United States Court of Appeals, District of Columbia Circuit
November 9, 2016
from the United States District Court for the District of
Columbia (No. 1:14-cv-02220)
N. Taylor argued the cause and filed the briefs for
S. Volkman was on the brief for amicus curiae JPM Legal
Advisors Worldwide Limited in support of appellant.
S. Yelin, Attorney, U.S. Department of Justice, argued the
cause for appellees. With him on the brief were Benjamin C.
Mizer, Principal Deputy Assistant Attorney General, and
Douglas N. Letter and Sharon Swingle, Attorneys.
Before: Rogers and Griffith, Circuit Judges, and Silberman,
Senior Circuit Judge.
Griffith, Circuit Judge
1995, President Clinton imposed trade sanctions against Iran
that are enforced by the Office of Foreign Assets Control
within the Department of the Treasury. OFAC is authorized to
impose civil penalties against any person who exports goods
to a third party who it has reason to know intends to send
them to Iran. The principal question raised by this appeal is
whether OFAC must also show that the goods actually ended up
in Iran. We agree with the agency that the government need
not make that showing and affirm the district court on that
ground. But we also conclude that OFAC did not adequately
explain parts of its determination that the exporter here had
reason to know that its shipments would be sent on to Iran.
the President identifies an "unusual and extraordinary
threat" to the American economy, national security, or
foreign policy that originates from abroad, see 50
U.S.C. § 1701, the International Emergency Economic
Powers Act authorizes him to declare a national emergency and
address the threat by regulating foreign commerce, see
id. § 1702. In 1995, President Clinton determined
that Iran's "support for international terrorism,
its efforts to undermine the Middle East peace process, and
its efforts to acquire weapons of mass destruction"
represented a national emergency, see Iranian
Transactions Regulations, 77 Fed. Reg. 64, 664, 64, 664 (Oct.
22, 2012), and, invoking his authority under the Act, imposed
comprehensive trade sanctions on Iran by executive order,
see Exec. Order No. 12, 959, 60 Fed. Reg. 24, 757,
§ 1 (May 6, 1995).
implemented the President's executive order in September
1995 by promulgating the Iranian Transactions and Sanctions
Regulations, see 60 Fed. Reg. 47, 061 (Sept. 11,
1995), which are now codified, as amended, at 31 C.F.R. pt.
560. Among other prohibitions, the regulations forbid
"the exportation, reexportation, sale, or supply,
directly or indirectly . . . of any goods, technology, or
services to Iran" by United States individuals and
businesses, including exportation to a third country with
"knowledge or reason to know" that the goods are
"intended specifically" for reexportation to Iran.
See 31 C.F.R. § 560.204.
agency has invoked that prohibition against appellant Epsilon
Electronics, a California-based wholesaler of sound systems,
video players, and other accessories for cars. The
company's wares can be found across the globe, from Latin
America to Africa and the Middle East. Asra International
Corporation, a distributor based in Dubai, has been one of
Epsilon's trading partners. Between 2008 and 2012,
Epsilon sent thirty-nine shipments of consumer goods to Asra,
valued at about $3.4 million.
began investigating Epsilon in 2011, when the agency learned
about a 2008 shipment from Epsilon's California
headquarters to an address in Tehran, Iran. In response to an
administrative subpoena, Epsilon's
president denied knowledge of the shipment and suggested that
a lower- level employee had sent the package without the
in 2011, OFAC also learned that Epsilon had received multiple
wire transfers from a Dubai bank, made on behalf of Asra
International. The agency examined Asra's website, which
touted the company's success in the Iranian market,
contained a directory of dealers who were all located in
Iran, and displayed photos from trade shows in various
Iranian cities. Some of these photos also appeared on
Epsilon's website. OFAC suspected that the company's
shipments to Asra were "destined for Iran, " and
opened a second investigation on Epsilon in December 2011.
The agency issued an administrative subpoena to Epsilon's
bank, seeking information about the company's
transactions with Asra.
meantime, OFAC decided to close its investigation of the 2008
shipment. In January 2012, the agency sent Epsilon a letter
explaining that the shipment appeared to have violated OFAC
regulations, and warning that those regulations
"prohibit virtually all" American trade with Iran.
Appellant's App. [A.A.] 94. OFAC explained that it would
not penalize Epsilon for the shipment but that the agency
could take this apparent violation into account in any future
OFAC did not close its parallel investigation of
Epsilon's dealings with Asra. In May 2012, the agency
sent Epsilon another administrative subpoena, requesting
further details on the company's transactions with Asra
and with Iran. Epsilon responded that it had no dealings with
Iran and that none of its shipments to Asra were intended for
Iran. The company submitted invoices chronicling thirty-four
shipments to Asra.
February and May 2012, while OFAC's investigation
continued, Epsilon sent Asra five more shipments. During this
period, Epsilon managers corresponded by email with an Asra
manager, Shahriar Hashemi, who described plans to launch a
Dubai retail store under "Asra's flag." A.A.
