author: FORD, Senior Judge:

text:
    ANSALDO COMPONENTI, S.p.A., Plaintiff, v. UNITED STATES, Defendant, Westinghouse Electric Corporation, Defendant-Intervenor.
    Court No. 84-9-01234.
    United States Court of International Trade.
    Jan. 17, 1986.

      Coudert Brothers (Sherman E. Katz, Robert A. Lipstein, Deborah A. Lewis), Washington, D.C., for plaintiff.
    Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch (Platte B. Moring, III), Gaylin Soponis, U.S. Dept, of Commerce, Washington, D.C., for defendant.
    Steptoe & Johnson (Richard O. Cunningham, W. George Grandison, Kevin J. Brosch and Barbara A. Pollack), Washington, D.C., for defendant-intervenor.
   FORD, Senior Judge:

This action contests the final results of administrative review of an antidumping finding involving Large Power Transformers from Italy (49 Fed.Reg. 31313, August 6, 1984), conducted by the U.S. Department of Commerce, International Trade Administration (ITA), pursuant to section 751(a) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1675(a). Before the Court is plaintiff’s (Ansaldo) motion, under Rule 56.-1, for Judgment Upon Agency Record. Defendant and intervenor (Westinghouse) oppose said motion and seek affirmance of the administrative review under challenge. Jurisdiction is pursuant to 19 U.S.C. § 1516a and 28 U.S.C. § 1581(c).

A review of the extensive background of this matter is essential to its disposition and warranted under the circumstances presented in this case. In 1970, Westinghouse filed an antidumping complaint with the Department of Treasury alleging that large power transformers from six countries were being sold in the United States at less than fair value and that a U.S. industry was being injured by those sales. The class or kind of merchandise was defined as all large power transformers rated 10 MVA or above, classified under items 682.0755, 682.0765 and 682.0775 of the Tariff Schedules of the United States. After conducting an investigation, the Department of Treasury found that large power transformers from Italy were being sold at less than fair value and ordered antidumping duties assessed against such entries. 37 Fed.Reg. 11772 (June 14, 1972). Among the companies affected by the dumping order was ASGEN, an Italian manufacturer and corporate predecessor of plaintiff Ansaldo.

In the early 1970’s the transformer manufacturing assets of ASGEN were merged into Italtrafo, S.p.A. On July 1, 1976, the Customs Service sent a letter to Italtrafo requesting specific information on all transformers shipped to the United States after October 22, 1971, and for all home market and third country transformers for which it had accepted orders during the time period covered by dates of purchase of the United States units. On April 1, 1977, Italtrafo reported it had concluded only one contract with a United States customer since 1972, a 1973 order placed by Bonneville Power Administration (BPA I), and stated that records on identical or similar units ordered by third countries or by domestic customers could not be located. As a result, the Customs Service requested that Italtrafo supply information to enable it to appraise BPA I on the basis of constructed value.

On March 12, 1979, the U.S. Embassy in Rome notified the Customs Service of two Italtrafo transformer sales in 1974 to an importer in Puerto Rico. The Customs Service proceeded to request all pertinent information from Italtrafo during the period covering the Puerto Rican sales. Concurrent with this inquiry, the Customs Service determined that, as other Italtrafo transformers had been sold in Italy and to third countries, constructed value would not be an appropriate basis for appraisal of the U.S. entries. On November 15, 1979, Italtrafo provided information on the two 1974 sales in Puerto Rico and three home market sales.

Following the transfer of authority for administering the antidumping laws from the Treasury Department, the Commerce Department, in March, 1980, initiated a section 751(a) review of Large Power Transformers from Italy. On August 13, 1980, Commerce sent Italtrafo an antidumping questionnaire covering the period September 1,1977 through June 30, 1980. A reply was requested within thirty days, and Italtrafo was cautioned that any undue delays or lack of response could result in the agency’s proceeding on the basis of best information available.

On April 14, 1981, counsel for Italtrafo entered a notice of appearance in connection with the administrative review and informed Commerce that Italtrafo had become a division of Ansaldo, S.p.A. On May 19, 1981, more than nine months after the initial request for information by Commerce, counsel for Ansaldo submitted information concerning the 1973 BPA I sale and certain third country sales in 1973-74. No information or data on home market sales was contained in the submission. Ansaldo maintained it made no home market sales to unrelated purchasers within the meaning of 19 C.F.R. § 353.22(b) since all home market customers were related to Ansaldo through a complex chain of government ownership. Instead, Ansaldo argued the review should proceed on the basis of third country sales. A subsequent submission provided a list of Ansaldo’s home market and third country customers for the 1972-74 period, but contained no price information and offered no explanation of the relationship between Ansaldo and its home market customers.

On July 1, 1981, Commerce requested information from Ansaldo for the period July 1, 1980 to May 31, 1981, including information on shipments entered before these dates if not previously supplied, and requested a response within thirty days. Three months later, on October 5, 1981, Ansaldo reported it had made no U.S. sales during the period covered by the questionnaire and provided no home market information.

Commerce published a notice of preliminary results of administrative review on April 13, 1982. This notice covered the period from May 2, 1974 through June 10, 1980. The notice stated the ITA was postponing appraisement pending receipt of additional information from Ansaldo. In written comments to the preliminary results, submitted on May 12, 1982, Ansaldo asserted that “the Department has had since June 9, 1981, a complete listing of all Ansaldo/Italtrafo sales of all markets, home and export, for the period of time the Department deemed relevant.”

On June 17, 1982, Commerce requested information from Ansaldo for the period June 1, 1981 to May 31, 1982. Again, Commerce sought information on shipments entered before these dates if not furnished in a previous response. Similarly, the questionnaire requested a reply within 30 days and cautioned that undue delay or insufficient response could result in the agency’s use of the best information available. On September 22, 1982, Ansaldo, as in the preceding review, reported no sales for the period covered by the questionnaire.

Ansaldo was notified, on September 15, 1982, that the ITA had not resolved the issue of whether home-market sales or third country sales would be used to determine foreign value. Ansaldo was requested to submit further data on home market sales, even if the sales were between related parties. In response, Ansaldo argued that all its home-market sales were to related parties. Ansaldo contended the only comparable transformer sales were of units with a rating of 100 MVA or higher, and that all home market sales in this category were to related parties. Ansaldo did submit data for home-market sales for the 1972-74 period, but limited its submission to the category of sales it deemed comparable.

On February 25,1983, Commerce advised Ansaldo its response had been inadequate insofar as it related to data on all transformers with a rating of 10 MVA or above. In addition Ansaldo should have provided sales information for the periods subsequent to 1974. Ansaldo, on March 11, 1983, submitted a list of home-market sales for the period 1975-79, but the listing did not include the price information necessary for Commerce to analyze price comparability. The ITA casehandler notified Ansaldo, on March 15, 1983, that its submission was deficient and Commerce was proceeding on the basis of best information available.

Twice thereafter, on April 8 and again on April 22, 1983, Commerce requested more detailed information on specific home-market sales from Ansaldo. A deadline of May 9, 1983 was extended to July 8, 1983. In the interim, Commerce announced it had established a procedure for selecting home-market units for comparison with units sold to the United States.

Ansaldo’s reply to Commerce on July 7, 1983, stated, in part:

As the information requested ... cannot legally serve as a basis for the Department’s administrative review, requiring that such information be developed by Ansaldo and provided to the Department would impose an unreasonable and unnecessary burden on the company.

Commerce continued to obtain information concerning U.S. imports of transformers sold by Ansaldo from both the Customs Service and Westinghouse. At the same time, Commerce commenced a large-scale study to refine its methodology for use in analyzing U.S. price and foreign market value in all the administrative reviews of large power transformers. The ITA wrote letters, received briefs, and conducted hearings involving all the parties in the transformer proceedings. After analysis of the information received, Commerce, on December 14, 1983, announced the methodology it would use for its determinations and initiated a revised preliminary review of transformers sold by Ansaldo.

By letter dated December 12, 1983, Commerce indicated to Ansaldo its intention to review the four Ansaldo/Italtrafo sales to the United States: BPA I, the two sales in Puerto Rico, and another sale to the Bonneville Power Administration in 1979, BPA II. The agency outlined the information it had received on the first three sales and noted it had received no information on the 1979 BPA II transformer sale. Specific information was requested for a number of Ansaldo home market sales deemed similar to the U.S. sales, and Ansaldo was invited to submit information on other sales it deemed comparable. The ITA had decided that sales between Italtrafo and its customers in the home market were sales between unrelated parties in light of the relationship between them. Ansaldo was asked to provide the requested information no later than December 30, 1983, and cautioned that:

We will not accept partial submissions and failure to provide ... complete information may result in our not using other information submitted.

