Sanders v. Szubin

• Decision Date: 06 December 2011
• Docket Number: No. 09–cv–3052 (ENV).,09–cv–3052 (ENV).
• Citation: 828 F.Supp.2d 542
• Parties: Zachary SANDERS, Plaintiff, v. Adam SZUBIN, Director of the Office of Foreign Assets Control; Timothy Geithner, Secretary of the U.S. Department of the Treasury; and Eric Holder, Attorney General, U.S. Department of Justice, Defendants.
• Court: U.S. District Court — Eastern District of New York

828 F.Supp.2d 542

Zachary SANDERS, Plaintiff,

v.Adam SZUBIN, Director of the Office of Foreign Assets Control; Timothy Geithner, Secretary of the U.S. Department of the Treasury; and Eric Holder, Attorney General, U.S. Department of Justice, Defendants.

No. 09–cv–3052 (ENV).

United States District Court, E.D. New York.

Dec. 6, 2011.

Anjana Samant, Darius Charney, New York, NY, for Plaintiff.

Elisabeth Layton, U.S. Department of Justice, Ryan B. Parker, United States Department of Justice, Washington, DC, for Defendants.

MEMORANDUM & ORDER

ERIC N. VITALIANO, District Judge.

Plaintiff Zachary Sanders brings this action to review final agency action by the Office of Foreign Assets Control (“OFAC”), which operates under the aegis of the Department of the Treasury. Sanders claims violations of his constitutional rights under the Fifth and Eighth Amendments arising from a fine OFAC imposed on him for failure to comply with Cuban trade embargo regulations. He also argues that imposition of the penalty was arbitrary and capricious and, therefore, even if otherwise constitutional, should be set aside pursuant to the Administrative Procedures Act (“APA”), 5 U.S.C. § 706(2)(A).¹ For the reasons stated below, plaintiff's motion for summary judgment is denied in its entirety and defendants' cross-motion for summary judgment is granted.

BACKGROUND

The following facts are drawn from the complaint and the submissions of the parties on their motions, including the statement of undisputed material fact filed by both parties pursuant to Local Civil Rule 56.1 (“SUMF”). The facts are construed, as they must be in the summary judgment context, in the light most favorable to the nonmoving party. See Allstate Ins. Co. v. Hamilton Beach/Proctor Silex, Inc., 473 F.3d 450, 456 (2d Cir.2007). Any factual disputes are noted as necessary.

A. The Creation and Enforcement of the Cuban Trade Embargo

In 1963, the United States imposed a trade embargo on Cuba. This policy of commercial isolation was implemented by the Cuban Assets Control Regulations (“the regulations”), as amended, 31 C.F.R. Part 515. See Havana Club Holding, S.A. v. Galleon, S.A., 203 F.3d 116, 120 (2d Cir.2000). The regulations were promulgated pursuant to § 5(b) of the Trading with the Enemy Act of 1917, 50 U.S.C.App. §§ 1–44 (“TWEA”); see also 12 U.S.C. § 95a. In 1996, Congress enacted the Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. § 6021, et seq. (1996), which, among other things, re-codified the regulatory regime, 22 U.S.C. § 6032(h). See also Havana Club, 203 F.3d at 120. Throughout all incarnations, OFAC has been tasked with administering the trade restrictions. See 50 U.S.C.App. §§ 1–44; 31 C.F.R. Part 515; see also 22 U.S.C. § 6009(a).

In one iteration or another, for nearly 50 years, the Cuban embargo has sought to deter commercial and financial dealings between Cuba and the United States, that is, any transactions in which Cuba has “any interest of any nature whatsoever, direct or indirect.” 31 C.F.R. § 515.201(a). For example, in 1963 TWEA provided in pertinent part:

During the time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate ...

(A) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payment between, by, through, or to any banking institution ... and

(B) investigate, 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....

50 U.S.C.App. § 5(b)(1) (1963); see Hausler v. JP Morgan Chase Bank, N.A., 740 F.Supp.2d 525, 527 (S.D.N.Y.2010). In 1977, Congress passed the International Emergency Economic Powers Act (“IEEPA”), which amended § 5(b) so as to remove the statutory authorization anchored to national emergency situations declared in peacetime. See 50 U.S.C. § 1701; see also Hausler, 740 F.Supp.2d at 527. Although presidential power to issue sanctions and order blockades in peacetime has been recast by the IEEPA, Cuban embargo orders issued pursuant to § 5(b) prior to 1977 remain in effect as authorized by a savings clause in the 1977 Act. On this basis, the regulations also have been reauthorized each year since 1977. See Hausler, 740 F.Supp.2d at 527.

