The opinion
USDU SDNY
EOCUMENT
UNITED STATES DISTRICT COURT | ELECTRONICALLY FILED
SOUTHERN DISTRICT OF NEW YORK iP DOC #:
Ween secrete seer eeeeseceeeceserse-+ x DATE RILED: SEP 17 □□□□□
US VC PARTNERS GP LLC; US VC PARTNERS —————
MANAGEMENT, LLC; ISRAELI VC PARTNERS
LTD.; ISRAELI VC PARTNERS MANAGEMENT, : MEMORANDUM DECISION
LLC; CN ODYSSEY GP LLC; CN MAPANYTHING GP: AND ORDER
LLC; SPARROW CAPITAL HOLDINGS LLC; :
AUDUBON LOAN FUNDING GP LLC; CN : 19 Civ. 6139 (GBD)
PARTNERS LLC; ANDREW INTRATER, :
Plaintiffs, :
-against- :
UNITED STATES DEPARTMENT OF THE :
TREASURY, OFFICE OF FOREIGN ASSETS :
CONTROL; THE HONORABLE STEVEN MNUCHIN, :
in his official capacity as the Secretary of the United :
States Department of the Treasury; ANDREA GACKI, in :
her official capacity as the Director of the United States:
Department of the Treasury’s Office of Foreign Assets :
Control, :
Defendants. :
ee ewe ee ee ee ee ee ee ee ee KH ee ee ee er ee ee te ew ee xX
GEORGE B. DANIELS, United States District Judge:
Plaintiffs, comprised of United States-based investment-related entities (“Entity Plaintiffs”)
and their principal, Andrew Intrater, (Compl., ECF No. 1 4 10-19), bring this action against
multiple Defendants, alleging that Defendants conducted a “warrantless seizure” and engaged in
“ongoing interference” with the property interests of United States citizens. (/d. §[ 1.) Specifically,
Plaintiffs challenge the effect of the “50 Percent Rule,” under which the Office of Foreign Assets
Control (“OFAC”) may impose certain sanctions against individuals that it lists as a “Specially
Designated National” (“SDN”) and may place a block on property in which an SDN has at least a
50 percent interest. (/d. § 4.) Plaintiffs assert claims for (1) unlawful seizure under the Fourth
Amendment; (2) Due Process violation under the Fifth Amendment; and (3) violation of the
Administrative Procedure Act (“APA”). (/d. §§ 172-178.) Before this Court are Plaintiffs’ motion
for the return of property, (see Pls.’ Notice of Mot., ECF No. 34), and Defendants’ motion to dismiss
for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), (see Defs.’ Notice
of Mot., ECF No. 35). Defendants’ motion to dismiss for failure to state a claim is GRANTED.
Plaintiffs’ motion for the return of property is DENIED.
I FACTUAL BACKGROUND
Plaintiffs are comprised of (1) a collection of entities 100 owned by United States citizens,
and (2) their principal, Andrew Intrater—-who is also a United States citizen. (Compl. § 10-19.)
None of the Entity Plaintiffs are either partially or indirectly owned or controlled by any SDN. (See
id. § 9.) They do, however, hold certain assets through blocked entities in which Viktor
Vekselberg—an SDN—owns 50 percent or more. (/d. § 4.) Because of OFAC’s 50 percent rule,
Plaintiffs are unable to take certain actions as they pertain to those assets and entitlements, which
Plaintiffs allege has caused, among other things, lost business opportunities or decreases in
investment value. (See generally Compl.)
According to the complaint, “OFAC has promulgated no rules by which [United States]
persons or entities may seek return of or access to property interests subject to sanctions” under the
50 percent rule. (/d. 133.) Plaintiffs have attempted to obtain licenses from OFAC, which would
permit them to take certain actions regarding the blocked entities. Ud 70-133.) As Plaintiffs
note, “none of OFAC’s rules, regulations, or public guidance provides any time limit on the time
within which OFAC must act on a license application.” (Ud. § 8.) Indeed, Plaintiffs allege that
between April 16, 2018 and April 30, 2019, they made several applications seeking to collect
proceeds and fees, as well as manage their assets, but that OFAC “has neither granted nor denied
Plaintiffs’ applications.” (Ud. § 71.) Plaintiffs also allege that neither OFAC’s rules or regulations
“set forth any legal standards that the agency must follow in determining whether to grant or deny
license applications.” (/d.) Plaintiffs have, however, acknowledged that OFAC did grant some of
their applications for licenses. (See Tr. of Oral Arg. dated Aug. 13, 2020 (“Tr. of Oral Arg.”), ECF
No. 73 at 19:17-25.) Plaintiffs allege that they have been harmed by application of the 50 percent
rule in three principal ways: they have been (1) unable to collect certain proceeds that they would
otherwise be entitled to collect; (2) unable to collect certain management fees that they would
otherwise be entitled to collect; and (3) “deprived of their rights . . . to control and manage” certain
funds and entities, causing their investments and stakes in the entities to “diminish in value.”
