Liberty Frozen Foods Private, Ltd. v. United States , 819 F. Supp. 2d 1346 ( 2012 )

Slip Op. 12 -22
UNITED STATES COURT OF INTERNATIONAL TRADE
LIBERTY FROZEN FOODS PRIVATE,
LIMITED, et al.,
Plaintiffs,
v.
UNITED STATES,
Before: Donald C. Pogue,
Defendant, Chief Judge
and
Consol.1 Court No. 10-00231
AD HOC SHRIMP TRADE ACTION
COMMITTEE, AMERICAN SHRIMP
PROCESSORS ASSOCIATION, and
DEVI SEA FOODS LIMITED,
Defendant-
Intervenors.
OPINION
[Affirming Department of Commerce’s remand redetermination]
Dated: February 21, 2012
Lizbeth R. Levinson and Ronald M. Wisla, Kutak Rock LLP of
Washington DC, for the Plaintiffs Liberty Frozen Foods Private,
Limited; Devi Marine Food Exports Private, Limited; Kader Exports
Private, Limited; Kader Investment and Trading Company, Private,
Limited; Liberty Oil Mills Limited; Premier Marine Products; and
Universal Cold Storage Private, Limited.
Joshua E. Kurland, Trial Attorney, Commercial Litigation
Branch, Civil Division, U.S. Department of Justice, of
Washington, DC, for Defendant. With him on the briefs were Tony
West, Assistant Attorney General, Jeanne E. Davidson, Director,
1
This action was consolidated with Court No. 10-00237,
which was subsequently dismissed. Order, Mar. 1, 2011, ECF No.
53.
Consol. Court No. 10-00231 Page 2
and Patricia M. McCarthy, Assistant Director. Of counsel on the
briefs was Scott D. McBride, Office of the Chief Counsel for
Import Administration, U.S. Department of Commerce, of
Washington, DC.
Andrew W. Kentz, Jordan C. Kahn, Nathaniel J. Maandig
Rickard, and Kevin M. O’Connor, Picard Kentz & Rowe LLP, of
Washington, DC, for Defendant-Intervenor Ad Hoc Shrimp Trade
Action Committee.
Terence P. Stewart, Geert M. De Prest and Elizabeth J.
Drake, Stewart and Stewart, of Washington DC, and Edward T.
Hayes, Leake & Andersson, LLP, of New Orleans, LA, for the
Defendant-Intervenor American Shrimp Processors Association.
Ronald M. Wisla, Kutak Rock LLP, of Washington, DC, for the
Defendant-Intervenor Devi Sea Foods Limited.
Pogue, Chief Judge: This case returns to court following
remand by Liberty Frozen Foods Pvt., Ltd. v. United States, __
CIT __, 791 F. Supp. 2d 1249 (2011) (“Liberty I”). In Liberty I,
the Court reviewed the final results of the fourth administrative
review of certain frozen warmwater shrimp from India,2 and
ordered the Department of Commerce (“Commerce” or “the
Department”) to “further explain or amend, its decision to
consider the full amount of [Liberty Frozen Foods’] March 2008
bad debt write-off” in light of the apparently inconsistent
decisions in Saccharin from the People’s Republic of China, 68
2
Certain Frozen Warmwater Shrimp from India, 75 Fed. Reg.
41,813 (Dep’t Commerce July 19, 2010) (final results of
antidumping duty administrative review, partial recission of
review, and notice of revocation of order in part) (“Final
Results”), and accompanying Issues & Decision Memorandum, A-533-
840, ARP 08–09 (July 13, 2010), Admin. R. Pub. Doc. 310 (“I & D
Mem.”) (adopted in Final Results, 75 Fed. Reg. at 41,815).
