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Ralls Corp. v. Committee On Foreign Inv. in the United States

United States District Court, District of Columbia

February 26, 2013

RALLS CORPORATION, Plaintiff,
v.
COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES, et al., Defendants.

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Brian J. Field, Howard Christopher Bartolomucci, Paul Clement, Viet D. Dinh, George W. Hicks, Jr., Bancroft PLLC, Washington, DC, Tingkang Xia, Morris, Manning & Martin, L.L.P., Atlanta, GA, for Plaintiff.

Joel L. McElvain, U.S. Department of Justice, Washington, DC, for Defendants.

AMENDED MEMORANDUM OPINION

AMY BERMAN JACKSON, District Judge.

This case concerns the availability of judicial review over certain actions taken by the President of the United States in the interest of protecting the national security. Plaintiff Ralls Corporation (" Ralls" ) is a Delaware corporation owned by two Chinese nationals who are principals of a Chinese manufacturing concern.

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It entered into a transaction involving the acquisition of several windfarm projects located in the vicinity of a U.S. Naval installation in Oregon, where Ralls planned to install the Chinese company's turbines. Ralls challenges a September 2012 order issued by President Barack Obama under section 721 of the Defense Production Act of 1950, as amended, 50 U.S.C. app. § 2170 (2012) (" section 721" ), prohibiting the transaction.

In his order, the President found that Ralls and its owners, through their exercise of control over the four American-owned companies, might take action that threatens to impair the national security of the United States. Based on that finding, the President found the transaction to be prohibited, ordered Ralls to divest, and imposed other conditions on the disposition of the projects and the turbines.

Ralls then brought this action seeking declaratory and injunctive relief, and defendants moved to dismiss. Defendants question the Court's jurisdiction to hear any aspect of the dispute, and they point to the broad finality provision contained in section 721. It is their motion to dismiss on jurisdictional grounds that is before the Court at this juncture.

The statute 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." 50 U.S.C. app. § 2170(e). Nonetheless, Ralls asks the Court to find that the President exceeded his statutory authority in imposing the conditions in the order, and that he acted in violation of the Constitution by treating these foreign owners of wind farms differently than foreign owners of other wind farms. This artful legal packaging cannot alter the fact that what plaintiff is urging the Court to do is assess the President's findings on the merits, and that it cannot do. Since the finality provision bars review of the ultra vires and equal protection challenges to the President's order, the Court will dismiss those claims for lack of jurisdiction. But plaintiff has also brought a due process claim that raises purely legal questions about the process that was followed in implementing the statute, and that claim will stand. The Court notes that it is not ruling that the due process claim has merit— simply that it is bound to go on to decide the claim on its merits. The Court will reach that question after further briefing by the parties.

Ralls also seeks review of an August 2012 order issued by the Committee on Foreign Investment in the United States, which imposed certain interim mitigating measures pending the President's review of the transaction. That order expired by its own terms and was expressly revoked by the President's order, and therefore, the Court will dismiss those claims as moot.

BACKGROUND

I. Statutory Background

Section 721 of the Defense Production Act of 1950, also known as the " Exon-Florio Amendment," established the Committee on Foreign Investment in the United States (" CFIUS" ). Section 721 gives CFIUS and the President the authority to take action in connection with a " covered transaction," which is defined as " any merger, acquisition, or takeover ... by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States." 50 U.S.C. app. § 2170(a)(3).

CFIUS is a committee comprised of the Secretaries of Treasury, Homeland Security, Commerce, Defense, State, Energy, and Labor; the Attorney General of the

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United States; the Director of National Intelligence; and the heads of any other executive department, agency, or office the President determines to be appropriate; or their designees. 50 U.S.C. app. § 2170(k)(2).[1] CFIUS review of a covered transaction can be initiated in two ways. First, any party or parties to the transaction may initiate a review by submitting a written notice to the Chairperson of the Committee. Id. § 2170(b)(1)(C)(i). Alternatively, the President or CFIUS itself may initiate a review. Id. § 2170(b)(1)(D). Once review has been initiated, the statute grants the Committee thirty days to review the transaction to determine its effects on the national security of the United States. Id. §§ 2170(b)(1)(A), (E). If the review results in a determination that the transaction threatens to impair the national security of the United States and that the threat has not yet been mitigated, the Committee must conduct an investigation of the effects of the transaction on national security and " take any necessary actions in connection with the transaction" to protect national security. Id. § 2170(b)(2)(A)-(B). The statute expressly grants CFIUS the authority to " negotiate, enter into or impose, and enforce any agreement or condition with any party to the covered transaction in order to mitigate any threat to the national security of the United States that arises as a result of the covered transaction." Id. § 2170( l )(1)(A). The investigation must be completed within 45 days. Id. § 2170(b)(2)(C).[2]

After CFIUS completes its investigation, it is required to submit a report to Congress on the results of the investigation or submit the matter to the President for decision. 50 U.S.C. app. § 2170(b)(3)(B). Section 721 grants the President the authority to " take such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States," so long as he finds that: (1) there is credible evidence that leads him to believe the foreign interest exercising control might take action that threatens to impair the national security; and (2) other provisions of the law do not provide adequate and appropriate authority to enable him to protect the national security. Id. § 2170(d)(1), (4). The President is required to announce his decision no later than fifteen days after the CFIUS investigation is completed. Id. § 2170(d)(2). The statute also provides a list of factors that the president " may, taking into account the requirements of national security, consider." Id. § 2170(f). These factors include consideration of the characteristics of the particular countries associated with the transaction.