(Compl. ¢§ 135-171.)
Il. LEGAL STANDARD
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.”” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff must
demonstrate “more than a sheer possibility that a defendant has acted unlawfully”; stating a facially
plausible claim requires the plaintiff to plead facts that enable the court “to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” /d. (citation omitted). The factual
allegations pled must therefore “be enough to raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555 (citation omitted).
A district court must first review a plaintiffs complaint to identify allegations that, “because
they are no more than conclusions, are not entitled to the assumption of truth.” Jgbal, 556 U.S. at
' «Tm deciding a motion to dismiss under Rule 12(b)(6), the court may refer ‘to documents attached to the
complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or
to documents either in plaintiffs’ possession or of which plaintiffs had knowledge and relied on in bringing
suit.” Fishbein vy. Miranda, 670 F. Supp. 2d 264, 271 (S.D.N.Y. 2009) (quoting Brass v. Am. Film Techs.,
Inc., 987 F.2d 142, 150 (2d Cir. 1993)).
679. The court then considers whether the plaintiff's remaining well-pleaded factual allegations,
assumed to be true, “plausibly give rise to an entitlement to relief.” /d.; see also Targum v. Citrin
Cooperman & Co., LLP, No. 12 Civ. 6909 (SAS), 2013 WL 6087400, at *3 (S.D.N.Y. Nov. 19,
2013). In deciding the 12(b)(6) motion, the court must also draw all reasonable inferences in the
non-moving party’s favor. See N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp., PLC, 709
F.3d 109, 119-20 (2d Cir. 2013).
II. DEFENDANTS’ MOTION TO DISMISS IS GRANTED
Plaintiffs fail to make out claims under the Fourth Amendment, Fifth Amendment, or APA.
At oral argument, Plaintiffs’ counsel made an oral application to submit additional briefing, should
this Court grant Defendants’ motion to dismiss. That application is hereby DENIED as futile.
Plaintiffs filed a substantive letter containing additional argument and case law after this Court
held oral argument. (See Pls.’ Aug. 20, 2020 Letter, ECF No. 72.) That letter does not lead this
Court to reach a different determination. Plaintiffs also, however, request “permission to file leave
to amend the complaint to incorporate a claim under 5 U.S.C. § 706(1).” (Ud. at 3.) Defendants
do not oppose this request, and in fact explicitly state that to bring a claim pursuant to 5 U.S.C.
§ 706(1), Plaintiffs should file a proposed amended complaint, as the current complaint “does not
even cite... § 706(1), nor does it allege facts showing what conduct or inactivity plaintiffs consider
an unreasonable delay.” (See Defs.’ Sept. 4, 2020 Letter (“Defs.’ Ltr”), ECF No. 76.) Plaintiffs
are hereby GRANTED leave to file a letter motion to amend, attaching a proposed amended
complaint.
A. Defendants Did Not Violate Plaintiffs’ Fourth Amendment Rights.
Plaintiffs argue that Defendants violated their Fourth Amendment rights by “complete(ly]
blocking of all of Plaintiffs’ rights to control or benefit from their ownership interests, or even to
divest those interests.” (See Mem. of Law in Opp’n to Defs.’ Mot. to Dismiss the Compl.
(“Mem. in Opp’n”), ECF No. 41 at 7.) Defendants argue, however, that “blocking” does not qualify
as a seizure because it does not “takfe] title to, possession of, or physical control of affected
property.” (Mem. of Law in Supp. of Defs.’ Mot. to Dismiss the Compl. Pursuant to Fed. R. Civ. P.
12(b)(6) (“Mem. in Supp.”’), ECF No. 36 at 16.) Even if this Court found that this did constitute a
“seizure” under the Fourth Amendment, however, a balancing of the interests on both sides indicates
that this is not unreasonable.
