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Matthew A. Goldstein, PLLC v. U.S. Department of State

United States District Court, D. Columbia.

January 26, 2016

MATTHEW A. GOLDSTEIN, PLLC, Plaintiff,
v.
U.S. DEPARTMENT OF STATE, et al., Defendants

          For MATTHEW A. GOLDSTEIN, PLLC, Plaintiff: Matthew Aaron Goldstein, MATTHEW A. GOLDSTEIN, PLLC, Washington, DC.

         For UNITED STATES DEPARTMENT OF STATE, JOHN F. KERRY, in his official capacity as Secretary of State, DIRECTORATE OF DEFENSE TRADE CONTROLS, KENNETH B. HANDELMAN, in his official capacity as Deputy Assistant Secretary, Defense Trade Controls, DANIEL L. COOK, in his official capacity as Chief of the Compliance, Registration, and Enforcement Division, Office of Defense Trade Controls Compliance, Defendants: Robin Frances Thurston, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Civil Division, Federal Programs Branch, Washington, DC.

         Re Document No.: 25

         MEMORANDUM OPINION GRANTING DEFENDANTS' MOTION TO DISMISS

         RUDOLPH CONTRERAS, United States District Judge.

         I. INTRODUCTION

         The Arms Export Control Act (" AECA" or " the Act" ) authorizes the President " to control the import and export of defense articles and defense services." 22 U.S.C. § 2778(a)(1). The Act provides that " every person (other than an officer or employee of the United States Government acting in an official capacity) who engages in the business of brokering activities with respect to the manufacture, export, import, or transfer" of a defense article or service must both register with the government and seek a license before engaging in such brokering activities. Id. § 2778(b)(1)(A)(ii)(I)--(III). In 2013, the United States Department of State (" State" ), by regulation, clarified its definition of " brokering activities." See generally Amendment to the International Traffic in Arms Regulations: Registration and Licensing of Brokers, Brokering Activities, and Related Provisions, 78 Fed.Reg. 52,680 (Aug. 26, 2013). As pertinent to this case, State amended the regulation to define " brokering activities" as excluding " activities by an attorney that do not extend beyond the provision of legal advice to clients." 22 C.F.R. § 129.2(b)(2)(iv); see also Amendment to the International Traffic in Arms Regulations: Registration and Licensing of Brokers, Brokering Activities, and Related Provisions, 76 Fed.Reg. 78,578, 78,578 (Dec. 19, 2011) (proposed rule explaining the change).

         This case arises out of a dispute over whether and, if so, in what circumstances an attorney acting on behalf of his client may nevertheless be engaging in " brokering activities." After receiving advisory guidance from State about the provision's scope that he found insufficient, Matthew A. Goldstein initiated this action on behalf of his eponymous law firm, Plaintiff Matthew A. Goldstein PLLC. Plaintiff's complaint seeks a declaration equitably estopping State from applying the regulations to its legal services and declaring that State's definition of " brokering activities" is ultra vires, unconstitutional, and violates the Administrative Procedure Act (" APA" ). Plaintiff also seeks an injunction permanently enjoining State from applying the brokering regulations to Plaintiff's legal services as described in Mr. Goldstein's request for guidance.

         Now before the Court is Defendants' motion to dismiss Plaintiff's claims on the ground that the Court lacks subject matter jurisdiction or, alternatively, that Plaintiff's Amended Complaint fails to state a claim. The Court agrees that Plaintiff lacks standing and that this case is not yet ripe and therefore will grant Defendants' motion to dismiss.

         II. FACTUAL & STATUTORY BACKGROUND

         A. The AECA's Regulation of " Brokering Activities"

         " In furtherance of world peace and the security and foreign policy of the United States," the AECA empowers the President to control the import and export of defense articles and services. See 22 U.S.C. § 2778(a)(1). Initially, the AECA only regulated the direct " manufacturing, exporting, or importing" of defense articles and services. See 22 U.S.C. § 2778 (1996 ed.); see also International Security Assistance and Arms Export Control Act of 1976, Pub. L. No. 94-329, § 212(a)(1), 90 Stat. 729, 744-45. In 1996, however, Congress amended the AECA to require regulation of international arms brokering. See Act of July 21, 1996, Pub. L. No. 104-164, § 151, 110 Stat. 1421, 1437-38. As the House Report explained, " the extension of U.S. legal authority . . . to regulate [the] brokering activities" of " U.S. persons (and foreign persons located in the U.S.)" would allow the United States to ensure that the activities of those who broker in international arms " support the furtherance of U.S. foreign policy objectives, national security interests and world peace." H.R. Rep. No. 104-519, at 11-12 (1996), reprinted in 1996 U.S.C.C.A.N. 1118, 1128-29. " More specifically," the report noted that " in some instances U.S. persons are involved in arms deals that are inconsistent with U.S. policy" and " [c]ertain of these transactions could fuel regional instability, lend support to terrorism or run counter to a U.S. policy decision not to sell arms to a specific country or area." Id. at 12.

