Mirror Lake Village, Llc et al v. Johnson et al

Cross MOTION for Summary Judgment

D.D.C.June 21, 2017

UNITED STATES DISTRICT COURT DISTRICT OF COLUMBIA ________________________________________________x MIRROR LAKE VILLIAGE, LLC, et al., ) ) Plaintiffs ) ) v. ) Docket No.: 16-cv-1955 ) Judge: TFH John F. Kelly, Secretary of the United States ) Department of Homeland Security, et al., ) ) ) Defendants. ) ________________________________________________x PLAINTIFFS’ CROSS MOTION FOR SUMMARY JUDGEMENT Daniel B. Lundy Klasko Immigration Law Partners, LLP 1601 Market Street, Suite 2600 Philadelphia, PA 10103 (215) 825-8600 Fax (215) 825-8699 H. Ronald Klasko Klasko Immigration Law Partners, LLP 1601 Market Street, Suite 2600 Philadelphia, PA 10103 (215) 825-8600 Fax (215) 825-8699 Thomas K. Ragland Clark Hill PLC (202) 552-2360 Fax (202) 772-0901 Attorneys for Plaintiffs Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 1 of 49 TABLE OF CONTENTS Page I. Introduction …………………………………………………………………….1 II. Statutory and Regulatory Background………………………………………1 III. Statemen of the Facts and Case……………………………………………..3 IV. Standard of Review…………………………………………………………..13 V. Argument………………………………………………………………………14 A. USCIS Improperly Found that Plaintiffs’ Investments did not Qualify as an “Investment” Because they are not at Risk, and Instead Constitute a ‘Debt Arrangement,’ When Plaintiffs’ Investments are Clearly at Risk under any Reasonable Definition of the Words……………….………………………………………..…..14 1. Plaintiffs’ Equity Investments are Very Much At-Risk and Subject to Loss Depending on Business Fortunes……….14 2. USCIS has Misconstrued and Misapplied Matter of Izummi and Improperly Found that Plaintiffs Have Entered into a Redemption Agreement that Converts their Equity Investments into a “Debt Arrangement,” and not an At-Risk Investment…………………………..……..19 a. Matter of Izummi…………………………….………..19 b. USCIS incorrectly and Arbitrarily Applied Izummi to the Instant Case…………………...……….22 3. USCIS Acted Arbitrarily and Capriciously by not Evaluating the Debt/Equity Factors Present in this Case………………………………………………..………..27 B. Matter of Izummi is Ultra Vires and Creates a Requirement not Found in the EB-5 Statutes or Regulations………………..…….35 VI. Conclusion………………………………………………………..…………..42 Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 2 of 49 TABLE OF AUTHORITIES Page Cases: Alpharma, Inc. v. Leavitt, 460 F.3d 1 (D.C. Cir. 2006)……………………………13 Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077 (D.C. Cir. 2001)………………13 Chevron U.S.A. Inc. v. Nat'l Res. Def. Council, Inc., 467 U.S. 837 (1984)…………14 Doe v. USCIS, U.S. Dist. Ct, D.D.C., docket no. 15-273 (March 10, 2017)……….17,18,25,26,30 Estate of Mixon, 464 F.2d 394, (5th Cir. 1972) Garcia-Lopez v. Ashcroft, 334 F.3d 840 (9th Cir. 2003)…………………………..27 Gilbert v. Commissioner, 248 F.2d 399 (2d Cir. 1957)……………………………28 Hagelin v. Fed. Election Comm’n, 411 F.3d 237 (D.C. Cir. 2005)……………….13 Hardman v. United States, 827 F.2d 1409 (9th Cir. 1987)……………………….29 Kazarian v. USCIS, 596 F.3d 1115 (9th Cir. 2010)………………………………..23,42 Love Korean Church v. Chertoff, 549 F.3d 749 (9th Cir. 2008)…………………..42 Mandujano-Real v. Mukasey, 526 F.3d 585 (9th Cir. 2008)………………………27 Matter of Izummi. 22 I. & N. Dec. 169 (Assoc. Comm. 1998)……………………Passim. PepsiCo P.R., Inc. v. Comm’r, 104 T.C.M. (CCH) 322 (2012)…………………..Passim. R.L.I.L.P. v. INS, 86 F. Supp. 2d 1014 (D. Haw. 2000)……………………………23 Roth Steel Tube Co. v. Comm’r of Internal Revenue, 800 F.2d 625 (6th Cir. 1986)..28 Rotimi v. Gonzales, 473 F.3d 55 (2d Cir.2007)…………………………………….14 S.E.C. v. A Chicago Convention Center, LLC et. al., No. 13-cv-982 (N.D. Ill. Mar. 17, 2014)……………………………………………………………41 S.E.C. v. Emilio Francisco et al., No. 8:16-cv-02257-CJC-DFM (C.D. Cal. Dec. 27, 2016)………………………………………………………….41 S.E.C. v, Quiros et al., No. 1:16-cv-21301-GAYLES (S.D. Fla.)…………………41 Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 3 of 49 Page S.E.C. v. San Francisco Regional Center, LLC et al., No. 3:17-cv-00223 (N.D. Cal. Jan. 17, 2017)………………………………………………………..….41 Skidmore v. Swift, 323 U.S. 134 (1944)……………………………………………13 Trung Thanh Hoang v. Holder, 641 F.3d 1157 (9th Cir. 2011)……………………27 Statutes: 5 U.S.C. § 706(2)(A)……………………………………………………..………....13 8 U.S.C. § 1153(b)(5)……………………………………………………………….2,35 8 U.S.C. § 1186b……………………………………………………………………3,35 8 U.S.C. § 1186b(d)……………………………………………….…………..……35-36 8 U.S.C. § 1201……………………………………………………………………..2 8 U.S.C. § 1255………………………………………………………………….....2 Regulations: 8 C.F.R § 204.6……………………………………………………………….……2,36 8 C.F.R. § 204.6(e)……………………………………………………..…………..3 8 C.F.R. § 204.6(j)(2)………………………………………………………………2,3 8 C.F.R. § 216.6………………………………………………………..…………..36 8 C.F.R. § 216.6(a)(4)………………………………………………………..…….36 8 C.F.R. §216.6(c)………………………………………………………………….37 Other: Immigration Act of 1990, Pub.L. No. 101-649, § 121(b)(5), 104 Stat. 4978 (1990)………………………………………………………………………...1 Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 4 of 49 Page Federal Rule of Civil Procedure 56…………………………..…………………….13 S. Rep. No. 101-55, at 21 (statement of Sen. Simon)………………………………..41 USCIS Policy Manual Vol. 6, Part G, Chapter 5 § (A)(2)……………….….……..37-38 USCIS Policy Manual Vol. 6, Part G, Chapter 5 § (B)……………….……………40 Websites: https://www.uscis.gov/about-us/directorates-and-program-offices/ administrative-appeals-office-aao/aao-non-precedent-decisions..............................14 Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 5 of 49 1 I. Introduction Plaintiffs are seven investors (“Plaintiffs” or “Investor Plaintiffs”) who invested $500,000 into Plaintiff Company, Mirror Lake Village, LLC (the “NCE”), with the intention of obtaining immigrant visas and subsequent permanent resident status in the U.S. through the employment based, fifth preference immigrant visa category, commonly known as the EB-5 visa category. The investor Plaintiffs all contributed their capital as equity to the NCE, in exchange for Class A Membership Units. The proceeds of their investments were to be combined with other equity investment in the NCE, and with debt financing, and be used to construct, own, and operate a senior living facility in Federal Way, Washington, which is expected to create at least 90 full- time, permanent jobs for U.S. workers. Although the Investor Plaintiffs' $500,000 investments are not guaranteed and are fully at risk of loss, Defendants denied the petitions on the basis that the investments were not “at-risk.” Defendants’ denial is based on a single provision of the governing agreement providing the Investor Plaintiffs with a right to require that Mirror Lake Village, LLC repurchase their interests, contingent on Mirror Lake Village, LLC having sufficient cash to do so, at a time after the Investor Plaintiffs have obtained unconditional lawful permanent residence through the EB-5 program. The finding by USCIS that the Investor Plaintiffs’ investments were not at-risk is arbitrary and capricious and otherwise not in accordance with the law. II. Statutory and Regulatory Background In 1990, Congress amended the Immigration and Nationality Act of 1965 to allocate 10,000 immigrant visas per year to foreign nationals seeking Lawful Permanent Resident (“LPR”) status on the basis of their capital investments in the United States. See Immigration Act of 1990, Pub. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 6 of 49 2 L. No. 101-649, § 121(b)(5), 104 Stat. 4978 (1990) (codified at 8 U.S.C. § 1153(b)(5)). Pursuant to the so-called “Immigrant Investor Program,” foreign nationals may be eligible for an employment-based, fifth preference (“EB-5”) immigrant visa if they have invested, or are actively in the process of investing, $1 million (or $500,000 in a high unemployment or rural area) in a qualifying New Commercial Enterprise ("NCE"), and that investment will result in the creation of at least ten jobs for U.S. workers. See 8 U.S.C. § 1153(b)(5)(A)-(D); see also 8 C.F.R § 204.6(a)-(j). The EB-5 regulations further provide that, in order to qualify as an “investment” in the EB-5 Program, foreign nationals must actually place their capital “at risk” for the purpose of generating a return, and that the mere intent to invest is not sufficient. See 8 C.F.R. § 204.6(j)(2). The purpose of this program was to promote foreign direct investment into, and job creation within, the U.S. In order to become an LPR through the program, a foreign national must file with USCIS a Form I-526 Immigrant Petition by Alien Entrepreneur, which, if approved, makes the foreign national eligible to receive an immigrant visa. See 8 U.S.C. § 1153(b)(5). Upon approval of the I-526 Petition, the foreign national must file a Form I-485, Application to Adjust Status (if he is located in the United States), or a Form DS-260, Application for Immigrant Visa (if he is located outside the United States). See 8 U.S.C. § 1201; 8 U.S.C. § 1255. Upon adjustment of status or admission on an EB-5 immigrant visa, the foreign national is granted two years of conditional permanent resident status. At the conclusion of the two-year conditional period, the foreign national must file a Form I-829, Petition to Remove the Conditions on his or her LPR status. If he or she has fulfilled the EB-5 requirements- i.e. has invested, maintained the investment at risk, Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 7 of 49 3 and the investment has resulted in the creation of at least ten jobs for U.S workers- then the conditions will be removed and he or she will be an unconditional LPR. See 8 U.S.C. § 1186b. “Invest” is defined in 8 C.F.R. § 204.6(e) as “Invest means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise does not constitute a contribution of capital for the purposes of this part.” 8 C.F.R. § 204.6(j)(2) provides, in pertinent part: “To show that the petitioner has invested or is actively in the process of investing the required amount of capital, the petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk. Evidence of mere intent to invest, or of prospective investment arrangements entailing no present commitment, will not suffice to show that the petitioner is actively in the process of investing. The alien must show actual commitment of the required amount of capital.” III. Statement of Facts and the Case The seven Investor Plaintiffs are all natives and citizens of China who made cash investments of $500,000 each into the NCE between March and June 2014. In exchange for each of the Plaintiffs’ $500,000 capital contribution, each Plaintiff received a Class A Membership unit in the NCE. Each of those Units represents an ownership interest in the NCE of between one-half and 3%, as set forth in Schedule A to the Operating Agreement of the NCE. See Certified Administrative Record, WAC1590051680 (“CAR”) at 139. The investments were made, in large part, with the intention that each Investor Plaintiff would qualify for an EB-5 visa as a result of the investment. