Transpacific Steel LLC v. United States

Slip Op. 19-142

UNITED STATES COURT OF INTERNATIONAL TRADE

TRANSPACIFIC STEEL LLC,

Plaintiff,

Before: Claire R. Kelly, Gary S. Katzmann, and Jane A. Restani, v.

Judges

UNITED STATES ET AL.,

Court No. 19-00009 Defendants.

OPINION AND ORDER

[Denying Defendants’ motion to dismiss Plaintiff’s amended complaint for failure to state a claim for which relief may be granted. Judge Katzmann files a separate concurrence.]

Dated: November 15, 2019 Matthew Nosher Nolan and Russell A. Semmel, Arent Fox LLP, of Washington, DC, argued for plaintiff. With them on the brief were Nancy A. Noonan, Diana Dimitriuc Quaia, and Aman Kakar.

Tara K. Hogan, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, and Stephen C. Tosini, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for defendants. With them on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Joshua E. Kurland, Trial Attorney.

Kelly, Judge: Transpacific Steel LLC (“Transpacific” or “Plaintiff”) seeks a refund of the difference between the 50 percent tariff imposed on certain steel products (“steel articles”) from the Republic of Turkey (“Turkey”), pursuant to Presidential Proclamation 9772, issued on August 10, 2018, and the 25 percent tariff imposed on steel articles from certain other countries. See Proclamation 9705 of March 8, 2018, 83 Fed. Reg. 11,625 (Mar. 15, 2018) (“Proclamation 9705”); Proclamation 9772 of August 10, 2018, 83 Fed. Reg. 40,429 (Aug. 15, 2018) (“Proclamation 9772”); Am. Compl. ¶¶ 2, 4, Prayer for Relief, Apr. 2, 2019, ECF No. 19 (“Am. Compl.”). 1 Plaintiff contends relief is warranted because Proclamation 9772 lacks a nexus to national security as statutorily required, fails to follow mandated procedures within the statute, arbitrarily distinguishes importers of steel products from Turkey and importers of steel products from all other countries in violation of equal protection under the Fifth Amendment, and violates Fifth Amendment Due Process guarantees. Am. Compl. ¶¶ 3, 70; see also Pl.’s [Transpacific] Resp. Opp’n Defs.’ Mot. Dismiss, May 29, 2019, ECF No. 24 (“Pl.’s Resp. Br.”). Defendants move to dismiss Plaintiff’s Amended Complaint pursuant U.S. Court of International Trade (“USCIT”) Rule 12(b)(6) for failure to state a claim for which relief may be granted. Defs.’ Mot. Dismiss for Failure State Cl., Apr. 3, 2019, ECF No. 20 (“Defs.’ Br.”). Defendants’ motion to dismiss is denied. Based upon the facts alleged, Plaintiff’s arguments that the President failed to follow the procedure set forth in the statute and, further, that singling out importers from Turkey violated the equal protection guarantees under the U.S. Constitution, support its claim for a refund and defeat Defendants’ motion to dismiss. See Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009); see also USCIT R. 12(b)(6).

BACKGROUND

Section 232 of the Trade Expansion Act of 1962, as amended 19 U.S.C. § 1862 (2012), 2 (“section 232”) delineates the particular circumstances of when and how the President may take action to address imports that threaten to impair the national security of the United States. The statute also sets forth the conduct and timing of the antecedent investigation into the potential national security threat.

Specifically, section 232 authorizes the Secretary of Commerce to commence an investigation “to determine the effects on the national security of imports” of any article, and to consult with the Secretary of Defense and other officials. 19 U.S.C. § 1862(b). Within 270 days, the Secretary of Commerce must then report the investigation’s findings to the President. See 19 U.S.C. § 1862(b)(3)(A). 3 In that report, the Secretary must advise the President if “such article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security[.]” Id. Within 90 days after receiving the Secretary’s affirmative findings, the President must determine whether he or she concurs. 19 U.S.C. § 1862(c)(1)(A)(i). Should he or she concur, the statute empowers the President to act to end that threat to national security. 19 U.S.C. § 1862(c)(1)(A)(ii). In doing so, the President must “determine the nature and duration of the action” that in his or her judgment “must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.” Id. If, and once, the President decides to act, he or she must implement the action within 15 days. 19 U.S.C. § 1862(c)(1)(B).

