National Security

Judge orders Obama to explain rejection of Chinese bid to buy Oregon wind farms on national security grounds

Gen. Chang Wanquan, the Chinese defense minister, greets Pentagon chief Chuck Hagel in Beijing on April 8, 2014.
Gen. Chang Wanquan, the Chinese defense minister, greets Pentagon chief Chuck Hagel in Beijing on April 8, 2014. Department of Defense

President Barack Obama and a secretive government committee that vets foreign purchases of American companies must explain to a Chinese-owned firm why they rejected its bid to buy Oregon wind farms, under a new order by a federal judge.

The unprecedented ruling by Amy Berman Jackson, a U.S. judge for the District of Columbia who was nominated by Obama, also requires him to justify withholding any information from the Chinese on grounds of executive privilege, a legal principle that presidents going back to George Washington have claimed.

Jackson’s order was issued under a July mandate from the U.S. Circuit Court of Appeals, which ruled then that Obama had violated the constitutional due process rights of Chinese-owned Ralls Corp. in his September 2012 directive voiding its purchase of an Oregon wind-farm conglomerate.

“Ralls does get a second bite at the apple,” Christopher Brewster, a Washington lawyer with Stroock & Stroock & Lavan who represents Chinese and other foreign firms seeking to buy American companies, told McClatchy on Thursday.

“This whole litigation is unique,” Brewster said.

In a decision he’d heralded in the stretch run of his 2012 re-election campaign, Obama had voided the sale after the Navy objected that power windmills Ralls planned to build would interfere with its test flights for drones and bomber squadrons at a naval site in northern Oregon.

Ralls filed suit over Obama’s action, which ratified a decision by the secretive, multi-agency Committee on Foreign Investment in the United States.

When the case first came before her, Jackson last year ruled in favor of Obama and the committee known by its acronym CFIUS, but the appellate court overturned her decision in July and sent the case back to her.

In her new ruling Wednesday, Jackson made clear that neither the White House nor CFIUS need disclose classified information to Ralls, which is owned by prominent Chinese businessmen Dawai Duan and Jialiang Wu.

Jackson, however, said that if Obama or the committee claim executive privilege in order to withhold certain unclassified information, they must justify each use of such privilege.

Executive privilege is a venerable principle akin in government to attorney-client confidentiality. It was first claimed by the U.S. government’s executive branch when President George Washington refused to share with the House of Representatives documents tied to a pending treaty with Great Britain, saying the Constitution gives only the Senate the power to ratify or reject such international accords.

“If defendants take the position that any portion of that material is covered by executive privilege, they must, on the same date, submit a privilege log to plaintiff and the Court identifying the material withheld and reasons for the withholding,” Jackson wrote.

“Defendants must clearly indicate the nature of the privilege being asserted,” she wrote.

At the same time, Jackson chided Ralls for taking steps to sell the conglomerate of four wind-farm firms, called Project Companies, to an unnamed American citizen after CFIUS and Obama had voided Ralls’s purchase.

Jackson suggested that it was implausible for Ralls to sell the wind-farm group for a fraction of what the Chinese-owned firm had paid for it.

“The court cannot find that Ralls’s recent identification of a potential buyer warrants the dismissal of the (CFIUS) action as moot,” Jackson wrote. “This is particularly true in light of the unusual circumstances -- such as the plan to sell a $6 million asset for $50,000 -- that raise questions about the arms-length nature of the proposed transaction.”

Ralls, which is headquartered in Delaware and has its main operations in Georgia, hired powerful Washington lawyers in the case, among them former U.S. Solicitor General Paul Clement and former Assistant Attorney General Viet Dinh.

CFIUS, whose work is classified, is chaired by the Treasury secretary and made up of the heads of Homeland Security, Commerce, Defense, State and Energy, along with the Attorney General.

Established in 1975 by President Gerald Ford, CFIUS in recent years has increasingly focused on the growing number of Chinese acquisitions in the United States.

In 2012, the last year in which CFIUS filed an annual report with Congress, China surpassed Great Britain for the first time as the country with the most foreign investments subject to national security review.

Brewster said that in the Ralls case, Jackson, ruling under directives from the federal appellate court, was requiring the government to tread a thin line.

In their response to the judicial order, Brewster noted, Obama and CFIUS could say that they are unable to provide detailed rationales for voiding the Chinese deal -- or to explain their claims of executive privilege -- without disclosing classified or just plain embarrassing information.

“It may open the way for the government to come in and say, ‘What you’re asking us to do here is to separate the inseparable,’” Brewster told McClatchy. “If the government wants to be really aggressive, it could come back and say, ‘We don’t have anything to add other than that our decision was based upon the (previous) filings.’”

Short of providing classified information, Brewster said, the government may not want to disclose documents related to the Ralls case because they could potentially damage U.S.-Chinese relations, such as a background memo on the two countries’ standing with each other that contains views Beijing might construe as negative or critical.