Zurabova v. Block, Inc.

Background

Maria Zurabova sued Block, Inc., Square Capital, LLC, and Square Financial Services, Inc. She alleged that she purchased loose diamonds, gemstones, and diamond jewelry from Royal Star Inc., a New York merchant, between March 7 and March 9, 2022. She received approximately 28 invoices totaling $645,083 and paid them using debit cards belonging to six people, including herself. Each card was linked to an Alfa-Bank account.

Zurabova alleged that the defendants received the funds before the relevant sanctions against Alfa-Bank took effect. She also alleged that Square never released the funds to Royal Star, never refunded them to her, and continued to hold them. Her amended complaint asserted eight claims: conversion, breach of contract, breach of the implied promise of good faith and fair dealing, promissory estoppel, violations of the California Consumers Legal Remedies Act, violations of California’s Unfair Competition Law, unjust enrichment, and violations of the Electronic Funds Transfer Act.

Jurisdiction and legal standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which allows dismissal for lack of subject-matter jurisdiction. The court explained that Article III standing requires a plaintiff to show an actual or imminent injury, a connection between the injury and the defendant, and a likelihood that a court order would remedy the injury.

The issue here was redressability: whether the court had the power to provide the remedy Zurabova requested. Zurabova sought an order requiring the defendants to send her the funds.

Standing and sanctions

The court held that the requested relief was beyond its authority because federal regulations provide that, unless authorized by the Office of Foreign Assets Control, judicial process involving property blocked under the sanctions rules is null and void. The court concluded that only the Office of Foreign Assets Control could grant the relief Zurabova sought through a specific license.

The court rejected Zurabova’s argument that General License 50 applied because she did not allege that her purchases were necessary to close an account or constituted a lump-sum transfer of all remaining funds in an account. The court also concluded that General License 23 did not authorize processing the funds because guidance concerning wind-down activities excluded the continued processing of funds transfers involving a blocked person that were part of ongoing business activities before sanctions were imposed.

The court further relied on Zurabova’s allegation that the debit cards were linked to Russian bank accounts, including an Alfa-Bank account in her name. It concluded that the full-blocking sanctions applied to the funds because they covered property within the possession or control of a United States person involving Alfa-Bank. The court also rejected Zurabova’s arguments based on the timing of the payments, Visa’s suspension of transactions involving Russian-issued cards, and California Civil Code section 3523.

Disposition

The court granted the defendants’ motion to dismiss. Because it found that Zurabova could not cure the basic flaw in her pleading, it dismissed her complaint without leave to amend. The court did not reach the defendants’ remaining arguments supporting dismissal or the merits of Zurabova’s eight claims.