Royal Brush Mfg., Inc. v. United States

• Decision Date: 01 December 2020
• Docket Number: Slip Op. 20-171,Court No. 19-00198
• Citation: 483 F.Supp.3d 1294
• Parties: ROYAL BRUSH MANUFACTURING, INC., Plaintiff, v. UNITED STATES, Defendant, and Dixon Ticonderoga Co., Defendant-intervenor.
• Court: U.S. Court of International Trade

483 F.Supp.3d 1294

ROYAL BRUSH MANUFACTURING, INC., Plaintiff,

v.UNITED STATES, Defendant,andDixon Ticonderoga Co., Defendant-intervenor.

Slip Op. 20-171

Court No. 19-00198

United States Court of International Trade.

December 1, 2020

Ronald A. Oleynik, Holland & Knight LLP, of Washington, DC, argued for Plaintiff. With him on the brief were Antonia I. Tzinova, Liliana V. Farfan, and Dariya V. Golubkova.

Ashley Akers, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for Defendant. With her on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Joseph F. Clark, Attorney, Office of the Chief Counsel, U.S. Customs and Border Protection.

Felicia L. Nowels, Akerman LLP, of Tallahassee, FL, argued for Defendant-Intervenor. With her on the brief was Sheryl D. Rosen.

OPINION AND ORDER

Barnett, Judge:

This matter is before the court on Plaintiff Royal Brush Manufacturing, Inc.’s ("Royal Brush") motion for judgment on the agency record pursuant to U.S. Court of International Trade ("USCIT" or "CIT") Rule 56.2. Confidential Pl. [Royal Brush's] Mot. for J. on the Agency R., ECF No. 33. Royal Brush challenges U.S. Customs and Border Protection's ("Customs" or "CBP") affirmative determination of evasion of the antidumping duty order on certain cased pencils from the People's Republic of China ("China") issued pursuant to Customs’ authority under the Enforce and Protect Act ("EAPA"), 19 U.S.C. § 1517 (2018).¹ Confidential Pl. [Royal Brush's] Mem. in Supp. of its Mot. for J. on the Agency R. ("Pl.’s Mem.") at 1, ECF No. 33-1.² Customs issued two relevant determinations: (1) Notice of Final Determination as to Evasion, EAPA Case No. 7238 (May 6, 2019) ("May 6 Determination"), CR 131, PR 57; and (2) Decision on Request for Admin. Review, EAPA Case No. 7238 (Sept. 24, 2019) ("Sept. 24 Determination"), PR 64 (Customs’ de novo review of the May 6 Determination).

Royal Brush raises four overarching challenges to Customs’ evasion determination. Royal Brush argues that: (1) Customs improperly rejected Royal Brush's filing seeking to rebut purportedly new factual information contained in Customs’ verification report, Pl.’s Mem. at 9–13; (2) CBP denied Royal Brush procedural due process and redacted material evidence in an arbitrary and capricious manner, id. at 13–20; (3) CBP's use of an adverse inference constituted an abuse of discretion and was arbitrary and capricious, id. at 20–24; and (4) Customs drew irrational conclusions from the available evidence, id. at 24–26; see also Confidential Reply Br. of Pl. [Royal Brush] ("Pl.’s Reply"), ECF No. 43. Defendant United States ("the Government") and Defendant-Intervenor Dixon Ticonderoga Company ("Dixon") urge the court to sustain Customs’ evasion determination. Confidential Def.’s Resp. in Opp'n to Pl.’s Mot. for J. on the Agency R. ("Def.’s Resp."), ECF No. 38; Def.-Int.’s Resp. in Opp'n to Pl.’s Mot. for J. on the Agency R. ("Def.-Int.’s Resp."), ECF No. 40. For the following reasons, the court remands Customs’ determination for reconsideration and further explanation regarding the aforementioned arguments (1) and (2) and defers resolution of arguments (3) and (4) pending Customs’ redetermination.

BACKGROUND

I. Legal Framework for EAPA Investigations

As noted, EAPA investigations are governed by 19 U.S.C. § 1517.³ Section 1517 directs Customs to initiate an investigation within 15 business days of receipt of an allegation that "reasonably suggests that covered merchandise has been entered into the customs territory of the United States through evasion." 19 U.S.C. § 1517(b)(1). "Covered merchandise" refers to "merchandise that is subject to" antidumping or countervailing duty orders issued pursuant to 19 U.S.C. § 1673e or 19 U.S.C. § 1671e, respectively. Id. § 1517(a)(3). "Evasion" is defined as:

entering covered merchandise into the customs territory of the United States by means of any document or electronically transmitted data or information, written or oral statement, or act that is material and false, or any omission that is material, and that results in any cash deposit or other security or any amount of applicable antidumping or countervailing duties being reduced or not being applied with respect to the merchandise.