118. The emails record Hashemi and Epsilon negotiating
several orders, and show Hashemi mentioning plans for his
showroom, complaining about another Dubai shop selling
Epsilon products, worrying about whether Epsilon products
could endure Dubai's heat, and anticipating sales to
African and Central Asian customers. An Epsilon manager
promised Hashemi that the Dubai retail market was "all
yours." See A.A. 119.
2014, OFAC tentatively concluded that all thirty-nine of
Epsilon's shipments to Asra violated 31 C.F.R. §
560.204 because each was made with knowledge, or reason to
know, that Asra intended to reexport the goods to Iran. The
agency sent Epsilon a Prepenalty Notice, declaring its intent
to impose a civil monetary penalty of $4, 073, 000, subject
to Epsilon's response. OFAC arrived at that dollar amount
by applying its penalty guidelines, which required the agency
to determine whether any of the violations were voluntarily
disclosed and whether any were "egregious." See
generally 31 C.F.R. pt. 501, App. A. OFAC found that
none of Epsilon's violations was voluntarily disclosed,
and that the last five shipments, made after Epsilon received
OFAC's January 2012 cautionary letter, were egregious.
Though the agency has authority to depart upward or downward
from the guideline penalty, it decided not to do so after
balancing the aggravating and mitigating factors.
July 2014, OFAC issued a final Penalty Notice, formally
imposing a $4, 073, 000 civil penalty. The agency had not
been persuaded by Epsilon's response to the Prepenalty
Notice, which again denied any knowledge or reason to know
that Asra distributed Epsilon's products in Iran. The
Penalty Notice explained that "multiple facts tend to
show that the goods exported to Asra were sent to Iran and
that Epsilon knew or had reason to know that the goods were
intended specifically for supply, transshipment, or
reexportation, directly or indirectly, to Iran."
Although the Notice recited much of the evidence against
Epsilon, it never mentioned the emails between Epsilon
management and Hashemi.
issuance of the Penalty Notice was final agency action.
See 31 C.F.R. § 560.704. In December 2014,
Epsilon sued OFAC in district court. Epsilon's complaint
sought declaratory and injunctive relief against enforcement
of the civil penalty. On March 7, 2016, the district court
granted summary judgment in favor of the government. See
Epsilon Elecs., Inc. v. U.S. Dep't of Treasury, 168
F.Supp.3d 131, 147 (D.D.C. 2016).
timely appealed. We have jurisdiction under 28 U.S.C. §
1291, and review de novo the district court's entry of
summary judgment in favor of the government. Islamic Am.
Relief Agency v. Gonzales (IARA), 477 F.3d 728,
732 (D.C. Cir. 2007). As the Administrative Procedure Act
requires, our review is "highly deferential" to the
agency, meaning we may set aside OFAC's action "only
if it is arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law." IARA,
477 F.3d at 732 (quoting 5 U.S.C. § 706(2)(A)). Under
that standard, we will uphold agency findings that are
supported by substantial evidence, even if we might have
reached a different conclusion in the first instance.
See, e.g., United Steel Workers Int'l Union
v. Pension Benefit Guar. Corp., 707 F.3d 319, 325 (D.C.
Cir. 2013). That deference has a caveat: although the APA
does not permit us to substitute our judgment for the
agency's, we must ensure that the agency has
"articulate[d] a satisfactory explanation for its action
including a 'rational connection between the facts found
and the choice made.'" Motor Vehicle Mfrs.
Ass'n of the U.S. v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines,
Inc. v. United States, 371 U.S. 156, 168 (1962)).
asks us to set aside these fundamental doctrines of
administrative law by reviewing OFAC's decision de novo
instead of under the APA's arbitrary-and-capricious
standard. We have described de novo review in an APA case as
"extraordinary and rare, " so rare, in fact, that
we have never done so. Zevallos v. Obama, 793 F.3d
106, 112 (D.C. Cir. 2015). Although dicta in one of our cases
left the door open to such scrutiny where the agency's
factfinding procedures are "severely defective, "
Nat'l Org. for Women v. Soc. Sec. Admin., 736
F.2d 727, 745 (D.C. Cir. 1984) (Mikva & McGowan, JJ.,
concurring), we need not decide what such an analysis would
entail, because Epsilon failed to preserve any argument for
de novo review before the district court. See Mem.
Supp. Pl.'s Mot. in Opp'n to Defs.' Mot. Summ. J.
9, Epsilon, 168 F.Supp.3d 131 (No. 14-2220 (RBW)),
ECF No. 19-1 [hereinafter Epsilon Mot. Summ.
