HQ 112978: Protest No. 3801-3-101891; Trans Continental Airlines; User Fees; Bankruptcy; Bond Liability; 19 U.S.C. 58c

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 112978

                        November 14, 1994

AIR-4-CO:R:IT:C 112978 GEV

CATEGORY:  Carriers

Patricia Moran
Acting Assistant District Director
Commercial Operations
U.S. Customs Service
477 Michigan Avenue
Detroit, Michigan 48226

RE:  Protest No. 3801-3-101891; Trans Continental Airlines;
     User Fees; Bankruptcy; Bond Liability; 19 U.S.C.  58c

Dear Ms. Moran:

     This is in response to your memorandum dated November 23,
1993, forwarding the above-cited protest and related documents. 
Our ruling on the issues raised therein is set forth below.

FACTS:

     The U.S. Customs Service Regulatory Audit Division, North
Central Region, Chicago Branch 311, conducted an audit of Trans
Continental Airlines, Inc. ("TCA") of Ypsilanti, Michigan, during
the period of May, 1989 through October, 1990.  The purpose of
the audit was to evaluate TCA's operations and internal controls
to ensure that the proper amount of user fees was collected,
reported, and remitted in accordance with  24.22(g), Customs
Regulations (19 CFR  24.22(g)). 

     The audit disclosed that TCA's commercial passenger
operations consisted of chartering two planes to various foreign
and domestic tour operators, and to certain airlines including
Hawaiian Airlines and Air Europe.  Furthermore, the audit
determined that TCA was liable for Customs and Immigration and
Naturalization Service (INS) user fees in the total amount of
$139,590 collected from eight tour operators, but failed to
report or remit that amount to Customs or the INS notwithstanding
the fact that the tour operators collected the fees and remitted
them to TCA.
                              - 2 -

     By letter to TCA dated May 3, 1991, the Office of Inspection
and Control sought remittance of the delinquent fees for fiscal
year 1990.  Counsel for TCA, in a letter dated July 8, 1991,
responded by asserting that not only was TCA unable to make
payment, but that effective October 9, 1990, TCA had filed for
Chapter 11 protection in the Eastern District of Michigan, United
States Bankruptcy Court.  (We note that TCA has subsequently
converted the aforementioned bankruptcy filing to Chapter 7.)
Consequently, Counsel maintained that the user fees in question
were a pre-petition unsecured obligation of TCA.

     The auditors' examination of TCA's flight records indicated
that its passenger operations ceased on the date TCA filed for
Chapter 11 protection.  On January 22, 1992, TCA discontinued its
air cargo service (the remainder of its flying operations) and
reduced personnel to employees supporting their on-ground cargo
operation which consisted of loading cargo between planes and
trucks.  Neither the cargo, planes, nor trucks were owned by TCA. 
TCA is currently in liquidation procedures and has surrendered
its FAA certificate.

     Intercargo Insurance Company ("Intercargo") is the surety of
a continuous International Carrier Bond (listed in ACS as
#398902486) held by TCA, as principal, in the amount of $100,000. 
The bond was effective March 30, 1989, and terminated on March
29, 1991, with a last rider date of April 3, 1991.  By letter
dated March 3, 1993, the Assistant Chief Counsel, U.S. Customs
Service, Indianapolis, Indiana, made formal demand to Intercargo
for payment of the delinquent user fees owed in the amount of
$139,590.  The audit report determined that one half of this
amount ($69,795) consisted of Customs user fees, the other half
INS user fees.  (Protest Exhibit A)  A proof of claim was filed
in bankruptcy court on behalf of Customs in the amount of
$69,795.

     Counsel for Intercargo filed a protest, dated May 28, 1993,
on the above-referenced formal demand for payment.  The protest
contains the following arguments:  (1) Intercargo has no
liability under its bond for Customs user fees because the bond
principal (TCA) was not statutorily liable for the collection of
the fees and their remittance to Customs; and (2) for the same
reasons that Intercargo is not liable for Customs user fees, it
is also not liable for INS user fees.  Further in regard to this
second argument, counsel asserts that Customs lacks the authority
to demand payment of INS user fees.

