Background
Federal law requires the Secretary of Defense to publish an annual list of “Chinese military companies” operating in the United States. Placement on the list carries reputational consequences and makes a company ineligible for certain federal contracts and financial assistance. The Defense Department designated LiDAR manufacturer Hesai Technology Co., Ltd. and its subsidiary, Hesai Inc. in January 2024.
After Hesai sued, the Secretary rescinded the original designation and immediately redesignated the companies in October 2024 based in part on new information. Hesai challenged the redesignation under the Administrative Procedure Act and the Fifth Amendment’s Due Process Clause. The district court granted summary judgment to the Secretary, concluding that any due process violation was harmless. Hesai remained on a newly published list in June 2026, but the D.C. Circuit held that the appeal concerning the 2024 redesignation was not moot because the earlier designation could have continuing reputational effects and the challenged lack of process could recur.
The Court’s Holding
The D.C. Circuit held that the designation implicated a protected liberty interest under the stigma-plus doctrine. Publicly labeling Hesai a Chinese military company caused reputational harm, while federal statutes automatically excluding listed companies from certain government contracts and financial assistance supplied the required change in legal status. Hesai did not need to identify a specific contract, grant, or loan it intended to pursue.
Due process required the Secretary, before finalizing the redesignation, to notify Hesai of the impending action, disclose the unclassified materials on which he intended to rely, and provide a meaningful opportunity to respond. General national-security concerns did not excuse advance process because the Secretary made no particularized showing that notice to Hesai would frustrate the designation. The violation was not harmless because the court could not presume that a chance to rebut the new evidence and tailor Hesai’s response would have made no difference.
The court reversed the district court and directed it to remand the matter to the Secretary for constitutionally adequate proceedings. It declined to vacate the 2024 designation while the violation is cured and did not reach Hesai’s APA claims.
Key Takeaways
- A public designation that harms a company’s reputation and automatically excludes it from categories of federal contracts or benefits can satisfy the stigma-plus test.
- Absent exigent circumstances supported by a particularized showing, the government must disclose the unclassified basis for a designation and provide a meaningful opportunity to respond before the designation becomes final.
- A complete denial of required pre-deprivation process is not harmless when uncertainty remains about whether the company’s response could have affected the agency’s decision.
Why It Matters
The decision extends established procedural protections from foreign-terrorist and national-security designation cases to the Defense Department’s Chinese-military-company list. Agencies cannot rely on national security in the abstract to withhold all process when a designation imposes both public stigma and statutory disqualification from government opportunities.
The ruling nevertheless preserves governmental continuity by allowing the challenged designation to remain in place while the Secretary supplies the required process.