United States Court of International Trade
Court Denied Default Judgment
In United States v. Selecta Corporation, LLC, Slip Op. 15-90, Court No. 11-89 (August 20, 2015), the court denied plaintiff’s motion for default judgment. Before the court was plaintiff’s application for a judgment by default seeking a civil penalty of $51,102, which plaintiff submits is the interest on the amount of lawful duties, taxes, and fees of which the United States was deprived, and also seeking additional, prejudgment interest and costs. In 2009, Selecta filed a prior disclosure informing Customs’ of the undervaluation and misclassification of 1458 entries of lab coats and medical scrubs, and tendered to Customs $839,694.38, an amount determined by Customs to constitute the underpayment of duties and fees on the entries. After Selecta notified Customs’ of its intent to no longer engage in any business activities, Customs in August of 2010, issued a prepenalty notice in the amount of $51,102, which it said represented the interest calculated from the dates of liquidation of the various entries to the date Selecta filed its supplemental disclosure with payment of duties, taxes, and fees, pursuant to 19 U.S.C. § 1592(c)(4)(B). When Selecta did not respond to such notice, Customs filed suit. Because the complaint lacked specific, well-pled facts sufficient to allow the court to conclude that classifications and valuations of the merchandise were in violation of section 592 and that Customs should be entitled to $51,102, the court denied plaintiff’s motion for default judgment.
Court Remanded Results in Sixth Administrative Review for the Second Time
In Clearon Corporation et al., v. United States, et al., Slip Op. 15-91, Consol. Court No. 13-73 (August 20, 2015), the court reviewed the Final Results of Redetermination Pursuant to Court Remand, Clearon Corp. and Occidental Chemical Corp., et. al., v. United States (“Remand” or “RR”), Court No. 13-0018, RR-PDoc 69 (Dec. 11, 2014) submitted from the defendant’s International Trade Administration of the U.S. Department of Commerce (“Commerce” or “Department”). Covered in the Final Results was the sixth (2010-2011) administrative review of the antidumping duty order on chlorinated isocyanurates (“chlor-isos”) from the People’s Republic of China (“PRC”). While defendant-intervenors Arch Chemicals, Inc. and Hebei Jiheng Chemical Co., Ltd. (“Jiheng”) (together “Arch”) and Juancheng Kangtai Chemical Co., Ltd. (“Kangtai”) argued for further remand, plaintiffs Clearon Corp. and Occidental Chemical Corp. (together, “Clearon”) argued for sustaining the remand results.
Upon remand, Commerce placed additional information on the record for comment and issued questionnaires to Arch and Kangtai requesting further information on intra-company transport of goods and on the by-product offset claims for ammonium gas and sulfuric acid. Commerce again selected the Philippines as the primary surrogate country. Commerce stated that during remand it adjusted the normal value (“NV”) calculation by recalculating the transportation cost of intermediate goods between factories for Jiheng, and by recalculating the by-product offset using company specific information for Jiheng and Kangtai. Commerce also revised the by-product calculation made to the draft remand calculations and clarified certain sentences in its explanation of its decision not to adjust financial ratios to account for benefits included in the International Labor Organization (“ILO”) surrogate value for labor. All other aspects of the Remand apparently remained the same.
Kangtai continued to contest Commerce’s elimination of India in the surrogate country selection process. Kangtai and Arch both argued that the labor factors of production (“FOP”) continued to double count certain indirect labor costs, and that Commerce’s by-product methodology was unsupported by record evidence and was contrary to law.
As for surrogate country selection, Commerce maintained India’s data is not “better,” because they are not from a country “at a level of economic comparability” to the PRC, noting that to be selected for the list over the other countries, the surrogate country should be at the same level of economic comparability to the PRC. Moreover Philippine data appeared to be more reliable and useable.
While Commerce provided a reasonable explanation of how it generated the Surrogate Country List and selected the range of GNI’s that qualify countries as proximate and “economically comparable” to the PRC, Commerce’s selection of the Philippines as the primary surrogate country relied heavily on its determination that the Philippine data for valuing chlorine and hydrogen gas was the “best available information” on the record. Commerce did not consider Kangtai’s arguments that the quality of the data with regard to India’s chemical industry was far superior to that of Philippine’s chemical industry. Thus, that determination cannot be sustained at this time; therefore, the primary surrogate country selection remains an open question, to be addressed on remand.
