Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-05225/USCOURTS-caDC-96-05225-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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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. Department 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 

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Counsel. R. Craig Lawrence, Assistant U.S. Attorney, entered 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 

agencythe Office of Foreign Assets Control ("OFAC"), a 

unit of the United States Treasury Departmentthen 

changed the rules, so that Bergerco had no chance whatever. 

Bergerco says that the new ruleor, more precisely, OFAC's 

application of the new rule to its pending submissionconstituted 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 contract 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 

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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 obligation 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. §§ 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 Ministry, 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 established 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 

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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 regulationthe one at issue hereprovided 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 § 575.510(a) (1996).

On November 20, 1990 OFAC denied Bergerco's application. 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 entitlement 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 retroactivity 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. § 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 noticeand-comment procedures of the Administrative Procedure Act, 5 

U.S.C. § 553. It explained in its formal promulgation of rules that 

it was applying § 553(a)(1)'s exception for "foreign affairs functions." 31 CFR § 575.804(a) (1996).

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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 § 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 retroactive 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. § 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).

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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]etroactivity 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 concurrence, 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 another type of retroactivity"unreasonable secondary retroactivity," id. at 220which 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 capricious." 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 features in "arbitrary or capricious" analysis and that has historically 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 determine whether agency has balanced "mischief" of retroactive 

application of a rule against "salutary effects, if any, of 

retroactivity"); see generally 2 Kenneth Culp Davis & Richard J. Pierce, Jr., Administrative Law Treatise §§ 6.6, 13.2 

(1994 & Supp. 1996).

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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 retroactivity. 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 establishing a rule of construction requiring that a statute be interpreted 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 construction. 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 Landgraf 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] posUSCA Case #96-5225 Document #308441 Filed: 11/12/1997 Page 7 of 12
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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 categorical (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 whether the legal status quo ante created "rights" favorable to 

Bergerco and later modified.

Here the relevant legal status quo is necessarily the original 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 identify 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 

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licensing applicant would acquire protection from any rulemade 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 application (actually, an application for an extension of time within 

which to complete an already licensed communications system) under rules amended after the application's filing, because 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 § 575.402. This states:

Any amendment, modification, or revocation of any section 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 revocation. All penalties, forfeitures, and liabilities under 

any such order, regulation, ruling, instruction, or license 

shall continue and may be enforced as if such amendment, modification or revocation had not been made.

31 CFR § 575.402 (1996).

The full context of this ruleespecially the references in 

the last sentence to forfeitures, penalties, and liabilities

leaves us doubtful whether the provision is intended to freeze 

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licensing regulations as Bergerco contends. But we pass 

over that objection. Bergerco acknowledges that § 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 governing 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 

§ 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 grandfathering applications. Here, however, the "may" in the August 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 preventing "drastic" assaults on reasonable expectations, it is also 

pertinent, in assessing whether the superseded regime created "rights," to consider the character of any acts that it 

invited parties to take and that the new regime undermined 

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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 undermined, as a general matter. Here, in fact, they coincide, as 

the only such acts appear to be what Bergerco didthe 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 changedespite the possibility of buyers 

finding themselves in possession of a worthless claim. Because 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 transferability of choses in action) contemplated and permitted 

such transfers of payment rights gives no boost to a contention 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 reimbursement rule resulted in a substantially increased and unreimbursed net expenditure on medical servicesa 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."

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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.

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