Zevallos v. Obama , 10 F. Supp. 3d 111 ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
FERNANDO ZEVALLOS, :
:
Plaintiff, :
: Civil Action No.: 13-0390 (RC)
:
v. : Re Document Nos.: 8, 11, 12
:
BARACK H. OBAMA, :
In his official capacity as :
President of the United States, :
:
JACOB J. LEW, :
In his official capacity as :
Secretary of the Treasury, :
:
and :
:
UNITED STATES :
DEPARTMENT OF THE TREASURY :
OFFICE OF FOREIGN ASSETS CONTROL :
:
Defendants. :
MEMORANDUM OPINION
GRANTING DEFENDANTS’ MOTION TO DISMISS, OR IN THE ALTERNATIVE,
FOR SUMMARY JUDGMENT
I. INTRODUCTION
In 2004, President George W. Bush designated Fernando Zevallos as a “Significant
Foreign Narcotics Trafficker” under the Foreign Narcotics Kingpin Designation Act. Mr.
Zevallos brings this action, challenging the government’s 2013 decision not to delist him as such,
under the Due Process Clause, the Takings Clause, and the Administrative Procedure Act. For
the reasons that follow, the Court will grant the defendants’ motion to dismiss, or in the
alternative, for summary judgment.
II. FACTUAL BACKGROUND
A. Statutory Background
In 1999, Congress enacted the Foreign Narcotics Kingpin Designation Act (“Kingpin
Act”). See Foreign Narcotics Kingpin Designation Act, Pub. L. 106-120 (codified at 21 U.S.C.
§§ 1901–08 (1999)). The purpose of the Act is “to provide authority for the identification of,
and application of sanctions on a worldwide basis to, significant foreign narcotics traffickers,
their organizations, and the foreign persons who provide support to those significant foreign
narcotics traffickers and their organizations, whose activities threaten the national security,
foreign policy, and economy of the United States.” 21 U.S.C. § 1902.
The Kingpin Act authorizes the President to “identify[] publicly the foreign persons that
the President determines are appropriate for sanctions . . . and detail[] publicly the President’s
intent to impose sanctions upon these significant foreign narcotics traffickers pursuant to this
chapter.” 21 U.S.C. § 1903(b)(1)–(2). A significant foreign narcotics trafficker (“SFNT”) is
defined as “any foreign person that plays a significant role in international narcotics trafficking,
that the President has determined to be appropriate for sanctions pursuant to this chapter . . . .”
Id. § 1907(7). Once a person has been designated an SFNT, “there are blocked . . . all such
property and interests in property within the United States, or within the possession or control of
any United States person, which are owned or controlled by” the SFNT. Id. § 1904(b).
A person designated an SFNT may “seek administrative reconsideration of his, her or its
designation . . . or assert that the circumstances resulting in the designation no longer apply, and
thus seek to have the designation rescinded . . . .” 31 C.F.R. § 501.807. Administrative
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reconsideration is handled by the Office of Foreign Assets Control (“OFAC”), which is an
agency within the Department of the Treasury. Id. § 501.807(b). That same regulation also
provides that “[a] blocked person seeking unblocking . . . may request a meeting with the Office
of Foreign Assets Control; however, such meetings are not required, and the office may, at its
discretion, decline to conduct such meetings prior to completing a review pursuant to this
section.” Id. § 501.807(c). Additionally, the regulation states that “[a]fter the Office of Foreign
Assets Control has conducted a review of the request for reconsideration, it will provide a written
decision to the blocked person . . . .” Id. § 501.807(d).
B. Fernando Zevallos’s Personal History
The plaintiff, Fernando Zevallos, was born in Peru in 1957. Pl.’s Opp’n Mot. to Dismiss
5, ECF No. 12-1. Mr. Zevallos attended Peruvian Air Force officers’ school in the 1970s, and,
along with his family, started an air-taxi company called TAUSA in 1978. Id. In the early
1990s, Mr. Zevallos and his family terminated TAUSA and launched Aero Continente, a
Peruvian airline. Id. The success of the airline caused Mr. Zevallos to apply for permanent
residency status in the United States, which was granted in 1994. Id. at 6.
Since the 1990s, Mr. Zevallos has been charged with drug trafficking related crimes by at
least three countries: Peru, Chile, and the United States. In 1995, the Peruvian National Police
arrested several individuals on drug trafficking charges, who allegedly had ties to Aero
Continente, and, in turn, to Mr. Zevallos as well. Id. Peruvian authorities initially found all the
charges against Mr. Zevallos unfounded and absolved him of all criminal charges in 2002. But
the Supreme Court of Peru ordered a new trial in 2003. Id. at 7–8. The retrial in Peru eventually
led to Mr. Zevallos’s conviction in 2005 for drug trafficking offenses, for which he is currently
serving a 20-year prison sentence. Id. at 8. See also Def.’s Mot. to Dismiss 9, ECF No. 11-1.
3
Meanwhile, in 2001, Chile filed a money laundering case against him and Aero Continente, see
Pl.’s Opp’n Mot. to Dismiss 6‒7, and in 2007, Mr. Zevallos was indicted in the Southern District
of Florida for alleged conspiracy, money laundering, and substantive violations of the Kingpin
Act. Id. at 8. Finally, new charges were brought against him in Peru in 2011 and 2012, on
allegations that Mr. Zevallos engaged in a criminal conspiracy, narcotics trafficking, and money
laundering. Id. at 9. See also AR000343–346, AR000470, ECF No. 7-3.
C. The Designation and Correspondence between Mr. Zevallos and OFAC
On June 1, 2004, pursuant to the Kingpin Act, President George W. Bush designated Mr.
Zevallos an SFNT. See Compl., Ex. 3, ECF No. 1-3. In response, on December 23, 2004, Mr.
Zevallos submitted a letter to OFAC challenging that designation. 1 AR000015, ECF No. 6-1.
On June 24, 2005, and September 15, 2005, the Department of Justice provided Mr. Zevallos
with redacted, unclassified information relied upon by OFAC in reaching its designation
decision. See AR000469, AR000480, ECF No. 6-3. On October 17, 2005, Mr. Zevallos
submitted supplemental arguments in support of his reconsideration request. AR001004, ECF
No. 7-5. He did not receive a response from OFAC, and on November 9, 2005, he filed a
complaint in the U.S. District Court for the District of Columbia challenging his designation.
See Zevallos v. Bush, Civ. No. 05-2196 (D.D.C. Nov. 9, 2005), ECF No. 1. On December 21,
2005 (two days after his conviction in Peru of all charges for narcotics trafficking and money
laundering), he voluntarily dismissed that complaint. See AR001235, ECF No. 7-7; Zevallos v.
Bush, Civ. No. 05-2196 (D.D.C. Dec. 21, 2005), ECF No. 7. At that point, OFAC assumed that
1
Mr. Zevallos also submitted a written request to OFAC on November 24, 2004,
asking to inspect and copy the record upon which OFAC made its determination, but before he
received a response from OFAC, he submitted the December 23, 2004 request to remove his
designation. See Am. Compl. ¶¶ 17‒18, ECF No. 10-1.
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the voluntary dismissal of Mr. Zevallos’s lawsuit also constituted a withdrawal of his request for
reconsideration. See Def.’s Mot. to Dismiss 21, ECF No. 11-1, Def.’s Reply 8, ECF No. 14.
On July 8, 2009, Mr. Zevallos submitted a letter to OFAC renewing his request for
reconsideration of his designation as an SFNT. See AR001236, AR001203‒1207. In response
to that, on October 2, 2009, OFAC sent Mr. Zevallos a questionnaire, to which he replied on
November 2, 2009. AR001236. On May 15, 2010, Mr. Zevallos submitted a letter to OFAC
requesting a response to his November 2009 letter. Id. On February 25, 2011, and also on
October 17, 2012, Mr. Zevallos submitted letters to OFAC requesting a decision on his delisting
petition. AR001237. On November 20, 2012, OFAC replied to Mr. Zevallos’s October 17, 2012
letter, acknowledging its receipt. Id. Finally, on March 13, 2013, OFAC submitted another
letter to Mr. Zevallos providing him with a status update, informing Mr. Zevallos that it “hope[d]
to reach a final decision in the near future.” Id. See also AR000894.
Mr. Zevallos then filed this lawsuit on March 25, 2013, initially asking this Court to enter
an order compelling OFAC to issue a written decision as to Mr. Zevallos’s continued SFNT
designation. See Compl. 14, ECF No. 1. On June 14, 2013, OFAC issued a 44-page Evidentiary
Memorandum denying Mr. Zevallos’s reconsideration request. See AR001229–1281, ECF No.
7-7. Mr. Zevallos then amended his complaint, seeking instead an order from this Court
compelling OFAC to remove his name from the Specially Designated Nationals list. See Am.