         Accordingly, the AECA now requires " every person" who " engages in the business of brokering activities with respect to the manufacture, export, import, or transfer" of a defense article or service to both register with the government and procure a license to engage in such brokering activities. 22 U.S.C. § 2778(b)(1)(A)(ii)(I)--(III). The statute further provides that entities must abide by requirements " [a]s prescribed in regulations issued under this section." Id. § 2778(b)(1)(A)(ii)(I). As part of its International Traffic in Arms Regulations (" ITAR" ), State has promulgated regulations specific to brokering activities at Title 22, Part 129 of the Federal Code of Regulations (" Part 129" ), see generally 22 C.F.R. § § 129.1-129.11.[1]

         Part 129 requires any person engaged in brokering activities to register with the Directorate of Defense Trade Controls (" the Directorate" ) as a " precondition for the issuance of approval for brokering activities" or for " the use of exemptions." 22 C.F.R. § 129.3(a); see also id. § 129.3(e). Once registered, a person may not " engage in the business of brokering activities . . . without first obtaining the approval of the Directorate of Defense Trade Controls for the brokering of" a number of regulatory-prescribed defense articles and services. Id. § 129.4(a); see also id. § 129.5 (listing exemptions from the approval requirement, not relevant here). To obtain approval, a broker must supply the Directorate with certain information and fully describe " the brokering activities that will be undertaken" including: " [t]he action to be taken by the applicant to facilitate the manufacture, export, import, or transfer" of the defense article; " [t]he name, nationality, address, and place of business of all persons who may participate in the brokering activities" ; a description of the defense articles involved; the estimated quantity and dollar value; and the " [e]nd-user and end-use." Id. § 129.6(a)--(b). Part 129 also requires registrants to provide a report to the Directorate " on an annual basis" detailing the registrant's " brokering activities in the previous twelve months." Id. § 129.10(a). That report must include a description of the " brokering activities that received or were exempt from approval" or otherwise certify that " there were no such activities." Id. § 129.10(b)--(c). In addition, a " person who is required to register" as a broker " must maintain records concerning brokering activities," which " shall be available at all times for inspection and copying by the Directorate." Id. § § 129.11, 122.5(b).

         Until 2013, Part 129's definition of " broker" and " brokering activities" was quite general. A broker was defined as " any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration." 22 C.F.R. 129.2(a) (2006 ed.); see also Bureau of Political-Military Affairs; Amendments to the International Traffic in Arms Regulations, 62 Fed.Reg. 67,274, 67,276-77 (Dec. 24, 1997) (first adding Part 129 in light of the AECA amendment regulating brokering activities). And " brokering activities" were defined as " acting as a broker as defined in § 129.2(a)," including " the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service, irrespective of its origin." 22 C.F.R. § 129.2(b) (2006 ed.).

         In 2011, in light of a 2003 report to Congress in which State had " noted that it was beginning a review of the brokering regulations" and " assess[ing] the need to modify the regulations in light of the experience gained in administering them," State issued a Notice of Proposed Rulemaking that substantially altered the regulatory definition of " broker" and " brokering activities." Amendment to the International Traffic in Arms Regulations: Registration and Licensing of Brokers, Brokering Activities, and Related Provisions, 76 Fed.Reg. 78,578, 78,578 (Dec. 19, 2011). As pertinent to this case, State proposed to amend the definition of brokering activities to clarify that " [b]rokering activities do not include . . . activities by an attorney that do not extend beyond providing legal advice to a broker." Id. at 78,587 (proposed language for § 129.2(a)(3)); see also id. at 78,578 (explaining change).

         State promulgated an Interim Final Rule in 2013, amending Part 129. See generally Amendment to the International Traffic in Arms Regulations: Registration and Licensing of Brokers, Brokering Activities, and Related Provisions, 78 Fed.Reg. 52,680 (Aug. 26, 2013). In response to the comments of three parties, State altered the proposed language of § 129.3 slightly to clarify that the definition of brokering activities does not extend beyond the provision of legal advice to a client (rather than to a broker ). Id. at 52,681. Thus, the current definition, effective October 24, 2013, provides that " brokering activities" do not include " activities by an attorney that do not extend beyond the provision of legal advice to clients." 22 C.F.R. § 129.2(b)(2)(iv).[2]

         In a " Frequently Asked Questions" section of its website, the Directorate provides further guidance regarding the regulatory definition's scope. The FAQs state that:

