David L. Moss Co. v. United States , 103 F.2d 395 ( 1939 )

PARKER, Judge.¹

This is an appeal by the importer from a judgment of the United States Customs Court, Third Division, overruling a protest by the appellant against the liquidation and assessment of duty made by the collector of customs at New York on an importation of dried egg albumen. The Tariff Act of 1930, paragraph 713, § 1, 19 U.S.C.A. § 1001, par. 713, imposed a duty of 18 cents per, pound upon “dried whole eggs, dried egg yolk, and dried egg albumen.” Pursuant to Senate Resolution the Tariff Commission held a hearing under section 336 of that act, 19 U.S.C.A. § 1336, and made a report to the President, finding that the duty fixed by the statute on these dried egg products did not equalize the differences in costs of production of the domestic articles and of the like or similar foreign articles produced in the principal competing country, and that the differences in cost were such as to warrant an increase in the duty by the maximum amount permitted by law, viz, 9 cents per pound. Acting upon this report, the President issued a proclamation (T.D. 44997) increasing the duty to 27 cents. The appellant complains of this increase of duty insofar as it applies to dried egg albumen, contending that the Commission’s report to the President, as well as the evidence taken before it, show that there was no domestic production of dried egg albumen upon which a finding of cost of production of the domestic article could be predicated, and that consequently the action of the Commission and the proclamation of the President, in so far as they affected the duty on this product, were without legal basis and therefore void.

In the lower court, the evidence taken before the Commission was introduced and, although regarded by that court as immaterial, it was made a part of the record in the case and is before us. ■ The court denied relief to appellant on the ground that it was without legal authority to review the findings of the Tariff Commission or the action of the President based thereon. Two questions, as we view the case, are presented by the appeal: (1) whether the court could look behind the action of the Tariff Commission and the President in increasing duties under section 336 of the act for the purpose of determining whether such action was supported by evidence before the Commission; and (2) if so, whether the increase of duties here complained of was so supported. We think that both of these questions must be answered in the affirmative.

It is true, as pointed out by counsel for the Government, that the Customs Court is given no direct right of review over action of the Tariff Commission. This does not mean, however, that it is without power to consider the legality of increase of duties resulting from the Commission’s action. The court is a court of law, and it is granted full power to relieve against illegality in the assessment or collection of duties. 19 U.S.C.A. §§ 1515, 1518. If relief may not be had before it against illegal action under the flexible tariff provisions, relief may not be had anywhere; for its jurisdiction in such matters is exclusive. It is the tribunal established by Congress in the provision of a complete system of corrective justice for the administration of the customs laws, and questions involving the validity of official action in the imposition and collection of duties are properly cognizable before it to the exclusion of other courts. Cottman Co. v. Dailey, 4 Cir., 94 F.2d 85, 88; Riccomini v. United States, 9 Cir., 69 F.2d 480, 484; Gulbenkian v. United States, 2 Cir., 186 F. 133, 135; Nicholl v. United States, 7 Wall. 122, 130, 19 L.Ed. 125. There can be no question but that courts must exercise the judicial power vested in them to determine the legal validity of administrative action, where the validity of such action is involved in questions properly before them, whether they have been granted the right of review over action of the administrative agency or not. The duty necessarily arises because of their obligation to decide cases before them according to law. See Shields v. Utah Idaho Cent. R. R. Co., 305 U.S. 177, 59 S.Ct. 160, 83 L.Ed.-, Crowell v. Benson, 285 U.S. 22, 58, 59, 52 S.Ct. 285, 76 L.Ed 598; United States v. Passavant, 169 U.S. 16, 18 S.Ct. 219, 42 L.Ed. 644; St. Louis Smelting & Ref. Co. v. Kemp, 104 U.S. 636, 641, 26 L.Ed. 875; United States v. Haviland & Co., 2 Cir., 177 F. 175.

Where the question as to the validity of administrative action under the flexible tariff provisions relates to procedural matters, such as the holding of a hearing or the giving of proper notice thereof, the decisions of this court are clear to the effect that it has the power to consider whether the action of the administrative officer was within the power granted by Congress. Thus in the case of Carl Zeiss, Inc. v. United States, 76 F.2d 412, 416, 23 C.C.P.A., Customs, 7, T.D. 47654, where the point involved was the giving of notice of investigation by the Tariff Commission, the court, speaking through Judge Hatfield, said:

“The President, although not required by the provisions of section 336, supra, to accept the results or findings reported by the Tariff Commission, is required to limit his consideration of the case to the evidence presented to that body, and to approve the rátes of duty and changes in basis of value specified by it, ‘if in his judgment such rates * * '* [and changes in basis of value] are shown by such investigation * * * to be necessary to equalize such differences in costs of production.’ Feltex Corp. v. Dutchess Hat Works, 71 F.2d 322, 323, 21 C.C.P.A. (Customs) 463, T.D. 46957.