Compl. 20, ECF No. 10. The defendants moved to dismiss each claim. They also moved for
summary judgment in the alternative, as to Counts I (Procedural Due Process), II (Substantive
Due Process), and V (Arbitrary and Capricious under the APA). They also argue that Counts III
(Takings) and IV (Undue Delay) should be dismissed for lack of subject matter jurisdiction. See
Def.’s Mot. to Dismiss 3‒4, ECF No. 11-1. The Court now turns to the relevant legal standards.
5
III. ANALYSIS
A. Legal Standards
1. Motion to Dismiss for Lack of Subject Matter Jurisdiction (12(b)(1))
Federal courts are courts of limited jurisdiction, and the law presumes that “a cause lies
outside this limited jurisdiction . . . .” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
377 (1994); see also Gen. Motors Corp. v. EPA, 363 F.3d 442, 448 (D.C. Cir. 2004) (“As a court
of limited jurisdiction, we begin, and end, with an examination of our jurisdiction.”). It is the
plaintiff’s burden to establish that the court has subject matter jurisdiction. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561 (1992).
Because subject matter jurisdiction focuses on the Court’s power to hear a claim, the
Court must give the plaintiff’s factual allegations closer scrutiny than would be required for a
12(b)(6) motion for failure to state a claim. See Grand Lodge of Fraternal Order of Police v.
Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). Thus, the court is not limited to the allegations
contained in the complaint. See Wilderness Soc’y v. Griles, 824 F.2d 4, 16 n.10 (D.C. Cir.
1987).
2. Motion to Dismiss for Failure to State a Claim (12(b)(6))
The Federal Rules of Civil Procedure require that a complaint contain “a short and plain
statement of the claim” in order to give the defendant fair notice of the claim and the grounds
upon which it rests. FED. R. CIV. P. 8(a)(2); accord Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(per curiam). A motion to dismiss under Rule 12(b)(6) does not test a plaintiff’s ultimate
likelihood of success on the merits; rather, it tests whether a plaintiff has properly stated a claim.
See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), abrogated on other grounds by Harlow v.
Fitzgerald, 457 U.S. 800 (1982). A court considering such a motion presumes that the
6
complaint’s factual allegations are true and construes them liberally in the plaintiff’s favor. See,
e.g., United States v. Philip Morris, Inc., 116 F. Supp. 2d 131, 135 (D.D.C. 2000). It is not
necessary for the plaintiff to plead all elements of her prima facie case in the complaint. See
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511–14 (2002); Bryant v. Pepco, 730 F. Supp. 2d 25,
28–29 (D.D.C. 2010).
Nevertheless, “[t]o survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). This means that a plaintiff’s factual allegations “must be enough to raise a right to relief
above the speculative level, on the assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007) (citations
omitted). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements,” are therefore insufficient to withstand a motion to dismiss. Iqbal, 556
U.S. at 678. A court need not accept a plaintiff’s legal conclusions as true, see id., nor must a
court presume the veracity of the legal conclusions that are couched as factual allegations. See
Twombly, 550 U.S. at 555.
3. Summary Judgment
With respect to the constitutional claims at issue in this case, the standard for summary
judgment that governs is found in Fed. R. Civ. P. 56, which explains that a court may grant
summary judgment when “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). The
principal purpose of summary judgment is to streamline litigation by disposing of factually
unsupported claims or defenses and determining whether there is a genuine need for trial. See
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Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). The movant bears the initial burden of
identifying portions of the record that demonstrate the absence of any genuine issue of material
fact. See Fed. R. Civ. P. 56(c)(1); Celotex, 477 U.S. at 323. In response, the non-movant must
point to specific facts in the record that reveal a genuine issue that is suitable for trial. See
Celotex, 477 U.S. at 324. In considering a motion for summary judgment, a court must “eschew
making credibility determinations or weighing the evidence[,]” Czekalski v. Peters, 475 F.3d
360, 363 (D.C. Cir. 2007), and all underlying facts and inferences must be analyzed in the light
most favorable to the non-movant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986).
However, with respect to the APA claims in this case, the summary judgment standard is
different, “because of the limited role of a court in reviewing the administrative record.” See
Kadi v. Geithner, No. 09-cv-108, 2012 WL 898778, at *4 (D.D.C. March 19, 2012). When
assessing a summary judgment motion in an APA case, “the district judge sits as an appellate
tribunal.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). “The entire
case on review is a question of law, and only a question of law.” Marshall Cnty. Health Care
Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1993). In an APA case, then, “[s]ummary
judgment thus serves as the mechanism for deciding, as a matter of law, whether the agency
action is supported by the administrative record and otherwise consistent with the APA standard
of review.” Kadi, 2012 WL 898778, at *4.
8
B. Standard of Review under the APA 2
Under the APA, an agency decision should be upheld unless it is “arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “To
make this finding the court must consider whether the decision was based on a consideration of
the relevant factors and whether there has been a clear error of judgment.” Citizens to Preserve
Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). “[T]he ultimate standard of review is a
narrow one. The court is not empowered to substitute its judgment for that of the agency.” Id.
As the Supreme Court has since elaborated, “the agency must examine the relevant data and
articulate a satisfactory explanation for its action including a rational connection between the
facts found and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983). Accord Holy Land Found. for Relief & Dev. v. Ashcroft
(“Holy Land I”), 219 F. Supp. 2d 57, 67 (D.D.C. 2002), aff’d, 333 F.3d 156 (D.C. Cir. 2003)
2
The plaintiff argues that this Court should engage in de novo review under 5
U.S.C. § 706(2)(F) . See Am. Compl., Count VII, ECF No. 10-1. In Citizens of Overton Park v.
Volpe, the court explained that “de novo review . . . is authorized by § 706(2)(F) in only two
circumstances. First, such de novo review is authorized when the action is adjudicatory in nature
and the agency fact-finding procedures are inadequate. And, there may be independent judicial
fact-finding when issues that were not before the agency are raised in a proceeding to enforce
non-adjudicatory agency action.” 401 U.S. 402, 415 (1971). The Supreme Court has never
clearly articulated what inadequate fact-finding procedures are, but the D.C. Circuit has stated
that “the procedures must be severely defective before a court proceeding under the APA can
substitute de novo review for review of the agency’s record.” Nat’l Org. for Women v. Social
Sec. Admin., 736 F.2d 727, 745 (D.C. Cir. 1984). Accord Am. Bankers Ass’n v. Nat’l Credit
Union Admin., 513 F. Supp. 2d 190, 198 (M.D. Pa. 2007) (noting that “[d]e novo review is
reserved for the extraordinary case” and explaining in a footnote that there are almost no federal
cases in which courts have used either of the Overton Park exceptions to review agency action
de novo). In light of the sheer dearth of cases applying the de novo standard of review, this
Court does not find such a standard applicable. This is not an extraordinary case where no fact-
finding procedures at all were used—on the contrary, OFAC has submitted a lengthy
administrative record showing the relevant facts it has collected over the years regarding Mr.
Zevallos, and upon which it relied in reaching its decision. As such, the Court will review this
case under the arbitrary and capricious standard of review.
9
(“the Court must review the administrative record assembled by the agency to determine whether
its decision was supported by a rational basis”).
“[I]f OFAC’s actions were not arbitrary and capricious and were based on substantial
evidence,” 3 the Court must uphold OFAC’s decision. Holy Land Found. for Relief & Dev. v.
Ashcroft (“Holy Land II”), 333 F.3d 156, 162 (D.C. Cir. 2003); Islamic Am. Relief Agency v.
Gonzales (“Islamic Am. Relief Agency II”), 477 F.3d 728, 732 (D.C. Cir. 2007). The Court
“may not supply a reasoned basis for the agency’s action that the agency itself has not given,”
and must “uphold a decision of less than ideal clarity if the agency’s path may reasonably be
discerned.” Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285–86
(1974). “Once assured the [agency] has engaged in reasoned decisionmaking, it is not for [the
Court] to reweigh the conflicting evidence or otherwise to substitute [its] judgment for that of the
[agency].” Ind. Mun. Power Agency v. FERC, 56 F.3d 247, 254 (D.C. Cir. 1995). See also Pub.
Citizen Health Res. Grp. v. Tyson, 796 F.2d 1479, 1495 (D.C. Cir. 1986) (“Our function . . . is
only to search for substantial evidence, not proof positive. Furthermore, we do not reweigh the
evidence and come to our own conclusion; rather, we assess the reasonableness of [the agency]’s
conclusion.” (emphasis in original)).
