Criminal Justice & the Rule of Law

Oral Argument Summary: Ralls Corporation v. CFIUS

Yishai Schwartz
Thursday, May 8, 2014, 12:00 PM
The courtroom was nearly full Monday for the DC Circuit Court of Appeals oral arguments in Ralls Corporation vs Committee on Foreign Investments.

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The courtroom was nearly full Monday for the DC Circuit Court of Appeals oral arguments in Ralls Corporation vs Committee on Foreign Investments. Ralls is a fascinating case that tests Presidential power at its apex---in actions related to national security and specifically authorized by Congress---against the due process claims and the property interests of foreign citizens. As Lauren explained a few weeks ago, the case deals with Chinese-owned company’s purchase of four smaller companies in order to develop windfarms in an area near an Oregon military base. The Committee on Foreign Investment in the United States (CFIUS), specifically created by Congress to monitor and regulate foreign investments that may raise national security concerns, ordered Ralls to sell off the four companies, destroy what it had constructed, and stay off the land. When Ralls filed suit alleging violations of due process and the Administrative Procedure Act, President Obama himself issued a similar order demanding that Ralls divest and stating that he had “credible evidence” that Ralls’ actions might “impair the national security of the United States.” Ralls then filed suit against both CFIUS and the President. In District Court, Judge Amy Berman Jackson found the case to be justiciable, over the objections of the government. Nevertheless, she dismissed the entire case on two distinct grounds. She dismissed the claims against CFIUS as mooted by the presidential actions, and separately, she determined that Ralls had waived its due process rights by failing to notify CFIUS before making its purchases. Ralls is now seeking to overturn her ruling. These arguments, audio of which is available here, took place Monday, but it’s taken me a few days to write them up. Paul Clement rises for the Ralls Corporation to address Judges Karen LeCraft Henderson, Janice Rogers Brown and Roger Wilkins and begins by challenging two premises of the lower court’s conclusions: first, its substantive dismissal of Ralls’s due process claims against the president, and second, its determination that the president’s order mooted Ralls’ claims against CFIUS. He also notes the government’s contention that the statute precludes any judicial review, including of due process issues. Clement responds directly to the government’s position by observing that the courts maintain a presumption in favor of reviewing constitutional claims, such as the due process claim at issue here. He also argues that the statute’s clear prohibition on substantive review of presidential determinations actually makes procedural review all the more important. So the District Court’s determination that the case was justiciable was, in fact, correct. Now, Clement turns to the merits of the due process claims against the President. Clement explains that some very real property interests are at stake in this case. Oregon state law grants his clients property rights, rights that were borne out by facts on the ground. Ralls had full access to and complete control over its property. Now, subsequent to the government’s actions, his clients can’t even go there. Judge Wilkins cuts in: He notes that the District Court suggested that Ralls undermined its property interests claim by asserting that the company would have the same interests either before or after the actual purchase of the property. But prior to actually owning property, Wilkins asks, what property interests exist to be vindicated? So if Ralls held that same interests before and after purchase, didn’t Ralls basically concede that it had no property interests at all? Clement explains that this line of thinking is simply wrong. All Ralls meant during those proceedings was that even prior to purchase, there would still be a general “liberty interest” at stake; Ralls certainly never meant to concede that there was no property interest. Ralls’ counsel at the District Court simply intended to argue that the process afforded was inadequate for both the liberty interests and the property interests. Having established that there are, in fact, both liberty and property interests at stake, Clement turns to argue that there was not, in fact, due process. But before he can begin, Judge Brown wants to find out whether greater due process is even possible in this case. She asks Clement what would happen to his due process claim if all of the information that went into the President’s decision was classified. Clement concedes that this might conceivably be a problem, but he insists that the Executive would still have some due process obligations. Surely, the Executive could at least inform Ralls of the specific facts that led to the decision and the specific statutory factors implicated by Ralls’ actions. After all, perhaps the government could be making a basic factual mistake that is easily corrected by the party? Perhaps the national security concerns are limited enough that Ralls could easily address them? Or perhaps these concerns are so essential that Ralls shouldn’t bother making any remotely similar transactions in the future? Either way, surely Ralls is entitled to know why it is being deprived of basic rights. Clement insists that the