Islamic American Relief Agency v. Gonzales

• Decision Date: 13 February 2007
• Docket Number: No. 05-5447.,05-5447.
• Citation: 477 F.3d 728
• Parties: ISLAMIC AMERICAN RELIEF AGENCY (IARA-USA), Appellant v. Alberto GONZALES, In His Official Capacity as Attorney General of the U.S., et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

477 F.3d 728

ISLAMIC AMERICAN RELIEF AGENCY (IARA-USA), Appellant v. Alberto GONZALES, In His Official Capacity as Attorney General of the U.S., et al., Appellees.

No. 05-5447.

United States Court of Appeals, District of Columbia Circuit.

Argued November 20, 2006.

Decided February 13, 2007.

Appeal from the United States District Court for the District of Columbia (No. 04cv02264).

Shereef H. Akeel argued the cause for appellant. With him on the briefs was John Kenneth Zwerling.

Douglas Letter, Litigation Counsel, U.S. Department of Justice, argued the cause for appellees. With him on the brief was Peter D. Keisler, Assistant Attorney General. Sharon Swingle, Attorney, entered an appearance.

Before: SENTELLE and TATEL, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge.

The Islamic American Relief Agency ("IARA-USA"), based in Columbia, Missouri, challenges the district court's decision upholding the blocking of its assets. The government concluded that the organization was a branch office of a Specially Designated Global Terrorist and invoked its authority under anti-terrorism laws to block IARA-USA assets. In this appeal, IARA-USA contends that the district court erroneously held that the record supports the government's conclusion, and that it erroneously dismissed and entered summary judgment for defendants on IARA-USA's claims under the Administrative Procedure Act and the Constitution. IARA-USA also argues that it should have been permitted to amend its complaint to request access to its blocked funds for payment of attorneys' fees. Because we conclude that the designation was supported by the record and was not contrary to law, we affirm the district court's disposition of the case, but on the question of attorneys' fees we remand for further proceedings.

I

In 1985, a Sudanese immigrant founded IARA-USA as the Islamic African Relief Agency. Since then, the entity has engaged in humanitarian activities around the world, often in partnership with similar organizations. In 2000, IARA-USA changed its name from the "Islamic African Relief Agency" to the "Islamic American Relief Agency" (emphasis added). Meanwhile, the entity in Sudan calling itself the Islamic African Relief Agency ("IARA") continued to exist under that name.

On October 13, 2004, the Office of Foreign Assets Control in the Department of the Treasury ("OFAC") designated IARA as a Specially Designated Global Terrorist ("SDGT"). The designation was based on OFAC's conclusion that IARA "provides financial support or other services to persons who commit, threaten to commit or support terrorism" in violation of anti-terrorism laws. Although IARA-USA was not independently designated, OFAC considered it to be the United States branch of IARA and included it in the blocking notice. This meant that none of IARA-USA's financial assets or property could be "transferred, withdrawn, exported, paid, or otherwise dealt in without prior authorization from OFAC." IARA-USA could not receive "any contribution of funds, goods, or services," nor could it continue to use its offices or remove any items of corporate property. Any violation of the blocking notice could subject IARA-USA to criminal and civil penalties.

IARA-USA immediately contested the blocking, maintaining that it is a separate entity from IARA. It requested that OFAC review the designation and permit IARA-USA to access its blocked funds for the limited purpose of paying attorneys' fees. In late December 2004, having failed to persuade OFAC to unblock its assets, IARA-USA filed a complaint in district court, naming as defendants the Attorney General, the Secretary of the Treasury, and other unidentified FBI agents and Treasury personnel.¹ Relevant to this appeal, it claimed that (1) the blocking is unsupported by the record and thus violates the APA and the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1707; (2) the blocking violates IARA-USA's constitutional rights of equal protection, free exercise of religion, and free association; and (3) IARA-USA should be permitted to pay attorneys' fees from the blocked funds. In a memorandum opinion and order issued on September 15, 2005, the district court dismissed or entered summary judgment in favor of defendant on all claims. Islamic Am. Relief Agency v. Unidentified FBI Agents, 394 F.Supp.2d 34 (D.D.C.2005) ("IARA-USA"). The district court held that the record supported OFAC's conclusion that IARA-USA was a branch of IARA, and that the blocking was proper under applicable laws and the Constitution. It also denied the motion to access blocked funds for attorneys' fees.