“For the purposes of the provisions of section 336, supra, the President of the United States is the agent of the Congress, and he may not act under those provisions untjl a legal investigation has been made by the Tariff Commission.- One of the prerequisites of such an investigation is the giving of “reasonable public notice” thereof to all interested parties, in order that they may, if they so desire, be present, produce evidence, and be heard. * * * * * * * *

“For the reasons stated, we must hold that the proclamation of the President was without authority of law, illegal, and void * * *

And in Akawo & Co. v. United States, 77 F.2d 660, at page 663, 23 C.C.P.A., Customs, 75, at page 79, T.D. 47737, decided under the flexible provision of the 1922 act, the rule is stated by the court, as follows: “That a legal investigation by the Tariff Commission is a condition precedent to a lawful proclamation by the President, under the provisions of section 315(a), (b), and (c), supra, has been repeatedly held by this court. [Citing cases.]”

And there is no reason why the same rule should not be applied where the question of jurisdiction arises upon a contention that the action of the Commission and the President was contrary- to law because without substantial support in the evidence adduced upon the investigation. The act contemplates, not merely that the Commission shall conduct an investigation with notice and hearing, but also that it shall base its findings and recommendations embodied in its report on what is shown by the investigation, and that the President in forming his judgment shall be confined to what is so shown. As said by Judge Lenroot, speaking for this court in Feltex Corp. v. Dutchess Hat Works, 71 F.2d 322, 330, 21 C.C.P.A., Customs, 463, T.D. 46957:

“Under the provisions of section 336 of the Tariff Act of 1930 * * * the President, in forming his judgment, is confined to a consideration of the facts secured by the Tariff Commission in its investigation, and is further limited to approval of the rates specified by the Commission if he finds, from such investigation, that the rates so specified are necessary to equalize costs of production.

“We can find nothing in the statute which limits the President to a consideration of the report of the Tariff Commission, but we think the fair construction of section 336 is that the President, upon a report coming to him from the Tariff Commission, may require such Commission to place before him all the facts secured by it in its investigation, and from such facts the President may determine whether the rates specified in the report of the Commission should be approved.”

It is clear, therefore, that an investigation must be conducted and a hearing had by the Commission as a basis for action under the act; and, if such evidence is not taken, action is not authorized. St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 51, .56 S.Ct. 720, 80 L.Ed. 1033: When the question is properly raised, the courts, must determine whether this prerequisite to action has been complied with; and compliance is not shown by a mere showing that an investigation has been conducted and a report made. Of course, under the maxim omnia prsesumuntur rite esse acta, the proclamation qf the President makes a prima facie showing of authority; but if it is established before the court that there was no substantial evidence before the Commission upon which action complained of could have ■ been based, such action must be held void because not within the authority granted by Congress. It is settled that, where an order of a commission can be made only after hearing, it is void if unsupported by the evidence. Chicago Junction Case, 264 U.S. 258, 265, 44 S.Ct. 317, 68 L.Ed. 667. A finding without evidence is beyond the Commission’s power. United States v. Abilene & Sou. Ry. Co., 265 U.S. 274, 288, 44 S.Ct. 565, 68 L.Ed. 1016.

This does not mean that the court may review the facts or substitute its judgment for that of the Commission. It means merely that, where the question is properly raised, it must determine whether the Commission acted within the scope of cthe authority granted it by Congress and that, in determining this question, it must consider whether the Commission had before it any substantial evidence upon which to base its action. The precise question was involved in the case of Shields v. Utah Idaho Cent. R. R. Co.,-supra, where action of the Interstate Commerce Commission, for which no review had been provided, had been challenged before the court. The Supreme Court, after remarking that the question on judicial review would “simply be whether the Commission had acted within its authority,” went on to say (305 U.S. 177, 59 S.Ct. page 165, 83 L.Ed. -) : “The condition which Congress imposed was that the Commission -should make its determination after hearing. There is no question that the Commission did give a hearing. Respondent appeared and the evidence which it offered was received and considered. The sole remaining question would be whether the Commission in arriving at its determination departed from the applicable rules of law and ivhether its finding had a basis in substantial evidence or was arbitrary and capricious. Id. That question must be -determined upon the evidence produced before the Commission.” [Italics supplied.]

Attempt is made to distinguish the Shields case on the ground that the court before which the question was raised in -that case was a court of equity, but that case was cognizable in equity because no adequate remedy at law had been provided. Here the remedy provided by law, as heretofore shown, is complete and exclusive; -and the duty devolves upon the court to -decide the questions of law raised by the record. Whether the Commission and the President acted upon substantial evidence in increasing the duty, and therefore within the authority granted them, is such a question of law.

