The US Court of Appeals for the District of Columbia Circuit (the Court) in a decision today reversed a ruling by the US District Court for the District of Columbia (the District Court) in litigation brought by Ralls Corporation (Ralls) against the president of the United States and the Committee on Foreign Investment in the United States (CFIUS). As discussed in more detail below, the Court stated that if the president intends to suspend or prohibit a transaction, the affected parties must be afforded certain due process rights. Specifically, affected parties must be given notice of the intended action, access to the unclassified evidence on which the president’s action is based and a meaningful opportunity to rebut that evidence. This is a significant decision because it adds a level of process—and increased transparency for affected parties—where the president intends to block a transaction. Additionally, on remand to the District Court, the decision could reopen questions regarding the breadth of CFIUS’s authority in issuing mitigation requirements.
In 2012, Ralls, a US company ultimately owned by two Chinese nationals, purchased land, projects and other assets in Oregon for the construction of a wind farm. The wind turbines were to be provided by a Chinese company associated with Ralls. The transaction was completed without CFIUS review, but CFIUS later learned of the transaction and invited the parties to file a CFIUS notice. The parties did so, and following its review and investigation, CFIUS ordered Ralls to, among other actions, remove the wind turbines it had installed due to unresolved national security concerns. Ralls argued that these actions were tantamount to divestment. Ralls then filed suit objecting to the CFIUS order, and CFIUS referred the matter to the president. The CFIUS order was subsequently replaced by a presidential order explicitly requiring divestment of all interests in the acquired wind-farm projects and removal of all structures and other objects from the project sites. Ralls then amended its complaint to object to the president’s order as well.
The District Court dismissed most of Ralls’ claims on jurisdictional grounds based on language in the CFIUS statute (most recently overhauled by the Foreign Investment and National Security Act of 2007 (FINSA)) preventing judicial review of a presidential decision. The District Court later dismissed Ralls’ claims that the presidential order unconstitutionally deprived it of its property without due process, because the District Court determined that the CFIUS process itself was sufficient due process and that Ralls’ property interests in the wind farm projects were not fully vested since CFIUS had not approved the transaction.
The Court rejected the District Court’s jurisdictional findings, determining that the statutory bar on judicial review in FINSA did not prohibit the courts from considering claims that the president’s order was issued without providing Ralls constitutionally required due process of law. The Court similarly rejected the argument that the due process claim in this case presented a political question exempt from judicial review since it did not challenge the president’s determination that the transaction presented a threat to national security or his decision to prohibit the transaction. Indeed, the decision generally was not limited by the judicial branch’s typical deference to the executive branch on national security matters, as it focused instead on due process matters where the Court claimed broad authority.
Having found jurisdiction to review Ralls’ claims on the merits, the Court found that the presidential order of divestment was an unconstitutional deprivation of Ralls’ property rights without due process. In particular, the Court determined that since CFIUS review is a voluntary process and FINSA permits parties to file after a transaction is closed, Ralls’ property rights vested once it acquired the wind farm projects and were not contingent in the absence of CFIUS approval. Moreover, the Court determined that the CFIUS process itself does not afford sufficient due process notwithstanding that the parties interacted with, and presented information to, CFIUS during the review process. According to the Court, despite this interaction, Ralls was unaware of CFIUS’s specific concerns and therefore unable to tailor its submissions to address the particular issues underlying the decision to block the transaction.
In order to ensure proper due process in cases where the president may block a transaction, the Court stated that parties must be notified of the president’s intention to block the transaction, provided with the unclassified evidence underlying that decision, and afforded an opportunity to rebut such evidence. The Court emphasized that due process does not require releasing classified information to the parties, but further clarified that only classified information is exempt. Moreover, the Court stated that the president need not reveal his thinking on sensitive questions pertaining to national security when reviewing transactions. The Court also noted that the lack of due process constituted a constitutional violation despite the government’s substantial interest in national security and notwithstanding the possibility that due process would have led to the same outcome.
Notably, the Court also reopened the original claims Ralls raised about CFIUS’s authority to issue broad mitigation measures that are arguably tantamount to requiring divestment, which, under FINSA, is an authority held only by the president. Since the president clearly has the authority to block transactions under FINSA, this question had effectively been mooted once the president’s order replaced the interim CFIUS mitigation order. In its decision, however, the Court found that this case falls within the “capable of repetition yet evading review” exception to mootness in light of the relatively short life cycle of the CFIUS process and the potential for Ralls to encounter similar reactions from CFIUS in future transactions. Although the Court did not make any determination regarding the substance of this issue, it ordered the District Court to consider the merits of Ralls’ claims regarding the CFIUS mitigation order.
It is not yet known whether the government will request that the decision of the Court’s three- judge panel be reviewed by the full Court en banc or if it will ultimately be appealed to the US Supreme Court. As of now, the decision clearly has direct application to CFIUS cases where the president intends to block a transaction, but it is not yet known what other practical implications it will have if it stands. For example, parties could claim they are entitled to see and rebut the government’s evidence in cases where CFIUS requires mitigation measures that they believe deprive them of property rights rather than only in cases where the president prohibits a transaction.
This decision has the potential to increase the transparency of the typically opaque CFIUS process in at least some cases. This could be significant since parties are often forced to speculate about potential CFIUS concerns when issues arise. Moreover, the Court’s decision exempting from mootness Ralls’ original claims regarding CFIUS exceeding its authority by issuing such broad mitigation could potentially affect CFIUS’s ability to resolve national security concerns without referring cases to the president.