S.D.N.Y.: OFAC sanction blocking transaction wasn’t a 4A seizure

The Office of Foreign Asset Control’s sanctions for certain transactions that results in a block of the transaction wasn’t a Fourth Amendment seizure. US VC Partners GP LLC v. United States Dep’t of the Treasury, 2020 U.S. Dist. LEXIS 170713 (S.D. N.Y. Sept. 17, 2020):

Plaintiffs, comprised of United States-based investment-related entities (“Entity Plaintiffs”) and their principal, Andrew Intrater, (Compl., ECF No. 1 ¶¶ 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. (Id. ¶ 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. (Id. ¶ 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”). (Id. ¶¶ 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.

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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 “tak[e] 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. (Id.) 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.