United States District Court, N.D. Texas, Dallas Division
EXXON MOBIL CORPORATION; EXXONMOBIL DEVELOPMENT COMPANY; and EXXONMOBIL OIL CORPORATION, Plaintiffs,
STEVEN MNUCHIN, in his official capacity as Secretary of the U.S. Department of the Treasury; ANDREA M. GACKI, in her official capacity as the Director of the U.S. Department of the Treasury's Office of Foreign Assets Control; and the U.S. DEPARTMENT OF THE TREASURY'S OFFICE OF FOREIGN ASSETS CONTROL, Defendants.
MEMORANDUM OPINION AND ORDER
J. BOYLE, UNITED STATES DISTRICT JUDGE
the Court is Plaintiffs Exxon Mobil Corporation, ExxonMobil
Development Company, and ExxonMobil Oil Corporation's
Motion for Summary Judgment (Doc. 92), as well as Defendants
Steven Mnuchin, Andrea Gacki, and the Office of Foreign
Assets Control's Cross-Motion for Summary Judgment (Doc.
95). The parties dispute whether the Office of Foreign Assets
Control's imposition of a two-million-dollar fine upon
Plaintiffs for alleged violations of Ukraine-related
sanctions regulations was lawful. Because the Court concludes
that Plaintiffs lacked fair notice that their conduct was
prohibited, the Court GRANTS Plaintiffs'
motion (Doc. 92) and DENIES Defendants'
cross-motion (Doc. 95). Further, the Court
VACATES the Office of Foreign Asset
Control's Penalty Notice.
an administrative case prompting the Court to determine which
party receives the benefit of having its cake and eating it,
too-the regulating agency that failed to clarify, or the
regulated party that failed to ask. Plaintiffs Exxon Mobil
Corporation, ExxonMobil Development Company, and ExxonMobil
Oil Corporation (collectively “Exxon”) filed a
motion for summary judgment challenging the Office of Foreign
Assets Control (OFAC)'s imposition of a penalty against
Exxon for alleged violations of Ukraine-related sanctions
regulations. Doc. 93, Sealed Mem. in Supp. of Pls.'
Mot., 1. Thereafter, Defendants Steven Mnuchin, Andrea Gacki,
and OFAC (collectively “Government”) filed a
cross-motion for summary judgment, urging the Court to uphold
OFAC's penalty decision. Doc. 95, Defs.' Cross-Mot.,
1; Doc. 99, Br. in Supp. of Defs.' Resp. &
Cross-Mot., 1. Before reaching the merits of the parties'
claims, the Court reviews the relevant events leading up to
The Ukraine-Related Sanctions Regulations
March 6, 2014, President Barack Obama issued Executive Order
13660, which declared that the “actions and policies of
persons . . . who have asserted government authority in the
Crimea region without the authorization of the Government of
Ukraine . . . constitute an unusual and extraordinary threat
to the national security and foreign policy of the United
States . . . .” Exec. Order No. 13660, 79 Fed. Reg. 13,
493 (Mar. 6, 2014). Subsequently, President Obama expanded
Executive Order 13660 through the issuance of Executive Order
13661, which found that “the actions and policies of
the Government of the Russian Federation with respect to
Ukraine” were also a threat to the United States. Exec.
Order No. 13661, 79 Fed. Reg. 15, 535 (Mar. 16, 2014).
Order 13661 authorizes the Secretary of the Treasury to
promulgate regulations “as may be necessary to carry
out the purposes of [the] order, ” as well as to
designate individuals and entities-commonly known as
Specially Designated Nationals (SDNs)-whose property would be
“blocked” based on their ties to the Russian
government. See Id. at 15, 535-36. Under Section 1
of the Order, “blocked” property that is
“within the possession or control” of any United
States individual or entity cannot “be transferred,
paid, exported, withdrawn, or otherwise dealt in” by
these individuals or entities. See Id. at 15, 535.
Further, under Section 4 of the Order, the prohibitions of
Section 1 “include . . . the receipt of any
contribution or provision of . . . services.”
