US VC Partners GP LLC v. United States Department of the Treasury

Background

The plaintiffs were several investment-related entities and their principal, Andrew Intrater. The opinion describes the entities as owned by United States citizens and states that Intrater is also a United States citizen. None of the entities was partially or indirectly owned or controlled by a sanctioned person designated as a Specially Designated National. However, the plaintiffs held certain assets through blocked entities in which Viktor Vekselberg, a Specially Designated National, owned at least 50 percent.

The plaintiffs challenged the effect of the Office of Foreign Assets Control’s 50 Percent Rule. Under that rule, property of an entity is blocked when a sanctioned person owns at least 50 percent of it. The plaintiffs alleged that the rule prevented them from collecting certain proceeds and management fees and from controlling or managing certain funds and entities, causing business losses or declines in investment value.

The plaintiffs also alleged that the Office of Foreign Assets Control had not provided rules setting a deadline or legal standards for deciding license applications. They alleged that they submitted several applications between April 16, 2018, and April 30, 2019, and that the agency had neither granted nor denied some of them. At oral argument, however, the plaintiffs acknowledged that some license applications had been granted and that no application had been rejected.

Claims and Motions

The complaint asserted claims under the Fourth Amendment, the Fifth Amendment, and the Administrative Procedure Act. The plaintiffs separately moved for the return of property under Federal Rule of Criminal Procedure 41(g). The government moved to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

The plaintiffs argued that blocking their property interests was an unreasonable warrantless seizure, that the agency’s procedures violated due process, and that the agency acted arbitrarily and improperly under the Administrative Procedure Act. They also sought additional briefing if the court granted the motion to dismiss. In a later letter, they requested permission to amend the complaint to add a claim under 5 U.S.C. § 706(1), which concerns agency action allegedly unlawfully withheld or unreasonably delayed.

Court’s Analysis

Fourth Amendment. The court held that the plaintiffs’ Fourth Amendment claim could not proceed. It explained that, even assuming the blocking of the plaintiffs’ interests qualified as a seizure, the seizure was reasonable when the competing interests were balanced. The court found an important government interest in enforcing sanctions and preventing sanctioned persons from manipulating property. It also relied on the procedures available to seek removal of the block or obtain licenses. The Fourth Amendment claim was dismissed.

Fifth Amendment. The court held that the plaintiffs had not plausibly alleged a due-process violation. The plaintiffs did not challenge the designation of Vekselberg as a sanctioned person or the application of the 50 Percent Rule to the relevant entities. The court stated that advance notice was not required before sanctions took effect and that the plaintiffs’ possible disagreement with a future agency decision was not yet before the court. It also rejected the argument that the absence of a deadline for agency decisions, by itself, violated due process. The court noted that the plaintiffs could have sought administrative review but had not done so.

Administrative Procedure Act. The court held that the plaintiffs failed to state an Administrative Procedure Act claim. Their allegations that the agency acted arbitrarily and capriciously in applying the 50 Percent Rule and handling license applications were conclusory. The court also stated that the plaintiffs had not actually asserted a claim for unreasonable delay, despite pointing to the Administrative Procedure Act as a possible route for addressing that concern.

Property-return motion. The court denied the plaintiffs’ motion for the return of property under Rule 41(g). It concluded that the plaintiffs had not shown that they were entitled to possession of the blocked property or that the government had acted illegally or improperly. The court also noted that the plaintiffs had not alleged that the blocking was improper if the 50 Percent Rule applied.

Disposition

The court granted the defendants’ motion to dismiss. It denied the plaintiffs’ motion for the return of property and denied the plaintiffs’ oral request for additional briefing as futile. The court granted the plaintiffs leave to file a letter motion to amend the complaint, with a proposed amended complaint, to pursue a possible claim under 5 U.S.C. § 706(1). The opinion does not state that the dismissal was with or without prejudice. The Clerk of Court was directed to close the motions.