A U.S. company controlled by Chinese billionaire Sun Guangxin is suing Texas’ state electric grid operator, alleging that a Texas state law blocking foreign investment on national security grounds is unconstitutional. GH America Energy, the Texas-incorporated subsidiary of Sun’s Xinjiang Guanghui Industry Investment Group, filed the lawsuit in the U.S. District Court for the Western District of Texas. The lawsuit comes after ERCOT rejected GH America’s proposed Blue Hills Wind project under the Lone Star Infrastructure Protection Act, which prohibits companies controlled by Chinese, North Korean, Iranian, and Russian nationals from accessing critical infrastructure in Texas. GH America argues that the state law infringes on federal government powers relating to foreign relations, national security, and foreign commerce regulation. ERCOT has yet to respond to the lawsuit, with a deadline of August 12 set by the U.S. judge overseeing the case.
This lawsuit is part of a broader trend of jurisdictional conflicts between states and the federal government over foreign investment restrictions. Recent cases include a Montana TikTok ban blocked by a federal judge and a Florida law prohibiting Chinese nationals from buying real estate, both deemed potentially preempted by federal law. Kristen Eichensehr, a professor at the University of Virginia School of Law, highlights the increasing involvement of states in national security matters traditionally handled by the federal government. The outcome of GH America’s lawsuit, alongside the challenges to other state laws, will determine the extent of state authority in these areas.
Sun Guangxin, a Chinese billionaire with a background in energy equipment, auto services, and real estate in Xinjiang, China, has faced backlash in Texas over his wind turbine project near Laughlin Air Force Base. The passage of Texas’ Lone Star Infrastructure Protection Act highlighted growing concerns about Chinese investment and land ownership in U.S. states. Similar concerns have led to the veto of a Chinese-owned corn mill development near a U.S. Air Force base in North Dakota, as well as the enactment of laws in 15 states banning foreign land acquisition. CFIUS has also expanded its oversight of real estate transactions near military installations to further regulate foreign investment in sensitive areas.
While the idea of overturning Texas law may seem unlikely, GH America’s federal preemption argument has been deemed strong by legal experts. With continued federal oversight and regulation in national security matters, including approval by CFIUS and the Department of Defense, the company’s case might have merit. The lawsuit is expected to escalate to the Fifth Circuit Court of Appeals, where differing conclusions on federal preemption could set the stage for a Supreme Court review. Christopher Swift, a partner at Foley & Lardner, suggests that conflicting rulings in the Fifth and Eleventh Circuit Courts may prompt further judicial review at the highest level.
The ongoing legal battle between GH America Energy and ERCOT highlights the complex interplay between state and federal regulations on foreign investment in critical infrastructure. As states assert their authority in national security matters, challenges to state laws by foreign-controlled companies could have significant implications for the balance of power between states and the federal government. The outcome of this lawsuit, along with similar cases in other states, will shape the future landscape of foreign investment regulation in the United States and determine the boundaries of state authority in addressing national security concerns.
