Tuesday, September 18, 2012

Chinese-owned corporation files law suit against US government for barring wind farm transaction (Ralls Corp. v. Committee on Foreign Investment in the U.S., 1:12-cv-01513, U.S. District Court, District of Columbia)

A US company owned by executives of China-based Sany Group Co. accused a US treasury-led national security panel in Washington in a lawsuit of barring it from windfarm projects without explanation or proper legal process.

Ralls Corp., a holding company that controls wind farm assets, alleged the multi-agency Committee on Foreign Investment in the US, known as CFIUS, exceeded its authority when it ordered Ralls Corp. to cease operations and keep out of windfarm development sites it purchased, according to a lawsuit filed September 12,2 012 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.

Security Risks

CFIUS issued an order on July 25, 2012 citing “national security risks” raised by the sale of the windfarm assets to Ralls Corp., according to the filing.

An amended order on August 2, 2012 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 Corp., according to the complaint.

Ralls Corp. is seeking to develop wind energy projects in the US, where Sany Electric’s wind turbine generators can be used, according to the filing.

Ralls Corp. is seeking a temporary restraining order and preliminary injunction that would permit the company to resume construction of the wind farms by September 20, 2012. If the wind farms are not in service by December 31, 2012 then the company won't be able to obtain $25 million USD in federal investment tax incentives, according to a court filing yesterday.

Ralls Corp. 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, 2012. 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 Corp. alleged.

Development Rights

“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. 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.

Withdrawn Applications

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. (000063), 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).

Source: Bloomberg

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