Fed. Express Corp. v. U.S. Dep't of Commerce, Civil Action No. 19-1840 (JDB)

• Decision Date: 10 September 2020
• Docket Number: Civil Action No. 19-1840 (JDB)
• Citation: 486 F.Supp.3d 69
• Parties: FEDERAL EXPRESS CORPORATION, Plaintiff, v. U.S. DEPARTMENT OF COMMERCE, et al., Defendants.
• Court: U.S. District Court — District of Columbia

486 F.Supp.3d 69

FEDERAL EXPRESS CORPORATION, Plaintiff,

v.U.S. DEPARTMENT OF COMMERCE, et al., Defendants.

Civil Action No. 19-1840 (JDB)

United States District Court, District of Columbia.

Signed September 10, 2020

Maurice Albert Bellan, Graham Robert Cronogue, Baker & McKenzie LLP, Washington, DC, Kimberly F. Rich, Pro Hac Vice, Baker & McKenzie, Dallas, TX, for Plaintiff.

Matthew Charles Skurnik, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

JOHN D. BATES, United States District Judge

Plaintiff Federal Express Corporation ("FedEx") is a global shipping company whose subsidiaries collectively ship millions of packages to over two hundred countries and territories daily. FedEx brings this suit against the U.S. Department of Commerce, Wilbur Ross in his official capacity as Secretary of Commerce, the Bureau of Industry and Security ("the Bureau"), and Nazak Nikakhtar in her official capacity as Assistant Secretary for Industry and Analysis (collectively, "the Department"), alleging that the Department's Export Administration Regulations ("the EAR"), see 15 C.F.R. § 730, violate the Due Process Clause of the Fifth Amendment and exceed the Department's delegated authority under the Export Control Reform Act of 2018, see 50 U.S.C. § 4801. Specifically, FedEx's amended complaint alleges that the EAR's export controls place such onerous restrictions on FedEx's shipping enterprise that it must either cease operations with certain foreign entities or risk imminent enforcement action. The Department moves for dismissal of both claims for lack of subject matter jurisdiction and failure to state a claim. For the reasons explained herein, the Court will grant the Department's motion and dismiss FedEx's amended complaint.

Background

I. The Export Controls Framework

The Department of Commerce, through the Bureau, oversees the nation's export control system. Historically, the Department's authority to promulgate and administer export control regulations, like the EAR, derived from the Export Administration Act of 1979 ("EAA"). See 50 U.S.C. § 4601. Over the years, the EAA lapsed several times, however, and during those periods, the EAR remained in force through a series of Executive Orders issued under the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. § 1701.

In 2018, Congress overhauled the existing system with the Export Control and Reform Act ("ECRA"), which was passed as part of the National Defense Authorization Act for Fiscal Year 2019. See Pub. L. 115-232, 132 Stat. 1636 (2018). Under ECRA, the President, Secretary of Commerce, and various other officials are authorized to promulgate and administer the nation's export controls. See 50 U.S.C. § 4801. As relevant here, ECRA confers on the Secretary of Commerce the authority to "establish and maintain a list of items that are controlled" under the EAR, to "establish and maintain a list of foreign persons and end-uses that are determined to be a threat to the national security and foreign policy of the United States," and to "restrict exports, reexports, and in-country transfers of any controlled items to any foreign person or end-use" determined to threaten national security or foreign policy. Id. § 4813(a)(1)–(4).

The EAR are the Department's primary export control regulations and are "intended to serve the national security, foreign policy, nonproliferation of weapons of mass destruction, and other interests of the United States." 15 C.F.R. § 730.6. To that end, and with limited exceptions, the EAR regulate "any item warranting control that is not exclusively controlled for export, reexport, or transfer (in-country) by another [federal] agency." Id. § 730.3. If an item is subject to regulation, then the EAR prohibit its export, reexport, and in-country transfer unless the person attempting to do so acquires a license from the Bureau—or otherwise qualifies for an exemption not relevant to this case. Id. § 736.2(b).

The EAR's ambit is wide: "items subject to the EAR include purely civilian items, items with both civil and military, terrorism or potential [weapons-of-mass-destruction]-related applications, and items that are exclusively used for military applications." Id. § 730.3. For example, "the EAR regulate[ ] the export of commercial items which qualify as ‘dual-use’ items, meaning those that have ‘both commercial and military or proliferation applications,’ even if the item is purely commercial in its use." United States v. 2011 Jeep Grand Cherokee, Civil Action No. DR-12-CV-18-AM-CW, 2013 WL 12106221, at *5 (W.D. Tex. Oct. 9, 2013). Those items that qualify for regulation under the EAR are included on the Commerce Control List ("CCL"), which sets out the licensing requirements for exporting, re-exporting, or transferring such items. See 15 C.F.R. pt. 774, Supp. 1.