In addition to the deference accorded to agency action under the APA, in the special
context of an executive designation like the one at issue in this case, the D.C. Circuit has
suggested that an even more deferential review applies when matters of foreign policy and
3
In the D.C. Circuit, “the substantial evidence test and the arbitrary or capricious
test are one and the same.” Ass’n of Data Processing Serv. Orgs., Inc. v. Bd. of Governors of the
Fed. Reserve Sys., 745 F.2d 677, 683 (D.C. Cir. 1984). See id. at 684 (“We have noted on
several occasions that the distinction between the substantial evidence test and the arbitrary or
capricious test is ‘largely semantic . . . .’”). See also Cablevision Sys. Corp. v. FCC, 597 F.3d
1306, 1310 (D.C. Cir. 2010) (“We will vacate an agency’s decision as arbitrary and capricious if
[its] factual determinations lack substantial evidence . . . .” (first alteration in original) (internal
quotation marks omitted)).
10
national security are concerned. See Islamic Am. Relief Agency II, 477 F.3d at 734 (“we reiterate
that our review—in an area at the intersection of national security, foreign policy, and
administrative law—is extremely deferential”). Accord Kadi, 2012 WL 898778, at *6; Zarmach
Oil Servs., Inc. v. Dep’t of Treasury, 750 F. Supp. 2d 150, 155 (D.D.C. 2010) (“courts owe a
substantial measure of deference to the political branches in matters of foreign policy, including
cases involving blocking orders” (citation omitted)).
C. APA Claims Analysis (Counts IV, V, VI, VII)
1. OFAC’s Decisions were not Arbitrary and Capricious
It is not clear that the plaintiff challenges his 2004 designation in the current action. See
Am. Compl. ¶¶ 90, 97. Even if he does challenge that designation here, it is not clear such a
challenge would be timely, as the APA catch-all statute of limitations is six years. 4 Regardless,
the Court finds such a challenge would fail on the merits.
It is clear, however, that Mr. Zevallos challenges OFAC’s decision not to remove his
SFNT designation on June 14, 2013. See Am. Compl. ¶ 90, p. 20-21. The Court finds that that
OFAC decision was not arbitrary and capricious, but rather, that there was a “rational connection
between the facts found and the choice made.” Motor Vehicle Mfrs. Ass’n of U.S., 463 U.S. at
43.
4
See 28 U.S.C. § 2401(a) (“every civil action against the United States shall be
barred unless the complaint is filed within six years after the right of action first accrues”);
P & V Enterprises v. U.S. Army Corps of Engineers, 466 F. Supp. 2d 134, 143 (D.C. Cir. 2006)
(“facial challenges to agency regulations like any other civil action filed against the United
States, are subject to § 2401(a)’s six-year limitations period”); James Madison Ltd. by Hecht v.
Ludwig, 82 F.3d 1085, 1094 (D.C. Cir. 1996) (explaining that the APA “carries a six-year statute
of limitations”).
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a. 2004 Designation
With respect to Mr. Zevallos’s initial 2004 designation, OFAC relied on, inter alia, the
following (see AR000481–491, ECF No. 7-3) in reaching its SFNT designation decision: (1) a
2002 DEA Investigation Report, see AR000055–74, ECF No. 7-1, which chronicles narcotics
trafficking charges brought against Mr. Zevallos by Peruvian officials as early as 1982; (2) other
letters and reports from the DEA Lima’s office regarding Mr. Zevallos’s involvement with
narcotics trafficking in Latin America, see, e.g., AR000627–629, AR000633–637, ECF No. 6-4;
(3) Peruvian Superior Court trial documents, see AR000084–90, charging him with narcotics
trafficking, and depositions related to those charges, see AR000670–702; (4) Chilean criminal
court charging documents, see AR000158–241, ECF No. 7-2, and (5) dozens of newspaper
articles and letters chronicling his involvement with narcotics trafficking, money laundering,
corruption, and murder for a period of over twenty years. See, e.g., AR000706, AR000902–957,
AR001022–1049. 5
The 2002 DEA report explained that Zevallos had been subject to extensive
investigations by the Peruvian police, including being arrested on at least three occasions for
narcotics trafficking in the 1980s. AR000055. The Peruvian Superior Court’s Indictment stated
that Mr. Zevallos used his company, Aero Continente, “to systematically introduce property and
capital valued at approximately $43 million US dollars, consisting of 12 airplanes, in the period
from 1992 to 1995 . . . from which it can be concluded that his fortune came from the illicit
trafficking of narcotics . . . .” AR000089. The Chilean criminal court’s charging instrument
5
Many of the newspaper articles are dated after the June 1, 2004 designation (see
AR000488–491) and therefore could not have provided the basis for OFAC’s decision pre-June
1, 2004. Notwithstanding that observation, the Court finds that OFAC has still provided
substantial evidence from the pre-2004 materials. Moreover, the articles dated after 2004
support OFAC’s 2013 denial of Mr. Zevallos’s delisting petition.
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similarly chronicles Mr. Zevallos’s involvement in narcotics trafficking since at least 1982. See
AR000222. Moreover, on May 30, 2003, the Peruvian Supreme Court ordered a new trial in Mr.
Zevallos’s case, for which he was ultimately convicted, and for which he is currently serving a
20-year prison sentence in Peru for narcotics trafficking. See Pl.’s Opp’n Mot. to Dismiss 6-8;
AR001251–1253, AR000320–324. Those documents thus provide substantial evidence from
which OFAC concluded that Mr. Zevallos “plays a significant role in international narcotics
trafficking.” 21 U.S.C. § 1907(7).
The newspaper articles further corroborate the conclusion that Mr. Zevallos is a
significant foreign narcotics trafficker. See, e.g., AR000331–334. Specifically, one article
discusses a police manifest where Zevallos confesses to being a drug trafficker. AR000371,
AR00375, ECF No. 7-3. Several other articles discuss Mr. Zevallos’s connections to various
intimidation tactics employed—including murder or the threat thereof—against would-be
witnesses against him and judges involved in his cases. See AR000376–389, 000398–449. See
also AR001243–1249.
When viewed as a whole, the record shows that the foreign trial court documents,
newspaper articles, and DEA reports and documentation all provide substantial evidence from
which OFAC concluded that Mr. Zevallos “plays a significant role in international narcotics
trafficking,” and warranted designation as an SFNT in June 2004. 21 U.S.C. § 1907(7).
OFAC’s initial designation, to the extent it even is, or can be challenged here, was nevertheless
supported by a rational basis, and was not arbitrary and capricious. 6
6
Mr. Zevallos contests OFAC’s reliance on “recent criminal charges and open
source news publications to justify the continued designation of Plaintiff.” Pl.’s Opp’n Mot. to
Dismiss 2, ECF No. 12-1. See also Pl.’s Reply 6, ECF No. 16. However, it is axiomatic that
“[a]gency designations can be based on a broad range of evidence including news reports,
intelligence data, and hearsay declarations.” Holy Land Found. for Relief & Dev. v. Ashcroft, 219
13
b. 2013 denial of delisting decision
With respect to OFAC’s 2013 decision, Mr. Zevallos argues that his continued
designation is arbitrary and capricious because he is incarcerated in Peru, serving a sentence that
will last until 2025, and therefore, by definition, cannot currently drug traffic, as required by the
Kingpin Act. See Pl.’s Opp’n Mot. to Dismiss 15. OFAC admits, and the Court agrees, that its
evidence on the continued designation of Mr. Zevallos in 2013 is sparser than the evidence it
amassed in reaching its initial designation decision in 2004. See Def.’s Mot. to Dismiss 19.
Specifically, OFAC relied on: (1) 2007 U.S. criminal charges brought against Mr. Zevallos for
violations of the Kingpin Act; (2) the freezing of Panamanian bank accounts in Mr. Zevallos’s
name; (3) 2011 and 2012 Peruvian court activity; (4) newspaper articles demonstrating Mr.
Zevallos’s continued control of his assets despite his current incarceration; and (5) newspaper
articles indicating that Mr. Zevallos was recently found with a cell phone in his prison cell. See
AR001268–1271.
The Court finds that OFAC has still provided substantial evidence for its decision, and as
such that its denial of Mr. Zevallos’s delisting petition was not arbitrary and capricious. See
Zarmach Oil Servs., 750 F. Supp. 2d at 154 (“An agency’s decision need not be a model of
analytic precision to survive a challenge and a reviewing court will uphold a decision of less than
ideal clarity if the agency’s path may reasonably be discerned.” (citation omitted)). See also Al
Haramain Islamic Found. v. U.S. Dep’t of Treasury, 686 F.3d 965, 979 (9th Cir. 2012) (“we
acknowledge that the unclassified record is not overwhelming, but we reiterate our review—in
an area at the intersection of national security, foreign policy, and administrative law—is
extremely deferential”) (quoting Islamic Am. Relief Agency II, 477 F.3d at 734).
