Tianjin Magnesium International Co. v. United States , 844 F. Supp. 2d 1342 ( 2012 )

Slip Op. 12-63
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Nicholas Tsoucalas, Senior Judge
___________________________________
TIANJIN MAGNESIUM INTERNATIONAL :
CO., LTD., :
:
Plaintiff, :
:
v. : Consol. Court No.: 11-00006
:
UNITED STATES, :
:
Defendant, :
:
and :
:
US MAGNESIUM, LLC, :
:
Defendant-Intervenors. :
:
MEMORANDUM ORDER
Held: Plaintiff’s Motion for Judgment on the Agency Record is
denied. Defendant-Intervenor’s Motion for Judgment on the Agency
Record is granted in part and denied in part. This matter is
remanded for proceedings consistent with this opinion.
Dated: May 16, 2012
Riggle & Craven, (David A. Riggle) for Tianjin Magnesium
International Co., Ltd., Plaintiff.
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Claudia Burke, Assistant Director, Commercial Litigation
Branch, Civil Division, United States Department of Justice, (Renee
Gerber); Thomas M. Beline, Office of Chief Counsel for Import
Administration, United States Department of Commerce, Of Counsel,
for the United States, Defendant.
King & Spalding, LLP, (Stephen A. Jones and Jeffrey B.
Denning) for US Magnesium, LLC, Defendant-Intervenor.
Court No. 11-00006 Page 2
TSOUCALAS, Senior Judge: This matter comes before the Court
upon cross Motions for Judgment on the Agency Record filed by
Plaintiff, Tianjin Magnesium International Co., Ltd. (“Tianjin”)
and Defendant-Intervenor US Magnesium, LLC (“US Magnesium”). Both
parties challenge aspects of the final results of an administrative
review of an antidumping order on pure magnesium from the People’s
Republic of China (“PRC”) undertaken by the United States
Department of Commerce (“Commerce”). For the reasons set forth
below, the Court concludes that Commerce’s decision not to apply
total adverse facts available to Tianjin was not supported by
substantial evidence in the record and was not in accord with the
law. The Court remands this matter for further proceedings
consistent with this opinion.
BACKGROUND
Under review in this case is the final determination from
Commerce’s administrative review for the period of May 1, 2008
through April 30, 2009. See Pure Magnesium from the People’s
Republic of China: Final Results of the 2008-2009 Antidumping Duty
Administrative Review of the Antidumping Order, 75 Fed. Reg. 80,791(Dec. 23, 2010) (“2008-2009 Final Results”).1 In the 2008-2009
1
An amended final order was issued by Commerce on February
11, 2011 to correct certain ministerial errors immaterial to the
issues considered herein. See Amended Final Results of the 2008-
2009 Antidumping Duty Administrative Review: Pure Magnesium from
the People’s Republic of China, 76 Fed. Reg. 7813 (Feb. 11,
2011).
Court No. 11-00006 Page 3
Final Results, Commerce imposed on Tianjin a rate of 0.73%, and
imposed a PRC-wide rate of 111.73%, which was also the adverse
facts available rate imposed on two magnesium exporters that failed
to respond to Commerce’s questionnaire. Id. at 80,793-94.
Consistent with the arguments it makes now before this Court,
US Magnesium argued during the administrative proceedings that
total adverse facts available should have been applied to Tianjin.
The Court notes at the outset that the material facts regarding
Tianjin’s conduct are not disputed by the parties. In September
2009, during the 2008-2009 administrative review, Tianjin submitted
to Commerce voucher books and other accounting records evidencing
sales of waste magnesium byproduct, which sales would have entitled
Tianjin to an offset of its calculated normal value. However, the
sales set forth in that documentation, some of which were purported
to have taken place during the 2008-2009 period of review (“POR”),
never occurred. See Issues and Decision Memorandum for the Final
Results of the 2008-2009 Administrative Review at 4 (Dec. 15,
2010), Public Rec. 132 (“I&D Memorandum”).2
The revelation that the sales evidenced in these voucher books
never took place did not occur during verification in the 2008-2009
review currently before the Court. Rather, the fact that Tianjin
2
Hereinafter all documents in the public record will be
designated “PR” and all documents in the confidential record
designated “CR.”