On April 19, 2017, the Secretary of Commerce initiated an investigation to determine the effect of steel imports on national security. See Notice Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Steel, 82 Fed. Reg. 19,205, 19,205 (Bureau Indus. & Sec. Apr. 26, 2017) (background). The Secretary issued his report and recommendation to the President on January 11, 2018 (“Steel Report” or “January 11 Report”), within the time frame provided under section 232. See Am. Compl. at Ex. 4 (BUREAU OF INDUS. & SECURITY, U.S. DEP’T OF COMMERCE, THE EFFECT OF IMPORTS ON THE NATIONAL SECURITY (2018) (“STEEL REPORT”)). On March 8, 2018, within 90 days of receiving the report, the President issued Proclamation 9705 imposing a 25 percent tariff on imports of steel articles from all countries, including Turkey, effective March 23, 2018. 4 See Am. Compl. at Ex. 1.

On August 10, 2018, the President issued Proclamation 9772, which imposed a 50 percent tariff on steel articles imported from Turkey as of August 13, 2018. See Proclamation 9772, 83 Fed. Reg. at 40,429.

JURISDICTION AND STANDARD OF REVIEW This Court has jurisdiction under 28 U.S.C. § 1581(i)(2), (4) (2012). The court will dismiss a complaint for failure to state a claim if it fails to allege facts “plausibly suggesting (not merely consistent with)” a showing that entitles the party to relief. Bank of Guam v. United States, 578 F.3d 1318, 1326 (Fed. Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “Factual allegations must be enough to raise a right to relief above the speculative level,” Twombly, 550 U.S. at 555, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678 (citation omitted). In deciding a motion to dismiss, the court “must accept as true the complaint's undisputed factual allegations and should construe them in a light most favorable to the plaintiff.” Cambridge v. United States, 558 F.3d 1331, 1335 (Fed. Cir. 2009).

The President adjusted action accordingly and published timely notice in the Federal Register, issuing three Presidential Proclamations that announced agreements on alternate measures or deferred imposition of the tariffs on certain countries pending negotiation. See Proclamation 9711 of March 22, 2018, 83 Fed. Reg. 13,361, 13,361 (Mar. 28, 2018) (reporting ongoing negotiations with Canada, Mexico, the Commonwealth of Australia (“Australia”), the Argentine Republic (“Argentina”), the Republic of Korea (“South Korea”), the Federative Republic of Brazil (“Brazil”), and the European Union member countries and deferring the tariff on steel articles from those countries); Proclamation 9740 of April 30, 2018, 83 Fed. Reg. 20,683, 20,683–84 (May 7, 2018) (limiting the temporary exemption for Canada, Mexico, and European Union member countries until June 1, 2018 and announcing an agreement with South Korea on a range of alternative measures, including a quota); Proclamation 9759 of May 31, 2018, 83 Fed. Reg. 25,857, 25,857– 58 (June 5, 2018) (exempting from the steel tariffs Argentina, Australia, and Brazil, which had reached agreement with the United States on alternative measures).

DISCUSSION

Plaintiff has stated a claim for which relief may be granted. Plaintiff’s factual allegations, which appear to be undisputed, support its claim to a refund of excess duties. Plaintiff alleges facts to demonstrate that, at the very least, the President issued Proclamation 9772 in violation of the equal protection component of the Fifth Amendment and without observing the statutorily required procedure under section 232. Either theory defeats Defendants’ motion to dismiss.

Plaintiff’s arguments that Proclamation 9772 violates equal protection are sufficient to defeat Defendants’ motion to dismiss. “[A] classification neither involving fundamental rights nor proceeding along suspect lines . . . cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.” 5 Armour v. City of Indianapolis, 566 U.S. 673, 680 (2012) (quotation marks and citation omitted). Defendants do not have a high hurdle to clear to survive a rational basis challenge—Defendants merely need to articulate any set of facts that rationally justify a distinction in classification, irrespective of whether the President himself actually justified his action at the time it was taken. See Nordlinger v. Hahn, 505 U.S. 1, 15 (1992). Especially in the area of economic regulation, this standard is forgiving. See Armour v. City of Indianapolis, 566 U.S. at 680 (noting “where ‘ordinary commercial transactions’ are at issue, rational basis review requires deference to reasonable underlying legislative judgments”) (citations omitted); Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 469 (1981) (sustaining legislation treating plastic and non-plastic milk containers differently). Given this standard, it is difficult to imagine Presidential action in connection with section 232 where one would be at a loss to conjure a rational justification; yet, the reality of this case proves otherwise. Defendants submit no set of facts that justify identifying importers of steel from Turkey as a class of one.