On January 10,1984, counsel for Ansaldo requested a two-month extension of time to prepare a response to the Commerce letter of December 12, 1983. The ITA reply to this request indicated the information was past due and that failure to submit the information by January 27, 1984, would result in Commerce using the best information otherwise available to complete the review.

The information sought from Ansaldo was not provided by the January 27, 1984 deadline. On March 9, 1984, Commerce supplied Ansaldo with an advance copy of the Federal Register notice to be published March 16, 1984. The notice stated:

Italtrafo failed to provide an adequate response to requests for information. For this firm the Department used the best information available to determine the assessment and estimated antidumping duties cash deposit rates.

A disclosure conference was held on March 19, 1984, at the request of counsel for Ansaldo. At that meeting, the ITA explained the best information available was derived from three sources: 1) information obtained during the Treasury Department’s fair value investigation; 2) information provided by the petitioner, Westinghouse; and 3) information supplied by the U.S. Customs Service.

Commerce scheduled a hearing on the revised preliminary results for May 8,1984, again at Ansaldo’s request. Prior to the hearing, Ansaldo submitted documents which, for the first time, provided the contract and specifications for the 1979 BPA II transformer sale. At the hearing Ansaldo accepted some of Commerce’s margin calculations while objecting to others and requesting certain additional adjustments.

After considering Ansaldo’s objections and comments, the ITA consulted a technical expert on the BPA II unit and the Italian home market unit selected for comparison on the best information available analysis. The technical expert confirmed that data obtained directly from the Bonneville Power Administration substantially corroborated the information submitted to Commerce by Westinghouse in its March 24, 1983 best information submission.

In the final results of administrative review of Large Power Transformers from Italy, 49 Fed.Reg. 31313 (August 6, 1984), the ITA declined to make several of the adjustments proposed by both Ansaldo and Westinghouse but submitted after publication of the revised preliminary results. Ultimately the U.S. Customs Service was instructed to assess dumping duties and require a cash deposit of estimated antidumping duties, at the rate specified by Commerce, on entries of large power transformers manufactured by Ansaldo. In defending its use of the best information available, the agency stated, at Comment 1:

The statute and regulations provide for the use of best information otherwise available in the context of investigations and section 751 reviews. We must resort to use of best information otherwise available when a party refuses or is unable to supply the Department with adequate information in a timely manner. We agree with Italtrafo that the Department is not required to rely exclusively on information supplied by the petitioner; in fact, we did not rely solely on information provided by Westinghouse. Here, we used certain information provided by the Treasury Department during the fair value investigation in this case and other information provided by the petitioner and the Customs Service. We did not use new information submitted by Italtrafo after publication of the revised preliminary results. Our refusal to use Italtrafo’s information is based on Italtrafo’s failure to submit adequate information in a timely manner in this review. The fact that the Department’s regulations do not specify absolute time limits for submission of information does not nullify the Department’s authority to refuse to use selected new information submitted after publication of preliminary results of our review. Clearly the Department, which must make a determination on the administrative record, must, at some time prior to a final determination, establish a point at which information submitted by parties can no longer be considered for purposes of reaching that final determination. Otherwise, we could not fully and properly take into account all the information submitted, or ensure a reasonable opportunity to comment by all interested parties. Parties could effectively delay and frustrate the review process by repeated, untimely piecemeal submissions.
Further, the Department must be able to use the best information otherwise available when a respondent chooses to provide only selected new information at a time so late in the review process that its consideration would cause serious delay and expense to the Department and interested parties. Despite repeated requests, Italtrafo did not furnish the requested information until one week before the hearing, and then furnished only selected new information to supplement the Department’s best information.
Accordingly, the Department has properly declined to take such information into account. Specifically, the Department has not considered new information submitted concerning physical characteristics of the transformers, testing, supply of oil, escalation payments, shipment dates, warranties, payment schedules, and packing expenses.

It is from this determination and agency record that plaintiff presently moves for judgment under Rule 56.1.

Plaintiff has challenged the Commerce determination of the dumping margin with respect to the BPA II transformer sale covered by the third review period. Ansaldo attacks the final results of administrative review on four bases: 1) Commerce erred when it determined Ansaldo and its principal home-market customer (ENEL) were unrelated; 2) Commerce’s calculation of foreign market value by reference to an Ansaldo sale to ENEL was erroneous as a matter of law and unsupported by substantial evidence on the record; 3) Commerce acted arbitrarily and capriciously, and not in accordance with law, when it rejected information submitted by Ansaldo after publication of the preliminary determination; and 4) the refusal of Commerce to verify the information submitted by Ansaldo was incorrect as a matter of law.

Defendant and intervenor, Westinghouse, oppose plaintiff’s motion on several grounds. Defendant maintains Ansaldo refused to produce information in a timely manner and the ITA thus properly refused to consider plaintiff’s submissions after publication of the revised preliminary results. Consequently, defendant argues, the ITA acted in accordance with law in reaching its determination of final results on the basis of the best information available. Westinghouse augments defendant’s position and argues further that home market sales to ENEL were properly used in determining the foreign market value for Ansaldo transformers.

As framed by plaintiff, the principal issue presented by this review is the question of whether related party sales in the home-market should be used in determining foreign market value in an administrative antidumping proceeding. While this premise is not determinative in the outcome of this case, its importance merits elucidation, if not resolution, in the present analysis.

Although certain conclusions can be drawn from the record of this proceeding, it is significant that, at this late date, the exact nature of the relationship between Ansaldo (and its predecessor, Italtrafo) and ENEL, Ansaldo’s principal home-market customer, remains unclear. Ansaldo, formerly Italtrafo, is controlled by Finmeccanica, S.p.A., which in turn is held by the Institute for Industrial Reconstruction (IRI). IRI is owned by the Italian Government. ENEL, Italtrafo’s major purchaser, is the state electric utility and is administered by the Italian Ministry of Industry.

During the course of the underlying review, plaintiff submitted statements which, if accepted as fact, outline a pattern of common ownership and control between Italtrafo and ENEL. Both companies were financially controlled, under various entities, by the Italian Government. There was no competitive bidding between Ansaldo and other home-market manufacturers for sales to ENEL. Future contracts were allocated, and prices were established, on a predetermined basis. Taken together, plaintiffs statements allege a related party relationship between Italtrafo and ENEL within the meaning of 19 CFR § 353.22(b) and section 771(13) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1677(13).

Under 19 CFR § 353.22(b), sales between related parties “ordinarily will not be used in the determination of foreign market value unless such sales are demonstrated to the satisfaction of the Secretary to be at prices comparable to those at which such or similar merchandise is sold to persons unrelated to the seller.”

A dispute concerning whether to use related party home-market sales in determining foreign market value ordinarily arises in a different context. It is usually the domestic petitioner who objects to the use of such data in agency formulations. Related party home-market sales tend to be lower in price because related companies generally decrease prices to each other to the advantage of the principal entity. The present situation reflects the opposite scenario. Westinghouse seeks inclusion of the related party home-market sales data, alleging Ansaldo uses home-market sales at very high prices to subsidize exports to the United States at sharply lower prices. For its part, Ansaldo maintains its relationship with ENEL permitted Ansaldo to charge artificially high, nonmarket prices to ENEL in order to permit the government of Italy, through its various divisions and holdings, to implement national and regional social policies.

The respective parties have advanced several arguments involving the use of related party home-market sales data in the antidumping scheme. However, a definitive resolution of this issue need not be reached in the case at bar. Instead, the Court is compelled to resolve this matter on a more fundamental basis, the grounds for which are clearly evident upon review of the administrative record.

Under 19 U.S.C. § 1673, if the price for goods in the United States is less than the foreign market value of the goods, the difference between the two is the margin of dumping in the United States and anti-dumping duties must be paid to offset it. The determination of foreign market value begins with price in the producer’s home market. 19 U.S.C. § 1677b(a)(1)(A). If home-market sales are inadequate for comparison, the foreign market value can be determined using either sales to third countries other than the United States (19 U.S.C. § 1677b(a)(1)(B)) or a non-price method known as constructed value, in which the value is determined from the costs of materials, the cost of production, general expenses and profit. 19 U.S.C. § 1677b(a)(2) and (e). Zenith Corp. v. United States, 9 CIT —, 606 F.Supp. 695 (1985).