J.]. Accordingly, we will adhere to
the "arbitrary [and] capricious" standard set out
in 5 U.S.C. § 706(2)(A).
offers three challenges to the civil penalty that OFAC
imposed. First, the company contends that none of its
thirty-nine shipments to Asra were in violation of the
Iranian Transactions and Sanctions Regulations. Second,
Epsilon claims that the amount of the penalty assessed is not
only arbitrary and capricious, but also an "excessive
fine" forbidden by the Eighth Amendment. Third, the
company argues that its due process rights were violated
because it had insufficient notice of the evidence that OFAC
intended to rely on.
first consider whether OFAC properly found Epsilon liable for
thirty-nine violations of section 560.204 of the Iranian
Transactions and Sanctions Regulations. In addressing that
issue, we face a threshold question of regulatory
interpretation. To hold a party liable for a breach of
section 560.204, must OFAC prove that goods shipped by that
party actually arrived in Iranian territory? Or can liability
rest solely on a showing that the party shipped goods to a
third party, with reason to know that the recipient
specifically intended to reexport them to Iran?
advances the former position, and contends there is no
substantial evidence that the thirty-nine shipments at issue
ever entered Iran. OFAC responds that the regulation's
plain text does not require such a showing. See
Appellee Br. 29 ("Under the unambiguous terms of the
regulation, actual reexportation to Iran by the person in the
third country is not required for a violation."). The
agency also urges us to defer to its interpretation if we
find the regulation ambiguous. See Auer v. Robbins,
519 U.S. 452, 461 (1997). However, the reading of section
560.204 that OFAC has adopted is the same reading that we
would have adopted in the absence of any agency
interpretation. We therefore need not decide whether
Auer deference would be appropriate in this
begin with the regulation's text. See In re
England, 375 F.3d 1169, 1177 (D.C. Cir. 2004). Section
Except as otherwise authorized pursuant to this part . . .
the exportation, reexportation, sale, or supply, directly or
indirectly, from the United States, or by a United States
person, wherever located, of any goods, technology, or
services to Iran or the Government of Iran is prohibited,
including the exportation, reexportation, sale, or supply of
any goods, technology, or services to a person in a third
country undertaken with knowledge or reason to know that:
(a) Such goods, technology, or services are intended
specifically for supply, transshipment, or reexportation,
directly or indirectly, to Iran or the Government of Iran . .
analysis at first glance appears straightforward. The
regulation prohibits "the exportation  of any goods 
to a person in a third country undertaken with knowledge or
reason to know that [s]uch goods  are intended specifically
for  reexportation  to Iran." See id. That
prohibition, on its face, has only two elements: (1) the
exportation of goods to "a person in a third
country" and (2) "knowledge or reason to know"
that the third-country recipient plans to send the goods on
to Iran. Id. The goods' actual arrival in Iran
is not mentioned, meaning that proof of this event is not
required for a liability finding under the prohibition on
in response, points to the word "including." The
rule just discussed is "includ[ed]" within a
broader prohibition on "exportation . . . to Iran."
See id. The company argues that the "word
'including' makes clear there is no separate
prohibition on exports to third countries independent from
re- exportation to Iran." Appellant Reply Br. 6. This
argument relies on an unstated premise: that goods have not
been exported "to Iran" until they actually reach
Iranian territory. OFAC, by contrast, assumes that the phrase
"to Iran" refers to the sender's intent, not
the ultimate arrival of the goods. In other words, on
OFAC's interpretation, goods have been "export[ed] .
. . to Iran" when the exporter puts them in transit,
with Iran as the intended final destination.
think OFAC's reading more closely aligns with ordinary
English usage. Suppose you put a birthday card in the mail,
addressed to your brother. While the card is still en route,
your mother asks you, "Did you send a card to your
brother?" In line with OFAC's usage, you would
respond, "I sent a card to him, but it hasn't
arrived yet, " because you put the card in transit,
intending it to reach him. Following Epsilon's usage,
though, you would have to say, "I didn't send a card
to him, " because the card has not yet arrived.
(Stranger still, if you were uncertain whether the card had
reached his mailbox, you might answer, "I don't know
if I sent a card to him or not.") The first statement is
more consistent with the way ordinary English speakers talk.
Cf. Bond v. United States, 134 S.Ct. 2077, 2090
(2014) (rejecting a linguistic usage that "no speaker in
natural parlance" would employ).
agency's argument draws further support from the
definition of the word "exportation" in export
rules that are closely related to OFAC's. The regulations
in question are the Department of Commerce's Export
Administration Regulations (EAR) which control the export of
items that have both civilian and military uses. See
15 C.F.R. § 730.3. The Iranian transaction regulations
do not expressly incorporate this EAR definition, but they
often refer to the EAR. For example, OFAC's approval of
some export activities is conditioned on compliance with the
EAR. See, e.g., 31 C.F.R. §§ 560.530,
560.540. The EAR defines "export" as "an
actual shipment or transmission of items out of the United
States." 15 C.F.R. § 772.1 (2014). In other words,
the occurrence of an "export" is not contingent on
the goods' arrival at their final destination. See
id. What's more, "the export or reexport of
items subject to the EAR that will transit through [Country
A] or be transshipped in [Country A] to [Country B] or are
intended for reexport to [Country B], are deemed to be
exports to [Country B]." Id. §
734.2(b)(6) (2014) (emphasis added). Note the use of forward-looking language:
the export of items "that will transit" or
"are intended for reexport." If an
exporter can say, "I have exported items to Country B
that will transit through ...