As for labor FOP, according to the court, Commerce appeared to overestimate certain employee benefits and did not make the necessary adjustments and that Commerce had apparently failed to interpret the record correctly, thereby inadvertently violating its Labor Methodology policy without adequate justification.
As for byproduct offset calculations, Commerce should provide more explanations as to its new methodology. First, the remand results were unclear “on whether Commerce in this matter is granting an offset to each respondent for the full amount of the ammonia gas and sulfuric acid claimed as produced during the POR, in accordance with Commerce’s general by-products practice, as opposed to limiting the offset to the value of the amount of those by-products as embodied in the amount of ammonium sulfate actually sold during the POR.” Slip Op. at p.56. Second, if Commerce was only granting an offset based on the amount of ammonium sulfate that was actually sold during the POR, then the new methodology is actually a “net realized value” standard (based upon the values of the ammonium gas and sulfuric acid by-products in actual sales of the downstream product that occur during a period of review), not a “net realizable value” standard, which would be at odds both with the generally accepted accounting principles’ cost accounting concerns for income and inventory valuations as well as at odds with Commerce’s allegedly still-existing policy of determining whether or not the by-product has commercial value by proof of sales or reintroduction into production. Third, it was unclear how Commerce’s new methodology is an improvement over its previously applied methodology and is a reasonable change, and finally, fourth, the remand results avoid concerns regarding notice and comment as to the sufficiency of the new methodology.
For all these reasons, the court remands the matter for a second time.
Court Denied Defendant’s Motion to Dismiss and Denied in Part Plaintiff’s Motion to Amend its Complaint
In United States v. American Casualty Company of Reading Pennsylvania and Rupari Food Services, Inc., Consol. Court No. 10-119, Slip Op. 15-94 (August 24, 2015)("Customs") brought this action to recover civil penalties against Defendant, Rupari Food Services Inc., ("Rupari" or "Defendant") for violations of Section 592 of the Tariff Act of 1930, 19 U.S.C. § 1592(a) (2012), and Defendant American Casualty Co. of Reading Pennsylvania, ("American Casualty") to recover, under bonds, unpaid customs duties. Rupari moved for dismissal of this action, post-answer, on the grounds that the Complaint fails to state a claim upon which relief can be granted and Customs failed to plead fraud with particularity. Rupari is a Florida corporation hired to sell Chinese crawfish tail meat, and imported such crawfish from a Chinese producer which was subject to an antidumping China wide rate of 201.63 percent. Rupari’s main sales team consisted of a Larry Floyd and William Vincent Stillwell. In 1997 and 1998, Rupari sold crawfish to members of thePopeye's Operator's Purchasing Cooperative Association ("POPCA"). Mr. Richard Porter ("Porter"), the POPCA director of purchasing and distribution, communicated with Rupari through Floyd regarding the sale of crawfish. The Chinese producer formed a Thailand company known as Seamaster Trading Company, Ltd. (“Seamaster”), which was alleged to be involved with transshipping the crawfish meat from China to Thailand and claiming the meat as product of Thailand. Rupari assisted Seamaster in obtaining a customs broker and becoming a non-resident importer of crawfish to the United States. American Casualty issued customs bonds to Seamaster for the importation of crawfish tail meat. American Casualty, as surety, guaranteed payment for any duty, tax, or charge, or compliance with law or regulation, as a result of Seamaster' s imports. Between February 1998 and June 1998, Seamaster attempted to enter transshipped crawfish meat duty free as products of Thailand. Customs seized some of these shipments, initiated an investigation, and brought penalties against Seamaster and Rupari as Seamaster’s representative. In 2001, Customs initiated this action against Rupari and its surety for unpaid duties with interest. Customs sought the domestic value of the merchandise Rupari attempted to enter into the United States which was $2,784,636.18, or in the alternative, the maximum amount for grossly negligent or negligent violations of 19 U.S.C. § 1592. The court consolidated complaints against Rupari and American Casualty.