Under the Fourth Amendment, warrantless seizures are analyzed through a balancing of the
competing interests, and will be deemed reasonable if “the circumstances, viewed objectively, justify
the action.” Brigham City v. Stuart, 547 U.S. 398, 404 (2006) (internal citation and alteration
omitted). Defendants assert that the purpose of the freeze on properties with a majority interest held
by an SDN are to “ensur[e] the effectiveness of sanctions programs that are key elements of the
national effort to combat terrorism, nuclear proliferation, severe human rights abuses, and other
international threats to the national interest.” (Mem. in Supp. at 21.) Defendants also describe the
“exacting process” under which the Government analyzes whether to issue a blocking order. (/d.)
Clearly there is an important public and governmental interest in ensuring that SDN-owned
properties and entities are blocked, and sanctions are upheld. Moreover, while Plaintiffs, as minority
owners, are at least temporarily blocked from using their property, there is a rational explanation for
why the Government would need to implement this type of restriction—it stops the SDN from being
able to manipulate the property.
Moreover, as the parties note, there is a procedure by which Plaintiffs may request that the
block to be removed. Indeed, while Plaintiffs complain about the amount of time it takes OFAC to
reach a decision on whether to grant licenses, they admit that some of their requests have already
been granted. (Tr. of Oral Arg. at 19:17-25.) They further admitted at oral argument that there has
been no instance where they have applied for a license and were rejected.’ (See id. at 20:1-3
(“THE COURT: But there is no instance where you’ve applied for a license and they said no. MR.
OWENS: That’s correct.’’).) Because any alleged seizure would be reasonable, Plaintiffs’ Fourth
Amendment claim cannot withstand Defendants’ motion to dismiss. Plaintiffs’ claim is therefore
dismissed.
B. Defendants Did Not Violate Plaintiffs’ Fifth Amendment Rights.
Defendants correctly note that Plaintiffs do not challenge OFAC’s designation of Vekselberg
as an SDN, or that the entities in which Plaintiffs have a stake are subject to the 50 percent rule.
(See Mem. in Supp. at 2.) Plaintiffs assert that because there are no standards or principles under
which OFAC must make its decisions, OFAC “enjoys unfettered discretion to consider (or ignore)
information” and has violated Plaintiffs’ due process rights through its procedures. (Mem. in Opp’n
at 16.) As Defendants correctly note, however, the law does not require advance notice before
sanctions go into effect, nor can Plaintiffs possibly demonstrate that simply denying their
applications violates due process. (Mem. in Supp. at 25.) Plaintiffs allege that “{t]he risk of falling
victim to arbitrary decision-making is particularly acute because OFAC is not obligated to explain
how or why it exercised its discretion.” (Mem. in Opp’n at 16.) While this Court does not deny
some possibility that OFAC may reach a determination with which Plaintiffs do not agree, the fact
that Plaintiffs may be unhappy with the result of OFAC’s future decision is not before this Court.
In light of this Court’s finding that any seizure would be reasonable under the circumstances, it need not
reach a determination as to whether this scenario could fall under the “special needs” exception to the
Fourth Amendment, as Defendants argue.
Indeed, that is a matter for an appeal after OFAC makes an adverse decision and filing the instant
case is not the appropriate procedural route for Plaintiffs to take.*
Plaintiffs also assert that the lack of guidelines and standards as to how long an OFAC
decision may take violates due process. However, this alone does not violate due process, and
Plaintiffs cite no authority to support a rule that OFAC must determine the license applications within
a certain time period in order to comply with due process. Indeed, the only authority Plaintiffs cite
in support of their argument is Krimstock v. Kelly, 306 F.3d 40 (2d Cir. 2002), wherein the Second
Circuit found that there was an unreasonable delay between a seizure and a post-deprivation hearing.
See id. at 48. Notably, and as described above, Plaintiffs cannot demonstrate that they were subject
to a seizure. Moreover, Plaintiffs’ arguments regarding this point are particularly problematic
because there are specific procedures in place through which Plaintiffs could obtain review and the
relief they seek. Indeed, as Plaintiffs acknowledged at oral argument, they could have sought
administrative review, but opted not to do so. (See Tr. of Oral Arg. At 23:2-17.) While Plaintiffs
attempt to salvage their argument by correctly stating that “[t]he mere existence of the APA as a
remedy of last resort does not obviate the need for OFAC to provide due process in the first instance,”
(Mem. in Opp’n at 18), they have not plausibly alleged that OFAC has committed any such offense.
This Court declines to act as an alternative route by which Plaintiffs may circumvent procedures
established for the specific purpose of addressing these concerns.