Importantly, the statute contains a finality provision which states: " The actions of the President under paragraph (1) of subsection (d) of this section and the findings of the President under paragraph (4) of subsection (d) of this section shall not be subject to judicial review." Id. § 2170(e).

II. Factual Background

Ralls is owned by two Chinese Nationals, Dawei Duan and Jialiang Wu, who are

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also the CFO and a Vice President of the Sany Group (" Sany" ), a Chinese manufacturing company. Am. Compl. [Dkt. # 20] ¶ 14. According to the amended complaint, Ralls's mission is to identify opportunities for the construction of windfarms in the United States that will use Sany turbines in order to demonstrate their quality and reliability to the United States wind industry. Id. ¶ 5.

A. The Butter Creek Projects

In March 2012, Ralls purchased four American-owned, limited liability companies: Pine City Windfarm, LLC; Mule Hollow Windfarm, LLC; High Plateau Windfarm, LLC; and Lower Ridge Windfarm, LLC. Id. ¶¶ 35-36, 59-60. Each of the four companies was associated with the development of a particular five-turbine windfarm project in north-central Oregon, and each held a bundle of assets related to the development of its project. Id. ¶¶ 36-37, 61. Collectively, the projects are known as the " Butter Creek projects."

The four companies were originally created by Oregon Windfarms, an Oregon limited liability company owned by United States citizens. Id. ¶ 35. In December 2010, Oregon Windfarms sold its interests to Terna Energy USA Holding Corporation (" Terna" ), a Delaware corporation owned by a publicly traded Greek company. Id. ¶ 59. In March 2012, Terna sold its membership interests to Intelligent Wind Energy, LLC, a Delaware limited liability company that was owned by U.S. Innovative Renewable Energy, LLC (" USIRE" ), a Delaware limited liability company owned by a United States Citizen. Id. ¶ 60. USIRE then sold Intelligent Wind Energy, LLC to Ralls. Id.

The sites of the four Butter Creek projects overlap with a United States Navy restricted airspace and bombing zone that is used by military aircraft based out of Naval Air Station Whidbey Island. Am. Compl. ¶¶ 40-41. The proposed Butter Creek project sites are all located in or near the eastern region of the restricted airspace. Id. ¶ 53. Three of the windfarm project sites are located within seven miles of the restricted airspace. Id. ¶ 42. The fourth, Lower Ridge, is located within the restricted airspace. Id. ¶¶ 42-43. Shortly after Ralls acquired the Butter Creek project companies, the United States Navy expressed concerns regarding the location of the Lower Ridge windfarm, id. ¶ 62, and Ralls agreed to move it to a new location, still within the eastern region of the restricted airspace. Id. ¶ 64; Ex. 1 to Am. Compl.

The amended complaint alleges that Oregon Windfarms has already developed several windfarm projects in the vicinity of the proposed Butter Creek projects and the restricted airspace. Am. Compl. ¶¶ 44-49. Turbines belonging to two of those windfarms are located within the restricted airspace. Id. ¶ 47. These turbines are made by REpower, a German company owned and operated by an Indian conglomerate, or by Vestas, a Danish company. Id. ¶¶ 46-49. Foreign investors allegedly own one of the Oregon Windfarms projects, and that acquisition preceded the installation of the turbines. Id. ¶ 50. In addition, the amended complaint alleges that hundreds of completed turbines are located in or near the western region of the restricted airspace, id. ¶¶ 54-55, and dozens, if not hundreds, of existing turbines in or near the western region of the restricted airspace are foreign-made and foreign-owned. Id. ¶ 57.

On June 28, 2012, Ralls and Terna submitted a voluntary notice to CFIUS, pursuant to 50 U.S.C. app. § 2170(b)(1)(C), and the implementing regulations, 31 C.F.R. § 800.402(c), informing it of Ralls's recent acquisition of the Butter Creek project

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companies. Am. Compl. ¶ 72. In the weeks that followed, CFIUS asked Ralls and Terna a number of follow-up questions, which Ralls and Terna answered. Id. ¶ 73. The amended complaint alleges that during this period, Ralls was provided one opportunity to meet with CFIUS. Id. ¶ 74. During that meeting, CFIUS did not provide or discuss with Ralls any evidence it had obtained or was reviewing in connection with national security risks. Id.

