by NALC staff
During the 2025 legislative session, Texas became the twenty-eighth state to adopt legislation–Senate Bill 17 (“SB 17”) –prohibiting certain foreign investments in real property located within the boundaries of the state. Shortly after enacting the foreign ownership law, three Chinese citizens who reside in Texas, filed a lawsuit (Wang, et al, vs. Paxton, No. 4:25- cv-03103 (S.D. Tex 2025)), against Texas Attorney General Ken Paxton, claiming SB 17 violates the United States Constitution. On August 18, 2025, Judge Charles Eskridge, a federal judge serving the United States District Court for the Southern District of Texas, ruled that the two Chinese citizens lacked standing to pursue a class action against Texas’ newly enacted foreign ownership law.
SB 17
On June 20, 2025, Texas Governor Greg Abbott signed into law SB 17 (codified under Tex. Prop. Code § 5.251 et. seq.), which restricts governments, individuals, and entities from “designated countries” from acquiring any interest–including short-term leaseholds–in any category of Texas real property. Designated countries are those identified in recent U.S. Intelligence Community Annual Threat Assessments as posing national security risks, including China, Iran, North Korea, and Russia. The governor may add countries or entities to the list. Nevertheless, U.S. citizens and lawful permanent residents are not subject to the restriction under SB 17, nor are companies that are majority-owned or majority-controlled by these individuals.
Enforcement authority is vested in the Texas Attorney General, with penalties ranging from divestiture to civil fines of at least $250,000 or 50% of the property’s market value, and state jail felony charges for knowing violations. SB 17 is set to go into effect on September 1, 2025.
For more information on Texas’ foreign ownership law, see NALC’s A New Era in Texas Real Estate: Foreign Investment Restriction Under New State Law, available here.
The Texas Lawsuit
On July 3, 2025, three Chinese citizens–one of which as voluntarily dismissed themselves from the case–that hold nonimmigrant visas who reside in Texas, brought a class action lawsuit against the Texas Office of the Attorney General to challenge the state’s restriction on certain foreign investments in land created under SB 17. According to the plaintiffs, SB 17 violates their equal protection rights promised under the Constitution because the law restricts their ability to purchase real property because of their race. They also allege SB 17 violates the Supremacy Clause of the U.S. Constitution and the Fair Housing Act (“FHA”).
In their complaint, the plaintiffs raised three main constitutional claims.
Equal Protection Claim
First, the plaintiffs allege SB 17 violates their right to equal protection guaranteed under the Constitution. In general, the Equal Protection Clause of the Fourteenth Amendment guarantees that the government must treat a person in the same manner as others in similar situations. While a state can enact laws that discriminate, it must have a legitimate governmental interest for drawing distinctions between individuals under the law. According to the plaintiffs, SB 17 impermissibly discriminates against them on the basis of their race, ethnicity, color, alienage, and national origin–also known as a “suspect classification”–because it prohibits the plaintiffs from purchasing or leasing various forms of Texas real property on the basis of the plaintiffs’ Chinese alienage.
FHA Claim
Second, the plaintiffs’ complaint claims Texas’ new foreign ownership law violates FHA. Specifically, the plaintiffs claim SB 17 permits real estate sellers and landlords to discriminate against foreign purchasers, particularly Chinese purchasers, and would establish a “discriminatory housing practice” in violation of FHA.
Under FHA, someone that has been or believes they will be injured by a “discriminatory housing practice” can make a claim under FHA. A person engages in an unlawful discriminatory housing practice when they refuse to sell, offer, or negotiate for the sale of a dwelling or discriminate against someone “in the terms, conditions, or privileges” in the sale of a dwelling because of that person’s race, color, or national origin. 42 U.S.C. § 3604(a)-(b). It is also unlawful for a business that engages in “residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color,…or national origin.” 42 U.S.C. § 3605(a).
SB 17, according to the plaintiffs, discriminates against and “invidiously targets” purchasing and leasing of real property in Texas based on their race, color, and national origin, particularly Chinese persons, thus creating a “discriminatory housing practice.”