Consol. Court No. 10-00231 Page 3
Fed. Reg. 27,530 (Dep’t Commerce May 20, 2003) (notice of final
determination of sales at less than fair value) (“Saccharin from
PRC”)3 and Circular Welded Non-Alloy Steel Pipe from the Republic
of Korea, 75 Fed. Reg. 34,980 (Dep’t Commerce June 21, 2010)
(final results of the antidumping duty administrative review)
(“Pipe from Korea II”).4 Liberty I, __ CIT at __, 791 F. Supp. 2d
at 1256–57. In the Final Results of Redetermination Pursuant to
Court Remand, ECF No. 86 (“Remand Results”), Commerce reaffirmed
its decision to include the full amount of the bad debt write-off
in the calculation of indirect selling expenses consistent with
its general practice of basing “indirect selling expenses on the
amounts recorded in a company’s books and records during the
period under review.” Remand Results at 4. Commerce
distinguished Saccharin from PRC and Pipe from Korea II as
exceptions to the general rule applicable to facts not present in
this case. Id. at 6–9.
As discussed below, the court affirms the Remand Results as
neither arbitrary nor contrary to law because the Department
sufficiently explains why its decision is consistent with
Saccharin from PRC and Pipe from Korea II.
3
See also Issues & Decision Memorandum, A-570-878, (May 20,
2003) (“Saccharin from PRC I & D Mem.”) (adopted in Saccharin
from PRC, 68 Fed. Reg. at 27,530).
4
See also, Issues & Decision Memorandum, A-580-809, ARP
07–08 (June 14, 2010) (“Pipe from Korea II I & D Mem.”) (adopted
in Pipe from Korea II, 75 Fed. Reg. at 34,981).
Consol. Court No. 10-00231 Page 4
The court has jurisdiction pursuant to 28 U.S.C. § 1581(c)
and § 516A(a)(2) of the Tariff Act of 1930, as amended, 19 U.S.C.
§ 1516a(a)(2) (2006).5
BACKGROUND
The facts necessary to the disposition of the remand are the
following:6
Liberty Frozen Foods (“LFF”) was chosen as a mandatory
respondent for the fourth administrative review of certain frozen
warmwater shrimp from India. Final Results, 75 Fed. Reg. at
41,813. The period of review (“POR”) for the fourth
administrative review was February 2008 to January 2009. Id.
During the POR, in March 2008, LFF wrote-off the value of a sale
for which full payment had never been received (the “bad debt
write-off”) as a year-end expense.7 I & D Mem. Cmt. 5 at 17–18.
When calculating LFF’s indirect selling expenses, Commerce
included the full value of this bad debt write-off. Id.
LFF challenged inclusion of the bad debt write-off’s full
value before Commerce, Id. Cmt. 5 at 20, and then before this
5
All subsequent citations to the Tariff Act of 1930, as
amended, are to Title 19 of the U.S. Code, 2006 edition.
6
Familiarity with the court’s prior decision is presumed.
7
LFF’s 2007–2008 fiscal year ran from February 2007 to
March 2008.
Consol. Court No. 10-00231 Page 5
Court, arguing that (1) the bad debt write-off should not be
included in indirect selling expenses because it related to a
transaction that occurred prior to the POR, and (2) if the bad
debt write-off was included it should be prorated because LFF’s
fiscal year and the POR overlapped by only two months. Liberty I,
__ CIT at __, 791 F. Supp. 2d at 1253–57. The Court affirmed the
Department’s rejection of LFF’s first argument, but, in light of
apparently contradictory practices in Saccharin from PRC and Pipe
from Korea II, remanded the Final Results to Commerce for further
explanation of why the bad debt write-off was not prorated. Id.at 1255–57.
STANDARD OF REVIEW
“The court will sustain the Department’s determination upon
remand if it complies with the court’s remand order, is supported
by substantial evidence on the record, and is otherwise in
accordance with law.” Jinan Yipin Corp. v. United States, __ CIT
__, 637 F. Supp. 2d 1183, 1185 (2009) (citing 19 U.S.C.
§ 1516a(b)(1)(B)(i)).
