Ralls Corp. v. Comm. On Foreign Inv. in the United States

• Decision Date: 15 July 2014
• Docket Number: No. 13–5315.,13–5315.
• Citation: 758 F.3d 296
• Parties: RALLS CORPORATION, Appellant v. COMMITTEE ON FOREIGN INVESTMENT IN the UNITED STATES, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

758 F.3d 296

RALLS CORPORATION, Appellant

v.COMMITTEE ON FOREIGN INVESTMENT IN the UNITED STATES, et al., Appellees.

No. 13–5315.

United States Court of Appeals,

District of Columbia Circuit.

Argued May 5, 2014.

Decided July 15, 2014.

Appeal from the United States District Court for the District of Columbia (No. 1:12–cv–01513).

Paul D. Clement argued the cause for the appellant. Viet D. Dinh, H. Christopher Bartolomucci and George W. Hicks, Jr., were on brief.

Douglas N. Letter, Attorney, United States Department of Justice, argued the cause for the appellees. Stuart F. Delery, Assistant Attorney General, Ronald C. Machen, Jr., United States Attorney, and Sonia K. McNeil, Attorney, were on brief.

Before: HENDERSON, BROWN and WILKINS, Circuit Judges.

Opinion for the Court filed by Circuit Judge HENDERSON.

KAREN LeCRAFT HENDERSON, Circuit Judge:

In March 2012, Appellant Ralls Corporation (Ralls) purchased four American limited liability companies (Project Companies) previously formed to develop windfarms in north-central Oregon. The transaction quickly came under scrutiny from the Committee on Foreign Investment in the United States (CFIUS), an Executive Branch committee created by the Defense Production Act of 1950 (DPA), codified as amended at 50 U.S.C. app. § 2170, and chaired by the Secretary of the U.S. Treasury Department (Treasury Secretary), see50 U.S.C. app. § 2170(k). Pursuant to section 721 of the DPA, CFIUS reviews any transaction “which could result in foreign control of any person engaged in interstate commerce in the United States.” Id. § 2170(a)(3). Although Ralls is an American corporation, the transaction fell within the ambit of the DPA because both of Ralls's owners are Chinese nationals. CFIUS determined that Ralls's acquisition of the Project Companies threatened national security and issued temporary mitigation orders restricting Ralls's access to, and preventing further construction at, the Project Companies' windfarm sites. The matter was then submitted to the President, who also concluded that the transactionposed a threat to national security. He issued a permanent order (Presidential Order) that prohibited the transaction and required Ralls to divest itself of the Project Companies. Ralls challenged the final order issued by CFIUS (CFIUS Order) and the Presidential Order in district court, alleging, inter alia, that the orders violate the Due Process Clause of the Fifth Amendment to the United States Constitution because neither CFIUS nor the President (collectively, with Treasury Secretary and CFIUS Chairman Jacob Lew, Appellees) provided Ralls the opportunity to review and rebut the evidence upon which they relied. The district court dismissed Ralls's CFIUS Order claims as moot and its due process challenge to the Presidential Order for failure to state a claim. For the reasons set forth below, we reverse.

I. BACKGROUND

A. Statutory and Regulatory Framework

This case involves Executive Branch review of a business transaction under section 721 of the DPA, also known as the “Exon–Florio Amendment.” ¹ As amended, section 721 of the DPA directs “the President, acting through [CFIUS],” to review a “covered transaction to determine the effects of the transaction on the national security of the United States.” 50 U.S.C. app. § 2170(b)(1)(A). Section 721 defines a covered transaction as “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.” Id. § 2170(a)(3).

Review of covered transactions under section 721 begins with CFIUS. As noted, CFIUS is chaired by the Treasury Secretary and its members include the heads of various federal agencies and other high-ranking Government officials with foreign policy, national security and economic responsibilities.²See id. § 2170(k)(2), (3). CFIUS review is initiated in one of two ways. First, any party to a covered transaction may initiate review, either before or after the transaction is completed, by submitting a written notice to the CFIUS chairman. See id. § 2170(b)(1)(C)(i); 31 C.F.R. § 800.401(a) (“A party or parties to a proposed or completed transaction may file a voluntary notice of the transaction with the Committee.” (emphases added)); id. § 800.402(c)(1)(vii) (voluntary notice must include “expected date for completion of the transaction, or the date it was completed”); id.§ 800.224 (“The term transaction means a proposed or completed merger, acquisition, or takeover.”).³ Alternatively, CFIUS may initiate review sua sponte. See50 U.S.C. app. § 2170(b)(1)(D). The CFIUS review period lasts thirty days, during which CFIUS considers the eleven factors set forth in 50 U.S.C. app. § 2170(f) to assess the transaction's effect on national security.⁴See id. § 2170(b)(1)(A)(ii), (E).

