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Chamber of Argentine-Paraguayan Producers of Quebracho Extract v. Holder

August 30, 2005


The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge


Plaintiffs Chamber of Argentine-Paraguayan Producers of Quebracho Extract and its two Argentinean members, Unitan and Indunor ("the Chamber"), bring this action challenging defendants' decision to resume sales of its remaining stockpiled quebracho, alleging that such sales violate the Strategic Critical Materials Stock Piling Act ("Stock Piling Act"), 50 U.S.C. §§ 98 et seq. Plaintiffs have moved for summary judgment pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A), claiming that defendants have failed to provide a rational basis for their conclusion regarding the market impacts from their proposed quebracho sales in violation of this Court's order in Chamber of Argentine-Paraguayan Producers of Quebracho Extract v. Holder, 332 F. Supp. 2d 43, 54 (D.D.C. 2004) ("Chamber I") and the Stock Piling Act. In response, defendants have filed a cross motion to dismiss or, in the alternative, for summary judgment, asserting that their 2005 market analysis provides a rational basis for their determination that resuming sales will not unduly disrupt the quebracho market. Upon consideration of the pleadings and the administrative record herein, the Court concludes that defendants' proposed sales do not violate the Stock Piling Act or the APA, for defendants' analysis was not arbitrary, capricious, an abuse of discretion, or otherwise unlawful, and thus, defendants' motion for summary judgment will be granted.


Quebracho is a vegetable tannin extract from the South American quebracho tree used for tanning leather. The two members of the Chamber operate three quebracho factories in Argentina and are the only quebracho producers participating in international markets. Under the Stock Piling Act, the United States Department of Defense's National Stockpile Center ("DNSC") is authorized to relinquish (by sale or otherwise) its supply of quebracho, which was acquired from South America during the Korean War.

In Chamber I, plaintiffs in the instant case claimed that the government's sales of stockpiled quebracho in 2004, and the proposed sales for 2005, violated the Stock Piling Act, which requires the government, when disposing of stockpiled materials, to make efforts "[t]o the maximum extent feasible . . . to avoid undue disruption of the usual markets of producers, processors, and consumers of such materials and to protect the United States against avoidable loss." 50 U.S.C. § 98(e)(b)(2). Because the government failed to provide sufficient evidence of any analysis of the market impacts of its quebracho sales, this Court held that it was unable to conclude that the government's decision was not arbitrary and capricious, and thus, it enjoined DNSC from delivering quebracho or awarding new contracts to any entity purchasing quebracho for consumption outside the United States until the agency had evaluated all the relevant factors.

In the wake of the Court's order in Chamber I, DNSC suspended all quebracho sales, began to develop a market analysis of the impact of potential future sales, and sought to determine a reasonable annual limit on international sales. DNSC requested information from the Departments of State and Commerce and from a variety of participants in the domestic and international quebracho markets, including plaintiffs. In July 2004, the Chamber submitted a report prepared by Everest Consulting Associates ("ECA") which concluded that the proposed DNSC sales would result in significant disruption of the quebracho market. (See Administrative Record ("AR") at 122.) This report supplemented a 2002 report prepared by ECA which had been submitted prior to Chamber I.

In a September 2, 2004 letter, DNSC asked the Chamber to provide a variety of quantity, cost, and pricing information for use in its market analysis. (Id. at 1-2.) The Chamber responded the following month by providing information about quebracho production, sales, production costs, plant costs, break-even capacity of the plant located in Formosa, and the Chamber's efforts to use or sell the quebracho it purchased from DNSC in 2002 and 2003.*fn2 (Id. at 162-66.) However, it did not provide certain company-specific data sought by DNSC. (Id. at 62-63.) The Chamber also requested information from DNSC on the procedures it would use in its analysis, expressed its desire to provide the agency with significant input, and offered to have Chamber officials travel to Washington, D.C. for a meeting. (Id. at 165-66.)

On November 17, 2004, the Market Impact Committee ("MIC"), which advises DNSC on the market effects of the disposal of stockpile materials, published a notice in the Federal Register requesting public comments on the Annual Materials Plan ("AMP") prepared by DNSC. See 69 Fed. Reg. 67,301 (Nov. 17, 2004). The AMP included a proposed ceiling of 6,000 long tons ("LT")*fn3 for quebracho sales in 2005 and 2006. Id. DNSC plans to sell this amount to two companies, Lyons & Volpi Leather and Westan, at an average of $115 per ton. (Pls.' Mot. for Prelim. Inj., Ex. 1 (Bengolea Aff.) ¶ 21.) The Chamber did not immediately file any comments because it hoped to respond to DNSC's market analysis, which had not yet been released for public review.

In a November 24, 2004 letter, DNSC told the Chamber that it would not be allowed to review the DNSC analysis until it was completed and reiterated its request for company-specific data. (AR at 62-63.) The Chamber replied on February 22, 2005, refusing to provide the requested data on the grounds that such disclosures could have substantial anti-competitive effects within its small industry. (Id. at 68-72.) The Chamber also asserted its concern that DNSC had adopted the AMP quantity of 6,000 LT for 2005 and 2006 without completing the market analysis required by the Court, and threatened to return to court if necessary to prevent sales of this volume. (Id.)

On March 7, 2005, DNSC sent the Chamber its determination letter and an 80-page final market analysis, which DNSC relied upon to support the AMP quantities of 6,000 LT for both 2005 and 2006. (Id. at 74-161.) The MIC concurred with DNSC's conclusion that its proposed quebracho sales will not have an undue impact on the international market. (See id. at 65-67, 74.) However, plaintiffs claim that the two pages of comments from the Department of Commerce and brief email from the Department of State do not constitute sufficient review. (See Pls.' Mot. at 6.) Plaintiffs also attack the impartiality and validity of DNSC's market analysis, asserting that "instead of responding to this Court's injunction with open and impartial analysis of quebracho market impacts, Defendants have chosen to repeat the procedures that the Court disapproved. At every key point in the process, Defendants have biased the analysis in their favor and excluded meaningful input from the Chamber." (Id. at 8.) They argue that the resulting analysis is "fundamentally flawed." (Id. at 19.)

On April 22, 2005, plaintiffs filed this action seeking to enjoin DNSC from further sales of quebracho on the international market. Subsequently, in May 2005, DNSC informed the Court of a delivery of 91 LT of quebracho to Lyons & Volpi and agreed to give plaintiffs ten days notice prior to any future quebracho deliveries to allow plaintiffs time to seek an injunction. (Deister Supp. Decl. ¶ 2.) On July 11, 2005, defendants filed a motion notifying the Court that DNSC planned to allow the shipment of 29 LT of quebracho to Dyestuff International not before July 22, 2005. (Deister Second Supp. Decl. ¶ 2.) On August 16, defendants informed the Court that an additional 188 LT would be delivered August 26, 2005, bringing the total to 308 LT. (Deister Third Supp. Decl. ¶ 3.) Plaintiffs agreed not to pursue their request for injunctive relief because of the relatively insignificant amount of quebracho involved in these three deliveries. (Id. at 2.)

Plaintiffs' motion for summary judgment and defendants' cross-motion to dismiss, or in the alternative for summary judgment, are now before the Court.*fn4 A thorough review of the record indicates that plaintiffs' attacks on the quality and integrity of DNSC's analysis fail to show that DNSC lacked a rational basis for its decision to resume its quebracho sales or that DNSC committed any procedural violation. The Court therefore grants defendants' motion for summary judgment and denies plaintiffs' cross-motion.


I. Standard of ...

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