Bergerco Canada, a Div. of Conagra, Ltd. v. U.S. Treasury Dept., Office of Foreign Assets Control

• Decision Date: 12 November 1997
• Docket Number: No. 96-5225,96-5225
• Citation: 129 F.3d 189
• Parties: BERGERCO CANADA, A DIVISION OF CONAGRA, LTD., Appellee, v. UNITED STATES TREASURY DEPARTMENT, OFFICE OF FOREIGN ASSETS CONTROL, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 189

129 F.3d 189

327 U.S.App.D.C. 106

BERGERCO CANADA, A DIVISION OF CONAGRA, LTD., Appellee, v. UNITED STATES TREASURY DEPARTMENT, OFFICE OF FOREIGN ASSETS

CONTROL, Appellant.

No. 96-5225.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 15, 1997.

Decided Nov. 12, 1997.

Appeal from the United States District Court for the District of Columbia (No. 92cv02781).

Douglas N. Letter, Appellate Litigation Counsel, U.S. Department of Justice, Washington, DC, argued the cause for appellant. With him on the brief were Frank W. Hunger, Assistant Attorney General, Eric H. Holder, Jr., U.S. Attorney at the time the briefs were filed, William B. Hoffman, Chief Counsel, U.S. Department of Treasury, and Susan Klavens Hutner, Senior Counsel. R. Craig Lawrence, Assistant U.S. Attorney, entered an appearance.

Neil E. McDonell, New York City, argued the cause for appellee Bergerco Canada. With him on the brief was Ramon P. Marks. Stephen A. Weiner, New York City, and D. Edward Wilson, Jr., Washington, DC, entered appearances.

Before: WILLIAMS and RANDOLPH, Circuit Judges, and BUCKLEY, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Circuit Judge:

Bergerco Canada ("Bergerco") applied for a license to allow it to collect payment on a debt from frozen Iraqi assets, under a set of rules that gave it a very good chance of securing the license. The licensing agency--the Office of Foreign Assets Control ("OFAC"), a unit of the United States Treasury Department--then changed the rules, so that Bergerco had no chance whatever. Bergerco says that the new rule--or, more precisely, OFAC's application of the new rule to its pending submission--constituted retroactive rulemaking, and was therefore invalid under Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), unless Congress had "in express terms" given OFAC "the power to promulgate retroactive rules." Id. at 208, 109 S.Ct. at 472. Because we do not think OFAC's application of the new rule was retroactive in the sense in which Bowen uses the term, we reject the claim without considering whether Congress gave OFAC such authority.

* * *

Bergerco, a Canadian corporation, together with its U.S. affiliate Bergerco US, contracted with an Iraqi state trading company for sale and delivery of two large shipments of peas and beans, receiving as payment a letter of credit from an Iraqi banking institution, Rasheed Bank, for the total contract price of $4 million. Rasheed named the Royal Bank of Canada as an intermediary for the payment transaction, and designated The Bank of New York as the reimbursing bank. This meant that the Royal Bank would look to The Bank of New York for reimbursement out of Rasheed's account there for any payment Royal Bank made to Bergerco on Rasheed's behalf. But Rasheed never asked The Bank of New York to be a "confirming" bank in the transaction. Had The Bank of New York agreed to such a role it would have substituted its credit for that of the Rasheed Bank, and assumed an obligation to pay Bergerco or the Royal Bank.

Bergerco made both shipments, and received payment for the first. After Bergerco's second shipment, and before payment of the remaining $2 million, Iraq invaded Kuwait. President Bush, using authority under the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 (1997), quickly froze all Iraqi property interests in the United States, including Rasheed's funds on deposit with The Bank of New York. Executive Order No. 12,722 (55 Fed.Reg. 31803 (Aug. 2, 1990)); see also Consarc Corp. v. Iraqi Ministry, 27 F.3d 695 (D.C.Cir.1994) (describing asset freeze). The President soon issued another executive order to the Secretary of the Treasury, Executive Order No. 12,724 (55 Fed.Reg. 33089 (Aug. 9, 1990)), directing him to promulgate regulations governing the frozen assets and providing for their release to appropriate claimants. The Secretary of the Treasury in turn delegated this task to OFAC.

The sequence that concerns us followed. On August 15, 1990, OFAC issued "General License No. 7," which established criteria for the award of licenses essential to payment out of the blocked funds. This initial version said that "[s]pecific licenses may be issued on a case-by-case basis to permit payment, from a blocked account or otherwise, of amounts owed to or for the benefit of a U.S. person for goods or services exported by a U.S. person or from the United States prior to the effective date [of the blocking order] directly or indirectly to Iraq or Kuwait." See Addendum to Appellee's Brief.

