When importing a DGN file using Modelbuilder, the coordinate unit is stuck on meters (m) and feet cannot be selected, even if the Working Units seen in MicroStation are set to Feet.
For a DGN, the units are always stored in Meters. The Working units that you see in MicroStation are essentially the "display" units, but the data in the DGN is stored in Meters, and that is the information that ModelBuilder is able to read. This is because ModelBuilder must first convert the DGN to I-model format to access it, and the Working units cannot be accessed via this method.
However, this does not mean that the values will be imported with the wrong units. If you are working in US units / feet in the model, the coordinate values will be correctly converted to feet and the model should appear in the correct location. Meaning, you can leave the coordinate units as meters in the above ModelBuilder step.
Enhancement #871257 has been filed for our development team to consider making this more clear in a future version.
If you encounter a problem with this, or if you prefer to see the ability to choose units, you can export the DGN file to DXF format for example in MicroStation and then import through Modelbuilder.
Using ModelBuilder to Import External Data