Key Points

  • The Fifth Circuit held that the federal CFIUS foreign-investment review regime does not impliedly preempt the Texas Lone Star Infrastructure Protection Act of 2021.
  • The court found no conflict preemption because CFIUS covers a narrow class of corporate-control and real estate transactions, while the Texas law blocks agreements such as grid interconnection contracts.
  • The court found no field preemption because Congress expressed no intent to occupy the field of foreign-investment screening and CFIUS is not a pervasive regulatory scheme.
  • The court distinguished Crosby v. National Foreign Trade Council as a case involving both textual and purposive conflict between state and federal law.
  • The panel affirmed the Western District of Texas's dismissal of GH America Energy's suit; Judge Haynes concurred in the judgment.

A federal appeals court on Oct. 16 upheld a Texas law that bars companies controlled by Chinese owners from contracts giving them access to the state's power grid, rejecting a Chinese-owned energy developer's argument that federal national-security review of foreign investment displaces the state ban.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a suit by GH America Energy LLC, a Texas subsidiary of a Chinese company. The state's grid operator had used the law to block the company from connecting a proposed solar project in Val Verde County. Judge Jerry E. Smith wrote the opinion, Judge Haynes concurred in the judgment, and Judge Engelhardt was the third member of the panel.

The ruling leaves Texas free to enforce the Lone Star Infrastructure Protection Act of 2021 against the company. The panel held that the Committee on Foreign Investment in the United States, or CFIUS, the federal interagency body that screens certain foreign deals for national security risks, reaches only a narrow class of transactions and leaves room for state laws protecting utilities.

"We hold that the CFIUS regime does not impliedly preempt LSIPA," Smith wrote, using the Texas law's acronym. Implied preemption, under which federal law displaces state law without saying so expressly, arises when a state law obstructs Congress's objectives, called conflict preemption, or when Congress has occupied an entire area of regulation, called field preemption. The panel held that the federal regime triggered neither form.

The Texas law prohibits governmental entities and critical-infrastructure businesses from entering agreements with companies that are majority owned or controlled by Chinese citizens or the Chinese government, or headquartered in China, if the agreement would give the company "direct or remote access to or control of critical infrastructure in this state." The law also reaches Russia, Iran and North Korea. Critical infrastructure includes the grid managed by the Electric Reliability Council of Texas, or ERCOT.

According to the opinion, GH America Energy's parent, Xinjiang Guanghui Industry Investment (Group) Company, Ltd., is headquartered in China and majority owned by Sun Guangxin, a billionaire Chinese citizen. The company's corporate family operated under a mitigation agreement with CFIUS, and the Defense Department objected to some of the developer's renewable projects because they were near Laughlin Air Force Base.

In October 2022, Douglas Fohn, ERCOT's assistant general counsel, told the company it was out of compliance with the Texas law and canceled the interconnection application for its Blue Star Solar Project. An interconnection agreement lets a power generator connect to the state's transmission system. The company said the denials forced it to sell two other projects "at a substantial loss."

The company sued in June 2024 in the U.S. District Court for the Western District of Texas, and Texas Attorney General Ken Paxton intervened to defend the law. The district court dismissed every claim, and the company appealed only on preemption.

On appeal, the company argued that the case concerned "whether Texas may impose a categorical foreign-ownership ban that functions as a parallel foreign-investment gatekeeping regime in a domain Congress assigned to the federal government." Fohn responded that the "CFIUS regime is narrow and largely voluntary." He also argued that the Blue Star project involved no transaction CFIUS could review, because building a new business is not an acquisition of an existing one.

Smith wrote that Congress "conferred authority to CFIUS over a specific, narrow class of transactions—not every transaction that might involve a foreign party." The federal statute covers mergers, acquisitions, certain minority investments and real estate deals near sensitive federal sites. The Texas law, by contrast, blocks agreements such as grid interconnection contracts. Smith added that utility regulation lies at the heart of the states' historic police powers and that in close cases "when there is doubt about preemption, the 'tie goes to the state.'"

Smith also wrote that the federal statute aims to mitigate and eliminate foreign security threats rather than to balance them. Even if the Texas law were treated as a foreign-policy measure, he wrote, "it strengthens and does not undermine the United States' negotiating position."

The court distinguished Crosby v. National Foreign Trade Council, the 2000 Supreme Court decision holding that a federal sanctions law on Burma preempted a Massachusetts Burma statute. The Massachusetts law penalized conduct that Congress had exempted from sanctions. "Crosby is an example of a case with both textual and purposive conflict between state and federal regimes. This case poses neither," Smith wrote.

On field preemption, the company warned that "[a]llowing LSIPA to stand would fracture the national screening regime into [50] state-by-state enclaves." The panel held that the federal statutes show no intent to create a pervasive regime. "As a matter of statutory interpretation, we do not infer positive content from silence; neither do we infer an opposite intent. We just infer no intent," Smith wrote.

Smith relied on the Fifth Circuit's decision in AbbVie Inc. v. Murrill, which upheld a Louisiana drug-distribution law against a field-preemption challenge. He also cited a 2025 Eleventh Circuit decision on Florida's land-ownership restrictions on certain aliens, including those from China, which he described as rejecting "a field-preemption argument nearly identical to the one GHAE now advances."

If states may set environmental and health standards without triggering field preemption, Smith wrote, "it follows that they can protect their energy grids from data theft and computer viruses." He acknowledged that foreign investment has benefits but wrote that "discretionary policy-balancing is emphatically not the province and role of the judiciary to decide."

"Where Congress has been silent, and where we do not see any clear conflict or field preemption, Texas has a free lane to enact and enforce LSIPA," Smith wrote.

The panel affirmed the judgment and said it did not need to reach Fohn's additional arguments. The district court's dismissal of the company's equal protection claim and its ruling on the dormant foreign affairs doctrine, which the company did not appeal, also stand.