IRAN AIR, Petitioner, v. Robert F. KUGELMAN, Acting Under Secretary for Bureau of Export Administration, U.S. Department of Commerce, Respondent.
Nos. 91-1596, 92-1304 and 92-1389
United States Court of Appeals, District of Columbia Circuit.
Argued April 20, 1993. Decided July 2, 1993.
996 F.2d 1253
* * * * * *
For the foregoing reasons, the proposals are not negotiable under the statute. We grant the petitions for review and deny enforcement of the Board‘s orders.
So ordered.
Thomas J. Whalen, argued for petitioner. Kevin Michael Sherlock also entered an appearance for petitioner.
John S. Koppel, Atty., Dept. of Justice, argued for respondent. With him on the brief were Stuart M. Gerson, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty. at the time the brief was filed, Douglas N. Letter, Atty., Dept. of Justice, and Thomas C. Barbour, Sr. Trial Atty., Dept. of Commerce. Michael Jay Singer, Atty., Dept. of Justice, also entered an appearance for respondent.
Before EDWARDS, RUTH BADER GINSBURG, and SILBERMAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge RUTH BADER GINSBURG.
Concurring opinion filed by Circuit Judge SILBERMAN.
I. INTRODUCTION
In 1985, Iran Air unwittingly violated the
On petition for review to this court, Iran Air asserts that, as the ALJ ruled, only knowing violations of export administration regulations are sanctionable. In any event, Iran Air insists, this court‘s decision in Dart v. United States, 848 F.2d 217 (D.C.Cir.1988), precludes a ruling by the Under Secretary overturning that of the ALJ. We hold that both sides have misperceived our ruling in Dart. That decision does not permit the agency head to reject the ALJ‘s fact findings, but neither does it allow the ALJ to supplant the head of the agency in construing the applicable law and regulations. Accordingly, we affirm the Under Secretary‘s construction of the governing statute and regulation; we remand, however, for a reasoned determination of the appropriate penalty.
II. BACKGROUND
In August 1985, Iran Air placed an order for three top-of-the-line signal generators with a German-based company, Fluke Germany, for export to Iran. The purchase order stated: “Please ship to Iran Air Frankfurt Airport for reforwarding to Tehran Iran.” Fluke Germany did not have the generators in stock, and therefore referred the order to its affiliate, Fluke Holland. Fluke Holland, which was also out of the signal generators, obtained them from the United States manufacturer, Fluke USA. The invoices associated with the transactions between Fluke USA and Fluke Holland and between Fluke Holland and Fluke Germany bore the destination control statement: “These commodities were licensed for ultimate destination Fed.Rep. Germany. Diversion contrary to United States law is prohibited.”
On October 17, 1985, Fluke Germany delivered the Fluke USA generators to Iran Air
Regulations pursuant to the
Unless the reexport of a commodity previously exported from the United States has been specifically authorized in writing by the Office of Export Licensing prior to its reexport ..., no person in a foreign country (including Canada) or in the United States may:
(a) Reexport such commodity ... from the authorized country(ies) of ultimate destination; or
(b) Export such commodity from the United States with the knowledge that it is to be reexported ... from the authorized country(ies) of ultimate destination.
Five years later, in October 1990, the Commerce Department‘s Office of Export Enforcement (OEE) instituted administrative proceedings against Iran Air—though apparently not against any of the Fluke companies2—for the imposition of civil sanctions. OEE charged Iran Air, pursuant to
After an evidentiary hearing, the ALJ dismissed the charge. The ALJ ruled, centrally, that the governing statutory prescription,
The Acting Under Secretary of Commerce for Export Administration (Under Secretary) disagreed with the ALJ‘s reading of the Export Act. In accord with OEE‘s position, the Under Secretary ruled that the exporter‘s knowledge need not be shown as a prerequisite to the imposition of civil penalties. Declaring that the ALJ had incorrectly construed the civil sanction prescriptions to include a state of mind requirement, the Under Secretary remanded the case for reconsideration consistent with the agency‘s view of the controlling law.
On remand, the ALJ refused to follow the Under Secretary‘s reading of the law and, again, dismissed the charge. The ALJ emphasized that the Export Act allowed the Under Secretary only to “affirm, modify, or vacate” an ALJ decision,
Unmoved, the ALJ said in a terse order that he had completely fulfilled his responsibilities when he set out “alternative dispositions“—dismissal of the charge or, if the Under Secretary read the law correctly, a warning to Iran Air. This order, the ALJ‘s third, expressly acknowledged that he and the Under Secretary parted ways, not on “the factual dispositive issues,” but on an “essentially legal” ruling.
