Recently, Jones Eagle, LLC, a data center business operating to mine digital assets, such as cryptocurrency, 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) violate the United States Constitution. According to the plaintiff, Acts 636 and 174 violate its equal protection rights promised under the Constitution because the law restricts its ability to hold real property within the state of Arkansas for its business operations because of the business owner’s national origin. Jones Eagle also alleges the foreign ownership restrictions violate the Due Process Clause and Supremacy Clause of the Constitution. As a result, the plaintiff has asked the court for temporary restraining order (“TRO”) and preliminary injunction against the enforcement of Arkansas’s foreign ownership law against it.

A U.S. District Court for the Eastern District of Arkansas granted the plaintiff’s motion for a TRO, halting the state of Arkansas from enforcing its foreign ownership laws for 14 days. On December 9, 2024, the day the TRO expired, the court issued a preliminary injunction in favor of Jones Eagle, preventing the state from initiating an enforcement action against the plaintiff until further notice from the court.

Acts 636 and 174

In 2023, the Arkansas state legislature enacted Act 636 which established a foreign ownership law (which is codified at Ark. Code Ann. §§ 18-11-101(a), -110, 801–805) to restrict certain foreign investments in real property located within the state. This law creates two separate prohibitions on foreign investments: (1) a restriction on agricultural land investments and (2) a restriction on certain foreign business entities from acquiring any real property located within the state.

One restriction under Act 636 provides that a “prohibited foreign party” (“PFP”) may not acquire any interest in agricultural land located within the state even if the PFP intends to use the land for nonfarming purposes. See Ark. Code Ann. § 18-11-803(a)(1). In general, the law specifies six different types of investors that fall within the definition of PFP:

• Individuals that are citizens or residents of a country subject to the federal International Traffic in Arms Regulations (“ITAR”);
• Foreign governments of a country subject to ITAR;
• Legal entities organized under the laws of a foreign government subject to ITAR;
• Entities, including U.S. entities, where a “significant interest or substantial control is directly or indirectly held or is capable of being exercised by” a part, or any combination of the parties, referred to in (1) through (3);
• “Entities of Particular Concern” as designated by the U.S. Secretary of State; and
• Agents, trustees, or other fiduciaries of individuals, governments, or entities specified in (1) through (5) of this list.

Some countries on the ITAR list include China, Iran, North Korea, and Russia.

The other restriction under Arkansas’ Act 636 restricts a “prohibited foreign-party-controlled business” (“PFPCB”) from acquiring any interest in any real property located within the state. See Ark. Code Ann. § 18-11-110(b)(1). Under the law, a PFPCB is a “corporation, company, association, firm, partnership, society, joint-stock company, trust, estate or other legal entity whose controlling interest is owned” by a PFP. The law defines “controlling interest” as an interest of 50% or more in the aggregate. Therefore, if a single PFP or multiple PFPs hold, in the aggregate, an interest of at least 50% in a business entity, that entity is classified as a PFPCB. As a result, this entity is prohibited from acquiring an interest in any Arkansas real property.

Also during the 2023 legislative session, the Arkansas legislature enacted Act 174 (which is codified under Ark. Code Ann. § 14-1-606). This law prohibits a PFP and PFPCB from acquiring or holding any interest in a digital asset mining business within the state. Both Acts 636 and 174 required PFPs and PFPCBs in violation of the laws to divest of their land or business interests within a certain period of time. If they fail to do so, they may face monetary fines and/or up to two years imprisonment.

Lawsuit Background

In March 2023, Jones Eagle entered into a commercial lease for real property located in Arkansas to establish a digital asset mining facility. Digital asset mining is the process that many cryptocurrencies use to generate and release new coins within the currency blockchain database. According to the plaintiff’s complaint in the lawsuit, Qimin “Jimmy” Chen, who was born in China—a country currently subject to ITAR regulations—and is a naturalized American citizen, exercises control over Jones Eagle as the sole owner of Eagle Asset Holding, Inc.

After Acts 636 and 174 went into effect, the Arkansas Department of Agriculture (“ADA”) and the Office of the Arkansas Attorney General (“AG”) began investigating certain business entities for potential violations of the state’s foreign ownership laws. In fact, Arkansas became the first in the nation to enforce a state foreign ownership law when the AG ordered a subsidiary of Syngenta Seeds—which is a Chinese-owned company—to divest itself of farmland it owned within the state. On December 13, 2023, Arkansas Governor Sarah Huckabee Sanders issued a press release stating the AG and ADA were investigating Jones Eagle for potentially violating of the state’s foreign ownership restrictions because the entity “may have significant ties to China.”

In November 2024, Jones Eagle filed a lawsuit against the state of Arkansas claiming the state’s foreign ownership restrictions violate the U.S. Constitution. Accordingly, the plaintiff asked the court to issue a TRO and a preliminary injunction to prevent the state of Arkansas from enforcing the foreign ownership restrictions against the business entity. In response to the lawsuit, the state of Arkansas submitted a motion to dismiss the lawsuit.

On November 25, 2024, Judge Kristine Baker, a federal judge serving the United States District Court for the Eastern District of Arkansas, granted the plaintiff’s request for a TRO. The TRO was only in effect for 14 days, which is the period a TRO may stay in effect under Federal Rule of Civil Procedure 65(b). Afterwards, the court conducted a hearing to consider the plaintiff’s motion for a preliminary injunction and the defendant’s motion to dismiss the lawsuit. On December 9, 2024, Judge Baker issued a Notice of Preliminary Injunction Order (the “Notice”) granting the plaintiff’s motion—which prevents the AG from enforcing Acts 636 and 174 against Jones Eagle for the time being—and denying the defendant’s request to dismiss the case.

