On September 12, 2012, a foreign investor took the unprecedented step of challenging in federal court the authority of the Committee on Foreign Investment in the United States (CFIUS) to block, as a threat to national security, the investor’s acquisition of a US business. The parties to the transaction had notified CFIUS of the transaction only after its closing. On September 28, President Obama formally prohibited the transaction and ordered the divestiture of the acquisition, which is only the second time a President has done so. The acquirer, Ralls Corporation, then added the President as a defendant in the lawsuit. The President’s action highlights once again the importance—to both sides of a transaction—of taking the CFIUS process into account when planning a foreign investment in the United States. The lawsuit is significant because any success by Ralls in having a federal court subject CFIUS actions to (even limited) judicial review could cause CFIUS to change its practices to anticipate possible judicial scrutiny.
Downloads –