Phibro Energy, Inc. v. Brown, Slip Op. No. 95-86. No. 92-06-00394.

• Decision Date: 09 May 1995
• Docket Number: Slip Op. No. 95-86. No. 92-06-00394.
• Citation: 886 F. Supp. 863,19 CIT 663
• Parties: PHIBRO ENERGY, INC., et al., Plaintiffs, v. Ronald H. BROWN, et al., Defendants.
• Court: U.S. Court of International Trade

886 F. Supp. 863

19 CIT 663

PHIBRO ENERGY, INC., et al., Plaintiffs, v. Ronald H. BROWN, et al., Defendants.

Slip Op. No. 95-86. No. 92-06-00394.

United States Court of International Trade.

May 9, 1995.

Williams & Connolly, Washington, DC (John G. Kester and David D. Aufhauser), for plaintiffs.

Frank W. Hunger, Asst. Atty. Gen. of the U.S.; Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice (Mark S. Sochaczewsky and Carla Garcia Benitez); Robert J. Heilferty, Atty.-Advisor, Office of Chief Counsel for Import Admin., U.S. Dept. of Commerce, Washington, DC, for defendants.

Bracewell & Patterson, Washington, DC (Scott H. Segal and Gene E. Godley) and S. Lee Wingate, Texas City, TX (Counsel to the City of Texas City), of Counsel, for amici curiae the City of Texas City, the Texas City Independent School Dist., the County of Galveston, and College of the Mainland.

OPINION

CARMAN, Judge:

Plaintiffs Phibro Energy USA, Inc. and Phibro Energy, Inc. (collectively "plaintiffs")¹ move for judgment on the agency record pursuant to U.S. CIT R. 56.1. In their motion plaintiffs seek judicial review of an order of the United States Foreign-Trade Zones Board (Board) denying as not in the public interest an application filed by the Port of Houston Authority for special-purpose subzone status for plaintiffs' petroleum refinery in Texas City, Texas. Application of the Port of Houston Authority, 56 Fed. Reg. 67,058 (U.S. Foreign-Trade Zones Bd.1991) (resolution and order). Defendants oppose the motion. Amici curiae the City of Texas City, the County of Galveston, the Texas Independent School District, and College of the Mainland (collectively "amici"), support the Board's decision and contend plaintiffs are not real parties in interest. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1581(i)(1), (4) (1988).

BACKGROUND

A. Procedural History

Plaintiffs commenced this action and moved for judgment upon the agency record in the United States Court of International Trade (CIT) in 1992. Defendants opposed plaintiffs' motion and argued the Foreign-Trade Zones Act (FTZA) did not provide for judicial review of a denial of a subzone application. See Phibro Energy, Inc. v. Franklin, 17 CIT ___, ___, 822 F.Supp. 759, 761 (1993) (Phibro I). The CIT denied plaintiffs' motion and dismissed the action for lack of subject matter jurisdiction. See id. at ___, 822 F.Supp. at 766.² The United States Court of Appeals for the Federal Circuit (CAFC) subsequently granted plaintiffs' unopposed motion for summary reversal in view of the CAFC's decision in Conoco, Inc. v. United States Foreign-Trade Zones Board, 12 Fed.Cir. (T) ___, 18 F.3d 1581 (1994) (Conoco II),³ and remanded to the CIT for adjudication on the merits. See Phibro Energy, Inc. v. Brown, No. 93-1389, slip op. at 1, 1994 WL 371892 (Fed.Cir.1994). The present opinion rules on the merits of this action.

B. Facts

The Port of Houston Authority submitted to the Board an application on behalf of plaintiffs to establish two special-purpose foreign-trade subzones for refinery sites in Houston and Texas City, Texas. (R. 1.)⁴ The application stated foreign-trade subzone status would benefit greatly the communities of Houston and Texas City, and the State of Texas through the following: (1) the expansion of an existing $30 million annual payroll in Houston and Texas City; (2) the expansion of an economic impact of over $2 billion per year in Texas; (3) the increase of exports consisting of 6.3 million barrels of petroleum to over 12 million barrels, valued at $440 million per year; (4) the reduction of the United States' balance of trade through increased exports; (5) preservation of two United States refining operations, thereby preventing losses resulting from a shutdown, including the loss of over 4,488 direct and indirect jobs; and (6) stimulation of growth in the United States refining industry with approximately $36 million in capital improvements at the two refineries. (R. 1 at 2-3.)

Initially, the application generated favorable public comment from a number of organizations, companies, and government officials. (See R. 3-5, 7-9, 11-12.) In early 1991, however, officials from three local taxing authorities—Texas City, Galveston County, and the Texas City Independent School District—contacted the Board to register concern regarding the Texas City site because of the potential loss of ad valorem tax revenue. (See R. 21-24.) The local governmental entities further stated they had not been notified that an application was in process. (See R. 21, 23, 24.) All three entities requested an opportunity to be heard in opposition to plaintiffs' application. (See R. 21-24.)

