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Exxon Mobil Corp. v. Mnuchin

United States District Court, N.D. Texas, Dallas Division

December 31, 2019

EXXON MOBIL CORPORATION; EXXONMOBIL DEVELOPMENT COMPANY; and EXXONMOBIL OIL CORPORATION, Plaintiffs,
v.
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

          JANE J. BOYLE, UNITED STATES DISTRICT JUDGE

         Before 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.

         I.

         BACKGROUND[1]

         This is 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.[2] 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 case.

         A. The Ukraine-Related Sanctions Regulations

         On 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).

         Executive 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.

         One day 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.

         Roughly 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.

         Several 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.” AR 23584.

         On May 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.

         B. Exxon's Alleged Violations of the Regulations

         Exxon 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.

         These 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).

         C. Guidance from OFAC

         On 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.

         Though 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 23595.

         D. OFAC's Issuance of a Penalty to Exxon

         On July 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 54-55.

         After 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.

         II.

         LEGAL STANDARD

         A. Federal Rule of Civil Procedure 56(a)

         Ordinarily, 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).

         B. Summary Judgment in Judicial Review of Agency Action

         When 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 merits.” Id.

         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).

         Section 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).

         III.

         ANALYSIS

         Exxon 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 Amendment.[3]

         A. Whether Exxon Received Fair Notice of OFAC's Interpretation

         The 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)).

         Under 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).

         As the Supreme Court noted in Christopher v. SmithKline Beecham Corporation:

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)).

         In the 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 649).

         The 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 interpretation.

         1. Whether the Text of the Regulations Provides Fair Notice

         First, 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 . . . .

         Exec. 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 states:

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 ...

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