In May 2023, a group of Chinese citizens living in Florida and a real estate brokerage firm—whose clients are primarily Chinese and Chinese American—filed a lawsuit (Shen v. Simpson, No. 4:23-cv-208 (N.D. Fla. 2023)) against the state of Florida alleging that the state’s new foreign ownership law, Senate Bill 264 (“SB 264”), violates the United States Constitution. The plaintiffs asked the court to issue an order to prevent the implementation and enforcement of SB 264 before it went into effect on July 1, 2023. Judge Allen Winsor, a federal judge serving the United States District Court for the Northern District of Florida, issued an order denying the plaintiffs’ motion on August 17, 2023. As a result, the state of Florida may continue enforcing their newly enacted foreign ownership law.
On May 8, 2023, Governor Ron DeSantis signed into law SB 264, which seeks to restrict certain foreign purchases and investments in specific types of real property located within the state. Specifically, the law restricts a “foreign principal” from directly or indirectly owning, holding, or acquiring “by purchase, grant, devise, or descent agricultural land or any interest…in such land, and land within 10 miles of any military installation or “critical infrastructure facility” (“exclusion zones”) located within the state.
A “foreign principal” includes governments, business entities, and individuals who are “domiciled” in a “foreign country of concern.” “Foreign countries of concern” include China, Russia, Iran, North Korea, Cuba, Venezuela’s Nicolás Maduro regime, and Syria. Florida’s new foreign ownership law also restricts certain Chinese investments in the state’s real estate. Specifically, SB 264 restricts the Chinese government and its members, Chinese business entities, and individuals “domiciled in” China who are non-U.S. citizens or lawfully permitted to reside in the U.S. from acquiring any interest in real property within the state. However, individual Chinese investors may purchase one residential property that is up to 2 acres if (1) the property is not within 5 miles of a military installation, (2) the individual has been granted asylum in the U.S. or holds a valid U.S. visa that is not limited to tourist-based travel, and (3) the purchase is in the name of the individual holding the visa or asylum documentation.
Chinese investors that hold or acquire an interest in Florida real property on or after July 1, 2023, are required to report their interests to the Florida Department of Economic Opportunity or risk a fine of $1,000 each day the disclosure is late. Chinese purchasers in violation of the restriction under SB 264 are subject to forfeiture, meaning the state acquires title and take legal possession of the property. Also, Chinese purchases of land in violation of SB 264 constitutes a third-degree felony and persons that knowingly sell land to a Chinese purchaser in violation of the restriction law are subject to first-degree misdemeanor charges.
Shortly after SB 264 was signed into law, four Chinese citizens—which hold nonimmigrant visas (i.e., not lawfully permitted to resident in the U.S. permanently)—who reside in Florida and Multi-Choice Realty, a Florida-based real estate firm, came together to bring a lawsuit (Shen v. Simpson) against the state of Florida to challenge the constitutionality of the state’s restriction on certain foreign investments in land created under SB 264. Specifically, the plaintiffs claim the state’s law is unconstitutional because it violates the plaintiff’s rights to equal protection and due process, rights under the Fair Housing Act (“FHA”), and is preempted by federal law. After filing the lawsuit, the plaintiffs asked the court to issue a preliminary injunction to prevent the state of Florida from enforcing the restrictions under SB 264. Ultimately, Judge Winsor denied the plaintiffs’ request for injunctive relief.
Denying Plaintiffs’ Motion for Preliminary Injunction
To obtain a preliminary injunction, one factor plaintiffs must show is a likelihood of success on the merits of the case. This is often considered the most important factor in obtaining the injunction. In this case, the plaintiffs needed to show that they were likely to succeed on the merits of their claims that SB 264’s restrictions are unconstitutionally violating their right to equal protection under the law. Once a constitutional claim is raised, the judge reviews the statute under a process called judicial review.
Depending on the type of claim, there are different levels of judicial review. Cases involving laws that discriminate against someone on the basis of their race, ethnicity, color, alienage, and national origin—also known as a “suspect classification”—courts generally apply strict scrutiny, which is the highest level of scrutiny, to review the law to determine its constitutionality. For a state law to survive strict scrutiny, the state must prove that the law advances a compelling state interest that is narrowly tailored to achieve that interest. In cases involving non-suspect classifications, courts generally apply rational basis review.
In his written order, Judge Winsor asserts that Florida’s SB 264 classifies by alienage because it restricts noncitizens who lack federal lawful-permanent-resident status and are domiciled in a “country of concern” (i.e., China, Iran, North Korea, Russia, Cuba, Syria, and the Venezuelan regime of Nicolás Maduro), while exempting noncitizens domiciled in other countries. However, according to the court, the restriction is based on where a foreign purchaser is domiciled, not based on their race or ancestry. The judge points out that the law applies to any person domiciled in China, whether they are of Chinese descent or not.