The U.S. Department of Commerce, specifically the ITA, is charged, under the Trade Agreements Act of 1979, with the administration of the antidumping laws. In conducting reviews under section 751(a), the ITA requests pertinent information from those who will be affected by the results of the review. In order to comply with the requirements of the statute, the ITA provides participants a specified period in which to provide the information requested. After this period expires, the ITA must refuse to consider untimely submitted information and instead rely on the best information available. Atlantic Sugar, Ltd. v. United States, 744 F.2d 1556 (1984); UST, Inc. v. United States, 10 CIT —, Slip Op. 85-78 (July 31, 1985).

19 U.S.C. § 1677e(b) provides:

(b) Determinations to be made on best information available. In making their determinations under this title [19 USC §§ 1671 et seq.], the administering authority and the Commission shall, whenever a party or any other person refuses or is unable to produce information requested in a timely manner and in the form required, or otherwise significantly impedes an investigation, use the best information otherwise available.

Review of the administrative record reveals a consistent pattern of unresponsive, insufficient, and untimely submissions by Ansaldo to repeated attempts by Commerce to elicit information pertinent to the underlying reviews. Based on the evidence before the Court, Ansaldo’s failure to furnish the information requested completely justified the Commerce Department’s use of the best information available under 19 U.S.C. § 1677e(b). Accordingly, for the reasons set forth below, the Court finds for the defendant and affirms the results of the administrative review.

As previously noted, plaintiff has limited its challenge to the dumping margin determination pertaining to the 1979 BPA II transformer sale. Commerce first learned of the BPA II sale from Westinghouse in February of 1980. Thereafter, beginning on August 13, 1980, Commerce requested, on three separate occasions, information pertinent to the BPA II and any other sales during the relevant periods. In response to these requests, Ansaldo asserted it made no home-market sales to unrelated parties. Ansaldo did submit (untimely) information on the 1973 BPA I sale and certain third country sales in 1973-74. However, neither home-market sales data nor price information of any kind was provided in these submissions. Finally, on May 1, 1984, Ansaldo provided information intended to supplement Commerce’s best information available determination on the BPA II sale. As the revised preliminary results of administrative review had already been published (March 16, 1984), Commerce rejected Ansaldo’s submission as untimely and instead relied on the data accumulated on the basis of best information available.

The administrative record indicates Ansaldo was either conspicuously uncooperative with Commerce during the course of the underlying reviews or laboring under severe misconceptions as to the administrative procedure involved in the administration of U.S. antidumping law. Initially, the Court observes that neither the Treasury Department nor Commerce ever received a response from Ansaldo by the requested date. This fact, in and of itself, provides sufficient basis to sustain Commerce’s use of the best information available. Section 751 reviews are conducted and must be completed within specific time-frames. The procedures involved in these reviews make it imperative the requested information be submitted within a period that allows Commerce sufficient time for adequate analysis and comment while still meeting statutory deadlines. As in the present case, when the information requested is not timely provided, Commerce has no choice but to proceed with its review and reach its determinations using the best information available. UST, Inc. (supra).

Of equal concern to the Court is plaintiff’s propensity to draw conclusions of both factual and legal significance on matters properly within Commerce’s domain. The administrative record discloses several instances in which Ansaldo chose not to submit the information requested because Ansaldo had concluded such information could not serve as a basis for Commerce’s administrative review. It was Ansaldo that concluded all its home-market customers were related parties and thus refused to submit home-market sales data. It was Ansaldo that concluded the administrative review should proceed on the basis of third country sales. It was Ansaldo that concluded the only comparable transformer sales were of units with a rating of 100 MVA or higher when Commerce requested information on units with a rating of 10 MVA or higher. Finally, it was Ansaldo that concluded furnishing home-market and U.S. sales price data imposed an “unreasonable and unnecessary burden on the company.” Such conclusions, reached unilaterally with no foundation in statute or administrative practice, are inherently flawed. It is Commerce, not the respondent, that determines what information is to be provided for an administrative review.

The net effect of Ansaldo’s failure to submit the requested information, based on its own conclusory assertions, was to preclude Commerce’s analysis and consideration of the merits of Ansaldo’s arguments. Ansaldo provided no information upon which Commerce could have determined the U.S. price of the BPA II transformer. Similarly, the ITA had insufficient information to determine the foreign market value of BPA II, which necessarily begins with the price in the producer’s home market. Although Ansaldo did provide third country sales data for the review period covering the BPA I sale and the two sales in Puerto Rico, the data submitted for the period covering the BPA II sale was inadequate, and Commerce was unable to determine the foreign market value using third country sales methodology. Additionally, Ansaldo provided no independent evidence of the exact nature of its relationship with its home-market customers. In the event Commerce had accepted the argument that Ansaldo was “related” to its home-market customers, Ansaldo provided no home-market sales data which Commerce could have used in an evaluation of price comparability of sales to related and unrelated parties. These facts indicate a failure, on Ansaldo’s part, “to produce information requested in a timely manner and in the form required”, and under the circumstances Commerce’s resort to the best information available was entirely justified. 19 U.S.C. § 1677e(b).

In so ruling, the Court seeks to encourage the .cooperation of participants to the reviews conducted at the administrative level. The relationship between administrative participants and the agency involved ought not be adversarial in nature. This is particularly true where, as in this ease, the role of the agency is administrative rather than quasi-judicial. Indeed, as the result in this case demonstrates, the information sought by the agency must be provided in order to assure its full consideration before both the agency and the reviewing court. The Court is aware that information sought in section 751 reviews may have a significance wholly independent from its proffered use, and respondents may be reluctant to share material they deem irrelevant to such reviews. However, the consequence of failing to provide adequate and timely information is to leave Commerce with no alternative but to proceed with its review relying upon the best information available. Simply stated, to ensure the agency’s full consideration of their position and rights under the anti-dumping law, respondents must comply with procedural guidelines and thereby afford themselves the opportunity to respond and participate in the review in a meaningful manner.

Accordingly, the Court finds the Commerce determination to conduct the review using the best information available to be fully supported by substantial evidence on the record and otherwise in accordance with law. The final results of the administrative review involving Large Power Transformers from Italy, (49 Fed.Reg. 31313, August 6, 1984) are therefore affirmed, and this action is hereby dismissed. Judgment will be so entered.

      . Prior to the enactment of the Trade Agreements Act of 1979, the Department of Treasury had responsibility for the administration of U.S. antidumping duty laws.

        . Commerce determined the BPA I unit and the two units sold in Puerto Rico had been sold at less than fair value by a margin of 9 percent, and the BPA II unit had been sold at less than fair value by a margin of 92.47 percent.

      . The "best information rule” is an explicit exception to the verification requirement. 19 U.S.C. § 1677e(a).

      . For example, Ansaldo claims ENEL was willing to pay a premium for transformers manufactured in southern Italy in order to alleviate regional unemployment.


source: Caselaw Access Project

author: DiCARLO, Judge:

license: Public Domain

text:
    The UNITED STATES, Plaintiff, v. ROCKWELL INTERNATIONAL CORPORATION, Defendant.
    No. 82-12-01744.
    United States Court of International Trade.
    Jan. 22, 1986.

      Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civ. Div., Dept, of Justice, A. David Lafer, Washington, D.C., for plaintiff.
    Glad & Ferguson, Edward N. Glad, Los Angeles, Cal., for defendant.
   Memorandum Opinion and Order

DiCARLO, Judge:

The United States brings this action against defendant Rockwell International Corporation (Rockwell) to recover a civil penalty for alleged negligent violations of section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592 (1982). The complaint alleges that 223 entries of nickel cadium batteries imported from Mexico over a one year period were entered by means of material and false statement and by means of material omissions.

Rockwell moves under Rule 56 of the Rules of this Court for summary judgment on the material and false statement and material omissions charges. The government opposes Rockwell’s motion and cross-moves for summary judgment on the material and false statement charge. Rockwell’s motion is denied and plaintiff’s motion is granted in part.