At last, the Under Secretary issued a final order restating, more elaboratively, the agency‘s view that Export Act civil penalties entail no state of mind requirement. Concluding that “to remand, yet again” would be “futile,” the Under Secretary imposed a $100,000 civil penalty, the statutory maximum, and suspended Iran Air‘s export privileges for three months, if Iran Air paid the monetary penalty within thirty days, or for twenty-four months, if Iran Air did not promptly pay the $100,000 penalty.
Invoking this court‘s review, Iran Air urges that the ALJ correctly construed the Export Act penalty provisions to require, even for civil sanctions, allegation and proof of the exporter‘s “knowledge.” In any event, Iran Air maintains, the Under Secretary may not tamper with an ALJ decision in favor of the exporter.
III. ANALYSIS
(a) Threshold Issues. Iran Air challenges the timeliness of the charge and the substantiality of the evidence that no export license was issued for the signal generators. We hold that the charge was timely made because it was filed within the five-year period prescribed in
We furthermore agree that the record adequately supports the determination that no export license was issued for the shipment of the signal generators to Iran. As the Under Secretary concedes, however, if this were a criminal proceeding, it might be incumbent on the government to show, affirmatively, not only that Iran Air did not obtain a reexport license, but that no reexport license was obtained by anyone for the shipment of the generators.
We note too that, although the Export Administration Act expired in September 1990, shortly before the charge letter in this case was filed, and was not reenacted until March 1993, a general savings statute preserves this proceeding. See
(b) The Imposition of Civil Sanctions for Unwitting Violations of the Export Act. We start with a point not subject to genuine dispute: the regulations under which Iran Air was charged,
Section 2410 of the Export Administration Act, in pertinent part, states:
§ 2410. Violations
(a) In general
Except as provided in subsection (b) of this section, whoever knowingly violates this Act ... or any regulation ... issued thereunder shall be fined not more than five times the value of the exports involved or $50,000, whichever is greater, or imprisoned not more than 5 years, or both.
(b) Willful violations
(1) Whoever willfully violates ... this Act ... or any regulation ... issued thereunder, ...
(A) except in the case of an individual, shall be fined not more than five times the value of the exports involved or $1,000,000, whichever is greater; and
(B) in the case of an individual, shall be fined not more than $250,000, or imprisoned not more than 10 years, or both.
(c) Civil penalties; administrative sanctions
(1) The Secretary [or his designees] ... may impose a civil penalty not to exceed 5 $10,000 for each violation of this Act ... or any regulation ... issued under this Act ..., either in addition to or in lieu of any other liability or penalty which may be imposed, except that the civil penalty for each such violation involving national security controls imposed under [section 2404 of this Act] ... may not exceed $100,000.
The text and history of section 2410 do not yield a clear answer to the question we confront.6 Our charge, therefore, is to respect the agency‘s construction of the statute Congress empowered it to administer, so long as that construction is reasonable. See Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984). We are satisfied that the agency‘s reading is a permissible one.
It is not unusual for Congress to provide for both criminal and administrative penalties in the same statute and to permit the imposition of civil sanctions without proof of the violator‘s knowledge. Here, the agency maintains, Congress has allowed for an array of penalties for violations of the Export Act:
Finally, we are unconvinced by Iran Air‘s suggestion that it lacked fair notice of the agency‘s construction. Even if the agency pursued only knowing violators in the past, but see John R. Liebman & William A. Root, UNITED STATES EXPORT CONTROLS xxxii (2d ed. 1989) (“Knowing and willful violations receive, of course, the heaviest sanctions, but unintentional violations are by no means overlooked.“),7 the language of the statute and the pertinent regulations adequately indicated that civil sanctions could be assessed on a strict liability basis. See Robert C. Sexton, Liability of Nonexporters Under the United States Export Laws, 24 Int‘l Law. 1029, 1033 (1990) (“The language of the statute and the regulations suggests that civil sanctions are assessed on a ‘strict liability’ basis.“).8
(c) The Under Secretary‘s Authority to Review ALJ Conclusions of Law. Section 2412(c)(1) states:
In any case in which a ... civil sanction ... is sought under ... section 2410 ..., the charged party is entitled to receive a formal complaint specifying the charges and, at his or her request, to contest the charges in a hearing before an administrative law judge. Subject to the provisions of this subsection, any such hearing shall be conducted in accordance with sections 556 and 557 of [the Administrative Procedure Act].... After the hearing, the administrative law judge shall make findings of fact and conclusions of law in a written decision, which shall be referred to the Secretary. The Secretary shall, in a written order, affirm, modify, or vacate the decision of the administrative law judge within 30 days after receiving the decision. The order of the Secretary shall be final and is not subject to judicial review, except as provided in paragraph (3).