First, at issue was Customs’ amendment of the complaint. Defendant argued that the inclusion of the Declaration of Porter would prejudice it, because the Declaration details a phone conversation between Porter and Floyd, in which Floyd allegedly stated that the crawfish tail meat was from China. Floyd is now deceased, and Defendant contended that as a result of his death, it has been deprived of an opportunity to challenge Porter's statements. However the court held that because of Porter’s Declaration, such a Declaration verifies the conversation between Porter and Floyd and limits the conversation to “whole crawfish” which did not prejudice Defendant. Moreover, including a facsimile indicating that Rupari was aware of the transshipment of crawfish from China would not be futile and survive a motion dismiss, because it evidenced more than a mere possibility of plaintiff’s right to relief. Finally, Customs was not permitted to include a conversation from a confidential informant in the Complaint because it indeed prejudiced defendant because defendant would be deprived of an opportunity to present Stillwell’s testimony had the amendment been timely.
As to pleading facts in the Complaint with particularity, the court held that Porter’s declaration along with POPCA and Rupari’s agreement to sell Chinese whole crawfish and crawfish tail meat provides enough facts to substantiate plaintiff’s claims with particularity to survive defendant’s motion to dismiss.
Finally, the court held that Customs exhausted its administrative remedies by putting defendant on notice of the claims of both negligence and gross negligence made against it. For these reasons, the court denies plaintiff’s motion in part and denies defendant’s motion to dismiss.
Motion to Dismiss Denied, Motion for Preliminary Injunction Granted, Motion for Voluntary Remand Granted
Diamond Sawblades Manufacturers’ Coalition v. United States and Beijing Gang Yan Diamond Products Company, and Gang Yan Diamond Products, Inc., concerns the antidumping investigation of diamond sawblades from the People’s Republic of China (PRC) issued by the Department of Commerce (“Commerce”). Specifically, the action challenged Commerce’s determination to revoke the antidumping duty order with respect to members of the ATM entity, pursuant to section 129 of the Uruguay Round Agreements, upon a WTO Finding that Commerce’s zeroing methodology used to calculate final antidumping duty rates was inconsistent with the U.S.’s international obligations. ATM moved to dismiss the matter; plaintiffs DSMC moved for a preliminary injunction against liquidation of post-section-129 entries during the pendency of the litigation; and Commerce moved for voluntary remand.
The Court denied ATM’s motion to dismiss for lack of subject matter jurisdiction. Section 129 of the URAA, 19 U.S.C. § 3538, provides for judicial review of Commerce’s determinations that bring agency action in line with WTO decisions, and not just the agency’s failure to issue or implement a determination as ATM argued. The Court held that the plain language of 19 U.S.C. § 1516(a)(2)(A)(III) authorized judicial review of the implementation of any determination under § 3538. Furthermore, the Court reasoned, the legislative history of section 129 of the URAA illustrates legislative intent to provide substantive judicial review of section 129 determinations. In similar cases, the CIT has considered the factual findings and legal considerations of 129 determinations.
The Court also found ATM’s argument to dismiss DSMC’s claims referring to events after the section 129 determination without merit. Federal Circuit precedent holds that remand results issued subsequent to the 129 determination does not strip the court of jurisdiction, nor prevent the court from remanding the revocation for reconsideration. Moreover, the case challenged the partial revocation aspect of the 129 determination, which is a legal conclusion over which the CIT had jurisdiction to review.
Finally, as to the question of jurisdiction, the Court held that review of the case was not barred by the political question doctrine of justiciability. ATM’s argument that implementation of section 129 determinations are within the discretion of the executive branch and a court is thereby restricted from reviewing or requiring Commerce to act, is trounced by Congress’ express provision for judicial review of such determinations in § 1516. The Court could find no evidence in statute or legislative history that USTR’s direction of implementation might bar judicial review, nor any previous case precedent that could support ATM’s claims.
The Court granted DSMC’s motion for a preliminary injunction, finding good cause to enjoin the liquidation of subject merchandise until the conclusion of liquidation. Although the entries were previously covered by a preliminary injunction, that had since dissolved when the decision and appeal became final and conclusion. The Court held that a preliminary injunction was required to prevent the relief sought by DSMC, review of the revocation of the antidumping order, from being mooted.