DISCUSSION
As recognized in Liberty I, “an unexplained inconsistency in
the application of a methodology is unlawful agency action.”
Liberty I, __ CIT at __, 791 F. Supp. 2d at 1256 (citing SKF USA
Consol. Court No. 10-00231 Page 6
Inc. v United States, 263 F.3d 1369, 1382 (Fed. Cir. 2001);
Pakfood Pub. Co. v. United States, __ CIT __, 724 F. Supp. 2d
1327, 1334 (2010)). Following remand, the issue presented is
whether Commerce has shown that its Remand Results are in
accordance with law by sufficiently explaining the apparent
inconsistencies between its methodology for calculating indirect
selling expenses in this case and the methodologies employed in
Saccharin from PRC and Pipe from Korea II.
Commerce first argues that its standard methodology for
calculating indirect selling expenses, as exhibited in this case,
is not to parse expenses into POR and non-POR components.
When determining the total expenses incurred, the
Department is not concerned with expenses recorded in
specific months but rather the aggregate amount
incurred over the POR. Thus, as a general rule, the
Department does not attempt to split expenses that are
recorded on a semi-annual or annual basis into monthly
amounts, nor does it analyze whether the component
expenses are recorded in the months that the underlying
activity took place. . . . Just as companies normally
do not reflect such annual adjustments in quarterly,
monthly or weekly terms, the Department, as a rule,
does not attempt to pro-rate such adjustments . . . .
Remand Results at 4–5 (footnote omitted). Rather, Commerce takes
those expenses “actually recorded in the books and records of the
respondent during the period of review,” aggregates those
expenses, and “then divide[s] those expenses by the total value
of sales during the same period of time.” Def.’s Resp. Pls.’
Comments Regarding Remand Results at 15, ECF No. 97 (“Def.’s
Consol. Court No. 10-00231 Page 7
Reply Br.”). This account accurately describes the methodology
employed by Commerce in this case: (1) LFF recorded the bad debt
write-off within the POR; (2) Commerce aggregated the bad debt
write-off with the other expenses recorded during the POR; and
(3) Commerce then divided the aggregate by the total value of
sales for the POR.8
However, as Commerce explains in the Remand Results, the
standard methodology is inadequate when the POR is incongruent
with the period over which an expense is realized. It is this
fact that distinguishes Saccharin from PRC and Pipe from Korea II
as exceptions to the standard methodology.9
8
LFF asserts in its Comments on the Remand Results that its
depreciation expenses from the two fiscal years encompassing the
POR were prorated to arrive at one year’s worth of depreciation
expenses in a method similar to that used in Pipe from Korea II,
see infra pp. 10–11. Pl.’s Comments on Remand Results at 10, ECF
No. 88 (“Pl.’s Comments”). However, LFF did not provide a
citation to the relevant records, which would permit the court to
review this claim. Therefore, the court will not consider this
argument.
9
The court notes that in cases where an exception does not
apply, such as this one, Commerce’s standard methodology does not
permit it to capture expenses recorded after the POR has ended.
Commerce acknowledged as much in the Remand Results:
LFF’s fiscal year runs from April through March. Thus,
any adjusting entries made in March 2008 (at the end of
the first fiscal year included in the POR) should be
included in LFF’s costs; any adjusting entries made in
March 2009 ([at the end of] the [fiscal] year in which
the remaining portion of the POR is included) should
not be (and were not) reported.
