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Judge tosses out Chinese effort to overturn Obama on Ralls

by William McConnell In Washington  |  Published February 26, 2013 at 11:21 AM
Ralls Corp., the Chinese wind turbine manufacturer barred by President Obama from building wind farms in Oregon, on Feb. 22 saw most of its case to reverse the president's decision dismissed by a federal district judge.

Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia ruled that the court has no jurisdiction to review Obama's Sept. 28 decision barring the company from building wind farms near restricted air space the U.S. Navy uses for flight and bombing training and ordering the company to sell the Oregon properties where the facilities were to be located. The president's order came after the Committee on Foreign Investment in the United States, a national security panel led by the Treasury Department, recommended that the project be stopped.

Absent a successful appeal, Jackson's decision will end Ralls' effort to construct the turbines.

Ralls contends that the president's actions violated the company's due process because neither CFIUS nor Obama provided the company with a detailed explanation for how the project would threaten national security. The company also said its right under the equal protection clause were violated because a large percentage of the roughly 900 wind turbines operating within the vicinity of the restricted airspace are either foreign-owned or foreign-made.

The president's lawyers countered that the company was due no additional explanation and that the court, under the 1988 amendments to the Defense Production Act that created CFIUS, has no authority to review a presidential decision in a CFIUS proceeding.

The court agreed with the government in all but the due process claim, which means that the company might eventually get a better explanation of why it was barred from acquiring and constructing the facility, but won't get a chance to overturn the president's decision.

"The big story is that the challenge to the CFIUS process failed," said Stephen Mahinka, who handles CFIUS reviews for Morgan, Lewis & Bockius LLP.

In a statement Ralls said, "The court Friday ruled that it has jurisdiction over Ralls' primary claim that the presidential order violated constitutional due process. We look forward to litigating this matter on the merits and vindicating the rule of law."

In her ruling, Jackson said the legislation authorizing the president to rule on whether foreign acquisitions pose a national security threat makes it very clear the courts do not have jurisdiction to review the Oval Office's decisions on those matters. "The statue is not the least bit ambiguous about the role of the courts," she said. Despite the "artful packaging" of the company's claims that its constitutional rights were violated, "what plaintiff is urging the court to do is assess the president's findings on the merits, and that it cannot do."

Ralls is owned by two Chinese nationals, Dawei Duan and Jialiang Wu, who are also the CFO and a vice president of Sany Group Co. Ltd., a Chinese manufacturer whose products include wind turbines. Ralls has said it intends to identify opportunities for wind farm construction in the U.S. and to build Sany turbines on them to demonstrate their quality and reliability.

Ralls complained in its lawsuit that prior to CFIUS's July 25 order for the company to stop construction on and operation of four wind farm projects and remove its equipment, company officials had only one opportunity to meet with CFIUS members. They said they were never provided with information explaining CFIUS's belief that the deal would harm national security.

Since their inception in 2009 by Oregon Windfarms LLC, the projects had two additional owners before finally being acquired by Ralls sometime after March 2012. Ralls did not seek prior approval from CFIUS before acquiring the Oregon property. The order from CFIUS was unusual because the panel typically makes recommendations to the president on how to proceed with a transaction but does not challenge mergers on its own. Although CFIUS does not explicitly target acquisitions by Chinese buyers for extra scrutiny, the panel has in fact taken action against a number of deals by Chinese companies and individuals. Allegations that China's military has hacked into U.S. government and private corporation data systems and that country's periodic threats against Asian allies of the U.S. over territorial disputes are widely believed to be the cause of CFIUS's concerns. Belief that CFIUS has been tougher on Chinese buyers than those from other countries has prompted complaints from China's government.

Ralls sued CFIUS on Sept. 12, alleging that without presidential approval, CFIUS had no authority to issue an order that effectively kills the acquisition. Ralls amended its suit after Obama ordered the acquisition broken up. Berman dismissed Ralls' complaint against CFIUS because it became moot after the Obama's ruling.

The one point of Ralls that Jackson conceded should be examined is the possibility that the company's due process rights were violated. She disagreed with the government's contention that statute's proscription on reviewing the president's decisions on foreign takeovers covers due process treatment.

She said that although the court is barred from reviewing the merits of the president's decision, it still may be possible for the court to demand the White House explain what formed the basis of his decision. "There is a difference between asking a court to decide whether one was entitled to know what the President's reasons were and asking a court to assess the sufficiency of those reasons," she wrote. "The fact that plaintiff may not be able to use the information in a certain way does not answer the question of whether it is entitled to have it."

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Tags: CFIUS | Committee on Foreign Investment in the United States | Dawei Duan | Defense Production Act | Jialiang Wu | Judge Amy Berman Jackson | Oregon Windfarms LLC | President Obama | Ralls Corp. | Sany Group Co. Ltd. | Treasury Department | U.S. Navy | wind farms

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