Kindhearts v. Geithner, Case No. 3:08CV2400.

• Citation: 647 F.Supp.2d 857
• Decision Date: 18 August 2009
• Docket Number: Case No. 3:08CV2400.
• Parties: KINDHEARTS FOR CHARITABLE HUMANITARIAN DEVELOPMENT, INC., Plaintiff v. Timothy GEITHNER, et al, Defendant.
• Court: U.S. District Court — Northern District of Ohio

647 F.Supp.2d 857

KINDHEARTS FOR CHARITABLE HUMANITARIAN DEVELOPMENT, INC., Plaintiff v. Timothy GEITHNER, et al, Defendant.

Case No. 3:08CV2400.

United States District Court, N.D. Ohio, Western Division.

August 18, 2009.

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Fritz Byers, Jeffrey M. Gamso, Gamso, Helmick & Hoolahan, Toledo, OH, Alan R. Kabat, Lynne Bernabei, Bernabei & Wachtel, David D. Cole, Georgetown University Law Center, Washington, DC, Carrie L. Davis, American Civil Liberties Union of Ohio Foundation, Cleveland, OH, Hina Shamsi, American Civil Liberties Union

Foundation, New York, NY, for Plaintiff.

Amy E. Powell, Jonathan E. Zimmerman, U.S. Department of Justice-Civil Division, Federal Programs, Washington, DC, for Defendant.

Daniel J. Maloney, Maloney, McHugh & Kolodgy, Ltd., Toledo, OH, Ranjana Natarajan, University of Texas, School of Law National Security Clinic, Austin, TX, for Amici Curiae.

ORDER

JAMES G. CARR, Chief Judge.

Plaintiff KindHearts for Charitable Humanitarian Development, Inc. (KindHearts), an Ohio corporation, challenges a provisional determination by the Office of Foreign Assets Control [OFAC] of the United States Treasury Department that plaintiff is a Specially Designated Global Terrorist [SDGT]. KindHearts also challenges the block OFAC placed on plaintiff's assets pending a full investigation.

OFAC alleges that KindHearts provides material support to Hamas, which is also an SDGT. OFAC's authority to designate SDGTs and block the assets of entities under investigation for supporting terrorism stems from the International Emergency Economic Powers Act [IEEPA], 50 U.S.C. § 1701-06 and Executive Order 13224 [E.O. 13224].

KindHearts alleges that OFAC's actions are unconstitutional because: 1) OFAC's block is an unreasonable seizure in violation of the Fourth Amendment; 2) provisions authorizing OFAC to designate SDGT and block assets pending investigation are void for vagueness under the Fifth Amendment; 3) OFAC denied KindHearts procedural due process before provisionally determining it to be an SDGT and blocking its assets; and 4) OFAC has unconstitutionally restricted plaintiff's access to the resources it needs to mount a defense. KindHearts further claims that OFAC blocked KindHearts' assets without proper statutory authorization.

KindHearts asks this court to lift the OFAC blocking order or, alternatively, to require OFAC to provide KindHearts with adequate process.

The defendants—the Secretary of the Treasury, Director of OFAC, and Attorney General—are United States government officials sued in their official capacities. This court sua sponte substitutes as defendants Timothy Geithner, Secretary of the Treasury, and Eric H. Holder, Attorney General, for former Treasury Secretary Henry M. Paulson and former Attorney General Michael B. Mukasey, respectively. Defendants contest plaintiff's constitutional and statutory claims, and argue that claims arising from OFAC's provisional determination that KindHearts is an SDGT are not ripe for this court's review.

Pending are plaintiff's motion for partial summary judgment under Rule 56 of the Federal Rules of Civil Procedure [Doc. 31] and defendants' motion to dismiss under Rule 12(b)(6) or, in the alternative, for summary judgment on all counts under Rule 56. [Doc. 36].

Background

KindHearts, a Toledo-based non-profit corporation, was incorporated on January 22, 2002, under Ohio law. Its stated goal is to provide humanitarian aid without regard to religious or political affiliation.

