Ralls Corp., a Delaware-based wind farm developer owned by two Chinese businessmen, has sued the Committee on Foreign Investment in the United States (CFIUS), raising statutory and constitutional challenges to recent CFIUS orders that effectively require Ralls to unwind its acquisition of four wind projects in Oregon, says law firm Vinson & Elkins.
According to the firm, even a partial success for the plaintiffs could have very broad significance for the review of foreign direct investment across all sectors of the economy, because CFIUS approval is frequently a major concern for transactions involving foreign acquisitions of – or joint ventures with – U.S. businesses.
Ralls is owned by Dawei Duan and Jialiang Wu, executives at Chinese manufacturer Sany Group. According to Ralls, the company's primary business purpose is to develop wind energy products for which wind turbines manufactured by Sany could be used.
The Ralls complaint alleges that early this year, Ralls bought four small Oregon companies whose assets consisted of wind farm development rights, land rights to construct wind farms, power purchase agreements and government permits.
The projects – which collectively would total 40 MW of capacity – allegedly had received other federal regulatory approvals, such as a determination by the Federal Aviation Administration that the turbine towers presented no hazard to aviation, Vinson & Elkins explains.
The U.S. Navy had initially requested that Ralls voluntarily relocate one of the turbines, allegedly due to their proximity to certain restricted military airspace. The complaint contends that after Ralls complied with the request, the Navy recommended that Oregon issue the necessary state regulatory approvals.
In June, Ralls submitted a voluntary notice to CFIUS of its (by-then-consummated) acquisition of the Oregon projects. In late July, CFIUS allegedly issued an order purporting to require Ralls to cease construction, remove all materials from the location and "immediately cease all access" to the properties.
Under the order, U.S. citizens contracted by the companies were permitted to access the site "solely for purposes of removing any items from the properties in compliance with" the order, according to Vinson & Elkins. After Ralls informed CFIUS that it was considering selling the project companies, potentially to a U.S. buyer, CFIUS issued an amended order, Vinson & Elkins says.
In addition to restating each of the previous directives, the amended order prohibited Ralls from transferring any item made by the Sany Group to any third party for installation at the project site. The amended order also prohibited Ralls from transferring the properties themselves until all items on the properties had been removed and until Ralls had given CFIUS notice and opportunity to object to the potential buyer.
On Sept. 12, Ralls filed a complaint in the U.S. District Court for the District of Columbia, claiming CFIUS' actions violated the federal Administrative Procedure Act and were an unconstitutional deprivation of property without due process.
The suit raises a host of challenges, asserting that CFIUS exceeded its authority by (a) failing to give reasons for its actions; (b) prohibiting the transaction outright, rather than imposing conditions to mitigate national security risks; and (c) prohibiting Ralls from selling items produced by Sany, even to U.S. buyers and the sale of the wind projects without CFIUS approval, even to a U.S. buyer, the firm explains.
The suit also alleges that the order deprived Ralls of property without due process by prohibiting further construction, use of (or even access to) the property, and sale of assets on the property to which Ralls holds project development land rights.
Both CFIUS practitioners and a broad range of parties involved in foreign investment in the U.S. should watch the case closely, Vinson & Elkins cautions. Although the plaintiffs will face threshold arguments from the government that the actions are non-reviewable, even a partial victory on the merits could have significant economic and legal effects for U.S. national security review of foreign investment, the firm says.