Supremacy Clause Claim
Third, the plaintiffs contend that SB 17 violates the Supremacy Clause of the Constitution. Essentially, the Supremacy Clause provides that federal law typically preempts or supersedes state law that conflicts with federal law, or where state law regulates activity that is exclusively reserved for federal regulation. Sometimes, Congress passes legislation with the intent that the federal government will regulate the entire “field” of an issue, which is known as field preemption. When federal regulation “occupies an entire field,” there is no room for additional state laws regulating activity in that field, and the federal law supersedes the state laws.
According to the plaintiffs, federal law preempts SB 17 because the U.S. Constitution designates the federal government to regulate foreign commerce and foreign affairs. See U.S. Const., Art. I, Sec. 8, Cl. 3; Sec. 10, Cl. 1, 3. Further, the plaintiffs assert that Congress has authorized the federal government to manage foreign affairs, foreign investments, and national security through the Committee on Foreign Investment in the United States (“CFIUS”) and the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).
Through FIRRMA, Congress authorized the federal government to review certain transactions involving foreign investments and acquisitions of American businesses and real property. The review is conducted by the Committee on Foreign Investment in the United States (“CFIUS”), which is an interagency committee that is authorized by the Defense Protection Act (50 U.S.C. § 4565) to serve the President in reviewing certain transactions involving foreign investments and acquisitions of American companies and real estate, including investments in close proximity to military installations, to determine whether a transaction presents a threat to U.S. national security.
The plaintiffs claim the federal government has exclusive power to manage foreign affairs and transactions. Because the federal government regulates and controls foreign affairs and real estate investments as it relates to national security, the federal government occupies the entire field and supersedes SB 17, according to the plaintiffs. In addition, the plaintiffs contend that SB 17 interferes with the federal government’s power to govern foreign investments in the U.S. because it seeks to “regulate in the areas of foreign affairs and foreign investment, as they bear on national security.”
Upon filing this lawsuit, the plaintiffs requested the court grant them a preliminary injunction that would block the implementation and enforcement of SB 17 before it takes effect on September 1, 2025. However, Judge Eskridge denied the motion because granting this injunction without giving the defendant an opportunity to respond was improper, and plaintiffs did not show an emergency justifying such relief.
State’s Defense and Court Ruling
Texas Attorney General Ken Paxton responded to the lawsuit requesting that the court dismiss the lawsuit entirely, claiming the plaintiffs lack standing to bring the lawsuit, that SB 17 is not preempted by federal law, and that the law does not violate the plaintiffs’ equal protection rights.
“Standing” is the legal right for a particular person to bring a claim in court. Standing effectively limits participation in lawsuits and asks whether the person(s) bringing or defending a lawsuit has cause to “stand” before the court. A plaintiff must establish that they meet the legal criteria for standing. This generally involves demonstrating an injury and a direct connection to the defendant. An NALC article discussing standing in more detail is available here.
In their motion to dismiss, the defendant claims that the restriction under SB 17 does not apply to the plaintiffs. Essentially, the law only bars people domiciled in China (and other “designated countries”) from acquiring an interest in real property located within the state. According to the attorney general, because the plaintiffs are legal visa holders and live in Texas, their permanent home is Texas, meaning they are domiciled in Texas, not China. Because SB 17 does not apply to the plaintiffs, they are unable to demonstrate an injury from the restriction, meaning they lack standing to bring the lawsuit.
Judge Eskridge agreed with the Texas Attorney General’s argument that the plaintiffs lacked standing, ruling that the plaintiffs were not among those directly covered by the state’s foreign ownership law and denied class certification. Although the state also argued the plaintiff’s federal preemption and constitutional claims would fail as a matter of law–meaning that even if all the facts of the plaintiffs’ case are true, the law does not give them a valid claim or remedy–Judge Eskridge’s order to dismiss the lawsuit did not rest on these claims. Overall, the court found that SB 17 does not restrict the plaintiffs from acquiring real property located in Texas, meaning they suffer no injury and lack standing. Accordingly, Judge Eskridge dismissed the case based on the lack of standing claim before reaching the plaintiff’s constitutional arguments.