However, the court decided to “seal” the preliminary injunction order to protect confidential details about Jones Eagle’s business operations. In other words, the contents of the judge’s order are currently inaccessible to the public. Although Judge Baker’s order is under seal, the Notice does express some of the judge’s reasoning for granting the preliminary injunction. Additionally, it is likely the judge’s decision in granting the preliminary injunction is similar to the analysis provided in her TRO order because a party asking for either of these injunctions must satisfy the same four factors. Nevertheless, the court intends to release a redacted version of the order in the coming weeks.

Seeking An Injunction

Before a case goes to trial, some litigants file a single motion to a court asking the judge for a TRO and preliminary injunction. Essentially, both a TRO and preliminary injunction, if granted by the judge, restrains a party from beginning or continuing an action. Typically, TROs are short-term pre-trial injunctions that only last until the judge rules on whether or not to grant a preliminary injunction (usually 14 days). Preliminary injunctions may be issued by a judge before or during trial, and these injunctions typically remain in effect until the case is fully resolved. Generally, a judge can deny a party’s request for a TRO and subsequently grant the party’s motion for preliminary injunction, and vice versa.

Because TROs and preliminary injunctions serve the same function, a party asking for either of these injunctions satisfy four factors. To obtain a TRO or preliminary injunction, a party must show:

• A likelihood they can win the lawsuit based on the facts and evidence of the case;
• They will suffer irreparable injury if the TRO/preliminary injunction is denied;
• The threat of their injury outweighs any damage to the opposing party; and
• Granting the TRO/preliminary injunction will not harm the public interest.

A judge’s denial of a motion for preliminary injunction does not signify the ultimate outcome of the case or that the party is unable to win on the merits of the case. This is because the standard for granting an injunction is higher than what the party must prove during trial. For example, a judge can deny a motion for an injunction even if the party proves they would face irreparable harm. Accordingly, the party seeking an injunction must convince the judge that they will suffer harm that cannot be remedied once the harm occurs.

When a litigant is asking for an injunction under this four-part test, the judge balances factors (1) and (2) against (3) and (4). If the first two outweigh the last two factors, a judge will most likely grant the party’s motion for an injunction. In Jones Eagle’s motion for a TRO and preliminary injunction, it claims the judge must grant its motion because factors (1) and (2) outweigh factors (3) and (4).

Order Granting Injunction

Although Jones Eagle claims that the Arkansas laws are unconstitutional for several reasons, the court’s order of preliminary injunction rests solely on the plaintiff’s claim that federal law preempts the state law under the Supremacy Clause of the U.S. Constitution. According to the court, the plaintiff satisfied the first factor of the four-party test by showing it is likely to succeed on their preemption claim in its lawsuit against the state. While the Notice does not provide much analysis on this factor, Judge Baker’s TRO order cites a recent decision by the U.S. Court of Appeals for the Eleventh Circuit in Shen v. Simpson, No. 4:23-cv-208 (N.D. Fla. 2023) she found persuasive to Jones Eagle’s preemption claim.

In Shen, the Eleventh Circuit granted a preliminary injunction in favor of two plaintiffs challenging Florida’s foreign ownership laws on federal preemption grounds, similar to those raised by Jones Eagle in its lawsuit. In Jones Eagle’s motion, it claims Arkansas’ foreign ownership laws violate the Supremacy Clause of the U.S. Constitution by conflicting with the federal government’s system of regulating land purchases by foreign investors. The federal law at issue is the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) (50 U.S.C. § 4565).

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”), and is meant to determine whether a transaction presents a threat to U.S. national security. If a transaction is determined to pose a threat, CFIUS has mitigation options to minimize risk. The plaintiff argues that by passing FIRRMA Congress reserved, for the federal government, exclusive power to regulate foreign investments in the U.S. In agreeing with Jones Eagle, Judge Baker held that the plaintiff satisfied the first factor by showing it is likely to succeed on its claim that the federal government’s role in monitoring certain foreign investments in U.S. real estate and certain business operations preempts Arkansas’ foreign ownership restrictions.

Under the second factor, Judge Baker agreed with the plaintiff that it would suffer irreparable harm if the AG initiated an enforcement action against it. The court’s Notice explains that Jones Eagle has suffered irreparable harm because of it “has been publicly targeted by name and subject to investigation” by the AG. Because of the public investigation and threatened enforcement action, according to the court, the plaintiff faces irreparable harm “in the form of damage to reputation and goodwill.” Further, Judge Baker asserts Jones Eagle faces irreparable harm if the AG brings an enforcement action against it because the business entity and its owner risk fines, imprisonment, and judicial foreclosure of its land located in Arkansas. Accordingly, the court ruled that the plaintiff has shown that it is likely to sustain irreparable harm without the issuance of a preliminary injunction.

As for factors (3) and (4) of the four-part test, the court concluded that each factor weighs in favor of granting preliminary injunction. The Notice does not provide analysis for these factors as it did for the previous two factors. Nevertheless, because each factor of the four-part balancing test favors the plaintiff, Judge Baker issued the preliminary injunction to halt the state from bringing an enforcement action against Jones Eagle until further notice from the court.

Conclusion

The court’s order granting preliminary injunction means the provisions of Arkansas’ foreign ownership restrictions cannot be enforced against Jones Eagle for the time being. However, the injunction is only limited to Jones Eagle and not binding on other persons that may be subject to Acts 636 and 174. In other words, the state may continue initiate enforcement actions under these laws against all other individuals and entities subject to the state’s foreign ownership restrictions. Even though the injunction is in effect, a redacted version of the order can be expected to be released to the public in the coming weeks.

An update to this article will be published as this lawsuit moves forward.

To read the complaint, click here.

To read the plaintiff’s motion for TRO and preliminary injunction, click here.

To read the court’s Notice of Preliminary Injunction Order, click here.

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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