balancing test in Mathews v. Eldridge requires some sortof due process, and he emphasizes that the President’s order in this case is highly unorthodox. Judge Henderson focuses in on Clement’s use of the word “unorthodox,” and seems puzzled. This case was the only one of thousands of foreign transactions that resulted in a presidential order demanding divestment. Doesn’t this indicate that there might be good reason for the government’s action here? Clement responds by explaining that the statistics may be misleading. After all, there were likely other transactions that were discontinued or changed earlier in the process over the course of meetings and dialogue with CFIUS. Judge Henderson then switches tacks. She wants to know whether Ralls’ opportunities for give-and-take with CFIUS, including a presentation, might have satisfied due process interests. Clement admits that the company was able to give a presentation, but claims that the meetings were one sided; his client never received much information from CFIUS. Clement notes that the CFIUS structure is set up strangely, expecting corporations to be proactive rather than reactive. But he emphasizes that Ralls’ due process requests are modest. Ralls just wants something. Judge Wilkins intervenes. He points out that the government argues that there were phone conversations and meetings during the CFIUS process during which Ralls was apprised of “potential issues.” Why doesn’t this satisfy the due process interests? Clement explains that these were insufficient. There was no hearing, nor formal notice of specific, concrete issues. Clement then takes the opportunity to launch into a larger theoretical analysis of the case. He explains that Congress could have set up a regime where all foreign investment was forbidden without the specific blessing of the Executive. However, that was not the system that was created. Congress wants lots of foreign investment and so established a regime where investments would be blocked only rarely, fairly and with good reason. At the very least, there should be some sort of notice. Judge Wilkins interjects again with a brief procedural question. He wants to know whether the court can consider information beyond the briefs themselves, such as the government’s contention that there was back and forth with CFIUS. Clement argues that as a procedural matter, the court shouldn’t consider these facts, but emphasizes that it makes no difference. Even the alleged back-and-forth was inadequate and lacked formal notice. Clement now moves to addressing the District Court’s mootness finding with regard to CFIUS. Clement argues that the case easily meets the requirements of the “capable of repetition, yet evading review” exception to mootness. First, he notes that even the government doesn’t defend the District Court’s assertion that the case fails to “evade review” and points out that the CFIUS process is too brief to allow for meaningful review. Similarly, regarding the “capable of repetition” prong, Clement explains that Ralls will be subject to similar agency actions processes, even if the actions won’t be ”identical.” Judge Henderson lets Clement know that he will have a few minutes for rebuttal and Clement takes his seat. Douglas Letter now takes the podium for the Department of Justice. After apologizing for his allergies and cold, he quickly launches into his arguments. First, he suggests that the court direct its attention exclusively to the claims being made against the President as the decision-maker---as this is where the bulk of Clement’s arguments were directed. And after all, the claims against CFIUS became moot at the moment the President issued his executive order. He emphasizes that Clement’s arguments amount to an assertion of a right to challenge the President’s personal and discretionary determinations about what poses a national security threat. He emphasizes that Ralls is claiming a constitutional mandate to question the President about his national security thinking and the source of his judgment, and that’s simply an extraordinary request. Judge Henderson asks about unclassified material: Letter responds that both classified and unclassified material was involved in the President’s decision. But Letter pivots right back to his theme that basic presidential discretion is at stake, and explains that even the unclassified material that went into the President’s decision-making would be covered by presidential communications privilege. Letter seems confident that Clement is concerned exclusively with the claims against the President and has mostly given up on the CFIUS arguments. But apparently, Judge Wilkins thinks he is taking too much for granted. Aren’t we also considering the Ralls’ due process claims against CFIUS, he asks? Why aren’t both claims live? Letter insists that due process claims against CFIUS are moot since the President vacated everything done by CFIUS and issued his own Executive order. Letter also mocks Clement’s portrayal of Ralls’ claims as modest. Ralls isasking for the moon and the stars, Letter insists, and no court has ever issued any order similar to what Clement requests here. Now Judge Henderson questions whether Clement’s demand for due process for Presidential action really is so unprecedented, referencing the DC Circuit’s earlier decision in El Shifa. Letter explains that the appellants in that case wanted a retraction and judicial review from the President of statements made in the aftermath of a missile strike in