Khaled Smaili founded KindHearts after OFAC shut down several Muslim-affiliated charities which, like KindHearts had as their stated objectives humanitarian relief in the Middle East and elsewhere. KindHearts contends that from its inception, its officers and directors took great care to ensure it did not fund any designated terrorist or terrorist-related entities or otherwise violate federal laws regarding designated terrorists. It sought guidance from the Treasury Department, and implemented the Treasury's voluntary guidelines for charitable organizations.

On February 19, 2006, OFAC froze all of KindHearts' assets pending investigation into whether it was subject to designation under IEEPA and E.O. 13224. More than a year later, on May 25, 2007, OFAC informed KindHearts it had provisionally determined to designate it a SDGT.

Statutory and Regulatory Framework

The Executive initially used the Trading With the Enemy Act [TWEA], 50 App. U.S.C. §§ 1-44, enacted in 1917, to impose sanctions and embargoes on foreign nations. In 1977, Congress amended the TWEA and enacted the IEEPA. The IEEPA requires the President to declare a national emergency to "deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy of the United States." The pertinent sections of the IEEPA are 50 U.S.C. § 1701 and 1702:

§ 1701. Unusual and extraordinary threat; declaration of national emergency; exercise of Presidential authorities

(a) Any authority granted to the President by section 1702 of this title may be exercised to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.

(b) The authorities granted to the President by section 1702 of this title may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter and may not be exercised for any other purpose. Any exercise of such authorities to deal with any new threat shall be based on a new declaration of national emergency which must be with respect to such threat.

§ 1702. Presidential authorities

(a)(1) At the times and to the extent specified in section 1701 of this title, the President may, under such regulations as he may prescribe, by means of instructions, licenses, or otherwise—

(A) investigate, regulate, or prohibit—

(i) any transactions in foreign exchange,

(ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or a national thereof,

(iii) the importing or exporting of currency or securities, by any person, or with respect to any property, subject to the jurisdiction of the United States;

(B) investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States; ...

50 U.S.C. §§ 1701-1702.

On September 24, 2001, President Bush issued E.O. 13224, declaring a national emergency with respect to "grave acts and threats of terrorism." He invoked his authority under the IEEPA, authorizing the Secretary of Treasury, in consultation with the Secretary of State and Attorney General, to designate "persons" (defined as individuals or entities) whose property or interests in property should be blocked because they "act for or on behalf of" or are "owned or controlled by" designated terrorists, or because they "assist in, sponsor, or provide financial, material or technological support for, or financial or other services to or in support of" or are "otherwise associated" with them.¹

Individuals or entities designated under E.O. 13224 are labeled "Specially Designated Global Terrorists." In § 10 of the Executive Order, the President states that under the Order no prior notice of a listing or designation needs to be provided to those with a presence in the United States because of the targeted organization's ability to transfer funds or assets instantaneously, which would render the blocking measures ineffectual.

In October, 2001, the Patriot Act amended the IEEPA. It added the phrase "block pending investigation" after the word "investigate" in 50 U.S.C. § 1702(a)(1)(B). The amendment permitted the Treasury Secretary to impose all the blocking effects of a designation, including freezing an organization's assets indefinitely and criminalizing all its transactions, without designating the organization a SDGT. The Treasury only needs to assert that it is investigating whether the entity should be designated. The amendment also provided that an agency record containing classified information could be "submitted to the reviewing court ex parte and in camera."

Designation as a specially designated global terrorist immediately results in the blocking of the designee's property and interests in property within the United States or in the control of United States persons. It also prohibits all transactions with designated entities, including making or receiving any contribution of funds, goods or services to or for the benefit of those persons. Executive Order 13224 specifically prohibits all humanitarian donations.

The Treasury Department promulgated regulations implementing E.O. 13224 on June 6, 2003. The regulations set forth the procedures for imposing civil and criminal penalties on United States persons who engage in any transaction with any entity that has been designated or blocked pending investigation. With respect to a designation, 31 CFR § 501.807 permits designated entities to seek administrative reconsideration by OFAC after they have been designated and had their property frozen.

OFAC's Block Pending Investigation...