Remand Results at 5 n.4. In light of this fact, the court finds
Consol. Court No. 10-00231 Page 8
In Saccharin from PRC, Commerce prorated a bad debt expense
recorded as a year-end expense outside the six-month period of
investigation (“POI”).10 In cases like Saccharin from PRC that
involve a six-month POI/POR year-end expenses may go entirely
uncaptured using the standard methodology for calculating
indirect selling expenses. This is not because relevant expenses
are recorded outside the POI/POR; rather, it is because the
POI/POR encompasses a span of time that does not overlap with any
year-end recording periods. See Remand Results at 7, 7 n.5.
unpersuasive Commerce’s argument that including the full expense
when it is recorded is necessary to capture expenses relevant to
the POR. Had LFF waited another year, until March 2009, to
write-off its bad debt expense, the expense would not have been
captured because LFF was not chosen as a mandatory respondent in
the fifth administrative review of this Order. See Certain Frozen
Warmwater Shrimp from India, 76 Fed. Reg. 41,203, 41,205 (Dep’t
Commerce July 13, 2011) (final results of antidumping duty
administrative review, partial rescission, and final no shipment
determination). Thus, while it is true on the facts of this case
that “if these expenses are not included in the analysis for the
period under consideration, they would never be captured in the
calculation of LFF’s margin although they clearly pertain,”
Remand Results at 16, Commerce’s chosen methodology is no
guarantee that an expense which pertains to the POR will be
captured during that POR.
10
Commerce noted in Saccharin from PRC that,
Suzhou booked bad debt into its financial statements at the
end of the fiscal year (outside the POI). However, this
choice was made solely as a matter of completing the books
for the year. We will divide these expenses by two and
attribute half to the POI (the first half of the calendar
year).
Saccharin from PRC I & D Mem. Cmt. 10 at 20 n.5.
Consol. Court No. 10-00231 Page 9
Because a six-month POI/POR may not capture any year-end
expenses, an exception to the standard methodology that permits
inclusion of certain expenses recorded outside the POI/POR is
necessary to prevent a distortive undercounting due to expenses
being “omitted completely from the reported costs ‘solely as a
matter of [when the respondent completed its books for the
year].’” Id. at 7 (alternation in original) (quoting Saccharin
from PRC I & D Mem. Cmt. 10 at 20 n.5).
A second exception is then necessary to prevent overstating
the value of year-end expenses in calculations involving a
truncated POI/POR, i.e., to prevent including a full year’s
expenses in a six-month POI/POR. Therefore, the year-end
expenses are properly, and exceptionally, prorated in such cases
to prevent a distortion through overcounting.
Commerce clearly articulated the Saccharin from PRC
exception in footnote seven of the Remand Results:
If those companies [that record depreciation expenses
only at the end of the fiscal year] were investigated
or reviewed and the POI or POR was less than a year,
the Department would not include a full year’s worth of
depreciation expenses in its calculations. Rather, if
the truncated POI/POR precedes the month in which the
companies’ year end adjustments were made, the
Department would attribute, on a pro rata basis, a
portion of these expenses to the POI/POR because it
would be distortive to include no depreciation expenses
in the analysis. Similarly, if the companies’ fiscal
year ended within a truncated POI/POR, it would be
distortive to include a full year’s depreciation to
that truncated POI/POR. In that situation, the
Department would therefore include only a portion of
Consol. Court No. 10-00231 Page 10
the depreciation expenses.
Id. at 7 n.7.
LFF reads footnote seven differently, concluding that “[t]he
Department’s argument that it does not parse expenses into POR
and non-POR elements is directly contradicted by its own
examples.” Pl.’s Comments at 4. LFF’s argument is misguided on
two accounts: (1) LFF reads the exception as the rule, and (2) it
fails to appreciate the significance of the modifier “truncated.”
As discussed above, a truncated POR presents circumstances that
require exceptions, including both provisions for capturing year-
end expenses to prevent undercounting distortions and prorating
year-end expenses to prevent overcounting distortions.
