BRO-3-06/BRO-2-01-CO:R:C:E 225155 AJS

Jonathan M. Fee, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman
Suite 4860
1201 West Peachtree Street, NE
Atlanta, GA 30309

RE: Billing of importer through another broker; HQ 224532; C.S.D. 79-111; 54 Fed. Reg. 13,136; 19 CFR 177.1(d); HQ 725085.

Dear Mr. Fee:

This is in reply to your letter of January 7, 1994, concerning Wilmington Shipping Company (WSC) (file 92-8098-1(2) I).

FACTS:

Your request asks for a ruling that, under the franchising arrangement contemplated in Headquarters Ruling Letter (HQ) 224532 (September 28, 1993), a broker within the franchise system appointed by another such broker may either bill the importer directly or bill the appointing broker, depending on their agreed arrangement. The facts of HQ 224532 are incorporated by reference in this ruling.

ISSUE:

Whether a broker in the subject franchising system appointed by another such broker may either bill the importer directly or bill the appointing broker.

LAW AND ANALYSIS:

In Customs Service Decision (C.S.D.) 79-111, Customs addressed the issue of whether an importer may issue a power of attorney to one (broker A) that would empower that broker

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to issue, on the importer's behalf, powers of attorney to other brokers in other ports. These other brokers would have the same relationship to the importer as does broker A, and would bill and be paid by the importer directly and not through broker A. Customs concluded this arrangement was permissible under the Customs Regulations. C.S.D. 79-111 was generally affirmed in 54 Fed. Reg. 13,136 (1989). We note that C.S.D. 79-111 was cited in your ruling request for HQ 224532.

In HQ 224532, powers of attorney obtained by WSC and individual franchisees from their customers were to contain a clause authorizing the appointee to execute and issue, on the customer's behalf, powers of attorney to other brokers in other ports and districts. Customs stated that this type of power of attorney would be permissible as long as each franchisee has the same relationship to the other fran- chisees' customers as the other franchisee, and each fran- chisee bills and is paid by the customer directly and not through WSC or another franchisee.

In your ruling request for HQ 224532, it states on page 9 that each franchisee would maintain its own separate records. In addition, your request states that funds received from or for customers would be held and disbursed by the franchisee independently from WSC or other franchisees. Lastly, it states each franchisee would retain responsibility for collection of its own accounts, and for its separate debts and payables. This factual situation is similar to the situation described in C.S.D. 79-111. Based on these facts and C.S.D. 79-111, we issued HQ 224532. 19 CFR 177.1(d) states that a ruling interprets and applies the provisions of the Customs and related laws to a specific set of facts. Therefore, we did not consider it necessary to proceed beyond C.S.D. 79-111 and the presented facts when issuing HQ 224532.

This request cites to HQ 725085 (May 3, 1984), which addressed the billing procedure when a broker appoints another broker to act for an importer. See also HQ 718233 (April 27, 1982). We note that this ruling was not cited in your ruling request for HQ 224532, and that we also did not consider it during the preparation of HQ 224532. In HQ 725085, a broker considered including on blank power of attorney cards a statement allowing it to appoint brokers in other districts to act on behalf of its clients. Customs stated that under C.S.D. 79-111, "if the power of attorney between the principal (importer) and his local broker provides that the local broker may appoint one or more

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brokers in other districts to act as agents (customhouse brokers) of the importer, the local broker in appointing a broker in another district to act on the importer's behalf creates a principal-agent relationship between the outport broker and the importer." Therefore, Customs concluded, the outport broker may bill the importer directly and not go through the local broker, or the outport broker may go through the local broker on the billing procedure. This fact pattern was not at issue in HQ 224532, and thus Customs did not interpret and apply the Customs and related laws to these facts. In this request, you specifically ask the question of whether a broker within the franchise system appointed by another such broker may either bill the importer directly or bill the appointing broker. Based on HQ 725085 and our previous decision in HQ 224532, either of these arrangements would be permissible. We note that in cases where the appointing broker is billed, full disclosure of this fact must be provided to the importer.

HOLDING:

A broker in the subject franchising system who is appointed by another such broker may either bill the importer directly or bill the appointing broker. In the case where the appointing broker is billed, full disclosure of this fact must be provided to the importer.


Sincerely,


John Durant, Director
Commercial Rulings Division