Landmark Foreign-Investment Suit Filed

If you deal regularly with the federal government, there are more candidates for the “most important government office that you’ve never heard of” than you can count.  My post tonight concerns not an office, but a federal interagency committee: the Committee on Foreign Investment in the United States, known by its acronym CFIUS, which is undeniably powerful, but sufficiently obscure that even the hardcore law nerds of the Volokh Conspiracy have mentioned it only once before.

On Wednesday, a Chinese-owned wind-farm developer sued CFIUS to seek review of recent CFIUS orders that effectively require the developer to unwind its purchase of four wind-farm projects in Oregon.  The suit is a rarity in a field that has seen virtually no efforts to obtain judicial review.  Even partial success by the plaintiff in obtaining review of CFIUS’s decision could have major implications for foreign direct investment in the United States and increase the transparency of a historically opaque government approval process.  More after the jump.

CFIUS is composed of the heads of Treasury, DOJ, State, DHS, Commerce, Energy, and other agencies, and together exercise, in the first instance, the President’s statutory and constitutional authority to review and “to suspend or prohibit any covered” foreign purchase of a U.S. business “that threatens to impair the national security of the United States.”  If you’ve heard of CFIUS, it is probably in connection with the “Dubai Ports” kerfuffle back in 2006, involving outcry over a deal permitting a United Arab Emirates-based company to take over management of several U.S. ports.  CFIUS approved that transaction, but congressional and popular opposition caused it to be scuttled.  For the many U.S. companies that wish to sell units to foreign companies, or enter into joint ventures with them, it is impossible to overstate the importance of CFIUS.

CFIUS’s decisions historically have not been reviewed by the courts.  As a practical matter, lawsuits seeking to challenge actions by CFIUS are rarely brought.  One noteworthy exception—a 2006 lawsuit by then-New Jersey Governor Jon Corzine seeking to force CFIUS to investigate the acquisition by Dubai Ports World involving the port of Newark—was dismissed voluntarily before any decision was made.  The suit filed Wednesday by former SG Paul Clement, Viet Dinh, and Chris Bartolomucci seeks to change that.

Ralls (which takes its name from the Texas town where its first US wind-farm was built) bought four small Oregon companies whose assets consist of wind-farm development rights, land rights, power-purchase agreements, and government permits.  The projects—which would use wind turbines made in China by Sany Group to produce a modest total 40 megawatts of power (the small coal-fired plant in Old Town Alexandria produced 482 megawatts)—allegedly had received all other necessary state and federal regulatory approvals.  In June, Ralls submitted the transaction for CFIUS approval.

In July, CFIUS issued an order (later supplemented by a superseding August order) purporting to require Ralls to cease construction, “immediately cease all access” to the properties, and remove all items at the sites using U.S. citizen contractors who were permitted to enter the sites only for purposes of removal.  The amended order also prohibited Ralls from transferring to any third party for installation at the sites any item made by Sany Group.  The amended order also prohibited Ralls from transferring the properties until all items on them had been removed and Ralls gave CFIUS notice and opportunity to object to the potential buyer.

On Wednesday, Ralls filed a complaint in the U.S. District Court for the District of Columbia challenging the CFIUS actions as a violation of the Administrative Procedure Act and an unconstitutional deprivation of property without due process.  The suit argues that CFIUS exceeded its authority by failing to give reasons for its actions, prohibiting the transaction outright (rather than modifying the deal to mitigate national security risks), and prohibiting Ralls from selling items produced by Sany even to U.S. buyers.  The suit also alleges that the order deprived Ralls of property without due process by prohibiting further construction, use of (or even access to) the property, and sale of assets on the property. Late last week, Ralls sought a temporary restraining order, which should be fully briefed early next week and may cause this case to come to a head quickly.

There are many noteworthy things about the suit, but most fundamental is the possibility that the D.C. District Court could conclude that CFIUS actions are subject to even limited judicial review, which would represent a significant development given the historic lack of judicial decisions reviewing CFIUS actions.  CFIUS’s authorizing statute, the Foreign Investment and National Security Act of 2007, gives the President authority to suspend or prohibit any covered transaction based on his finding of national security risks, and states that his actions and supporting findings “shall not be subject to judicial review.”  The Ralls complaint is based on the idea that the actions of CFIUS can be subject to judicial review through the APA—particularly where, as here, it purported to issue an order under its own authority—even if the President’s own actions would be exempt.  Whether this suit can proceed in federal court is therefore likely to be a principal focus of the litigation.  The plaintiffs will likely draw support from the background presumption (recently and emphatically reaffirmed in Sackett v. EPA) that agency actions are subject to judicial review.