Sudan, but the court ruled en banc that the case was non justiciable. Judge Brown comes in at this point. She accepts that the government doesn’t want the President subjected to a deposition, but she is curious what government interest weighs against explaining the non-classified reasons for the President’s order. Letter replies that there would still be privilege issues at play. But these issues would only be addressed and discussed on remand---something he doesn’t believe is necessary, he adds. Letter emphasizes that there is no reason even to get into these issues. After all, the lower court decided that Ralls had no property or liberty rights to vindicate in the first place. First, as the district court ruled, any liberty interests that Ralls might have had were waived when the company didn’t get prior approval for the transaction from CFIUS. Letter continues that the property claim was conceded in District Court---an assertion that Judge Wilkins seems to reject---but regardless, Letter says, Ralls’ continued insistence that its property rights are equivalent before or after actual transactions is actually self-undermining. How can foreigners have constitutionally-protected property interests without actually owning any property? It obviously can’t be that foreign business executives have a constitutional right to buy property in America. So by virtue of the company’s own claims, its post-purchase claims should be treated as non-existent. Judge Wilkins is unconvinced. Ralls’ counsel isn’t asserting a constitutional right for foreigners to buy property; he is merely arguing that the due process violations would be similar either before after a purchase. Again, Letter emphasizes that foreigners have no constitutional right to purchase property in the US and therefore expresses puzzlement at what due process violation there could be before an actual transaction. This line of argument seems to bother Judge Brown. The statute allows foreign investors to approach CFIUS at any time. So why should they only have a property interest on the back-end, after a purchase? First, Letter cites the DC circuit’s opinion in Ganadera to establish definitively that foreigners don’t have a constitutional right to purchase property. He then cites Dames & Moore, a Supreme Court precedent recognizing broad presidential discretion in overriding contingent property interests, to establish that created property interests---such as those of foreigners’---are in fact contingent. In Dames & Moore, American companies found their federally-granted attachment claims against Iran suddenly voided by the President in the interests of diplomacy. The Supreme Court, however, ruled that the President had broad discretion to revoke these property interests, because they were at all times conditional property interests. Similarly, argues Letter, foreigners’ property rights are contingent and subject to revocation through congressionally-authorized presidential actions. Furthermore, Ralls was fully aware that these interests were conditional, and nevertheless chose to gamble by not approaching CIFIUS. Letter now turns to the national security element. He emphasizes that the President’s actions in this case seem pretty reasonable prima facie. He emphasizes that Ralls is a Chinese-owned company attempting to operate windfarms with tall towers adjacent to a military base. Canceling such a transaction hardly seems like an arbitrary exercise of presidential power, Letter posits. Judge Wilkins and Henderson seem skeptical. Aren’t there are other foreign-owned towers and windfarms also in the immediate vicinity? And none of those were subject to a presidential order. Letter explains that each investment and transaction is different and both the President’s and CFIUS’s thinking is very fact specific. And he insists that CFIUS’s record and legislative mandate make this clear. Judge Brown cuts back in. If the legislation giving CFIUS and the President this power contains specific enumeration of what factors are to be used in making a national security determination, doesn’t this actually run against the government? After all, if each determination must accord with a congressionally-mandated list, shouldn’t there be some due process to ensure that the Executive is sticking to the list? Not at all, responds Letter. The statute gives the President broad discretion, allowing him to make determinations “as appropriate” regarding what relates to national security. The list of specific factors is illustrative not restrictive. Surely, the President can’t be compelled to explain to foreign investors his detailed thinking on the national security threat they pose. And surely, Presidential thinking and determinations are non-justiciable and privileged, and secrecy on these matters easily passes the balancing act compelled by Mathews v Eldridge. Again, however, Judge Wilkins wants to revisit the claims against CFIUS. Wilkins, at least, doesn’t seem convinced by the District Court’s determination of mootness. Where was the due process and the balancing at the CFIUS stage? Shouldn’t the Eldridge test be different, and shouldn’t Ralls receive unclassified information when it’s CFIUS, rather than the President, making determinations? Letter agrees that the balancing would be different with CFIUS, but insists once again that the president is the final decision-maker and that all CFIUS claims are moot. The President’s decision revokes and vacates everything done by CFIUS. Direct presidential action