Furthermore, Judge Winsor stated that previous U.S. Supreme Court rulings have applied rational basis review to state laws similar to Florida’s SB 264. In Terrace v. Thompson, 263 U.S. 197 (1923), the Supreme Court upheld a Washington state law that prohibited most noncitizens from acquiring an interest in land located within the state. The Court concluded found that the “quality and allegiance of those who own, occupy and use a state’s lands are matters of highest importance and affect the safety and power of the state itself.” See Terrace, 263 U.S. at 221. Accordingly, states have the “power to deny to aliens the right to own land within [their] borders” so long as the law is “rational.”
According to the judge, the Supreme Court has only applied strict scrutiny to laws affecting lawful permanent aliens, and Florida’s SB 264 exempts nonresidents who are lawfully permitted to reside in the U.S. Because of these reasons, the judge concluded that strict scrutiny does not apply, and rational basis is appropriate to review Florida’s foreign ownership law.
Judge Winsor makes clear that the plaintiffs’ equal protection claim cannot overcome the rational basis review. State laws survive rational basis review when the law is rationally related to a legitimate state purpose. The Florida legislature enacted SB 264 to prevent certain foreign investments in real property located in the state because of the state’s concerns of public safety and to “insulate [the state’s] food supply and…make sure that foreign influences…will not pose a threat to it.” Accordingly, Judge Winsor concluded that the state law satisfies rational basis, which means the plaintiffs’ equal protection claim is unlikely to succeed in this case.
The plaintiffs in Shen also claim that SB 264 violates their due process rights because the terms “critical infrastructure facility,” “military installation,” and “domicile” are unconstitutionally vague. The individual plaintiffs, because of their nonimmigrant visa status, contend that it is unclear whether they are considered to be “domiciled in China” within the meaning of SB 264, and thus subject to the restriction prescribed under the law. The Due Process Clause of the Fourteenth Amendment guarantees due process of law before the government may deprive someone of life, liberty, or property, which usually consists of notice and an opportunity to contest the government’s action. A law is unconstitutional vague, indefinite, and ambiguous if it “fails to provide a person of ordinary intelligence fair notice of what is prohibited….” United States v. Williams, 553 U.S. 285, 304 (2008).
In general, Judge Winsor determined that the three terms under SB 264 are not unconstitutionally vague. According to the court, the state law defines critical infrastructure facility and military installation “in detail—giving fair notice of the specific facility types that qualify.” Further, the term “domicile” has a “settled meaning in Florida law,” which means the law is not “so unclear” as to violate due process, according to Judge Winsor. Therefore, the plaintiffs’ due process claim falls “well short of showing a substantial likelihood of success….”
The plaintiffs also argue Florida’s new foreign ownership law is preempted by the federal FHA because the law permits sellers of real estate to discriminate against foreign purchasers, particularly Chinese purchasers, which establishes a “discriminatory housing practice” in violation of 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). In this case, the judge asserts that Florida’s law does not violate FHA because it does not discriminate on the basis of a protected characteristic. In other words, SB 264 restricts land ownership and investments based on the purchaser’s alienage, citizenship, and lawful-permanent-resident status, rather than race, color, religion, sex, familial status, or national origin. Because SB 264 does discriminate against a protected characteristic, it does not violate FHA.
Last, Judge Winsor concludes that the plaintiffs’ claim that federal law preempts SB 264 is not likely to succeed on the merits. The plaintiffs assert that Florida’s law is unconstitutional because it violates the Supremacy Clause of the U.S. Constitution by conflicting with the federal government’s system of regulating land purchases. Specifically, they claim federal law preempts SB 264 because Congress has authorized the federal government to review certain transactions involving foreign investments and acquisitions of American companies and real estate to determine whether a transaction presents a threat to U.S. national security through the Committee on Foreign Investment in the United States (“CFIUS”).
According to Judge Winsor, federal law does not preempt Florida’s foreign ownership law because CFIUS’s jurisdiction to review transactions and investments in real property is limited and does not extend to all real estate within the U.S. Further, the court claims there is a “history of state regulation of alien landownership,” and that Congress would have expressly preempted states’ foreign ownership laws if it “thought state-law suits posed an obstacle to [CFIUS’s] objectives….” See Wyeth v. Levine, 555 U.S. 555 (2009). Overall, according to Judge Winsor, SB 264 does not “interfere directly” with the federal government’s system of regulating real property investments and is thus not preempted by federal law.
In Judge Winsor’s written order, he concluded that the plaintiffs have not shown that they have a substantial likelihood of winning their case against the state. As a result, he denied the plaintiffs’ motion for preliminary injunction, which means the state is permitted to enforce the restrictions prescribed under SB 264. Although the plaintiffs’ motion was denied, the judge’s denial is not a final judgment on the merits of the case. In other words, the plaintiffs can continue their lawsuit against the state and litigate their claims that the restrictions prescribed under SB 264 are unconstitutional.
An update to this article will be published as this lawsuit moves forward.
To read the plaintiffs’ motion for preliminary injunction, click here.
To read the state’s response to this motion, click here.
To read SB 264, click here.