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 8 of 49 4 The NCE was formed for the purpose of aggregating the investments of seven Investor Plaintiffs and two or more non-EB-5 investors to fund the development and operation of a senior living community in Federal Way, Washington, which will offer a continuum of care options on its campus, including independent living, assisted living, and memory care assisted living. Mirror Lake Village is expected to encompass a total of three buildings and nine semi‐detached villas situated across 3.24 acres of land, and will include 48 assisted living units, 32 memory care units, and 18 independent living units. Furthermore, on-site nursing care will be available to Mirror Lake Village residents, and the campus will include a Community Center that features luxury and casual dining restaurants, activities and exercise rooms, a movie theatre, and a medical/wellness center. The NCE is expected to create a total of 90 full-time, permanent jobs for U.S. workers. The Mirror Lake Village Project is anticipated to cost approximately $29 million to complete, and will be funded by $3.5 million of EB-5 funds, $5 million from an equity investor, $250,000 from the Manager of the NCE, and approximately $20.3 million in senior debt. CAR 12. Between October and November 2014, the Investor Plaintiffs all filed I-526 petitions with Defendant USCIS. All of the petitions were filed with a substantially identical package of documents relating to the NCE and its business, including a business plan, Offering Memorandum, Subscription Agreement, Operating Agreement, and numerous other documents demonstrating how the Plaintiffs’ funds would be deployed (in conjunction with other equity and debt financing) in the construction and operation of the senior living facility. Id., at 40, 162. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 9 of 49 5 In December 2015, Defendants issued a Notice of Intent to Deny (“NOID”) the petitions to all of the Plaintiffs. All of the NOIDs contained virtually identical language, which alleged that the Plaintiffs had not made investments that are “at-risk” under the regulations because a provision of the NCE’s Operating Agreement allowed them to request that the NCE purchase their Membership Interests, subject to the NCE having Available Cash Flow to do so, at a time beginning either at one year or two years after the date that each of the Investor Plaintiffs had the conditions on their residence removed. The NOIDs claimed that this provision, the Put Option, converted Plaintiffs’ equity investments into an impermissible debt arrangement which prevented them from qualifying as at-risk investments. Specifically, the NOID states: “The current record does not demonstrate that the petitioner has placed the required amount of capital at risk for the purposes of generating a return on the investment.” NOID at 4, CAR 1683. The NOID further states: “’The Put Options of Class A Members’ section (page 8) of the Operating Agreement states, ‘At the expiration of the At Risk Period . . . the Company shall provide the Class A Member with a one-time right and option to compel the Company to purchase . . . all or any portion of such Class A Member’s interest at the purchase price thereof (e.g. the Capital Contribution made in respect of such interest).’” NOID at 5; CAR 1684. “’The Put Options of Class A Members’ section (page 9) of the Operating Agreement states, ‘Beginning on the second year anniversary of the expiration of the At Risk Period . . . the Class A Member shall have the right and option to compel the Company to purchase . . . up to 20% of such Class A Member’s Interest per annum (such that 100% of the Interest could be repurchased over a five year period) at a price equal to the Fair Market Value thereof.’” NOID at 5, CAR1684. “The ‘Put Option’ sections (pages 4 and 20) of the Offering memorandum state, ‘At the expiration of the At Risk Period . . . the Company will provide each such EB-5 Member with a one-time opportunity to sell such EB-5 Member’s Interest back to the Company . . . at the purchase price thereof.’” Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 10 of 49 6 NOID at 6, CAR 1684. “Additionally, the ‘Put Option’ sections (pages 5 and 20-21) of the Offering Memorandum state ‘Beginning two years after the expiration of the At Risk Period . . . an EB-5 Member shall have the right and option to compel the Company to purchase . . . up to 20% of such EB-5 Member’s Interest per annum (such that 100% of the Interest could be repurchased over a five year period) at a price equal to the Fair Market Value (as defined in the Operating Agreement) of such EB-5 Member’s Interest.’” NOID at 6, CAR 1685. "According to Matter of Izummi, a redemption agreement is an agreement found in the investment documents which would require the NCE to repurchase the investor's equity at a certain time or upon some other triggering event. Because this constitutes a debt arrangement, capital invested in exchange for a redemption agreement is not properly 'invested' and is not 'at risk.'” NOID at 6, CAR 1685. The Investor Plaintiffs all filed timely, and virtually identical, responses to the NOIDs, explaining that their investments are, in fact, at risk because the only way they are able to receive a return of or on capital is if the NCE’s business is successful, and therefore that their investments are completely at risk of loss and entirely subject to business fortunes. Further, in every one of the provisions cited by USCIS in the NOID, Defendants omitted essential language from the Operating Agreement and Offering Memorandum, which provide (omitted text in bold): “’Put Option of Class A Members’ (a) At the expiration of the At Risk Period applicable to the Class A Member, the Company shall provide the Class A Member with a one-time right and option to compel the Company to purchase, subject to the Company’s having sufficient Available Cash Flow (excluding capital contributed by Members), all or any portion of such Class A Member’s Interest at the purchase priced thereof (e.g., the Capital Contribution made in respect of such Interest). (b) Beginning on the second anniversary of the expiration of the At Risk Period applicable to a Class A Member, the Class A Member shall have the right and option to compel the Company to Purchase, subject to the Company having Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 11 of 49 7 sufficient Available Cash Flow (excluding capital contributed by Members), up to 20% of such Class A Member’s Interest per annum (such that 100% of the Interest could be repurchased over a five year period) at a price equal to the Fair Market Value thereof.” Operating Agreement at 8-9,CAR at 133-134. “Put Option. At the expiration of the At Risk Period applicable to an EB-5 Member, the Company will provide each such EB-5 Member with a one-time opportunity to sell such EB-5 Member’s Interest back to the Company (subject to the Company having sufficient Available Cash Flow) at the purchase price thereof. Beginning two years after the expiration of the At Risk Period applicable to an EB-5 Member, an EB-5 Member shall have the right and option to compel the Company to purchase, subject to the Company having sufficient Available Cash Flow, up to 20% of such EB-5 Member’s Interest per annum (such that 100% of eth Interest could be repurchased over a five year period) at a price equal to the Fair Market Value (as defined in the Operating Agreement) of such EB-5 Member’s Interest.” Offering Memorandum at 4-5, CAR 165-66 (also at 20, 181). As a result of the highlighted language, Plaintiffs argued that any right of the Investor Plaintiffs to receive a return of capital is expressly contingent on the success of the business. If the business is not successful, there is no cash with which to purchase the Membership Interests. Further, the NCE is not permitted to use the Plaintiffs’ invested capital to pay them upon exercise of the Put Option. Because of this, there is no way that the Plaintiffs could have entered into an agreement with the NCE “knowing that he already has a willing buyer in a certain number of years,” as prohibited by Matter of Izummi. 22 I. & N. Dec. 169 (Assoc. Comm. 1998). CAR 1688. Plaintiffs argued that the investment is fully at risk, notwithstanding the Put Option. In support of this argument, Plaintiffs reproduced numerous provisions from the Offering Memorandum illustrating various investment and business risks associated with an investment into the NCE. CAR 1687-90. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 12 of 49 8 Plaintiffs further argued that Matter of Izummi prohibits an unconditional, contractual promise to repay the investment regardless of the success or failure of the underlying business, and the Put Option is not such an agreement. Because there is no unconditional contractual promise to repay the investment; because the Plaintiffs’ return on or of investment is wholly dependent on the success of the business; and because- unlike in the Izummi case- the Operating Agreement provides Plaintiffs with no recourse if they cannot exercise the Put Option and does not contain a provision making a failure by the NCE to pay a default on the agreement1; Plaintiffs argued that the Put Option is not an impermissible redemption agreement, and Plaintiffs’ investments are not a debt-arrangement, but rather are qualifying, at-risk, equity investments. CAR at 1687-93. Plaintiffs argued that they had invested their capital in exchange for a percentage of ownership of the NCE, a hallmark of an equity investment, and could only recover their capital if the business was successful. Id. Finally, Plaintiffs argued that neither the statute nor the regulations governing the EB-5 program prevent an investor from receiving a return of capital at a point after the conditional residence period has ended. Instead, the regulations governing the removal of conditions only require the maintenance of the investment during the conditional residence period. CAR 1690-91. In February 2016, Defendants denied all of Plaintiffs’ I-526 petitions, once again claiming that Plaintiffs’ investments were not qualifying at-risk investments, but instead were impermissible debt arrangements. The denials all contained virtually identical language to the NOIDs, and 1 The Izummi documents contained both an unconditional, contractual promise to repay the investors’ capital and provided that a failure to pay the returns was a breach of the agreement by the Company. Matter of Izummi, 22 I. & N. Dec. at 183-84. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 13 of 49 9 stated: “The evidence in the record fails to establish that the investor has placed the required minimum amount of capital at risk for the purposes of generating a return in accordance with applicable law.” Denial at 5, CAR 1704. Once again, the denial reproduced, with identical omissions from the NOID, the language from the Operating Agreement and Offering Memorandum. The Denial States: “A. Capital At Risk. Applicable regulations provide that, in order ‘[t]o show that the petitioner has invested or is actively in the process of investing the required amount of capital, the petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for the purposes of generating a return on the capital placed at risk. Evidence of a mere intent to invest, or of prospective investment arrangements entailing no present commitment, will not suffice to show that the petitioner is actively in the process of investing. The alien must show actual commitment of the required amount of capital.’ For the capital to be ‘at risk’ there must be a risk of loss and a chance for gain.” Denial at 4, CAR 1703 (citations omitted, bold in original) (citing 8 C.F.R. § 204.6(j)(2)). “’The Put Options of Class A Members’ section (page 8) of the Operating Agreement states, ‘At the expiration of the At Risk Period . . . the Company shall provide the Class A Member with a one-time right and option to compel the Company to purchase . . . all or any portion of such Class A Member’s interest at the purchase price thereof (e.g. the Capital Contribution made in respect of such interest).’” “’The Put Options of Class A Members’ section (page 9) of the Operating Agreement states, ‘Beginning on the second year anniversary of the expiration of the At Risk Period . . . the Class A Member shall have the right and option to compel the Company to purchase . . . up to 20% of such Class A Member’s Interest per annum (such that 100% of the Interest could be repurchased over a five year period) at a price equal to the Fair Market Value thereof.’” “The ‘Put Option’ sections (pages 4 and 20) of the Offering memorandum state, ‘At the expiration of the At Risk Period . . . the Company will provide each such EB-5 Member with a one-time opportunity to sell such EB-5 Member’s Interest back to the Company . . . at the purchase price thereof.’” “Additionally, the ‘Put Option’ sections (pages 5 and 20-21) of the Offering Memorandum state ‘Beginning two years after the expiration of the At Risk Period . . . an EB-5 Member shall have the right and option to compel the Company to purchase . . . up to 20% of such EB-5 Member’s Interest per annum Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 14 of 49 10 (such that 100% of the Interest could be repurchased over a five year period) at a price equal to the Fair Market Value (as defined in the Operating Agreement) of such EB-5 Member’s Interest.’” Denial at 5-6, CAR 1704-05. Finally, the denial stated: “USCIS considers this Operating Agreement to have stated explicitly in its contract language that the investor’s capital will be returned upon demand at the end of the petitioner’s conditional residency. Petitioner’s assertion that the exercise of the Put Option is expressly contingent upon the NCE’s cash flow and future financial performance belies an understanding of the statutory interpretation of ‘capital at risk.’ The language of the Put Option goes beyond the NCE merely attempting to limit risk to the petitioner. In fact, the petitioner is arguing that her capital is at risk insofar as the NCE is not profitable. Should the NCE be profitable and have sufficient cash flow, the Put Option was clearly written as an exit strategy for the investor to compel the NCE to purchase the member’s interest. In no way did the profitability of the NCE affect the AAO writing in Matter of Izummi, ‘. . . an alien investor may not enter into any agreement granting him the right to sell his interest back to the partnership.’ Therefore, USCIS finds the petitioner’s capital investment in exchange for a redemption agreement is not properly ‘invested’ and is not ‘at risk’.” Denial at 6, CAR 1705. Of note is the fact that the NOID responses did NOT argue that the Put Option was a way of the NCE attempting to limit the risks to the Plaintiffs’ investments. On the contrary, Plaintiffs argued extensively that the exercise of the Put Option was entirely reliant on the success of the business, and in no way mitigates the risk of loss to the investment. CAR 1693. On March 14, 2016, the Investor Plaintiffs all filed timely motions to reopen and reconsider the denials of their I-526 petitions, presenting evidence of the high failure rate of small businesses, and a letter from the NCE’s accountant explaining that their investments were equity investments, and not “debt-arrangements” as claimed by Defendants. Certified Administrative Record, WAC1690363726 (“CAR2”) at 17-18, 169-220, 223-224. Plaintiffs also argued that Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 15 of 49 11 their investments were very clearly at-risk because the exercise of the Put Option required the NCE to actually have money available, after satisfaction of its other obligations, to purchase their interests, and the high likelihood of failure for new businesses, coupled with the extended investment timeline (due to processing and visa delays) that made it unlikely that any of the investor would have the conditions on their residence removed prior to 2022, meant that there was a significant risk of the loss of their investments. CAR2 10-20. Additionally, Plaintiffs argued that the exact point at which the Put Option might be exercised for each investor was unknown and unpredictable given the large variations in USCIS and Department of State processing times, and resultant variations in the start date of the conditional residence period for each investor. Id. Finally, Plaintiffs argued that the NCE has some discretion as to a determination of Available Cash Flow, and the NCE is free to use income of the company to pay debts or other obligations, pay dividends, pre-pay expenses, or engage in a variety of other legal and legitimate actions that could adversely impact the availability of Available Cash Flow at any given time. Id. As a result, Plaintiffs could not have entered into the investment knowing that they had a willing buyer for their Membership Interests at a certain time, as prohibited by Matter of Izummi, and therefore their investments were not a prohibited “debt-arrangement,” but were at-risk equity investments. Id., at 16. In May and June of 2016, Defendants denied the motions to reopen and reconsider of six of the Investor Plaintiffs. One remains outstanding, although, based on the other six denials, it is anticipated USCIS will deny that motion as well. In the MTR Denial, USCIS states that the Plaintiffs failed to present any new evidence that would justify reopening or establish that the prior denial was erroneous. In support of this, the denial of the Motion states: Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 16 of 49 12 “A. Capital At Risk. Applicable regulations provide that, in order ‘[t]o show that the petitioner has invested or is actively in the process of investing the required amount of capital, the petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for the purposes of generating a return on the capital placed at risk. Evidence of a mere intent to invest, or of prospective investment arrangements entailing no present commitment, will not suffice to show that the petitioner is actively in the process of investing. The alien must show actual commitment of the required amount of capital.’ For the capital to be ‘at risk’ there must be a risk of loss and a chance for gain.” MTR denial at 4, CAR2 229 (Citations omitted, bold in original). “1. Guaranteed Return of Capital. According to Matter of Izummi, guaranteed returns to an investor do not qualify for the purposes of being at risk under applicable regulations. Thus, if an immigrant investor is guaranteed the return of a portion of his or her investment, or is guaranteed a rate of return on a portion of his or her investment, then the amount of such guaranteed return is not at risk.” Id. “Despite the new evidence and arguments presented, Petitioner has still not demonstrated that the required minimum amount of capital was placed at risk for the purposes of generating a return in accordance with applicable law.” Id., at 5, CAR2 230. “USCIS interprets this ‘Put Option’ as granting the Petitioner the right to demand a return of her investment upon approval of her I-829. Matter of Izummi found such a redemption right constitutes an impermissible debt arrangement under 8 CFR 204.6(e) and therefore is not a qualifying contribution of capital and is not ‘at risk’ under 8 CFR 204.6(j)(2). The Petitioner’s argument is essentially that although the contract grants the petitioner the right to demand return of her capital, there is no corresponding obligation on the part of the NCE to actually return the capital to the petitioner by virtue of [sic]‘. . . of the high rate of failure for new businesses, [such that] Petitioner cannot know with certainty that the Company will survive five (5) years, much less the 8-10 years resulting from current processing times . . .’ This argument neglects to contemplate the NCE’s potential success and consequent obligation to return the capital to the Petitioner on demand.” CAR2 at 230. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 17 of 49 13 In reaching this conclusion, USCIS ignored the Plaintiffs’ arguments that there is no unconditional, contractual promise to repay the investors regardless of the success or failure of the business, and that the Plaintiffs only stand to recover any of their funds after they have been placed at risk and used in the Project. IV. Standard of Review Plaintiffs move for summary judgement pursuant to Federal Rule of Civil Procedure 56. “[W]hen a party seeks review of agency action under the APA, the district judge sits as an appellate tribunal. The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). The Court may set aside the decision of the agency if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Although an agency decision is entitled to a certain degree of deference, it will not be upheld if it “is not supported by substantial evidence, or the agency has made a clear error in judgment.” Hagelin v. Fed. Election Comm’n, 411 F.3d 237, 242 (D.C. Cir. 2005) (quotation and citation omitted). An agency must “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Alpharma, Inc. v. Leavitt, 460 F.3d 1, 6 (D.C. Cir. 2006). “The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Skidmore v. Swift, 323 U.S. 134, 140 (1944). Non-precedent decisions of the USCIS “[do] not create or modify agency guidance or practice” nor do they “announce new constructions of law nor establish agency policy” and therefore “do Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 18 of 49 14 not provide a basis for applying new or alternative interpretations of law or policy.” See https://www.uscis.gov/about-us/directorates-and-program-offices/administrative-appeals-office- aao/aao-non-precedent-decisions (last visited June 13, 2017). Non-precedent decisions of the agency are not entitled to deference under Chevron U.S.A. Inc. v. Nat'l Res. Def. Council, Inc., 467 U.S. 837 (1984). See Rotimi v. Gonzales, 473 F.3d 55, 57-58 (2d Cir.2007). V. Argument A. USCIS Improperly Found that Plaintiffs’ Investments did not Qualify as an “Investment” Because they are not at Risk, and Instead Constitute a ‘Debt Arrangement,’ When Plaintiffs’ Investments are Clearly at Risk under any Reasonable Definition of the Words. 1. Plaintiffs’ Equity Investments are Very Much At-Risk and Subject to Loss Depending on Business Fortunes. The Investor Plaintiffs have each contributed $500,000 in equity to the NCE in exchange for an ownership interest in the Company. The Investor Plaintiffs have contributed a combined total of $3.5 million, 100% of which will be used along with $5,250,000 in other equity, and approximately $20.3 million of debt, to finance the construction and operation of the Mirror Lake Village senior living facility. 100% of the Plaintiffs’ capital contributions will be expended on the development of the Project. The Investor Plaintiffs are entitled to a share of the NCE’s profits that corresponds to their ownership percentage (which varies from .5% to 3%). They are also allocated a portion of the company’s losses in proportion to their ownership percentages. As Members of an LLC, the Investor Plaintiffs’ right to distributions is subordinate to the rights of the NCE’s creditors. Offering Memorandum at 2, CAR 163. If the NCE is unable to construct and successfully operate the Project, it will not have sufficient cash flow to pay back any debt on the Project, and will also not have money to distribute to investors. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 19 of 49 15 The Offering Memorandum sets forth a substantial list of investment and business risks faced by the Investor Plaintiffs, which include: “There can be no guarantee of the return of invested capital to any EB-5 Member.” Offering Memorandum at 2, CAR 163. “Profits of the Company, if any, will be used first to pay operating expenses, service debts and obligations of the Company. Any remaining profits will be used to establish reserves required by law, in addition to those deemed necessary by the Manager, in its sole discretion. Thereafter, profits and losses generally will be allocated to the Capital Accounts of all Members in proportion to their respective Percentage Interests and may be distributed in accordance with the Company’s distribution policy. It is possible that no amounts will be distributed to EB-5 Members.” Id., at 4 (emphasis added), CAR165 “An investment in the Company is suitable only for sophisticated investors that are aware of, and can afford, the risks involved in an investment in the Company, and have the ability and willingness to accept (i) the illiquid nature of an investment in the Interests, (ii) the risk of loss of all or a substantial portion of the purchase price of the Interests . . .” Id., at 7 (emphasis added), CAR 168. “No Guarantee of Return of Capital. The Company has not yet secured funding to finance the cost of the Project. Further, the process of site construction, building design and obtaining of government licensing will take significant time. If and when fully operational, revenue from the Project likely will fall short of operating expenses. This shortfall may continue indefinitely. There is no guarantee that the Company will ever generate a profit. There is no guarantee that the Company will have sufficient capital to repurchase the EB-5 Investors’ Interests at any time.” Id., at 13 (emphasis added), CAR 174. “Ownership of an Ongoing Business Enterprise. Investment in the Company is subject to risks generally incident to the ownership of an ongoing business, including, without limitation: uncertainty of cash flow to meet fixed obligations; adverse changes in economic conditions; relative appeal of products versus competitive brands; reduction in the cost of operating competing businesses; decrease in employment; the possible need for unanticipated renovations; adverse changes in interest rates and availability of funds; changes in tax rates and other Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 20 of 49 16 operating expenses; changes in governmental rules and fiscal policies; acts of God, including earthquakes, which may cause uninsured losses; environmental risks; and other factors which are beyond the control of the Company. Increases in operating expenses, among other factors, could result in the Company’s inability to meet all of its cash obligations. Any decrease in income to the Company may reduce and possibly eliminate the amount of cash available for distribution to Members.” Id., at 13-14 (emphasis added), CAR 174-75. “Financial Risks: Competition. The business of owning and operating a senior housing facility is highly competitive . . .” Id., at 15, CAR 176. “Government Reimbursement. Much of the Project’s recurring revenue is expected to be derived from or associated with government reimbursements. Any changes in federal, state and local public policy that would reduce the level of these reimbursements would negatively impact a large percentage of the projected revenues.” Id., at 15, CAR 176. “Construction Risks. The Project involves significant construction activity. Obtaining building permits is a time consuming process and it is virtually impossible to predict how long it takes to receive final building permits. This uncertainty may result in construction delays and increased costs. The costs of construction materials and labor may change to the detriment of the Company . . .Unanticipated cost increases may cause the Company to raise or borrow additional capital to complete the Project [and] cause a dilution of each Member’s Percentage Interest in the Company.” Id., at 15, CAR 176. Other risks include, but are not limited to, fire, earthquake, environmental risks, competition, reliance on the skill and effectiveness of the Company’s management, government licensure, and even changes in population demographics in the Project’s location. Id. Plaintiffs presented numerous articles (including data from the SBA and BLS) showing that the failure rate for start-ups in the U.S. is typically between 38 and 50% by the fifth year of business (or as high as 95% if a failure is defined as the failure to generate the expected returns on Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 21 of 49 17 investment). CAR2 169-220. USCIS essentially ignored this evidence, instead focusing on the fact that the Put Option would allow the investors a return of capital if the business is successful. MTR Denial 5, at CAR2 230. However, the fact remains that nearly half of all new businesses in the U.S. fail within five years. When considered in whole, the evidence of record demonstrates that the Plaintiffs’ investments are reasonably speculative in nature, and they have no certainty that they will receive their investments back. See Doe v. USCIS, U.S. Dist. Ct, D.D.C., docket no. 15-273 (March 10, 2017), at 5 (“Because the success of the investment was dependent on risky mining projects, the Offering Memorandum made clear—as indeed did nearly all of the Quartzburg Gold documents in the record—that the Plaintiff-investors’ capital was at risk, and that the chance of receiving a return on that capital was speculative.”). Whether or not the Investor Plaintiffs get their money back is dependent entirely on the ability of the NCE to successfully build, own and operate the Mirror Lake Village senior living facility. The Put Option in no way mitigates this risk or shifts the risk of loss to the Company instead of the Investor Plaintiffs. The Investor Plaintiffs’ funds will be fully deployed into the job creating enterprise, and expended on the development, construction and operation of the facility. See Offering Memorandum at 1, CAR 162 (“Use of Proceeds”). Once spent, the only way for the Investor Plaintiffs to see any of their money back is if the Project earns sufficient cash. The investments are entirely at the mercy of business fortunes. USICS attempts to characterize the risks to the Investor Plaintiffs’ investments as a contract risk- i.e. the risk that the NCE will default on its promise to pay the investors. CAR2 230. However, the Put Option does not create an unconditional, contractual promise to repay the investors. It Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 22 of 49 18 makes repayment of the investors expressly contingent on the presence of Available Cash, which in turn depends on the success of the business, and a failure to pay is not a breach or default of the Operating Agreement. This is not a contract risk. It is a business risk. USCIS states that the money is not at risk because the Operating Agreement requires the NCE to repay the investors out of Available Cash Flow if the business is successful, and therefore it is a “guaranteed return,” MTR Denial at 4, CAR2 229, and not at risk. Id., at 230. USCIS states that the Plaintiffs’ argument is essentially that “although the contract grants the petitioner the right to demand return of her capital, there is no corresponding obligation on the part of the NCE to actually return the capital to the petitioner by virtue of [sic.] ‘ . . . of the high rate of failure for new businesses, [such that] Petitioner cannot know with certainty that the company will survive five (5) years, much less the 8-10 years resulting from current processing times . . .’.” Id. (alterations in original, citing Plaintiffs’ Motion). USCIS then states that the agency “’cannot endorse illusory promises.’” Id. (citing Izummi). By finding the promise to return the Plaintiffs’ capital upon exercise of the Put Option illusory, USCIS has recognized that there is, in fact, not an unconditional, contractual promise to repay the Plaintiffs, and their money is subject to loss because the NCE might not be able to honor the Put Option. Clearly, there is also no “guaranteed return,” as suggested by USCIS, MTR Denial at 4, CAR2 229, and the money has been placed “at risk for the purposes of generating a return on the capital placed at risk.” Id. (Citations omitted, citing 8 C.F.R. § 204.6(j)(2)). See Doe v. USCIS, at 16 (“Unlike in Matter of Izummi, no guarantees were made to the Plaintiffs in this case that their capital would be returned regardless of the success or failure of the business.”). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 23 of 49 19 2. USCIS has Misconstrued and Misapplied Matter of Izummi and Improperly Found that Plaintiffs Have Entered into a Redemption Agreement that Converts their Equity Investments into a “Debt Arrangement,” and not an At-Risk Investment a. Matter of Izummi Matter of Izummi presented a rather specific set of facts, and proffered a solution to a very particular problem that appears to have arisen in the earlier years of the EB-5 Program, notably investment agreements that provided for an investment to be made in installments, while simultaneously providing a return on investment that resulted in the investors not having ever contributed the minimum required amount of capital to the businesses most closely responsible for creating jobs. Give the highly particular fact pattern, it is important to understand the context in which the decision was rendered. Some of the holdings of Izummi are more properly limited to the facts of that case, or cases that present similar facts, and are not appropriate for more broad application. In addition, the Izummi decision frequently intermingles the concepts of “at risk,” “investment,” and “debt arrangement,” to the point that these concepts are inextricably entwined in the precedent and in the ethos of the agency. In Izummi, the AAO held that an investment agreement that contained a promise to pay an annual return of 12%, and contained an explicit, unconditional contractual promise to repay the investor’s capital contribution constituted a debt arrangement whereby the investor’s funds were not at risk. In Izummi, the petitioner signed agreements that provided that the petitioner would make an investment over time, and his investment would be secured by a promissory note. “This note provide[d] for an initial deposit of $120,000 into an escrow account, to be released to the partnership upon approval of the immigrant visa, five annual payments of $ 18,000, and a final balloon payment of $ 290,000.” Matter of Izummi, 22 I. & N. Dec. at 177. Further, of the initial Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 24 of 49 20 payment of $120,000, $30,000 was to be deducted to pay operating expenses of the NCE. Id. The petitioner was to receive an annual interest payment on the invested funds of 12% per annum. Id., at 180.2 The payment of the petitioner’s annual installments on his investment was, pursuant to the investment agreements, “conditioned upon the Partnership making the guaranteed annual distributions to the petitioner.” Id. at 181. The investment agreement further stated that the failure to pay the 12% annual return was a breach of the agreement. Id., at 181 N9; 182. The AAO found that “the annual returns are guaranteed.” Id., at 181 (emphasis in original). The AAO then found that because the 12% returns- totaling $93,000 over 5 years- were guaranteed, and the petitioner did not have to make his annual payments totaling $90,000 if the return was not paid to him, the $90,000 due to the company under the promissory note was not at risk because the petitioner had effectively shifted the risk of the investment from himself to the NCE. Id., at 182-83. The investment agreement in Izummi also provided for a return of the petitioner’s capital after six years. This agreement stated: “‘after the sixth anniversary of my admission to the Partnership, I, as a limited partner, may exercise a sell option under which I have the right to require the Partnership to purchase from me my limited partnership interest.’” Id., at 183 (emphasis in original). In the event of a failure of the company to purchase the interest, “the Partnership shall be deemed to be in breach of its obligations to the Limited Partners under the American Export Limited Partnership Agreement,” and the investor would be released from any obligation to make further contributions to the Partnership (if any were outstanding). Id., at 181 n9. The agreement 2 Notably, the AAO found that because of these guaranteed interest payments, “the $90,000 that the petitioner's annual payment obligation represents would require very little in new, personal funds.” Id., at 180. The AAO ultimately found that it was highly unlikely that the petitioner would ever actually contribute $500,000 of his own money. Id., at 181 N10. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 25 of 49 21 also provided for the NCE to exercise a buy option for the petitioner’s interest in the company at the same price guaranteed to the petitioner under his sell option. As explained in the decision: “The sell-option price is equal to the petitioner's total contributed capital, less the first six payments, plus a pro rata share of profits. In other words, the sell-option price is $ 290,000 plus profits. Or, to look at it from the petitioner's perspective, the price of permanent resident status is $ 116,400 minus profits; as discussed above, the five annual payments are more than fully covered by the annual distributions and do not require any expenditure on the part of the petitioner. At the same time, the Partnership may exercise a buy option for the same price. . . Section 4 of the investment agreement specifies that the sell option price is ‘payable as soon as the sell option is exercised.’ Section 8.05C of the original partnership agreement, however, states that the price is payable 180 days after the exercise of the sell option . . . It is not clear whether the petitioner is obligated actually to make the last payment of $ 290,000 if he exercises his sell option; both his responsibility to pay and his right to sell ripen at the same time. Section 8.05C of the partnership agreement provides that once the Partnership pays the sell-option price, ‘all amounts owed under such Selling Limited Partner's Investor Note shall be deemed satisfied by the Partnership...’ Similarly, under section 8.06C, after the Partnership pays the buy- option price, ‘all amounts due and owing under the Investor Note shall be discharged by the Partnership...’ It is not known what amount would still be owed if the petitioner is obligated to pay the $ 290,000 prior to the exercise of the buy or sell option. If the petitioner can avoid making this last payment by exercising his sell option, this amount of $ 290,000 cannot be considered to have been placed at risk. . . Even if the petitioner is obligated to make this balloon payment prior to exercising his sell option, the $ 290,000 still cannot be said to be at risk because it is guaranteed to be returned, regardless of the success or failure of the business.” Id., at 183-84 (emphasis added). Because the agreement in Izummi allowed the petitioner to loan the company $290,000 in exchange for an unconditional contractual promise to repay that same amount immediately, or, at the latest, six months later, and that contract shifted the risk of loss from the investor to the company, the AAO found the agreement to constitute a debt arrangement. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 26 of 49 22 “If the investment agreement executed by the petitioner is controlling, then the moment he made this last payment, the petitioner could exercise his sell option, and the money would be immediately returned; the amount of $ 290,000 would never be at risk. If the partnership agreement is controlling, then the petitioner's agreement to make this payment of $290,000 is, in essence, a debt arrangement in which he provides funds in exchange for an unconditional, contractual promise that it will be repaid later at a fixed maturity date (six months later). Such an arrangement is specifically prohibited by the regulations.” Id., at 184 (emphasis added). See Doe v. USCIS at 16. Based on these specific facts, the AAO found that “For the alien's money truly to be at risk, the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a certain price. Otherwise, the arrangement is nothing more than a loan, albeit an unsecured one.” Id. At 186. The AAO qualified this holding however, stating “The AAU does not find that an alien investor may never sell back his partnership interest. Rather, the AAU finds that, prior to completing all his cash payments under a promissory note (whether to the partnership or to some third-party lender), an alien investor may not enter into any agreement granting him the right to sell his interest back to the partnership. In no event may he enter into such an agreement prior to the end of the two-year period of conditional residence.” Id., at 186 (emphasis added). b. USCIS incorrectly and Arbitrarily Applied Izummi to the Instant Case In the instant case, USCIS has unreasonably expanded and misconstrued the holding in Izummi to find that the Plaintiffs’ investments are a “debt arrangement” and not at risk. First, Izummi does not prohibit an investor from receiving a return of capital at some point after the conditional residence period. It is not clear from the decision that, as USCIS says in the Denial, “an alien investor may not enter into any agreement granting him the right to sell his Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 27 of 49 23 interest back to the partnership.” Denial at 6, CAR 1705 (citing Matter of Izummi, at 186). But c.f. R.L.I.L.P. v. INS, 86 F. Supp. 2d 1014, 1023 (D. Haw. 2000).3 As seen clearly in the above quotation, USCIS has selectively quoted from this paragraph, and omitted the first half of the sentence, which only prohibits such an arrangement “prior to completing all his cash payments under a promissory note (whether to the partnership or to some third-party lender).” Matter of Izummi, 22 I. & N. Dec. at 186 (emphasis added). In the following sentence, the Izummi decision is still referring to the “he” of the preceding sentence. The following sentence must be read as “In no event may he [the investor who has not completed his cash payments under a promissory note] enter into such an agreement prior to the end of the two-year period of conditional residence.” Id. Thus, the actual language of Izummi does not categorically prohibit an agreement granting an investor a right to sell his or her interest back to the company at a point after the conditional residence period. A plain reading of the text of the decision compels this result. By selectively omitting key language from its precedent decision, USCIS has improperly and arbitrarily broadened the scope of the holding in Izummi. See R.L.I.L.P. v. INS, 86 F. Supp. 2d at 1022 (“an agency abuses its discretion when its decisions either are contrary to the plain language of a statute or regulation or add a requirement not contained in the statute.”); Kazarian v. USCIS, 596 F.3d 1115, 1121 (9th Cir. 2010) (“the AAO may not unilaterally impose a novel evidentiary requirement.”). USCIS perpetuated this error in the MTR Denial, where it 3 Although R.L.I.L.P. found that “an alien may not enter into an agreement before the end of his two-year conditional residence period that grants him the right to sell his interest back to the partnership. Such an agreement, according to the INS, converts the alien's capital from the required equity investment into a loan,” R.L.I.L.P. v. INS, 86 F. Supp. 2d at 1023, the court did not affirm the denial of the petitioner’s case on that basis alone. It evaluated other aspects of the agreement that made it more like debt than equity. See Id. (“One might conclude that Zou's lack of any right to share in any of R.L.I.L.P.'s profits above 4 percent per annum rendered Zou's agreement a debt arrangement.”). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 28 of 49 24 incorrectly states that “Matter of Izummi found such a redemption right [the Put Option] constitutes an impermissible debt arrangement . . .,” MTR Denial at 5, CAR2 230, because Matter of Izummi prohibits a very different kind of arrangement. On the other hand, Izummi unambiguously states “[f]or the alien's money truly to be at risk, the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a certain price. Otherwise, the arrangement is nothing more than a loan.” Matter of Izummi, 22 I. & N. Dec. at 186. “Knowing” implies certainty, as does “assured.” “The alien must go into the investment not knowing for sure if he will be able to sell his interest at all after he obtains his unconditional permanent resident status.” Id., at 186-87 (emphasis added). As discussed above, the Put Option only provides Plaintiffs with the ability to receive a return of capital if the NCE’s business is successful. Neither the NCE nor the Plaintiffs are able to predict with any certainty whether that will happen. As a result, the Put Option fully complies with this holding of Izummi. Second, Izummi does not prohibit any agreement to repay investors. What Izummi finds to constitute a “debt arrangement” is an unconditional, contractual promise to repay the investors, regardless of the success or failure of the business, and an agreement that shifts the business risk from the investor to the company. See Matter of Izummi, 22 I. & N. Dec. at 184 (“If the partnership agreement is controlling, then the petitioner's agreement to make this payment of $290,000 is, in essence, a debt arrangement in which he provides funds in exchange for an unconditional, contractual promise that it will be repaid later at a fixed maturity date (six months later). Such an arrangement is specifically prohibited by the regulations.”); 182-83 (“In Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 29 of 49 25 short, because the petitioner is guaranteed annual distributions from the Partnership of at least 12-percent for five years, which would yield him $ 93,600, the petitioner's five annual payments totaling $ 90,000 under the promissory note cannot be considered a qualifying contribution of capital. The petitioner has effectively shifted the risk of loss of the $ 90,000 from himself to the Partnership.”). See also Doe v. USCIS, at 16. The investment in Izummi could not “be said to be at risk because it is guaranteed to be returned, regardless of the success or failure of the business.” Id., at 184. See also Doe v. USCIS, at 15-16. The NCE’s Operating Agreement is specifically lacking an unconditional promise to repay the investors. Instead, the exercise of the Put Option is expressly contingent on the NCE having Available Cash Flow, which is defined as “the total cash available to the Company from all sources less the Company’s total cash uses before payment of debt service.” Operating Agreement at 1, CAR 126. However, the Put Option expressly excludes capital contributed by Members as a source of repayment. Id., at 133-34. Once the investors’ capital is expended on the Project, the NCE will have no cash available unless it has income from the Project. As a result, the Plaintiffs’ potential returns on or of capital depend on the business making a profit. The Put Option does not satisfy any of the main factors set forth in Izummi for determining whether an investment is a “debt arrangement”- unconditional contractual promise, independent of the success or failure of the business, that shifts the risk form the investor to the company. In the denial, USCIS incorrectly “considers this Operating Agreement to have stated explicitly in its contract language that the investor’s capital will be returned upon demand at the end of the petitioner’s conditional residency,” Denial at 6, CAR 1705, and also incorrectly “interprets this Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 30 of 49 26 ‘Put Option’ as granting the Petitioner the right to demand a return of her investment upon approval of her I-829.” MTR Denial at 5, CAR2 230. As previously stated, this provision is contingent. Capital will be returned only if the business is successful, regardless of whether the Plaintiffs have a right to demand a return. See Doe v. USCIS at 16 (“Unlike in Matter of Izummi, no guarantees were made to the Plaintiffs in this case that their capital would be returned regardless of the success or failure of the business.”). USCIS then states “Petitioner’s assertion that the exercise of the Put Option is expressly contingent upon the NCE’s cash flow and future financial performance belies an understanding of the statutory interpretation of ‘capital at risk.’ The language of the Put Option goes beyond the NCE merely attempting to limit risk to the petitioner. In fact, the petitioner is arguing that her capital is at risk insofar as the NCE is not profitable. Should the NCE be profitable and have sufficient cash flow, the Put Option was clearly written as an exit strategy for the investor to compel the NCE to purchase the member’s interest. In no way did the profitability of the NCE affect the AAO writing in Matter of Izummi, ‘. . . an alien investor may not enter into any agreement granting him the right to sell his interest back to the partnership.’ Therefore, USCIS finds the petitioner’s capital investment in exchange for a redemption agreement is not properly ‘invested’ and is not ‘at risk’.” Denial at 6, CAR 1705. First, the Put Option does nothing to limit the risks to the Plaintiffs’ investment capital. As such, USCIS has incorrectly and arbitrarily characterized this as “the NCE merely attempting to limit risk to the petitioner.” Id. The Put Option was designed to provide the Plaintiffs with an opportunity to exit the investment, if there is money available to repay their investments, at an uncertain date in the future, after they have received the removal of the conditions on their residence and are no longer subject to the requirements of the Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 31 of 49 27 program. However, it does not mitigate the risk of loss of the Plaintiffs’ investments from the failure of the business. Nor does it attempt to. Next, USCIS states that “[i]n no way did the profitability of the NCE affect the AAO writing in Matter of Izummi.” Id. This is simply not true. The AAO was substantially influenced by the fact that the agreement in Izummi provided for a return regardless of the success or failure of the business, and the failure to repay the investor upon the exercise of the Sell Right was a breach of the agreement. Indeed, the fact that the promise to pay was not dependent on the profit of the business was a big part of why the AAO found the agreement to be a debt arrangement. See Matter of Izummi, 22 I. & N. Dec. at 184; Doe v. USCIS, at 15-16. 3. USCIS Acted Arbitrarily and Capriciously by not Evaluating the Debt/Equity Factors Present in this Case. There is a well-accepted body of law in the securities and tax contexts relating to the determination of whether an investment is in the nature of debt or equity, which originates from agencies that have significantly more expertise in the area than USCIS, which is charged with the adjudication of benefits under the immigration laws, and not issues of debt or equity, which are much more relevant to tax or securities laws. An agency’s decision on matters outside of its expertise is not entitled to deference. See Trung Thanh Hoang v. Holder, 641 F.3d 1157, 1163- 64 (9th Cir. 2011); Mandujano-Real v. Mukasey, 526 F.3d 585, 589 (9th Cir. 2008); Garcia- Lopez v. Ashcroft, 334 F.3d 840, 843 (9th Cir. 2003). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 32 of 49 28 It is instructive that despite the AAO’s failure to articulate any standard by which to judge whether an investment is in the nature of debt or equity, the AAO appears to have considered several of these generally accepted debt/equity factors in reaching its decision in Izummi. USCIS, on the other hand, applied no standard at all in reaching its decision in this case. “The classic debt is an unqualified obligation to pay a sum certain at a reasonably close fixed maturity date along with a fixed percentage in interest payable regardless of the debtor's income or lack thereof.” Gilbert v. Commissioner, 248 F.2d 399, 402 (2d Cir. 1957). In a United States Tax Court case, PepsiCo P.R., Inc. v. Comm’r, 104 T.C.M. (CCH) 322 (2012), the court “articulated a list of 13 factors germane to such an analysis: (1) names or labels given to the instruments; (2) presence or absence of a fixed maturity date; (3) source of payments; (4) right to enforce payments; (5) participation in management as a result of the advances; (6) status of the advances in relation to regular corporate creditors; (7) intent of the parties; (8) identity of interest between creditor and stockholder; (9) “thinness” of capital structure in relation to debt; (10) ability of the corporation to obtain credit from outside sources; (11) use to which advances were put; (12) failure of debtor to repay; and (13) risk involved in making advances.” PepsiCo, 104 T.C.M. (CCH) at 55-56 Other courts have listed similar factors. See e.g. Roth Steel Tube Co. v. Comm’r of Internal Revenue, 800 F.2d 625, 630 (6th Cir. 1986). Although most of the following factors are relevant to the instant case, USCIS applied none of them in reaching its decision. If it had, nearly all of the following factors would have led to a conclusion that the Put Option is not a debt arrangement: 1. The Names or Labels Given to the Instruments. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 33 of 49 29 While form should not be elevated over substance, see Hardman v. United States, 827 F.2d 1409, 1411 (9th Cir. 1987),4 the form of the agreement is indicative of the intent of the parties. “The issuance of a stock certificate indicates an equity contribution, whereas the issuance of a bond, debenture, or note indicates a bona fide indebtedness.” PepsiCo, 104 T.C.M. (CCH) at 57. Here, the Investor Plaintiffs signed a subscription agreement agreeing to purchase limited liability company Membership Interests. The investment is governed by the NCE’s Operating Agreement. Thus, the agreements are strongly suggestive of an equity investment. In Izummi, the investments were made pursuant to a promissory note, which is indicative of a debt arrangement. 2. Presence or Absence of a Fixed Maturity Date “The presence of a fixed maturity date indicates a fixed obligation to repay, a characteristic of a debt obligation. The absence of the same on the other hand would indicate that repayment was in some way tied to the fortunes of the business, indicative of an equity advance.” PepsiCo, 104 T.C.M. (CCH) at 57 (citations omitted). While the Put Option is exercisable upon a certain event, the date of the occurrence of that event is highly uncertain. Additionally, the repayment is expressly contingent on the fortunes of the business, such that the obligation may never be triggered, even by the events contemplated in the Put Option. “[I]n the absence of a provision that the holder may unconditionally demand his advance at a fixed time the security cannot be a debt.” Id., at 58 (emphasis added) (internal quotations and citations omitted). This factor was considered in Izummi, where the AAO found that both the presence of a specified maturity date 4 But c.f. PepsiCo, 104 T.C.M. (CCH) at 49-50 (“An analysis focused myopically on the ‘substance’ of a transaction, but devoid of any consideration of the obligations engendered by the terms of the governing instruments, would typically result in deficient, or wholly flawed, determinations.”). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 34 of 49 30 and a promise to pay regardless of the income of the company were indicative of a debt arrangement that prevented the investment from being at risk. See Matter of Izummi, 22 I. & N. Dec. at 184; see also Doe v. USCIS, at 16. 3. Source of Payments “A taxpayer willing to condition the repayment of an advance on the financial well-being of the receiving company acts as a classic capital investor hoping to make a profit, not as a creditor expecting to be repaid regardless of the company’s success or failure.” PepsiCo, 104 T.C.M. (CCH), at 66 (internal quotations and citations omitted). “[I]f repayment is possible only out of corporate earnings, the transaction has the appearance of a contribution of equity capital but if repayment is not dependent upon earnings, the transaction reflects a loan to the corporation.” Estate of Mixon, 464 F.2d 394, 404 (5th Cir. 1972). Here, the repayment of Plaintiffs is expressly contingent on the business having income. In Izummi, the AAO was troubled by the fact that payments to investors could well come from the capital contributions of other investors, and were not likely to come from company income. Matter of Izummi, 22 I. & N. Dec. at 189. In this case, the Put Option explicitly precludes using investor contributions to repay an investor. See CAR 133-34. 4. Right to Enforce Payments “If a financial instrument does not provide its holder with any means to ensure payment of interest, it is a strong indication of a stockholding, rather than a creditor debtor relationship. The right to enforce the payment of interest is one of the requisites of a genuine indebtedness.” PepsiCo, 104 T.C.M. (CCH) at 77. The AAO noted in Izummi that the failure of the company to make payments to the investors or to honor the Sell Rights of investors was a breach of the agreement. Matter of Izummi, 22 I. & N. Dec. at 181-82, 185. The Operating Agreement in the Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 35 of 49 31 instant case does not provide that a failure to repay the Plaintiffs is a breach of the agreement, and makes payment contingent on having available cash. Further, the Operating Agreement contains several provisions limiting the rights of the Members to force a sale of the company or pursue other potential remedies for nonpayment. See CAR 134 (“Waiver of Partition”). The Operating Agreement provides no other types of enforcement mechanisms normally contained in a debt agreement, such as the ability to accelerate the maturity date or to declare all amounts presently due. Importantly, the Operating Agreement does not provide for payments of interest or a fixed rate of return. CAR 130. 5. Participation in Management as a Result of the Advances “The right of the entity advancing funds to participate in the management of the receiving entity’s business demonstrates that the advance may not have been bona fide debt and instead was intended as an equity investment.” PepsiCo, 104 T.C.M. (CCH) at 83-84. Here, Plaintiffs have the right to vote on various issues as provided in the Operating Agreement. 6. Status of the Advances in Relation to Regular Corporate Creditors Plaintiffs’ distributions of profit are subordinate to the debts of the NCE, which must be paid prior to the Manager declaring a distribution. See Offering Memorandum at 4, CAR 165 (“Profits of the Company, if any, will be used first to pay operating expenses, service debts and obligations of the Company. Any remaining profits will be used to establish reserves required by law, in addition to those deemed necessary by the Manager, in its sole discretion. Thereafter, profits and losses generally will be allocated to the Capital Accounts of all Members . . .and may be distributed in accordance with the Company’s distribution policy. It is possible that no amounts will be distributed to EB-5 Members.”). 7. Intent of the Parties Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 36 of 49 32 The Investor Plaintiffs and the NCE clearly intended for the investments to be in the nature of equity and not debt. This is obvious from the nature of the agreements and from the lack of an unconditional, contractual promise to repay the investors. It is also obvious from the lack of interest payments on the Plaintiffs’ capital contributions. 