During its review, if CFIUS determines that “the transaction threatens to impair the national security of the United States and that threat has not been mitigated,” it must “immediately conduct an investigation of the effects of [the] covered transaction on the national security ... and take any necessary actions in connection with the transaction to protect the national security.” Id. § 2170(b)(2)(A), (B). CFIUS is given express authority to “negotiate, enter into or impose, and enforce any agreement or condition with any party to the covered transaction in order to mitigate any threat to the national security of the United States that arises as a result of the covered transaction.” Id. § 2170( l )(1)(A). The investigation period lasts no more than forty-five days. See id. § 2170(b)(2)(C). If CFIUS determines at the end of an investigation that the national security effects of the transaction have been mitigated and that the transaction need not be prohibited, action under section 721 terminates and CFIUS submits a final investigation report to the Congress. See id. § 2170(b)(3)(B); 31 C.F.R. § 800.506(d).

If CFIUS concludes at the end of its investigation that a covered transaction should be suspended or prohibited, it must “send a report to the President requesting the President's decision,” which report includes, inter alia, information regarding the transaction's effect on national security and CFIUS's recommendation. 31 C.F.R. § 800.506(b), (c). Once CFIUS's report is submitted to the President, he has fifteen days to “take such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States.” 50 U.S.C. app. § 2170(d)(1), (2). The President may exercise his authority under section 721 only if he finds that

there is credible evidence that leads [him] to believe that the foreign interest exercising control might take action that threatens to impair the national security; and ... provisions of law, other than [section 721] and the International Emergency Economic Powers Act, do not, in the judgment of the President, provide adequate and appropriate authorityfor the President to protect the national security in the matter before the President.

Id. § 2170(d)(4). Significantly, the statute provides that “[t]he actions of the President under paragraph (1) of subsection (d) of this section and the findings of the President under paragraph (4) of subsection (d) of this section shall not be subject to judicial review.” Id. § 2170(e). In deciding whether to suspend or prohibit a transaction, the President is directed to consider, “among other factors[,] each of the factors described in subsection (f) of this section, as appropriate.” Id. § 2170(d)(5); see supra note 4.

B. Factual Background

Ralls is an American company incorporated in Delaware with its principal place of business in Georgia. Ralls is owned by two Chinese nationals, Dawei Duan and Jialiang Wu. Duan is the chief financial officer of Sany Group (Sany), a Chinese manufacturing company, and, at the time of the transaction at issue, Wu was a Sany vice-president and the general manager of Sany Electric Company, Ltd. (Sany Electric). Ralls's amended complaint asserts that “Ralls is in the business of identifying U.S. opportunities for the construction of windfarms in which the wind turbines of Sany Electric, its affiliate, can be used and their quality and reliability demonstrated to the U.S. wind industry in comparison to competitor products.” Am. Compl. ¶ 5, Ralls Corp. v. Comm. on Foreign Inv. in the U.S., No. 1:12–cv–01513 (D.D.C. Oct. 1, 2012).

In March 2012, Ralls purchased the Project Companies, which are four American-owned, limited liability companies: Pine City Windfarm, LLC; Mule Hollow Windfarm, LLC; High Plateau Windfarm, LLC; and Lower Ridge Windfarm, LLC.⁵ The Project Companies were originally created by an Oregon entity (Oregon Windfarms, LLC) owned by American citizens to develop four windfarms in north-central Oregon (collectively, Butter Creek projects). Before Ralls acquired them, each of the Project Companies had acquired assets necessary for windfarm development, including

easements with local landowners to access their property and construct windfarm turbines; power purchase agreements with the local utility, PacifiCorp; generator interconnection agreements permitting connection to PacifiCorp's grid; transmission interconnection agreements and agreements for the management and use of shared facilities with other nearby windfarms; and necessary government permits and approvals to construct five windfarm turbines at specific, approved locations.

Am. Compl. ¶ 37.

The Butter Creek project sites are located in and around the eastern region of a restricted airspace and bombing zone maintained by the United States Navy (Navy). Three of the windfarm sites are located within seven miles of the restricted airspace while the fourth—Lower Ridge—is located within the restricted airspace. After the Navy urged Ralls to move the Lower Ridge site “to reduce airspace...