Zhejiang Quzhou Lianzhou Refrigerants Co. v. United States

• Decision Date: 11 October 2018
• Docket Number: Court No. 17-00121,Slip Op. 18-136
• Citation: 350 F.Supp.3d 1308
• Parties: ZHEJIANG QUZHOU LIANZHOU REFRIGERANTS CO., LTD. and Zhejiang Quhua Fluor-Chemistry Co., Ltd., Plaintiffs, v. UNITED STATES, Defendant, and Arkema Inc., The Chemours Company FC LLC, Honeywell International Inc., and Mexichem Fluor Inc., Defendant-Intervenors.
• Court: U.S. Court of International Trade

350 F.Supp.3d 1308

ZHEJIANG QUZHOU LIANZHOU REFRIGERANTS CO., LTD. and Zhejiang Quhua Fluor-Chemistry Co., Ltd., Plaintiffs,

v. UNITED STATES, Defendant,andArkema Inc., The Chemours Company FC LLC, Honeywell International Inc., and Mexichem Fluor Inc., Defendant-Intervenors.

Slip Op. 18-136

Court No. 17-00121

United States Court of International Trade.

Dated: October 11, 2018

Jordan C. Kahn, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of New York, NY, argued for Plaintiffs. With him on the brief were Ned H. Marshak and Max F. Schutzman.

Kelly A. Krystyniak, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for Defendant. With her on the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was David Richardson, Attorney, Office of Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, DC.

Jonathan Zielinski, Cassidy Levy Kent (USA) LLP, of Washington, DC, argued for Defendant-Intervenors. With him on the brief were James R. Cannon, Jr. and Ulrika K. Swanson.

OPINION

Mark A. Barnett, Judge

Barnett, Judge:

Plaintiffs Zhejiang Quzhou Lianzhou Refrigerants Co., Ltd. ("Lianzhou"), and Zhejiang Quhua Fluor-Chemistry Co., Ltd. ("Quhua") (together, "Plaintiffs"), challenge the United States Department of Commerce's ("Commerce" or the "agency") final determination in the antidumping duty investigation of 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China ("PRC" or "China"). See 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China , 82 Fed. Reg. 12,192 (Dep't Commerce March 1, 2017) (final determination of sales at less than fair value and aff. determination of critical circumstances, in part) (" Final Determination "), ECF No. 19-4, and accompanying Issues and Decision Memorandum ("I & D Mem."), A-570-044 (Feb. 21, 2017), ECF No. 19-5.¹ Specifically, Plaintiffs challenge Commerce's denials of Lianzhou's and Quhua's requests for separate rates and assignment thereto of the China-wide antidumping duty rate. See Confidential Pls.' Mot. for J. on the Agency R. and Mem. of Law in Supp. of Pls.' Mot. for J. on the Agency R. ("Pls.' Mem."), ECF No. 26. Defendant United States ("Defendant") and Defendant-Intervenors² support Commerce's determination. See Def.'s Resp. to Pls.' Mots. [sic] for J. on the Agency R. ("Def.'s Resp."), ECF No. 32; Confidential Resp. Br. of Arkema Inc., The Chemours Co. FC, LLC, Honeywell International Inc., and Mexichem Fluor, Inc. ("Def.-Ints.' Resp."), ECF No. 33. For the following reasons, Plaintiffs' motion is denied.

BACKGROUND

On March 23, 2016, Commerce initiated an investigation into 1,1,1,2 Tetrafluoroethane (R-134a) from China alleged to have been sold in the United States at less than fair value. See 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China , 81 Fed. Reg. 18,830, 18,830 (Dep't Commerce April 1, 2016) (initiation of less than fair value investigation), PR 27, CJA Tab 3, PJA Tab 3, ECF No. 40.³ In the notice of initiation, Commerce directed exporters and producers seeking a separate rate to submit a separate rate application and respond to Commerce's quantity and value questionnaire. Id. at 18,834. Commerce further instructed that companies selected as mandatory respondents must respond to all parts of the agency's antidumping questionnaire to be eligible for a separate rate. Id.

Quhua timely submitted its separate rate application. See Quhua Separate Rate Appl. (May 9, 2016) ("Quhua SRA"), CR 50-54, PR 70-71, CJA Tab 4, PJA Tab 4, ECF No. 40. Commerce selected Lianzhou as a mandatory respondent; thus, Lianzhou submitted its request for a separate rate in Section A of its questionnaire response. See Respondent Selection Mem. (Apr. 26, 2016) at 1, CR 34, PR 60, CJA Tab 10, PJA Tab 10, ECF No. 40; Lianzhou Sec. A Questionnaire Resp. (May 31, 2016) ("Lianzhou AQR") at 2-22, CR 66-83, PR 87-92, CJA Tab 5A, PJA Tab 5, ECF No. 40.

