Chinese-Owned Company Sues over CFIUS & Presidential Rejection of Windfarm Deal

The Financial Times reports that a Chinese-owned company was recently blocked from running some windfarms near a military test facility in Oregon.  Now, the company plans to sue President Obama on the grounds that the presidential order blocking the transaction–issued pursuant to his powers under the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007–was unconstitutional.  Under the federal statute,

The President may take such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States.

Ralls, the company at issue, is owned by two Chinese nationals.  Typically, if issues about national security arise in foreign investment cases, the U.S. government and the investors are able to enter a “mitigation agreement” that is intended to regulate the investment so that it does not present a national security risk. In this case, for whatever reason, no agreement was reached and the transaction was blocked.  A presidential order blocking a transaction is a rare occurrence: this is the first such instance since 1990.  A suit is even more rare.  From the FT:

No one has ever before sued the US president over this type of ruling, but Ralls argues that Mr Obama exceeded his powers when he blocked the project and without giving a detailed justification.

On Friday afternoon, Mr Obama issued an order compelling the company to sell within 90 days four wind farm sites in Oregon, and to clear all its equipment and structures off the sites within 14 days.

He also asserted the right to interview Ralls’ employees and advisers and to inspect its documents and computer records in the US, to ensure that the order had been carried out in full.

The statement said: “There is credible evidence that [Ralls] . . . might take action that threatens to impair the national security of the United States,” but gave no further details.

Ralls believes that the order may have been politically motivated.  The CFIUS process is susceptible to political manipulation, especially given the lack of review of CFIUS decisions (by the committee itself of the President).  This should make it tough for Ralls:

Lawyers not involved in the case said Ralls would face an uphill battle to win its case against Mr Obama, with courts generally reluctant to challenge presidential decisions relating to national security.

Stephen Mahinka of Morgan Lewis & Bockius in Washington said the case reflected the problems caused by the opacity of the Cfius process. “From the US point of view of attracting foreign direct investment, it is counterproductive to be so non-transparent,” he said. . .

 . . . However, Natalie Wyeth Earnest, a spokeswoman for the Treasury department, said: “They could try to pursue a lawsuit, but the Cfius statute clearly states that the president’s actions are not subject to judicial review.”

That is no exaggeration.  The statute indeed says the following:

The actions of the President under paragraph (1) of subsection (d) and the findings of the President under paragraph (4) of subsection (d) shall not be subject to judicial review.

That is not to say that the statute itself could not be declared unconstitutional, although it is not unusual for a federal statute to declare that executive action taken pursuant to the statute is non-reviewable (in immigration law, for instance).

The order requires Ralls to divest of its interests in the windfarms within 90 days, and to remove “all items, structures, or other physical objects or installations of any kind (including concrete foundations) that the Companies or persons on behalf of the Companies have stockpiled, stored, deposited, installed, or affixed on the Properties” within 14 (!) days.

Would the President have made this order in a non-election year, when the issue of whether he has “stood up to China” had not been repeatedly raised by Mitt Romney?  I don’t have an answer to that, and the concern that I can’t say “yes” with certainty to that question is undoubtedly shared by many foreign investors.


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