United States Court of International Trade

Court Remanded in Part Commerce’s Final Results

In Fresh Garlic Producers Association et al. v. United States, Court No. 14-180, Slip Op. 15-133 (November 30, 2015), the plaintiffs challenged the Department of Commerce’s (“Commerce”) final results from the eighteenth administrative review of the antidumping (“AD”) duty order on fresh garlic from the People’s Republic of China (“PRC”). Fresh Garlic from the People’s Republic of China: Final Results and Partial Rescission of the 18th Antidumping Duty Administrative Review; 2011-2012, 79 Fed. Reg. 36,721 (Dep’t Commerce Jun. 30, 2014).  Before the court were motions for summary judgment of Chinese garlic producers including Shijiazhuang Goodman Trading Co., Ltd. (“Goodman”); Jinan Farmlady Trading Co., Ltd., Qingdao Xintianfeng Foods Co., Ltd., Shenzhen Bainong Co., Ltd., Jining Yifa Garlic Produce Co., Ltd., Weifang Hongqiao International Logistics Co., Ltd., Yantai Jinyan Trading, Inc. (collectively, “QXF”); Hebei Golden Bird Trading Co. Ltd. (“Golden Bird”), and Shenzhen Xinboda Industrial Co., Ltd. (“Xinboda”).  Also before the court was a motion filed by the Fresh Garlic Producers’ Association and its individual members, Christopher Ranch L.L.C., Valley Garlic, The Garlic Company, and Vessey and Company, Inc. (collectively, “FGPA”).

Golden Bird challenged Commerce’s determination that Golden Bird failed to cooperate to the best of its ability and subsequent selection of total adverse facts available (“AFA”). Second, Golden Bird contested Commerce’s selection of the PRC-wide rate as its total AFA rate. Third, Golden Bird claimed that Commerce’s so called “15-day policy” for purposes of liquidation is unlawful. Goodman disputed Commerce’s rescission of its administrative review, arguing that a lack of bona fide sales was an insufficient reason to rescind a review, and alternatively contested Commerce’s application and calculation of the PRC-wide rate.

Xinboda and QXF contested Commerce’s selection of the Philippines as the PRC’s surrogate country, and likewise challenged whether Commerce satisfied its statutory duty to use the best available information to calculate surrogate values for fresh garlic production.  Finally, FGPA challenged Commerce’s use of farm gate prices in calculating the surrogate value of the raw garlic bulb input.

As to Golden Bird’s challenge to the AFA applicability, Commerce’s determination was supported by substantial evidence where Golden Bird initially reported false pricing information and Commerce provided an opportunity to cure the deficient response. For purposes Commerce’s selection of the PRC wide rate, though, the court held that Commerce ignored the Separate Rate Certification for Golden Bird, nor did it find that such a Certification was deficient.  The court remanded Commerce’s rate selection for Golden Bird.  The court also determined that section 502 did not apply retroactively to the remand in requiring the corroboration of the AFA rate to Golden Bird’s commercial reality, or determining whether a separate rate status affected Golden Bird’s AFA rate.  In regards to the 15 day liquidation policy, Golden Bird challenged it as unlawful where the statutes and regulations uphold a 30 day limit for filing cases in the CIT. The court held that even though there may be an issue with forcing parties into Court before statutory limits, Golden Bird should have brought a 1581(i) case to obtain broad injunctive relief to provide the necessary remedy.

Goodman challenged the rescission of the Administrative Review as well as the PRC wide rate.  However, because Commerce was not presented any evidence of a bona fide sale within the period of review (POR), Goodman could not have obtained a separate rate.  Moreover, the PRC wide rate may be challenged in the New Shipper Review. 

As for Commerce’s selection of Philippines as the primary surrogate country, the court remanded this decision because there was no substantial evidence to support it. Because Philippines was a minor producer of garlic in relation to the world’s production in 2011, Commerce could not support its contention that the Philippines was a significant producer to have meaningful effect on the global trade of garlic.  Only on remand, may Commerce support its decision to exclude India from primary surrogate selection, if another country may be identified as an economically comparable producer.   For all these reasons, the court sustained and remanded in part Commerce’s final results in its eighteenth administrative review covering fresh garlic.

Scope Determination Remanded

Before the court in Ethan Allen Operations, Inc. et al. v. United States, et al., Court No.14-147, Slip Op. 15-134, (December 1, 2015) was plaintiff Ethan Allen Operations, Inc.’s (“Ethan Allen”) motion for judgment upon the agency record pursuant to USCIT Rule 56.2Ethan Allen challenged the United States Department of Commerce’s (“Commerce”) determination that certain chests imported by Ethan Allen fall within the antidumping duty order covering certain wooden bedroom furniture (“WBF”) from the People’s Republic of China (“PRC”). See Commerce’s Scope Ruling on Ethan Allen Operations Inc.’s Chests, PD 14 (May 27, 2014) (“Scope Ruling”); Final Results of Voluntary Redetermination Pursuant to Court Order, ECF No. 24 (“Remand Results”). Ethan Allen additionally challenged Commerce’s instructions to U.S. Customs and Border Protection (“Customs”) to “continue” to suspend liquidation of entries of the four chests. Commerce concluded that the Marlene, Nadine, and Serpentine chests were covered by the WBF Order after analyzing the criteria listed in 19 C.F.R. § 351.225(k)(1) (2014) (“(k)(1) factors”). Commerce reasoned that although the chests contained certain decorative aspects, they were made substantially of wood and that “the fundamental elements of their design and dimensions—three or four parallel horizontal drawers stacked one above another in a frame, providing, . . . adequate storage space for clothing—is entirely consistent with chests of drawers subject to the WBF Order.” See Scope Ruling, pg. 6.   Ethan Allen argued that the subject chests could not be within the scope of the WBF Order because they are not (1) designed, (2) manufactured, and (3) offered for sale in coordinated bedroom groups , and that they are living room or hallway chests not designed to match the bedroom furniture sets.