8. Identity of Interest Between Creditor and Stockholder “If advances are made by stockholders in proportion to their respective stock ownership, an equity capital contribution is indicated.” PepsiCo, 104 T.C.M. (CCH) at 91. Here, the investors are Members of the NCE and have received Membership Interests in exchange for their capital contributions. 9. “Thinness” of Capital Structure in Relation to Debt “The purpose of examining the debt-to-equity ratio in characterizing an advance is to determine whether a corporation is so thinly capitalized that repayment would be unlikely. In such a circumstance, the advance would be indicative of venture capital rather than a loan.” PepsiCo, 104 T.C.M. (CCH) at 91. Here, Plaintiffs are contributing $3.5 million out of a total project budget of approximately $29 million. In addition to Plaintiffs’ equity, there will be approximately another $5.25 million of equity. In comparison to the approximately $20 million of debt financing, the equity represents less than one third of the financing necessary to construct and operate the Project. 10. Ability of the corporation to obtain credit from outside sources It is anticipated that the NCE will obtain a loan in the amount of approximately $20 million from a commercial lender. CAR 42. 11. Use to Which Advances Were Put Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 37 of 49 33 “Where a corporation uses an advance of funds to acquire capital assets, the advance is more likely to be characterized as equity.” PepsiCo, 104 T.C.M. (CCH) at 96. Here, the invested funds are going to be used to construct and operate a senior living facility. It is expected that the Plaintiffs funds will be expended in the construction phase. CAR 42, 179. While Izummi did not look at whether the funds would be used on capital expenditures, it did examine whether the funds would be used to directly further the job creation of the project. In this case, the NCE is the entity most closely responsible for job creation, and the Plaintiffs’ funds will be used toward the construction and operation of the senior living facility, which is expected to directly employ more than 90 people. CAR 13. 12. Failure of Debtor to Repay This factor is currently not relevant. The NCE has not repaid any investor funds, but is not anticipated to do so until after the conditional residence period of the Plaintiffs. 13. Risk Involved in Making Advances “A significant consideration in our inquiry is whether the funds were advanced with reasonable expectations of repayment regardless of the success of the venture or were placed at the risk of the business.” PepsiCo, 104 T.C.M. (CCH) at 97 (internal quotations and citations omitted). Here, it is clear from the plain language of the Put Option that there is no expectation of repayment unless the business is successful. This factor was heavily considered by the AAO in Izummi, as the lack of risk tied to the success or failure of the business was a primary factor in the AAO’s rejection of the agreements in that case. Matter of Izummi, 22 I. & N. Dec.at 184 (petitioner’s investment was not at risk because “it is guaranteed to be returned, regardless of the success or failure of the business”). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 38 of 49 34 In Izummi the AAO was concerned with one factor that is not a standard factor for determining debt or equity, and that is whether the invested funds were placed at risk in the business for the purpose of meeting the EB-5 program’s job creation requirements. The guaranteed returns in that case meant that in all likelihood, the investors would never have the full $500,000 minimum investment amount ever deployed into the job creating activity. Much of it would be used to pay returns to investors, or for administrative costs. By shifting the risks to the company instead of the investors, the company was forced to use some of the capital for non-job creating activity, in contravention of the goals of the EB-5 program. Matter of Izummi, 22 I. & N. Dec. at 189 This is not the case here, where 100% of the invested capital will be used on the Project. Plaintiffs do not rely only on the above analysis, however. Plaintiffs submitted an opinion letter in their Motions to Reopen and Reconsider from C.P.A. Jean Chou, who reviewed the Offering Memorandum and Operating Agreement, and specifically concluded that “the investors’ capital contributions are equity investments into Mirror Lake village, LLC, and not loans or other debt arrangements. There is no liability or note due to any of the investors on the part of Mirror Lake Village, LLC. There were no collateral assets offered as security for any of the investors. For accounting purposes, Mirror Lake Village, LLC recognized an increase in equity as a result of the investments and did not recognize any liability.” CAR2 223. USCIS did not provide any analysis or rebuttal of this opinion in its denial of the Motions. The failure of USCIS to articulate or apply any kind of objective criteria in finding that the Put Option is a debt arrangement, and its failure to consider the extensive evidence in the record to the contrary, is an abuse of discretion. The fact that the instant agreement so strongly resembles an equity investment under commonly accepted standards, and a C.P.A. rendered a professional Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 39 of 49 35 opinion that the investments are in the nature of equity and not debt, suggests that USCIS’ decision runs contrary to the facts before it. The agency’s failure to engage in a thorough analysis, coupled with the weight of the facts contradicting the agency’s finding, indicate that the denial of the Plaintiffs’ petitions was an abuse of discretion. B. Matter of Izummi is Ultra Vires and Creates a Requirement not Found in the EB-5 Statutes or Regulations There is no requirement in the statute or regulations that an investment has to be indefinite in order to qualify under the EB-5 Program. Section 1153(b)(5) of title 8 of the U.S. Code Provides: 5) Employment creation. - (A) In general. - Visas shall be made available, in a number not to exceed 7.1 percent of such worldwide level, to qualified immigrants seeking to enter the United States for the purpose of engaging in a new commercial enterprise (including a limited partnership)— (i) in which such alien has invested (after the date of the enactment of the Immigration Act of 1990) or, is actively in the process of investing, capital in an amount not less than the amount specified in subparagraph (C), and (ii) which will benefit the United States economy and create full-time employment for not fewer than 10 United States citizens or aliens lawfully admitted for permanent residence or other immigrants lawfully authorized to be employed in the United States (other than the immigrant and the immigrant's spouse, sons, or daughters). 8 U.S.C.§ 1153(b)(5). The remainder of this section discusses set asides for rural and high unemployment areas, and the definition of full-time employment. Id. There is no mention of “at-risk,” or any time limit on investment. The statute regarding the removal of conditions for EB-5 investors appears at 8 U.S.C. § 1186b. 8 U.S.C. § 1186b(d) provides that an EB-5 investor must submit a petition to remove the Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 40 of 49 36 conditions on his or her investment that demonstrates that he or she has “(i) invested, or is in the process of investing, the requisite capital; and (ii) sustained the actions described in clause (i) throughout the period of the alien’s residence in the United States.” 8 U.S.C. § 1186b(d)(1)(A). 8 U.S.C. § 1186b(d)(2) provides that the time to file the petition is between 21 and 24 months after the alien became a conditional permanent resident. The regulations regarding eligibility for an EB-5 visa and the petition process appear at 8 C.F.R. § 204.6. These regulations contain no statement about the length of time an EB-5 investor must maintain his or her investments. The regulations regarding the removal of conditions appear at 8 C.F.R. § 216.6. 8 C.F.R. § 216.6(a)(4) provides: “(4) Documentation. The petition for removal of conditions must be accompanied by the following evidence: (i) Evidence that a commercial enterprise was established by the alien. Such evidence may include, but is not limited to, Federal income tax returns; (ii) Evidence that the alien invested or was actively in the process of investing the requisite capital. Such evidence may include, but is not limited to, an audited financial statement or other probative evidence; and (iii) Evidence that the alien sustained the actions described in paragraph (a)(4)(i) and (a)(4)(ii) of this section throughout the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. Such evidence may include, but is not limited to, bank statements, invoices, receipts, contracts, business licenses, Federal or State income tax returns, and Federal or State quarterly tax statements. (iv) Evidence that the alien created or can be expected to create within a reasonable time ten full-time jobs for qualifying employees. In the case of a "troubled business" as defined in 8 CFR 204.6(j)(4)(ii), the alien entrepreneur must submit evidence that the commercial enterprise maintained the number of existing employees at no less than the pre-investment level for the period following his or her admission as a conditional permanent resident. Such evidence may include payroll records, relevant tax documents, and Forms I-9.” (Emphasis added). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 41 of 49 37 Similarly, 8 C.F.R. §216.6(c) provides: “(c) Adjudication of petition. (1) The decision on the petition shall be made within 90 days of the date of filing or within 90 days of the interview, whichever is later. In adjudicating the petition, the director shall determine whether: (i) A commercial enterprise was established by the alien; (ii) The alien invested or was actively in the process of investing the requisite capital; and (iii) The alien sustained the actions described in paragraphs (c)(1)(i) and (c)(1)(ii) of this section through-out the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. (iv) The alien created or can be expected to create within a reasonable period of time ten full-time jobs to qualifying employees. In the case of a ‘troubled business’ as defined in 8 CFR 204.6(j)(4)(ii), the alien maintained the number of existing employees at no less than the pre-investment level for the previous two years.” (Emphasis added). It is clear from the statutes and regulations governing the EB-5 program that an EB-5 investor is required to maintain his or her investment only for the two-year conditional residence period. This interpretation is supported by the USCIS Policy Manual, which states: “2. Sustainment of the Investment The immigrant investor must provide evidence that he or she sustained the investment throughout the period of his or her status as a conditional permanent resident of the United States. USCIS considers the immigrant investor to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement and continuously maintained his or her capital investment over the sustainment period.” Vol. 6, Part G, Chapter 5 § (A)(2)5 5 Available at https://www.uscis.gov/policymanual/HTML/PolicyManual-Volume6-PartG- Chapter5.html#footnote-6, last visited June 18, 2017. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 42 of 49 38 “The sustainment period is the investor’s 2 years of conditional permanent resident status. USCIS reviews the investor’s evidence to ensure sustainment of the investment for 2 years from the date the investor obtained conditional permanent residence. An investor does not need to maintain his or her investment beyond the sustainment period.” Vol. 6, Part G, Chapter 5 § (A)(2)(FN 4) (emphasis added). Nothing, in either the statute or regulations, or even published USCIS policy, requires an investor to maintain his or her investment past this period. Additionally, nothing at all in the statutes or regulations prohibits an investor from having a right to exit the investment at some point after the conditional residence period. There is similarly no prohibition on having an exit strategy, even one that is contemplated at the time of the investment. However, USCIS claims that the AAO in Izummi created such a prohibition. See Denial at 6, CAR 1705. Matter of Izummi states: “To enter into a redemption agreement at the time of making an ‘investment’ evidences a preconceived intent to unburden oneself of the investment as soon as possible after unconditional permanent resident status is attained. This is conceptually no different from a situation in which an alien marries a U.S. citizen and states, in writing, that he will divorce her in two years. The focus here is on the green card and not on the business. Despite counsel's repeated claims that the Service's current position is hurting U.S. workers and U.S. businesses, and despite counsel's accusations regarding the Service's allegedly cavalier attitude toward them, one could argue that an alien who enters into a redemption agreement considers the continued success of the U.S. workers and U.S. businesses secondary. His primary concern is obtaining permanent resident status for as little money as possible.” Matter of Izummi, 22 I. & N. Dec. at 186. Although this statement is arguably dicta that is not essential to the holding of the case,6 USCIS has treated it as binding precedent in the instant case. There are a number of problems with this statement. 6 The AAO was faced with an investment agreement in Izummi that was essentially a bald attempt to circumvent the immigration laws by structuring an investment that did not meet the Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 43 of 49 39 First, a comparison between an investor who would like the ability to get his or her money back at some point in the future to someone who commits marriage fraud to get a green-card borders on the absurd. Marriage is generally intended to be a life-long endeavor. An investment is not. Wanting to be able to exit an investment at some point is not fraudulent, it is normal. An investor puts his or her money at risk in order to make a profit- i.e. to receive his or her investment back, plus earnings on that investment. The very nature of an investment contemplates the return of that investment. If it did not, there would be no purpose in investing. Second, the AAO’s comment that the investor considers the “continued success of the U.S. workers and U.S. businesses secondary” is simply untrue. In most or all EB-5 investments, and definitely in the present case, the investor is dependent on the success of the business, and creation of jobs (which only happens if the business is successful), in order to receive his or her permanent green card and a return of his or her capital. A failure of the business would result in the investor getting neither the green card nor a return of capital. Having an option to exit the investment at a time after the business has been established, the jobs have been created, and the investor has obtained unconditional permanent residence is not at all inconsistent with a focus on the success of the business, as the interests are fully aligned. Additionally, under current USCIS policy, in order to receive removal of the conditions on residence, an investor must show that the jobs must have been created before or during the two-year conditional period. The jobs are not letter or the spirit of the law, and while the AAO’s frustration with the attorneys and arguments in the case is evident, this statement appears to be a reaction to that frustration rather than an intent to create precedent. We find the remark intemperate and inappropriate as precedent, especially when read outside of the context of the facts in that case. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 44 of 49 40 required by current USCIS policy to continue to exist at the time of the I-829 in order for the investor to have his or her I-829 petition approved.7 This policy, which is focused on what happened during the conditional residence period (and not what happens afterwards), seems inherently inconsistent with the blanket statement in Izummi that a desire to have the possibility of exiting the investment after the conditional residence period is inconsistent with the goals of the EB-5 program. Further, once business has been created, is operational and self-sustaining, and is able to return the original investment capital (after repayment of other debt), the business simply may not need the capital to support its continued operation. A business able to reach this condition is arguably successful. At this point, it makes little sense to require the investor to maintain the capital investment in a business that doesn’t need capital. In economic terms, it would be better to return that capital to the investor to allow the investor to put it to another use in the economy than to keep it stagnant in the company. An investor’s entering into an agreement to allow his or her capital to be repaid upon the success of the business is consistent both with an interest in the success of the business and with the economic goals of the EB-5 program. Additionally, as a matter of policy, prohibiting an investor from having an agreement that allows the investor to exit the investment and subjects the investment to the indefinite use of the 7 See USCIS Policy Manual Vol. 6, Part G, Chapter 5 § (B) (“In making the determination as to whether or not the immigrant investor has created the requisite number of jobs, USCIS does not require that the jobs still be in existence at the time of the petition to remove conditions adjudication in order to be credited to the investor. Instead, the job creation requirement is met if the investor can show that at least 10 full-time jobs for qualifying employees were created by the new commercial enterprise as a result of his or her investment and such jobs were considered to be permanent jobs when created.”). Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 45 of 49 41 company is a disaster. There have been a number of high profile cases of fraud and misappropriation in the EB-5 arena in the last several years. See e.g. S.E.C. v. A Chicago Convention Center, LLC et. al., No. 13-cv-982 (N.D. Ill. Mar. 17, 2014); S.E.C. v, Quiros et al., No. 1:16-cv-21301-GAYLES (S.D. Fla.); S.E.C. v. Emilio Francisco et al., No. 8:16-cv-02257- CJC-DFM (C.D. Cal. Dec. 27, 2016); S.E.C. v. San Francisco Regional Center, LLC et al., No. 3:17-cv-00223 (N.D. Cal. Jan. 17, 2017). The combination of limited investor ability to oversee and participate in management of the company that is inherent in being a Limited Partner or non- managing Member of an LLC, coupled with a USCIS policy that an investor cannot enter into an investment agreement that contemplates an exit at any point after the initial investment and job creation is complete, leaves EB-5 ripe for fraud and abuse. Leaving an investor trapped in an investment until the company decides it wants to return money creates an opportunity for the company to misuse the money for purposes that are not in the interests of the investors, and that do nothing to further the job creation or economic development goals of the EB-5 program. Third, and most importantly, this paragraph in Izummi purports to create a requirement for an EB-5 investment that simply does not exist in the statute or regulations, and in fact contradicts the timing component of the regulations and current, published USCIS policy. The requirement stated in Izummi, that an investment be indefinite, and restriction that an investor can never have an option to exit the investment, creates an ultra vires requirement that is beyond what Congress contemplated in the statutes. This requirement is also not reasonably related to the purpose of the statute, which was to encourage “legitimate” investments into the U.S. that result in job creation, see S. Rep. No. 101-55, at 21 (statement of Sen. Simon), and not perpetual investments. “[N] neither USCIS nor an AAO may unilaterally impose novel substantive or evidentiary Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 46 of 49 42 requirements beyond those set forth [in the regulations].” Kazarian v. USCIS, 596 F.3d 1115, 1120 (9th Cir. 2010). See also Love Korean Church v. Chertoff, 549 F.3d 749, 758 (9th Cir. 2008). While it is clear that the investment agreements in Matter of Izummi did not result in “legitimate” investments- they did not necessarily result in the full contribution of the minimum required amount of capital by the investor, they guaranteed a return to the investor regardless of the success or failure of the business, and they prevented the required minimum amount of capital from actually being used for a job creating purpose- there is no reasonable basis to conclude that allowing an investor to enter into an agreement that allows for a possible exit from the investment, after the capital has been fully deployed in the job creating activity and the business has successfully achieved its job creating and investment goals, results in an investment that is not “legitimate.” As the exhaustive analysis of well-established debt and equity factors above demonstrates, such an agreement does not constitute a debt-arrangement as contemplated by the regulations. Prohibiting an agreement based on the mere presence of an exit strategy (which is contingent on the success of the business and only occurs after the conditional residence period) is not a reasonable interpretation of the statute. It creates an additional and arbitrary requirement on investors seeking to participate in the EB-5 program, and is therefore ultra vires. For the same reasons, and because it explicitly contravenes the timing requirements specified in the regulations, this is not even a reasonable interpretation of the agency’s own regulations, and must be overturned. VI. Conclusion Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 47 of 49 43 Defendants’ denial of Plaintiffs’ petitions was arbitrary and capricious and an abuse of discretion. Matter of Izummi does not compel a denial of Plaintiffs’ petitions, as asserted by Defendants, for if it does, then the holding of Matter of Izummi is ultra vires and must be overturned. WHEREFORE: Based on the foregoing, Plaintiffs respectfully request that the Court grant their Cross Motion for Summary Judgement, and enter an order reversing the denial of their I-526 petitions; granting Plaintiffs’ attorneys fees under the Equal Access to Justice Act; and such other relief as the Court deems just an appropriate. S/Daniel B. Lundy Klasko Immigration Law Partners, LLP 1601 Market Street, Suite 2600 Philadelphia, PA 10103 (215) 825-8600 Fax (215) 825-8699 H. Ronald Klasko Klasko Immigration Law Partners, LLP 1601 Market Street, Suite 2600 Philadelphia, PA 10103 (215) 825-8600 Fax (215) 825-8699 Thomas K. Ragland Clark Hill PLC (202) 552-2360 Fax (202) 772-0901 Attorneys for Plaintiffs A copy of this Cross Motion for Summary Judgement has been served on counsel for Defendants by filing it with the Court’s Electronic Filing System. Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 48 of 49 44 Case 1:16-cv-01955-TFH Document 21 Filed 06/21/17 Page 49 of 49