Fifth Circuit Rejects CFIUS Preemption Challenge to Texas’s Lone Star Infrastructure Protection Act

On October 16, 2026, the United States Court of Appeals for the Fifth Circuit issued its decision in GH America Energy, L.L.C. v. Douglas Fohn, affirming the dismissal of a challenge to the Texas Lone Star Infrastructure Protection Act (“LSIPA”).¹ The court held that the federal Committee on Foreign Investment in the United States (“CFIUS”) regime neither conflict-preempts nor field-preempts LSIPA.

Building on recent appellate decisions involving state foreign-ownership restrictions, including the Eleventh Circuit’s 2025 decision in Shen v. Comm’r, Fla. Dep’t of Agric., which we discussed in a prior alert, the GH America ruling addresses whether the federal CFIUS regime preempts a Texas state law restricting Chinese access to energy infrastructure.² The Fifth Circuit determined that CFIUS does not preempt LSIPA, noting that ERCOT is a uniquely intrastate concern. 

This decision does not necessarily impact state law challenges to real estate ownership protections.  Notably, CFIUS specifically regulates real estate through its Part 802 authorities. In a recent Eighth Circuit oral argument in Arkansas Cryptomining Ass’n v. York, one judge noted that a CFIUS-cleared transaction might preempt Arkansas’s Act 174, a somewhat similar state law that prohibits parties from certain countries, including China, from owning interests in digital asset mining businesses.³

Background: LSIPA

In 2021, the Texas Legislature enacted LSIPA, which prohibits governmental or business entities from entering into agreements relating to critical infrastructure in Texas with certain companies if the agreement would give the company “direct or remote access to or control of” critical Texas infrastructure. Specifically, the law prohibits entering into agreements with companies that are (i) headquartered in China, Iran, North Korea, Russia, or another country designated by the Texas governor, or (ii) owned or controlled, or a majority of the stock or other ownership interest is “held or controlled by,” citizens or entities of those countries, including their governments or governmental instrumentalities. Agreements that grant access for product warranty and support purposes are excluded.

The law specifically includes wholly owned subsidiaries, majority-owned subsidiaries, parent companies, and affiliates in its definition of “company.” For companies entering into critical infrastructure agreements involving electric grid equipment, “affiliate” has the meaning assigned to “LSIPA affiliate” by the Electric Reliability Council of Texas’s (“ERCOT”) protocols, which generally use a 20% ownership threshold.⁴ Though “control” is not expressly defined in the Texas Business and Commerce Code, the definition used in Texas and federal securities law contexts provides some guidance: “the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a [company], whether through the ownership of voting securities, by contract, or otherwise.”⁵

Relevant to the GH America appeal, LSIPA prohibits access to facilities that could impact Texas’s intrastate electric grid, managed by ERCOT. In 2023, the Texas Legislature reinforced the statute by directing ERCOT not to register or interconnect a business entity unless it attests that it complies with LSIPA.⁶ The Texas Legislature said they did so on account of a need to “defend the electric grid further and to bolster the security of Texas power against outside attacks.”⁷

The Facts

The plaintiff, GH America Energy, L.L.C. (“GHAE”), is a Texas limited liability company that operates exclusively in Texas. GHAE is a subsidiary of Xinjiang Guanghui Industry Investment (Group) Company, Ltd. (“Xinjiang Guanghui”), a Chinese company headquartered in China and majority-owned by Sun Guangxin—a billionaire Chinese citizen who is not a U.S. citizen or resident. GHAE was formed by Xinjiang Guanghui and GH America Investments Group, Inc. (“GH America”) as a new subsidiary for renewable energy projects.

Xinjiang Guanghui and GH America submitted a notice to CFIUS in 2015 regarding a proposed transaction by which they would acquire assets of several U.S. companies through a subsidiary. CFIUS determined that the proposed transaction posed national security risks requiring mitigation, resulting in the parties entering into a letter of assurance in February 2016 with the Department of Defense (“DoD”) as the monitoring agency (the “LOA”). After GHAE’s formation in 2018, GHAE began investing in wind, solar, and electric grid-connection consulting studies to sell energy in Texas, and, after discussions among GHAE, its parents, and DoD, the parties amended the LOA in December 2020 to include GHAE’s proposed renewable energy projects in Val Verde County, Texas. The LOA, as amended, requires that the parties (including GHAE) provide advance notice to DoD at least fifteen days before “executing an agreement with respect to the operation of … any … renewable energy project located within the United States,” after which DoD “may provide a written objection, non-objection, or conditional non-objection.” After GHAE notified the Blue Hills Wind Farm (“Blue Hills”) to DoD and received non-objection, GHAE began capital investment in the project in June 2021 and submitted relevant interconnection requests for the project to ERCOT.