F. Supp. 2d 57, 71 (D.D.C. 2002) (citing Nat’l Council for Resistance of Iran v. Dep’t of State,
251 F.3d 192, 196 (D.C. Cir. 2001)).
14
With respect to the cell phone, the May 7, 2013, newspaper article that OFAC relied on
explained that not only was Mr. Zevallos found with a cell phone in his prison cell, but so was
another inmate named Jorge Chavez Montoya, who was “also sentenced for drug trafficking and
accused of being a drug trafficker.” AR001176. 7 OFAC relied on other newspaper reports,
citing incidents throughout Latin America where narcotics prisoners have continued to traffic
drugs through the use of cell phones, despite their incarceration. AR001179–001186, 001195.
That two narcotics-trafficking inmates, who had previously worked together, were found with
cell phones supports OFAC’s conclusion that delisting Mr. Zevallos was not appropriate. 8
Although Mr. Zevallos focuses on the speculativeness of the cell phone evidence, the cell
phone was not the only piece of evidence that OFAC relied on in making its continued
designation determination. OFAC also relied on newspaper articles explaining that despite Mr.
Zevallos’s current incarceration, he remains in control of assets and many properties throughout
his network, including 42 properties and 14 vehicles in Peru, see AR000338–339, and two
Panamanian bank accounts totaling eight million dollars, see AR001086–1089. It also relied on
Mr. Zevallos’s 2007 Indictment in the Southern District of Florida for money laundering, and
violations of the Kingpin Act’s prohibition on transfer, use, and dealing in property in which Mr.
7
OFAC explained that “there is reason to believe that the two men know each other
very well and have maintained a friendship or business relationship for many years” and that
Chavez Montoya was thought to be one of Mr. Zevallos’s “right hand men.” AR001262 (citing
newspaper articles and a 1995 S.D. Fla. Indictment of Jorge Chavez Montoya, in which he pled
guilty to one count of conspiracy to import cocaine).
8
“The ‘substantial evidence’ standard requires more than a scintilla, but can be
satisfied by something less than a preponderance of the evidence.” FPL Energy Me. Hydro LLC
v. FERC, 287 F.3d 1151, 1160 (D.C. Cir. 2002) (citing Whitmore v. AFIA Worldwide Ins., 837
F.2d 513, 515 n.4 (D.C. Cir. 1988)). “When reviewing for substantial evidence, [the Court does]
not ask whether the record could support the petitioner’s view of the issue, but whether it
supports the [agency]’s ultimate decision. The substantial evidence inquiry turns not on how
many discrete pieces of evidence the [agency] relies on, but on whether that evidence adequately
supports its ultimate decision.” Fla. Gas Transmission Co. v. FERC, 604 F.3d 636, 645 (D.C.
Cir. 2010) (citation omitted).
15
Zevallos has an interest. See AR001236, AR001268; Criminal Indictment ¶¶ 5-10, USA v.
Zevallos-Gonzales, et al., 07-cr-20587, July 7, 2007 (S.D. Fla) (listing Mr. Zevallos’s numerous
real property interests in Miami, Florida), ECF No. 1. In addition, OFAC relied on a newspaper
article explaining that one of Mr. Zevallos’s “shadow advisors” was investigated for fraud in
connection with a mansion controlled, owned, or both, by Mr. Zevallos in Peru, see AR000604–
607, and newspaper articles describing drug trafficking charges Mr. Zevallos currently faces in
Peru, for, inter alia, drug trafficking and money laundering acts committed between 1998 and
2006. See AR001269. See also AR000470, AR000343–344. Finally, OFAC relied on the fact
that OFAC has, as late as 2009, blocked the assets of 26 other companies and 14 individuals tied
to Mr. Zevallos. See AR001127, ECF No. 7-6. That individuals and businesses connected to
Mr. Zevallos are still engaging in narcotics trafficking—despite Mr. Zevallos’s incarceration—
thus provides a rational basis from which OFAC concluded that Mr. Zevallos “plays a significant
role in international narcotics trafficking.” 21 U.S.C. §1907(7).
Importantly, the Kingpin Act defines narcotics trafficking as “any illicit activity to
cultivate . . . sell, finance, or transport narcotic drugs, controlled substances, or listed chemicals,
or otherwise endeavor or attempt to do so, or to assist, abet, conspire, or collude with others to
do so.” (emphasis added). The Congressional record also notes that “[t]he targets of this
legislation are not only the drug kingpins, but those involved in their illicit activities, such as:
money laundering . . . transporting narcotics from the drug source countries to the United States,
and managing the assets of these criminal enterprises.” H.R. REP. NO. 106-457, at 43 (emphasis
added). Thus, OFAC relied on evidence pointing to both Mr. Zevallos’s involvement with drug
trafficking itself, as well as his connection to the laundering and management of assets tied to
16
drug trafficking (including his own prior drug trafficking), both of which formed a rational basis
for OFAC’s decision.
Viewing the post-designation record as a whole, the Court finds that OFAC relied on
substantial evidence in reaching its determination that delisting Mr. Zevallos as an SFNT was
inappropriate. Notwithstanding his current incarceration, Mr. Zevallos is not off the radar, and is
still able to communicate with family members and other potential drug traffickers in order to
continue drug trafficking—but equally importantly—to continue managing and laundering his
ill-gotten proceeds from his prior drug trafficking. OFAC thus had substantial evidence—
evidence that “adequately supports its ultimate decision,” see Fla. Gas Transmission Co. v.
FERC, 604 F.3d 636, 645 (D.C. Cir. 2010) (citation omitted)—to conclude that Mr. Zevallos
“plays a significant role in international narcotics trafficking,” and therefore that delisting him
was not appropriate. 21 U.S.C. § 1907(7). As such, its decision was not arbitrary and
capricious. 9
9
Mr. Zevallos argues that OFAC relied on “outdated, biased, and incredible
sources,” see Pl.’s Opp’n Mot. to Dismiss 17, as well as sources that are “baseless and inherently
flawed due to their lack of credibility.” See Pl.’s Reply 5. To support his claim of bias, Mr.
Zevallos notes that the Chilean charges against him “came shortly after the failed attempt of
Aero Continente’s Chilean competitor, Lan Chile, to prevent Aero Continente’s expansion into
Chile,” and that the President of the Board of Directors of Lan Chile’s Peruvian affiliate is
married to one of the main stockholders of El Comercio, the Peruvian newspaper relied upon by
the defendants. See Pl.’s Opp’n Mot. to Dismiss 7. Mr. Zevallos made these arguments to
OFAC, and OFAC concluded that the evidence before it was credible, as it explained in its 2013
Evidentiary Memorandum. See AR001239–1240, ECF No. 7-7. It is not the province of this
Court to reweigh the evidence and reconsider Mr. Zevallos’s arguments on appeal. See, e.g.,
Fla. Gas Transmission, 604 F.3d at 645 (“When reviewing for substantial evidence, [the Court
does] not ask whether the record could support the petitioner’s view of the issue, but whether it
supports the [agency]’s ultimate decision. The substantial evidence inquiry turns not on how
many discrete pieces of evidence the [agency] relies on, but on whether that evidence adequately
supports its ultimate decision.” (citation omitted)). OFAC relied on a DEA report, DEA letters,
Peruvian trial court documents, Chilean trial court documents, and countless newspaper articles
including from sources other than El Comercio, all pointing to the fact that Mr. Zevallos’s SFNT
designation was appropriate. Even if a fraction of the newspaper articles were in fact, biased,
17
2. OFAC’s 2013 Decision was not Unreasonably Delayed
or Made Without Observance of Procedure
Mr. Zevallos also argues that under the APA, OFAC’s re-designation decision was
unreasonably delayed under 5 U.S.C. § 706(1) (Count IV), and made without observance of
procedure in violation of 5 U.S.C. § 555(e) (Count VI). The plaintiff’s first argument is moot
because OFAC has issued its decision regarding Mr. Zevallos’s designation—it has continued to
list him as an SFNT. Though that is not the result Mr. Zevallos hoped for, it is still a decision.
All this Court can do is “compel agency action . . . unreasonably delayed,” i.e., compel OFAC to
issue a decision—which it has already done. 5 U.S.C. § 706(1). The Court must therefore
dismiss Mr. Zevallos’s claim on this issue under Fed. R. Civ. P. 12(b)(1). 10 See Ctr. for
Biological Diversity v. Kempthorne, 498 F. Supp. 2d 293, 296 (D.D.C. 2007) (“The court will
lack subject matter jurisdiction if the plaintiff’s claim is moot.”). See also Clarke v. United
States, 915 F.2d 699, 701 (D.C. Cir. 1990) (“Even where litigation poses a live controversy when
filed, the [mootness] doctrine requires a federal court to refrain from deciding it if ‘events have
so transpired that the decision will neither presently affect the parties’ rights nor have a more-
than-speculative chance of affecting them in the future.’”).
