Ralls Continues to Fight Presidential Divestiture Order Stemming from CFIUS Investigation

Ralls Corp., a privately-held company owned by executives of the China-based heavy machinery manufacturing conglomerate Sany Group, recently filed an appeal in its ongoing effort to avoid President Obama’s order requiring the company to divest itself of its interest in four wind farms in Oregon. We have previously reported on the order, which was issued by the president on the recommendation of the Committee on Foreign Investment in the U.S. (CFIUS) and followed a similar CFIUS order. The CFIUS order was withdrawn following issuance of the executive order. Our earlier articles can be found at http://www.lawofrenewableenergy.com/tags/ralls-corp/.

On February 7, Ralls Corp. filed an appeal of the D.C. Circuit Court’s October ruling that Ralls Corp. was not deprived of due process and that it was not entitled to know the specific basis for the executive order. The appeal asserts, among other things, that the district court erred in finding that Ralls Corp. has no constitutionally protected interest in the wind projects and in granting undue discretion to the president to prohibit a transaction on national security grounds. Ralls Corp. takes particular issue with the federal government’s failure to state with specificity the factual basis for the orders and to give Ralls Corp. an opportunity to address and rebut such a statement.

Separately, the US government has initiated a civil action to force the sale of the wind projects, which are located adjacent to a US Naval facility that is believed to be used to test unmanned drones and other electronic warfare equipment, as required by the executive order.

A successful outcome for Ralls Corp. seems unlikely, given the deference the judicial branch has historically given the executive branch with respect to matters of national security. The ongoing dispute continues to serve as a reminder of the extensive authority of CFIUS and the president to intervene in transactions to protect national security interests and, therefore, the importance of notifying CFIUS of transactions that may concern national security.

U.S. District Judge Rules on Ralls Corp Challenge to President Obama's Divestiture Order

There has been a new development in the effort by Ralls Corporation, a company owned by two Chinese nationals, to challenge President Obama’s September 2012 order requiring it to divest its interests in four wind projects in Oregon and to remove any equipment and infrastructure it had placed on the sites of the proposed projects.  The President’s order, issued pursuant to section 721 of the Defense Production Act of 1950 (“Section 721”), had cited unspecified national security risks as the reason for blocking Ralls Corporation’s acquisition of the wind projects, but the sites of the four proposed projects are near or within restricted airspace of U.S. Naval Weapons System Training Facility Boardman.

On Friday, U.S. District Judge Amy Berman Jackson ruled that she could not overturn President Obama’s order. In her opinion, Judge Jackson said that the law "is not the least bit ambiguous about the role of the courts: 'The actions of the president . . . and the findings of the president . . . shall not be subject to judicial review.'"  Therefore, the judge declined to review the President’s findings on the merits.  However, she did determine that the court has jurisdiction to determine whether the President followed proper procedures in implementing Section 721.  The judge will rule on that due process issue following further briefing by the parties.  If Ralls Corporation wins on the merits of the due process claim, it may be entitled to hear the reasons for the President’s decision to block the acquisition of the wind projects.

*Update: Ralls Corp reacted to Judge Jackson's ruling by insisting they would "persist in the lawsuit to the end and will appeal to the circuit court or the supreme court [sic] of the United States if necessary." See here for more of the company's reaction.

Download a full copy of the opinion here (PDF). See our prior posts for more background on the case.

CFIUS Annual Report: National Security Trends in Foreign Investment and M&A in the United States

The Committee on Foreign Investment in the United States (CFIUS) recently issued its 2012 Annual Report to Congress. My colleague CJ Voss has summarized some of the report's key findings.

CFIUS is charged with reviewing acquisitions of U.S. businesses for national security implications. As we reported last fall, President Obama blocked Chinese-owned Ralls Corporation’s acquisition of wind farm projects in Oregon following intervention by CFIUS in the deal.