Pipe from Korea II presents a distinct but related
difficulty for the standard methodology. Unlike Saccharin from
PRC, Pipe from Korea II did not involve a truncated POR. The POR
was one year, but the record contained two years worth of bad
debt expense data. Thus, as Commerce plainly and accurately
stated in that case, “including the entire allowance of doubtful
accounts from both years would result in overstating the bad debt
allowance.” Pipe from Korea II I & D Mem. Cmt. 4 at 22. With two
years of bad debt expenses on the record of a one year POR,
Commerce prorated the two years of data to arrive at a non-
distortive amount consistent with the POR — a reasonable
Consol. Court No. 10-00231 Page 11
deviation from the standard methodology on these facts.11
Nor does LFF’s reliance on Certain Preserved Mushrooms from
India, 68 Fed. Reg. 41,303 (Dep’t Commerce July 11, 2003) (final
results of antidumping duty administrative review) (“Mushrooms
from India”),12 undermine Commerce’s reasoned distinctions in
Saccharin from PRC and Pipe from Korea II. See Pl.’s Comments at
4–5. In Mushrooms from India, a respondent requested that
Commerce offset its financial expenses by the full amount of a
recorded gain from debt restructuring. Mushrooms from India I & D
Mem. Cmt. 13 at 20. Commerce declined to credit respondent the
entire amount of the gain during the POR at issue, arguing that
[i]t is the Department’s practice to offset financial
expenses only with the current portion of gain on debt
restructure. . . . The benefit of the restructured
debt covers multiple accounting periods through the
maturity of the loan. [Respondent’s] reporting
11
Commerce also distinguishes Pipe from Korea II from the
instant case on the basis that Pipe from Korea II involved a bad
debt provision, whereas the instant case involves a bad debt
write-off: “[T]here is a meaningful difference between a
provision for bad debt and a one-time write-off. . . . As a set-
aside in anticipation of periodic expenses, rather than a one-
time recognition of a specific expense, a provision is more
appropriate to pro-rate than a direct write-off.” Def.’s Reply
Br. at 11. The court need not decide whether Commerce’s
statement is accurate to resolve the case before it. Rather, it
is sufficient to note that Pipe from Korea II is distinguishable
from the instant case both because it involved a bad debt
provision and because the two years of bad debt expense data
presented a danger of double counting.
12
See also the accompanying Issues & Decision Memorandum,
A-533-813, ARP 01–02 (July 11, 2003) (“Mushrooms from India I & D
Mem.”) (adopted in Mushrooms from India, 68 Fed Reg. at 41,303).
Consol. Court No. 10-00231 Page 12
methodology is distortive in that it recognizes the
entire gain in the year of restructure, when, in fact,
multiple accounting periods will benefit from the
restructured debt.
Id. (citations omitted).
The reasoning in Mushrooms from India is consistent with the
Department’s position articulated in the Remand Results of this
case. Like Saccharin from PRC and Pipe from Korea II, in
Mushrooms from India the financial data at issue (here a gain
rather than an expense) was not coterminous with the POR.
Because the gain related to a term (“multiple accounting
periods”) that exceeded the POR, Commerce “included as an offset
to the financial expenses the portion of the gain that is current
to this POR.” Id. Cmt. 13 at 20–21. Contrary to LFF’s argument,
Mushrooms from India provides further support to the Department’s
articulation of its standard methodology and the necessity of
certain exceptions, as also recognized in Saccharin from PRC and
Pipe from Korea II.
With its standard methodology for calculating indirect
selling expenses, Commerce seeks to capture and aggregate one
year’s worth of such expenses to accurately reflect the one year
length of the POR. Thus, when year-end expenses are recorded
during the POR, it is reasonable for Commerce to include the full
expense. However, when the expense is incongruous with the POR,
it is reasonable and consistent for Commerce to avoid distortion
Consol. Court No. 10-00231 Page 13
by adjusting its policy to prevent either undercounting or
overcounting. The Remand Results are consistent with this
reasonable explanation.
CONCLUSION
For all the foregoing reasons, the Department’s Final
Results, 75 Fed. Reg. 41,813, as explained by the Remand Results,
will be affirmed.
Judgment will be entered accordingly.
It is SO ORDERED.
/s/ Donald C. Pogue
Donald C. Pogue, Chief Judge
Dated: February 21, 2012
New York, New York