Uncontroverted Facts

The following facts are not in dispute:

Beginning in late 1977, Rockwell imported at Calexico, California, pin ball machine control boards assembled in Mexico, each containing a small nickel cadium battery. The control boards were imported under item 807.00, Tariff Schedules of the United States (TSUS), as “[ajrticles assembled abroad in whole or in part of fabricated components, the product of the United States____” Item 807.00, TSUS, imposes a duty upon the full value of the imported article, less the cost or value of United States components. The entries listed in the complaint contained a total of 51,995 batteries, each having a dutiable value of $2.30.

The estimated duties deposited by Rockwell in connection with the control board entries were calculated on the basis of an estimated declaration of assembly costs filed by Rockwell with the United States Customs Service (Customs) on November 21, 1977. The estimated declaration listed the components of the control boards and indicated whether they were of United States or foreign origin. The declaration listed the batteries as components of United States origin. The batteries had actually been manufactured in Mexico and sold to defendant by the General Electric Company.

Each battery was marked “assembled in Mexico.” Rockwell never physically inspected the batteries prior to their exportation to Mexico for assembly into the control boards. Rockwell never received, or does not recall receiving, an executed origin of manufacturing declaration from General Electric.

The country of origin of the batteries was not made known to Customs until on or about March 27, 1979, when Rockwell filed a revised estimated declaration of assembly costs in which the batteries were shown to be of foreign origin.

Discussion

The complaint alleges that the batteries were entered in violation of 19 U.S.C. § 1592(a)(1)(A)(i) by means of material and false statements on the estimated declaration of assembly costs and entry documents. The complaint also alleges that the batteries were entered by means of material omissions in violation of section 1592(a)(1)(A)(ii) on the grounds that the batteries were dutiable separately from the control boards and should have been listed on a separate line on the entry papers.

On its motion for summary judgment, Rockwell argues (1) the action is barred by the applicable statute of limitations because it was commenced more than five years after the filing of the estimated declaration of assembly costs on November 21, 1977, (2) the entry documents contain no false statements and the false statement contained in the declaration of estimated assembly costs is not material within the meaning of section 1592, (3) the entries were not made by means of material omissions since the control boards and batteries were entireties, and (4) the false statement was not filed as a result of negligence.

The government opposes Rockwell’s motion for summary judgment on the material and false statement charge and the material omissions charge, and cross-moves for summary judgment on the material and false statement charge. On its cross-motion for summary judgment, the government argues (1) the timeliness of the action is governed by the entry dates, (2) Rockwell’s motion for summary judgment on the material omissions charge is precluded by the existence of a genuine issue of material fact, (3) the entries were made by means of a false statement because the value of the batteries was listed as nondutiable in the estimated declaration of assembly costs, (4) the false statement is material, and (5) Rockwell was negligent in filing the material and false statement.

The timeliness of this action is governed by 19 U.S.C. § 1621 (1982), which in relevant part states:

That in the case of an alleged violation of section 1592 of this title arising out of gross negligence or negligence, such suit or action shall not be instituted more than five years after the date the alleged violation was committed.

Under this section, the five year limitations period begins to run upon the commission of the alleged violation of section 1592. Section 1592 prohibits, inter alia, the entry of merchandise into the commerce of the United States by means of any document which is material and false. 19 U.S.C. § 1592(a)(1)(A). Therefore, the timeliness of this action is determined not by the date on which the estimated declaration of assembly costs was filed, but rather by the dates on which Rockwell entered the merchandise.

This action is timely since the entries which are the subject of the complaint occurred less than five years prior to commencement of the action.

With respect to Rockwell’s motion for summary judgment on the material omissions charge, both parties have submitted affidavits as to whether the batteries were soldered into the control boards. This question is material to whether the control boards and batteries were entire-ties, and the entireties issue is material to whether the batteries were negligently omitted from a separate line on the entry documents. Since the affidavits raise a genuine issue of material fact, Rockwell’s motion for summary judgment on the material omissions charge is denied.

The Court next turns to the parties’ cross-motions for summary judgment on the government’s allegation that Rockwell, by negligence, entered the batteries by means of a material and false statement. Rockwell admits that it filed a document containing a false statement with Customs, saying: “The only false statement that appears in any paper filed with U.S. Customs is contained in the initial estimated declaration of dutiable costs filed with U.S. Customs by defendant on November 21, 1977, wherein the rechargeable batteries were stated to be of U.S. origin when in fact these batteries were foreign.” Since estimated duties on the entries were calculated based upon the estimated declaration of assembly costs, and the estimated declaration listed the battery components as non-dutiable, the batteries were entered by means of false statement.

The Court now addresses whether genuine issues of material fact preclude resolution of the questions (1) whether the false statement was material, and (2) whether the false statement was negligently filed.

A question of materiality involves a legal issue to be decided by the Court. See, e.g., Sinclair v. United States, 279 U.S. 263, 298-99, 49 S.Ct. 268, 273-74, 73 L.Ed. 692 (1929); United States v. Ackerman, 704 F.2d 1344, 1347, reh’g denied, 719 F.2d 1282 (5th Cir.1983). “In determining whether a false statement is material, the test is whether it has a natural tendency to influence, or was capable of influencing, the decision of the tribunal in making a determination required to be made.” United States v. Krause, 507 F.2d 113, 118 (5th Cir.1975)(citing Blake v. United States, 323 F.2d 245, 246 (8th Cir.1963); Gonzales v. United States, 286 F.2d 118, 122 (10th Cir.1960)). The Court also notes that in 1984 Customs issued a definition of materiality under section 1592, which states in part: “A document, statement, act, or omission is material if it has the potential to alter the classification, appraisement, or admissibility of merchandise, or the liability for duty....” 19 C.F.R.App. B to Pt. 171 (1984).

In this case, the Court holds that the measurement of the materiality of the false statement is its potential impact upon Customs determination of the correct duty for the imported merchandise. Cf. United States v. Taylor, 574 F.2d 232, 235, reh’g denied, 576 F.2d 931 (5th Cir.), cert. denied, 439 U.S. 893, 99 S.Ct. 251, 58 L.Ed.2d 239 (1978). Under this standard, a statement is material which identifies components to be of United States origin and nondutiable, when in fact the components are foreign and had an aggregate dutiable value of over $119,000.

Rockwell argues its false statement is not material because the only purpose for listing country of origin data is to arrive at a sum that represents the estimated dutiable cost. The Court disagrees. While the dutiable values of components listed in estimated declarations may reasonably be expected to represent only estimations, see 19 C.F.R. § 10.21 (1977), the primary purpose of filing documentation in connection with foreign assembly operations is to ascertain which components are dutiable and which are not. Although Rockwell argues that the false statement is not material because it overestimated its duties on the control boards, section 1592 is expressly applicable “[without regard to whether the United States is or may be deprived of all or a portion of any lawful duty thereby.” 19 U.S.C. § 1592(a)(1).

The final issue is whether there exists a genuine issue of material fact on the question of negligence. 19 U.S.C. § 592(c) states in part:

if the monetary penalty is based on negligence, the United States shall have the burden of proof to establish the act or omission constituting the violation, and the alleged violator shall have the burden of proof that the act or omission did not occur as a result of negligence.

Since the act alleged to constitute a violation of section 1592 has been established, section 1592(c)(4) places upon Rockwell the burden of proving that the filing of the false statement did not occur as a result of negligence.

Rockwell contends that it was not negligent since it adopted reasonable procedures in order to comply with Customs requirements applicable to foreign assembly operations. Rockwell states that its internal regulations require the furnishing of country of origin certificates to suppliers so that accurate country of origin information can be received. Rockwell argues that in this case it did not receive country of origin certification, but since its supplier was located in the United States, it could reasonably assume that the batteries were of United States origin.

The Court does not comment on the merit of Rockwell’s contentions, but finds that it has raised a genuine issue of material fact on the question of negligence. “Summary judgment is appropriate only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Albert v. Kevex Corp., 729 F.2d 757, 762, reh’g granted, 741 F.2d 396 (Fed.Cir.1984). Summary judgment on the question of negligence is denied.

Conclusion

Rockwell’s motion for summary judgment on the material omissions charge is precluded by the existence of a genuine issue of material fact.

On the material and false statement charge, Rockwell’s motion for summary judgment is denied and the government’s cross-motion for summary judgment is granted in part. The Court finds that Rockwell filed the false statement giving rise to the alleged violations, and holds that the false statement is material within the meaning of section 1592. Under Rule 56(e) of the Rules of this Court, the uncontroverted facts set forth in this opinion shall be deemed established with respect to the triable issue of negligence. A conference will be held within ten days to discuss the manner in which the action shall proceed. So ordered.

