Shengzhi Wang

On July 15, 2014, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued its opinion of Ralls Corporation v. Committee on Foreign Investment in the United States.[1] The case arose out of Ralls Corporation’s acquisition of four Oregon sites for windfarm construction next to a restricted area of the U.S. Navy.[2] The court held that President Obama deprived Ralls Corporation, an American corporation whose two owners are executives from a Chinese manufacturing company, of their due process rights when he issued an order to block the transaction for national security reasons.[3] In the history of the underlying regulatory scheme, the Exon-Florio or Committee on Foreign Investment in the United States (CFIUS) program, this controversy was the second time the president stepped in and prohibited a foreign merger, acquisition, or takeover transaction in light of national security concerns, as well as the first time where the judiciary was called upon to resolve the administrative dispute.[4] While this implies the significance that the D.C. Circuit signaled the court’s willingness to assume its judicial review power in the scheme, the Ralls court took cautious stance to only address the legal questions regarding the President’s action in dispute.[5] On the other hand, it remained silent on the merits of the Committee actions.[6]

Given the reality of CFIUS practice, where the overwhelming majority of cases do not even reach the president for his decision, the Ralls case leaves more important questions unanswered on how courts may adjudicate the legal disputes at the stage of the Committee process, namely a thirty-day review period followed by a forty-five-day investigation period.[7] This Note therefore attempts to identify the possible legal issues for that stage. It recognized that the Foreign Investment and National Security Act (FINSA) of 2007[8] formally restructured the scheme with three independent but inter-connected regulatory players: the Committee on Foreign Investment in the United States (“Committee”), the president, and Congress. As a result, a triangular model that depicted the tensions among these three players will help understand the potential legal issues of administrative law and constitutional law in the program. In particular, the Note explored the issues such as the administrative finality of a Committee decision,[9] the potential arbitrary and capricious decisionmaking of the Committee due to Congress’ frequent politicization of the CFIUS process,[10] the Chevron question of what “national security” means and where the Committee’s jurisdictional boundary is,[11] and the separation of powers question on whether the Committee can nevertheless act on its own initiative pursuant to the executive power when the Committee and Congress disagree with each other.[12]

With three triangles: the inter-department tension triangle, the legal issues triangle, and the judicial resolution triangle, the author tries to illustrate how the underlying institutional relationship may affect the legal standards in the contemporary CFIUS practice. The Note concludes that given a lot of room for the courts to clarify quite a few legal questions embedded in the post-FINSA structure and the limited case law related to this particular regulatory program, courts may be willing to take on some Committee cases to help clarify the legal standards and delineate the inter-department relationship in this important national security program at the same time.

Questions and inquiries regarding this Note may be forwarded to the author at LawReview@vermontlaw.edu.

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[1] Ralls Corp. v. Comm. on Foreign Inv., 758 F.3d 296 (D.C. Cir. 2014).

[2] Amended Complaint for Declaratory and Injunctive Relief at 15, Ralls Corp. v. Comm. on Foreign Inv., 926 F. Supp.2d. 71 (D.D.C. 2013) (No. 1:12-cv-01513).

[3] Ralls Corp., 758 F.3d at 325.

[4] See David McLaughlin, Chinese-Owned Ralls Can Question U.S. on Project Denial, Bloomberg (July 15, 2014), http://www.bloomberg.com/news/articles/2014-07-15/chinese-owned-firm-can-question-u-s-on-project-denial (“The case is the first to challenge the CFIUS process in court.”).

[5] The two key holdings from the D.C. Circuit are that the Presidential Order deprived Ralls of its due process rights and that the district court erroneously dismissed the challenge to the Committee’s order based on mootness grounds as it was revoked after the president issued his order. Ralls Corp., 758 F.3d at 319 (holding that the Presidential Order deprived Ralls of its constitutionally protected due process rights); id. at 325 (holding that Ralls’ challenge to the Committee action is not moot). The D.C. Circuit spent roughly fifteen pages on the due process challenge to the Presidential Order, five pages on the mootness issue related to the CFIUS August Order (arguably closely connected with the Presidential Order, since absent the Presidential Order, the CFIUS Order would not have been moot as a general matter, while the parties and the court would not have spared efforts on the evading review exception), and one single paragraph directing the district court to review other remaining claims on remand.

[6] Ralls Corp., 758 F.3d at 325.

[7] 50 U.S.C. app. § 2170(b) (1)–(2) (2012).

[8] Foreign Investment and National Security Act of 2007, P.L. 110-49, 121 Stat. 246 (2007).

[9] Administrative Procedure Act, 5 U.S.C. § 704 (2012) (“Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action.”); Bennett v. Spear, 520 U.S. 154 (1997) (setting up the two prongs of procedural requirements and substantive “legal consequences” for the modern finality doctrine).

[10] Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (the State Farm criteria for reviewing an agency’s arbitrary and capricious substantive finding); compare FCC v. Fox Television Stations, Inc., 556 U.S. 502, 525 (2009) (Breyer J., dissenting) (supporting the adoption of State Farm criteria and arguing that an agency’s change of mind cannot be justified by “nothing more than political considerations or even personal whim”), with FCC v. Fox Television Stations, Inc., 556 U.S. 502, 525 (2009) (the majority remained silent on the State Farm criteria and acknowledged that political pressure from the legislature may be permissible justification for an agency’s decision-making changes).

[11] Chevron, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984).

[12] Baker v. Carr, 369 U.S. 186, 217 (1962) (political question); compare United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 319–20 (1936) (plenary inherent executive power in foreign affairs), with Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 635–38 (1952) (Jackson J., concurring) (Jackson’s tripartite test to limit presidential power under legislative mandate); Youngstown, 343 U.S. at 610–11 (Frankfurter J., concurring) (Justice Frankfurter’s gloss theory that emphasizes the deference to historical practice of the other two branches to avoid the clear cut in a separation of powers quagmire).