Three different standards of review in CIT jurisprudence: hard results, practice points, and lessons learned.

Author:Cone, Michael T.
 
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  1. INTRODUCTION II. THE COURT'S TRADE ADJUSTMENT ASSISTANCE DECISION UNDER 28 U.S.C. [section] 1581(d)--THE DEFERENTIAL "SUBSTANTIAL EVIDENCE" STANDARD OF REVIEW III. THE APA'S "ABUSE OF DISCRETION" STANDARD OF REVIEW APPLIES WHEN PLAINTIFFS CHALLENGE THE ADMINISTRATIVE RECORD UNDERLYING AN ADMINISTRATIVE RULING A. Standing and Jurisdiction Under 28 U.S.C. [section] 1581(i) B. Standard of Review C. Decision on the Merits IV. A COLLECTION CASE DECISION UNDER 28 U.S.C. [SECTION] 1582-- INTERPRETING A STATUTE WITHOUT DEFERENCE TO THE GOVERNMENT'S POSITION A. Deemed Liquidation B. Prejudgment Interest V. CONCLUSION I. Introduction

    Where a dispute before the CIT has been previously adjudicated by a federal agency or tribunal, the court's ability to exercise its independent judgment is circumscribed by statute and judicial constructs requiring various levels of deference to the underlying determination. Thus, where separated workers sought to overturn a finding of the Department of Labor in Former Employees of the Boeing Co. v. U.S. Secretary of Labor, (1) the court operated under the deferential "substantial evidence" standard of review. Likewise, in Best Key Textiles Co. Ltd. v. United States, (2) where the importer contested a ruling issued by Customs and Border Protection (CBP) based on the agency record, the court operated under the minimal "abuse of discretion" standard. However, where a surety sought to avoid paying statutory interest on antidumping duties in United States v. American Home Assurance Co., (3) the court declined to extend any deference to the government's position because no federal agency had been entrusted with the statute's interpretation. CIT practitioners must consider and advocate for the appropriate standard of review applicable to any given case or issue, as the outcome may depend on it.

  2. The Court's Trade Adjustment Assistance Decision Under 28 U.S.C. [section] 1581 (D)--The Deferential "Substantial Evidence" Standard of Review

    In Former Employees of the Boeing Co. v. U.S. Secretary of Labor, the CIT issued its only decision in 2014 arising under 28 U.S.C. [section] 1581(d), (4) a statute that provides the court with exclusive jurisdiction to review determinations by U.S. agencies as to whether displaced workers, communities, firms, and agricultural producers can qualify for Trade Adjustment Assistance (TAA). (5) Unfortunately for the former Boeing employees who brought this action, the Secretary of Labor (Labor) determined that the underlying causes of their unemployment had nothing to do with international trade, and the CIT deferred to Labor's determination.

    The group of former Boeing workers seeking TAA certification had all been separated from a Boeing Defense and Space (BDS) Division plant located in Wichita, Kansas, which was shuttered in 2014 after many years of economic struggle and malaise. The group had petitioned for TAA certification a year prior to the plant's closure, and Labor then undertook an investigation to determine whether the criteria for TAA assistance were met.

    Labor's investigation revealed that after Boeing sold a different division at the Wichita plant in 2005, its BDS Division was the only remaining business entity at the plant. Moreover, BDS Division employees worked exclusively on military projects and their work was limited to performing modifications on existing military aircraft. However, the well of modification projects often ran dry, and the BDS Division struggled financially. Labor's investigation determined that Boeing was forced to lay off BDS Division workers periodically and sometimes sent them to a Boeing plant located in Seattle in order to keep them employed. In the end, budget cuts by the U.S. Department of Defense caused Boeing to completely shutter its Wichita facility in 2014.

    The death knell for the former Boeing employees' TAA claim was Labor's determination that they had been engaged in employment related exclusively to the modification of military aircraft subject to the International Traffic in Arms Regulations (ITAR). (6) Labor noted that work subject to ITAR controls cannot be completed outside the United States and that workers devoted to ITAR projects therefore cannot meet the TAA eligibility requirements. (7) In other words, the workers did not face competition from imports and foreign labor because no U.S. military aircraft covered by ITAR were modified outside the United States.

    Labor also denied TAA certification because the economic hardship suffered by the BDS Division was caused by factors linked to the domestic economy. In that regard, Labor determined that Boeing diverted certain work flow from the BDS Division for reasons unrelated to employment moving overseas.

