The Committee on Foreign Investment in the United States (“CFIUS”) is a committee chaired by the Secretary of the Treasury that reviews transactions involving acquisitions by foreign persons of U.S. businesses which may raise national security issues. The recent decision in Ralls Corp. v. Comm. on Foreign Investment in the United States, No. 12-cv-01513 (D.C. Cir.) may require significant changes in the manner in which CFIUS conducts its reviews.
Ralls Corporation is a United States company that is owned by Chinese citizens. In 2012, Ralls purchased various companies that held wind farm rights in Oregon. While Ralls did not voluntarily seek CFIUS review, CFIUS initiated its own review of the transaction. Following that review, the President issued an order denying the transaction and requiring Ralls to sell the assets in question.
Ralls filed suit in the U.S. District Court for the District of Columbia challenging the CFIUS decision and Presidential Order, but that suit was dismissed. Ralls then appealed to the U.S. Court of Appeals for the D.C. Circuit, arguing that it had been denied constitutional due process during the CFIUS review and subsequent Presidential action.
The D.C. Circuit overturned the lower court decision, holding that Ralls had been deprived of constitutional due process. In reaching that decision, the Court held that Ralls possessed a state law property interest in the property it acquired, and that interest was protected by the Fifth Amendment. The Court noted that Ralls had not received notice of an official action, nor had it had the opportunity to be heard at a meaningful time and in a meaningful manner, including the right to know the factual basis for an action and the opportunity to rebut evidence supporting the action – steps that due process ordinarily requires.
While the Ralls decision may be appealed to the U.S. Supreme Court, for the time being that decision should alter the CFIUS review process. Prior to Ralls, parties generally were provided with very little information regarding the review process and the justifications underlying CFIUS decisions. In light of that ruling, parties may have a greater opportunity to understand the factual basis for any pending decision and, additionally, have the opportunity to rebut evidence supporting the adverse decision.