Court No. 11-00006 Page 4
had submitted fabricated voucher books came to light in July 2009
during verification in the 2007-2008 review. Commerce described
this discovery as follows:
[W]hile examining accounting documentation of this three-
party scheme in one of Producers’ voucher books,
[Commerce] found that the relevant vouchers had been
pasted into the books onto the stubs of vouchers that had
been cut out. Producers gave contradictory explanations
of their accounting process in an attempt to explain why
the vouchers had been pasted into the voucher books in
this fashion. When [Commerce] attempted to verify the
authenticity of the receipts, Producers locked [Commerce]
out of the accounting offices and threw requested voucher
books out of the window of the accounting office in an
attempt to keep them from [Commerce]. [Commerce]
subsequently gained access to the accounting office and
found evidence that Producers were creating documents
while [Commerce was] locked outside. Producers admitted
that they were altering the voucher books by secretly
pasting new vouchers in them with the receipts attached.
2007-2008 Final Results, Appendix, Comment 1 at 6-7.3 These
events, along with the fact that they occurred in the presence of
Tianjin’s counsel, were further detailed in the verification report
in the administrative review for the 2007-2008 POR. See
Verification of the Sales and Factors Responses of Tianjin
Magnesium International, Ltd. in the 2007-2008 Administrative
Review of the Antidumping Duty Order on Pure Magnesium from the
3
In this quote, “Producers” refers to the producers of pure
magnesium who supplied Tianjin, and the “three party scheme”
refers to the purported waste magnesium sale arrangement between
Tianjin, these same suppliers, and certain creditors of the
suppliers. See Pure Magnesium from the People’s Republic of
China: Final Results of Antidumping Duty Administrative Review,
74 Fed. Reg. 66,089 (Dec. 14, 2009) (“2007-2008 Final Results”),
Appendix, Comment 1 at 1, 6.
Court No. 11-00006 Page 5
People’s Republic of China at 41 (Nov. 4, 2009), PR 40, CR 5, Ex.
1.
In the 2007-2008 Final Results, Commerce stated that “[g]iven
the alteration of documents, the denial of access to source
documentation, the misleading answers related to factory records,
and the general obfuscation on the part of Producers, [Commerce
cannot consider any of the production data verified in [the]
review.” 2007-2008 Final Results, Appendix, Comment 1 at 8.
Commerce ultimately applied total adverse facts available to
Tinajin, and that decision was upheld on appeal by this court. See
Tianjin Magnesium Int’l Co. Ltd. v. United States, 35 CIT __, Slip
Op. 11-100 (Aug. 10, 2011). In upholding Commerce’s decision, the
court determined that the record evidence as described above
adequately supported Commerce’s determination that Tianjin “failed
to cooperate to the best of its ability because it continued to
purport the accuracy of certain favorable valuations, despite the
existence of discoverable falsifications in its producers’
supporting documentation.” Id., Slip Op. at 5.
The Court is presented herein with different circumstances
than were presented in the 2007-2008 review. While the verifiers
were not subjected to the same degree of obfuscation that occurred
in the July 2009 verification, they did determine that, in support
of its claim for a byproduct offset, Tianjin submitted some of the
Court No. 11-00006 Page 6
same voucher books that had been discredited during the 2007-2008
review.
We examined the . . . voucher book for May 2008 and saw
that the receipts and invoices accompanying the voucher
were pasted together, and a slip of some kind had been
torn out. We asked why this was so, and the . . .
accounting manager stated that there may have been some
kind of error in the record keeping that had to be
addressed by changing the source documents. We pointed
out that this book, in fact, was one of the voucher books
[Commerce] had previously determined to be unreliable
because it was one of the books in which [Commerce] found
[a Producer] cutting out vouchers and pasting in new ones
with documentation for by-product transactions, during
the previous POR’s verification.
Verification of the Sales and Factors of Production (“FOP”) of
Tianjin Magnesium Industries (“TMI”) at 34-35 (June 7, 2010), PR
83, CR 24. Not only had Tianjin submitted the fabricated voucher
books in support of its claimed offset, but it submitted them two
months after the failed verification in the 2007-2008 review. See
I&D Memorandum at 4.
