Aimcor, Alabama Silicon, Inc. v. US

• Decision Date: 29 December 1995
• Docket Number: Slip Op. No. 95-210. Court No. 93-06-00322.
• Citation: 19 CIT 1497,912 F. Supp. 549
• Parties: AIMCOR, ALABAMA SILICON, INC., and American Alloys, Inc., Plaintiffs, v. UNITED STATES, Defendant, CVG-Venezolana de Ferrosilicio, C.A., Defendant-Intervenor.
• Court: U.S. Court of International Trade

912 F. Supp. 549

19 CIT 1497

AIMCOR, ALABAMA SILICON, INC., and American Alloys, Inc., Plaintiffs, v. UNITED STATES, Defendant, CVG-Venezolana de Ferrosilicio, C.A., Defendant-Intervenor.

Slip Op. No. 95-210. Court No. 93-06-00322.

United States Court of International Trade.

December 29, 1995.

Baker & Botts, L.L.P. (William D. Kramer, Charles M. Darling, IV, and Estee S. Levine), Washington, DC, for plaintiffs.

Frank W. Hunger, Assistant Attorney General, David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States Department of Justice (Cynthia B. Schultz), Rebecca Rejtman, Office of the Chief Counsel for Import Administration, United States Department of Commerce, of counsel, Washington, DC, for defendant.

Morrison & Foerster, Washington, DC (Julie C. Mendoza, Craig A. Lewis, Sue-Lynn Koo and Donald B. Cameron), for defendant-intervenor.

MEMORANDUM OPINION AND ORDER

DiCARLO, Chief Judge:

Plaintiffs, domestic manufacturers of ferrosilicon, move for judgment upon the agency record pursuant to USCIT R. 56.2, contesting certain parts of the final redetermination on remand of the United States Department of Commerce. See Final Results of Remand Determination Pursuant to Court Remand, Aimcor v. United States No. 93-06-00322 (Mar. 30, 1995) hereinafter Remand Determination. This court has jurisdiction pursuant to 19 U.S.C. § 1516a(a)(2) (1994) and 28 U.S.C. § 1581(c) (1988).

BACKGROUND

Plaintiffs filed a countervailing duty petition alleging, inter alia, that Defendant-Intervenor, CVG-VENEZOLANA de FERROSILICIO, C.A., (FESILVEN), received countervailable subsidies for ferrosilicon production and export into the United States. Specifically, Plaintiffs allege that the purchase of FESILVEN's newly issued class E stock by Venezuelan government-owned entities (GOV) amounted to the "provision of capital ... on terms inconsistent with commercial considerations" pursuant to 19 U.S.C. § 1677(5)(A)(ii)(I) (1988). In its Final Affirmative Countervailing Duty Determination: Ferrosilicon From Venezuela; and Countervailing Duty Order for Certain Ferrosilicon From Venezuela, 58 Fed.Reg. 27,539, as amended, 58 Fed.Reg. 36,394 (Dep't Comm. 1993), Commerce determined that GOV's purchase of class E shares was consistent with commercial considerations, and thus was not countervailable. 58 Fed.Reg. at 27,542. Commerce based its finding on the grounds that (1) FESILVEN was equityworthy at the time the class E shares were purchased and (2) the class E shares were not worthless, because holders of class E shares possessed voting rights and were eligible for dividends. Id. The court found that the scope of the investigation was insufficient to enable Commerce to carry out its statutory mandate pursuant to 19 U.S.C. § 1677(5)(A)(ii)(I). See Aimcor v. United States, 18 CIT ___, ___, 871 F.Supp. 447, 454 (1994). The court was concerned that heavy restrictions on class E shareholders — limitations on the resale of class E shares to par value and the existing shareholders' right of purchase prior to sale of the class E shares — so severely restricted the expected return on class E shares that the purchase of those shares would be inconsistent with commercial considerations. Id. Commerce's initial finding regarding class E rights were based upon an insufficient record and therefore were subject to reexamination upon remand. See Remand Determination at 13. Accordingly, the court held that further consideration was required to determine whether the expected return on class E shares was adequate to avoid the imposition of a countervailing duty. Id. The issues presented in this action upon remand are (1) whether Commerce improperly declined to examine FESILVEN's financial condition in reviewing the restrictions imposed on class E shares and (2) whether the purchase of FESILVEN's class E shares in 1991 was consistent with commercial considerations, given various restrictions on those shares.

DISCUSSION

After obtaining additional information from FESILVEN, Commerce determined that GOV's purchase of class E shares was consistent with commercial considerations. Commerce based its present determination on findings that (1) holders of class E stock faced no legal restrictions that limited the resale value of their class E shares to par value, (2) the evidence indicated that existing shareholders' right of first refusal on class E shares would not affect the expected return on class E shares, (3) FESILVEN's accumulated unpaid preferred dividends stood at less than $750,000 at the end of 1991, and (4) a private investor purchased class E shares on the same terms as government-owned entities. Remand Determination at 3-4.

