Background
GH America Energy, L.L.C. is a Texas renewable-energy company owned through a Chinese parent. After the company sought to connect its proposed Blue Star Solar Project to the Texas electric grid, the Electric Reliability Council of Texas denied its interconnection application under the Texas Lone Star Infrastructure Protection Act. LSIPA bars certain agreements giving companies owned or controlled by citizens or governments of China, Russia, Iran, or North Korea access to or control over critical Texas infrastructure.
GH America had previously participated in federal national-security review through the Committee on Foreign Investment in the United States and operated under a mitigation agreement overseen by the Department of Defense. It sued ERCOT officials, contending in relevant part that the federal CFIUS regime displaced LSIPA. The district court dismissed its claims, and GH America appealed only the rejection of its conflict- and field-preemption theories.
The Court’s Holding
The Fifth Circuit affirmed, holding that the federal CFIUS regime neither conflict-preempts nor field-preempts LSIPA. The court concluded that CFIUS has authority over a defined class of transactions, principally foreign acquisitions and other investments involving control, sensitive information, critical infrastructure, or certain real estate. LSIPA, by contrast, governs agreements providing access to Texas critical infrastructure, including electric-grid interconnections. GH America identified no federal statutory text showing that Congress intended CFIUS review to displace such state regulation.
The court also rejected the argument that LSIPA frustrates CFIUS’s purposes. It reasoned that LSIPA’s protection of the Texas grid is consistent with the federal regime’s national-security objectives and falls within Texas’s traditional authority over intrastate utilities. Nor was the CFIUS framework sufficiently pervasive to occupy the entire field of foreign-investment screening. Congress’s silence did not establish the clear and manifest intent required to oust state power. Judge Haynes concurred in the judgment.
Key Takeaways
- CFIUS review does not categorically immunize a foreign-owned company or transaction from independently applicable state laws.
- A party asserting obstacle preemption must identify a conflict grounded in the federal statute’s text and structure, not merely a difference between federal and state regulatory approaches.
- Congress did not occupy the entire field of foreign-investment screening through the CFIUS regime, leaving Texas free to regulate access to its electric grid through LSIPA.
Why It Matters
The decision preserves substantial room for states in the Fifth Circuit to impose security restrictions on foreign-owned entities seeking access to locally regulated critical infrastructure, even when those entities have undergone federal CFIUS review or accepted federal mitigation measures.
For businesses and transaction counsel, federal clearance or monitoring may therefore be only one layer of review. State restrictions governing utilities, land, infrastructure, and entities linked to designated foreign countries may independently prevent a project from proceeding.