Id. at 15, 536.
after the issuance of Executive Order 13661, the White House
Office of the Press Secretary released a “Fact
Sheet” on the Ukraine-related sanctions, which
indicated: “Our current focus is to identify these
individuals and target their personal assets, but not
companies that they may manage on behalf of the Russian
state.” AR 360. Similarly, the Press Secretary released
a “Background Briefing by Senior Administration
Officials on Ukraine, ” which stated, “[O]ur
current focus is to identify these cronies of the Russian
government and target their personal assets and wealth,
rather than the business entities and industries that they
may manage or oversee.” AR 23490. It also stated that
“U.S. persons are prohibited from doing business with
[designated persons.]” AR 23489.
one month later, the U.S. Department of the Treasury
(“the Treasury”) designated Igor Sechin as an SDN
pursuant to Executive Order 13661. AR 23689-91. Sechin is the
President and Chairman of the Management Board of Rosneft, a
leading petroleum company in Russia. AR 23689. In announcing
Sechin's designation, the Treasury noted that Rosneft
“[had] not been sanctioned, ” though the Treasury
did designate other entities that were “owned or
controlled by persons . . . whose property and interests in
property are blocked . . . .” Id. The
announcement also stated that “transactions by U.S.
persons or within the United States involving the individuals
and entities designated today are generally
prohibited.” AR 23690. On the same day, the White House
Office of the Press Secretary released a transcript of a
conference call, which stated, “We are imposing
sanctions on Sechin . . . individually.” AR 23501.
Similarly, in an interview with PBS NewsHour, the
White House Deputy National Security Advisor stated that
“U.S. companies will not be able to do business with
[designated individuals] in their individual
capacities.” AR 206. Further, the Advisor noted that
Rosneft was not designated-Sechin “was in his
individual capacity, ” but the Advisor had already seen
“an impact on the company itself.” AR 204-05.
major news outlets echoed this individual-capacity
distinction. For example, Foreign Policy reported:
“Treasury officials said the designation [of Sechin]
wouldn't impact U.S. companies' ability to do
business with Rosneft because Sechin does not control the
firm.” AR 23522. Likewise, based on representations
from the Treasury, the New York Times reported that
U.S. persons could still deal with Rosneft, such as by
participating in meetings of the company board, despite
Sechin sitting on this board. AR 23579. And the Wall
Street Journal-albeit weeks later-reported, based on
statements from the Treasury, that board interactions were
permissible as long as “they are covering Rosneft
business and not Mr. Sechin's personal business.”
14, 2014, OFAC issued the Ukraine-related sanctions
regulations (“the Regulations”) pursuant to
Executive Orders 13660 and 13661. See 31 C.F.R.
§§ 589.101-.901 (2019); Exec. Order 13661, 79 Fed.
Reg. 15, 536-37 (Mar. 16, 2014) (authorizing the Secretary of
the Treasury to “redelegate any of [the functions laid
out in Executive Order 13661] to . . . agencies of the United
States”). The Regulations prohibit all transactions
that are prohibited under Executive Order 13661. 31 C.F.R.
§ 589.201. Additionally, the Regulations define
“property” and “property interest”
expansively, stating that these terms “include, but are
not limited to . . . services of any nature whatsoever [and]
contracts of any nature whatsoever . . . .”
Id. § 589.308. Moreover, the Regulations warn
that “[d]iffering foreign policy and national security
circumstances may result in differing interpretations of
similar language among the parts of this chapter.”
Id. § 589.101. Finally, the a Note in the
Regulations advises that “OFAC intends to supplement
this part with a more comprehensive set of regulations, which
may include additional interpretive and definitional guidance
. . . .” Id.
