What drove the settlement, announced last week, in the Ralls litigation? Publicly-available facts suggest that both sides may have been interested in preserving wins and avoiding potential downsides from continued litigation.

In the only CFIUS lawsuit in history, the Chinese-owned Ralls Corporation scored a huge win in court last year. CFIUS and President Obama had ordered Ralls to divest a wind-farm project in proximity to a DoD facility. But CFIUS failed to provide Ralls an opportunity to rebut even unclassified, non-privileged information, violating Ralls’ due process rights, according to the DC Circuit. Chinese observers have said the win enabled Ralls’ affiliated conglomerate, Sany, to tout its strength, gaining support in the Chinese market.

On the other hand, the U.S. Government’s position on the merits – that U.S. national security required Ralls to divest the wind-farm project – seemingly was undented. Neither the district court nor the appeals court indicated any interest in second-guessing the Executive Branch’s national security views. With a little more give on “process,” it appeared the U.S. Government might ultimately prevail in forcing divestment without compensating Ralls. That outcome could have reduced the value of Ralls’ win for a Chinese audience.

So, having won a point on principle that was commercially helpful, but with a potential for that win to be undermined by further litigation, a settlement may well have been attractive for Ralls at this stage. But why would the U.S. Government, potentially headed for an ultimate win on the merits, want to settle?

As we wrote in December of last year, continuing litigation might have jeopardized the power CFIUS has asserted to issue orders directing parties to take actions during the review process. That legal power—asserted by CFIUS but questioned by many CFIUS private practioners—is valuable to CFIUS not only in the rare cases in which it is used, but also in cases when it looms unused.

Before CFIUS began to assert the right to impose orders, negotiations over “mitigation agreements” – conditions to CFIUS clearing a deal – were real negotiations. The parties to the deal had some leverage to refuse terms that CFIUS proposed.   Continued insistence on terms in the face of the parties’ refusal to accept them required formal backing of CFIUS by the President. Obtaining that backing is not easy, so it often made sense for CFIUS to accept significantly less than it wanted in a mitigation agreement.

By asserting that it can impose orders without presidential backing, CFIUS undermines the parties’ leverage in negotiations. There is little reason for CFIUS to negotiate, accepting less than it wants, when it can issue whatever orders it prefers.

With this settlement, a judicial ruling on whether CFIUS actually has authority to issue orders is, for the time being, avoided. CFIUS will be able to claim not only that it protected national security in this particular case but also that its asserted power to issue orders is intact. And with this latter claim, CFIUS will be able to influence negotiations in future cases by waiving around the threat of an order if parties balk at mitigation terms proposed by CFIUS.

The settlement terms have not yet been disclosed, so we do not yet know (and might never know) whether the terms include any money or other compensation to Ralls. But, with both sides having established and protected key points, there seemingly were significant incentives for both sides to settle at this stage, compensation aside.