The plaintiff’s procedural error claim also fails. 5 U.S.C. § 555(e) requires that prompt
notice be given “of the denial in whole or in part of a written application, petition, or other
they were not the only evidence relied upon by OFAC in making its decision—the evidence
OFAC relied upon as a whole “adequately supports its ultimate decision,” see id., and therefore
the Court must uphold that determination.
10
In the alternative, OFAC argues that the undue delay claim should be dismissed
for failure to state a claim, as the regulations governing OFAC’s procedures do “not establish a
time frame within which OFAC must issue a decision on a delisting petition.” Def.’s Mot. to
Dismiss 21, ECF No. 11-1. The Court need not decide the question of whether “slightly less
than four years,” see id. at 21–22, is an unreasonable amount of time for OFAC to deliberate on a
designation decision, because either way, as set forth above (1) the undue delay claim is moot
because OFAC has issued a decision, and (2) any undue delay would result in harmless error.
18
request of an interested person made in connection with an agency proceeding.” Mr. Zevallos
received prompt notice of OFAC’s June 14, 2013 decision. See Def.’s Mot. to Dismiss 23 n.9;
Am. Compl. ¶ 39. Along with OFAC’s decision, he also received a “memorandum setting forth
the reasons for the denial, with citations to numerous exhibits.” Id. OFAC thus gave Mr.
Zevallos notice of the denial of his petition, which included “a brief statement of the grounds for
denial.” 5 U.S.C. § 555(e). Therefore, there was no procedural error as to his notification of
OFAC’s decision.
Moreover, even if the Court were to find undue delay or procedural error here, such
errors are harmless. “The harmless error rule applies to agency action because if the agency’s
mistake did not affect the outcome, if it did not prejudice the petitioner, it would be senseless to
vacate and remand for reconsideration.” Jicarilla Apache Nation v. U.S. Dep’t of Interior, 613
F.3d 1112, 1121 (D.C. Cir. 2010) (citations omitted). Here, any delay or procedural error did not
affect the outcome for Mr. Zevallos. When OFAC finally made its delisting decision in 2013, it
found once again, that Mr. Zevallos merited designation as an SFNT. As such, whether OFAC
took one month, one year, or one decade to decide his case, the length of time it took did not
change the outcome for him at all—OFAC’s decision to designate him an SFNT, in light of a
substantial record of evidence against him spanning the 1980s to 2013, remained the same. 11
11
Mr. Zevallos contends that his current incarceration in Peru is a result of his
SFNT designation, see Pl.’s Opp’n Mot. to Dismiss 2, ECF No. 12-1, and that he has also
suffered reputational and business harm as a result. Id. at 2–3, 19 (“But for Plaintiff’s
designation as a[n] SFNT, such harms would not have been inflicted and would not be
ongoing.”). However, Mr. Zevallos began serving a 20-year prison sentence in 2005 because of
a conviction in Peruvian court, arising out of a Peruvian investigation, and based on Peruvian
charges brought against him in 1995—unrelated to his U.S. designation. Thus, his current
situation is not the result of the 2004 designation at all (or even the 2013 re-designation), but a
result of charges brought against him in another country pre-designation. It is unclear that the
relief plaintiff ultimately seeks—delisting him as an SFNT—would have any effect on his
reputation or business interests, as the previous conviction and ongoing proceedings against him
19
The defendants moved to dismiss all the APA claims, and, in the alternative, moved for
summary judgment on the arbitrary and capricious APA claim (Count V). Because the Court
finds that OFAC’s decisions were not arbitrary and capricious, the Court must enter judgment for
OFAC as to Count V. Because the Court finds no procedural error here, and finds de novo
review unwarranted, it must dismiss Counts VI and VII under Fed. R. Civ. P. 12(b)(6). Because
the Court finds that Count IV (undue delay) is moot, it must dismiss the claim for lack of subject
matter jurisdiction under Fed. R. Civ. P. 12(b)(1).
D. Constitutional Claims (Counts I, II, III)
Mr. Zevallos also brings constitutional claims under the Fifth Amendment’s Due Process
Clause and the Fifth Amendment’s Takings Clause. The Court now turns to those claims. 12
1. Procedural Due Process (Count I)
Mr. Zevallos’s first constitutional challenge to his designation as an SFNT is on
procedural due process grounds. He argues that under the Fifth Amendment, he was entitled to
notice and hearing before his designation, or in the alternative, that he was entitled to more
robust process post-designation. “Procedural due process imposes constraints on governmental
decisions which deprive individuals of ‘liberty’ or ‘property’ interests within the meaning of the
Due Process Clause of the Fifth . . . Amendment.” Mathews v. Eldridge, 424 U.S. 319, 332
(1976). “The fundamental requirement of [procedural] due process is the opportunity to be heard
‘at a meaningful time and in a meaningful manner.’” Id. at 333. In determining the amount of
process due, the Court is to consider and balance three factors: “First, the private interest that
in Peru contribute in large part to his current reputational and business predicament. For
instance, Mr. Zevallos is currently facing other charges in Peru that could result in his
incarceration for 35 more years after he is released in 2025. See AR000343–346, ECF No. 7-3.
12
Although Mr. Zevallos is a foreign national whose lawful permanent residency
status was revoked on March 9, 2004, before his designation as an SFNT on June 1, 2004, see
AR000082‒83, ECF No. 7-1, OFAC does not challenge plaintiff’s standing to bring this suit.
20
will be affected by the official action; second, the risk of an erroneous deprivation of such
interest through the procedures used, and the probable value, if any, of additional or substitute
procedural safeguards; and finally, the Government’s interest, including the function involved
and the fiscal and administrative burdens that the additional or substitute procedural requirement
would entail.” Id. at 335.
What process is due, and when, before OFAC makes an SFNT designation, are both
issues of first impression in this Circuit under the Kingpin Act. However, the D.C. Circuit has
had occasion to consider these issues in cases brought under the International Emergency
Economic Powers Act (“IEEPA”), and this Court finds such an analogy appropriate here. The
IEEPA, 50 U.S.C. § 1701 et seq., was enacted in 1977 and it “authorizes the President to declare
a national emergency when an extraordinary threat to the United States arises that originates in
substantial part in a foreign state.” Holy Land II, 333 F.3d at 159 (citing 50 U.S.C. § 1701 et
seq.). Specifically, it allows the President to exercise sanction powers to deal with a threat “to
the national security, foreign policy, or economy of the United States, if the President declares a
national emergency with respect to such threat.” 50 U.S.C. § 1701(a). Under 50 U.S.C. §
1702(a)(1)(B), “the President may, under such regulations as he may prescribe, by means of
instructions, licenses, or otherwise—investigate, block during the pendency of an investigation,
regulate, direct and compel, nullify, void, prevent or prohibit . . . any right, power, or privilege
with respect to, or transactions involving, any property in which any foreign country or a
national thereof has any interest by any person, or with respect to any property, subject to the
jurisdiction of the United States . . . .” In 1995, President Clinton, acting pursuant to the IEEPA,
issued Executive Order 12,978, which declared a national emergency resulting from international
narcotics trafficking centered in Colombia, finding that “the actions of significant foreign
21
narcotics traffickers centered in Colombia, and the unparalleled violence, corruption, and harm
that they cause in the United States and abroad, constitute an unusual and extraordinary threat to
the national security, foreign policy, and economy of the United States . . . .” See Blocking
Assets and Prohibiting Transactions with Significant Narcotics Traffickers, 60 Fed. Reg. 54,579,
54,579 (Oct. 21, 1995).
The Kingpin Act was largely based on the success of the IEEPA and Executive Order
12,978 in crippling the Colombian drug cartels. See 21 U.S.C. § 1901(a)(3) (“IEEPA was
successfully applied to international narcotics traffickers in Colombia and based on that
successful case study, Congress believes similar authorities should be applied worldwide.”). As
the House Conference Report explains, “[t]he legal precedent for this title [the Kingpin Act] was
the successful application of sanctions in 1995 and 1996 against the Cali Cartel narco-trafficking
organization and its key leaders.” H.R. REP. NO. 106-457, at 43 (1999) (Conf. Rep.), reprinted
in 1999 U.S.C.C.A.N. 304, 314. Thus, Congress intended to model the Kingpin Act off of the
success of the IEEPA, and therefore cases establishing due process rights under the IEEPA are
instructive here.