     In addition, the protest further noted that on March 9,
1993, Intercargo filed a request under the Freedom of Information
Act ("FOIA") for documentation which would allow it to assess its
liability for the payment demand made by Customs.  On April 16,
1993, the Regional Commissioner, U.S. Customs Service, North
Central Region, responded to Intercargo's FOIA request by 

                              - 3 -

disclosing a copy of the User Fee Audit Report on TCA, dated
November 27, 1992 (Report Control Number b2) performed by Customs
Regulatory Audit Division, North Central Region.  (Protest
Exhibit B)  Upon review of the report, Intercargo determined that
it was not completely responsive to their request since it did
not allow them to fully assess their liability for the user fees
in question.  

     On May 18 and 19, 1993, Intercargo's counsel requested the
Office of Regional Counsel, North Central Region, to retrieve 
additional documents for the purpose of supplementing their
protest if such additional documents were determined to be
subject to release under FOIA.  Specifically, counsel requested
copies of certain contracts between TCA and the tour operators
referenced in the audit report.  On July 13, 1993, the Regional
Commissioner of Customs, Chicago, Illinois, completed Customs
response to Intercargo's FOIA request by forwarding a copy of the
only contract between TCA and a tour operator (National Rosary
Confraternity of U.S. Pilgrimage to Lourdes, otherwise known as
"Catholic Travel") that was discovered during a review of the
available records.  

     Counsel requested that Customs hold Intercargo's protest in
abeyance at least thirty (30) days following supplementation of
Intercargo's FOIA request (see p. 2 of the protest dated May 28,
1993).  In addition, pursuant to  174.28, Customs Regulations
(19 CFR  174.28), counsel requested that Customs consider his
letter of August 5, 1993, as supplementing Intercargo's protest. 
We have honored both of these requests.  The aforementioned
letter contains the following additional arguments: (1) based on
the evidence, it is not possible to state, with any degree of
legal certainty, that TCA was contractually obligated to remit
any user fees to Customs; and (2) any third party contractual
undertaking by TCA is invalid to create bond liability against
Intercargo.  

     Subsequent to Customs receipt of the protest and
supplemental information filed by counsel on behalf of
Intercargo, additional documentation regarding the eight tour
operators and their relationship with TCA was sought by the
Regulatory Audit Division, North Central Region.  Although no
additional documentation was obtained from two of the tour
operators (DecWorld and C&C), five of the remaining six provided
Customs with the following:  

     AMERPOL International - copies of two charter 
     agreements with TCA; a letter to Customs stating 
     that the user fees in question were collected by 
     AMERPOL and remitted to TCA which issued the travel
     documentation; copies of four TCA invoices to AMERPOL
     listing the total Customs/INS user fees due for 
     specific flights; copies of AMERPOL reconciliation

                              - 4 -

     sheets showing payments of the fees to TCA supported
     by copies of bank debit advices; and copies of a 
     cashier's check and a company check to TCA for the 
     cost of a specific charter (including Customs/INS user 
     fees) with a copy of a receipt of payment from TCA for 
     the cashier' check.

     Go Voyages, Inc. - copies of two charter agreements
     with TCA; copies of seven TCA invoices to Go Voyages, 
     Inc. listing the total Customs/INS user fees due for
     specific flights; and a copy of a document from TCA
     to Go Voyages, Inc. acknowledging receipt of wire 
     transfers of money covering certain flights.

     Azores Express - a copy of a charter agreement with
     TCA; and copies of all wire transfers to TCA including 
     Customs/INS fees.
     
