A.N. 4960, 4983. The word “lease” in Item 801.00 was replaced with the 

phrase “lease or similar use agreement,” but the legislative history reflects a focus 

on lease with references to “goods which were exported under lease” and 

“exportations under lease.” A reading of the entire report supports a conclusion 

that the expansion of the provision intended by the 1984 amendment does not 

apply to all goods that were imported and duty-paid, then exported and reimported, 
Court No. 18-00128 Page 24 

under any type of agreement that might be described as a use agreement, but rather 

a use agreement that is similar to a lease. 

Based on credible testimony presented during a bench trial, the Court finds 

that under the Warehousing Agreement in this case, SGS and Canada 147483 

expressed a mutual understanding for Canada 147483 to “take delivery of 

merchandise on behalf of [SGS] and to hold said merchandise pending the 

instructions of [SGS] regarding the disposition of the merchandise;” “provide all 

necessary labor for the handling, storage and safe keeping of the property 

deposited for storage;” “assist [SGS] and its agents in the transportation of the 

merchandise both to and from the warehouse;” “create and maintain inventory 

records of all merchandise delivered to [Canada 147483]; “maintain perpetual 

inventory records;” “assist [SGS] in the issuance of samples from the inventory on 

deposit;” “take periodic inventory of the merchandise deposited;” and “provide, at 

[SGS’] request, all of the services typically provided by a Warehouseman in the 

ordinary course of business, including, but not limited to, ‘pick & pack’ services.” 

Warehousing Agreement at 1–2. Evidence elicited at trial established that Canada 

147483’s handling of the subject merchandise involved confirming the number of 

cartons in the shipment; notifying SGS of any open or damaged boxes; segregating 

by style, color, and size; placing the merchandise in appropriate areas; retrieving 

the inventory by style and color as indicated on the pick ticket; packing the 
Court No. 18-00128 Page 25 

merchandise; and arranging for a carrier to ship the merchandise to the customer. 

Schedule C ¶¶ 65–66; Trial Tr., Day 1, at 91–94, 217, 235, 252–55, 257–59; see 

Pl.’s Ex. 14. The Court finds that sufficient credible evidence was presented at 

trial to establish that Canada 147483 employees, pursuant to the Warehousing 

Agreement, used the subject merchandise for the accomplishment of the purpose or 

action of providing warehousing and “pick and pack” services that satisfies the 

meaning of a similar use agreement under HTSUS subheading 9801.00.20. 

Defendant argues that by its plain or common meaning, a “use agreement 

similar to a lease” conveys the right to use and possess the property, and that 

possession is characterized by dominion and control over the property. Def.’s 

Pretrial Br. at 21; Trial Tr., Day 2, at 345–47. Defendant contends that because the 

services covered by the Warehousing Agreement do not involve use of 

merchandise, and Canada 147483 did not have exclusive possession, control, or 

dominion over the subject merchandise and could not use the subject merchandise 

as it wished, the Warehousing Agreement is not a use agreement similar to a lease. 

Def.’s Pretrial Br. at 21–26; Trial Tr., Day 2, at 347–52. 

The Court does not agree with Defendant that the “use” must be for the 

specific purpose for which the subject merchandise was designed (for example, 

Canada 147483 employees do not need to wear the bathing suits for swimming 

under the “use” requirement), but it is sufficient if some purpose or action, such as 
Court No. 18-00128 Page 26 

performing warehousing services or “pick and pack” services, or testing as in 

Werner, is the purpose or action under the agreement. 

Defendant proposed including an element of possession by defining “lease” 

as “a contract by which one owning property grants to another the right to possess, 

use and enjoy it for a specified period of time in exchange for periodic payments.” 

Def.’s Pretrial Br. at 18–19 (quoting Black’s Law Dictionary at 800 (5th ed. 1979)) 

(emphasis and internal punctation omitted). Defendant proposed defining 

“possession” as: 

1. The fact of having or holding property in one’s power; the exercise 

of dominion over property. 2. The right under which one may exercise 

control over something to the exclusion of all others; the continuing 

exercise of a claim to the exclusive use of a material object. 3. Civil 

law. The detention or use of a physical thing with the intent to hold it 

as one’s own. La. Civ. Code art. 3421(a). 4. (usu. pl.) Something that 

a person owns or controls. . . . 

Id. at 10 n.2 & 18–19 (quoting Black’s Law Dictionary (11th ed. 2019)). 

The Court rejects Defendant’s contention that use under HTSUS subheading 

9801.00.20 must involve Canada 147483 possessing or having exclusive 

control over the subject merchandise, akin to temporary ownership of the 

goods. The Court declines to read “use” as narrowly as proposed by 

Defendant. 
Court No. 18-00128 Page 27 

 D. Valid Agreement 

 The Court amends the previous opinion to address the additional issue of 

whether a valid agreement exists under applicable Canadian corporate law. 

Plaintiff argues that the Warehousing Agreement is not a valid agreement because 

SGS and Canada 147483 are a single entity that operates at the direction and sole 

discretion of Mr. Gellis for the benefit of SGS. Pl.’s Pre-Trial Br. at 1–2, 22–26. 

Because SGS and Canada 147483 are corporations, agreement with Plaintiff’s 

argument that SGS and Canada 147483 are a single entity would require the Court 

to pierce the corporate veils of both SGS and Canada 147483. 

 The Court cannot “lightly cast aside” the corporate form. 3D Sys. v. 