More importantly, the process being challenged here is the same under the IEEPA as it is
under the Kingpin Act—that outlined in 31 C.F.R. § 501.807. This is because a designation
under either statute results in the person or entity’s name being published on the same “Specially
Designated Nationals” list. See 31 C.F.R. Ch. V, App. A (“OFAC maintains on its Web site [sic]
a list of blocked persons, blocked vessels, specially designated nationals, specially designated
terrorists, specially designated global terrorists, foreign terrorist organizations, and specially
designated narcotics traffickers . . . [t]his Specially Designated Nationals and Blocked Persons
List is updated frequently . . . .”). The legal consequence of this list is that OFAC’s
22
designation-challenging procedures for such persons designated, under both the IEEPA and the
Kingpin Act, are identical. See 31 C.F.R. § 501.807(a) (“A person blocked under the provisions
of any part of this chapter, including a specially designated national, specially designated
terrorist, or specially designated narcotics trafficker (collectively, a ‘blocked person’) . . . may
submit arguments or evidence that the person believes establishes that insufficient basis exists
for the designation.”). 13 Moreover, Mr. Zevallos has not identified how, if at all, the property or
13
Mr. Zevallos argues that the Kingpin Act and the IEEPA are significantly
different statutes and that likening the IEEPA’s procedures to the Kingpin Act is not appropriate.
See Pl.’s Opp’n Mot. to Dismiss 14–15. In support, Mr. Zevallos cites Stansell v. Revolutionary
Armed Forces of Colombia, 704 F.3d 910 (11th Cir. 2013) and World Fuel Corp. v. Geithner,
568 F.3d 1345 (11th Cir. 2009). In Stansell, the court held that “blocked assets” under the Anti-
Terrorism Act did not constitute “blocked assets” under the Kingpin Act. 704 F.3d at 917. That
court rejected the appellee’s argument that because the Kingpin Act was “expressly modeled on
the Economic Powers Act and was birthed from that statute’s successful execution . . . an asset
seized or frozen under the Kingpin Act is by definition an asset seized or frozen under the
Economic Powers Act.” Id. at 914–15. The Stansell court found that “[s]imilarities between
laws . . . do not make them the same law. The Kingpin Act is not the Economic Powers Act.”
Id. at 917. That court’s decision does not affect this Court’s analysis because that case was not a
case interpreting the process due under either statute, but rather, that case interpreted the phrase
“blocked asset” under the Terrorism Act. As such, its notation in dicta that the statutes are
different does not persuade this Court that in the context of determining the process due under
both statutes,—which the Stansell court did acknowledge are very similar—the analogy is not
appropriate.
Meanwhile, in World Fuel, the Eleventh Circuit described in detail the district court’s
finding, in an unpublished opinion, that OFAC’s procedure for denying a license was arbitrary
and capricious because OFAC had used the same procedure for denying a license under the
Kingpin Act that it engaged in for denying a license under the IEEPA. 568 F.3d at 1349. The
circuit court acknowledged the district court’s order that “OFAC cannot use the same factors to
evaluate license applications regardless of whether the funds were blocked under the Kingpin
Act or the IEEPA.” Id. at 1348. As the circuit court explained, the district court’s remand
decision was based on the fact that OFAC relied on licensing factors under the IEEPA that were
irrelevant to the Kingpin Act—namely “presidential leverage” power with other countries, and
“the protection of future creditors”—which, notwithstanding the similarities in the statutes, were
irrelevant to the Kingpin Act. Id. at 1347–48. As such, the district court remanded the case to
OFAC so that OFAC could establish the proper criteria under the Kingpin Act. That decision,
however, does not render the adoption of the IEEPA due process requirements inapplicable to
the Kingpin Act.
The same rationale that justifies no pre-deprivation notice and hearing under the IEEPA
also proves true for the Kingpin Act. That is, pre-designation notice would undermine the
23
liberty interests implicated by the Kingpin Act require any different or additional procedural
protections than those implicated by the IEEPA. Based on the connection between the two
statutes, the similar property and liberty interests implicated by both, and the identical procedural
regulations pertaining to them both, the Court finds that the due process required under the
IEEPA is the same process required under the Kingpin Act.
a. Pre-deprivation Process 14
Under the IEEPA, courts generally hold that OFAC need not provide pre-deprivation
notice and hearing, given the government’s compelling interest in the immediate blocking of
assets upon designation. See Kadi, 2012 WL 898778, at *24 (“notice and a meaningful
opportunity to be heard are satisfied by the provision of a post-deprivation administrative remedy
and the opportunity to submit written submissions to OFAC, even where (as here) the initial
designation provided no notice or opportunity to be heard”) (emphasis added) (citing Holy Land
II, 333 F.3d at 163‒164); Islamic Am. Relief Agency v. Unidentified FBI Agents (“Islamic Am.
Relief Agency I”), 394 F. Supp. 2d 34, 49–50 (D.D.C. 2005), aff’d in part, remanded on other
grounds, 477 F.3d 728 (D.C. Cir. 2007) (“the Court agrees with the defendants’ position that the
plaintiff[s] were not entitled to pre-deprivation notice and a hearing” under the IEEPA); Holy
purpose of the Kingpin Act, which is to “protect the national security, foreign policy, and
economy of the United States from the threat” that results “from the activities of international
narcotics traffickers and their organizations,” because it would alert the would-be designees in
time to move their assets. 21 U.S.C. § 1901(b) & § 1901(a)(4). Indeed, this concern is reflected
in the Kingpin Act Congressional Record. See H.R. REP. NO. 106-457, at 47 (1999) (Conf.
Rep.), reprinted in 1999 U.S.C.C.A.N. 304, 318 (explaining that in the IEEPA context, “Federal
courts have held that no pre-deprivation hearing is required in blocking of assets because of the
Executive Branch’s plenary authority to act in the area of foreign policy and the obvious need to
take immediate action upon designation to avoid dissipation of affected assets.”). Thus, the
plaintiff’s arguments do not persuade this Court that the same due process procedures applicable
to the IEEPA should not also govern in the context of the Kingpin Act.
14
As set forth above, it is unclear that Mr. Zevallos can, or does, challenge his 2004
designation (and therefore any procedural due process rights associated with that designation) in
this action.
24
Land I, 219 F. Supp. 2d at 76–77 (finding no procedural due process violation where no pre-
deprivation notice was given because, inter alia, “prior notice to such designated persons of
measure to be taken . . . would render these measures ineffectual”) (citations omitted); Global
Relief Found., Inc. v. O’Neill, 207 F. Supp. 2d 779, 804 (N.D. Ill. 2002), aff’d, 315 F.3d 748 (7th
Cir. 2002) (“Pre-deprivation notice would, in fact, be antithetical to the objectives of these
sanctions programs, and, as a result, it is OFAC policy when initiating a blocking pursuant to
IEEPA not to provide pre-blocking notice.”). See also Al Haramain Islamic Found., 686 F.3d at
985 (“As the district court noted, and as many courts have held, the potential for ‘asset flight’
almost certainly justifies OFAC’s decision not to provide notice before freezing the assets.”).
In reaching the determination that an IEEPA designation does not require pre-deprivation
notice, those cases rely on the test articulated by the Supreme Court in Calero-Toledo v. Pearson
Yacht Leasing Co., 416 U.S. 663 (1974). See Islamic Am. Relief Agency I, 394 F. Supp. 2d at 49,
Holy Land I, 219 F. Supp. 2d at 76; Global Relief, 207 F. Supp. 2d at 803. 15 In Calero-Toledo,
the Court explained that “[first,] immediate seizure of a property interest, without an opportunity
for prior hearing, is constitutionally permissible . . . [where] the seizure has been directly
necessary to secure an important governmental or general public interest.” Id. at 678. “Second,
there has been a special need for very prompt action. Third, the State has kept strict control over
its monopoly of legitimate force: the person initiating the seizure has been a government official
15
And, as defendants note in their brief, Judge Kennedy, in an unpublished order on
a motion for a temporary restraining order and a preliminary injunction, also applied the Calero-
Toledo factors in finding that notice and hearing were likely not necessary pre-designation under
the Kingpin Act. See Memorandum Opinion on Plaintiff’s Application for a Temporary
Restraining Order and Preliminary Injunction, Aero Contintente, S.A., v. Newcomb, No. 04-cv-
1168 (D.D.C. July 16, 2004), ECF No. 8; also attached as Ex. A to Def.’s Mot. to Dismiss, ECF
No. 11-2.
25
responsible for determining, under the standards of a narrowly drawn statute, that it was
necessary and justified in the particular instance.” Id.
Under the Calero-Toledo factors, even absent analogizing to IEEPA authority, OFAC did
not need to provide pre-deprivation notice and hearing to comport with due process in this case
involving the Kingpin Act. The “important governmental interest” and “special need for prompt
action” are evidenced here by the Kingpin Act’s Congressional record. See H.R. REP. NO. 106-
457, at 47 (1999) (Conf. Rep.), reprinted in 1999 U.S.C.C.A.N. 304, 318 (“Federal courts have
held [in the context of the IEEPA] that no pre-deprivation hearing is required in blocking of
assets because of the Executive Branch’s plenary authority to act in the area of foreign policy
and the obvious need to take immediate action upon designation to avoid dissipation of affected
assets.”). In the context of the Kingpin Act, which is aimed at “bankrupt[ing] and disrupt[ing]
the major narcotics trafficking organizations,” the same sense of urgency predominates—there is
an obvious need to take immediate action upon designation to avoid dissipation of affected
assets. See H.R. REP. NO. 106-457, at 43. That is demonstrated in this case, where Mr.