Essential to America's continued embargo against Cuba is the imperative, enforceable by criminal and civil penalties, that individuals subject to the jurisdiction of the United States may not engage in transactions related to travel to, from, or within Cuba in the absence of a license issued by OFAC. 31 C.F.R. § 515.201. Specifically, OFAC may impose civil penalties of up to $65,000 for violations of the regulations. 31 C.F.R. § 501.701(a)(3); 50 U.S.C.App. § 16(b). Moreover, failure to respond to information requests from OFAC regarding suspected embargo violations can result in fines up to $10,000, 31 C.F.R. § 501.602; 68 Fed. Reg. 4422, 4427 (Jan. 29, 2003), and, where violations are willful, violators are subject to criminal prosecution and fines up to $100,000 and a maximum prison sentence of ten years. 31 C.F.R. § 501.701(a)(1); 50 U.S.C.App. § 16.²

B. Material Facts Are Undisputed

In November 1998, OFAC received information from then-United States Customs Service officials posted in Nassau, The Bahamas suggesting that plaintiff had traveled to Cuba without an OFAC license five months earlier. (SUMF ¶ 3.) On March 1, 2000, OFAC sent Sanders a Requirement to Furnish Information (“RFI”), which demanded that he provide a written, detailed report concerning his suspected trip to Cuba. The RFI included a letter describing the alleged travel violations, two pages of questions regarding the targeted travel, and a copy of relevant regulations. The RFI also advised Sanders that he was required to respond within 20 business days and that failure to do so could result in civil penalties. ( Id. ¶¶ 4–5.) Despite several communications from Sanders to OFAC requesting extensions of time to respond—which were granted—Sanders never did respond to the RFI. ( Id. ¶¶ 6–8.)

On February 13, 2002, OFAC issued a Prepenalty Notice (“PPN”) to Sanders. It gave Sanders warning that OFAC intended to impose a civil fine of $10,000 for his failure to respond to the RFI. The PPN also advised Sanders that he was entitled, upon his request, to an administrative hearing prior to the formal imposition of a penalty. In reply, Sanders requested a hearing as well as prehearing discovery. ( Id. ¶ 9–10.) He also indicated his desire to resolve the matter through informal settlement. ( Id.) On April 29, 2002, an attorney for Sanders submitted a supplementary response to the PPN, renewing Sanders' request for a hearing and prehearing discovery. In his supplementary response, plaintiff asserted, for the first time, that OFAC's threatened fine implicated the Fifth Amendment—it was raised without elaboration. ( Id. ¶ 11.)

A period of seeming repose followed this flurry of activity. Almost three years later, battle resumed on February 28, 2005, when OFAC issued an Order Instituting Proceedings (“OIP”) against Sanders. In his answer, filed on April 20, 2005, Sanders sought specified refuge in the Fifth Amendment, contending that OFAC's proposed fine violated his right to be free from compelled self-incrimination. ( Id. ¶¶ 13–14, 17.) Cross-motions for summary judgment were noticed. After a hearing, an administrative law judge issued a decision, on September 4, 2008, rejecting plaintiff's Fifth Amendment argument, but recommending a penalty of $1000 rather than the $9000 sought by OFAC. ³ ( Id. ¶¶ 18–20, 23.)

Both sides filed petitions for agency review of the ALJ's decision by the Treasury Secretary's designee, each assigning error in the ALJ's decision in not granting the full relief each originally demanded.⁴ ( Id. ¶¶ 24–25.) On January 16, 2009, the Secretary's designee issued a Determination and Order modifying the penalty amount to $9000 and explaining his decision. ⁵ ( Id. ¶¶ 27–28.) Plaintiff brought this action on July 16, 2009, challenging imposition of the $9000 penalty on Fifth and Eighth Amendment grounds, as well as asserting that the upward modification of the penalty on agency review was arbitrary and capricious.

STANDARDS OF REVIEW

A district court must grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court's responsibility in assessing the merits of a summary judgment motion is not to try issues of fact, but rather to “determine whether there are issues of fact to be tried.” Sutera v. Schering Corp., 73 F.3d 13, 15–16 (2d Cir.1995) (quoting Katz v. Goodyear Tire & Rubber Co., 737 F.2d 238, 244 (2d Cir.1984)). The moving party bears the burden of demonstrating that there is no genuine issue as to any material fact, see Jeffreys v. City of N.Y., 426 F.3d 549, 553 (2d Cir.2005), and the court will resolve all ambiguities and draw all permissible factual inferences in favor of the party opposing the motion, see Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir.2004); Gummo v. Vill. of Depew, 75 F.3d 98, 107 (2d Cir.1996).

If the moving party meets its initial burden of demonstrating the absence of a disputed issue of material fact, the burden shifts to the nonmoving party. See Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir.2003). The nonmoving party may not rely solely on “conclusory allegations or unsubstantiated speculation” in order to defeat a motion for summary judgment. Scotto v. Almenas, 143...