     Mundial Tours - a copy of a charter agreement with 
     TCA; a copy of a fax from TCA to Mundial Tours providing
     the account number for a wire transfer of the total 
     amount (including Customs/INS fees) for a charter; a
     copy of the outgoing wire transfer form from Mundial
     Tours to TCA covering the cost of a charter; and a 
     copy of an invoice from TCA to Mundial Tours listing
     the total Customs/INS user fees due for a specific 
     flight.

     Nacel International - a copy of an addendum to a charter
     agreement with TCA. 

ISSUES:

     1.  Whether TCA is liable to Customs for the payment of user
fees assessed pursuant to 19 U.S.C.  58c(a)(5) for passengers
arriving in the United States from foreign when the TCA aircraft
on which the passengers arrived were, at the time of arrival,
under charter to tour operators which collected the fees and
remitted them to TCA.

     2.  If TCA is liable to Customs for the payment of user fees
assessed pursuant to 19 U.S.C.  58c(a)(5) as discussed above,
whether Intercargo, as surety for the International Carrier Bond
held by TCA, is liable for such fees in view of TCA's bankruptcy
filing.
                              - 5 -

LAW AND ANALYSIS:

                             ISSUE 1

     During the time period of the Customs audit in question
(May, 1989 through October, 1990), title 19, United States Code,
 58c(a)(5), provided for the assessment of fees associated with
Customs processing of passengers as follows:

          "For the arrival of each passenger aboard a
          commercial vessel or commercial aircraft from
          a place outside the United States (other than
          a place referred to in subsection (b)(1)(A) of
          this section), $5."

     Pursuant to  521 of Public Law 103-182 (the North American
Free Trade Agreement Implementation Act), effective December 8,
1993, 19 U.S.C.  58c(a)(5) was amended to read as follows:

          "For fiscal years 1994, 1995, 1996, and 1997,
          for the arrival of each passenger aboard a
          commercial vessel or aircraft from outside 
          the customs territory of the United States, 
          $6.50."

     Notwithstanding the above discrepancies in the statutory
language with regard to the amount of the fee assessed and any
limitations thereon (the latter not herein applicable), the
statutory requirements with respect to the collection of the fee
have remained unchanged.  In this regard, 19 U.S.C.  58c(d)(1)
requires, inter alia, (1) that the fee prescribed under
subsection (a)(5) be collected by "[e]ach person that issues a
document or ticket to an individual for transportation by a
commercial vessel or commercial aircraft into the customs
territory of the United States"; (2) that such collection take
place "at the time the document or ticket is issued"; and (3)
"[t]he person who collects fees...shall remit those fees..."

     The protestant avers that the tickets or travel documents in
question were not issued by TCA but rather by the tour operators
which chartered TCA aircraft (a contention disputed by at least
two of the tour operators).  Counsel therefore maintains that TCA
is not statutorily liable for the collection of the fees. 
Consequently, it is contended that Intercargo, as surety for the
International Carrier Bond held by TCA, should not be held liable
under the bond for the fees.  (Protest at p. 3)  We note that
counsel does not dispute the finding of the audit report that the
tour operators collected the fees from the passengers and
remitted them to TCA which did not remit them to Customs.
(Protest at p. 4)
                              - 6 -

     Upon reviewing the record in its entirety, it is unclear as
to which party (TCA or the tour operators) issued the tickets or
travel documentation.  However, what is clear from the record,
particularly the charter agreements between TCA and six of the
tour operators, is that Customs user fees were included as part
of the charter prices paid to TCA in advance of the flights.  We
reiterate that the protestant does not dispute the fact that the
tour operators collected the fees and remitted them to TCA which
did not remit them to Customs.

     Accordingly, we are of the opinion that the documentation
submitted establishes that six of the eight tour operators in
question acted as collecting agents for TCA.  Consequently, we
further believe that the record has created a prima facie case
that TCA issued the tickets and therefore was responsible for the
remission of the prepaid fees included in the cost of these
tickets to Customs pursuant to 19 U.S.C.  58c(d)(1). 
Notwithstanding their statutory liability, TCA's failure to remit
these fees to Customs constitutes unjust enrichment for which
restitution must be made. (See 66 Am.Jur. Restitution and Implied
Contracts  3 (1973))  Restitution, in the context of this case,
takes the form of remittance of unpaid user fees to Customs.      

