A US Court of Appeals ruling that President Barack Obama violated the due process rights of a Chinese-owned corporation by blocking its purchase of a wind-farm company could shake up the process for foreign firms looking to acquire assets in the US, according to Washington-based lawyers.

The US Court of Appeals in Washington, ruled on Tuesday that Delaware-based Ralls Corp, owned by Chinese machinery giant Sany Group Co Ltd, must be allowed to challenge evidence that Obama drew on to bar its operations connected to a September 2012 purchase of the four wind-farm projects near a US naval weapons training facility in Oregon.

It was the first time a president had exercised the right to nullify a foreign acquisition on the basis of security issues in more than two decades.

Chris Brewster, special counsel for law firm Stroock & Stroock & Lavan LLP, said if the decision is upheld it "does not disturb the authority of the president" but could result in a need for greater transparency in the review process handled by the Committee on Foreign Investment in the United States (CFIUS).

"You don't want to prejudge anything here but the ruling definitely says that before the government can block a transaction, it needs to provide the parties with the unclassified information upon which the decision is based in an opportunity to rebut them," Brewster said. "But it is yet to be clear how broadly this is going to be read, and it's not clear if that's going to translate across the board."

The Appeals court's decision, which overturned the ruling of a lower court, said Ralls' constitutional rights to due process were violated because the company never had access to information the government used in the CFIUS' review.

CFIUS is an inter-agency committee tasked with the job of vetting foreign investment in the acquisition of US businesses.

"The presidential order deprived Ralls of significant property interests," the three-judge panel wrote in a unanimous decision. "This lack of process constitutes a clear constitutional violation."

Xiang Wenbo, a board member of the Sany Group who is also the president of Sany Heavy Industry Co Ltd, said in his personal blog on Wednesday that the ruling is "a great victory for Sany Group and related companies".

Tim Tingkang Xia, an attorney for Ralls, said the company is "heartened that the court today (Tuesday) upheld Ralls' arguments in every respect".

Billy Vigdor, a partner with Washington-based international law firm Vinson & Elkins LLP, said a decision directing the CFIUS to share unclassified information with the public could potentially increase transparency but he said he does not believe it's going to usher in a "sea change" to the CFIUS practice.

Chinese investors were subject to more than double the number of CFIUS reviews in 2012 as in the previous year, overtaking the United Kingdom as the most scrutinized foreign buyers of US companies, the committee said in its annual report to Congress.

Harry L Clark, a Washington-based partner with global law firm Orrick, Herrington & Sutcliffe LLP, said:

"If the decision holds, it means that before shopping a transaction the executive branch would have to produce the information that it's relying on in reaching the judgment that there's a national security problem. And it would have to give the companies the right to at least some sort of very informal hearing to argue about it and present evidence from the other side."

"It's a very interesting, murky area of the law and courts can go either way," Clark said. "On appeal it could easily be overturned, but by the same token, I wouldn't be astonished if it's not."

Brewster, the lawyer with Stroock & Stroock & Lavan, said the litigation in this case is far from over.

"We have to keep in mind that this decision could be appealed to the Supreme Court, or the government could seek re-hearing of the case," he said Wednesday in an interview with China Daily. "But the President's core authority is still there, and the court makes it very clear that they're not disturbing that," he said.

The appeals court decision for Ralls came as Lenovo Group Ltd, the world's largest maker of personal computers, is facing a CFIUS review over its proposed purchase of IBM Corp's low-end server business.

Xie Yu contributed to this report.

jackfreifelder@chinadailyusa.com

(China Daily USA 07/17/2014 page2)