B. CFIUS Order

On July 25, 2012, CFIUS issued an Order Establishing Interim Mitigation Measures regarding the Terna-Ralls transaction, Ex. 4 to Am. Compl [Dkt. # 20-4]; see also Am. Compl. ¶ 75. CFIUS also launched an investigation of the Terna-Ralls transaction on July 30, 2012, pursuant to subsection (b)(2) of section 721. Am. Compl. ¶ 89.

The next month, on August 2, 2012, CFIUS issued an Amended Order Establishing Interim Mitigation Measures, Ex. 5 to Am. Compl [Dkt. # 20-5] (" CFIUS Order" ). Am. Compl. ¶ 83. The CFIUS Order declared that CFIUS had determined that the Terna-Ralls transaction constitutes a " covered transaction" for purposes of section 721, and that national security risks to the United States arise as a result. CFIUS Order at 1. It stated that " CFIUS seeks to mitigate those risks pending any further action by the President, or by CFIUS on his behalf." Id. Invoking the authority vested in CFIUS by section 721, as well as by executive order, CFIUS imposed interim mitigation measures, to become effective as of August 2, 2012 and to last " until CFIUS concludes action or the President takes action under section 721," or until revocation by CFIUS or the President. Id. at 1-4. The order required the four Butter Creek project companies, Ralls, its subsidiaries, Sany, Duan, and Wu to do the following, absent further approval from CFIUS:

• Immediately cease all construction and operations at the Butter Creek project sites;
• Remove all stockpiled or stored items from the sites no later than July 30, 2012, and not deposit, stockpile, or store any new items at the project sites, any " lay down site," or any location closer to the restricted airspace than the furthest " lay down site" ;
• Immediately cease all access to the project sites, except that U.S. citizens contracted by the companies and approved by CFIUS may access the site solely for purposes of removing items in compliance with the order;
• Refrain from " sell[ing] or otherwise transfer[ring] or propos[ing], or otherwise facilitate[ing] the sale or transfer" of any items produced by Sany to any third party for use or installation at the project sites;
• Refrain from completing a sale or transfer of the Butter Creek project companies or their assets to any third party until all items on the properties have been removed, the companies notify CFIUS of the intended recipient or buyer, and the companies do not receive an objection from CFIUS within 10 business days of notification.

Id. at 2. On September 13, 2012, at the end of the statutory 45-day period, CFIUS transmitted a report to the President. Am. Compl. ¶ 90.

C. Presidential Order

On September 28, 2012, President Barack Obama issued an order entitled " Order Regarding the Acquisition of Four U.S. Wind Farm Project Companies by Ralls

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Corporation," Ex. 6 to Am. Compl. [Dkt. # 20-5] (" Presidential Order" ), which expressly revoked the CFIUS Order. Am. Compl. ¶ 91. The Presidential Order invokes the authority vested in the President by the Constitution and the laws of the United States of America, including section 721. Pursuant to that authority, the Presidential Order sets out two findings. First, the order states that there is credible evidence that leads the President to believe that Ralls and its subsidiaries, the Sany Group, Duan, and Wu, through exercising control of the four Butter Creek project companies " might take action that threatens to impair the national security of the United States." Presidential Order at 1. Second, the President found, in his judgment, that provisions of law other than section 721 and the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect the national security in this matter. Id. The order does not elaborate further on these findings.

On the basis of these findings, " considering the factors described in subsection 721(f), as appropriate, and pursuant to [the President's] authority under applicable law, including section 721," the Presidential Order decrees:

• The Terna-Ralls transaction is prohibited, and ownership of the Butter Creek project companies by Ralls, its subsidiaries, Sany (collectively, " the companies" ), Duan, or Wu is prohibited, whether directly or indirectly through owners, subsidiaries, or affiliates;
• In order to effectuate this order, within ninety days, Ralls shall divest all interests in the Butter Creek project companies, their assets, and any operations developed, held, or controlled by them;
• Within fourteen calendar days of the order, the companies are required to remove all structures or other physical objects or installations from the project sites and any alternate sites.

Id. at 1-2. Like the CFIUS Order, the Presidential Order also (1) prohibits the companies and persons acting on behalf of them from accessing the project sites; (2) prohibits the companies, Duan, and Wu from selling or otherwise transferring, proposing to sell or transfer, or facilitating the sale or transfer of any items produced by Sany to any third party for use at the project sites; and (3) prohibits Ralls from completing a sale or transfer of the project companies or their assets to any third party until the same conditions are satisfied. Id. at 2-3.

In addition, the Presidential Order requires that from the date of the order until Ralls provides a certification of divestment to CFIUS, the companies must certify to CFIUS on a monthly basis that they are in compliance with the order. Id. at 3. It also authorizes CFIUS, until divestment is completed and verified to its satisfaction, to implement measures it deems necessary and appropriate to verify that operations of the Butter Creek project companies are " carried out in such a manner as to ensure ...


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