The Nippon-U.S. Steel Case: A Test of Presidential Authority and Limits on Judicial Review
By Hdeel Abdelhady*
Read the full analysis in Law360 • PDF
“Gentle into that good night” is how most foreign investors and their U.S. investment targets go after their deals meet with Congressional or public backlash, are scuttled by CFIUS (the Committee on Foreign Investment in the United States), or, in rare cases, are prohibited by the President. The forces of public pressure and CFIUS’s influence are so strong that in 36 years, presidents have blocked foreign investments only nine times under Section 721 of the Defense Production Act of 1950 (DPA).
But Nippon Steel of Japan and Pittsburgh-based U.S. Steel refuse to go gently. On January 3, 2025, President Biden prohibited Nippon’s proposed $14.9 billion acquisition of U.S. Steel. U.S. Steel called the order “shameful and corrupt.” Three days later, the companies took their battle to the courts. In the U.S. Court of Appeals for the District of Columbia Circuit, Nippon and U.S. Steel challenge the lawfulness of President Biden’s (and CFIUS’s) actions under Section 721.
The resistance may have bought time. CFIUS extended to June 18, 2025 the deadline to comply with President’s order. Meanwhile, the case presents a rare test of presidential authority over foreign investment and the limits of Section 721’s judicial review restrictions.
The Historical and Legal Landscape
A Full Circle Moment in Section 721’s History
In two ways, President Biden’s order brings full circle the history of Section 721. First, the order is only the second prohibiting a foreign investment in traditional industry. The very first order under Section 721, issued by President Bush in 1990, required a Chinese government-owned company to divest ownership of a U.S. metal aircraft parts manufacturer.
Second, Section 721 was born of opposition to Fujitsu of Japan’s planned acquisition of Fairchild Semiconductor from its French owner, Schlumberger. Against the backdrop of the U.S.-Japan trade war, and fierce opposition from government trade and national security hawks and the U.S. semiconductor industry, Fujitsu walked away from the deal in 1987. Still, the deal’s opponents lamented the lack of “legal authority under which the Government can enjoin a foreigner from making an American investment.” Section 721, enacted in 1988, provides that legal authority.
The President’s Authority to Prohibit Foreign Investment
Section 721 authorizes the President to review, investigate, suspend, and prohibit foreign mergers, acquisitions, takeovers, and other “covered transactions” that “threaten to impair” U.S. national security. The President exercises his authority directly and through his “designee,” CFIUS, which conducts reviews and investigations, negotiates and enforces national security mitigation measures, and may suspend transactions during the pendency of its work. CFIUS’s work under Section 721 concludes by clearing transactions with or without mitigation measures, or referring a transaction to the President.
The President may prohibit a transaction, but “only if” he makes two required findings. First, the President must find, based on “credible evidence,” that the “foreign person that would acquire an interest in a United States business . . . might take action that threatens to impair the national security.” Second, Section 721 requires a finding that “provisions of law, other than . . . [Section 721] and the International Emergency Economic Powers Act, do not, in the judgment of the President, provide adequate and appropriate authority for the President to protect the national security.”
The requirement of these two findings and treatment of IEEPA as a substitute for Section 721 reinforce Section 721’s national security boundaries. Tellingly, Section 721 and IEEPA are codified at Title 50 of the U.S. Code, on “War and National Defense.”
Ralls v. CFIUS: A Landmark Decision and Unfinished Business
From its enactment in 1988, Section 721 has barred judicial review of the President’s “actions,” meaning prohibiting and suspending a transaction, and “findings” resulting in those “actions.” Only one case – Ralls v. CFIUS (2014) – has meaningfully tested that limitation and partially reached the merits of a challenge to the President’s (and CFIUS’s) authority.
