United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 15, 1997 Decided November 12, 1997
No. 96-5225
Bergerco Canada, A division of Conagra, Ltd.,
Appellee
v.
United States Treasury Department, Office of Foreign
Assets Control,
Appellant
Appeal from the United States District Court
for the District of Columbia
(No. 92cv02781)
Douglas N. Letter, Appellate Litigation Counsel, U.S. De-
partment of Justice, argued the cause for appellant. With
him on the brief were Frank W. Hunger, Assistant Attorney
General, Eric H. Holder, Jr., U.S. Attorney at the time the
briefs were filed, William B. Hoffman, Chief Counsel, U.S.
Department of Treasury, and Susan Klavens Hutner, Senior
Counsel. R. Craig Lawrence, Assistant U.S. Attorney, en-
tered an appearance.
Neil E. McDonell argued the cause for appellee Bergerco
Canada. With him on the brief was Ramon P. Marks.
Stephen A. Weiner and D. Edward Wilson, Jr. entered
appearances.
Before: Williams and Randolph, Circuit Judges, and
Buckley, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge Williams.
Williams, Circuit Judge: Bergerco Canada ("Bergerco")
applied for a license to allow it to collect payment on a debt
from frozen Iraqi assets, under a set of rules that gave it a
very good chance of securing the license. The licensing
agency--the Office of Foreign Assets Control ("OFAC"), a
unit of the United States Treasury Department--then
changed the rules, so that Bergerco had no chance whatever.
Bergerco says that the new rule--or, more precisely, OFAC's
application of the new rule to its pending submission--consti-
tuted retroactive rulemaking, and was therefore invalid under
Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988), unless
Congress had "in express terms" given OFAC "the power to
promulgate retroactive rules." Id. at 208. Because we do
not think OFAC's application of the new rule was retroactive
in the sense in which Bowen uses the term, we reject the
claim without considering whether Congress gave OFAC such
authority.
* * *
Bergerco, a Canadian corporation, together with its U.S.
affiliate Bergerco US, contracted with an Iraqi state trading
company for sale and delivery of two large shipments of peas
and beans, receiving as payment a letter of credit from an
Iraqi banking institution, Rasheed Bank, for the total con-
tract price of $4 million. Rasheed named the Royal Bank of
Canada as an intermediary for the payment transaction, and
designated The Bank of New York as the reimbursing bank.
This meant that the Royal Bank would look to The Bank of
New York for reimbursement out of Rasheed's account there
for any payment Royal Bank made to Bergerco on Rasheed's
behalf. But Rasheed never asked The Bank of New York to
be a "confirming" bank in the transaction. Had The Bank of
New York agreed to such a role it would have substituted its
credit for that of the Rasheed Bank, and assumed an obli-
gation to pay Bergerco or the Royal Bank.
Bergerco made both shipments, and received payment for
the first. After Bergerco's second shipment, and before
payment of the remaining $2 million, Iraq invaded Kuwait.
President Bush, using authority under the International
Emergency Economic Powers Act, 50 U.S.C. ss 1701-06
(1997), quickly froze all Iraqi property interests in the United
States, including Rasheed's funds on deposit with The Bank
of New York. Executive Order No. 12,722 (55 Fed. Reg.
31803 (Aug. 2, 1990)); see also Consarc Corp. v. Iraqi Minis-
try, 27 F.3d 695 (D.C. Cir. 1994) (describing asset freeze).
The President soon issued another executive order to the
Secretary of the Treasury, Executive Order No. 12,724 (55
Fed. Reg. 33089 (Aug. 9, 1990)), directing him to promulgate
regulations governing the frozen assets and providing for
their release to appropriate claimants. The Secretary of the
Treasury in turn delegated this task to OFAC.
The sequence that concerns us followed. On August 15,
1990, OFAC issued "General License No. 7," which estab-
lished criteria for the award of licenses essential to payment
out of the blocked funds. This initial version said that
"[s]pecific licenses may be issued on a case-by-case basis to
permit payment, from a blocked account or otherwise, of
amounts owed to or for the benefit of a U.S. person for goods
or services exported by a U.S. person or from the United
States prior to the effective date [of the blocking order]
directly or indirectly to Iraq or Kuwait." See Addendum to
Appellee's Brief.
