Government Says CFIUS Challenge Should Be Dismissed
By Jeffrey Benzing | October 31, 2012 3:26 pm

The U.S. government said President Barack Obama’s order to block a Chinese-owned company from operating near a military installation is not subject to judicial review and that a historic lawsuit filed by Ralls Corp. should be dismissed.

The company sued in September over an interim order from the multi-agency Committee on Foreign Investment in the United States saying that construction had to stop on recently purchased wind farm sites in Oregon.

Soon after, Obama exercised his power under the Defense Production Act to order Ralls  to divest the property.  The order — the first from a president since 1990 — further prohibits the sale of materials from Chinese Sany Group to a future buyer of the property and requires the company to allow government inspections of documents in the future.

Ralls, a U.S. company owned by Sany officials Dawi Duan and Jialiang Wu, challenges the statutory and constitutional standing of CFIUS and the power exerted in the presidential order.

“It is clear that Congress intended to preclude review of the President’s actions to address foreign acquisitions that raise threats to national security,” the government said in a Monday memorandum in support of dismissal. “Judicial review would entangle the courts in the supervision of the President’s actions in a field where the Executive holds broad discretion and particular competence.”

The dismissal memorandum does not cite a specific national security problem but does say that Ralls was building on land in the vicinity of a military installation. The government may have been concerned that the company was encroaching on restricted drone-training airspace south of Naval Air Station Whidbey Island in Washington State.

The Defense Production Act gives the president broad power to take action he thinks is appropriate to protect national security by suspending or prohibiting transactions by foreign persons. The act gives power to Congress, not to the courts, to check the president’s power related to national security, the dismissal memorandum said.

Ralls said it never had an opportunity to review or rebut any evidence that CFIUS or the president used to block the deal, according to an Oct. 1 amended complaint.

The CFIUS process is highly secretive and specific information on why a transaction is blocked is often withheld from companies for what the government deems national security reasons. Ralls’ historic challenge has caught the eye of CFIUS experts who note how rare it is for a CFIUS issue to even get to the president.

Normally, companies voluntarily give notice of transactions to CFIUS before they proceed. In this case, Ralls had already completed the transaction when CFIUS Deputy Assistant Secretary Mark Jaskowiak informed the company that the deal could raise national security issues.

The company then submitted to a review but did not halt construction, according to the dismissal memorandum. Almost always, a transaction is modified or cancelled before the president steps in to halt it.

Ralls claims that Obama exceeded his authority and that the company has been deprived of property in violation of its constitutional right to due process.

The government said the constitutional claim is unsubstantial and that Ralls should have been aware that it could lose property if it proceeded with a transaction without first clearing it with CFIUS.

“Ralls, like any other foreign acquirer of a United States entity in a transaction that implicates national security, had no legitimate claim of entitlement to complete its acquisition without CFIUS approval,” the dismissal memorandum said.

The government said it followed the proper CFIUS procedures outlined by Congress and that Ralls has no right to contest the president’s decision in court.

The company has named both CFIUS and Obama in the lawsuit, though CFIUS’ interim order was undone by Obama’s Sept. 28 order, the government said. Treasury Secretary Timothy Geithner, the official head of CFIUS, is also named in the suit.

Ralls is represented by former U.S. Solicitor General Paul Clement, former Assistant Attorney General Viet Dinh and former White House Associate Counsel H. Christopher Bartolomucci of Bancroft PLLC and Tim Tingkang Xia, partner at Morris, Manning & Martin LLP.

“The government’s attempt to escape judicial review is without merit, and we look forward to our day in court,” Xia said. “Ralls seeks only equality and due process, or at least just an explanation. Equal treatment — fair and square — that is all we ask.”

Opposition from Ralls is due Nov. 12.

The case is Ralls Corp. v. Committee on Foreign Investment in the U.S., 1:12-cv-01513, U.S. District Court, District of Columbia (Washington.)

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