Opinion ID: 211089
Heading Depth: 2
Heading Rank: 5

Heading: Dutiability of Shortfall Payments

Text: In 1988, Ford entered into a contract with Mazda Motor Corporation for the purchase by Ford of Festiva cars for importation into the United States. Negligence Decision, 395 F. Supp. 2d at 1217. That contract provided that Ford was committed to purchasing 85,000 cars each year (the Annual Volume Commitment). The contract also included a section 2.3, Volume Price Adjustment, which stated that so long as the Annual Volume Commitment remained unchanged, the purchase price for those cars would be determined by a formula based on the percentage of the commitment total for which Ford actually placed orders in a given year. The Volume Price Adjustment section provided for different pricing if Ford ordered (A) more than 50%, but less than 90%, of the annual commitment; (B) less than 50% of the annual commitment; and (C) more than 110% of the annual commitment. The contract also included an entirely separate section 3, Prices, which set forth [t]he initial purchase price for each model of Ford Vehicles and a method for making annual adjustments to that price for new model years. It appears that the formulas for Volume Price Adjustments in section 2.3 represent a function, in part, of the initial prices set in section 3.3. Ford reported several direct payments resulting from Festiva orders of less than 85,000 units for the 1990, 1991, and 1992 model years. Id. at 1200 ¶¶ 55, 61. The Court of International Trade concluded that the lump sum payments made by Ford pursuant to the Festiva Agreement are dutiable, reasoning that the payments did not 05-1584 26 constitute a penalty, but were related to the price actually paid or payable and, therefore, were dutiable. Id. at 1219. It relied, in particular, on its conclusion that Ford's payments under the Festiva Agreement were not triggered by or based on a purchase commitment or quota. Rather, the purchase price or transaction value of each vehicle was adjusted depending on changing market conditions. Id. at 1218-19. Therefore, the trial court included tenders relating to the Festiva contract in its penalty calculations. On appeal, Ford relies on the Court of International Trade's decision in Chrysler Corp. v. United States, 17 C.I.T. 1049, 1053-55 (1993), in which that court concluded that fees paid by the importer for its failure to purchase a minimum number of car engines were not dutiable, because [a]n expense arising from the failure to purchase certain merchandise is not a component of the price paid for the acquisition of other products, but is a form of liquidated damages. The same reasoning, Ford asserts, is applicable here: Ford incurred expenses stemming from its failure to purchase enough Festivas to fulfill its volume commitments. Under Chrysler, these fees simply cannot be included as a component of the price paid for the Festivas that Ford did purchase. The government counters, and the trial court ruled, that because the Volume Price Adjustment is structured to penalize Ford for purchasing less than its commitment not by imposing a direct penalty but by increasing the price of each car that Ford does purchase, the holding in Chrysler does not apply. It is clear on the face of the contract that the price actually payable for Festiva vehicles is a function, in part, of the number of such vehicles purchased by Ford in a given model year. As the number of vehicles purchased rises, the price per vehicle 05-1584 27 drops. Payments made pursuant to the shortfall provision, therefore, are part of the true economic cost to Ford of purchasing the vehicles, and are thus part of the total payment . . . made, or to be made, for imported merchandise for purposes of § 1401a(b)(4)(A). The payments made by Ford pursuant to the shortfall provision were dutiable under 19 U.S.C. § 1401a(b)(1) as part of the price actually paid or payable for the cars. This conclusion is supported by our precedent, which has emphasized that the price paid or payable for imported merchandise includes all payments made to the seller in exchange for merchandise sold for export to the United States, even where such payments represent[ ] something other than the per se value of the goods. Generra Sportswear Co. v. United States, 905 F.2d 377, 380 (Fed. Cir. 1990). The key inquiry in determining whether a particular payment should be included in transaction value is the actual transaction between the buyer and the seller; if [the payments] were transferred by the buyer to the seller, they are part of transaction value. Id.; see also Luigi Bormioli Corp., Inc. v. United States, 304 F.3d 1362, 1367 (Fed. Cir. 2002) (citing Generra Sportswear and noting that the price actually paid or payable should be construed broadly). Our conclusion is also supported by section (b)(4)(B) of the statute, which provides that [a]ny rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of the importation of the merchandise into the United States shall be disregard in determining the transaction value of the merchandise. 19 U.S.C. § 1401a(b)(4)(B). The statute's exclusion from transaction value post-importation decreases in the price paid or payable suggests, by negative implication, that post-importation increases in the 05-1584 28 price paid or payable are presumptively includible in transaction value. Cf. Century Imps., Inc. v. United States, 205 F.3d 1308, 1311-12 (Fed. Cir. 2000) (excluding from transaction value post-importation reimbursements that decreased the actual price paid, pursuant to § 1401a(b)(4)(B)). Here, the disputed payments reflect the true economic cost of the merchandise sold to Ford, and are therefore dutiable as part of the actual transaction between the buyer and the seller. Generra Sportswear, 905 F.2d at 380. The Court of International Trade properly included the unpaid duties on such payments in calculating the penalty.