September 01, 2014 | By Keith Martin in Washington, DC

CFIUS lost a round in court. 

This is the first time a court has ordered it to give a foreign investor an opportunity to see the evidence behind a decision and to rebut the evidence. 

CFIUS — short for the Committee on Foreign Investment in the United States — is an inter-agency committee of 16 federal agencies that reviews foreign investments in US companies for national security concerns. Submission of proposed deals is voluntary. However, the committee has authority to set aside transactions after the fact that were not submitted for review.

In 2012, the US government ordered Chinese-backed Ralls Corporation to divest the development rights to four wind farms that the company bought in Oregon at which Ralls hoped to deploy  turbines made by its affiliate, the Sany Electric Co. Ralls waited until after buying the four project companies to file for CFIUS review. One of the wind farms would be close to a US Navy base that provides training for drone aircraft.

The company sued in federal court to have the order set aside on grounds that the order is an unconstitutional taking of private property without due process. A US appeals court said in July that the company should have been shown all unclassified information that led to the government order and given a chance to respond.

The court said Ralls did not forfeit any protections by failing to seek review of the deal before buying the companies. 

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 the evidence.” 

The court called the actions in this case a “clear constitutional violation.” It acknowledged that the government has a national security interest in withholding classified information, but that does not extend to any unclassified information used to block the transaction. 

It sent the case back for further proceedings in a federal district court that had held earlier for the government. (For earlier coverage, see the December 2013 NewsWire starting on page 33 and the February 2014 NewsWire starting on page 25.)