Federal Court Affirms Broad, Largely Unreviewable Presidential Powers To Force Divestment Of Foreign Investments In U.S. Businesses

In its two decisions in Ralls Corporation v. Committee on Foreign Investment in the United States, the U.S. District Court for the District of Columbia became the first court in the nation to address (1) the breadth of the President's remedial powers under section 721 of the Defense Production Act of 1950, as amended (Exon-Florio), and (2) whether judicial review is available for an order by the President under that law requiring a foreign person to divest a U.S. business. Together, the two decisions stand for the propositions that the President has very broad remedial powers under Exon-Florio that are largely unreviewable by the courts.

This client alert summarizes the key components of the two Ralls decisions. The full text of the court's decisions are available here1 and here.2

Exon-Florio Process

Under Exon-Florio and its implementing regulations, the power to review the national security effects of any particular foreign investment in the United States is vested in the President acting through the Committee on Foreign Investment in the United States (CFIUS). CFIUS is a committee composed of the U.S. Attorney General, the heads of the Office of U.S. Trade Representative and Office of Science & Trade Policy, and the Secretaries of the U.S. Departments of Treasury, Homeland Security, Commerce, Defense, State and Energy (or their respective designees). Other designated offices, such as the National Security Council and the National Economic Council, observe and, as appropriate, participate in CFIUS' activities. The Director of National Intelligence and the Secretary of Labor serve as non-voting members of CFIUS and representatives of other government agencies or departments may join CFIUS as the President determines is appropriate.

A review can be initiated voluntarily by the parties to a transaction or by any CFIUS member that is aware of it. Once a review has been initiated, CFIUS has 30 days in which to determine the transaction's effects on national security. If CFIUS finds that the transaction threatens national security (and the national security concerns have not been mitigated), or if the transaction falls into certain specific categories, then CFIUS proceeds to a 45-day investigation phase. As part of the investigation, CFIUS has the authority to negotiate, impose and enforce any agreement or condition it believes is necessary to mitigate the threat to national security.

At the end of the 45-day investigation period, CFIUS can decide to take no further action (effectively allowing the transaction to go forward with whatever mitigation agreements the parties have negotiated with CFIUS) or it may submit the matter to the President for further consideration. The President has 15 days in which to announce his decision on matters submitted to him. Exon-Florio grants the President the authority to "take such action for such time as the President...