538 F.Supp.3d 174
D.D.C.2021Background
- Luokung Technology Corp., a Nasdaq‑listed Chinese commercial tech company, was listed by the Department of Defense as a "Communist Chinese military company" (CCMC) under 10 U.S.C. § 1237 (via DoD list published Jan. 14, 2021, initially with a misspelling).
- The CCMC designation triggers prohibitions (per Executive Orders implementing Section 1237) barring U.S. persons from purchasing or holding the company’s publicly traded securities; those restrictions were scheduled to begin May 8, 2021, with full divestment deadlines thereafter.
- DoD’s three‑page Decision Memo relied on five public facts: Luokung’s work with LandSpace on commercial space applications; involvement in AI/autonomous tech; cooperation agreements with the China National Geospatial Information Center; a partnership with state‑owned Yangtze River Yuntong; and a 2019 cooperation between a Luokung subsidiary and Huawei.
- Plaintiffs (Luokung and two shareholders) sued under the Administrative Procedure Act (APA) and sought a preliminary injunction to block enforcement of the CCMC designation; the court considered Xiaomi v. DoD (a recent, similar preliminary injunction) as persuasive precedent.
- The court found the Decision Memo lacked substantial evidence and adequate reasoning to show Luokung was "affiliated with" the PLA, PRC ministries, or PRC defense industrial base under Section 1237, and concluded the designation exceeded DoD’s statutory authority.
- The court granted the preliminary injunction, finding Plaintiffs likely to succeed on APA claims and to suffer irreparable reputational and unrecoverable economic harm absent relief; the balance of equities and public interest favored injunction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper meaning of "affiliated with" in §1237 | "Affiliated with" means being effectively controlled by another or associated under common ownership or control | "Affiliated with" should be read broadly (common purpose/shared characteristics/close association) | Court adopts narrower meaning: effectively controlled or associated under common ownership/control (as in Xiaomi) |
| Whether DoD’s designation was arbitrary and capricious (APA) | DoD relied on insubstantial, public sources and conclusory statements; Decision Memo lacks substantial evidence and reasoned explanation | Designation is justified by cooperation agreements and technological overlap with military‑use technologies | Court: designation arbitrary and capricious for lack of substantial evidence and unsupported conclusions |
| Whether designation exceeded statutory authority (ultra vires) | Luokung is not owned, controlled, or affiliated (as properly defined) with proscribed PRC entities; designation thus exceeds §1237 authority | §1237 and implementing EO allow broad designations to address Military‑Civil Fusion threats | Court: designation exceeded DoD’s statutory authority under §1237 given proper definition of "affiliated with" |
| Irreparable harm and preliminary injunction factors | Designation will cause unrecoverable economic harm (contract cancellations, loss of U.S. capital access, delisting), reputational injury, and harm to shareholders — justifying immediate relief | Government argues harms are speculative and national security/public interest weigh against injunction | Court: Plaintiffs showed imminent, significant unrecoverable economic and reputational harm; balance of equities and public interest favor injunction |
Key Cases Cited
- John Doe Co. v. Consumer Fin. Prot. Bureau, 849 F.3d 1129 (D.C. Cir. 2017) (preliminary injunction is extraordinary remedy)
- Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) (four‑factor preliminary injunction standard)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency must supply reasoned explanation and rational connection between facts and decision)
- Dickinson v. Zurko, 527 U.S. 150 (1999) (reviewing courts require substantial evidence for record-based agency factual conclusions)
- Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951) (review standard: whether a reasonable mind might accept the evidentiary record)
- Judulang v. Holder, 565 U.S. 42 (2011) (courts retain role in ensuring reasoned agency decisionmaking)
- Islamic Am. Relief Agency v. Gonzales, 477 F.3d 728 (D.C. Cir. 2007) (heightened deference in national security contexts)
- League of Women Voters v. Newby, 838 F.3d 1 (D.C. Cir. 2016) (public interest supports agency compliance with law)