Although United States Courts are generally reluctant to interfere in Executive Branch decisions related to national security, the United States Court of Appeals for the D.C. Circuit, in Ralls Corp. v. Committee on Foreign Investment in the United States, 2014 U.S. App. LEXIS 13389, recognized an important exception [enhanced opinion available to lexis.com subscribers]. The Circuit Court reversed a decision by the U.S. District Court for the District of Columbia which had dismissed Ralls’ claims for relief. On July 15, 2014 the Court determined that proceedings of the Committee on Foreign Investment in the United States (CFIUS) are properly subject to judicial review under the due process clause of the Constitution. CFIUS is a group of high level government officials, tasked with advising the President on whether or not to block transactions which may result in a foreign person controlling any entity engaged in interstate commerce in the U.S. based upon national security concerns. Foreign investors see this process as highly opaque. The case stems from Ralls’ attempt to buy four wind farms in Oregon that were located in or near a region of airspace restricted by the U.S. Navy. Although Ralls is an American corporation, the transaction was subject to CFIUS review because Ralls is owned by two Chinese businessmen. After review by CFIUS, the President acted under the Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988 (50 U.S.C 1988 App § 2170) to permanently block the transaction. Ralls challenged this decision on due process grounds. The Circuit Court held that while CFIUS decisions (or final actions by the President) are not subject to judicial review, courts may review the adequacy of the process by which CFIUS decisions are reached. Foreign investors must be informed of all non-classified information used to make decisions and given the opportunity to refute that information; classified information does not need to be handed over. The Ralls decision provides a beginning for potential foreign investors to obtain transparency in CFIUS reviews and, hopefully, will reduce foreign investor concerns that opportunities for foreign investment in U.S. energy projects may be limited by political whimsy, xenophobic angst or other opaque processes. It is not known whether the government will appeal this decision or attempt return to the District Court to assert an executive privilege argument that the Circuit Court left open. Click here to read the full text of the opinion. Click here to read more about CFIUS and the Exon-Florio Amendment.
For more information about LexisNexis products and solutions, connect with us through our corporate site.