Activities conducted by an attorney, consultant, or any other professional that do not extend beyond the provision of legal or consulting advice to clients on ITAR compliance is not within the definition of brokering activities. For example, advising on the legality of a transaction, such as advising whether a transaction is ITAR compliant, tax rates or other laws may be preferential, drafting of contract terms where parties to the transaction have already been identified by the client, representing your client to a client-identified foreign party, conducting ITAR audits, and/or providing training or assistance with ITAR compliance procedures, are outside the scope of brokering activities. However, this does not mean that there are no circumstances where an attorney, consultant, or any other professional would be a broker. If these persons engage in activities that go beyond providing consulting or legal advice, including being a third party to the transaction, or are engaged in soliciting, locating a buyer or seller, introducing or recommending specific parties, structuring the transaction, marketing, promoting, and/or negotiating ITAR-controlled defense articles and services on behalf of their clients beyond contract terms of already identified foreign parties by your client, then such activities may constitute brokering activities under ITAR Part 129.2(b).

Frequently Asked Questions (FAQs) -- Registration, U.S. Dep't of State, Directorate of Defense Trade Controls (July 2, 2015), http://pmddtc.state.gov/registration/faqs_reg.html .

         B. Guidance Available From the Department of State

         Because this dispute was caught in the cross-hairs of the 2013 change in legal regime, the Court also briefly describes the available methods for seeking guidance from State about the ITAR's requirements.

         Before the 2013 amendments, 22 C.F.R. § 129.10, entitled " Guidance," provided that " [a]ny person desiring guidance on issues related to" Part 129, " such as whether an activity is a brokering activity within the scope of this Part . . . may seek guidance in writing from the Directorate of Defense Trade Controls." 22 C.F.R. § 129.10 (2006 ed.). The provision cross-referenced to " [t]he procedures and conditions stated in § 126.9." Id. Section 126.9, in turn, provides a mechanism to request advisory opinions that " are issued on a case-by-case basis and apply only to the particular matters presented to the Directorate of Defense Trade Controls." 22 C.F.R. § 126.9(a). Any request for an advisory opinion " must be made in writing" and " must outline in detail the equipment, its usage, the security classification (if any) of the articles or related technical data, and the country or countries involved." Id. The section further cautions that advisory opinions " are not binding on the Department of State, and may not be used in future matters before the Department." Id.

         The 2013 Interim Final Rule revised, renumbered, and substantially altered the guidance available to regulated entities under Part 129. Previous § 129.10 was renumbered as § 129.9. Section 129.9 now provides a stand-alone method by which a party can seek guidance. The section still provides that a person " desiring guidance on whether an activity constitutes a brokering activity within the scope of this part 129 may request in writing guidance from the Directorate of Defense Trade Controls." 22 C.F.R. § 129.9. But the new section goes on to require that the requester " identify the applicant and registrant code (if applicable) and describe fully the activities that will be undertaken," listing specific information that a requester must provide--including the " name, nationality, and geographic location of all U.S. and foreign persons who may participate in the activities," the " [e]nd-user and end-use," and " [a] copy of any agreement or documentation, if available, between or among the requester and other persons who will be involved in the activity or related transactions that describes the activity to be taken by such persons" --that go far beyond the more limited information required by § 126.9. Id. ; compare 22 C.F.R. § 126.9. There appears to be a benefit to that specificity, however: § 129.9(b) states that any guidance received as a result of a request " will constitute an official determination by the Department of State." Id. [3]

         C. Factual Background

         Plaintiff's law practice focuses on international trade. See Am. Compl. ¶ 63. As alleged in its complaint, Plaintiff's clients " include exporters of military, homeland security, dual-use, and purely commercial items and technologies," and Plaintiff advises its clients " on all aspects of U.S. export control laws and related international trade laws." Id. Plaintiff contends that " [m]ost of these legal services involve advisements on transactions subject to the ITAR." Id.

         Concerned about the scope of the 2013 Final Interim Rule, Plaintiff's principal, Matthew A. Goldstein, sought an advisory opinion from Daniel Cook, the Directorate's Chief of the Compliance, Registration, and Enforcement Division. Am. Compl. ¶ 37. While Plaintiff's complaint alleges that the request was sent pursuant to 22 C.F.R. § 129.9(a), see Am. Compl. ¶ 37, Plaintiff has since clarified that Mr. Goldstein's request was submitted under the prior guidance provision, 22 C.F.R. § 129.10, see Pl.'s Mem. Opp'n Defs.' Mot. to Dismiss at 7 n.2 (" Pl.'s Mem. Opp'n" ), ECF No. 26-1. Mr. Goldstein sent Mr. Cook a letter on August 29, 2013, three days after the Final Interim Rule was promulgated, but before its October 24, 2013 effective date, expressing concern that some lawyers' activities might fall within the regulatory definition of " brokering activities" because " export compliance advice frequently includes advice on how to structure transactions involving sales of defense articles and assistance in the preparation of contracts and other documents for such transactions." ...


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