In their motion to dismiss, Defendants point to a general need to increase the tariffs. See Defs.’ Br. at 17–18; Defs.’ Reply Br. at 17. A general need to increase tariffs, however, does not explain the singular imposition of a 50 percent tariff on Turkish steel articles. Defendants also attempt to distinguish imports from Turkey as a class by referring to “the relatively high import volumes” of steel from Turkey and the 14 anti- dumping and countervailing duty (“AD/CVD”) orders against its steel exports. Defs.’ Reply Supp. Mot. Dismiss at 17, July 10, 2019, ECF No. 27 (“Defs.’ Reply Br.”); see also Defs.’ Br. at 17–18, 25. However, the Steel Report identifies five countries with higher steel import volumes than Turkey. 6 See STEEL REPORT at 28. Further, the 14 AD/CVD orders on Turkish steel products do not make Turkey remarkable but typical, compared, for example, to China’s 28 AD/CVD orders, India’s 15 AD/CVD orders, Japan’s 14 AD/CVD orders, and Taiwan’s 13 AD/CVD orders. See STEEL REPORT at App. K. Defendants’ contention, that it is rational to “confront the national security threat from imports from all countries by specifically targeting countries” with high import volumes or numerous AD/CVD orders, does not explain what differentiates Turkey from other similarly situated countries—for the President to target alone. Defs.’ Reply Br. at 17–18; see Vill. of Willowbrook v. Olech, 528 U.S. 562, 565 (2000) (holding that plaintiff homeowner could assert an equal protection claim where village demanded a 33-foot easement, while requiring 15-foot easements from similarly situated property owners). At oral argument, when pressed on this question, counsel for Defendants offered other possible reasons but did not connect them to Turkey. Oral Arg. at 1:01:59–1:02:38 (arguing it would be appropriate for the President to differentiate countries based on anticipated increased import volumes or currency devaluation). Whatever the President’s real motivation may be, it is not this court’s concern. 7 See FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 315 (1993) (“[I]t is entirely irrelevant for constitutional purposes whether the conceived reason for the challenged distinction actually motivated the [decision maker].”). 8 But we also cannot sustain a classification for which there is no offered—or even possible—rational justification tethered to the statute. See id. at 312–13.

Plaintiff also alleges facts that demonstrate that the President issued Proclamation 9772 in violation of the procedure set forth by Congress. The statute’s clear and unambiguous steps—of investigation, consultation, report, consideration, and action— require timely action from the Secretary of Commerce and the President. However, the President did not issue Proclamation 9772 following this procedural path. The Secretary of Commerce submitted his report to the President on January 11, 2018, which launched a 90-day period for the President to act. The President acted on March 8, 2018 by imposing a 25 percent tariff on steel articles through Proclamation 9705. See 19 U.S.C. § 1862(c)(1)(B). However, the President issued Proclamation 9772 on August 13, 2018, far beyond the 90 days permitted to decide to act and the further 15 days allowed for implementation, to impose a 50 percent tariff on steel articles from Turkey. See id. The Secretary’s January 11 Report, which serves as the foundation for Proclamation 9705, does not serve as the foundation for Proclamation 9772.

The attempt to justify Proclamation 9772 as a continuation or modification of Proclamation 9705 fails. See Defs.’ Br. at 20–23. Defendants contend that the President retains power to modify any action taken under section 232, without conducting a new investigation or following the procedures set forth in the statute. See id.; see also Defs.’ Reply Br. at 7–12, 15. Likewise, the President seems to have envisioned the Secretary rationality standard may be satisfied by any “reasonably conceivable state of facts,” and that such facts may be based on “rational speculation unsupported by evidence or empirical data.” Defs.’ Reply Br. at 18 (quoting Briggs v. Merit Sys. Prot. Bd., 331 F.3d 1307, 1318 (Fed. Cir. 2003) (internal citations omitted)) (citing Nordlinger v. Hahn, 505 U.S. 1, 15 (1993)). For purposes of this motion, it is not necessary to resolve this issue. Assuming Defendants’ less searching standard applies, Defendants have not proffered any facts, even those based on “rational speculation,” that support the President’s decision to increase tariffs on Turkish steel only. of Commerce’s January 11 Report as empowering him to take ongoing action. The President in Proclamation 9705 states “[t]he Secretary shall continue to monitor imports of steel articles and shall, from time to time, . . . review the status of such imports with respect to the national security. The Secretary shall inform the President of any . . . need for further action by the President.” Proclamation 9705, 83 Fed. Reg. at 11,628 ¶ (5)(b). In Proclamation 9772, the President invokes Proclamation 9705 stating, “I also directed the Secretary to monitor imports of steel articles and inform me of any circumstances that in the Secretary’s opinion might indicate the need for further action under section 232 with respect to such imports.” Proclamation 9772, 83 Fed. Reg. at 40,429 ¶ 3. 9 The President’s expansive view of his power under section 232 is mistaken, and at odds with the language of the statute, its legislative history, and its purpose.

