On November 21, 2014, the Committee on Foreign Investment in the United States (“CFIUS”) provided Ralls Corporation (“Ralls”) with unclassified documents regarding the US government’s review and rejection of Ralls’s purchase of four US companies for the purpose of developing wind farms in Oregon. The document production totaled 3,487 pages.1 These materials were provided as a result of Ralls’s court challenge of the CFIUS review process.
CFIUS is an Executive Branch inter-agency committee chaired by the Treasury Secretary. It reviews, and makes recommendations to the President regarding, transactions that could result in “foreign control” of US businesses, where such foreign control could threaten to impair national security. Chinese-owned Ralls challenged in court the orders by CFIUS and the President blocking its acquisition of the four US companies.2
Ralls’s court challenge culminated in a ruling by the US Court of Appeals for the DC Circuit that Ralls had been denied a meaningful opportunity to clarify its plans for four wind farm sites and that the CFIUS procedures violated Ralls’s due process rights. The appellate court held that, while the final action (i.e., the order restricting the Ralls transaction) would be immune from judicial review under the statute authorizing CFIUS, the statute did not limit the reviewability of a constitutional claim challenging the process preceding such presidential action.
The court found that Ralls had a constitutionally protected property interest in the companies that it had acquired under Oregon state law. The fact that Ralls was afforded the chance to interact with, and present evidence to, CFIUS was insufficient, because Ralls was not given the opportunity to craft its submissions to address CFIUS’s national security concerns, or refute the factual basis underlying these concerns. The court concluded that Ralls had a due process right to: (i) notice of the government’s intended action; (ii) notice of the unclassified information upon which the government relied; and (iii) an opportunity to rebut that information. However, the court made clear that due process does not require the disclosure of classified information that supports official action.
On remand, the district court ordered the Obama administration to provide Ralls with the unclassified documents that informed the divestment order and to accord Ralls an opportunity to challenge the information. The district court also sketched out a framework for Ralls to challenge any assertions of executive privilege by the government related to the unclassified materials subject to disclosure.3
CFIUS has never been required to share with foreign investors any factual evidence relied on in its national security decisions. Rather surprisingly, the government only asserted executive privilege over portions of two documents, while handing over to the plaintiff voluminous unclassified evidence.
This unusually forthcoming action by CFIUS could encourage other parties to make similar demands for information and the opportunity to rebut the government’s claims. However, it remains to be seen how CFIUS will react to such requests when the underlying facts differ.
Unlike most transactions reviewed by CFIUS, the Ralls transaction was completed; the company had acquired a vested property interest under state law by the time that CFIUS became aware of the transaction and insisted on reviewing it. While the DC Circuit’s decision appeared to hold open the possibility that federal constitutional due process protections would also apply to interests arising from binding contracts recognized under state law, it did not address the issue directly. Indeed, many transactions before CFIUS do not yet have contractually binding terms; however, this decision, and CFIUS’s subsequent disclosures, could incentivize parties to reach binding terms prior to filing with CFIUS. Finally, investors should be mindful that this litigation has not yielded any change in CFIUS’s decision to require divestment by Ralls.