Commerce’s motion for voluntary remand to reevaluate its separate rate determination in light of the Federal Circuit’s opinion in Advanced Technology & Materials Co., Ltd. v. United States, was granted. 581 Fed. Appx 900 (Fed. Cir. 2014). In Advanced Technology, the Federal Circuit affirmed ATM’s ineligibility for a separate rate. The Court found the request to reconsider a determination in light of a subsequent court decision a substantial and legitimate concern that warranted remand.
Seventh Administrative Review Remanded
In Juancheng Kangtai Chemical Co., Ltd., and Arch Chemicals Inc., a Lonza Company, Arach Chemicals (China) Co., Ltd., and Hebei Jiheng Chemical Co., Ltd. v. United States and Clearon Corp, Occidental Chemical Corporation, plaintiffs challenged the final results of the seventh administrative review of the antidumping duty order on chlorinated iscoyanurates (chlor-isos) from the People’s Republic of China (PRC). Court No. 14-00056, Slip Op. 15-93 (August 21, 2015). Plaintiffs filed separate motions for summary judgment on the agency record that challenged (1) the selection of the Philippines as the primary surrogate country for valuing factors of production; (2) the use of the financial statement from a Philippine company to calculate surrogate financial ratios; (3) the treatment of certain expenses; (4) the determinations of certain valuations; and (5) certain value added tax determinations.
Plaintiffs sought to have ordered remanded the choice of the Philippines as the primary surrogate country for factors of production (FOP) surrogate values. Kangatai argued that Commerce should not have deviated from prior reviews in which India was the surrogate country, despite the agency’s determination that India was less economically comparable to the PRC than other countries. Furthermore, Kangatai argued, Commerce did not adequately explain why other potential surrogates were not chosen. The Court held that Commerce had not adequately explained the analysis of certain surrogate values that resulted in the selection of the Philippines, and therefore ordered the issue remanded.
Kangtai also argued that Thailand was more economically similar to the PRC than Philippines, and took issue with the selection based on just one financial statement from a company that might have benefited from countervailing subsidies. The Court concluded that Commerce’s selection of the Philippines and the financial statement was supported by evidence on the record, which indicated that Thai financial statements did not identify certain key values making it less useful than that of the Philippines in calculating the surrogate financial ratios.
Plaintiffs challenged the labor figures calculated by Commerce, specifically that Commerce overstated the financial ratios’ labor component. The Court was persuaded by these arguments, noting that the financial statement relied upon did not distinguish between the costs of direct labor and that of operating expenses. Furthermore, the Court concluded, Commerce did not sufficiently address the question of employee benefits and pertinent figures in the financial statement. The Court found Commerce’s assumptions not based on substantial evidence and ordered remanded the issue of indirect labor costs to ensure that certain figures are not double counted.
The Court held the surrogate value derived for chlorine was not supported by substantial evidence. Commerce relied on the Philippines Global Trade Atlas import price in determining the value, finding that the data was not aberrational but rather commercially significant. However, the Court concluded, the agency did not adequately explain why that data was the best available data, nor did it address respondent Kangtai’s production experience, and therefore remanded the question of chlorine valuation.
Also remanded was the valuation of ammonium chloride, which was also based on Global Trade Atlas import data from the Philippines. Although Commerce argued the average unit values and quantities of ammonium chloride imported into the Philippines was within the range of that of other countries on the surrogate country list, it was substantially less than Kangtai’s purchases, and therefore did not reflect commercial reality.
As to the surrogate valuation of electricity, the Court was persuaded by plaintiffs’ arguments and remanded certain determinations. Specifically, Commerce was instructed on remand to address concerns that the dataset relied upon in making the determination is no longer available, that other data provides broader market coverage. Also remanded was the determination by Commerce that the source used in the valuation was tax and duty free. The Court instructed the agency to support the validity of the agency’s inference with substantial reasoning, as well as to support its determinations as to the value of steam. The Court ordered remanded the issue of off set for by-products generated during production of subject merchandise, with instructions for commerce to explain and support the agency’s change the manner in which it calculated the by-product offset, the denial of Kangtai’s by-product offset, and the approval of Arch’s by-product offset.
Finally, the Court granted Commerce’ request for voluntary remand to consider and address plaintiff’s arguments against the determination of deducting value added taxes from the United States sale price.
