Sept. 14 (Bloomberg) -- A U.S. company owned by executives of China-based Sany Group Co. accused a Treasury-led national security panel in Washington in a lawsuit of barring it from wind-farm projects without explanation or proper legal process.
Ralls Corp., a holding company that controls wind-farm assets, alleged the multiagency Committee on Foreign Investment in the U.S., known as CFIUS, exceeded its authority when it ordered the company to cease operations and keep out of wind-farm development sites it bought, according to a lawsuit filed Sept. 12 in federal court in Washington.
CFIUS is an interagency committee headed by Treasury Secretary Timothy Geithner that reviews the national security implications of transactions that could lead to a non-U.S. citizen controlling a U.S. business. The heads of the departments of Justice, Homeland Security, Commerce, Defense, State, and Energy, among others, sit on the committee. The panel’s recommendations can be enforced only by the president under the law.
“Ralls has been cooperating and will continue to cooperate with CFIUS, although Ralls felt strongly it had been treated unfairly and selectively,” Tim Tingkang Xia, a lawyer for Ralls, said in an e-mail.
Natalie Wyeth Earnest, a spokeswoman with the U.S. Treasury Department, declined to comment on the suit, saying information filed with CFIUS by law may not be publicly disclosed.
CFIUS issued an order on July 25 citing “national security risks” raised by the sale of the wind-farm assets to Ralls, according to the filing.
An amended order on Aug. 2 added more prohibitions, including the sale or transfer of the assets to any third party for the “use or installation at the properties of any items made or otherwise produced by the Sany Group.”
Closely held Sany Group is the owner of China’s biggest machinery maker. Dawei Duan, Sany’s chief financial officer and Jialiang Wu, a vice president of the group and general manager of Sany Electric Co., a group unit, are the owners of Ralls, according to the complaint.
Ralls is seeking to develop wind energy projects in the U.S., where Sany Electric’s wind turbine generators can be used, according to the filing.
Ralls is seeking a temporary restraining order and preliminary injunction that would permit the company to resume contruction of the wind farms by Sept. 20. If the wind farms aren't in service by Dec. 31, then the company won't be able to obtain $25 million in federal investment tax incentives, according to a court filing yesterday.
The company is represented by Paul Clement, the U.S. solicitor general in the George W. Bush administration and Viet Dinh, a Bush Justice Department official who helped draft the USA Patriot Act.
Ralls said that shortly after it acquired land for a wind-farm in Oregon earlier this year, the U.S. Navy voiced concerns about the location of one of the projects. The Navy said it wanted to “reduce air-space conflicts” between the wind turbines and “low-level military aircraft training,” and asked the company to move the planned wind-farm.
Ralls complied, according to the complaint.
Ralls said it submitted a voluntary notice to CFIUS disclosing the acquisition on June 28. The next month, the company was told the deal posed national security risks and it must shut operations, according to the lawsuit.
CFIUS offered no “evidence or explanation for its determination” that there were national security concerns and didn’t say why the transaction was even subject to review by the committee, Ralls alleged.
“Draconian obligations” were imposed in connection with Ralls’s purchase of “four small Oregon companies whose assets consisted solely of wind-farm development rights,” according to the complaint.
The company accused CFIUS of violating the Administrative Procedure Act by making an arbitrary and capricious decision and asked the court to find the panel lacked authority to block the deal.
“There’s a general frustration on the part of applicants that CFIUS often doesn’t specifically articulate its concerns or rationale for blocking a deal,” said Robert Schlossberg, a partner with Freshfields Bruckhaus Deringer US LLP in Washington. “As the legislation doesn’t provide for judicial review of CFIUS decisions and the courts have typically shied away from ruling on national security issues, the plaintiff has a difficult case.”
Companies, which typically file information with CFIUS voluntarily to address any early issues, submitted 313 notices for review with the committee from 2008 to 2010, according to the panel’s most recent annual report to Congress.
In 42 cases, companies withdrew applications during or after CFIUS review, according to the report. None went to the president.
Acquisitions by other Chinese companies have been blocked by CFIUS. Chinese telephone-equipment maker Huawei Technologies Co. and Bain Capital Partners LLC dropped a bid to buy computer-equipment maker 3Com Corp. in 2008 after U.S. officials opposed the transaction. Last year, Huawei unwound the purchase of patents from a computer-services company, 3Leaf Systems Inc., after U.S. objections.
Executives from Huawei and another telephone-equipment maker, ZTE Corp., were questioned by lawmakers in Washington yesterday about their efforts to expand in the U.S.
The case is Ralls Corp. v. Committee on Foreign Investment in the U.S., 1:12-cv-01513, U.S. District Court, District of Columbia (Washington.)
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