Commerce declined to apply adverse facts available in this
review despite the fact that Tianjin engaged in some of the same
conduct that led Commerce to apply adverse facts available in the
2007-2008 review, and despite the fact that it engaged in that
conduct two months after the failed July 2009 verification.
Commerce acknowledged that Tianjin submitted voucher books
previously determined to be “unreliable,” id. at 5, but stated
that, with the exception of those materials, Tianjin “provided
complete answers to [Commerce’s] questions . . . [giving it] the
Court No. 11-00006 Page 7
necessary information on the record to construct an accurate and
reliable margin for [Tianjin].” Id. Commerce continued that to
calculate an accurate dumping margin for Tianjin, it considered
Tianjin’s factors of production, and concluded that Tianjin’s
factors of production “have not been compromised due to the
presentation of the by-product voucher book in question.” Id. at
6. Finally, Commerce disagreed with US Magnesium’s position that
denying application of adverse facts available would put Tianjin in
no worse of a position than if it had cooperated to the best of its
ability. Commerce again stated that, “with the exception of
establishing its eligibility for a by-product offset, [Tianjin]
answered [Commerce’s] questionnaires and participated fully in
verification.” Id. at 7.
Following issuance of the 2008-2009 Final Results, review was
timely sought in this court.
JURISDICTION and STANDARD OF REVIEW
The Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1581(c) and Section 516A(a)(2)(B)(iii) of the Tariff Act
of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(iii) (2006).4
Additionally, the Court will uphold Commerce’s determinations in
administrative reviews unless they are “unsupported by substantial
4
All further citations to the Tariff Act of 1930 are to the
relevant provisions of Title 19 of the United States Code, 2006
edition.
Court No. 11-00006 Page 8
evidence on the record, or otherwise not in accordance with law.”
19 U.S.C. § 1516a(b)(1)(B)(i).
ANALYSIS
19 U.S.C. § 1677e, which provides for the application of
adverse facts available, states that
[i]f the administering authority . . . finds that an
interested party has failed to cooperate by not acting to
the best of its ability to comply with a request for
information from the administering authority . . . , the
administering authority . . . , in reaching the
applicable determination under this subtitle, may use an
inference that is adverse to the interests of that party
in selecting from among the facts otherwise available.
19 U.S.C. § 1677e(b). It is well-established that Commerce enjoys
broad discretion when considering whether to apply adverse facts
available in antidumping proceedings. See PAM, S.p.A v. United
States, 582 F.3d 1336, 1340 (Fed. Cir. 2009). This court has made
clear that this discretion does not saddle Commerce with the burden
of showing that an importer cooperated to the best of its ability
every time it determines that adverse facts available should not be
applied. AK Steel Corp. v. United States, 28 CIT 1408, 1417, 346
F. Supp. 2d 1348, 1355 (2004).
In exercising this discretion, however, Commerce is not
without guidance from the courts on what it means for a party to
“cooperate by . . . acting to the best of its ability.”
While the [best of its ability] standard does not require
perfection and recognizes that mistakes sometimes occur,
it does not condone inattentiveness, carelessness, or
inadequate record keeping. It assumes that importers are
Court No. 11-00006 Page 9
familiar with the rules and regulations that apply to the
import activities undertaken and requires that importers,
to avoid a risk of an adverse inference determination in
responding to Commerce's inquiries: (a) take reasonable
steps to keep and maintain full and complete records
documenting the information that a reasonable importer
should anticipate being called upon to produce; (b) have
familiarity with all of the records it maintains in its
possession, custody, or control; and (c) conduct prompt,
careful, and comprehensive investigations of all relevant
records that refer or relate to the imports in question
to the full extent of the importers' ability to do so.
Nippon Steel Corp. v. United States, 337 F.3d 1373, 1382 (Fed. Cir.
2003) (emphasis added). In this case, Tianjin affirmatively sought
the byproduct offset for waste magnesium, and when Commerce sought
further information to substantiate the claimed offset, Tianjin
submitted fabricated voucher books. I&D Memorandum at 4.