Exxon's Alleged Violations of the Regulations
Mobil Corporation is a publicly traded oil-and-gas company
that includes two subsidiary companies. AR 254-55. Exxon has
done business in Russia-including with Rosneft- for over
twenty years. AR 23408. Following the imposition of the
Regulations in 2014, this business did not halt; rather,
Exxon proceeded to execute eight contracts with Rosneft. AR
1; see AR 1564-66; AR 1825-915. The first seven were
completion deeds related to a parent agreement entered into
by the parties in June of 2013. See AR 1825-915. The
eighth was an extension of an existing agreement between
Exxon and Rosneft that was initially executed in September of
2013. See AR 1564. Sechin, as a representative of
Rosneft, signed each of these eight contracts on May 23,
2014. AR 1566; see AR 1825, 1830; AR 1838, 1843; AR
1851, 1856; AR 1864, 1869; AR 1877, 1882; AR 1890, 1895; AR
1903, 1908. Exxon concedes it never sought guidance from OFAC
prior to executing the contracts. See Doc. 93,
Sealed Mem. in Supp. of Pls.' Mot., 37.
transactions form the basis for OFAC's penalty notice.
Specifically, OFAC found that the transactions violated
Section 4 of Executive Order 13661, which prohibits the
receipt of services from a blocked individual. Doc. 99, Br.
in Supp. of Defs.' Resp. & Cross-Mot., 26; Exec.
Order No. 13661, 79 Fed. Reg. 15, 536 (Mar. 16, 2014).
Guidance from OFAC
August 13, 2014, after Exxon's penalized transactions,
OFAC published Frequently Asked Questions (FAQs) 398 and 400.
See AR 23605-06. As the Government explains,
“OFAC's FAQs are ‘answers to question[s] of
general applicability frequently asked by the public' and
are ‘part of OFAC's commitment to regulatory
transparency.'” Doc. 99, Br. in Supp. of Defs.'
Resp. & Cross-Mot., 8 n.5 (citation omitted). In FAQ 398,
OFAC clarified that an entity controlled by a blocked person
is not automatically blocked, but OFAC may nevertheless
choose to designate such an entity. AR 23605. FAQ 398 goes on
to state that “persons should be cautious in dealings
with such a non-blocked entity to ensure that they are not,
for example, dealing with a blocked person representing the
non-blocked entity, such as entering into a contract that is
signed by a blocked person.” Id. Likewise, FAQ
400 reiterates that “OFAC sanctions generally prohibit
transactions involving, directly or indirectly, a blocked
person . . . even if the blocked person is acting on behalf
of a non-blocked entity. . . . U.S. persons may not, for
example, enter into contracts that are signed by a blocked
individual.” AR 23606.
the above guidance came after Exxon's alleged
violations, FAQ 285, published in 2013, contained similar
statements, albeit with respect to a different sanctions
program. See AR 1100. FAQ 285 asked, “If a
Burmese Government minister is an SDN, how does that impact
the ministry he leads?” Id. OFAC's
response stated that “U.S. persons should . . . be
cautious in dealings with the ministry to ensure that they
are not, for example, entering into any contracts that are
signed by the SDN.” Id. But FAQ 3-published in
2006-warns that “[b]ecause each [sanctions] program is
based on different foreign policy and national security
goals, prohibitions may vary between programs.” AR
OFAC's Issuance of a Penalty to Exxon
22, 2014, OFAC issued an administrative subpoena to Exxon
based on OFAC's “reason to believe” that
Exxon violated the Regulations. See AR 336-42. Then,
after months of back-and-forth communications, in June of
2015, OFAC issued a Prepenalty Notice (PPN) to Exxon based on
its execution of the eight contracts-alleged violations of
the Regulations. AR 52-54. The PPN proposed a penalty of $2,
000, 000 based on OFAC's analysis of several factors. AR
Exxon responded to the PPN and presented its defense to OFAC
in person, see AR 23406-36, 224-39, 101, OFAC finally issued
its Penalty Notice, which imposed a civil penalty of $2, 000,
000. See AR 1-13. On the same day, Exxon filed this
suit. See Doc. 1, Compl.
Federal Rule of Civil Procedure 56(a)
summary judgment is appropriate “if the movant shows
that 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). A dispute “is ‘genuine'
if the evidence is sufficient for a reasonable jury to return
a verdict for the nonmoving party.” Hamilton v.
Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986)). And a fact “is ‘material'
if its resolution . . . might affect the outcome of the
[action].” Id. (citing Anderson, 477
U.S. at 248). The summary-judgment movant initially bears the
burden of proving that no genuine issue of material fact
exists. Latimer v. Smithkline & French Labs.,
919 F.2d 301, 303 (5th Cir. 1990). Usually, this requires the
movant to “identif[y] those portions of the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material
fact.” Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986) (internal quotation marks omitted).
Summary Judgment in Judicial Review of Agency Action
the court reviews a federal administrative agency's
decision, “a motion for summary judgment stands in a
somewhat unusual light, in that the administrative record
provides the complete factual predicate for the court's
review.” Tex. Comm. on Nat. Res. v. Van
Winkle, 197 F.Supp.2d 586, 595 (N.D. Tex. 2002)
(citation and quotation marks omitted). “As a result,
the movant's burden in proving his motion for summary
judgment is similar to his ultimate burden on the
Administrative Procedure Act (APA) “provides a way for
persons . . . ‘adversely affected . . . by agency
action . . .' to obtain judicial review of that
action.” Id. (quoting 5 U.S.C. § 702).
Section 706 of the APA establishes the scope of judicial
review, which “has the function of determining whether
the administrative action is consistent with the law . . .
.” See Girling Health Care, Inc. v. Shalala,
85 F.3d 211, 215 (5th Cir. 1996) (citation and quotation
marks omitted) (citing 5 U.S.C. § 706). Thus, the
summary-judgment standard for APA claims is not whether there
is a genuine dispute of material fact, but whether the agency
action violated Section 706. See, e.g., Tex. Comm. on
Nat. Res., 197 F.Supp.2d at 596 (analyzing whether the
agency action violated § 706(2)(A)); City of
Shoreacres v. Waterworth, 332 F.Supp.2d 992, 1004 (S.D.
Tex. 2004) (same).
706 directs courts to set aside agency actions that are
“contrary to constitutional right . . . .” 5
U.S.C. § 706(2)(B). “The intent of Congress in 5
U.S.C. [§] 706(2)(B) was that courts should make an
independent assessment of a citizen's claim of
constitutional right when reviewing agency
decision-making.” Porter v. Califano, 592 F.2d
770, 780 (5th Cir. 1979). Accordingly, when reviewing
constitutional claims under the APA, courts apply a de novo
standard of review. Poett v. United States, 657
F.Supp.2d 230, 241 (D.D.C. 2009); see also Zevallos v.
Obama, 10 F.Supp.3d 111, 117 (D.D.C. 2014).
challenges OFAC's penalty decision on three independent
grounds: (1) the Regulations do not prohibit Exxon's
conduct, and OFAC's interpretation of the Regulations is
not entitled to deference; (2) OFAC drew arbitrary and
capricious distinctions by imposing the penalty; and (3) OFAC
failed to provide fair notice of its interpretation of the
Regulations in violation of due process. See Doc.
93, Sealed Mem. in Supp. of Pls.' Mot., 1-3. As explained
below, the Court concludes that OFAC did not provide fair
notice of its interpretation. Accordingly, the Court declines
to address the merits of Exxon's alternative grounds for
relief and discusses only whether Exxon received fair notice
in accordance with the Due Process Clause of the Fifth
Whether Exxon Received Fair Notice of OFAC's
Court must determine whether, as Exxon alleges, OFAC's
Penalty Notice “depriv[ed] [Exxon] of its property
without fair notice, ” because OFAC did not provide
“ascertainable certainty” of its interpretation
of the Regulations. Doc. 93, Sealed Mem. in Supp. of
Pls.' Mot., 36 (quoting Gen. Elec. Co. v. EPA,
53 F.3d 1324, 1329 (D.C. Cir. 1995); Diamond Roofing Co.
v. Occupational Safety & Health Review Comm'n,
528 F.2d 645, 649 (5th Cir. 1976)).
the Due Process Clause of the Fifth Amendment, laws that
regulate individuals or entities “must give fair notice
of conduct that is forbidden or required.” FCC v.
Fox Television Stations, Inc., 567 U.S. 239, 253 (2012).
