Nippon Steel’s case against the United States for blocking its acquisition of United States Steel is unlikely to succeed, according to attorneys with expertise in relevant areas.

“Unfortunately for Nippon Steel, their argument is not particularly strong,” said Akira Inoue, a partner at Baker & McKenzie in Tokyo specializing in antitrust and competition.

On Jan. 6, the Japanese steelmaker and U.S. Steel filed a suit to challenge U.S. President Joe Biden’s rejection of the $14.9 billion deal on national security grounds just days earlier.

“The president's action in this case is explicitly excluded from judicial review under U.S. law. I therefore believe that their legal challenge is unlikely to succeed,” Inoue added.

A U.S. president's rejection of a deal following review by the Committee on Foreign Investment in the United States (CFIUS), which has been in existence for half a century, has only been successfully challenged once, and then only on due process grounds rather than on the decision itself.

In 2012, Ralls, a company owned by two Chinese citizens, purchased interests in wind farms in Oregon that partly overlapped with restricted military airspace. It was ordered to divest the interests by presidential order following a CFIUS recommendation.

The company sued.

“Ralls’ suit was initially unsuccessful at the district court level, largely because the law governing CFIUS said — and still says — that the president’s decision to block and any findings made in support of that decision are not subject to judicial review,” said Jonathan Gafni, senior counsel and head of the U.S. foreign investment practice at Linklaters.

An appeals court eventually determined that Ralls had been denied its Fifth Amendment constitutional rights because it had been deprived of property without due process.

Gafni, who served as a deputy national intelligence officer for CFIUS support in the Office of the Director of National Intelligence and has helped in the crafting of CFIUS regulations, notes two important points about the Ralls case.

“The government must have deprived a person of a property interest, and depriving the person of that property interest must have resulted from the absence of due process,” he said.

In the Ralls case, the courts found that the company had a protected property interest because it had already closed on the wind farm transaction before CFIUS began its review. It also found that the government denied Ralls due process because it did not give the parties a chance to review and possibly rebut the CFIUS recommendations.

“By 2015, the government and Ralls settled the case, and CFIUS added a new procedure under which, before recommending that the president block a transaction, it sends a letter to the parties explaining the reasons — other than those based on classified information — for its anticipated recommendation,” Gafni said, noting that these became known as Ralls letters.

The parties are also given an opportunity to respond.

For Nippon Steel to succeed in its legal challenge, it will have to prove that it was unconstitutionally deprived of an existing property interest and that it was not properly informed.

“This will be difficult,” Gafni said, noting the Nippon Steel and U.S. Steel merger was not yet closed, and that closing is contingent upon CFIUS approval.

“The fact that the deal was conditioned on CFIUS clearance may be used to counter Nippon Steel’s argument that it had a property interest eligible for protection under the Fifth Amendment,” Gafni said.

Nippon Steel would also have to prove that the CFIUS process was corrupted by President Biden’s public objection to the transaction before CFIUS had completed — or perhaps before it had even started — its review.

“I think it unlikely that CFIUS would have skipped its usual procedures,” Gafni noted.

Nippon Steel has sought to argue that the decision to block the deal was based more on politics than on national security, and, as a result, violated the law governing CFIUS. This could be difficult to prove.

“The national security factors that CFIUS — and the president — can consider when reviewing a transaction are quite broad, and include a catchall provision allowing them to consider any other factors they deem appropriate,” Gafni said.

In 2022, Biden instructed CFIUS to consider supply-chain issues as a national security factor, and this is the very issue that formed the basis of Biden’s order, he added.

“The law governing CFIUS prohibits court reviews of the substantive elements of the president’s actions, and in any event, courts normally defer to the executive branch on matters involving national security,” Gafni said.

“For these reasons, I think Nippon Steel has a steep hill to climb if it is to win its case,” he added.

The Japanese steelmaker declined when approached to elaborate on its complaint.

Nippon Steel and U.S. Steel have filed another lawsuit, and it might have a better chance in the courts.

It alleges that Cleveland-Cliffs, Cleveland-Cliffs CEO Lourenco Goncalves and David McCall, president of the United Steelworkers, engaged in “illegal and coordinated actions” aimed at preventing the deal. The suit relies on the Sherman Antitrust Act and the Racketeer Influenced and Corrupt Organizations Act.

“The lawsuit against Cleveland-Cliffs and the union makes sense and Nippon Steel has a good chance of winning it,” Inoue said. “The key will be whether they can obtain favorable evidence in discovery. I think Nippon Steel believes that they will be able to obtain this kind of evidence.”

During a press conference Monday, Goncalves said that he looks forward to the case as it is without merit and will give him the opportunity to depose Nippon Steel CEO Eiji Hashimoto on the stand, though Goncalves said he might not get the chance as his lawyer will probably just seek to get the case dismissed.

“So baseless, so crazy, so tinfoil hat,” Goncalves said of the case.