      . 19 C.F.R. § 10.24 (1977) provides that in connection with the entry of assembled articles claimed to subject to exemption under item 807.00, TSUS, the assembler of the articles must file a declaration setting forth the components which are products of the United States. The declaration must be accompanied by an endorsement by the importer attesting to the correctness of the information provided on the declaration. Id. § 10.24(2). 19 C.F.R. § 10.-24(g) states:

        Responsibility of correctness. Subject to the civil and criminal sanctions provided by law for false or fraudulent entries, the importer has the ultimate responsibility for supplying all information needed by the Customs Service to process an entry, and for the completeness and truthfulness of such information. If certain information cannot be supplied by the assembler, it must be provided by the importer.

      . Rockwell does not claim to have disclosed the circumstances of the alleged violations in accordance with the prior disclosure provisions of section 1592. See 19 U.S.C. § 1592(c)(4) (1982).

      . Defendant’s Memorandum in Support of its Motion for Summary Judgment, at 1.

      . See 19 C.F.R. § 10.24 (1977); supra, note 1.

      . The Court is aware of no case which defines negligence under section 1592. However, negligence has been defined in the context of another federal penalty statute as "lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances.” Marcello v. Comm'r, 380 F.2d 499, 506 (5th Cir.1967) (penalty for negligent underpayment of taxes, § 6653(a) of the Internal Revenue Code of 1954, [current version at 26 U.S.C. § 6653(a) (1982)]), cert. denied, 389 U.S. 1044, 88 S.Ct. 787, 19 L.Ed.2d 835 (1968); see Zmuda v. Comm’r, 731 F.2d 1417, 1422 (9th Cir.1984). In 1984, a definition of negligence under section 1592 was published in an appendix to the Customs Regulations. Customs definition states in part: “As a general rule, a violation is determined to be negligent if it results from the offender's failure to exercise reasonable care and competence to ensure that a statement made is correct." 19 C.F.R.App. B to Pt. 171 (1984).


author: VARNER, District Judge.

text:
    Fate TERRY; et al, Plaintiffs, v. NORTHROP WORLDWIDE AIRCRAFT SERVICES, INC., Defendant.
    Civ. A. No. 79-60-S.
    United States District Court, M.D. Alabama, S.D.
    Jan. 11, 1980.
    On Motion for Summary Judgment Nov. 21, 1984,
    John Carroll, Mercer University, Walter F. George School of Law, Macon, Ga., for plaintiffs.
    Zachary D. Fasman, Crowell & Moring, Washington, D.C., for defendant.
   MEMORANDUM OPINION

VARNER, District Judge.

This cause is submitted on the Defendant’s motion for summary judgment filed herein September 14, 1979. Submitted along with the motion are the pleadings, affidavits, exhibits and written briefs on file with this Court. Jurisdiction is alleged pursuant to 28 U.S.C. § 1332 based on diversity of citizenship. Upon consideration of said motion and after construing the evidence against the Defendant, this Court finds that, with respect to Counts I and II of Plaintiffs’ claims, there remains no material issue of fact, and the Defendant is entitled to judgment in its favor as a matter of law for the reasons stated in Part I of this Memorandum Opinion. With respect to Count III of the complaint, this Court shall stay further proceedings in this Court until conclusion of currently pending administrative proceedings involving many of the same issues. The reasons for this Court’s decision to stay proceedings on Count III are set out in Part II of this Memorandum Opinion.

FINDINGS OF FACT

The pleadings, affidavits and exhibits filed herein, when viewed most favorably for the Plaintiffs, disclose the following uncontradieted material facts:

1. Plaintiffs are citizens of the State of Alabama. Defendant is a corporation organized under the laws of the State of Oklahoma, with its principal place of business in Oklahoma. The amount in controversy exceeds $10,000.00, exclusive of interest and costs.

2. Prior to August, 1978, Defendant had been awarded a government contract to perform work at Ft. Rucker in the Middle District of Alabama. Ft. Rucker is a United States Government installation. In August, 1978, representatives of the Federal Aviation Administration (FAA) met with the Defendant in connection with a review of the Defendant’s compliance with Executive Order 11246, which requires government contractors to establish programs to eliminate employment discrimination. During meetings between representatives of the FAA and the Defendant, alleged violations of Executive Order 11246 were discussed. Representatives of the FAA proposed that eight employees of the Defendant — the eight Plaintiffs in this cause— should be accorded special remedies because of the alleged violations of Executive Order 11246. The Defendant denied that violations of Executive Order 11246 occurred and that Plaintiffs were entitled to the proposed remedies.

3. Nevertheless, on August 31, 1978, an agreement between the representatives of the FAA and the Defendant was entered into which incorporated specific reference to all the Plaintiffs and set out specific remedies to be accorded each Plaintiff. The Defendant contends that retention of its government contract at Ft. Rucker was contingent on a satisfactory conclusion of the FAA contract compliance review. The Plaintiffs have not contested that contention.

4. The Defendant did not communicate directly with any of the Plaintiffs during the compliance review. The Defendant did not represent to any of the Plaintiffs that the alleged employment discrimination claims sought to be remedied in the conciliation agreement were settled and/or that the Plaintiffs would be provided relief in the form of promotions, recalls to employment and monetary compensation. However, the Defendant did not disclose to any of the Plaintiffs or to the FAA that it intended to seek review of the compliance agreement before the Office of Federal Contract Compliance Programs of the Department of Labor (OFCCP).

5. Title 41, Chapter 60-1.24(c)(4), CODE OF FEDERAL REGULATIONS, states:

“When a prime contractor or subcontractor, without a hearing, shall have complied with the recommendations or orders of the Director and believes such recommendations or orders to be erroneous, he shall, upon filing a request therefor within ten days of such compliance, be afforded an opportunity for a hearing and review of the alleged erroneous action.”

6. On September 8,1978, the Defendant filed with the OFCCP a request for a hearing and review of the conciliation agreement. On September 19, 1978, the Defendant received a letter from the OFCCP advising the Defendant that the Defendant would not be required to implement the conciliation agreement until the OFCCP review was completed. The OFCCP review has not been completed. The conciliation agreement has not been implemented with respect to the Plaintiffs.

7. The Defendant has never been served or shown employment discrimination claims made by the Plaintiffs either before, during or after the pre-award compliance review. The Plaintiffs have filed no employment discrimination claims with the Equal Employment Opportunity Commission.

8. All the Plaintiffs, except Mr. Truett, are presently employed by the Defendant. Plaintiff Truett refused recall from layoff.

CONCLUSIONS OF LAW

Plaintiffs state three claims for relief in their complaint. In Count I, Plaintiffs allege that the Defendant on August 31, 1979, willfully misrepresented to the Plaintiffs that employment discrimination claims made by the Plaintiffs were settled and that the Plaintiffs would be provided appropriate remedies in the form of promotions, recalls to employment and monetary compensation. In Count II, the Plaintiffs allege that the Defendant failed to disclose the fact that the Defendant intended to seek review of the conciliation agreement and that such failure to disclose constituted the suppression of a material fact which the Defendant had a duty to disclose to the Plaintiffs. In Count III, the Plaintiffs allege that they are third-party beneficiaries of the conciliation agreement and that the Defendant has breached said agreement. This Court has jurisdiction pursuant to 28 U.S.C. § 1332.

I.

As to Counts I and II, the Plaintiffs rely on two Alabama statutes. Count I attempts to state a claim under § 6-5-101, CODE OF ALABAMA (1975), which provides:

“Misrepresentations of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.”

The undisputed facts negate application of the above statute. In his affidavit, Plaintiff, Fate Terry, states:

“At no time did Defendant Northrop ever disclose to any plaintiff that it did not consider our contractual agreement final and finding on all parties.”

In an affidavit submitted on behalf of the Defendant, Shirley W. Skipper states:

“insofar as this affiant has been able to ascertain, no Northrop representative communicated with the plaintiffs about the pre-award compliance review or the conciliation agreement or the contents thereof.”