In this appeal, IARA-USA argues that the district court erred in rejecting the three arguments described above, and that it erred in failing to ensure that the Government complied with an internal regulation requiring it to declassify record evidence and in denying discovery before entering summary judgment. IARA-USA does not challenge the district court's ruling on its other claims.

II

We note at the outset that the designated entity, IARA, is not a party to this case, and IARA-USA does not challenge the evidentiary basis for the designation of its alleged parent. Rather, the question here is whether the record supports OFAC's conclusion that IARA-USA is a branch of IARA. If so, as IARA-USA conceded at oral argument, OFAC's blocking of its assets was a proper consequence of the designation.

We review de novo the district court's entry of summary judgment in favor of the defendants. We will affirm if, viewing all evidence in the light most favorable to IARA-USA, "there is no genuine issue as to any material fact and .. . the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see McCready v. Nicholson, 465 F.3d 1, 7 (D.C.Cir.2006). A dispute over a material fact is "genuine" if the evidence is "such that a reasonable jury could return a verdict for the nonmoving party." Id. at 7 (quoting George v. Leavitt, 407 F.3d 405, 410 (D.C.Cir.2005)). Under the same de novo standard, the dismissal of claims under Federal Rule of Civil Procedure 12(b)(6) will be affirmed if "it appears beyond doubt that [IARA-USA] can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). We accept the complaint's factual allegations as true and give IARA-USA the benefit of all inferences that can reasonably be drawn therefrom. Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002). This Court need not, however, accept inferences that are unsupported by the facts set out in the complaint, nor will it accept legal conclusions cast in the form of factual allegations. Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994).

Our review of an SDGT designation falls under the APA, and thus its highly deferential standard of review applies. See Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 162 (D.C.Cir.2003). Under that standard, we will set aside OFAC's action only if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). We may not substitute our judgment for OFAC's, but we will require it to "examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made." Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (internal quotation marks omitted); see also Cellular Telecomms. & Internet Ass'n v. FCC, 330 F.3d 502, 507 (D.C.Cir.2003). Thus, with respect to the APA claims, if OFAC's actions were not arbitrary and capricious and were based on substantial evidence, we must affirm the district court's decision. 5 U.S.C. § 706(2)(A); Holy Land, 333 F.3d at 162.

A

This case is the first in this Court challenging an SDGT designation based on a branch relationship with an entity that supports terrorists. Our prior cases involved entities that directly supported terrorists. IARA-USA suggests that because of this factual difference, we should review the blocking as we would review an alias designation in a Foreign Terrorist Organization ("FTO") case. In those cases, we require evidence that the designated entity "so dominates and controls" the alleged alias entity that they can be considered one and the same. Nat'l Council of Resistance of Iran v. Dep't of State, 373 F.3d 152, 157 (D.C.Cir.2004) ("NCRI"). On IARA-USA's theory, then, blocking its assets based on the designation of IARA was proper only if IARA "dominates and controls" IARA-USA. The Government disagrees, arguing that the alias test is not applicable here because this blocking was not based on an alias theory. It urges instead that the blocking may stand if there is sufficient evidence that IARA-USA and IARA are the same organization, even in the absence of evidence that one controls the other.

We conclude that the Government has the better argument. To determine whether the evidence is sufficient, we must employ a test that reflects the theory on which the assets were blocked. The "dominates and controls" test is appropriate for reviewing the existence of a principal-agent relationship because, where there is sufficient evidence to find an agency relationship, substantial evidence of the principal's unlawful activity is sufficient to justify the designation or blocking of the agent. See NCRI, 373 F.3d at 157 (concluding that the "dominates and controls" test is an appropriate basis for upholding an alias designation, because of the "ordinary principle[] of agency law" that "where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created . . . one may be held liable for the actions of the other") (internal...