Section 232 requires that the President not merely address a threat to national security; he must do all, that in his judgment, will eliminate it. See 19 U.S.C. §§ 1862(c)(1)(A), (c)(3)(A) (instructing the President to take action “so that such imports will not threaten to impair the national security”). 10 Although the statute grants the President great discretion in deciding what action to take, it cabins the President’s power both substantively, by requiring the action to eliminate threats to national security caused by imports, and procedurally, by setting the time in which to act. 11

In 1988, Congress added specific time limits to section 232, which preclude Defendants’ arguments. See Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100–418, Title I, §§ 1501(a), (b)(1), 102 Stat. 1107, 1257–60 (1988) (codified as amended at 19 U.S.C. § 1862). Those amendments now impose a 90-day limit for the President to act against imports that threaten the national security. 12 They also fix a 15- day deadline for the President to implement any action. Id. at 1258; see also H.R. REP. NO. 100-576 at 711 (1988). 13 The legislative history clarifies that Congress wanted the President to do all that he thought necessary as soon as possible. See Trade Reform Legislation: Hearings Before the Subcomm. on Trade of the H. Comm. on Ways & Means, 99th Cong., 2d Sess. 1282 (1986) (statement of Hon. Barbara B. Kennelly, former Member, H. Comm. On Ways & Means) (discussing the need to set a deadline by which the President should act); Comprehensive Trade Legislation: Hearings Before the Subcomm. on Trade of the H. Comm. on Ways & Means, 100th Cong., 1st Sess. 466–67 (1987) (statement of Phillip A. O’Reilly, Chairman and CEO of Houdaille Industries, Inc., accompanied by James H. Mack, Public Affairs Director) (discussing delays in section 232 implementation); H.R. REP. NO. 99-581, pt. 1, at 135 (1986) (“The Committee believes that if the national security is being affected or threatened, this should be determined and acted upon as quickly as possible.”); H.R. REP. NO. 100-40, pt. 1, at 175 (1987) (“The Committee believes that if the national security is being affected or threatened, this should be determined and acted upon as quickly as possible.”).

Defendants also argue requiring the procedures of 19 U.S.C. § 1862(b)–(c) in support of Proclamation 9772 make no sense, because, by implication, these procedures would then have to be followed “any time a tariff is reduced or an exception is made for a particular product.” Defs.’ Br. at 23. However, the statute specifically grants the President power to “determine the . . . duration of the action[,]” a power to end any action. 19 U.S.C. § 1862(c)(1)(A)(ii). Likewise, Defendants’ arguments that each exception from the steel tariffs for a particular product would require a new set of procedures are meritless, when Proclamation 9705 authorized the Secretary of Commerce to establish the overall process to exempt particular products, under certain conditions. See Defs.’ Br. at 23; Defs.’ Reply Br. at 15–16; see also Proclamation 9705, 83 Fed. Reg. at 11,629 ¶ (3).

The procedural safeguards in section 232 do not merely roadmap action; they are constraints on power. The Supreme Court has made clear that section 232 avoids running afoul of the non-delegation doctrine because it establishes “clear preconditions to Presidential action.” Fed. Energy Admin. v. Algonquin SNG, Inc., 426 U.S. 548, 559 (1976). The time limits, in particular, compel the President to do all that he can do immediately, and tie presidential action to the investigative and consultative safeguards.14 If the President could act beyond the prescribed time limits, the investigative and consultative provisions would become mere formalities detached from Presidential action. However, Congress affirmatively linked the investigative and consultative safeguards to Presidential action, and Congress strengthened that link when it imposed time limits on the President’s discretion to take action. Congress embedded these limits within its broad delegation of power to the President. As this court has recognized, “the broad guideposts of subsections (c) and (d) of section 232 bestow flexibility on the President and seem to invite the President to regulate commerce by way of means reserved for Congress, leaving very few tools beyond his reach.” Am. Inst. for Int’l Steel v. United States, 43 CIT ___, ___, 376 F. Supp. 3d 1335, 1344 (2019) (“AIIS”). Further, it may be the case that judicial review will be unable to reach “a gray area where the President could invoke the statute to act in a manner constitutionally reserved for Congress but not objectively outside the President’s statutory authority.” Id. at 14. The broad discretion granted to the President and the limits on judicial review only reinforce the importance of the procedural safeguards Congress provided, and which the President appears to have ignored.