By its terms, § 6-5-101 requires a “misrepresentation of a material fact”. Such a misrepresentation must be made to be relied upon. Standard Oil Co. v. Johnson, 276 Ala. 578, 165 So.2d 361, 364 (1964). Apparently, the Plaintiffs contend that the signing of the conciliation agreement itself with the undisclosed intention to seek review of said conciliation agreement constitutes the making of a misrepresentation. However, this Court notes that the conciliation agreement itself nowhere states that it is not reviewable or that either party considered it to be a final settlement of all claims. If Defendant was under pressure to enter into the agreement in order to maintain a government contract at Ft. Rucker, and the Plaintiffs do not contend otherwise, it may be reasonably assumed that the Defendant did intend to seek review of the conciliation agreement when the Defendant executed the same. The question then becomes whether such action can constitute a material misrepresentation in the absence of a written or oral statement by the Defendant that the Defendant would not seek review of the conciliation agreement.

This Court is of the opinion that the answer to said question can be most easily arrived at by assuming that the Defendant did expressly state that it did not intend to seek review of the conciliation agreement. Even in such a case, the Defendant could probably later seek review without having misrepresented a material fact because the words “material fact” have been interpreted to mean a material fact then existing. Birmingham Broadcasting Co. v. Bell, 259 Ala. 656, 68 So.2d 314, 321 (1953). A statement regarding an event to take place in the future cannot ordinarily form the basis upon which to predicate a charge of fraud due to the uncertainty of predicting future events and the substantial possibility that the circumstances surrounding the original statement could change due to no fault of either party to the communication. Normally, such breaches of promises regarding future events are remedied through traditional contract concepts. See, Ringer v. The First National Bank of Stevenson, 291 Ala. 364, 281 So.2d 261 (1973); Evans v. Adam’s Rib, Inc., 289 Ala. 377, 267 So.2d 448 (1972).

Even if an express promise not to take advantage of an existing right to seek review of the conciliation agreement would have constituted the making of a material misrepresentation, this Court is of the opinion that the mere signing of said conciliation agreement by itself does not constitute a material misrepresentation of an existing fact. Furthermore, this Court does not believe that the Plaintiffs could justifiably rely upon the Defendant’s forbearance to seek review of the conciliation agreement when review is provided for and the Defendant made no oral or written representation that it did not intend to seek such review. Therefore, Plaintiffs’ claims under § 6-5-101 in Count I of the complaint are insufficient as a matter of law.

With regard to Count II, the Plaintiffs rely upon § 6-5-102, CODE OF ALABAMA (1975), which provides:

“Suppression of a material fact which the party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case.”

Although not pleaded nor brought out in affidavits, this Court, to eliminate the possible materiality of unpleaded facts, will assume that, had the Plaintiffs known the Defendant would seek review of the conciliation agreement, they would have been able to file a charge with the Equal Employment Opportunity Commission. If such were the case, then, arguably, the Defendant’s concealment of its intention to seek review could be considered a concealment intended to create a false impression that would induce the Plaintiffs to forbear from taking action, i.e., a concealment of a material fact.

Even assuming the concealment of a material fact, the language of § 6-5-102 requires that the Defendant must have had a duty to disclose said fact to the Plaintiffs in order to constitute fraud. This Court is of the opinion that the Defendant did not have a duty to disclose its intention to seek review of the conciliation agreement as a matter of law. Neither have Plaintiffs stated facts nor have they cited any authority which would show that, under the circumstances of this cause, the Defendant had a duty to inform the Plaintiffs that it intended to exercise its right to seek review of the conciliation agreement. See, Williams v. Bedenbaugh, 215 Ala. 200,110 So. 286, 288 (1926). As the facts appear to the Court, the Plaintiffs were in an adversary position with respect to the Defendant in that they were apparently considering filing discrimination claims against the Defendant. It is axiomatic that no confidential or fiduciary relationship exists between adversaries. Tonsmeire v. Tonsmeire, 285 Ala. 454, 233 So.2d 465, 467 (1970); Collier v. Brown, 285 Ala. 40, 228 So.2d 800 (1969); Western Grain Co. Case, 264 Ala. 145, 85 So.2d 395 (1956). Therefore, the Plaintiffs’ claims under § 6-5-102 in Count II of the complaint are also insufficient as a matter of law.

II.

In Count III of the complaint, the Plaintiffs allege breach of the conciliation agreement. The Defendant contends that Count III is insufficient as a matter of law for two reasons. First, Defendant contends that, because administrative review of the conciliation agreement is not complete, this Court should not proceed in construing the agreement. Second, Defendant contends that Plaintiffs have no standing to bring a civil action to enforce the provisions of the conciliation agreement. Since this Court agrees, to some extent, with the Defendant’s first contention, it will not reach the second at this time.

This Court is of the opinion that Plaintiffs’ claims under Count III of the complaint fall within the ambit of the “Primary Jurisdiction Doctrine”. The United States Court of Appeals for the Tenth Circuit recently explained the doctrine, saying that it:

“(Provides that where the law vests in an administrative agency the power to decide a controversy or treat an issue, the courts will refrain from entertaining the case until the agency has fulfilled its statutory obligation. See California v. Federal Power Commission, 369 U.S. 482 [82 S.Ct. 901, 8 L.Ed.2d 54] (1962). When a federal court is presented with a case within its jurisdiction but which involves an issue within the competence of an administrative body in an independent proceeding, comity and avoidance of conflict as well as perhaps other considerations suggest propriety in referring the issue. See Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246 [71 S.Ct. 692, 95 L.Ed. 912] (1951).” Sunflower Electric Coop v. Kansas Power & Light Co., 603 F.2d 791, 795 (10th Cir.1979).

The doctrine is distinct from the exhaustion of administrative remedies requirement. See, United States v. Western Pacific Railroad, 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956).

When considering whether to apply the doctrine, it has been held that a federal court should consider whether invoking the doctrine would promote the interest of “uniform and expert administration of the regulatory scheme”. United States v. Western Pacific Railroad, supra, at 65, 77 S.Ct. at 165. This Court is of the opinion that the question of whether the Defendant has breached the conciliation agreement is subject to the expert administration of the OFCCP and that Plaintiffs’ claims with respect to said agreement will be determined, to a large extent, by a decision by the OFCCP on the validity of the agreement itself. To the extent that the Plaintiffs would be without a remedy, this Court would still be available to hear claims with regard to damages incurred due to the delay caused by the review. This Court cannot find that Plaintiffs will suffer irreparable injury in delaying review of their contract claims until after a ruling by the OFCCP. This Court would note that all but one of the Plaintiffs are currently employed by the Defendant and that any monetary damages could be assessed in this cause, including damages caused by the delay. Accordingly, this Court is of the opinion that the Plaintiffs’ claims with regard to Count III of their complaint should be stayed until a final determination by the OFCCP on the merits of the Defendant’s objections to the conciliation agreement.

An Order will be entered in accordance with this Memorandum Opinion.

ON MOTION FOR SUMMARY JUDGMENT

On June 26, 1979, Plaintiffs, employees of Defendant Northrop, filed suit in this Court alleging in three separate counts willful misrepresentation, failure to disclose and breach of contract. On January 11, 1980, this Court granted the Defendant’s motion for summary judgment as to claims relating to the fraudulent misrepresentation allegations but denied the motion for summary judgment concerning Plaintiffs’ breach of contract claim. In addition thereto, this Court stayed further action on the contract claim pending the resolution of an administrative appeal filed by Defendant Northrop with the Department of Labor. This Court has permitted over four years to elapse in an attempt to allow the administrative appeal to be resolved. The appeal, to this Court’s knowledge, is currently pending in the administrative appeal process.

This cause is now before the Court on Defendant’s motion for summary judgment filed herein July 30, 1984, to Count III of the Plaintiffs’ complaint. In its motion for summary judgment, the Defendant contends the Plaintiffs have no private right of action to enforce an executive agreement or a right as third-party beneficiaries to enforce the agreement. In addition, the relief sought would result in an impermissible infringement of the seniority rights of other employees under a bona fide seniority system existing under a valid collective bargaining agreement. Defendant Northrop also asserts the nonexistence of a contract.

The facts of this case were copiously set forth in this Court’s Memorandum Opinion entered on January 11, 1980. Therefore, this Court will not reiterate the facts. The primary issue in this case is legal, but there appears to be a possibly material issue of fact.

The major issue to be dealt with in this case is whether the conciliation agreement should be construed with or without reference to Executive Order 11246. Defendant takes the position that it was coerced to enter the agreement because it was ineligible for a substantial Government contract absent its agreement. Defendant’s secret predetermination not to comply with an agreement it entered because of questionable Government policy is no defense to suit on the contract. Third-Party beneficiaries of the contract are entitled to rely on the same and sue for breach thereof. Defendant’s fraudulent intent not to keep its promise is no defense thereto. In this Court’s opinion, the conciliation agreement should be construed without reference to Executive Order 11246. The Court reaches this conclusion based upon United States v. ITT Baking Co., 420 U.S. 223, 236-237, 95 S.Ct. 926, 934-935, 43 L.Ed.2d 148 (1975), which basically held that consent decrees and orders have attributes of ordinary contracts and should be construed as contracts without reference to the underlying legislation which served as the catalyst to produce the separate agreement.