Plaintiffs contest Commerce's remand determination, claiming, in essence, that (1) class E shareholders are not entitled to dividends or liquidation rights, (2) class E shares cannot be sold for more than par value, and (3) FESILVEN's was experiencing financial difficulties in 1990 and 1991, allegedly reflected in deteriorating profitability, accumulating dividend burdens, and the low transaction price of certain preferred shares, shortly before class E common shares were issued. (See Pls.' Comments on Remand Det. at 3-4) hereinafter Pls.' Remand Br.

Once Commerce makes its final determination, the court's role is to uphold that determination unless it is "unsupported by substantial evidence on the record, or otherwise not in accordance with law." 19 U.S.C. § 1516a(b)(1)(B)(i) (1994). 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, 459, 95 L.Ed. 456 (1951) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126 (1938)).

1. FESILVEN's Financial Condition

Plaintiffs claim that Commerce's remand analysis is fundamentally flawed and contrary to this court's remand order. Specifically, Plaintiffs assert Commerce failed to examine (1) the current and projected financial performance of FESILVEN, and (2) the interplay between FESILVEN's financial health and the rights of, and restrictions on, class E shares. (See Pls.' Reply to Responses of Def. and Def.-Int. to Pls.' Comments on the Remand Det. at 2-3, 5) hereinafter Pls.' Reply Br. Plaintiffs claim that consideration of FESILVEN's financial condition was mandated by this court because restrictions on class E shareholders significantly diminished whatever value the shares otherwise possessed, see id. at 5, requiring that FESILVEN demonstrate "stronger financial indicators than would have been necessary in the absence of such restrictions for the investment in the Class E shares to be consistent with commercial considerations," id. at 4.

The court disagrees with Plaintiffs' contention that Commerce failed to examine FESILVEN's financial condition. In its original investigation, Commerce determined FESILVEN was equityworthy when it issued class E shares. Aimcor, 18 CIT at ___, 871 F.Supp. at 454; Remand Determination at 1. FESILVEN's shares are not traded on a public stock exchange. Remand Determination at 9. When there is no market-determined price for corporate shares, Commerce considers a company to be equityworthy if "from the perspective of a reasonable private investor examining the firm at the time the government equity infusion was made, the firm showed an ability to generate a reasonable rate of return within a reasonable period of time." Countervailing Duties, 54 Fed. Reg. 23,366, 23,381 (Dep't Comm.1989). Stated differently, Commerce determines whether a company is equityworthy by assessing whether the government equity infusion in question is a reasonable investment from the perspective of a reasonable private investor. See Companhia Siderurgica Paulista, S.A. v. United States, 12 CIT 1098, 1101, 700 F.Supp. 38, 42 (1988). Plaintiffs acknowledge this definition of equityworthiness. (See Br. in Supp. of Pls.' Mot. for J. on the Agency R. at 33, 35 & n. 84) (citing Companhia and generally to the subsidies appendix of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina, 49 Fed. Reg. 18,006, 18,016, 18,020 (Dep't Comm. 1984)), which specifically notes Commerce "must determine the commercial soundness of government equity purchases by assessing the prospects of the company at the time those purchases were made. To be `equityworthy,' a company must show ability to generate a reasonable rate of return within a reasonable period of time") hereinafter Pls.' Initial Br.. Plaintiffs concede Commerce's finding that FESILVEN was equityworthy was not previously at issue before the court, and is not properly before the court now. (See Pls.' Initial Br. at 36; Pls.' Reply Br. at 5, n. 9.)

In Aimcor, the court explained,

In analyzing the likelihood of a return based upon dividends, Commerce merely concluded that entitlement to the dividends exists. This, standing alone, does not permit Commerce to determine whether `the expected return from the investment is below that which would be required by a private investor.' The court finds it difficult to imagine how the purchase of stock burdened by ... onerous resale conditions could be anything other than inconsistent with commercial considerations.

Aimcor, 18 CIT at ___, 871 F.Supp. at 454 (citation omitted). The court determined mere eligibility for financial returns did not necessarily dictate that the expected return would be consistent with commercial considerations, especially if restrictions prevented the shares from enjoying any investment gains. Indeed, the court agreed with Plaintiffs' claim on their first appeal that "the issue was not whether FESILVEN was equityworthy.... Rather, the question presented was whether ... the Class E stock was worthless nevertheless because of the restrictions on it. Commerce never undertook this inquiry." (Pls. Initial Br. at 34-35) (emphasis added). The court held Commerce needed to...