The Under Secretary responds, primarily, that the agency head—the Secretary or his designee—“must be the final administrative arbiter of legal questions concerning the export control program,” and therefore must “ha[ve] the power to correct legal errors of the ALJ.” Brief for Appellee at 19. We agree. Whatever else Congress meant by the phrase “affirm, modify, or vacate,” we hold, it did not mean to disarm the agency head when the ALJ incorrectly reads the law in the charged party‘s favor.
It is commonly recognized that ALJs “are entirely subject to the agency on matters of law.” Antonin Scalia, The ALJ Fiasco—A Reprise, 47 U.CHI.L. REV. 57, 62 (1979) (footnote omitted). As one veteran ALJ explained:
The basic concept of the independent administrative law judge requires that he conduct the cases over which he presides with complete objectivity and independence. In so operating, however, he is governed, as in the case of any trial court, by the applicable and controlling precedents. These precedents include the applicable statutes and agency regulations, the agency‘s policies as laid down in its published decisions, and applicable court decisions....
[O]nce the agency has ruled on a given matter, [moreover,] it is not open to reargument by the administrative law judge; ... although an administrative law judge on occasion may privately disagree with the agency‘s treatment of a given problem, it is not his proper function to express such disagreement in his published rulings or decisions.
Joseph Zwerdling, Reflections on the Role of an Administrative Law Judge, 25 ADMIN.L.REV. 9, 12-13 (1973) (emphasis in original).
Congress, we note, has excluded functions exercised under the Export Act from the Administrative Procedure Act‘s (APA) governance, except for the specification that hearings before ALJs “shall be conducted in accordance with [5 U.S.C. §§ ] 556 and 557.” See
We thus fail to see any reliable indication that Congress chose to assign to the ALJ serving as first instance trier under the Export Act a unique competence: authority to rule unreviewably on a matter of law in a manner contrary to the agency head‘s reading of that same law. Neither the text of
Dart involved the OEE‘s endeavor to impose civil sanctions against an exporter, William C. Dart, for attempting to ship certain high-technology equipment, from Los Angeles to Czechoslovakia, without the license required by the Export Act (the equipment was seized at the L.A. airport). Neither side disputed that knowledge or intent is an element of an “attempt” violation under the Export Act; the case therefore turned on whether Dart in fact knew he needed a special license. After an evidentiary hearing running five days, the ALJ found that Dart did not know he needed a license; accordingly, the ALJ dismissed the case. Despite substantial evidence supporting the ALJ‘s finding, the designated reviewing official—an Assistant Secretary of Commerce—overturned the ALJ‘s decision. In a one-page order, the Assistant Secretary found that Dart knew a license was required and had not been obtained; purporting to “modify” the ALJ‘s decision, the Assistant Secretary imposed a $150,000 fine plus a 15-year ban on Dart‘s export privileges.
This court, reversing the district court, invalidated the Assistant Secretary‘s action on two grounds.
Iran Air understandably emphasizes the first prong on which Dart rests, i.e., the absence of a statutory provision for agency head reversal of ALJ decisions. The final point made in Dart, however—that the Assistant Secretary offered no reasoned explanation for his decision—could hardly be made in this case. The Under Secretary here adequately explained why the statute (
Concerning the rule declared in Dart against agency reversal of ALJ decisions, we are mindful of the context: core fact finding, with no declaration of law implicated. Thus, we emphasized the incongruity of allowing an agency official who has seen only the paper record to substitute his judgment for that of an adjudicatory officer “with independent status, who saw the witnesses’ demeanor and gauged their truthfulness.” Dart, 848 F.2d at 229. And we remarked:
Rarely if ever would an appellate court reverse a judgment that was in defendant‘s favor and impose a judgment against him, without remanding the matter to the district court. Yet, that is precisely what the Secretary of Commerce did in Dart‘s case.