Union Fork & Hoc Co. v. United States, 86 F.2d 423, 24 C.C.P.A., Customs, 199, T.D. 48656, is not to the contrary. What was there decided was that the -court could not examine the evidence before the Commission for the purpose of reviewing its findings and conclusions, not that it could not look to the evidence to ascertain whether the action complained of had substantial support therein so as to be within the authority granted the Commission. Nor is there support for a contrary position in Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 53 S.Ct. 350, 77 L.Ed. 796. The decision in that case was that the provision for a hearing before the Commission did not give a right to the inspection of matter furnished it as confidential information. The case arose under the flexible provisions of the 1922 act; and much was said in the course of the opinion that has no application to proceedings under the 1930 act, which, as heretofore pointed out, limits the President in the exercise of his judgment to a consideration of the facts developed before the Commission in the course of its investigation.

We come then to the second question, which is whether there was substantial evidence before the Commission to sustain its . findings upon which the increase of duties was based. Much has been said as to what we can consider in deciding this question; but we think it clear that the answer is inherent in the nature of the question itself. We can and must consider the evidence before the Commission, and not merely its report; for if the evidence before it justifies its findings and the action of the President thereon, that action cannot be set aside because of what the Commission may or may not have said in its report by way of summary or otherwise. As said by this court in Feltex Corp. v. Dutchess Hat Works, supra: “We think it immaterial, so far as the question of the validity of said proclamation is concerned, what report the Commission may have made as to the results of its investigation or what findings it may have made, other than its finding that the rates specified by it were necessary to equalize the differences in costs of production of the merchandise under investigation. If the President, upon an examination of all the facts before the Commission, had any legal basis for a finding that such rates were necessary to equalize costs of production, his proclamation is valid.”

Questions have been raised as to difficulties which may be presented with respect to confidential information furnished the Commission in the course of its investigation; but no such question is presented here, for there appears to have been no confidential information furnished with respect to the matter here involved and the entire evidence before the Commission relative thereto is before us.

The contention of appellant is that there was no substantial evidence before the Commission that dried egg albumen was a “domestic article” within the meaning of section 336 of the act and consequently that an increase of duties on this article was not authorized. This contention must be considered in the light of the purposes of the act and the classifications made by it. The clear purpose of paragraph 713, § 1, was. to protect the egg producing industry. It levied a duty of 10 cents per dozen on eggs in the shell, 11 cents per pound upon frozen egg products and 18 cents per pound upon dried egg products. It will be noted that dried whole eggs, dried egg yolk, and dried egg albumen are classified together for the imposition of the last-named duty. Effort was made to have Congress fix the duty on the dried egg products at a higher rate because necessary to the protection of the egg producing industry. This was not done, but a resolution was passed by the Senate directing that an inquiry be conducted by the Tariff Commission with reference to the matter. The inquiry related to all of tlie dried egg products which had been classified together by Congress for the imposition of the duty.

The evidence before the Commission disclosed that the egg drying industry in the United States had been in very large measure stifled by the competition of dried egg products imported from China; but it showed also that, but for this competition, the industry would be carried on here. The production of eggs in the shell in the United States was shown to be an average of 2,159,000,000 dozen over the three-year period 1928-30, a demand for dried egg products which shell eggs and frozen egg products could not supply was shown, and milk drying machinery which could and would have been used for drying eggs if the industry had been adequately protected against the cheap foreign product was shown to have been located at various sections of the country. In addition to this, there was evidence that the drying of eggs had been carried on in the United States at. a number of places. A creamery in Spokane, Wash., was shown to have engaged in making egg powder from dried eggs during the years 1928, 1929, and 1930, operating three months during the year and making an average of 70,000 pounds of powder annually. This company dried whole eggs and yolks. It did not dry albumen, according to the testimony, because unable to compete in price with the cheap foreign product. An egg dealer in Kansas City dried 2,000,000 pounds of liquid eggs in the year .1927. In 1928 he was unable to operate on account of the competition of the Chinese product. In 1929 he operated for ten days and then ceased operation because of that competition. In 1930 he operated for six weeks and in 1931 about two or three weeks. This dealer used a drying machine of the same type as those used in China with a daily capacity of 15,000 pounds of liquid. The Kraft-Phoenix Cheese Corporation was shown to have engaged in egg drying at its Denison, Tex., plant for four or five years prior to the hearing before the Commission in 1931 and to have developed machinery for that purpose. At the time of the hearing its drying operation on whole eggs was approximately 6,000 pounds per day. It had dried 30,000 pounds of yolk and had experimentally dried 6,000 to 7,000 pounds of the white or albumen.