    The CIT began its review of Labor's determination by explaining the statutory basis upon which TAA benefits may be awarded to displaced workers: "The eligibility criteria for [TAA] certification are met if 'a significant number or proportion of the workers' have become or are threatened to become 'totally or partially separated' as a result of either increased imports or a shift abroad of production or services."* The court made clear that TAA is not an entitlement, and it does not exist to protect workers whose livelihoods are affected by economic circumstances having nothing to do with international trade:

    While the TAA's assistance provisions "are to be construed liberally," the "parameters of the statute cannot be ignored" and the "benefits of [TAA] are not universal." Farmer Employees of Hewlett-Packard Co. v. United States, 17 CIT 980, 986 (1993). Accordingly, some hardship may result. Id. Case law has "consistently held that the TAA statute does not apply when a company closes because economic factors make continued operations impractical rather than due to direct import competition." (9) Pursuant to 19 U.S.C. [section] 2395(b), the CIT must utilize the deferential "substantial evidence" standard when reviewing factual findings made by Labor during a TAA investigation. (10) As the court explained,

    Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Universal Camera Corp. v. NLRB, 340 U.S. 474, 477, 71 S. Ct. 456, 95 L. Ed. 456 (1951) (internal quotation omitted). "[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence." (11) Given this deferential standard of review and the strength of the administrative record, the CIT had no difficulty affirming Labor's findings. Boeing had certified to Labor that the BDS Division was covered by ITAR, and "[t]he Court has previously affirmed that workers of firms whose production or services are covered by ITAR are not eligible for TAA certification." (12) The court also agreed that there was substantial evidence in the record to support Labor's denial of certification based on domestic economic causes that were independent of international trade pressures.

    Nevertheless, the CIT took care to point out yet again that its decisions denying TAA are not issued in callous disregard of the plight faced by displaced workers: "As stated in Former Employees of Hewlett-Packard, the Court 'sympathizes with the difficult circumstances plaintiffs' job loss may have imposed on them, but the court is bound to apply the statute as intended by Congress.'" (13)

  3. THE APA'S "ABUSE OF DISCRETION" STANDARD OF REVIEW APPLIES WHEN PLAINTIFFS CHALLENGE THE ADMINISTRATIVE RECORD UNDERLYING AN ADMINISTRATIVE RULING

    The court's decision in Best Key Textiles Co. v. United States (Best Key IT), (14) is a fascinating read that involves the first time an importer asked the CIT to increase the duties payable on its own merchandise. Indeed, the plaintiff here, Best Key, brought suit in an attempt to convince the CIT that its polyester yarn should be reclassified as "metalized" yarn, a result which would have increased the duty rate from 8% ad valorem to 13.2% ad valorem. (15)

    The first question that comes to mind is why would an importer want to increase duties payable, and the second is whether the court even has jurisdiction to hear such a case. The solution to both riddles hinges on solving a detective's central inquiry: Cui bono? Answer: certain third party importers not before the court, which ultimately turned out to be the Achilles heel of the clever litigation strategy undertaken here.

    Best Key is a Hong Kong-based producer that manufactures polyester yarn containing trace amounts of metals such as zinc, aluminum, and titanium. The yarn is produced from polyester chips melted into a slurry into which nanometal particles are mixed. The slurry is then forced through a spinneret to create the yarn. The inclusion of these metals purportedly confers desirable characteristics, such as UV protection and antimicrobial properties upon the yarn-and any garments manufactured from it.

    Coincidentally, various garments constructed from metallic yarn are dutiable at a much lower rate than garments constructed from nonmetallic yarn. So, the answer to the first riddle is that this litigation was a gambit at downstream tariff engineering to benefit Best Key's customers outside the United States who would use Best Key's yarn to produce finished garments imported into the United States at a very favorable rate of duty.

    Best Key plotted its strategy methodically. First, it sent a request for a yarn classification ruling to CBP's National Commodity Specialist Division in New York. Along with that ruling request Best Key included a laboratory report describing the yarn as having a fiber content of 100% polyester, with one type containing 0.7% metal by weight and a second type containing 0.74% metal by weight. (16) Best Key received New York Ruling N187601 (the "Yarn Ruling") which classified the merchandise as "metalized" yarn subject to a duty rate of 13.2% ad...

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