Zevallos’s “property within the United States,” see 21 U.S.C. § 1904(b), could easily be moved
from the United States to elsewhere at a moment’s notice—and in fact was, see e.g., AR001061,
AR001063‒1064 (listing certain wire transfers from Miami, Florida to Lima, Peru). Thus, the
first two Calero-Toledo factors—important government interest and special need for prompt
action—are satisfied. The third factor is satisfied here because the Department of the Treasury,
under the standards of the Kingpin Act and its promulgating regulations, issued the blocking
order, thereby keeping “strict control over its monopoly of legitimate force.” Calero-Toledo,
416 U.S. at 678. Thus, Mr. Zevallos was not entitled to a pre-deprivation notice and hearing—
either under Calero-Toledo, or IEEPA authority.
26
b. Post-deprivation Process
Because the Court finds that pre-deprivation process is not necessary here, the question
becomes what post-deprivation process is due. This issue is also one of first impression in this
Circuit, and again, the context of the IEEPA provides a helpful analogy. As this Court recently
explained, “the D.C. Circuit in Holy Land . . . held that notice and a meaningful opportunity to be
heard are satisfied by the provision of a post-deprivation administrative remedy and the
opportunity to submit written submissions to OFAC, even where [] the initial designation
provided no notice or opportunity to be heard.” Kadi, 2012 WL 898778, at *24. See also Holy
Land II, 333 F.3d at 163 (explaining that under the IEEPA, the Secretary of the Treasury must
“afford to entities . . . at least in written form, such evidence as those entities may be able to
produce to rebut the administrative record or otherwise negate the proposition that they are
foreign terrorist organizations”) (quoting Nat’l Council for Resistance of Iran v. Dep’t of State,
251 F.3d 192, 209 (D.C. Cir. 2001)). In addition to post-designation notice and an opportunity to
present evidence in written form to rebut the basis for the designation, courts have required
OFAC to promptly provide the unclassified administrative record on which it relied in taking its
blocking action. See Holy Land II, 333 F.3d at 164 (stating due process requires disclosure of
the unclassified portions of the administrative record); KindHearts for Charitable Humanitarian
Dev., Inc. v. Geithner, 647 F. Supp. 2d 857, 905 (N.D. Ohio 2009) (“OFAC, should, at the very
least, have promptly given KindHearts the unclassified administrative record on which it relied
in taking its blocking action.”).
27
Here, based on the correspondence between OFAC and Mr. Zevallos, the Court finds that
Mr. Zevallos was provided with adequate post-deprivation process. 16 Mr. Zevallos was provided
with notice and an “opportunity to present, at least in written form, such evidence . . . to rebut the
administrative record or otherwise negate the proposition” that he was an SFNT. See Nat’l
Council of Resistance, 251 F.3d at 209. When Mr. Zevallos renewed his request for
reconsideration in July 2009, OFAC asked Mr. Zevallos for more information via questionnaire,
so that it could update its designation status of him. See AR001050-1053. Mr. Zevallos
responded with a 12-page answer to OFAC’s questions in November 2009. AR000958. He
included in both the July 2009 and the November 2009 OFAC submissions the December 23,
2004, 32-page memorandum that he originally submitted to OFAC to contest his 2004
designation. See AR001233 n.6; AR001206, AR000969. The record shows that Mr. Zevallos
thus received notice of his designation, and “submit[ted] arguments or evidence” that he believed
“establishe[d] that insufficient basis exists for the designation” in accordance with 31 C.F.R. §
501.807(b). That OFAC did not ultimately agree with Mr. Zevallos’s characterization of the
evidence against him does not mean that he was not provided with due process in the wake of his
2009 request for reconsideration.
Mr. Zevallos further argues that OFAC’s “failure to review [his] evidence supporting his
delisting, as well as [its] unfailing silence over the years, surely does not represent a ‘meaningful
opportunity to be heard . . . .’” Pl.’s Opp’n Mot. to Dismiss 25. The Court finds the first
argument unavailing. The record shows that OFAC did review Mr. Zevallos’s submissions and
16
As set forth above, the 2004 designation is likely beyond the six-year statute of
limitations. In addition, OFAC reasonably concluded that Mr. Zevallos abandoned contesting
his 2004 designation when he voluntarily dismissed his previous suit. See AR001235, ECF No.
7-7; Zevallos v. Bush, Civ. No. 05-2196 (D.D.C. Dec. 21, 2005), ECF No. 7. Thus, the Court
only considers the time period from 2009 through 2013, when Mr. Zevallos renewed his request
for delisting.
28
evidence, given that it explained Mr. Zevallos’s arguments and why those arguments were not
persuasive in its 2013 Evidentiary Memorandum. See AR001238. OFAC’s misplacement 17 of
Mr. Zevallos’s exhibits submitted with his December 23, 2004 memorandum did not affect its
ability to consider the arguments and evidence contained in that 32-page memorandum in its
2013 decision. Specifically, OFAC considered the results of Mr. Zevallos’s polygraph test, the
other arguments he made in his December 23, 2004 letter, and his response to OFAC’s 2009
questionnaire. See AR001238, AR001240–1241, AR001279, AR000958–969. In concluding
that delisting Mr. Zevallos was not appropriate, OFAC stated, “[a]fter a thorough review of all
the evidence, including that provided by [Mr. Zevallos] . . . there is a reasonable basis to
determine that he merits continued listing” and he “has failed to demonstrate that an insufficient
basis exists for the designation.” See AR001272.
Mr. Zevallos’s second argument regarding OFAC’s “unfailing silence” is a closer call—
though the Court ultimately finds no due process violation here either. Two courts have found
procedural due process rights violations where OFAC has been dilatory in its response time. In
KindHearts, for instance, the court found that OFAC’s delay of fifteen months in providing the
plaintiff with an evidentiary memorandum and evidence supporting its designation of an
organization as a Specially Designated Global Terrorist violated the plaintiff’s due process
rights. 647 F. Supp. 2d at 903–904. The court explained that “promptness is an important aspect
of the due process right to be heard.” Id. at 906 (citing Barry v. Barchi, 443 U.S. 55, 64 (1979)).
Employing the Barchi balancing test, the court went on to explain that OFAC waiting fifteen
months, providing a largely uninformative, unclassified record to KindHearts, and losing a 1369-
17
The plaintiff has not specified how any evidence from the lost binders would have
affected the outcome in this case. He can re-submit this new evidence in a new petition for
reconsideration to OFAC, however, if he chooses.
29
page submission that KindHearts attached to its preliminary response did not provide KindHearts
with a meaningful opportunity to be heard. Id. at 906–908.
In Al Haramain, OFAC waited seven months before giving Al Haramain a statement of
reasons why it had been provisionally designated a terrorist organization under the IEEPA. 686
F.3d at 985–986. The Court found that the seven-month waiting period, combined with the fact
that over a period of four years, OFAC only released “one document [that] could be viewed as
supplying some reasons for OFAC’s investigation and designation decision,” failed to provide
meaningful notice to Al Haramain. Id.
There are certainly similarities between the delays in KindHearts and Al Haramain, and
in the present case. The Court notes that three years of radio silence from OFAC is troubling.
From October 2009 to November 2012, Mr. Zevallos did not hear from OFAC, notwithstanding
his writing at least two letters to OFAC seeking an answer to his request for reconsideration. See
Pl.’s Opp’n Mot. to Dismiss 10; AR001236–1237 (chronicling Mr. Zevallos’s and OFAC’s
correspondence in that time period). In addition, OFAC did misplace a volume of exhibits
provided with Mr. Zevallos’s initial December 23, 2004 submission.18 AR001233 n.6.
KindHearts and Al Haramain are ultimately distinguishable, however, because those
cases raise concerns about meaningful notice not present here. OFAC provided Mr. Zevallos
with a redacted, unclassified version of exhibits in June 2005 and September 2005 (six months
after a request was made), thus providing him with a basis from which to understand his
designation, and thereby offer rebuttal arguments and evidence in response—which he did. See,
e.g., October 17, 2005 letter, AR001004; July 8, 2009 letter AR001203‒1207, November 2, 2009
18
Though again, the Court notes that the 2004 designation is not at issue here, and
the loss of these exhibits does not really bear on the 2013 decision, because, as set forth above,
OFAC was still able to consider the arguments Mr. Zevallos raised in the December 23, 2004,
memorandum that he resubmitted in 2009, when it issued its 2013 decision.