When LSIPA came into effect in September 2021, GHAE had interconnection requests for three renewable energy projects pending before ERCOT, including with respect to Blue Hills, the Blue Star Solar Project (“Blue Star”), and the Blue Valley Solar Project (“Blue Valley”). In January 2022, in response to a December 2021 request for information sent by Douglas Fohn—the defendant in GH America and ERCOT’s Assistant General Counsel—to all then-pending interconnection requests, GHAE notified ERCOT that it was majority-owned by Xinjiang Guanghui. Fohn informed GHAE in February 2022 of ERCOT’s “potential cancellation” of GHAE’s interconnection applications because GHAE was noncompliant with LSIPA. GHAE alleged that “in anticipation of the upcoming ERCOT cancellation” it was forced to sell Blue Hills and Blue Valley at a substantial loss. In October 2022, Fohn informed GHAE that it was cancelling the still pending Blue Star interconnection request. In an attempt to establish that the Blue Star land was interconnectable and saleable to LSIPA-compliant customers, GHAE continued to try to pursue ERCOT approval for a screening study for Blue Star. ERCOT informed GHAE in May 2024 that it would not permit GHAE to pursue a screening study for Blue Star because GHAE did not comply with LSIPA.

GHAE then sued ERCOT in October 2024, Fohn in his official capacity representing ERCOT, and other individual ERCOT-side defendants in the Western District of Texas, raising constitutional federal preemption claims. The district court granted ERCOT’s motion to dismiss all claims, ruling, in relevant part, that LSIPA is not preempted by the federal CFIUS regime.

On appeal, GHAE challenged the district court’s ruling on the preemption issue, arguing that LSIPA is “properly characterized as a statute targeting foreign investment per se,” which is the purview of the federal CFIUS regime, despite the fact that Texas views it as an energy/utility regulation within the heart of the state’s police power.

The Fifth Circuit’s Decision

The Fifth Circuit began with the relevant provisions of LSIPA and related statutes, before providing an overview of the basic framework governing federal preemption. Congress’s authority to preempt state law derives from the Supremacy Clause, but the Fifth Circuit noted that courts presume that Congress did not intend to displace, among other things, the states’ historic police powers absent a “clear and manifest” congressional purpose to do so. The court described the presumption against preemption as heightened in fields traditionally regulated by the states—including utility regulation.

GHAE argued only that LSIPA was impliedly preempted, advancing theories of both conflict and field preemption. Conflict preemption arises where state law stands as an obstacle to accomplishing Congress’s purposes and objectives under a particular federal regulatory regime. Field preemption, by contrast, applies where Congress has so thoroughly occupied a particular regulatory field such that states may not impose their own parallel regulatory regime. The Fifth Circuit considered each theory in turn.

No conflict preemption.

GHAE argued that LSIPA conflicts with the foreign investment review regime administered by CFIUS, which originates in § 721 of the Defense Production Act of 1950 (the “DPA”) and was later expanded, including most recently by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). According to GHAE, LSIPA imposes a categorical restriction based on nationality that conflicts with CFIUS’s individualized review, tailored mitigation, and ongoing monitoring.

The Fifth Circuit rejected GHAE’s conflict preemption argument based primarily on its view that LSIPA and CFIUS operate in sufficiently distinct spheres:

• Different Types of Transactions. The court determined that LSIPA did not present a sufficiently clear obstacle to CFIUS because, in its view, the two regimes target different transactions. Specifically, the Fifth Circuit characterized LSIPA as regulating agreements relating to access to intrastate infrastructure, “rather than corporate control transactions as in CFIUS.”⁸
• Complementary Rather Than Conflicting. Even assuming LSIPA presented some obstacle to the federal regime, the court reasoned that the state law did not conflict with CFIUS’s purpose of mitigating and eliminating national security threats. In the Fifth Circuit’s view, LSIPA operates in a separate lane but serves a similar objective by regulating interconnections with Texas’s energy grid to ensure continuous, effective, and safe operation. On that basis, the Fifth Circuit concluded that each regime leaves room for the other to operate.

The Fifth Circuit also distinguished the instant case from Crosby v. Nat’l Foreign Trade Council, and Arizona v. United States,⁹ reasoning that those cases involved a “specific, textual conflict between the state and federal regimes.” By contrast, the Fifth Circuit characterized GHAE’s argument as identifying only a “high-level difference in attitude between LSIPA and CFIUS,” which it found insufficient because conflict preemption “requires more specificity.”

No field preemption.

