On July 15, the D.C. Circuit held that a presidential order requiring Ralls Corporation to divest its interests in Oregon windfarms because of national security concerns deprived Ralls of its constitutionally protected property interests without due process of law. In doing so, the D.C. Circuit reversed a district court decision that had emphasized the president’s near-absolute, discretionary authority when responding to national security threats raised by foreign investment in the United States. [link to Oct. 21, 2013 blog]
The presidential order was the end result of the Committee on Foreign Investment in the United States’ (“CFIUS”) review of the national security implications of Ralls’ acquisition of the four companies developing the windfarms. Ralls – a Delaware corporation privately owned by two Chinese nationals – submitted the transaction to CFIUS for review after the acquisition had closed. Following CFIUS’ review, President Obama ordered divestiture of Ralls’ acquisition of the membership interests in the four companies, citing national security concerns posed by the transaction. Ralls brought suit against CFIUS, claiming, in part, that the presidential order deprived Ralls of its ownership interests in the companies without due process of law. The case will now be returned to the district court for further review.
Though the decision does not affect the president’s ultimate power to order divestiture, the decision could have a significant impact on the manner in which CFIUS reviews proceed in the future. Under the decision, CFIUS, before ordering divestiture, will be required to: (1) inform the property owner about its action; (2) provide access to the unclassified evidence that supports its decision; and (3) provide the property owner with an opportunity to rebut the evidence. This could lead to a review process that is much more transparent than current practice, wherein parties before CFIUS are often in the dark about the government’s concerns.