In September 2016, Commerce preliminarily denied Lianzhou's and Quhua's separate rate requests. See Decision Mem. for Prelim. Determination (Sept. 29, 2016) ("Prelim. Mem.") at 17, PR 172, CJA Tab 6, PJA Tab 6, ECF No. 41; Prelim. Denial of Separate Rates (Sept. 29, 2016) ("Separate Rate Mem."), CR 151, PR 176, CJA Tab 7, PJA Tab 7, ECF No. 41.⁴ Commerce determined that Plaintiffs' respective chains of ownership each extended to the Chinese government because Lianzhou and Quhua are wholly-owned by Zhejiang Juhua Co., Ltd. ("Zhejiang Juhua"),⁵ which, in turn, is majority owned (55.86 percent) by Juhua Group Corporation ("Juhua Group"), a state-owned enterprise ("SOE") supervised by the State-owned Assets Supervision and Administration Commission ("SASAC") of Zhejiang province. Id. at 2 & n.9 (citing Quhua SRA at 16, Exs. 7D, 12).⁶ Commerce also noted that Juhua Group may "elect Zhejiang Juhua's directors ... in accordance with the number of shares it owns, i.e., 55.86 percent." Id. at 2.⁷ Zhejiang Juhua, in turn, appoints Lianzhou's and Quhua's executive director, supervisor, and general manager. Id. at 2 & nn.7, 10 (citing, inter alia , Lianzhou AQR at 22;⁸ Quhua SRA at 16, Exs. 7D, 12). With respect to Lianzhou, Commerce explained that "the general manager appoints other managers, including deputy general managers." Separate Rate Mem. at 2. With respect to Quhua, Commerce explained that Article 9 of Quhua's articles of association "establishes that all operations, profit distribution, etc. are subject to review by Zhejiang Juhua, whose management is subject to government control." Separate Rate Mem. at 2 & n.11 (citing Quhua SRA at 16, Exs. 7D, 12).⁹

On March 1, 2017, Commerce affirmed its preliminary finding in the Final Determination . 82 Fed. Reg. at 12,194 n.16. Commerce confirmed that Plaintiffs are each "indirectly majority-owned by an SOE," i.e, Juhua Group, and explained that it "would expect any majority shareholder, including a government, to have the ability to control, and an interest in controlling, the operations of the company, including the selection of management and the [company's] profitability." I & D Mem. at 12 & n.65 (citing Lianzhou AQR at 11; Quhua SRA at 12). According to Commerce, "the majority ownership holding in and of itself means that the government exercises, or has the potential to exercise, control over the company's operations generally." Id. at 11. Commerce pointed to the "various responsibilities" assigned to Juhua Group in Zhejiang Juhua's articles of association, id. at 13 & n. 68 (citing Quhua SRA, Ex. 7C ("Zhejiang Juhua Arts. of Assoc.") ), and Zhejiang Juhua's active participation in Plaintiffs' daily operations, id. at 12-13 & n.67 (citing Lianzhou AQR at 25).

Commerce disagreed with Plaintiffs' argument that Chinese law insulates them from government control, finding instead that the various legal provisions relied upon by Plaintiffs enable the government to "control the business activities of a company when the government is a controlling shareholder." Id. at 13 & n.73 (citation omitted).

Commerce further disagreed with Plaintiffs' argument that their respective articles of association place control over their day-to-day operations with their respective managers. Id. at 14-15. Upon review of those documents, Commerce determined that "Quhua's and Lianzhou's management is beholden to Zhejiang Juhua, the sole owner of each company, whose board is controlled by Juhua Group, which is wholly state-owned." Id. at 14 & n.81 (citing Lianzhou AQR, Ex. A-7; Quhua SRA, Ex. 10). According to Commerce, "[t]he fact that Quhua's and Lianzhou's shareholder appoints and changes the executive directors, general managers, and supervisors does not prove the absence of government control when the only shareholder, who is majority owned by SASAC, controls all shareholder decisions." Id. at 15.

Commerce also rejected Plaintiffs' argument that the agency had impermissibly relied on the mere potential for government control by failing to cite to a specific instance of Juhua Group exercising its legal right to control or influence Plaintiffs' exports of subject merchandise. Id. Commerce noted that Plaintiffs bear the burden of rebutting the presumption of government control, and evidence demonstrated that "Juhua Group, has the right to ‘[perform] supervision on, making suggestion for or inquiry on the operation of Zhejiang Juhua, the sole shareholder of Quhua and Lianzhou.’ " Id. at 15 & n.89 (citing Zhejiang Juhua Arts. of Assoc., Art. 32(III) ).

On May 18, 2017 Plaintiffs initiated this action challenging Commerce's Final Determination . Summons, ECF No. 1; Compl., ECF No. 8. Plaintiffs' joint Rule 56.2 motion is fully briefed, and on September 11, 2018, the court heard oral argument. ECF No. 47.

JURISDICTION AND STANDARD OF REVIEW

The court has jurisdiction pursuant to § 516A(a)(2)(B)(i) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(i)(2012),¹⁰ and 28 U.S.C. § 1581(c) (2012). The court will uphold an agency determination that is supported by substantial evidence and otherwise in accordance with law. 19 U.S.C. § 1516a(b)(1)(B)(i). "Substantial evidence is ‘such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ " Huaiyin Foreign Trade Corp. (30) v. United States , 322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol. Edison Co. v. NLRB. , 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938) ).

DISCUSSION

I. Legal Framework Governing Separate Rate Status in Proceedings Involving Nonmarket Economy Countries

In antidumping duty proceedings involving a country, such as China, that Commerce considers to have a nonmarket economy, Commerce employs a rebuttable presumption that all enterprises operating within that country are controlled by the government. See Huaiyin Foreign Trade Corp., 322 F.3d at 1372 ; Sigma...