The plaintiffs have appealed the district court’s dismissal to the U.S. Court of Appeals for the Fifth Circuit. If it takes up the appeal, the Fifth Circuit can affirm the lower court’s decision to dismiss, reverse the decision, or remand for further consideration.
Broader Litigation Landscape
Florida: Shen v. Simpson
Texas is not the first state to face constitutional challenges to foreign ownership restrictions. In Florida, a group of Chinese citizens living in Florida filed a lawsuit (Shen v. Simpson, No. 4:23-cv-208 (N.D. Fla. 2023)) challenged Senate Bill 264 (“SB 264”), a 2023 law prohibiting Chinese citizens from acquiring Florida real property. The Shen plaintiffs’ claims were very similar to the claims brought by the plaintiffs in Wang. In Shen, the U.S. Court of Appeals for the Eleventh Circuit granted a preliminary injunction in part, holding the plaintiffs were likely to succeed on federal preemption grounds because the law conflicted with FIRRMA and CFIUS’s exclusive authority to regulate foreign investments in U.S. real property. The case remains pending on the merits. A decision in Shen could set important precedent for how courts analyze conflicts between state foreign ownership laws and federal law.
Arkansas: Jones Eagle v. Arkansas Department of Agriculture
In late 2024, Jones Eagle, LLC, a digital asset mining company, filed a lawsuit (Jones Eagle LLC v. Arkansas Department of Agriculture, et al., No. 4:24-cv-00990 (E.D. Ark. 2024)) against the state of Arkansas alleging that two state foreign ownership laws (Act 636 and Act 174) violates the Equal Protection Clause, Due Process Clause, and the Supremacy Clause of the United States Constitution, similar to the plaintiffs in Wang. A federal judge granted both a temporary restraining order and later a preliminary injunction preventing enforcement of the laws against Jones Eagle. The court found the company likely to succeed on its Supremacy Clause claim, holding that FIRRMA and CFIUS’s authority preempted Arkansas’ restrictions, similar to the Eleventh Circuit’s judgment in the Shen case. A trial date is currently set for May 11, 2026, for the Jones Eagle lawsuit, where the parties will litigate the legality of Arkansas’ foreign ownership laws.
This is not the only case challenging Arkansas’ Act 174. The Arkansas Cryptomining Association has filed a lawsuit (Arkansas Cryptomining Association v. York, et al., No. 4:25-cv-00234 (E.D. Ark. 2025)) against the Arkansas Oil and Gas Commission and the Office of the Arkansas Attorney General in the same federal district court as the Jones Eagle suit. The plaintiffs in this case have also obtained a preliminary injunction from the court preventing the state from enforcing the restriction against them while the litigation continues. The state of Arkansas has appealed the district court’s preliminary injunction order to the U.S. Court of Appeals for the Eighth Circuit.
Overall, the Florida and Arkansas cases illustrate how courts are increasingly receptive to federal preemption arguments in this context.
Conclusion
Unlike the lawsuits in Florida and Arkansas, where plaintiffs secured an injunction, Judge Eskridge found the plaintiffs in Wang were not directly affected by SB 17. However, should other plaintiffs emerge–such as foreign nationals domiciled in a designated country or Texas-based entities majority-owned by individuals of a designated country–the case could possibly return with a stronger case against the state’s SB 17 restriction and have similar outcomes to Shen and Jones Eagle LLC.
If the Fifth Circuit takes up the appeal, it could create a split with the Eleventh Circuit’s Florida decision, positioning the U.S. Supreme Court to resolve whether state foreign ownership laws impermissibly conflict with federal authority over foreign affairs and investment. For now, SB 17 is set to take effect on September 1, 2025, but litigation is likely to continue.
An update to this article will be published as this lawsuit proceeds.
To read NALC articles discussing foreign investments in U.S. agriculture, click here.
To learn more about foreign ownership of U.S. land, click here.
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