The Court must agree with Defendant that Plaintiffs are not entitled to enforce an executive order by private action; however, under Alabama law, the Plaintiffs are entitled to enforce a valid agreement entered on the Plaintiffs’ behalf as third-party beneficiaries. In Farkas v. Texas Instrument, 375 F.2d 629 (5th Cir.1967) [the main case relied on by the Defendant], the plaintiff was attempting to enforce the anti-discrimination provision of an executive order as a third-party beneficiary. The Plaintiffs in the case at bar are attempting to enforce an agreement as third-party beneficiaries which was entered as a result of the requirements of the Executive Order. Therefore, the reliance of the Defendant on Farkas and other cases of this nature is inappropriate.

The agreement entered between Defendant and the FAA was the result of an investigation which revealed discrimination against the Plaintiffs, black employees of Defendant Northrop. In order to retain its government contract, Defendant voluntarily agreed to remedy the racial discrimination. It is clear to this Court from the facts that the Plaintiffs are entitled to enforce the agreement of August, 1978, as third-party beneficiaries because the agreement was entered for the benefit of the Plaintiffs, and, in addition, the agreement was cloaked with the intent to directly benefit the Plaintiffs. Harris v. Board of Water & Sewer Commissioners of the City of Mobile, 320 So.2d 624, 294 Ala. 606 (1975).

Defendant, in its reply brief filed herein October 10, 1984, insists that Plaintiffs do not have an enforceable claim as third-party beneficiaries because there is no contract to enforce. The Defendant claims no agreement has ever been reached because the forms prepared to effectuate the conciliation agreement were left blank and were subject, at a later date, to further negotiations. At this point, this Court construes the Plaintiffs’ position is that there was a contract. This posture of the case seems to indicate that a material issue of fact still exists. Therefore, summary judgment at this time is inappropriate.

Upon consideration of the briefs, pleadings and affidavits submitted in support of and in opposition to Defendant’s motion for summary judgment, and construing the evidence against the movant, it is the opinion of this Court that a genuine issue of material fact does exist and that Defendant is not entitled to summary judgment as a matter of law.

Accordingly, it is ORDERED by this Court that Defendant’s motion for summary judgment filed herein July 30, 1984, is hereby denied.


author: NOLAND, Chief Judge.

text:
    Glen E. HARTMAN and Priscilla M. Hartman, Plaintiffs, v. FARMERS PRODUCTION CREDIT ASSOCIATION OF SCOTTSBURG, Robert Fawver, David Morris, the Board of Directors of Farmers Production Credit Association, Roy Schenck, John E. Gillaspy, Donald Green, Lester Burbrink, Roger Clark and Kendall Bonsett, Defendants.
    No. NA 81-163-C.
    United States District Court, S.D. Indiana, New Albany Division.
    March 18, 1983.
    Mark A. Center, Bamberger & Feibleman, Indianapolis, Ind., for plaintiffs.
    Daniel E. Johnson, James H. Hamm, III, Baker & Daniels, Indianapolis, Ind., for defendants.
   ENTRY

NOLAND, Chief Judge.

This matter is before the Court on the defendants’ motion to dismiss pursuant to Rules 12(b)(1) and (6), Fed.R.Civ.P. with attached brief in support thereof, the plaintiffs’ brief in opposition and the defendants’ reply brief. The issues have been carefully and fully briefed and are ready for disposition.

The Court, being duly advised on the premises, now finds that Count IV of the complaint fails to state a claim upon which relief can be granted as no private right exists for alleged violations of Title 12 U.S.C. § 2001 et seq. and the regulations promulgated thereunder being the Farm Credit Act. Further that there is no diversity of citizenship between the parties and the Court has no subject matter jurisdiction over the pendant claims in Counts I, II and III of the complaint.

Accordingly, the Court now DISMISSES the complaint without prejudice as to all counts and defendants.

MEMORANDUM

The action before the Court is against Scottsburg Production Credit Association and certain of its representatives, officers and board of directors (hereinafter called “PCA”) on four counts: 1) breach of agreement and implied warrant of habitability, 2) fraud in inception of a contract, 3) reliance to plaintiff’s detriment on the PCA’s misrepresentation, made knowingly of their falsity, and 4) violation of the Farm Credit Act and the regulations promulgated under it. They seek actual and punitive damages, recision of the contract, and repayment of loan payments already made.

The plaintiffs, Glen Hartman and his wife, are farmers who borrowed money from the Scottsburg Production Credit Association, a federally chartered instrumentality under the Farm Credit Act, in order to buy a farm then owned by the PCA. An initial agreement provided for a Seven Hundred Thousand Dollar ($700,000.00) loan payable in twenty (20) years, and a five-year guaranteed line of credit for operation expenses. At the time of closing, however, the contract called for repayment in only ten (10) years. The line of credit was subsequently denied. Not only does the plaintiff claim breach of contract, but that the defendants violated the terms of 12 C.F.R. § 614.4110, providing that a production credit association shall not make loans for longer than seven (7) years.

Second, the Hartmans allege that the defendants knowingly and maliciously misrepresented facts about the farm in order to induce them to buy it, and in fact, they did rely, to their detriment, on those misrepresentations. The plaintiff further asserts in support of Count I, that contrary to the defendants’ representations, water on the farm was unsuitable for livestock or human consumption; a breach of implied warranty of habitability.

Plaintiffs further assert that 12 C.F.R. § 601.100 provides that all of a PCA’s officers and employees shall observe the highest standards of conduct in the discharge of their duties and shall conduct themselves at all times in the highest manner. By knowingly misrepresenting facts about the farm, the Hartmans claim that the defendants violated this regulation.

Ultimately, the Hartmans defaulted on the note. They contend that according to 12 U.S.C. § 2096(b) and 12 C.F.R. § 614.-4140, the PCA, in granting a loan, is supposed to consider the borrower’s ability to repay the loan. It is alleged that not only did the PCA fail to consider this, but they altered the plaintiff’s cash flow projections in order to secure the loan for him. Thus, again violating the duties imposed on officers and employees of a PCA by 12 C.F.R. § 601.100 and § 601.110(g) which prohibits engaging in any infamous, dishonest, immoral, or notoriously disgraceful conduct.

On the basis of these facts, the Hart-mans allege violation of the Farm Credit Act and its regulations in that the PCA was without power to lend money for maturities exceeding seven years, the property was not capable of servicing the debt, and the conduct breached the defendants’ fiduciary duties.

The plaintiff concedes that the first three counts of his complaint are all matters of state law over which this Court does not have subject matter jurisdiction unless they are pendant to the fourth count, violation of the Farm Credit Act and its regulations. (Plaintiffs’ Brief in Opposition to Defendants’ Motion to Dismiss, p. 7) Therefore, the issue confronting the Court is whether violation of the Farm Credit Act, 12 U.S.C. § 2001, et seq., and the regulations promulgated under it gives the Hartmans a private cause of action. As long as the question is not frivolous, the Court has jurisdiction under 28 U.S.C. § 1331 to decide this issue. Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946).

The mere violation of a federal statute does not automatically give rise to a private cause of action. Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d 82 (1979), on remand, 612 F.2d 68 (2nd Cir.1979); Cannon v. Univ. of Chicago, 441 U.S. 677, 688, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979). A private remedy must be found in the language of the statute, either expressly or implicitly.

There are no words in the Farm Credit Act that directly confer a private remedy for violation of the Act. Therefore, the Court must determine if there is an implied remedy in the statute. The Hartmans assert that regulations that impose fiduciary duties and govern loan policies read together with the statute, imply a private cause of action. The language of the statute, however, must control. Regulations cannot provide the source of an implied remedy for damages. Touche Ross & Co. v. Redington, supra, 442 U.S. at n. 18, 577, 99 S.Ct. at n. 18, 2489.

