On October 10, 2013, the U.S. District Court for the District of Columbia issued an amended ruling dismissing Ralls Corporation’s (“Ralls”) challenge to a presidential order requiring divestiture of its interest in four companies engaged in developing wind farms near a Naval base in Oregon. After the deal concluded, Ralls – a Delaware corporation privately owned by two Chinese nationals – submitted the deal to the Committee on Foreign Investment in the United States (“CFIUS”) for review of the transaction’s national security implications. Following this review by CFIUS, President Obama ordered divestiture of Ralls’ acquisition of the membership interests in the four companies, citing national security concerns posed by the transaction.
Ralls challenged the divestment order on several grounds, including under the due process clause of the Fifth Amendment. In its decision on October 10, the District Court dismissed the due process claim, holding, first, that Ralls had not alleged that it was deprived of a protected interest and, second, that Ralls had received sufficient process prior to the divestment order.
The court found that Ralls could not predicate a due process claim on deprivation of property rights that it had acquired because Ralls had forgone the voluntary pre-acquisition CFIUS review process provided by statute. Additionally, the court found that Ralls had received sufficient process because it was given opportunities: to provide CFIUS with the reasons that the acquisition did not pose risks to national security, to meet with CFIUS representatives, and to respond to questions posed by CFIUS. Furthermore, the court was unconvinced by Ralls’ argument that the president must disclose specific reasons for his finding that the transaction posed risks to national security, noting that any property interest Ralls may have had in the companies was “relatively weak in the face of the strong governmental interest in protecting national security.” In dismissing Ralls’ due process claims, the court emphasized the president’s near-absolute, discretionary authority when carrying out the mandate of the CFIUS statute. Because the court had previously dismissed Ralls’ other claims, this decision resulted in dismissal of Ralls’ suit.
This decision limits the judicial remedies available to businesses engaged in cross-border investment in the United States that fail to voluntarily submit transactions for pre-acquisition CFIUS review. Like CFIUS’ review of the Smithfield Foods-Shuangui International Holdings transaction discussed in our blog post earlier this month, this decision highlights the significant potential benefits of a proactive approach to CFIUS for foreign investors acquiring interests in the United States.
The decision is Ralls Corp. v. Comm. on Foreign Inv. in the U.S., No. 12-1513 (D.D.C. Oct. 10, 2013), available here.