Delaware company Ralls and its Chinese owners challenged President Obama’s order retroactively prohibiting Ralls’ acquisition of four windfarm companies having project sites in and near military air space. Ralls also challenged CFIUS’s mitigation orders directing the company to, among other things, cease operations and access to the project sites. Ralls contended that the President’s blocking order violated the Administrative Procedure Act, exceeded the President’s Section 721 authority and was thus ultra vires, and deprived Ralls of due process and equal protection.
The D.C. Circuit rejected the government’s claim that judicial review was barred by Section 721 and the political question doctrine. Section 721’s text and legislative history did not establish by “‘clear and convincing’” evidence that Congress intended to preclude judicial review of constitutional claims. Ralls had a state law property interest protected by the Due Process Clause. “[A]t the least,” due process required the President to inform Ralls of his “official action,” and give Ralls “access to” and an opportunity to rebut unclassified evidence on which the President relied.
Ralls’s other claims remain untested. The D.C. District Court dismissed the ultra vires claim against the President and CFIUS for lack of subject-matter jurisdiction, because Section 721 “barred judicial review.” On appeal, Ralls dropped the ultra vires and equal protection challenges to the President’s order. The claims were not further explored, as the case was settled.
Post-Ralls Amendments to Section 721’s Judicial Review Provisions
In 2018, Section 721 was substantially amended by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA did not in response to Ralls clarify or further curtail judicial review, but added provisions accommodating judicial review. FIRRMA gives the D.C. Circuit original and exclusive jurisdiction of any “civil action challenging an action or finding” of the President. FIRRMA also codified Ralls by providing that classified or other protected information shall, where deemed necessary by the D.C. Circuit, be filed ex parte, in camera, and under seal.
New Challenges to Presidential Authority and Limits on Judicial Review
President Biden’s order asserts that Nippon “might take action that threatens to impair the national security of the United States,” but does not identify the threat. That is not unusual. Section 721 blocking orders do not consistently elaborate the threat. What is unusual is the President’s accompanying statement explaining the order. President Biden said he had fulfilled his “solemn responsibility” “to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry” and that “U.S. Steel will remain a proud American company . . . American-owned, American-operated, by American union steelworkers – the best in the world.” This seemingly expansive view of Section 721 authority raises three legal vulnerabilities.
Lack of a Particularized Finding as to Nippon Steel
In Dalton v. Spencer, the Supreme Court stated that judicial review “is not available when the statute in question commits the decision to the discretion of the President.” However, a challenge to the President’s “want of” “power,” and not merely “‘an excess or abuse of discretion in exerting a power given’” is reviewable. President Biden’s order may be challenged for lack of authority.
Again, the President was required to find, based on “credible evidence,” that Nippon in particular might act to “impair” national security. As a former Deputy Treasury Secretary explained in Congressional testimony, although the “credible evidence”-based finding “is a relatively low standard,” it is “clearly more than conjecture.” “The President must have some reason to believe, based, for example, on the foreign person’s past actions or likely motives, that it will take action through the acquisition that threatens to impair U.S. national security.”
President Biden’s order formulaically states that Nippon might take such action. But his contemporaneous statement objects to any foreign ownership of U.S. Steel and other U.S. steel producing assets. If the President failed to make a particularized finding, he lacked authority to take “action” under Section 721.
The President’s Legal Finding on the Inadequacy of Other Laws
The Nippon facts offer an opportunity to, for the first time, question the President’s legal finding that no laws, other than Section 721 and IEEPA, were appropriate and adequate to address the national security threat. Courts generally defer to the President on matters of national security. However, “not every case touching on national security lies beyond judicial cognizance.” In the context of Section 721, a determination of whether the President made the required legal finding is material to whether his “action” was ultra vires. Arguably, the President’s legal determination is detachable from his national security finding, even if the legal determination is committed to the President’s “judgment.” “The D.C. Circuit arguably may review the President’s legal determinations without traversing Section 721 or political question doctrine boundaries.