On August 21, 1990 Bergerco filed its application for a
license under General License No. 7. Although Bergerco is a
Canadian corporation (i.e., not itself a "U.S. person") it still
had a substantial prospect of securing the license, because its
parent was a U.S. corporation and its U.S. affiliate was
involved in the transaction.
On October 18, 1990 OFAC issued an amended, more
restrictive, General License No. 7 regulation. This regula-
tion--the one at issue here--provided that OFAC would
grant licenses, again on a case-by-case basis, only to those
creditors who held "an irrevocable letter of credit issued or
confirmed by a U.S. Bank, or a letter of credit reimbursement
confirmed by a U.S. bank," and who had shipped their goods
or performed their services before the freeze. This was
incorporated in a more formal set of rules adopted in January
1991. 31 CFR s 575.510(a) (1996).
On November 20, 1990 OFAC denied Bergerco's applica-
tion. Because Bergerco's letter of credit was neither issued
nor confirmed by a U.S. bank, its application failed to satisfy
the new criteria.1
Bergerco sued OFAC, seeking a declaration of its entitle-
ment to a license. (It also sued the Iraqi trading company
and the banks, but only the dispute with OFAC is on appeal.)
The district court agreed with the core of Bergerco's retroac-
tivity argument, but granted narrower relief, remanding the
case for the agency to consider Bergerco's application under
the August 15 version of General License No. 7. Bergerco
Canada v. Iraqi State Company for Food Stuff Trading, 924
F. Supp. 252 (D.D.C. 1996).
No party has questioned our jurisdiction, although remands
to an agency normally lack the finality necessary under 28
U.S.C. s 1291. Occidental Petroleum Corp. v. SEC, 873 F.2d
325, 329-30 (D.C. Cir. 1989). There is an exception, however,
applicable here, "where the agency to which the case is
remanded seeks to appeal and it would have no opportunity to
appeal after the proceedings on remand." Id. at 330.
* * *
__________
1 OFAC in all cases adopted its rules without following the notice-
and-comment procedures of the Administrative Procedure Act, 5
U.S.C. s 553. It explained in its formal promulgation of rules that
it was applying s 553(a)(1)'s exception for "foreign affairs func-
tions." 31 CFR s 575.804(a) (1996).
Bergerco and OFAC agree that some form of Bowen's rule
on retroactivity governs this case. Although OFAC, citing
United States v. Curtiss-Wright Export Corp., 299 U.S. 304,
320 (1936), and related cases, urges that we apply Bowen in a
spirit of deference appropriate to executive action in the
foreign policy domain, it does not claim that the apparent
applicability of s 553(a)'s foreign functions exception from
notice-and-comment requirements moots the Bowen analysis.2
Because we find that OFAC's decision does not run afoul of
Bowen as conventionally understood, we do not consider
whether the foreign affairs entanglement calls for applying a
standard especially lenient toward the agency.
Virtually all changes in legal rules are both prospective and
retroactive. At least until we devise time machines, a change
can have its effects only in the future. But rule changes are
also generally retroactive, in that they tend to alter the value
of existing assets and thus the return on past investments.
The effect is practically universal when we take human capital
into account. Even so seemingly prospective a change as a
relaxation of rules for admission to the bar changes the value
at the margin of the human capital of those already admitted.
See Michael J. Graetz, "Retroactivity Revisited," 98 Harv. L.
Rev. 1820, 1822 (1985) ("Because all changes in law, whether
nominally retroactive or nominally prospective, will have an
economic impact on the value of existing assets or on existing
expectations, the distinctions commonly drawn between retro-
active and prospective effective dates are illusory."). In the
broad sense, then, any legal system permitting change must
tolerate a degree of retroactivity.