Therefore, the Plaintiff has stated a claim for a refund because after the time periods set by Congress for Presidential action had passed, the President lacked power to take new action and issued Proclamation 9772 without the procedures as required by Congress. 15 The court need not reach Plaintiff’s arguments that Proclamation 9772 is ultra vires or runs afoul of due process at this time.

CONCLUSION

In support of its motion, Defendants have failed to show that Plaintiff’s complaint must be dismissed for failure to state a claim for a refund of duties on which relief can be granted.

ORDERED Defendants’ motion to dismiss is denied, and it is further ORDERED, the parties shall confer and submit a joint status report as to the issues to be briefed and a proposed scheduling order by Monday, December 9, 2019.

/s/ Claire R. Kelly Claire R. Kelly, Judge /s/ Jane A. Restani Jane A. Restani, Judge

Dated: November 15, 2019

New York, New York Katzmann, J., concurring. I agree with my colleagues that the instant litigation can continue in the face of the Government’s motion to dismiss the plaintiff’s complaint, although the ultimate outcome remains for determination after further proceedings. I write separately to note what is before the court in this case -- whether a statute has been violated -- and what is not -- whether that statute is constitutional.

The question before us at this preliminary stage is this: Has the plaintiff, an American importer of Turkish goods containing steel articles subjected to tariffs imposed by Presidential Proclamation invoking Section 232 of the Trade Expansion Act of 1962, as amended in 18 U.S.C. § 1862 (“section 232”), countered the Government’s motion by alleging sufficient facts in its complaint that those tariffs have been imposed in violation of that statute, which provides that the President may impose tariffs on imports which “threaten to impair the national security”?

Not before us now is the fundamental constitutional question: Does section 232, which provides power to the President in international trade without meaningful limitation, violate the Constitution’s separation of powers, as it is Congress that exclusively has the “power To lay and collect Taxes, Duties, Imposts and Excises” and “to regulate Commerce with foreign Nations”? U.S. Const. art. 1 § 8.1 That question was presented to this court earlier this year in American Institute for International Steel, Inc. v. United States, 43 CIT __, 376 F. Supp. 3d 1335 (2019) (“AIIS”). There, this court unanimously concluded that it was bound by the Supreme Court decision in Federal Energy Administration v. Algonquin SNG, Inc., 426 U.S. 548 (1976), which, in different circumstances involving licensing fees, stated that section 232’s standards were “clearly sufficient” to confine presidential action consistent with the separation of powers. 2 In a dubitante opinion in AIIS, 376 F. Supp. 3d at 1345–52, I respectfully suggested that section 232, lacking ascertainable standards, “provides virtually unbridled discretion to the President with respect to the power over trade that is reserved by the Constitution to Congress,” in violation of the separation of powers. Id. at 1352. “[T]he fullness of time” and “real recent actions” may provide an empirical basis to revisit assumptions and inform understanding of the statute. Id.

I submit that the case before us may well yield further evidence of the infirmity of the statute. 3 To so note is not to diminish, in other arrangements not involving constitutional authority lodged exclusively in Congress, the dependence of Congress on executive officials to implement its programs. See Gundy v. United States, 139 S. Ct. 2116, 2147 (2019); AIIS, 376 F. Supp. 3d at 1352. Nor is it to diminish the flexibility allowed the President in the conduct of foreign affairs, see United States v. Curtiss-Wright Export Corp., 299 U.S. 304 (1936), or, for example, the authority of the executive to impose sanctions on foreign entities which endanger American interests. See, e.g., U.S. Dep’t of Treasury, Financial Sanctions: United States Statutes, https://www.treasury.gov/resource-center/sanctions/Pages/statutes-links.aspx (last visited Nov. 12, 2019) (listing a selection of sanctions statutes as identified by the U.S. Department of Treasury, Office of Foreign Asset Control).

In the end, as the case before us is framed, we proceed assuming the constitutionality of the statute. The statute’s investigative and consultative steps, within prescribed time limits, are not advisory and, as my colleagues have set forth, cannot be ignored without consequence. Based on the facts alleged in the complaint, the violation of procedure and the absence of a rationale to justify differential treatment, warrant the conclusion at this preliminary stage that the Government has failed to show that plaintiff’s complaint must be dismissed for failure to state a claim for a refund of duties on which relief can be granted.

/s/ Gary S. Katzmann Gary S. Katzmann, Judge