Due to the lack of local input, the Board considered, and included in the administrative record, submissions by local authorities in opposition to a subzone grant covering the Texas City site. (See R. 66; R. 110 at 4-5.) These objections were based on the harmful consequences resulting from the projected loss of ad valorem tax revenues and "the precedent it would set within the County for other such proposals." (R. 110 at 8; see R. 83.) In 1989, the Texas City refinery paid over $600,000 in ad valorem taxes. (R. 110 at 4.) According to the Chief Appraiser for Galveston County, estimates indicated creation of a Texas City subzone would result in a tax exemption of up to $60 million in appraised value, causing "a loss in revenue on the order of $1,000,000 to the entities involved. The school district alone could lose over $500,000." (R. 83 at 1.) Furthermore, the appraiser estimated, "if Foreign Trade Zone status is conferred on other potential applicants, as much as $400,000,000 of the local tax base could be exposed to total exemption." (Id.)

The Board approved the application for plaintiffs' Houston refinery, but denied the application for plaintiffs' Texas City refinery. Application of the Port of Houston Authority, 56 Fed.Reg. 67,058 (U.S. Foreign-Trade Zones Bd.1991) (resolution and order). Plaintiffs then commenced this action.

CONTENTIONS OF THE PARTIES

Plaintiffs submit two major contentions in opposition to the Board's decision. First, plaintiffs contend the Board acted arbitrarily, capriciously and abused its discretion when it ignored the applicable statutory criteria for granting or denying subzone status. According to plaintiffs, the FTZA does not empower the Board to use a public interest test in its determinations. Instead, plaintiffs argue, the plain language of 19 U.S.C. § 81g requires the Board to grant a subzone application meeting § 81g's criteria of suitable location and sufficient facilities.⁵ Plaintiffs further argue the Board's consideration of the potential loss of ad valorem tax revenue as a basis for denying plaintiffs' application was contrary to the statute because Congress actually disapproved such a basis when it amended the FTZA in 1984. In enacting 19 U.S.C. § 81o(e), plaintiffs argue, Congress sought to "`eliminate such tax concerns from among the factors to be considered by potential FTZ operators or users.'" (Pls.' Br. in Supp. of Mot. for J. on Agency R. at 14-15 (quoting H.R.Rep. No. 267, 98th Cong., 1st Sess. 35 (1983)) (plaintiffs' emphasis deleted).)⁶ As additional support for plaintiffs' contention the Board acted arbitrarily, capriciously, and abused its discretion, plaintiffs cite to Article I, Sections 8 and 10 of the United States Constitution to argue the Board's basis for denying the subzone application was contrary to constitutional policy.⁷

Plaintiffs second major contention is that the Board's action had no rational basis in fact. Plaintiffs claim even if the Board could properly disapprove a subzone application to promote state ad valorem taxation, no evidence here demonstrated a subzone grant would substantially impact the complaining localities' ad valorem tax revenues. In 1989, plaintiffs maintain, the total tax revenues from ad valorem taxation at the Texas City refinery amounted to $686,709, or only 0.73% of the tax revenues of the three objecting entities. Furthermore, plaintiffs argue, the speculation concerning future "unidentified hypothetical applicants" was just that — mere speculation, which can neither substitute for facts in agency adjudication nor satisfy the rationality requirement for administrative decision making. (Id. at 19.)

Defendants contend the Board's denial of the application as not in the public interest was consistent with the FTZA and was not arbitrary, capricious, or an abuse of discretion. In so doing, defendants advance two major arguments. First, defendants argue the Board's public interest test was derived from and is consistent with the FTZA. Defendants claim 19 U.S.C. § 81o (c) gives the Board explicit authority to restrict or condition activities to protect the public interest.⁸ Although the Act does not define "public interest," defendants assert "the phrase is plainly broad enough to encompass the concerns of local elected officials with respect to the projected economic impact of a proposed subzone." (Defs.' Opp'n to Pls.' M. at 17.) Furthermore, defendants maintain, the Board's interpretation of the public interest test in this case does not contradict the 1984 amendments to the FTZA, but rather is consistent with congressional intent that established foreign-trade zones be exempt from ad valorem taxation. Moreover, defendants assert, the Board has applied the public interest test consistently in previous cases and Congress has been aware of that consistent application.

Defendants' second major argument is that the administrative record supports the Board's determination. Defendants maintain the Board performed a detailed analysis of the evidence presented by all parties prior to rendering a decision. After considering all of the evidence of record, defendants claim, the Board properly concluded plaintiffs had failed to meet the...