On August 21, 1990 Bergerco filed its application for a license under General License No. 7. Although Bergerco is a Canadian corporation (i.e., not itself a "U.S. person") it still had a substantial prospect of securing the license, because its parent was a U.S. corporation and its U.S. affiliate was involved in the transaction.

On October 18, 1990 OFAC issued an amended, more restrictive, General License No. 7 regulation. This regulation--the one at issue here--provided that OFAC would grant licenses, again on a case-by-case basis, only to those creditors who held "an irrevocable letter of credit issued or confirmed by a U.S. Bank, or a letter of credit reimbursement confirmed by a U.S. bank," and who had shipped their goods or performed their services before the freeze. This was incorporated in a more formal set of rules adopted in January 1991. 31 CFR § 575.510(a) (1996).

On November 20, 1990 OFAC denied Bergerco's application. Because Bergerco's letter of credit was neither issued nor confirmed by a U.S. bank, its application failed to satisfy the new criteria. ¹

Bergerco sued OFAC, seeking a declaration of its entitlement to a license. (It also sued the Iraqi trading company and the banks, but only the dispute with OFAC is on appeal.) The district court agreed with the core of Bergerco's retroactivity argument, but granted narrower relief, remanding the case for the agency to consider Bergerco's application under the August 15 version of General License No. 7. Bergerco Canada v. Iraqi State Company for Food Stuff Trading, 924 F.Supp. 252 (D.D.C.1996).

No party has questioned our jurisdiction, although remands to an agency normally lack the finality necessary under 28 U.S.C. § 1291. Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 329-30 (D.C.Cir.1989). There is an exception, however, applicable here, "where the agency to which the case is remanded seeks to appeal and it would have no opportunity to appeal after the proceedings on remand." Id. at 330.

* * *

Bergerco and OFAC agree that some form of Bowen's rule on retroactivity governs this case. Although OFAC, citing United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 320, 57 S.Ct. 216, 221, 81 L.Ed. 255 (1936), and related cases, urges that we apply Bowen in a spirit of deference appropriate to executive action in the foreign policy domain, it does not claim that the apparent applicability of § 553(a)'s foreign functions exception from notice-and-comment requirements moots the Bowen analysis. ² Because we find that OFAC's decision does not run afoul of Bowen as conventionally understood, we do not consider whether the foreign affairs entanglement calls for applying a standard especially lenient toward the agency.

Virtually all changes in legal rules are both prospective and retroactive. At least until we devise time machines, a change can have its effects only in the future. But rule changes are also generally retroactive, in that they tend to alter the value of existing assets and thus the return on past investments. The effect is practically universal when we take human capital into account. Even so seemingly prospective a change as a relaxation of rules for admission to the bar changes the value at the margin of the human capital of those already admitted. See Michael J. Graetz, "Retroactivity Revisited," 98 Harv. L.Rev. 1820, 1822 (1985) ("Because all changes in law, whether nominally retroactive or nominally prospective, will have an economic impact on the value of existing assets or on existing expectations, the distinctions commonly drawn between retroactive and prospective effective dates are illusory."). In the broad sense, then, any legal system permitting change must tolerate a degree of retroactivity.

The Supreme Court in Bowen adopted no explicit definition of the sort of retroactivity that would trigger its requirement of explicit authorization, saying little more than that "[r]etroactivity is not favored in the law." 488 U.S. at 208, 109 S.Ct. at 471. But the rule in question there may give some idea of the core of the Court's concern. It involved the allocation, between the government and hospitals, of costs for performance of various past medical services. As Justice Scalia put it in his concurrence, the government's rule change was retroactive "in the sense of altering the past legal consequences of past actions." Id. at 219, 109 S.Ct. at 477 (emphasis in original). The rule in force at the time hospitals performed their services gave them a legal right to reimbursement at one rate; the Secretary's later rulemaking extinguished that right, replacing it with a right to reimbursement at a lower rate.

If such a rule is retroactive, in changing the legal rights flowing from previous acts, Justice Scalia also identified another type of retroactivity--"unreasonable secondary retroactivity," id. at 220, 109 S.Ct. at 477--which is of concern independently of Bowen's insistence on explicit authority for changes to past legal rights. Retroactivity of this sort "makes worthless substantial past investment incurred in reliance upon the prior rule," and the courts may find it "arbitrary or capricious." Id. On this view there are two retroactivity limits in the APA: The first is a categorical limit, requiring express congressional authority and...