Nippon, U.S. Steel Face Long Odds On Merger Challenge
In this article for Law360, Mario Mancuso, George Hicks and Luci Hague discuss President Biden's decision to block the Nippon / U.S. Steel transaction on national security grounds following a CFIUS referral, the parties' challenge to the prohibition in court and possible next steps.
On Jan. 3, President Joe Biden issued an executive order prohibiting Nippon Steel's proposed acquisition of U.S. Steel, finding that credible evidence led him to believe that Nippon might take action that threatens to impair U.S. national security, and that other provisions of law were insufficient to protect national security.[1]
The order followed three 90-day periods of review and investigation by the Committee on Foreign Investment in the United States, an interagency committee of the U.S. government empowered to review certain foreign investments in U.S. businesses or real estate.
Because CFIUS was unable to reach consensus on whether the acquisition would present national security risks that could be addressed through compliance undertakings by the parties, the deal was submitted to Biden for final decision.
The pendency of CFIUS' assessment was punctured by public comments from Biden and various senior U.S. government officials expressing support for U.S. Steel remaining U.S.-owned.
This is unusual — in the vast majority of cases, U.S. government personnel won't so much as confirm that CFIUS is reviewing a transaction, much less suggest a view on the deal's proper disposition.
There's no question that the public remarks by officials during CFIUS' review, and CFIUS' lack of consensus, make this an atypical case. But did CFIUS' treatment and the president's eventual decision violate the parties' constitutional rights?
Nippon and U.S. Steel believe so, filing a petition for review in the U.S. Court of Appeals for the D.C. Circuit on Jan. 6 to enjoin and set aside CFIUS' referral to the president of the transaction and the EO, as well as to direct CFIUS to re-review the transaction, consistent with due process.
Nippon and U.S. Steel face a formidable uphill battle in challenging CFIUS' referral and the president's exercise of authority to block the deal on national security grounds.
Judicial challenges to CFIUS are incredibly rare, and only one, the U.S. Court of Appeals for the District of Columbia Circuit's 2014 Ralls v. CFIUS decision, was successful.
This is a feature, not a bug, of CFIUS' legal authority: Congress intended to shield CFIUS' decisions, and the president's conclusions under the CFIUS regime, from virtually all judicial review, an approach that is consistent with broad judicial deference to the executive branch on national security matters.
CFIUS' current implementing statute, the Foreign Investment Risk Review Modernization Act, or FIRRMA, was first enacted in 1988 in the Exon-Florio Amendment to the omnibus trade bill.
Since that time, it has contained an absolute statutory bar to judicial review of the president's finding that there is credible evidence that a covered transaction presents a risk to U.S. national security that cannot be mitigated adequately and appropriately through other provisions of law or the International Emergency Economic Powers Act.[3]
During initial congressional hearings on the Exon-Florio Amendment as well as various subsequent proposals to enhance CFIUS' authorities, witnesses repeatedly suggested that the absence of judicial review could enable a president to block a transaction on purely political grounds, under the guise of national security.
Nevertheless, Congress specifically decided to exempt the president's decisions on specific transactions from judicial review, while noting that other aspects of CFIUS' reviews — for example, whether the U.S. Department of Justice sought divestment for a transaction that closed before the effective date of the statute — would remain subject to review by Article III courts.[4]
What's more, the president can take action to address national security risks arising from a covered transaction — including by blocking or unwinding it — even if the deal has not gone through CFIUS' ordinary review and investigation process. FIRRMA empowers the president to act with respect to any covered transaction, regardless of the status of any CFIUS review.[5]
Seemingly aware of these obstacles, Nippon and U.S. Steel's petition does not directly challenge the president's and CFIUS's ultimate determinations but, citing Ralls, asserts that the government did not comply with due process in reaching those determinations — one of the few bases on which challenges against presidential decisions to block transactions under FIRRMA may proceed.
But Ralls is not on all fours, and the petition's due process arguments face many challenges. For one, Ralls had closed on its transaction, thus acquiring property interests that could not be revoked without due process.
By contrast, Nippon has not completed its acquisition, leaving its supposed property interest nebulous. Moreover, Ralls had received none of the unclassified evidence that formed the basis for CFIUS' and the president's decisions to unwind Ralls' acquisition, and Ralls had no meaningful opportunity to respond to that evidence.
Nippon's own petition demonstrates that the parties engaged with CFIUS throughout 2024, including through at least five in-person meetings, 19 Q&A sets, and various phone calls.
Nippon's comparatively strongest due process argument is that, given his repeated public comments disparaging the transaction, the president had predetermined the outcome, rendering the actual CFIUS and presidential review process a sham.
But provided there was some — any — national security element to the president's decision, that element will take precedence over any comments regarding other factors, and the courts will yield to that national-security determination regardless of what other factors may have entered into the decisional mix. It is exceptionally rare for courts to look behind an official decision for pretext, and especially so in the national security context.
The president's decision undoubtedly was influenced by the political winds.
But that is the regime that Congress established: A review of transactions resulting in foreign control of American companies would be performed by the political branches, shielded almost entirely from review by the judicial branch.
Nippon's and U.S. Steel's remedy, therefore, lies in the political process, not a last-ditch — if understandable — request that the courts force a do-over untainted by impolitic remarks.
While unlikely, it is not excludable that a carefully refashioned transaction — for example, some form of minority investment or strategic partnership that is constructed to better account for U.S. political realities and a renewed policy focus on industrial capacity and resilience — may fare differently in a Trump administration-led CFIUS review, notwithstanding president-elect Donald Trump's past opposition to the particular deal that Biden ultimately blocked.
Even so, in releasing their correspondence with CFIUS, including the unclassified evidence that CFIUS provided to the parties, Nippon and U.S. Steel have shed significant light on what the CFIUS process for a hard case looks like. That visibility will undoubtedly be helpful to transaction parties in future cases, whether or not they involve an element of politics.
Mario Mancuso is a partner and leader of the international trade and national security practice at Kirkland & Ellis LLP. He is a former member of the U.S. presidential national security team.
George W. Hicks Jr. is a partner at the firm.
Lucille Hague is a partner at the firm.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[2] 758 F.3d 296 (D.C. Cir. 2014).
[3] See 50 U.S.C. § 4565(e)(1).
[4] See 50 U.S.C. § 2170(d) (1988); 50 U.S.C. § 2170(e) (2007); H. Rep. 100-576, 100th Cong. 2d Sess. (1988), at 924.
[5] See 50 U.S.C. 4565(d)(1), (4)(A)-(B).