In addition to the CCL, the Bureau also oversees the Entity List, which "identifies persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States." Id. § 744.16. As a rule, the EAR prohibit the export, reexport, or transfer of items on the CCL to those listed on the Entity List without a license from the Bureau.

II. FedEx's Shipping Operations

FedEx is a private corporation that "provides a broad portfolio of transportation, e-commerce, and business services." Compl. for Declaratory, Injunctive & Other Relief ("Am. Compl.") [ECF No. 24] ¶ 2. As relevant here, FedEx offers a range of shipping services that "receive approximately 15 million packages for shipment daily" and "span[ ] more than 220 countries and territories." Id. ¶ 3.

These shipment services are subject to several statutory and regulatory requirements, including ECRA and, consequentially, the EAR. Id. ¶ 4. In order to comply with these requirements, FedEx has developed "a sophisticated proprietary risk-based compliance system" to "screen[ ] the names and addresses of its shippers and the designated recipients prior to delivering any package in order to identify whether the sender and/or recipient are an entity or person on the EAR's Entity List." Id. ¶ 5 (internal quotation marks omitted). Nevertheless, FedEx contends that the EAR "require considerably more screening than possible" because determining "whether the tendered package contains an item subject to the EAR" is "virtually impossible for common carriers to comply with." Id. ¶ 6. For example, adhering to the CCL "effectively forces FedEx to police the content of its packages on an almost infinitely broad scale," which proves especially difficult when a customer's shipment includes technology or software that is not easily screened, even with manual inspection. Id. ¶¶ 28, 48.

FedEx has already been subject to administrative proceedings arising from alleged violations of the EAR—specifically, allegations by the Bureau that FedEx committed 53 violations of the EAR by shipping restricted items to France and Pakistan without the requisite Bureau licenses. Id. ¶¶ 52–53. In April 2018, FedEx entered into a settlement agreement with the Bureau to pay a civil penalty of $500,000 and to audit its export controls compliance program in light of these alleged breaches. Id. ¶¶ 52, 54.

III. Litigation History

On June 24, 2019, FedEx filed this lawsuit, seeking declaratory and injunctive relief from the obligations imposed by the EAR. See Compl. for Declaratory, Injunctive & Other Relief [ECF No. 1] at 18. In particular, FedEx alleges that the EAR, as currently formulated by the Department, violate the Due Process Clause of the Fifth Amendment and are ultra vires, exceeding the authority provided to the Department under ECRA. See Am. Compl. ¶¶ 65–89. FedEx seeks injunctive and declaratory relief designating the EAR as "unlawful as applied" to FedEx and barring the Department "from enforcing § 736 [of] the EAR against" it. Id. at 18.

The Department has moved to dismiss the complaint, arguing that this Court lacks jurisdiction to review the ultra vires claim and that, on the merits, both claims must fail. See Mem. of P. & A. in Supp. of Defs.’ Mot. to Dismiss Compl. ("Defs.’ Mot.") [ECF No. 18] at 1–3. FedEx opposes the motion, see generally Mem. of P. & A. in Opp'n to Defs.’ Mot. to Dismiss ("Pl.’s Opp'n") [ECF No. 20]. With all briefs having now been submitted, the motion is ripe for consideration.¹

Legal Standard

"Federal courts are courts of limited jurisdiction," Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994), and a party claiming subject matter jurisdiction "has the burden to demonstrate that it exists," Khadr v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008). Under Federal Rule of Civil Procedure 12(b)(1), a federal district court has an affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority, Grand Lodge of the Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001), and "must dismiss a case when it lacks subject matter jurisdiction," Randolph v. ING Life Ins. & Annuity Co., 486 F. Supp. 2d 1, 4 (D.D.C. 2007). "Where a motion to dismiss a complaint present[s] a dispute over the factual basis of the court's subject matter jurisdiction ... the court may not deny the motion to dismiss merely by assuming the truth of the facts alleged by the plaintiff and disputed by the defendant," but instead "must go beyond the pleadings and resolve any disputed issues of fact the resolution of which is necessary to a ruling upon the motion to dismiss." Feldman v. Fed. Deposit Ins. Corp., 879 F.3d 347, 351 (D.C. Cir. 2018). For instance, the court may consider material other than allegations in the complaint in determining whether it has jurisdiction to hear the case. See Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1107 (D.C. Cir. 2005).

When considering a motion to dismiss under Federal Rule of Civil Procedure...