The vice president of the Emulsol Corporation of Chicago, Albert Epstein, testified that his company packs frozen egg products, and that in 1929 it entered into the egg drying business, “especially drying whites”; that during the year 1929 it had approximately three million pounds of liquid yolk material frozen, as a result of which it had on hand a large amount of whites or egg albumen; that, in order to save extra storage and transportation charges, it, by its chemists, made a study of the feasibility of drying egg albumen; that the conclusion was reached that the process was not difficult, that the Chinese egg albumen was “not up to the high quality and standard of other similar food products which the American food manufacturer is using as a raw material,” and that it was believed that, by the application of the technical skill of its chemists, a dried egg albumen could be produced which would be superior to the Chinese product; that a plant was installed for that purpose, and 100,000 pounds of liquid whites were dried and about 10,000 pounds of dried egg albumen were produced and sold by said company. The witness further testified as follows:

“The reason we were compelled to give up this venture, although we have invested, according to our books, about $7,080’ in equipment — just cost of equipment, without figuring our time and labor and engineering facilities for installing same —because we could not compete with the dried Chinese egg albumen, although our quality was much superior in every respect.

“I have here samples of the products. I do not even know what lot it is, whether the first lot, the second lot, or the third lot, because we practically sold everything and had just a few samples laying around. But I will be very glad to submit them for your inspection.”

Some of the dried egg albumen produced as stated was offei ed in evidence.

In the light of this evidence, we cannot say that there was no evidence of production of a domestic article upon which the Commission could base its findings in recommending an increase of duty on dried egg products. It is true that there was very little evidence as to production of dried egg albumen, and most of this was as to production of an experimental character. The feasibility of production was clearly established, however, and production costs were ascertained; and production did not go forward merely because of the blighting effect of the cheap Chinese product. Some production even of dried albumen was shown during the period in question; and we do not think we would be justified in saying that there was no evidence of the production of a domestic article upon which the Commission could base its finding as to the cost of production.

We may assume, without deciding, that it was the intention of Congress that duties should be raised under the flexible provisions of the tariff act only in cases where a domestic industry was in existence which Congress desired to protect, and that it was not intended that the Commission should increase duties in an attempt to bring new industries into existence. And we may assume, also without deciding, that sporadic or experimental production would not satisfy the test of an existing domestic industry under this rule. But what we have here is not a case of that sort. As heretofore stated, the industry which Congress was seeking to protect was the egg producing industry, a well-established domestic industry existing on a nation-wide scale. It was necessary for its protection to impose duties upon dried egg products as well as upon eggs in the shell, as the drying of eggs in foreign countries to be sold here destroyed a large domestic demand which would exist for eggs for drying purposes. The drying, whether of whole eggs, yolks or albumen, was but a process of preparing the eggs for market, and it was a process the cost of which was readily ascertainable and, considered in connection with the cost of domestic eggs, clearly established the cost of production of the domestic article. As stated, there was enough domestic drying to enable the Commission to compute this cost on the basis of actual facts and not theory; and it appeared that the only reason why there was not a greater volume of domestic drying was because of the low price of the foreign product due to the low price of Chinese eggs and the low wages paid Chinese labor. Under such circumstances, there was no reason, we think, why the Commission should not find the difference between the cost of production of the domestic and foreign processed article and make recommendation for increase in duty in protection of an industry which it was clearly the purpose of the act to protect.

We are not impressed with the argument that the increase in duty might be sustained with respect to dried whole eggs and yolks but held invalid as to the dried albumen. Apart from the fact that there was sufficient evidence even as to dried albumen to show the cost of producing the domestic article, it is to be noted that dried albumen was classified by Congress with the other dried egg products in imposing the duty; and there was certainly no basis in the evidence for the Commission to disturb this classification in recommending an increase of duty on these products. On the contrary, the evidence clearly showed that the classification was proper and that the duty should be raised upon albumen as well as upon the other dried egg products if these were to be afforded the protection of the increased duties.

Our conclusion is that we have the power to consider the evidence before the Commission for the purpose of determining whether the increase of duties was based upon substantial evidence, and, therefore, within the authority delegated by Congress; but that, when the evidence before the Commission is considered, it is found to support the findings of the Commission and the action taken by the President thereon.

The judgment appealed from will be affirmed.

LENROOT, Associate Judge, concurs in the foregoing opinion.

1 JACKSON, Associate Judge, having declined to participate in this case because of his connection with same as Assistant Attorney General of the United States, Judge JOHN J. PARKER, Senior United States Circuit Judge of the Fourth Judicial Circuit, was designated to serve herein pursuant to the provisions of Title 28, U.S.C., § 301, 28 U.S. C.A. § 301, section 188, Judicial Code.