__________
2 Insofar as the non-retroactivity norm derives from the words
"future effect" in the APA's definition of rules ("the whole or a part
of an agency statement of general or particular applicability and
future effect ..." 5 U.S.C. s 551(4)), see Bowen, 488 U.S. at 216
(Scalia, J., concurring), such an argument would not wash, as the
norm under that view is independent of any requirement of specific
rulemaking procedures. See also Health Ins. Ass'n of America v.
Shalala, 23 F.3d 412, 422-25 (D.C. Cir. 1994) (applying Bowen's
non-retroactivity norm to interpretive rules to extent that they were
to be used to support agency's claim in retrospective litigation).
The Supreme Court in Bowen adopted no explicit definition
of the sort of retroactivity that would trigger its requirement
of explicit authorization, saying little more than that "[r]etro-
activity is not favored in the law." 488 U.S. at 208. But the
rule in question there may give some idea of the core of the
Court's concern. It involved the allocation, between the
government and hospitals, of costs for performance of various
past medical services. As Justice Scalia put it in his concur-
rence, the government's rule change was retroactive "in the
sense of altering the past legal consequences of past actions."
Id. at 219 (emphasis in original). The rule in force at the
time hospitals performed their services gave them a legal
right to reimbursement at one rate; the Secretary's later
rulemaking extinguished that right, replacing it with a right
to reimbursement at a lower rate.
If such a rule is retroactive, in changing the legal rights
flowing from previous acts, Justice Scalia also identified an-
other type of retroactivity--"unreasonable secondary retroac-
tivity," id. at 220--which is of concern independently of
Bowen's insistence on explicit authority for changes to past
legal rights. Retroactivity of this sort "makes worthless
substantial past investment incurred in reliance upon the
prior rule," and the courts may find it "arbitrary or capri-
cious." Id. On this view there are two retroactivity limits in
the APA: The first is a categorical limit, requiring express
congressional authority and applying only in the domain of
agency rules. The second limit is more elastic, governing all
agency decisionmaking and involving the sort of balancing of
competing values, both legal and economic, that often fea-
tures in "arbitrary or capricious" analysis and that has histor-
ically governed retroactivity considerations in the agency
context. See, e.g., Yakima Valley Cablevision v. FCC, 794
F.2d 737, 746 (D.C. Cir. 1986) (reviewing courts must deter-
mine whether agency has balanced "mischief" of retroactive
application of a rule against "salutary effects, if any, of
retroactivity"); see generally 2 Kenneth Culp Davis & Rich-
ard J. Pierce, Jr., Administrative Law Treatise ss 6.6, 13.2
(1994 & Supp. 1996).
The Bowen majority, to be sure, neither embraced nor
rejected Justice Scalia's view. But the character of the rule
at issue in Bowen is not the only evidence that the Court as a
whole does not reject his view about the kind of agency action
covered by the categorical bar against unauthorized retroac-
tivity. In Landgraf v. USI Film Products, 511 U.S. 244
(1994), the court considered when a statute should be found to
have retroactive effect. It read the prior cases as establish-
ing a rule of construction requiring that a statute be inter-
preted to have no such effect except where there is "clear
congressional intent favoring such a result." Id. at 280. To
decide whether a statute's effects would be retroactive, a
court must determine whether the statute "would impair
rights a party possessed when he acted, increase a party's
liability for past conduct, or impose new duties with respect
to transactions already completed." Id. The rule in Bowen
fits squarely within the first of these types, for it impaired the
right to reimbursement at a given rate that the hospitals
possessed when they provided their services.
The Court has since made clear that the three types set
forth in Landgraf are not the only forms of retroactivity
covered by its "clear expression" rule of legislative construc-
tion. Indeed, that doctrine may well reach beyond the sort of
rights-based, formal retroactivity represented by the Court's
three types. Hughes Aircraft Co. v. United States ex rel.
Schumer, 117 S. Ct. 1871, 1876 (1997) (explaining that Land-
graf endorsed a "functional," or interest-based, conception of
retroactivity). For purposes of applying Bowen, however, we
see no evidence that the scope of its presumption reaches
beyond such formal retroactivity. Indeed, we have relied on
Landgraf 's formal categories in applying Bowen, see, e.g.,
DIRECTV v. FCC, 110 F.3d 816, 825-26 (D.C. Cir. 1997),
leaving any residual "unreasonable secondary retroactivity"
to conventional analysis for arbitrary and capricious agency
action, id. at 825.