According to CJ, the report provides important insights for foreign companies considering investment and M&A transactions that could raise national security considerations, including:

  • CFIUS believes foreign governments or companies likely have a “coordinated strategy” to acquire U.S. companies involved in research, development and production of critical technologies
  • Filings with CFIUS have increased 70% since 2009
  • Filings involving Chinese buyers have increased
  • CFIUS has imposed various mitigation measures on transactions
  • Certain industry sub-sectors accounted for more than half of all filings between 2009-2011

Read on for CJ's detailed summary of the report and its implications.

Justice Department Moves to Dismiss Ralls Corp Lawsuit over Blocked Oregon Wind Projects

On October 29, 2012, the U.S. Justice Department filed a motion to dismiss the lawsuit filed by Ralls Corp (“Ralls”), an affiliate of Chinese-owned Sany Group, challenging President Obama’s September 28, 2012 order that blocked four planned Oregon wind projects on national security grounds. See our previous posts for more background on the Ralls Corp. v. Committee on Foreign Investment in the U.S. case.

In its filing, the Justice Department argued the Defense Production Act prohibited judicial review of presidential orders that suspend or prohibit the acquisition of a U.S. business by a foreign person. “Neither the president’s findings nor his actions in the presidential order fall outside his extremely broad discretion, and Rall[s]’s constitutional claims are nothing more than disguised challenges to his exercise of that discretion,” wrote U.S. Attorney Joel McElvain in the filing.

Ralls has argued the Presidential Order could cost the company $20 million in lost design and construction costs. Ralls also argues it will also lose $25 million in federal tax incentives if the wind projects are not placed in service by December 31, 2012.

Stay tuned to Renewable + Law blog for more developments in this case.

Video Interview: Discussing the Obama-Blocked Chinese Wind Energy Project with LXBN TV

Following up on our posts on the subject, I had the chance to speak with Colin O'Keefe of LXBN regarding President Obama's blocking of a Chinese-owned wind energy project out of concerns for national security. In the brief interview, I explained what exactly happened and whether or not the companies involved have any kind of legal recourse. 

Ralls Corp. Challenges Presidential Order Blocking Chinese-Owned Wind Projects

From my colleagues Alexandra Mertens and CJ Voss.

Ralls Corp. (“Ralls”), a company owned by two Chinese nationals and affiliated with the Sany Group, a global heavy manufacturing company (“Sany”), amended its lawsuit on Monday in an effort to overturn President Obama’s executive order requiring Ralls to divest itself of four 10 megawatt wind projects under construction near restricted airspace in Oregon (the “Oregon Projects”). Prior to the divestiture, Ralls is required to dismantle and remove all physical structures that have been installed on the site of the Oregon Projects, including at least 12 concrete foundations that have been fully or partially constructed. Citing national security concerns, the executive order gives the multi-agency Committee on Foreign Investment in the United States (“CFIUS”) broad authority to enforce its terms, including by accessing the premises and facilities of Ralls, the Oregon Projects, and Sany. 

For additional background, please see our prior posts: Obama Blocks Chinese-Owned Wind Project and CFIUS Intervenes in Chinese-Owned Wind Project.

In response to both the executive order and a prior order issued by CFIUS, neither of which identify the specific nature of the national security risks arising from Ralls’s ownership of the Oregon Projects, Ralls alleges that CFIUS and the President exceeded their statutory authority by issuing the orders and asserts constitutional challenges to the orders, including that the orders violated the Due Process Clause of the Fifth Amendment. In its complaint, Ralls "emphatically denies that its acquisition of the [Oregon Projects] was intended to or will have or raise any risks or threats regarding the national security of the United States, and it denies that any credible evidence of such intent or effect exists.” The complaint goes on to assert that the development of the Oregon Projects will benefit the U.S. by creating jobs and providing a source of clean, renewable energy, albeit a small enough source of energy so as not to significantly impact the local utility’s supply one way or another. The complaint notes that, if constructed, the Oregon Projects would constitute about 0.37% of the utility’s total generating capacity. CFIUS and the President are expected to defend the orders which, according to the authorizing statute, are not subject to judicial review.

