Chinese firm sues Obama over wind farm

3 October 2012
By Rachael Fergusson
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U.S. President Barack Obama on a wind farm in Iowa in August.

U.S. President Barack Obama on a wind farm in Iowa in August.

A small Chinese firm has sued US President Barack Obama for squashing its bid to build wind farms close to a naval training site, but experts say the suit is long shot for a firm that greatly underestimated US suspicions about Chinese intentions.

Ralls Corp, which is owned by two Chinese nationals, was installing wind turbines close to the training site in Oregon, which, according to the facility's website, is used to test unmanned drones – a highly sensitive and prized US technology.

The US Navy says the training site's airspace is also the only restricted area in western United States where fighter jets conduct training manoeuvres at high speed and very low altitudes.

Obama put the brakes on the project last week and ordered Ralls to sell the four planned wind farms due to national security risks, the first time since 1990 that a US President has formally blocked a business transaction or required a sale on such grounds. Ralls Corp has until 27 December to comply.

In its suit, made public on Tuesday, Ralls Corp alleges Obama exceeded his power by dictating the terms of the sale, by allowing the government to inspect all aspects of its operations, and by not treating the firm equally as required by law.

The lawsuit comes in the final weeks of the US presidential campaign, during which Obama's Republican rival, Mitt Romney, has accused the President of not pushing back against China's trade and investment practices.

Obama's order followed a recommendation from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group headed up by the Treasury secretary that evaluates the national security risks of foreign investments in US companies or operations.

Ralls Corp initially sued CFIUS in September for ordering the company to halt operations temporarily while the committee completed its probe and made its recommendation to Obama.

Its chances of winning the suit are slim given the President's broad authority on national security matters and the fact that courts do not often second guess the executive branch on security issues, experts say.

"It's a very, very difficult case," said Ivan Schlager, a partner with Skadden, Arps, Slate, Meagher & Flom, who is in charge of the firm's CFIUS practice.

"The statute was crafted to give the president a great deal of discretion and authority to act to protect the national security interests of the United States."

A Treasury spokeswoman said the administration believes the lawsuit has no merit and would defend its case vigorously.

In issuing the rare presidential order, Obama said there was credible evidence that led him to believe that Ralls Corp and the Chinese Sany Group executives who own the company might take actions that posed a risk to US security.

The statement did not get into the specifics of the risk, but experts have said that the government was likely to have been wary of any potential for espionage.

Ralls Corp said the government had not provided any evidence or explanation.

CFIUS experts said the deal was likely doomed from the start. They said Ralls Corp miscalculated by not asking CFIUS to review its plans to acquire wind-farm projects before closing the deal and embarking on plans to install turbines made in China by the closely held Sany Group.

It is unclear whether Ralls Corp studied previous cases in which CFIUS forced other Chinese companies to kill development plans because of their location or for failing to get CFIUS approval before closing a deal.

Benjamin Powell, a former general counsel to the director of national intelligence and now a partner at the WilmerHale law firm, said companies could face a more difficult review process if they did not notify CFIUS of a transaction that might raise national security issues.

In 2009, CFIUS forced the Chinese-owned Nonferrous International Investment Company to backtrack on a proposal to buy Nevada-based Firstgold, whose properties were close to a naval air station.

And in 2011, Chinese telecom maker Huawei had to relinquish plans to buy some assets from US server technology firm 3Leaf after CFIUS ordered Huawei to give up some parts of the deal.

Huawei did not file paperwork with CFIUS on the deal, even though a few years earlier the panel had rejected another of its proposed deals because of national security concerns.

Ralls Corp has also been slow to bring in US firepower.

It hired two high-profile lawyers – the George W Bush administration's top lawyer Paul Clement and former US assistant attorney general Viet Dinh – only after CFIUS ordered the company to cease activity in August and months after the Navy expressed concerns that one of Ralls Corp's wind-farm projects was located within restricted airspace.

The company's three other wind-farm projects are located close to the training facility.

According to court documents, the Navy said the company should be obliged to move the wind farm located in the restricted airspace to another spot, even though it had no authority to require the move.

Hundreds of wind turbines are already located close to the Oregon training site, according to maps included in the court documents filed by Ralls Corp. The maps also show that a handful of turbines are already operating within the restricted airspace.

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