Sullivan & Cromwell on Obama's Order over Foreign Investment 2

Sullivan & Cromwell on Obama’s Order over Foreign Investment

Ralls v. CFIUS: D.C. Circuit Explains Constitutional Due Process Requirements During CFIUS Review: Court Holds That Due Process Requires That an Affected Party in a CFIUS Review be Informed of the Official Action, be Given Access to the Unclassified Evidence on Which the Government Relied and be Afforded an Opportunity to Rebut That Evidence

On Tuesday, July 15th, the United States Court of Appeals for the District of Columbia Circuit issued an important and unexpected ruling concluding that President Obama’s order, issued in connection with a national security review of foreign investment before the Committee on Foreign Investment in the United States (“CFIUS”) under the authority of the Exon-Florio Amendment, requiring a foreign-controlled buyer, Ralls Corporation, to divest itself of assets already acquired, deprived Ralls of its property interests without due process of law, in violation of the Constitution of the United States. The court explained that due process requires, at the least, that an affected party be informed of the official action, be given access to the unclassified evidence on which the official actor relied and be afforded an opportunity to rebut that evidence.

The ruling should reduce the opacity of the CFIUS process for foreign parties and provide some enhanced procedural protections. However, any procedural changes are unlikely to affect the outcome of any CFIUS review process. In addition, several factors are likely to limit the practical impact of the D.C. Circuit’s decision. To the extent determinations by the President or the CFIUS concerning national security rely on classified information, the decision provides no recourse. Moreover, the court expressly noted that, on remand, the district court may consider the government’s executive privilege argument, which if successful could limit the availability of unclassified evidence to the foreign investor. Finally, the government retains broad discretion, and, while procedural matters may be subject to due process challenges, the Exon-Florio Amendment’s statutory bar to judicial review remains.

The court’s decision is not necessarily the final word on the matter, and further developments in this case are certain. The case has been remanded to the district court, with instructions that Ralls be provided the requisite process set forth in the court’s opinion, which should, subject to resolution of the executive privilege argument, include access to the unclassified evidence on which the President relied together with an opportunity to respond to that evidence.

The district court also has been instructed to consider arguments concerning various aspects of the CFIUS Order, including challenges under the Administrative Procedure Act and the Equal Protection Clause of the Constitution, which it previously held to be moot. In addition, there is a possibility for further appellate process, as the D.C. Circuit’s ruling may be appealed by the United States, either to an en banc court or to the Supreme Court. Furthermore, the court’s holding may be circumscribed by a future legislative response. The court’s due process holding reasoned that there was not “clear and convincing” evidence that the Congress intended for the statutory bar to judicial review in the Exon-Florio Amendment to preclude review of constitutional due process claims, and if the Congress disagrees with the decision, it may take action to amend the statutory bar to review.

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