Submitting voucher books that contained vouchers and receipts
describing sales that never occurred could itself possibly have
violated the standard set forth in Nippon Steel. However,
submitting these voucher books two months after their falsity had
been established in a failed verification seems well beyond the
“inattentiveness, carelessness, or inadequate record keeping” that
can render a party in breach of § 1677e(b). See id. at 1383
(noting that “intentional conduct . . . such as . . . inaccurate
reporting . . . surely evinces a failure to cooperate . . . .”);
see also Shanghai Taoen Int’l Trading Co., Ltd. v. United States,
29 CIT 189, 195, 360 F. Supp. 2d 1339, 1345 (2005) (concluding that
Court No. 11-00006 Page 10
the adverse inferences standard is met “where a respondent
purposefully withholds, and provides misleading, information.”).
It is axiomatic that the Court may not substitute its judgment
for that of Commerce. Texas Crushed Stone Co. v. United States, 35
F.3d 1535, 1540 (Fed. Cir. 1994). Additionally, as set forth
above, the obfuscation in the 2008-2009 review did not, in certain
respects, rise to the level of that which occurred in the 2007-2008
review. However, in the 2008-2009 Final Results and accompanying
I&D Memorandum, Commerce never addresses the conduct by Tianjin
that is squarely violative of the obligations outlined in the cases
above. Commerce simply removed Tianjin’s conduct from
consideration by stating, no less than three times, that Tianjin
cooperated fully and truthfully “with the exception” of the
information submitted to support its byproduct offset claim. See
I&D Memorandum at 5, 6, and 7.
Had the offset been applied to the normal value calculation,
Tianjin could have benefitted from a lower margin. Especially in
light of the materiality of this information to Tianjin’s margin,
Commerce was required to set forth its reasons for discounting out
of hand conduct that went well beyond “inattentiveness,
carelessness, or inadequate record keeping.” If such reasons were
provided, Commerce would also need to reconcile them with the cases
set forth above affirming that where a party provides inaccurate or
misleading information, it has not cooperated to the best of its
Court No. 11-00006 Page 11
ability. Finally, Commerce never addressed why documents it
described in the 2007-2008 Final Results as “altered” were
downgraded to simply “unreliable” in this review. I&D Memorandum
at 5. This change in language is consistent with the different
outcomes of the two reviews, but the reason for the shift in
language should have been explained by Commerce.
In addition to the infirmities already discussed, the Court is
troubled by the possibility that the 2008-2009 Final Results would
give Tianjin, and other respondents, an incentive to submit false
information to Commerce in an attempt to lower their margins
without the fear of negative consequences. Commerce dismisses this
line of reasoning, stating that such arguments rely on a
“[presumption] that [Tianjin] did not cooperate during this
review.” I&D Memorandum at 7. It continues by stating, in
essence, that other than the established fabrications Tianjin
submitted in an attempt to lower its margin, it fully cooperated in
the review. Id. A conclusion like this leaves respondents without
any downside to submitting false information in an attempt to lower
their margins. If Commerce does not detect the false documents, a
lower margin is obtained. If Commerce does detect the falsehood,
such conduct is simply removed from consideration while Commerce
focuses on all the ways in which the respondents did cooperate.
Such an approach ignores that fact that a important “purpose of
section 1677e(b) is to provide respondents with an incentive to
Court No. 11-00006 Page 12
cooperate . . . .” F.lli De Cecco Di Filippo Fara S. Martino S.p.A
v. United States, 216 F.3d 1027, 1032 (Fed. Cir. 2000).
CONCLUSION
In light of the above, the Court concludes that the 2008-2009
Final Results were not supported by substantial evidence, and were
not in accord with the law. Without a legitimate basis that can be
discerned in the record, Commerce declined to consider the
submission of misleading and inaccurate documentation by Tianjin
two months after that documentation had been part of a failed
verification. Commerce also did not address precedent that
establishes the submission of such documentation as a failure to
cooperate. The Court does not reach the other issues raised in the
instant Motions at this time because they could become moot in
light of subsequent proceedings in this case, and the Court remands
this matter for proceedings consistent with this opinion.
/S/ NICHOLAS TSOUCALAS
Nicholas Tsoucalas
Senior Judge
Dated: May 16, 2012
New York, New York