in this sphere is rare, but when the president acts, CFIUS becomes irrelevant. Wilkins pushes back, drawing an analogy to the Court of Appeals’s relationship to the lower courts. Surely, the mere fact that a higher court has de novo review (thus becoming a “final decision-maker”) doesn’t allow District Courts’ to only hear from one side and scrap due process, right? Letter rejects the analogy and insists that CFIUS did in fact allow for give-and-take. And furthermore, even within Judge Wilkins’ analogy, Letter wonders why there would be review of a lower court decision if the higher court’s judgment was operative. Letter then turns to address Clement’s argument that the CFIUS claims should be heard despite their mootness, because the issues at stake are likely to arise again. He rejects this claim, pointing out that Ralls has proceeded with multiple other transactions that have not been subject to cancellation by CFIUS and the President. Acknowledging that time is already well up, Judge Brown steps back in to clarify her earlier exchange regarding the extent of presidential discretion. Can the President use his discretion to venture beyond the list of factors specifically enumerated? Could Congress authorize discretion suspending due process even aside from national security considerations?  Letter responds that the factors must be “appropriate” but doesn’t seem willing to concede any other limitations. Citing Dalton v. Specter, he emphasizes that substantive review is prohibited, but he also argues that judicial review is precluded on procedural matters a well. Finally, Letter quickly adds that even subject to procedural review, the government’s position passes muster. Judge Henderson steps back in for a brief follow-up on this last point: She wants to know whether Letter has anything to add to the government’s briefs asserting the non-justifiability of the case altogether. Here Letter explains that the statutory language explicitly prohibits judicial review of the “actions” and “findings” of the Executive on these matters. He argues that this language is explicit, and so even though the courts have a “presumption” in favor of review on constitutional issues such as due process, the presumption is trumped in cases such as this where Congress has placed issues beyond the reach of the courts. As in McBride, the presumption is not absolute, and he quotes from Judge Tatel’s opinion in the case emphasizing this point. Letter adds that Congress’ intent is clear even beyond this particular phrase, as the legislation establishes a precise system of congressional oversight that precludes the need for judicial review. In a final exchange with Judge Henderson, Letter clarifies that the US government is asking for the enforcement of the divestment order, but not the review of the order. Letter sits down. Clement rises again and proceeds to deliver a rapid-fire rebuttal to Letter’s arguments. He announces that he has four points: First, he rejects Letter’s depiction of his due process claim vis-à-vis the president as extraordinary. He acknowledges that Ralls has no intention of getting access to the President; he just wants some sort of due process from lower level officials. Clement continues by portraying Letter’s entire argument as circular and absurd: Lower-level officials (such as CFIUS) aren’t subject to review because they are not the decision-makers, and their communication to the President isn’t subject to review because he’s the President. It cannot be, Clement insists, that delegation to the President shelters the entire executive from due process requirements. Second, he points to a crucial distinction between Dames & Moore and the current case. In Dames & Moore, the property interest has been created by federal law. Thus the federal government could take it away. But in this case, the property rights at issue are created by state law, and the federal government cannot simply swoop in and cancel these rights. Third, Clement addresses the specific national security arguments advanced by Letter. He emphasizes that Letter’s reference to towers is the closest thing to specific notice that Ralls has ever received. And this is precisely the sort of claim that Ralls has tried to deal with. After all, Clement explains, the FAA determined that the towers were fine. Most importantly, this kind of discussion is precisely what his clients have been requesting all along: due process with specific factors discussed. Lastly, he directly addresses Letter’s argument for non-justiciability: McBride was sui generis, he insists, precisely because there were Article III judges involved, thus providing some degree of due process. And Judge Tatel’s opinion implying otherwise was a dissent, Clement reminds the court. So surely some due process is constitutionally required. And, he insists, Congress’ intent is nowhere as clear as Letter asserts. The legislative history makes clear that Congress was trying to prevent judicial review of statutory, not constitutional, issues. Finally, no amount of congressional notification, Clement concludes by quoting from a DC Circuit majority opinion, is a substitute for the due process for individuals deprived of their rights. The case comes to a close.

Yishai Schwartz is a third-year student at Yale Law School. Previously, he was an associate editor at Lawfare and a reporter-researcher for The New Republic. He holds a BA from Yale in philosophy and religious studies.

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