In analyzing the scope of an antidumping duty order Commerce must first look to the language of the order itself. If the language of the order is ambiguous with regard to the particular product at issue, then Commerce considers the (k)(1) factors, which include “[t]he descriptions of the merchandise contained in the petition, the initial investigation, and the determinations of [Commerce] (including prior scope determinations) and the Commission.” 19 C.F.R. § 351.225(k)(1). “When the above criteria are not dispositive,” only then will Commerce consider the (k)(2) factors, which are “(i) [t]he physical characteristics of the product; (ii) [t]he expectations of the ultimate purchasers; (iii) [t]he ultimate use of the product; (iv) [t]he channels of trade in which the product is sold; and (v) [t]he manner in which the product is advertised and displayed.” Id. § 351.225(k)(2). 

Because three of the chests have unique, decorative features, and there was no evidence on the record that these decorative features match that of other bedroom furniture sold by Ethan Allen, Commerce misstated facts in the record.  Moreover, Commerce ignored that the pieces were part of living room sets rather than bedroom sets in evaluating whether they are WBF.  According to the court, “The exclusion of “other non-bedroom furniture” from the scope of the WBF Order makes clear the order’s intent to omit from the scope other non-bedroom furniture, such as living room furniture. It is inconsistent with the WBF Order to read the narrow exception found in the “generally, but not exclusively” language to be so broad as to include coordinated living room furniture.” Slip Op., pg. 16.  The court remanded Commerce’s decision to include the subject chests in the scope of the WBF order, for further analysis consistent with this opinion.  As for the liquidation issue, because there was a genuine dispute as to whether the chests are within scope, the court may not decide the liquidation instructions that apply to the subject merchandise at this time.

United States Court of Appeals for the Federal Circuit

New Federal Circuit Decision Limits Government’s Options in Customs Penalty Cases

In a potentially significant victory for importers, the Court of Appeals for the Federal Circuit has ruled that the Department of Justice, in bringing suit to enforce or collect a civil Customs penalty under Section 592 of the Tariff Act, may not allege a level of culpability different from that which Customs charged administratively.

Section 592 of the Tariff Act [19 U.S.C. §1592] authorizes the imposition of civil penalties for introduction or entry of goods by means of false and material statements or acts, or by means of material omissions. Maximum penalty levels depend on the level of culpability involved in the offense — negligence, gross negligence, or intentional fraud. In addition, penalties under each level of culpability have different elements, and in cases to collect such penalties, the government’s burden of proof varies according to the culpability charged.

Customs has long followed a practice of bringing suit to collect penalties by alleging different levels of culpability in the alternative. The Federal Circuit has now forbidden that practice.

In United States v. Nitek Electronics Inc., Court No. 2015-1166 (December 1, 2015), Customs charged an importer of gas meters with violating Section 592 by means of gross negligence. When the matter could not be settled, Customs referred the case to the Department of Justice, with instructions for that agency to institute suit in the Court of International Trade. Justice sued Nitek, alleging negligence as the basis of the violation.

Nitek moved to dismiss the Complaint, on the ground that the government had failed to exhaust its administrative remedies relating to a “negligence” case before bringing suit. Much to the surprise of observers, the CIT dismissed the case on that basis, noting that the Government had failedto exhaust administrative remedies by failing to have Customs demand a penalty based on negligence, rather than gross negligence.

The Federal Circuit has now upheld the CIT’s determination. The appellate court noted that under Section 592(e) of the Tariff Act, the United States may bring an action in the CIT “for the recovery of any monetary penalty claimed under this section.” From this, the court reasoned, it was for Customsto formulate the penalty claim, including the level of culpability. Section 592(e), by contrast, “merely gives the United States to authority to recovery the penalty if the importer does not pay.”

The government argued that the three levels of culpability – negligence, gross negligence and fraud – are not separate claims, but merely “varying degrees of the falsity of the statement or omission underlying a violation.” The Federal Circuit did not agree, holding that claims based on different culpability levels “are separate claims” and that the “Department of Justice cannot independently enforce a penalty claim in court for a culpability level that was not pursued administratively by Customs”.  The Federal Circuit also rejected the government’s argument that because the CIT considers all issues in a Section 592 case de novo, holding that level of culpability is something that must be resolved at the administrative level.  The appellate judges noted that Customs was required to “inform the importer if the culpability changes throughout the administrative process”, so that “notice of a penalty claim based on a specific culpability level does not put the importer on notice of claims based on the other culpability levels”.  The level of culpability is to be decided by Customs, not the Department of Justice.

The Federal Circuit also rejected the government’s contention that “negligence” was a “lesser included offense” in a “gross negligence” claim. Because Customs did not notify Nitek administratively that it was changing the level of culpability from gross negligence to negligence (which, presumably, would have opened the door to a new response by the importer), the Federal Circuit reasoned that Customs had not exhausted its administrative remedies before bringing suit.

Immediate Impact of the Nitek Decision

While the government could seek en banc rehearing of the Nitek decision, the holding, if it stands, could have immediate impact on judicial and administrative proceedings.

There are a number of cases pending in the CIT where the government has alleged culpability in the alternative. Presumably, the defendants in those cases could move for the immediate dismissal of all counts which do not conform to the level of culpability on which Customs’ penalty decision was based.

There are many pending administrative penalty cases in which Customs has alleged culpability levels in the alternative. The decision suggests that targets of those proceedings can now demand that Customs specify a single level of culpability to be addressed, and that the government must give notice if it decides to alter the culpability claimed.