Florida District Court Denies Preliminary Injunction Against Law Restricting Ownership by Foreign Principals of Interests in Real Property

On August 17, 2023, District Court Judge Allen Winsor (the “Court”) denied a request for a preliminary injunction enjoining the implementation and enforcement of SB 264—a recently enacted Florida law that restricts the ability of a wide range of governmental bodies, persons or entities referred to as “foreign principals” from or domiciled in any “foreign country of concern” to directly or indirectly own, have a controlling interest in, or acquire any interest in real property in the State of Florida, subject to certain limited exceptions (“SB 264”) (see our prior alert for additional information regarding SB 264). On August 21, 2023, the Plaintiffs (as defined below) filed a notice of appeal with respect to such denial.

Background of the Challenge

On May 22, 2023, four Chinese citizens who reside in Florida and a Florida-based real estate firm (collectively, the “Plaintiffs”) filed a lawsuit in federal court alleging that SB 264 violates (1) equal protection under the Fourteenth Amendment, (2) procedural due process under the Fourteenth Amendment, (3) the Fair Housing Act, and (4) the Supremacy Clause of the U.S. Constitution. The Plaintiffs subsequently filed an amended complaint on June 5, 2023, requesting an emergency preliminary injunction to enjoin the implementation and enforcement of SB 264. A hearing on the preliminary injunction occurred on July 18, 2023. It is worth noting that this complaint did not address the scope of “direct and indirect” interest in real property or the interpretation of the “de minimus” exception. 

The Court’s Findings

While the Court found that at least one Plaintiff likely has standing to pursue each of the Plaintiff’s claims (which the defendants alleged the Plaintiffs lack in bringing the lawsuit), the Court determined that the Plaintiffs' failed to show a substantial likelihood of success on the merits of each of their individual claims challenging SB 264. Accordingly, the Court denied the Plaintiff's request for preliminary injunction.

In particular, the Court held that the Plaintiffs failed to show a substantial likelihood of success on the merits of their claim that SB 264 violates the Equal Protection Clause of the Fourteenth Amendment. The Court held that rational basis review, whereby state legislation is presumed valid and upheld if it is rationally related to a legitimate state interest, was the proper standard of scrutiny to apply to review of SB 264, and that Plaintiffs had failed to show that strict scrutiny, a more rigorous standard of review, applied to SB 264. Strict scrutiny typically applies when legislation classifies persons by race, alienage, or national origin. The Court held that SB 264 does not classify by race or national origin, as its restrictions are triggered by the domicile of the affected party. While SB 264 does classify persons by alienage, the Court cited binding United States Supreme Court precedent that applied rational basis review to state laws restricting aliens’ right to acquire real property, as the Fourteenth Amendment does not “divest states of the ‘power to deny to aliens the right to own land within [their] borders.’” The Court also held that the Plaintiffs failed to show that intentional racial, national origin, and alienage discrimination motivated SB 264, specifically citing a lack of evidence for the Plaintiffs’ claim that discriminatory intent and impact targeted those of Chinese descent. Applying rational basis review, the Court held that the Plaintiffs failed to overcome the significant burden of “negating every conceivable basis that might justify the law.”

The Court also held that the Plaintiffs failed to show a substantial likelihood of success on the merits of their claim that SB 264 is preempted by or violates the Fair Housing Act, which “makes it unlawful to ‘refuse to sell . . . or to refuse to negotiate for the sale . . . or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin’” and declares that any state law is invalid if requires or permits discriminatory housing practices. Notably, the Court held that SB 264 only classifies persons based on alienage, citizenship, and lawful permanent resident status, which are not covered by the Fair Housing Act.

In respect of the Plaintiffs’ third claim that SB 264 should be declared void for being impermissibly vague under the Fourteenth Amendment’s Due Process Clause, the Court again held that the Plaintiffs failed to show a substantial likelihood of success on the merits of their claim. In particular, the Court held that the challenged terms of “critical infrastructure facility,” “military installation,” and “domicile” were either clearly defined or had settled meaning, and as such, failed to meet Supreme Court precedent defining a successful “vagueness” inquiry.

The Court also held that the Plaintiffs failed to show a substantial likelihood of success on the merits of their claim that SB 264 is preempted by federal law restricting certain transactions involving foreign nationals. Plaintiffs claimed that two specific types of preemption applied to invalidate SB 264: (i) field preemption, which “occurs when a congressional legislative scheme is ‘so pervasive as to make the reasonable inference that Congress left no room for the states to supplement it’” and (ii) conflict preemption “when the state law stands as an obstacle to the objective of the federal law.” The Court first addressed the conflict preemption claim, analyzing congressional intent and applicable federal statutes that the Plaintiffs cited, including the establishment of the Committee for Foreign Investment in the United States (“CFIUS”). The Court held that the Plaintiffs offered little support for their claims that the federal statutory regime and SB 264 shared similar intents and purposes, noted that real estate transactions “represent only one small part of the broader CFIUS regime,” and pointed to the history of state regulation of alien landownership, which “counsels against a finding that Congress intended to usurp all state authority in that area without explicitly saying so.” Thereafter, the Court addressed the Plaintiffs’ field preemption claim, noting that the Plaintiffs barely developed the argument in their filing, and ultimately holding that the Plaintiffs failed to show “that the federal law at issue is so pervasive as to demonstrate that Congress left no room for state regulation.”

Impact of Ruling

As the Court denied Plaintiffs’ motion for a preliminary injunction, SB 264 continues to remain in effect. While there remains a possibility that the Court ultimately rules in favor of the Plaintiffs and overturns SB 264 on constitutional or other grounds, fund managers should continue monitoring developments regarding SB 264, assess its application to their funds and portfolio investments, and consider developing an action plan for complying with SB 264.

Now that the injunction has been denied, we anticipate that the various Florida state departments tasked with providing the forms for registration and forms of affidavits for real estate transactions will proceed with the promulgation of such forms in due course.