Aarotech Labs., Inc., 160 F.3d 1373, 1380 (Fed. Cir. 1998). Canadian corporate 

law applies here because SGS and Canada 147483 were both incorporated in 

Canada under the Canada Business Corporations Act. Schedule C ¶¶ 1–2, 5; Pl.’s 

Exs. 1, 2; Def.’s Exs. 1, 2; Trial Tr., Day 1, at 63–64, 72, 114, 116. SGS and 

Canada 147483 are both located in Quebec. Schedule C ¶¶ 25, 26; Pl.’s Ex. 10; 

Def.’s Exs. 14, 16; Trial Tr., Day 1, at 69–70, 98, 118–20. 

 Article 317 of the Civil Code of Quebec provides that “[t]he juridical 

personality of a legal person may not be invoked against a person in good faith so 

as to dissemble fraud, abuse of right or contravention of a rule of public order.” 

Civil Code of Quebec, C.Q.L.R. 1991, c 64, art. 317 (Can.); see also Barer v. 
Court No. 18-00128 Page 28 

Knight Brothers LLC, 2019 SCC 13, paras. 201, 209, 286 (Can.). “It is trite law 

that [a] corporation[] ha[s] a legal personality that is separate from its 

shareholders.” 7914377 Canada Inc. v. Gauvreau, 2019 QCCS 4344, para. 83 

(Can.). To satisfy the fraud requirement of Article 317, “two essential elements of 

a fraud are dishonesty and loss.” Chisasibi (Cree Nation) v. Servitec Emergency 

Vehicle Corp., 2005 CarswellQue 13008, para. 21 (Can. C. Que.) (WL). Article 

317 prohibits a company’s shareholders and directors from hiding behind a 

corporation’s juridical personality “to abuse of this right to defraud people doing 

business with the corporation. . . . [O]ne must prove that said shareholders or 

directors are the alter ego of the corporation; Alter ego means a corporation which 

is an instrument, a puppet in the hands of said shareholders who act through it.” 

Panorios v. 9200-8143 Quebec Inc., 2010 QCCQ 3264, paras. 45, 47–48 (Can. C. 

Que.). 

Defendant argues that because Customs did not seek to impose liability on 

Canada 147483 or Mr. Gellis, the test for piercing the corporate veil and 

determining that one entity is an alter ego of another entity need not be applied 

rigidly. Def.’s Pretrial Br. at 23. Defendant does not cite direct authority 

supporting its argument and the Court is not persuaded that a less rigid test exists 

under Quebec law by Defendant’s references to the caselaw of various other 

Canadian and U.S. jurisdictions. 
Court No. 18-00128 Page 29 

Defendant did not present evidence at trial that SGS committed fraud, abuse 

of right, or contravention of a rule of public order as required under Canadian law 

to pierce the corporate veil. The Court agrees with Plaintiff’s assertion that 

Defendant never elicited evidence at trial regarding alleged fraud or wrongdoing 

by the principals of SGS and Canada 147483, even though Defendant crossexamined multiple witnesses from SGS and Canada 147483 during trial. Because 

Defendant failed to establish any evidence of fraud, alter ego, or other wrongdoing 

by SGS and Canada 147483 during trial, the Court views the companies as 

separate corporate entities and declines to pierce the corporate veils of SGS and 

Canada 147483. The Court concludes, therefore, that the Warehousing Agreement 

is a valid agreement between two corporations, SGS and Canada 147483. 

In sum, the Court reiterates its conclusion based on the credible evidence 

presented at trial that the Warehousing Agreement is a lease or similar use 

agreement, specifically a mutual understanding between two or more parties to 

employ the subject merchandise for the accomplishment of the purpose or action of 

providing warehousing and “pick and pack” services that is alike in substance to a 

lease. Therefore, the Court holds that the Warehousing Agreement is a lease or 

similar use agreement for purposes of HTSUS subheading 9801.00.20. Because 

the third requirement of HTSUS subheading 9801.00.20 is satisfied, the Court 
Court No. 18-00128 Page 30 

concludes that a further trial on Phase Two of the Bifurcation Order shall proceed.2

CONCLUSION

For the foregoing reasons, the Court holds that the Warehousing Agreement 

is a lease or similar use agreement and a trial should proceed under Phase Two of 

the Bifurcation Order to determine whether Plaintiff’s subject entries qualify for 

duty-free treatment under HTSUS subheading 9801.00.20. 

It is hereby 

ORDERED that Defendant’s Motion, ECF No. 100, is granted; and it is 

further 

ORDERED that Slip Opinion 22-26, ECF No. 95, is set aside; and it is 

further 

ORDERED that following a bench trial, the Court concludes that the 

Warehousing Agreement is a lease or similar use agreement under Phase One of 

the Bifurcation Order; and it is further 

ORDERED that a trial should proceed under Phase Two of the Bifurcation 

Order to determine whether Plaintiff’s subject entries qualify for duty-free 

2 The Court considered supplemental briefing and held oral argument on the issue 

of whether 19 U.S.C. § 1625(c) applies in this case. In light of the Court’s holding 

that the Warehousing Agreement is a lease or similar use agreement for purposes 

of HTSUS subheading 9801.00.20, the Court need not address the 19 U.S.C. 

§ 1625(c) arguments presented by the Parties. 
Court No. 18-00128 Page 31 

treatment under HTSUS subheading 9801.00.20; and it is further 

ORDERED that a status conference will be scheduled accordingly to 

discuss trial under Phase Two of the Bifurcation Order. 

 /s/ Jennifer Choe-Groves 

 Jennifer Choe-Groves, Judge 

Dated: February 17, 2023 

 New York, New York