District Court Finds Federal Law Preempts State Unfair Competition Claims on Section 232 Objections

The U.S. District Court for the Western District of Pennsylvania dismissed a case brought by steel company NLMK Pennsylvania and Indiana alleging that U.S. Steel lied to the Commerce Department to get NLMK's requests for exclusions from Section 232 steel and aluminum tariffs denied. Judge William Stickman said it's unclear whether NLMK submitted a viable claim of unfair competition under Pennsylvania state law, but even if it did, federal law preempts the claim (NLMK Pennsylvania v. U.S. Steel Corporation, W.D. Pa. #21-00273).

"We greatly respect the Court’s decision to dismiss Russian-owned NLMK’s entire baseless case," a spokesperson for U.S. Steel said. "The U.S. Department of Commerce rightfully required NLMK to pay the Section 232 national security tariffs on steel slab imports from Russia that NLMK finishes in the United States. The Court’s decision affirms that U.S. Steel should not be subject to meritless state tort claims for exercising our right to object to importers like NLMK’s requests that it not pay Section 232 tariffs when we mine, melt, and pour the same products in the U.S.A. We are committed to American manufacturing, American jobs and American steel."

Since 2018, NLMK has submitted 162 exclusion requests, largely for its 10- and 8-inch steel slab imports, it said. These requests were either fully or partially denied on the word of companies such as U.S. Steel, which claimed it could supply the slabs, it said. NLMK Pennsylvania, a subsidiary of Russian steel company NLMK, said U.S. Steel doesn't have a single domestic facility capable of making any 10-inch steel slab and gave NLMK only a fraction of its ordered 8-inch slabs (see 2101270034). Due to these circumstances, NLMK said it paid over $200 million in tariffs on imported slabs to fill purchase orders.

NLMK said this violated unfair competition principles under Pennsylvania state law, originally filing suit in the Court of Common Pleas of Allegheny County. The case was then moved to the Pennsylvania district court where Stickman said it would stay, finding it raises federal issues (see 2108230067).

The court ruled that the case is preempted by federal law for two reasons: the presumption against preemption doesn't apply in this case and NLMK's claim is barred by the "preeminent federal interests" woven into the tariff exclusion process -- namely, the power to set tariffs and act in the interests of national security.

Stickman said the presumption against preemption doesn't apply "in areas where state regulation has been historically absent." Since the conduct alleged by NLMK calls a very specific type of conduct into question -- specifically, a type of conduct controlled by federal regulatory action absent any state regulation -- no presumption against preemption from federal law will be granted.

The judge also said federal interests preempt the state law unfair competition claim. "The statutory and regulatory scheme at issue combines two areas which have traditionally been viewed as presenting uniquely federal interests -- the imposition of tariffs on foreign commerce and national security," Stickman said. "The federal preeminence in each of these fields originates in the Constitution itself and has been recognized by Congress and the courts," he said.

"Every step of the process underlying the specific exclusion requests at issue in this case -- from the initial exploration of the need for a tariff, to its imposition, to the creation and maintenance of an exemption and objection process, to the Secretary of Commerce's ultimate determination -- is an exercise in authority which is overwhelmingly exclusively federal in nature," the judge said. Thus, Stickman dismissed the case, finding the state law claim is preempted by federal law.