Even the formal categories, of course, are not self-applying.
Take the first of the Landgraf categories, the only one
showing any promise for Bergerco, posing the question
whether OFAC's change "impair[ed] rights [Bergerco] pos-
sessed when [it] acted." This requires us to examine the
legal status prevailing at the time Bergerco acted, that is,
before the change of which it complains. Even in its categor-
ical (i.e., non-balancing) aspect, retroactivity law is concerned
with the protection of reasonable reliance. Thus in Bowen
the Court quoted an earlier case saying that the "power to
require readjustments for the past is drastic." 488 U.S. at
208 (quoting Brimstone R. Co. v. United States, 276 U.S. 104,
122 (1928)). See also Bowen, 488 U.S. at 223-24 (Scalia, J.
concurring) (drawing on interpretive principle of looking with
disfavor at retroactive legislation). Thus, we must ask wheth-
er the legal status quo ante created "rights" favorable to
Bergerco and later modified.
Here the relevant legal status quo is necessarily the origi-
nal version of General License 7. If Bergerco were attacking
President Bush's freeze order, which created a gap in the
ordinary rules of commercial and banking law, it could identi-
fy as the key "act" the sale and shipment of peas and beans to
Iraq, in exchange for a letter of credit, which occurred under
those pre-existing norms. But in fact Bergerco challenges
not the freeze order but only the October 18 amendment,
which narrowed the earlier version of General License No. 7.
And the only act that Bergerco performed in possible reliance
on the prior license regime was to file its application. The
question is, therefore, whether the August 15 version of
General License No. 7 gave Bergerco rights that it could
secure by filing a license application, or at any rate gave it
the opportunity to secure rights by such a filing.
There is one sense, of course, in which Bergerco did have a
right as of August 15 to have its license application processed
under the criteria in force at the time: If OFAC had acted on
Bergerco's application the day it was filed (August 21) and
denied the license, Bergerco could have obtained judicial
relief if OFAC had departed from the then-applicable rules,
and could have obtained at least a remand for the exercise of
OFAC's discretion in accordance with those criteria. But if
the expectation enjoyed by Bergerco on the basis of this basic
rule-of-law concept qualified as a "right" for purposes of
determining impermissible retroactivity, then virtually every
licensing applicant would acquire protection from any rule-
made variation in licensing standards, even where the original
set of rules was vague or obviously provisional.
We have rejected any such broad view of applicants' rights.
In DIRECTV v. FCC we said that an explicit agency policy to
allocate forfeited or surrendered direct broadcast channels
gratis to existing licensees, later abandoned in favor of an
auction policy, failed to establish any "right" as the term was
used in Landgraf, which we viewed as dispositive under
Bowen. 110 F.3d at 825-26. And recently, in Chadmoore
Communications, Inc. v. FCC, 113 F.3d 235, 240-41 (D.C.
Cir. 1997), we held that despite Bowen the agency could
evaluate what was substantially equivalent to a license appli-
cation (actually, an application for an extension of time within
which to complete an already licensed communications sys-
tem) under rules amended after the application's filing, be-
cause the original rules established no "right" to a given
outcome. See also Hispanic Info. & Telecomms. Network v.
FCC, 865 F.2d 1289, 1294-95 (D.C. Cir. 1989).
As a further basis for claiming that the August 15 version
of General License No. 7 gave it a right to have its license
processed under its terms, Bergerco points to OFAC's own
regulation s 575.402. This states:
Any amendment, modification, or revocation of any sec-
tion of this part or of any order, regulation, ruling,
instruction, or license ... shall not, unless otherwise
specifically provided, be deemed to affect any act done or
omitted to be done, or any ... proceeding commenced or
pending prior to such amendment, modification, or revo-
cation. All penalties, forfeitures, and liabilities under
any such order, regulation, ruling, instruction, or license
shall continue and may be enforced as if such amend-
ment, modification or revocation had not been made.