> For example, once a license application is denied, “[t]he applicant or any other party in interest may at
any time request, by written correspondence, reconsideration of the denial of an application on the basis of
new facts or changed circumstances.” 31 C.F.R. § 501.801 (b)(5). (See also Defs.’ Ltr. at 1.) Moreover,
as Defendants describe, although OFAC guidelines make clear that although the denial of an application
for a license constitutes a final agency action, “OFAC will reconsider its determinations for good cause, for
example, where the applicant can demonstrate changed circumstances or submit additional relevant
information not previously made available to OFAC.” (Defs.’ Ltr. at 1-2.)
C. Defendants Did Not Violate the APA.
Defendants argue that this Court should dismiss Plaintiffs’ claim that they violated the APA
because Plaintiffs’ allegations supporting this claim are identical to those that they allege in support
of their insufficient Fourth Amendment claim. (See Mem. in Supp. at 30.) Plaintiffs, however,
allege that they assert that they assert viable claims under 5 U.S.C. § 706(1), that is, in the interests
of justice, as well as under 5 U.S.C. §§ 706(2)(A) and (B), which permit review for agency actions
that may be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”
or “contrary to constitutional right, power, privilege, or immunity.” (Mem. in Opp’n at 19-21.)
Specifically, Plaintiffs argue that Defendants have acted arbitrarily and capriciously “(1) in applying
the [50 percent] rule to Plaintiffs’ property; and (2) in failing to grant or to articulate a reason for
denying Plaintiffs’ license applications.” (/d. at 20.) Plaintiffs, however, provide only conclusory
allegations to support their claim that this was arbitrary and capricious. Indeed, based on this Court’s
analysis above, and the fact that Plaintiffs’ complaint is devoid of any facts that would support a
finding that Defendants have violated the APA, they have failed to state a claim.
Plaintiffs also appear to confuse Defendants’ arguments. They allege that because
Defendants assert that Plaintiffs could have turned to the APA for redress, i.e., to assert a claim for
unreasonable delay, Plaintiffs’ claim under the APA should not be dismissed. (/d. at 19-20.)
Plaintiffs, however, do not make a claim for unreasonable delay, and chose to move forward with
this matter instead of utilizing the appropriate procedures. Indeed, as Defendants indicate in their
reply brief in support, “the Government does not ‘acknowledge that Plaintiffs here have claims. . .
under the APA.’” (See Reply Mem. of Law in Supp. of Defs.’ Mot. to Dismiss the Compl. Pursuant
to Fed. R. Civ. P. 12(b)(6), ECF No. 44 at 10.) The APA provides an available route for Plaintiffs
to address their concerns which they have deliberately decided to avoid.
IV. PLAINTIFFS’ MOTION FOR RETURN OF PROPERTY IS DENIED
Plaintiffs move for the “immediate return of seized property pursuant to
Fed. R. Crim. P. 41(g).” (See Pls.’ Notice of Mot.) Plaintiffs argue that Defendants cannot provide
a meaningful reason for continuing to hold Plaintiffs’ property and restrain their access to this
property. (See Reply Mem. of Law in Further Supp. of Pls.’ Mot. for the Return of Unlawfully
Seized Property, ECF No. 45 at 1.) Plaintiffs, however, carry the burden of demonstrating that
they are entitled to relief pursuant to Rule 41(g). “To prevail on a [Rule 41(g)] motion, a criminal
defendant must demonstrate that (1) he is entitled to lawful possession of the seized property; (2)
the property is not contraband; and (3) either the seizure was illegal or the government's need for
the property as evidence has ended.” Ferreira v. United States, 354 F.Supp.2d 406, 409 (S.D.N.Y.
2005) (citation omitted). For the reasons stated above, Plaintiffs have not demonstrated that they
are entitled to possession of blocked property, or that Defendants have acted either illegally or
improperly. Indeed, as Defendants note in their motion to dismiss, Plaintiffs have not actually
alleged that OFAC’s characterization or blocking of their assets is improper, if the 50 percent rule
applies. (See Mem. in Supp. at 2.) Plaintiffs’ motion for the return of property, therefore, is denied.
Vv. CONCLUSION
Defendant’s motion to dismiss, (ECF No. 35), is GRANTED. Plaintiffs’ motion for the
return of property, (ECF No. 34), is DENIED. The Clerk of Court is directed to close these motions
accordingly.
Dated: New York, New York SO ORDERED.
September 17, 2020 Z Day vel
RGE’B. DANIELS
United States District Judge