In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the United States Supreme Court laid out four factors to consider in determining whether a statute impliedly confers a private right of action. These factors are:

1. Is the plaintiff one of the class for whose especial benefit the statute was enacted?
2. Is there any legislative intent — explicit or implicit — to create a remedy?
3. Is a remedy consistent with the underlying purposes of the legislative scheme?
4. Is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Cort v. Ash, 422 U.S. at 78, 95 S.Ct. at 2088.

I.

First, do the Hartmans fall within the class the statute was enacted to benefit? That is, does the statute create a federal right in favor of the plaintiff? A federal right has usually been found where an Act regulates the relationship between a plaintiff class and a defendant class, by imposing certain duties on the defendant class or proscribing certain conduct that Congress has found abusive. See, California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979); Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981). The Farm Credit Act does not establish such a pervasive legislative scheme to control such a relationship. It neither imposes duties on production credit association nor does it proscribe any conduct. It merely creates the instrumentalities by which the American farmer may obtain needed credit. The purpose of the Act is to improve “the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit.” 12 U.S.C. § 2001(a). It is to satisfy their credit needs while encouraging farmers and ranchers to participate on the management and ownership of the system. Daley v. Farm Credit Administration, 454 F.Supp. 953, 954 (D.Minn.1978). Thus, the statute does not create any private federal remedy.

Interpreting the word “benefit”, however, in a light most favorable to the plaintiff, it is arguable that the Farm Credit Act was established to “help” farmers, and, therefore, the Hartmans do fall with the class the Act was enacted to benefit. The fact that an enactment is designed to benefit a particular class does not, alone, establish an intent that the statute be enforced through private litigation. Universities Research Assn., Inc. v. Coutu, 450 U.S. 754, 771, 101 S.Ct. 1451, 1462, 67 L.Ed.2d 662 (1981).

II.

The key factor is whether Congress intended to create a remedy. See, Universities Research Assn., Inc. v. Coutu, supra; Transamerica Mortgage Advisors v. Lewis, supra; Touche Ross & Co. v. Redington, supra. There is nothing expressly stated in the Act’s legislative history to indicate whether Congress wished to create a remedy, or that it even considered the issue. If anything, the implication of certain sections is that Congress foresaw state corporation laws governing the actions of production credit associations.

First, the plaintiff relies strongly on the fact that a PCA is a federal instrumentality granted power to sue and be sued. 12 U.S.C. § 2093(4). The Hartmans contend that if PCA’s can be sued, Congress must have contemplated occasions when an aggrieved farmer would be able to sue, so a federal cause of action must be implied. We decline to accept this contention. Sue and be sued clauses are included in all statutes that establish a federally chartered corporation. They merely waive governmental immunity, thereby imposing the same legal obligations and rights on a federally chartered entity as those of a private corporation. See, Mullins v. First National Exchange Bank of Virginia, 275 F.Supp. 712, 717-19 (D.Va.1967). There is no indication that the Congress, in giving a PCA the power to sue or be sued, intended to do anything other than waive governmental immunity.

Second, the plaintiff contends that the Congress’ failure to consider a remedy does not mean it did not want to provide one. The Hartmans propose that the Congress failed to provide an express remedy because the nature of the legislation was to facilitate social goals, not proscribe or eliminate certain conduct. Consequently, the Congress may simply have overlooked the need for a private remedy for the benefited class. Even if this were true, it is not the Court’s place to legislate or second guess the Congress and provide a remedy where it has failed to do so.

Furthermore, the fact that the Congress provided some procedure (notice, reason for denial and hearing) for borrowers who are denied loans, implies that they did consider problems and remedies arising under the Farm Credit Act. See, 12 U.S.C. §§ 2201 and 2202.

Moreover, 12 U.S.C. § 2258 suggests that the Congress contemplated that production credit associations would use the state courts and be governed by state laws in most controversies. Section 2258 provides that each institution of the farm credit system shall, for purposes of jurisdiction, be deemed a citizen of the state in which its principal office is located. In the 1971 Act, this section also included a provision that prohibited federal district court jurisdiction for production credit associations except on certain limited circumstances. Congress very clearly did not intend remedies in federal court. This prohibition was deleted in a 1975 amendment, not because the Congress had reconsidered a federal remedy, but because it presented problems when making certain types of loans. The 1971 Act gave product credit associations the authority to lend to producers of aquatic products. However, since such producers fell under maritime law and the exclusive jurisdiction of the federal courts, production credit associations could not enforce liens on fishing boats without access to the federal courts. To remedy this situation, Congress struck the above position. Striking the provision “will permit persons and other entities to pursue their claims against production credit associations in federal district court, if jurisdictional elements are present____” U.S.Code & Administrative News, p. 2148, 2150, 2154-55.

Finally, the plaintiff argues that the Farm Credit Act was passed prior to Cort, at a time when courts frequently implied a cause of action, so Congress probably relied on that fact and saw no reason to expressly provide a remedy. This is not dispositive in light of the fact that since Cort the United States Supreme Court has denied an implied cause of action under many statutes passed prior to Cort. California v. Sierra Club, 451 U.S. at 299-300, 101 S.Ct. at 1782-83, J. Stevens, concurring.

In summary, the legislative history of the Farm Credit Act does not support the intention on the part of Congress to create a private cause of action for violation of the Act. Indeed, the legislative history surrounding 12 U.S.C. § 2258 strongly suggests that Congress contemplated state law would govern most actions of a production credit association.

III.

The third consideration is whether a private cause of action is consistent with the underlying purpose of the legislative scheme. As mentioned previously, the purpose of the Farm Credit Act is to provide needed credit to farmers and ranchers. The objective is “to provide the types of credit needed by borrowers, at the lowest reasonable cost on a sound business basis ____” 12 U.S.C. § 2096(b). Authority is given to the Farm Credit Association to promulgate rules and regulations to carry out the provisions of the Act. 12 U.S.C. § 2252. There are no broad remedial purposes underlying the statute that would require a private cause of action.

The Hartmans argue that the purpose of sound, adequate credit will be frustrated unless a remedy is implied. A federal remedy, however, is not necessary to protect the Hartmans’ rights, for they have an adequate remedy in state court. “Even if the fiduciary law varies from state to state, no burden to the [Farm Credit] system is perceived____” Boyster v. Roden, 628 F.2d 1121, 1125 (8th Cir.1980).

The plaintiff also contends that a federal remedy is needed to flesh out the scope and coverage of federal regulations and to provide more uniformity in applying such regulations. Since Congress provided that each entity be considered a citizen of the state in which its principal office is located, and thus subject to that state’s laws, it did not contemplate a uniform federal application. See, Section IV, infra.

IV.

Finally, the Court must consider whether the cause of action Hartman relies on is one traditionally relegated to state law. If it is, it would be inappropriate to infer a cause of action based solely on federal law. Breach of fiduciary duty, breach of contract, and fraud are all traditional state law matters.

In Boyster v. Roden, supra, the plaintiff, a farmer, was seeking damages for alleged violation of a fiduciary duty by a production credit association board of director vice-chairman. The Court of Appeals was asked to decide whether federal common law should govern fiduciaries of federally chartered production credit associations. The plaintiff argued that federal common law should govern, rather than state law, in order to effectuate the Farm Credit Act’s purpose. Although the Court agreed that there was a substantial federal interest in having credit available to farmers and that the federal government was pervasively involved in the creation and operation of production credit associations, the Court rejected the contention that federal common law should prevail. It concluded that the guiding principle for applying federal common law, a significant conflict between federal policy or interest and use of state law, was missing. “We are not persuaded that the substantial federal interest in successful operation of the Farm Credit System will be impaired by application of state law ... each production credit association is a separate entity with a local situs, and its business transactions are with farmers and ranchers in its locale.” Id. at 1125.

The situation in Boyster is analagous to this case. As long as a state remedy is adequate to protect the Hartmans’ interests, it would be improper to intrude into this state law area.

CONCLUSION

The Farm Credit Act does not expressly provide a private cause of action for violation of its provisions, nor can one be implied. The United States Supreme Court has set forth four criteria for determining an implied remedy arising from a federal statute. Cort v. Ash, supra. Even assuming the Hartmans fall within the class for whose benefit the Farm Credit Act was enacted, the other three criteria are not met. Congress did not intend to provide a federal remedy, a private cause of action is not necessary to attain the underlying purpose of the Act, and the plaintiff’s cause of action is one traditionally relegated to state law. This Court certainly would not condone the conduct alleged here, but the Hartmans have an adequate remedy in the state court. Therefore, the case is dismissed without prejudice to the plaintiff.