D.C. Circuit Affirms Decision Invaliding SEC Conflict Minerals Reporting Requirement
By a 2-1 vote, a panel of the United States Circuit Court for the District of Columbia Circuit has affirmed an earlier decision which invalidated the Securities and Exchange Commission’s rules requiring importers and others to report their use of “conflict minerals” (gold, tantalum, tin and tungsten from the Democratic Republic of the Congo) on their websites and in filings with the SEC.
In National Association of Manufacturers v. Securities and Exchange Commission, (August 18, 2015, the D.C. Circuit revisited a number of judicial developments which had occurred since it originally struck down the SEC rules, and concluded that the conflict mineral rules still violated the First Amendment to the Constitution.
In 2014, the D.C. Circuit concluded that the conflict mineral rules were subject to scrutiny under the strict standard set out by the U.S. Supreme Court in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985), which held that compelled commercial speech was permissible under the first amendment if it was intended to safeguard consumers against deception or deceptive labeling. Since the SEC rules were not directed at consumers, the court reasoned, it violated the Constitution to require “issuers” of securities and others to make a compelled disclosure of the source of materials they used.
Subsequently, in American Meat Institute v. United States Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014), an en banc D.C. circuit held that Zauderer was not limited merely to preventing consumer deception, but also allowed compelled speech – in that case, Country of Origin Labeling (COOL) act disclosures of the country of origin of meat products – to inform consumers, so that they might elect United States-made products. This had the result of partially overruling the court’s initial holding in NAM v. SEC. The Court solicited additional briefing on what standard should be applied to determine whether the SEC’s conflict mineral rules violated the First Amendment.
On rehearing, the D.C. Circuit affirmed its earlier decision that the SEC’s conflict minerals reporting rule violated the First Amendment. Even if the Zauderer standard extended beyond preventing consumer deception, the Court’s majority determined that it was limited to cases involving “advertising or point of sale disclosures”. The majority quoted extensively from the SEC’s rulemaking, which indicated that the conflict minerals reporting rule was not intended to confer specific benefits on consumers, and was different in nature than the disclosures normally required of stock issuers, to conclude that the rules could not be upheld under the standard of review used in Zauderer. It was compelled commercial speech without a valid purpose. The Zauderer standard only covers “voluntary commercial advertising”, the majority concluded.
But the majority offered a second basis for holding the SEC conflict minerals reporting regulations unconstitutional – the notion that the compelled disclosures would achieve a governmental objective was entirely speculative and unproven. The apparent notion behind the requirement was that forced disclosure of conflict mineral use would dissuade persons from buying goods made with those minerals, depriving armed groups in the Congo of funds. But the Court noted –
. . . there is a major problem with this idea – it is entirely unproven and rests on pure speculation.
Under the First Amendment, in commercial speech cases the government cannot rest on “speculation or conjecture.” Edenfield v. Fane, 507 U.S. 761, 770 (1993). But that is exactly what the government is doing here. Before passing the statute, Congress held no hearings on the likely impact of § 1502. The SEC points to hearings Congress held on prior bills addressing the conflict in the DRC, but those hearings did not address the statutory provisions at issue in this case. When Congress held hearings after § 1502’s enactment, the testimony went both ways– some suggested the rule would alleviate the conflict, while others suggested it had “had a significant adverse effect on innocent bystanders in the DRC.” The Unintended Consequences of Dodd-Frank’s Conflict Minerals Provision:Hearing Before the Subcomm. on Monetary Policy and Trade of the H. Comm. onFinancial Services, 113th Cong. (May 21, 2013) (Statement of Rep. Campbell).
Other post-hoc evidence throws further doubt on whether the conflict minerals rule either alleviates or aggravates the stated problem. As NAM points out on rehearing, the conflict minerals law may have backfired. Because of the law, and because some companies in the United States are now avoiding the DRC, miners are being put out of work or are seeing even their meager wages substantially reduced, thus exacerbating the humanitarian crisis and driving them into the rebels’ camps as a last resort.
Because compelled speech may not be required on a speculative basis, the majority found the conflict minerals disclosure to be unconstitutional, in violation of the First Amendment.
Judge Srinivasan, writing in dissent, took the position that the securities laws require all manner of disclosures from issuers of securities, and the provision of “factual, noncontroversial” information did not implicate First Amendment concerns.