Similarly, the court was unpersuaded by GHAE’s field preemption theory. GHAE argued that the federal CFIUS regime reflects Congress’s intention that “national-security risks arising from foreign investment must be addressed through a centralized federal process administered by the Executive Branch” and that LSIPA similarly targets national security risks arising from foreign investment but applies a different “rule of decision” from the federal CFIUS regime. In the Fifth Circuit’s view, the scope of the CFIUS statutes did not demonstrate congressional intent to occupy the entire field of foreign investment screening. The Fifth Circuit focused in particular on what it characterized as limits on CFIUS’s reach, reasoning that those limits “do[] not reflect a Congressional desire to exclusively control all foreign-investment screening.”

The court further declined to engage in what it considered “policy-balancing” between the benefits of foreign direct investment and the security of the Texas grid, reasoning that such questions are not for the judiciary. In the absence of a “clear and manifest” congressional action to the contrary, the Fifth Circuit concluded that “Texas has a free lane to enact and enforce LSIPA.”

Key Takeaways

• ERCOT Interconnection Considerations. Companies pursuing projects involving the ERCOT grid should consider ownership, control, and headquarters issues throughout the ownership chain and evaluate ERCOT’s requirements for LSIPA attestations under Tex. Bus. & Comm. Code Chapter 117 and Tex. Util. Code § 39.360(b) early in project development.
• Transaction Documentation. Parties to purchase agreements, joint development agreements, offtake contracts, and financing arrangements involving Texas critical infrastructure should consider whether transaction documents appropriately address potential LSIPA-related risks, including through ownership representations, compliance covenants, vendor certificates, and conditions or termination rights tied to ERCOT review of LSIPA attestations.
• Potentially Broad Impact. For agreements involving critical electric grid equipment, LSIPA defers to ERCOT’s definition of an “LSIPA affiliate,” which reaches ownership interests of 20% or more. Accordingly, even minority ownership interests warrant consideration when assessing LSIPA’s potential application. Separately, LSIPA prohibits contractual relationships granting grid access or control with companies owned, controlled, or for which “the majority” of the company’s stock or other ownership interest is held or controlled by citizens, companies, or other entities, including governments, of China, Iran, North Korea, Russia, or a designated country.
• The Preemption Landscape Will Continue to Develop. Following the ruling in GH America, LSIPA continues to stand as good law in Texas, though further review of the Fifth Circuit’s decision remains possible if the plaintiff appeals to the U.S. Supreme Court. A Supreme Court ruling on GH America would provide the first meaningful nationwide guidance on whether, and to what extent, the federal CFIUS regime limits state laws restricting foreign investment, though state laws restricting real estate acquisitions may be treated differently.
• State-Level Restrictions Remain an Area to Watch. The GH America decision is relevant to ongoing and future challenges to state restrictions on other types of foreign investment, particularly foreign ownership of land, including Texas’s Senate Bill 17 from the 2025 state legislative session. Some states have adopted restrictions similar to LSIPA that focus on critical infrastructure in the state. GH America’s analysis undoubtedly will be cited as courts continue to address challenges to Senate Bill 17 and other state laws restricting foreign investment.

Please contact your V&E team to discuss these developments and their potential effects on your projects and transactions.

¹GH America Energy, L.L.C. v. Fohn, No. 25-50879, 2026 WL 3091151, at *1 (5th Cir. Oct. 16, 2026).

²Shen v. Comm’r, Fla. Dep’t of Agric.& Consumer Servs., 158 F.4th 1227 (11th Cir. 2025). 

³Oral Argument, Ark. Cryptomining Ass’n v. York, No. 25-2050 (8th Cir. October 20, 2026).

⁴Tex. Bus. & Comm. Code § 117.001(5); Tex. Gov’t Code § 2275.0101(6).

⁵Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc., 559 S.W.3d 537, 555 (Tex. App.—Austin 2011).

⁶GH America Energy, L.L.C., 2026 WL 3091151, at *2.

⁷Id.

⁸“Covered control transactions” are only one part of the federal CFIUS regime, which also applies to non-controlling investments that afford foreign persons certain governance rights in U.S. businesses engaged in sensitive critical technologies, critical infrastructure, or sensitive personal data activities, as well as real estate transactions that afford foreign persons certain property rights in property that is within defined proximities of enumerated U.S. federal government and military sites. Notably, “critical infrastructure” as defined under the CFIUS regulations includes electric energy generation, transmission, distribution, and storage systems comprising the “bulk-power system,” which would include Texas’s ERCOT-regulated intrastate electric grid. However, CFIUS regulates investments in the United States, not access to the electric grid.  

⁹Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363 (2000); Arizona v. United States, 567 U.S. 387 (2012).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.