Due Process Requires US Committee on Foreign Investment to Let the Sunshine In

On July 15 the United States Court of Appeals for the District of Columbia Circuit told CFIUS (the Committee on Foreign Investment in the United States) that constitutional due process requires that parties subject to an adverse CFIUS determination must have the right to review and respond to the unclassified evidence used in making that determination. Ralls Corporation v. Committee on Foreign Investment in the United States, Case No. 13-5315.

Born at the beginning of the Cold War, Section 721 of the Defense Production Act of 1950 requires that so-called covered transactions – “any merger, acquisition or takeover…., by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States” – be reviewed to determine the “effects of the transaction on the national security of the United States.” The CFIUS, comprising heads of various federal agencies and other high-ranking government officials with foreign policy, national security and economic responsibilities, conducts such reviews. CFIUS can mitigate the effect of any covered transaction on the national security of the United States. It can also recommend that the President suspend or prohibit any covered transaction, which the President can do if he finds credible evidence that (i) “the foreign interest exercising control might take action that threatens to impair the national security” and (ii) other provisions of law cannot protect the national security. Slip op. at 6.

Ralls Corp. is a Delaware-based corporation whose owners are Chinese nationals. Ralls bought a wind farm in Oregon located within restricted airspace and a bombing zone, operated by the US Navy. Ralls made its CFIUS filing – a CFIUS review can be initiated by the entity or by CFIUS sua sponte. It answer questions from CFIUS and met with, and gave a presentation to, CFIUS officials.

Such efforts, however, were unsuccessful. CFIUS stopped the transaction pending Presidential review. Ralls said that CFIUS did not apprise Ralls of the gravamen of CFIUS’ concerns.

The President then prohibited the transaction and ordered that Ralls divest itself of all interests in the project. But according to the court, “neither CFIUS nor the President gave Ralls notice of the evidence on which they respectively relied nor an opportunity to rebut that evidence.” Id. at 11.

Ralls appealed, claiming the President deprived Ralls of its constitutionally protected interest in the wind farm without due process of law. The District Court dismissed the claims, in part, finding that due process was met because Ralls had notice that the transaction had to be reviewed and gave Ralls an opportunity to submit evidence, including a presentation, to CFIUS, as well as follow up conversations with CFIUS.

The DC Circuit agreed with Ralls and remanded. The panel (Judge Karen LeCraft Henderson, who wrote the opinion, Judge Judith Rogers Brown and Judge Robert Wilkins) said that the government violated Ralls’ due process right by failing to provide Ralls the opportunity to review and respond to the information the President relied on in making the CFIUS decision. The court said that “due process requires, at the least, that an affected party by informed of the official action, be given access to the unclassified evidence on which the official actor relied and be afforded an opportunity to rebut that evidence.” Id. at 36. (The President relied on both unclassified and classified information in making his decision. The court ruled that Ralls could only review the unclassified evidence.)

The government argued that CFIUS determinations were not reviewable by the courts, that such matters involved political questions not suited to judicial determinations and that the Ralls complaint was moot. The DC Circuit disagreed and remanded to the District Court for further proceedings, including whether there were issues of executive privilege.

Topics:  Appeals, CFIUS, Due Process, Evidence, Reviewability Determinations

Published In: Civil Procedure Updates, Constitutional Law Updates, Elections & Politics Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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