An agency's failure to provide fair notice
“justifies setting aside the imposed fine”
resulting from the alleged violation of a regulation. See
Emp'r Sols. Staffing Grp II, LLC v. Office of Chief
Admin. Hearing Officer, 833 F.3d 480, 489 n.7 (5th Cir.
2016) (citing FCC, 567 U.S. at 254-58) (resolving
the case on other grounds because the parties failed to brief
FCC's applicability); Trinity Broad., Inc.
v. FCC, 211 F.3d 618, 619 (D.C. Cir. 2000)(vacating an
agency's decision on fair-notice grounds); Gen.
Elec., 53 F.3d at 1330 (reversing an agency's
imposition of liability and a fine based on fair notice).
Supreme Court noted in Christopher v. SmithKline Beecham
It is one thing to expect regulated parties to conform their
conduct to an agency's interpretations once the agency
announces them; it is quite another to require regulated
parties to divine the agency's interpretations in advance
or else be held liable when the agency announces its
interpretations for the first time . . . .
567 U.S. 142, 158-59 (2012). Nonetheless, “a rule
requiring explicit notice of any conceivable violation as a
condition of imposing civil sanctions would leave open
‘large loopholes allowing conduct which should be
regulated to escape regulation.'” Consol
Buchanan Mining Co. v. Sec'y of Labor, 841
F.3d 642, 649 (1st Cir. 2016) (quoting Freeman United
Coal Mining Co. v. Fed. Mine Safety & Health Review
Comm'n, 108 F.3d 358, 362 (D.C. Cir. 1997)).
administrative agency context, “fair notice requires
the agency to have ‘state[d] with ascertainable
certainty what is meant by the standards [it] has
promulgated.'” ExxonMobil Pipeline Co. v. U.S.
Dept't of Transp., 867 F.3d 564, 578 (5th Cir. 2017)
(alterations in ExxonMobil) (quoting Diamond
Roofing, 528 F.2d at 649). Thus, “[i]f, by
reviewing the regulations and other public statements issued
by the agency, a regulated party acting in good faith [could]
identify, with ‘ascertainable certainty,' the
standards with which the agency expects parties to conform,
then the agency has fairly notified a petitioner of the
agency's interpretation.” Gen. Elec., 53
F.3d at 1329 (citing Diamond Roofing, 528 F.2d at
Court first turns to whether the text of the Regulations
provides fair notice of OFAC's interpretation of the
language of Executive Order 13661 as incorporated in the
Regulations. Concluding that it does not, the Court then
examines whether other factors nevertheless support a finding
of fair notice. Specifically, the Court considers the import
of: (1) OFAC's alleged internal uncertainty of its
interpretation; (2) Exxon's failure to seek guidance
before proceeding with its transactions; and (3) public
statements issued by OFAC and the executive branch. Given the
lack of clarity in both the Regulations and the public
statements relevant to the Court's analysis, the Court
concludes that OFAC did not provide fair notice of its
Whether the Text of the Regulations Provides Fair
the Court analyzes whether the text of the Regulations
provides fair notice. The Regulations prohibit “all
transactions” that are prohibited under Executive Order
13661. 31 C.F.R. § 589.201. Section 1 of Executive Order
13661 states, in relevant part:
All property and interests in property that are in the United
States, that hereafter come within the United States, or that
are or hereafter come within the possession or control of any
United States person (including any foreign branch) of the
following persons are blocked and may not be transferred,
paid, exported, withdrawn, or otherwise dealt in . . . .
Order No. 13661, 79 Fed. Reg. 15, 535 (Mar. 16, 2014).
Section 1 continues by listing those whose property is
blocked, including “persons determined by the Secretary
of the Treasury, in consultation with the Secretary of State
. . . to be owned or controlled by, or to have acted or
purported to act for or on behalf of, directly or indirectly
. . . a senior official of the Government of the Russian
Federation . . . .” Id. Further, Section 4
The prohibitions in section 1 of this order include but are
not limited to . . . the making of any contribution or
provision of funds, goods, or services by, to or for the
benefit of any person whose property and interests in
property are blocked pursuant to this order; and . . . the
receipt of any ...