The President’s Stated Reasons May Cross National Security Boundaries
President Biden’s statement also cites unfair trade practices, national industrial (and not just defense) steel requirements, factory closings, and job losses as reasons for his order. Conceivably, other laws – such as trade, antitrust, and labor laws – are adequate and appropriate to address those concerns. Moreover, Congress has never authorized, and has rejected, the expansion of Section 721 beyond national security.
As stated in Congress’s Conference Report on the 1988 law, Section 721 was not intended “to have any effect on transactions which are outside the realm of national security,” or in any way “impose barriers to foreign investment.” Within those parameters, the Foreign Investment and National Security Act of 2007 (FINSA) – one of only three substantive amendments of Section 721 – clarified that “national security” encompasses “‘homeland security’, including its application to critical infrastructure.”
Before and after FINSA Congress declined repeatedly to expand Section 721’s scope. For example, the Foreign Investment and Economic Security Act of 1991 proposed to allow “consideration of “economic” security, but did not make it out of committee. Other iterations of the bill were introduced in 2014, 2016, and 2017, to require consideration under Section 721 of a foreign investment’s “net benefit” to the “level and quality of employment,” “productivity, industrial efficiency, technological development,” and “competition within any industry” in and outside the United States. Those bills died in committee.
In 2022, President Biden issued an executive order expanding the factors that CFIUS should consider under Section 721. The order directs CFIUS to consider, among other things, foreign investments’ effect on “domestic capacity to meet national security requirements, including those requirements that fall outside of the defense industrial base.” However, Section 721’s text and legislative history confine industrial capacity considerations to “national defense” and “national security.” The day President Biden issued his order, the Treasury Secretary (and CFIUS Chair) issued a statement that the order merely provided “context” but did “not change CFIUS operations or process,” and tacitly acknowledged statutory limits. Congress did not act to codify the order. The Nippon order may be challenged as an instrument of President Biden’s policy that expands Section 721.
Youngstown Sheet & Tube v. Sawyer is instructive. During the Korea war, President Truman ordered the Commerce Secretary to seize and operate steel and related companies – including U.S. Steel – to avoid supply disruptions expected from an impending United Steelworkers’ strike. The Court struck down the order, reasoning that Congress had not authorized seizure as a “method of settling labor disputes,” and had “refused” to do so. The seizure order did not implement a “congressional policy,” but impermissibly “direct[ed] that a presidential policy be executed in a manner prescribed by the President.” President Biden’s order may be challenged as an implementation of a presidential policy that Congress did not authorize, and rejected.
Conclusion: A Defining Case for Foreign Investment Regulation
For the first time in Section 721’s 36-year history, the Nippon-U.S. Steel case offers an opportunity to examine the President’s contingent authority to prohibit foreign investment. Section 721’s text reinforces the United States’s policy of openness to foreign investment by making the President’s blocking authority contingent on findings that a particular foreign investor might act to impair national security and that laws other than Section 721 and IEEPA are not adequate and appropriate to mitigate the particular national security threat.
President Biden’s blocking order formulaically makes those findings, but his contemporaneous statement couches the order in broad opposition to foreign ownership of U.S. Steel and steel producing assets.
Moreover, the statement appears to advance broader objectives outlined in President Biden’s 2022 executive order to expand the scope of Section 721 considerations, and that Congress has rejected. Akin to Youngstown, a question is whether the blocking order implements Congress’s policy, or the Executive’s.
If the D.C. Circuit examines whether the President’s contingent Section 721 authority vested, and if it was exceeded, the admissibility and weight to be accorded to his accompanying statement may be in issue. These issues, and the scope of judicial review, implicate new, post-Ralls legal authority, including Trump v. Hawaii or similar cases and FIRRMA’s 2018 amendments to Section 721’s judicial review provisions.
With national security increasingly intertwined with “economic security,” the Nippon-U.S. Steel case may shape how future administrations wield Section 721. Fatefully, Nippon’s refusal to go gently may reset the course of a law born of opposition to a Japanese investment decades ago.
*Hdeel Abdelhady is Principal at MassPoint Legal PLLC.