30
letter, AR000958-969. In contrast, the KindHearts and Al Haramain courts were troubled by the
fact that the designated entities were left in the dark as to the reasons for their designations, and
therefore could not meaningfully refute the evidence against them. That was not the case for Mr.
Zevallos, as he was able to proffer rebuttal evidence and arguments to OFAC to contest his
designation.
Mr. Zevallos’s meaningful opportunity to be heard is further evidenced by the 2009
questionnaire OFAC sent to him in response to his renewal of his reconsideration request, and
his opportunity to respond to that. See AR001236. These facts make this case, therefore, more
analogous to Kadi, 2012 WL 898778, at *24. In Kadi, the court found that, notwithstanding
OFAC’s twenty-seven month delay in issuing a decision, 19 Kadi had a meaningful opportunity to
be heard because he “availed himself of the opportunity to rebut the evidence he considered
erroneous,” and because he “did receive an opportunity, in substance, to rebut the evidence
found in the unclassified record through his own submissions to OFAC, as well as the
opportunity to respond robustly to OFAC’s follow-up questions . . . .” Id. at *24. Similarly, Mr.
Zevallos availed himself of the opportunity to rebut the evidence he considered erroneous, and
“respond robustly to OFAC’s follow-up questions” in his 12-page November 2009 questionnaire
response, which included his December 23, 2004, 32-page memorandum of arguments and
evidence refuting the evidence OFAC considered against him in its 2004 designation decision—
all of which was considered by OFAC in reaching its 2013 decision. Ultimately, Mr. Zevallos
was given a meaningful opportunity to be heard by OFAC—that OFAC did not reach a favorable
conclusion in a time frame Mr. Zevallos would have preferred does not make it violative of his
constitutional rights.
19
Kadi petitioned OFAC for reconsideration on December 21, 2001, and OFAC
issued a decision denying that request on March 12, 2004. Kadi, 2012 WL 898778, at *2.
31
Finally, the Court notes that even if it found a due process violation based on delay, the
error would nevertheless be harmless. See, e.g., Tennessee Secondary Sch. Athletic Ass’n v.
Brentwood Acad., 551 U.S. 291, 303 (2007) (concluding that even if a school violated the
plaintiff’s procedural due process rights, such a violation was harmless beyond a reasonable
doubt). Harmless errors have been characterized as those “small errors or defects that have little,
if any, likelihood of having changed the result of the trial.” Chapman v. California, 386 U.S. 18,
22 (1967). Even if OFAC had issued a decision earlier than June 2013, it ultimately reached the
same conclusion about Mr. Zevallos that it had reached in 2004—that he warranted designation
as an SFNT. And Mr. Zevallos has provided no evidence indicating that he was prejudiced by
any delay. OFAC considered the arguments Mr. Zevallos made in rebuttal to his designation and
ultimately concluded that, “[a]fter a thorough review of all evidence, including that provided by
[Mr. Zevallos . . . that Mr. Zevallos] has failed to demonstrate that an insufficient basis exists for
the designation.” AR001272. Mr. Zevallos has not provided any basis to conclude that a more
prompt decision would have affected the outcome—as OFAC would still have designated Mr.
Zevallos an SFNT in light of the substantial evidence it had against him. Accord Al Haramain
Found., Inc. v. Dep’t of Treasury, No. 07-115-KI, 2009 WL 3756363 (D. Or. Nov. 5, 2009), at
*8–9, rev’d on other grounds, 686 F.3d 965 (9th Cir. 2011) (finding that “nothing [the
designated entity] could have done would have changed the agency’s decision”). See also Al
Haramain, 686 F.3d at 990 (“Even if [the entity] had enjoyed better access to classified
information and constitutionally adequate notice, we are confident that it would not have
changed OFAC’s ultimate designation determination.”).
32
Though OFAC was not necessarily prompt in reaching its continued designation decision
in 2013, Mr. Zevallos was given a meaningful opportunity to be heard. Mathews, 424 U.S. at
333. In the due process context, this is all the law requires.
2. Substantive Due Process (Count II)
Mr. Zevallos also argues that OFAC violated his substantive due process rights because
its denial of his delisting petition was “deliberately contrary to the law.” Pl.’s Opp’n Mot. to
Dismiss 27. In the D.C. Circuit, a plaintiff can show a substantive due process violation by
showing a “grave unfairness” committed by government officials. Tri Cnty. Industries, Inc. v.
District of Columbia, 104 F.3d 455, 459 (D.C. Cir. 1997). There are two ways in which a
plaintiff might show a “grave unfairness:” “(1) a substantial infringement of state law prompted
by personal or group animus, or (2) a deliberate flouting of the law that trammels significant
personal or property rights . . . .” Id.
As set forth above, neither Mr. Zevallos’s 2004 designation (to the extent it can, or even
is being challenged here) nor his 2013 continued designation were arbitrary and capricious, nor
did they violate Mr. Zevallos’s procedural due process rights. It would be a far stretch to say that
notwithstanding those two findings, OFAC had committed a “grave injustice” against Mr.
Zevallos. See also Holy Land I, 219 F. Supp. 2d at 77 (finding that because the court had
determined that OFAC’s designation was not arbitrary and capricious under the APA, “it [is]
clear that the agency action did not rise to the level of a [substantive due process] constitutional
violation”). Therefore, the Court finds that without the requisite “grave injustice,” Mr.
Zevallos’s substantive due process claim fails.
33
3. Takings (Count III)
Finally, Mr. Zevallos argues that the blocking of his assets contemporaneously with his
SFNT designation amount to a taking without just compensation in violation of the Fifth
Amendment. But Mr. Zevallos has not met his burden of establishing that this Court has
jurisdiction over such a claim.
Under the Fifth Amendment, no “private property [shall] be taken for public use, without
just compensation.” U.S. Const. amend. V. The Tucker Act, 28 U.S.C. § 1491(a), provides that
the “United States Court of Federal Claims shall have jurisdiction to render judgment upon any
claim against the United States founded . . . upon the Constitution . . . .” As such, district courts
have found that they lack subject matter jurisdiction to hear takings claims brought under the
IEEPA. See Kadi, 2012 WL 898778, at *25; Zarmach Oil Servs., 750 F. Supp. 2d at 159.
However, Mr. Zevallos alleges that this Court may have concurrent jurisdiction over his
takings claim against the United States because the value of his blocked property may not exceed
$10,000. See Pl.’s Opp’n Mot. to Dismiss 27 (emphasis added). 28 U.S.C. § 1346(a)(2)
provides that “[t]he district courts shall have original jurisdiction, concurrent with the United
States Court of Federal Claims, of [a]ny other civil action or claim against the United States, not
exceeding $10,000 in amount, founded . . . upon the Constitution . . . .” (emphasis added).
Again, it is the plaintiff’s burden to establish subject matter jurisdiction, see Lujan, 504 U.S. at
561, and Mr. Zevallos’s vague speculation fails to meet this criteria. The Court notes that in the
2007 Indictment from the U.S. District Court for the Southern District of Florida, the property
value of houses either in Mr. Zevallos’s name or control exceeds $700,000. See AR001058 at ¶
7. It is therefore highly improbable that the value of his “taken” property falls below the
statutory maximum for concurrent jurisdiction, signaling that Mr. Zevallos has not met his
34
burden of establishing that the Court has jurisdiction to hear his takings claim. As such, the
Court must dismiss that claim for lack of subject matter jurisdiction under Fed. R. Civ. P.
12(b)(1). 20
The defendants moved to dismiss, or in the alternative, for summary judgment on the due
process claims, and moved to dismiss for lack of subject matter jurisdiction, or in the alternative,
for failure to state a claim on the takings claim. As set forth above, the Court enters judgment
for OFAC on the procedural and substantive due process claims (Counts I & II), and dismisses
the takings claim (Count III) under Fed. R. Civ. P. 12(b)(1).
IV. CONCLUSION
For the foregoing reasons, the defendants’ motion is GRANTED. An order consistent
with this Memorandum Opinion is separately and contemporaneously issued.
Dated: January 17, 2014 RUDOLPH CONTRERAS
United States District Judge
20
Even if the Court did have subject matter jurisdiction to hear Mr. Zevallos’s
takings claim, however, it is unclear that he would prevail on the merits, as this court has held
that “a blocking of assets pursuant to an executive order is not a taking within the meaning of the
Fifth Amendment.” Zarmach Oil Servs., Inc. v. Dep’t of Treasury, 750 F. Supp. 2d 150, 159
(D.D.C. 2010) (citing Islamic Am. Relief Agency v. Unidentified FBI Agents, 394 F. Supp. 2d 34,
51 (D.D.C. 2005), aff’d in part, remanded on other grounds, 477 F.3d 728 (D.C. Cir. 2007)).
35