We adhere to the holding in Dart that the agency head may not, under
(d) The Under Secretary‘s Authority To Review ALJ Sanction Determinations. As we have just explained, Dart obliges the Secretary or his designee to follow the “key findings [of fact]” on which an ALJ bases his rulings, including his sanction determination. Dart, 848 F.2d at 231. In the instant case, the ALJ, in his alternative disposition calling for a minimal sanction,13 made it plain that he appraised the errors in ordering and shipping the generators as inadvertent slips warranting no heavy penalties. Nothing in this record, we further note, indicates that the shipment in question placed national security interests in special danger. We also recall the five-year time lapse between the shipment of the Fluke USA generators to Iran and the institution of administrative proceedings against Iran Air.14 In addition, we are mindful of OEE‘s apparent failure to proceed against the Fluke companies.15 The ALJ was cognizant of these facets of the case.
If the Under Secretary had reasons of law or policy for imposing, consistently with the facts of record, the maximum allowable monetary sanction and a correspondingly long suspension period, he utterly failed to disclose those reasons. Indeed, he provided no explanation whatever for the large penalty he ordered. We hold that the ALJ was correct to this extent: Dart precluded reversal of his alternative no penalty or minimal sanction assessment “summarily,” i.e., without “meaningful explanation.” See supra p. 1256.
CONCLUSION
For the reasons stated, we hold that, under Dart, the Under Secretary may not reverse fact findings made by an ALJ, but remains the final administrative arbiter on questions of law and policy. We therefore affirm the Under Secretary‘s ruling that Iran Air violated the Export Administration Act, but we vacate the sanctions imposed and remand the case to the Under Secretary for a reasoned determination of the appropriate sanction consistent with the ALJ‘s assessment of the facts and the circumstances of Iran Air‘s violation.16
Affirmed in part and remanded in part.
SILBERMAN, Circuit Judge, concurring:
As the government was quick to concede, in the absence of the regulation authorizing penalties for non-knowing or non-willful violations, the Department would not have been entitled to levy a penalty on Iran Air. The government has not always been so forthright. In 1985, the Treasury Department sought and obtained massive fines against scores of American banks for having violated a Treasury Department regulation implementing the Bank Secrecy Act. The Act required banks to report currency transactions in excess of amounts set by the Secretary of the Treasury and provided for civil penalties against those who “willfully violat[ed]” its provisions.
Nevertheless, the Treasury Department collected fines from 38 banking organizations which amounted to $16 million dollars by 1988. See J. Kutler, US Aide Says Banks Doing Better at Reporting Cash Transactions, AMERICAN BANKER, May 26, 1988, at 1. At least 80 banks were under consideration for civil penalties. See St Germain Promises Quick Passage of Measure to Stymie Money Laundering, 46 WASHINGTON FINANCIAL REPORTS (BNA) 614 (1986).
In 1986, the Department obtained an amendment to the statute permitting a lesser penalty for negligent violations. During congressional hearings, the government admitted that the amendment was necessary because the Act permitted fines only for willful violations. See ABA Says Money Laundering Bill Should Concentrate on Intentional Activity, 46 WASHINGTON FINANCIAL REPORTS (BNA) 437 (1986). In passing the amendment, Congress also recognized that the statute did not punish non-willful violations. See S.REP. NO. 433, 99th Cong., 2d Sess. 19 (1986). It is unclear how many, if any, banks were then made subject to the lesser penalties. It is clear, however, that based on the government‘s acknowledgement in this case the original penalties were levied improperly. At the time, banks (particularly large ones) were a popular target of congressional attacks. See 46 WASHINGTON FINANCIAL REPORTS (BNA) 614 (1986) (remarks of Rep. St. Germain); cf. Wachtel v. Office of Thrift Supervision, 982 F.2d 581, 586 (D.C.Cir. 1993). I assume that having taken the position the government did in this case, we will not see a repeat of its posture of 1985.
Notes
No person may cause, or aid, abet, counsel, command, induce, procure, or permit the doing of any act prohibited, or the omission of any act required, by the Export Administration Act or any regulation, order, or license issued under the Act.
[a]n operator of a coal mine in which a violation occurred [is] subject to a civil penalty; an operator who “willfully” violate[s] a standard [is] subject to a criminal penalty. Thus, Congress established a strict liability standard to assess civil liability and a willful standard to fix criminal liability against operators.
United States v. Jones, 735 F.2d 785, 788 (4th Cir.), cert. denied, 469 U.S. 918 (1984).