                             ISSUE 2

     Section 111 of the Customs and Trade Act of 1990 (Public Law 
101-382) amended 19 U.S.C.  58c(g) to provide that all
administrative and enforcement provisions of the Customs laws and
regulations, except those relating to drawback, shall apply with
respect to any fee prescribed under  58c(a) (which includes the
arriving passenger fees in question), and with respect to persons
liable therefor, as if such fee is a customs duty.  

     Section 113.64 of the Customs Regulations (19 CFR  113.64)
includes the terms of the International Carrier Bond (held in
this case by TCA as principal and Intercargo as surety).  The
provisions of  113.64(a) guarantee payment by the bond obligors
of all duties, taxes and other charges which are provided by law
or regulation.  Customs may make a demand against the principal
and surety, under the terms of the bond, for any fees that should
have been collected and remitted by the carrier to Customs.

     The provisions of  113.64(e) require the principal and
surety to "exonerate the United States and its officers from any
risk, loss or expense arising out of entry or clearance of the
carrier, or handling of the articles on board."  Clearance of
passengers includes the collection of fees and is an activity
relating to the entry or clearance of the carrier.
                              - 7 -

     Accordingly, since TCA is liable for the Customs user fees
assessed pursuant to 19 U.S.C.  58c(a)(5) as discussed above,
Intercargo, as surety for the International Carrier Bond held by
TCA, is liable to Customs for such fees in view of TCA's filing
bankruptcy.

     Finally, we note that this protest encompasses claims not
only with respect to Customs user fees assessed pursuant to 19
U.S.C.  58c(a)(5), but also with respect to fees assessed
pursuant 8 U.S.C.  1356(d) in connection with passenger
inspection services provided by the INS.  Counsel states that for
the same reasons discussed above that Intercargo is not liable
for Customs user fees, it is also not liable for INS user fees. 
Furthermore, counsel contends that the collection of the INS fee
is outside the jurisdiction of Customs and outside the scope of
the bond and therefore Customs lacks authority to demand payment
of INS fees from Intercargo. 

     Upon further review of this matter, we concur with counsel's
position that the INS fee is outside of Customs jurisdiction. 
Accordingly, we are amending our formal demand for payment of
delinquent user fees assessed pursuant 19 U.S.C.  58c(a)(5) to
reflect those Customs fees covered by the documentation discussed
above (copies of which are enclosed).  In regard to those
delinquent INS fees assessed pursuant to 8 U.S.C.  1356(d) which
are noted in the audit report, Customs defers to that agency as
to the validity of the protestant's claims with respect to those
fees.

HOLDINGS:

     1.  TCA is liable to Customs for the payment of user fees
assessed pursuant to 19 U.S.C.  58c(a)(5), as reflected in the
enclosed documentation, for passengers arriving in the United
States from foreign when the TCA aircraft on which the passengers
arrived were, at the time of arrival, under charter to six tour
operators.

     2.  Since TCA is liable for user fees assessed pursuant to
19 U.S.C.  58c(a)(5) as discussed above, Intercargo, as surety
for the International Carrier Bond held by TCA, is liable for
such fees in view of TCA's bankruptcy filing.

     Accordingly, the protest is denied in part and granted in
part.  
                              
     In accordance with  3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter. 
Any new billing (the equivalent of the reliquidation of an entry)
in accordance with the decision must be accomplished prior to 

                              - 8 -

mailing of the decision.  Sixty days from the date of the
decision the Office of Regulations and Rulings will take steps to
make the decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette Sub-
scription Service, Freedom of Information Act and other public
access channels.

                              Sincerely,



                              Stuart P. Seidel
                              Director, International Trade
                              Compliance Division
Enclosures