31 CFR s 575.402 (1996).
The full context of this rule--especially the references in
the last sentence to forfeitures, penalties, and liabilities--
leaves us doubtful whether the provision is intended to freeze
licensing regulations as Bergerco contends. But we pass
over that objection. Bergerco acknowledges that s 575.402
was promulgated after OFAC had issued the amendments to
General License No. 7. It parries that objection, however,
with a claim that the section reflects "a longstanding policy
consistently enunciated by OFAC" in its regulations govern-
ing other asset-freeze regimes. Appellee's Brief at 21. We
will assume as much, although in fact Bergerco cites no
evidence of the principle's being applied to rules governing
license applications. The timing of events is crucial here.
OFAC issued both its original and amended General License
No. 7 before promulgating final general regulations. Given
the obvious haste with which OFAC was acting, even a
principle that generally grandfathered license applications,
established by regulation and followed over a long term,
would not establish a similar right to stability for rules that
had been hatched recently and in haste, and were thus, in all
likelihood, in flux. Indeed, we note that nowhere in its
correspondence with OFAC did Bergerco cite the policy it
now says OFAC has always followed, apparently even after
s 575.402 itself was promulgated. See Joint Appendix 203-
68.
We may assume arguendo that "rights" can sometimes
encompass an expectation of a license or permit where the
criteria are so clear, simple, and firmly established that
issuance of the permit is automatic and ministerial, cf., e.g.,
Marbury v. Madison, 5 U.S. (1 Cranch) 137, 158 (1803), or
where the agency has explicitly committed itself to grandfa-
thering applications. Here, however, the "may" in the Au-
gust 15 version of General License No. 7, the variety of terms
lending themselves to interpretive dispute, and the rule's
novelty and hurried adoption all suggest the absence of
"rights" susceptible to impairment, as the term has come to
be used in applying Bowen, and we find no such rights.
Considering the concern expressed in Bowen for prevent-
ing "drastic" assaults on reasonable expectations, it is also
pertinent, in assessing whether the superseded regime creat-
ed "rights," to consider the character of any acts that it
invited parties to take and that the new regime undermined
or rendered futile. Because we are assessing a rule, we look
not to the acts of Bergerco but to the sort of acts the
antecedent regime invited, and that the new regime under-
mined, as a general matter. Here, in fact, they coincide, as
the only such acts appear to be what Bergerco did--the filing
of a simple license application. The insignificance of the
effort involved in such an application weighs strongly against
any idea that the superseded regime established any "right"
to an outcome under its rules. There is nothing inherently
"drastic" about applying a new rule to a previously filed
application where the effect of doing so is merely to render
wasteful the trivial expense of such a filing.
We note that the August 15 version of General License No.
7 appears ambiguous as to whether it extends the possibility
of a license to persons who purchased the claims of vendors
who had actually supplied goods or services to Iraq before the
freeze.3 But even if we assume the original license criteria
held out the possibility of licenses for such transferees, our
analysis would not change--despite the possibility of buyers
finding themselves in possession of a worthless claim. Be-
cause nothing in the October 1990 version treated transferees
more severely than did its predecessor, transfers of the
payment rights would not qualify as acts both invited by the
prior regime and undermined by the change. That the
superseded regime (including the background law on trans-
ferability of choses in action) contemplated and permitted
such transfers of payment rights gives no boost to a conten-
tion that the original license regime created Bowen-protected
rights, for such transfers would merely shift the locus of the
risk of non-recovery from one party to another. In Bowen
itself, by contrast, the retroactive change to the reimburse-
ment rule resulted in a substantially increased and un-
reimbursed net expenditure on medical services--a cost no
one would have incurred had HHS originally promulgated the
lower reimbursement rate.
__________
3 The rule speaks of licenses for payment of "amounts owed to or
for the benefit of a U.S. person for goods or services exported by a
U.S. person or from the United States."
Because General License No. 7 did not in its original form
establish "rights" of the sort protected by Bowen, Bergerco
has no ground for claiming the grandfathering of its license
application.
The judgment of the district court is
Reversed.