Id. § 1517(a)(5)(A).⁴

Once Customs initiates an investigation, it has 90 calendar days to decide "if there is a reasonable suspicion that such covered merchandise was entered into the customs territory of the United States through evasion" and, if so, to impose interim measures. Id. § 1517(e). Interim measures consist of:

(1) suspend[ing] the liquidation of each unliquidated entry of such covered merchandise that entered on or after the date of the initiation of the investigation; (2) ... extend[ing] the period for liquidating each unliquidated entry of such covered merchandise that entered before the date of the initiation of the investigation; and (3) ... such additional measures as [Customs] determines necessary to protect the revenue of the United States ....

Id.

Pursuant to section 1517(c), Customs’ determination whether covered merchandise entered the United States through evasion must be "based on substantial evidence." Id. § 1517(c)(1)(A). Customs may, however, "use an inference that is adverse to the interests of" the person alleged to have engaged in evasion or the foreign producer or exporter of the covered merchandise when "selecting from among the facts otherwise available" if that person "failed to cooperate by not acting to the best of the party or person's ability to comply with a request for information." Id. § 1517(c)(3)(A).

Within 30 days of Customs’ determination as to evasion, the person alleging evasion, or the person found to have engaged in evasion, may file an administrative appeal with Customs "for de novo review of the determination." Id. § 1517(f)(1). From the date that Customs completes that review, either of those persons have 30 business days in which to seek judicial review. Id. § 1517(g)(1).

II. Factual and Procedural History

In 2015, Royal Brush, a U.S. importer, began importing pencils from a company located in the Republic of the Philippines ("the Philippines").⁵ Importer Request for Information (Oct. 3, 2018) ("Importer RFI") at 3, CR 66, PR 26.⁶ On February 27, 2018, Dixon lodged an allegation with CBP in which it averred that Royal Brush was transshipping pencils made in China—and subject to an antidumping duty order on certain cased pencils from China—through the Philippines. Allegation under [EAPA] (Feb. 27, 2018) ("Allegation") at 3–4, CR 1, PR 2; see also Certain Cased Pencils from the People's Republic of China , 59 Fed. Reg. 66,909 (Dep't Commerce Dec. 28, 1994) (antidumping duty order) ("Pencils Order "); Certain Cased Pencils From the People's Republic of China , 82 Fed. Reg. 41,608 (Dep't Commerce Sept. 1, 2017) (continuation of antidumping duty order). The scope of the Pencils Order covers "certain cased pencils ... that feature cores of graphite or other materials encased in wood and/or man-made materials, whether or not decorated and whether or not tipped (e.g., with erasers, etc.) in any fashion, and either sharpened or unsharpened." 59 Fed. Reg. at 66,909.

On March 27, 2018, CBP initiated an investigation in EAPA Case No. 7238. Initiation of Investigation in EAPA Case No. 7238 (Mar. 27, 2018), CR 4, PR 5. Because CBP had acknowledged receipt of Dixon's allegation on March 6, 2018, "the entries covered by this investigation are those that were entered for consumption, or withdrawn from a warehouse for consumption, from March 6, 2017 through the pendency of this investigation." Notice of Initiation of Investigation and Interim Measures (June 26, 2018) ("Initiation Notice") at 1, CR 8, PR 14.⁷ On May 25, 2018 (with revisions submitted on July 19, 2018), Royal Brush responded to CBP's Form 28 Request for Information. EAPA Case No. 7238 – Resp. to CBP Form 28 (July 19, 2018), CR 10, PR 19.

On June 6, 2018, a CBP Attaché conducted an unannounced site visit at the Philippine Shipper's facility in Subic Bay, Philippines, and, thereafter, produced a report summarizing the Attaché’s findings. EAPA 7238–Site Visit Report: [Philippine Shipper], Subic Bay, Philippines (June 15, 2018) ("Attaché Report"), CR 5, PR 8; see also May 6 Determination at 4 (identifying the date of the visit as June 6, 2018).⁸ The Attaché concluded that the Philippine Shipper had "the capacity to finish some product, but the on-site evidence clearly reveal[ed] the repacking of completely finished products from China." Attaché Report at CBP0002540. During the visit, the Attaché observed the Philippine Shipper's "staff ... making minor alterations or simply sharpening pencils" and "repacking China origin products into boxes labeled, ‘Made in Philippines.’ " Id. at CBP0002541. The Attaché noted that manufacturing equipment was covered in dust or cobwebs; the "manufacturing warehouse did not indicate production of any products for some time"; raw materials such as lead or cores were absent from the facility; and the storage area contained "boxes with Chinese characters and English language boxes stating, ‘Made in the Philippines.’ " Id.

On June 26, 2018, CBP informed Royal Brush of the initiation of the investigation and imposition of interim measures. Initiation Notice at 1, 3–6. With respect to the imposition of interim measures, Customs explained that evidence gathered during the Attaché site visit, documents provided by Royal Brush in its response to CBP's Form 28, and documents submitted by Dixon in support of its allegation⁹ "collectively create[d] a reasonable suspicion as to evasion." Id. at 6. Accordingly, Customs suspended liquidation for any entries that entered on or after March 27, 2018, the date of initiation of this investigation, and extended liquidation for all...