Obama Blocks Chinese-Owned Wind Project

President Obama issued an order on Friday blocking the construction and ownership of a wind project by Ralls Corporation (“Ralls”), due to national security concerns including “credible evidence” that Ralls or its affiliates, including the Sany Group (“Sany”), “might take action that threatens to impair the national security of the United States.”  Ralls was in the process of developing a proposed 40-megawatt wind project in Oregon, through its acquisition of four Oregon limited liability companies (the "Oregon Projects"). The President’s order imposes numerous requirements on Ralls, its two owners, both of whom are Chinese nationals, and Sany, including:

  • within 90 days, Ralls must divest of all interests in the Oregon Projects and the assets of the Oregon Projects;
  • within 14 days, Ralls and Sany must remove all structures and installations of any kind (including concrete foundations) on the Oregon Projects’ property, and the owners of Ralls must provide CFIUS with a signed statement certifying that such requirements have been met;
  • Ralls, Sany and any of their affiliates and representatives may not access the site, except for U.S. citizens contracted by Ralls or Sany and approved by CFIUS, who may access the site solely for the purpose disassembling the facility;
  • Sany, Ralls, and the owners of Ralls may not sell or facilitate the sale of any Sany equipment for use at the Oregon Projects’ sites, and
  • a sale of the Oregon Projects or their assets may not be completed until all structures and installations have been removed, Ralls notifies the Committee on Foreign Investment in the United States  (“CFIUS”) in writing of the intended buyer or recipient, and CFIUS does not object. 

Although the order does not specify the basis of the concern, it is likely due to the proximity of the Oregon Projects to a U.S. Navy facility that conducts training missions with unmanned drones and electronic-warfare planes.   In response, Sany has accused the President of electioneering, according to a report in WindPower Monthly, and Sany may continue to pursue a legal challenge to the order.  This may prove to be an uphill battle for Sany, given that the Defense Production Act bars judicial review of presidential orders issued upon recommendation by CFIUS.  In light of the presidential order, foreign investors should consider making CFIUS approval a condition to closing under any agreement by which they acquire US energy assets, particularly if the acquisition involves a project located near military facilities and regardless of whether the project or company has defense-related contracts or owns sensitive information. 

For more background, see our prior post regarding Ralls’s lawsuit in response to the initial CFIUS mitigation measures: http://www.lawofrenewableenergy.com/2012/09/articles/wind-energy/cfius-intervenes-in-chineseowned-wind-project/.

CFIUS Intervenes in Chinese-Owned Wind Project

On September 12 a U.S. wind project development company, Ralls Corporation ("Ralls"), owned by two Chinese nationals, filed suit against the Committee on Foreign Investment in the United States ("CFIUS"), an inter-agency U.S. government body charged with assessing the potential national security effects of foreign acquisitions of U.S. businesses. National security concerns may arise in a number of ways when a foreign entity acquires a U.S. renewable energy business. However, the CFIUS order to which the lawsuit responds marks an unprecedented intervention by the U.S. government in renewable energy project development, which, since its inception, has benefitted from substantial investment by foreign investors.

The Ralls complaint alleged that CFIUS exceeded its authority by blocking Ralls’ investment in and development of a proposed 40 megawatt wind project in Oregon, through its acquisition of four Oregon limited liability companies (the "Oregon Projects"). Ralls and CFIUS subsequently reached an agreement regarding the resumption of preliminary construction activities but, by September 28, President Obama is expected to decide whether to let the Oregon Projects proceed or to require divestiture on terms specified by CFIUS. In light of this order, such "national security" risks may potentially prove a greater risk to renewable energy transactions than previously understood.

Click here to read more on the scope of a CFIUS review and what puts a transaction at risk.