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

MOTION for Summary Judgment

D.D.C.May 17, 2017

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) MIRROR LAKE VILLAGE, et al., ) ) Plaintiffs, ) ) v. ) Civil Action No.: 16-1955-TFH ) JOHN F. KELLY, Secretary of the ) United States Department of Homeland ) Security, et al. ) ) Defendants. ) ) DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Under Federal Rule of Civil Procedure 56, Defendants Secretary of Homeland Security John F. Kelly, in his official capacity; James McCament, Acting Director of the United States Citizenship and Immigration Services (“USCIS”), in his official capacity; and Nicholas Colucci, in his official capacity as Chief of USCIS’s Immigrant Investor Program (collectively, “Defendants”), hereby move this Court for summary judgment. The grounds for this motion are set forth in the accompanying memorandum of points and authorities. A proposed order is attached. Dated: May 17, 2017 Respectfully submitted, CHAD A. READLER Acting Assistant Attorney General WILLIAM C. PEACHEY Director GLENN M. GIRDHARRY Assistant Director By: /s/ Joshua S. Press JOSHUA S. PRESS Trial Attorney Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 1 of 29 United States Department of Justice Civil Division Office of Immigration Litigation District Court Section P.O. Box 868, Ben Franklin Station Washington, DC 20044 Phone: (202) 305-0106 Facsimile: (202) 305-7000 e-Mail: joshua.press@usdoj.gov Attorneys for Defendants Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 2 of 29 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) MIRROR LAKE VILLAGE, et al., ) ) Plaintiffs, ) ) v. ) Civil Action No.: 16-1955-TFH ) JOHN F. KELLY, Secretary of the ) United States Department of Homeland ) Security, et al. ) ) Defendants. ) ) MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT ON THE ADMINISTRATIVE RECORD CHAD A. READLER Acting Assistant Attorney General WILLIAM C. PEACHEY Director GLENN M. GIRDHARRY Assistant Director JOSHUA S. PRESS Trial Attorney United States Department of Justice Civil Division Office of Immigration Litigation District Court Section Attorneys for Defendants Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 3 of 29 i TABLE OF CONTENTS INTRODUCTION..........................................................................................................................1 BACKGROUND ............................................................................................................................2 I. Statutory History ...............................................................................................................2 II. Regulatory History.............................................................................................................3 III. Factual History ...................................................................................................................5 STANDARDS OF REVIEW .........................................................................................................6 I. Petitioners Have The Burden Of Proof ............................................................................6 II. Review Of Agency Action Under The APA .....................................................................6 ARGUMENT ..................................................................................................................................7 I. USCIS Did Not Violate The APA By Relying Upon Matter of Izummi. ........................8 A. Matter of Izummi ..................................................................................................10 B. The Agency’s Interpretation Of Matter of Izummi Is Entitled To Deference 13 II. USCIS Reasonably Denied The Petitions On The Ground That Plaintiffs’ Redemption Agreements Violated The Regulation And Matter of Izummi ................15 A. USCIS’s Conclusions That Plaintiffs’ “Investments” Were More Debt-like Than Equity-like Were Supported By The Record ..........................................16 B. There Is No Reason To Bar Matter of Izummi’s Application To This Case ...18 CONCLUSION ............................................................................................................................20 CERTIFICATE OF SERVICE ..................................................................................................22 Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 4 of 29 ii TABLE OF AUTHORITIES CASE LAW Alpharma, Inc. v. Leavitt, 460 F.3d 1 (D.C. Cir. 2006) ........................................................................................................ 7 Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077 (D.C. Cir. 2001) .................................................................................................. 7 Auer v. Robbins, 519 U.S. 452 (1997) .................................................................................................................. 14 Back Country Horsemen of Am. v. Johanns, 424 F. Supp. 2d 89 (D.D.C. 2006) ............................................................................................ 19 Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945) .................................................................................................................. 14 Camp v. Pitts, 411 U.S. 138 (1973) .................................................................................................................... 7 Chang v. United States, 327 F.3d 911 (9th Cir. 2003) .................................................................................................... 10 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) .................................................................................................................... 7 Decker v. Nw. Envt'l Def. Ctr., 133 S. Ct. 1326 (2013) .............................................................................................................. 19 Doe v. Johnson, No. 15-cv-01387, 2017 WL 1151036 (N.D. Ill. Mar. 28, 2017) ................................................ 6 Doe v. USCIS, No. 15–273, 2017 WL 972086 (D.D.C. Mar. 10, 2017) ..................................................... 15, 18 Good Samaritan Hosp. v. Shalala, 508 U.S. 402 (1993) .................................................................................................................. 13 Ind. Mun. Power Agency v. FERC, 56 F.3d 247 (D.C. Cir. 1995). ..................................................................................................... 1 Matter of Chawathe, 25 I. & N. Dec. 369 (AAO 2010) ............................................................................................... 6 Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 5 of 29 iii Matter of Ho, 22 I. & N. Dec. 206 (Assoc. Comm. 1998) ........................................................................... 4, 5 Matter of Hsiung, 22 I. & N. Dec. 201 (Assoc. Comm. 1998) ............................................................................... 4 Matter of Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998) ...................................................................... passim Matter of Soffici, 22 I. & N. Dec. 158 (Assoc. Comm. 1998) ............................................................................... 4 Motor Vehicle Mfrs. Ass’n. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) ...................................................................................................................... 7 New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) ...................................................................................................... 19 R.L. Inv. Ltd. Partners v. INS, 86 F. Supp. 2d 1014 (D. Haw. 2000) ................................................................................. passim Rush Univ. Med. Ctr. v. NLRB, 833 F.3d 202 (D.C. Cir. 2016) .................................................................................................. 14 Sharma v. Taylor, 50 F. Supp. 3d 749 (E.D. Va. 2014) ......................................................................................... 19 Sierra Club v. Mainella, 459 F. Supp. 2d 76 (D.D.C. 2006) .......................................................................................... 6, 7 Spencer Enters., Inc. v. United States, 229 F. Supp. 2d 1025 (E.D. Cal. 2001) .................................................................................... 14 Systronics Corp. v. INS, 153 F. Supp. 2d 7 (D.D.C. 2001) ................................................................................................ 6 Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) .................................................................................................................. 14 Zhang v. Napolitano, 604 F. Supp. 2d 77 (D.D.C. 2009) ............................................................................................ 16 Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 6 of 29 iv STATUTES 8 U.S.C. § 1153(b)(5) ..................................................................................................................... 2 8 U.S.C. § 1154(b) .......................................................................................................................... 6 8 U.S.C. § 1186b ......................................................................................................................... 2, 3 8 U.S.C. § 1361 ............................................................................................................................... 6 REGULATIONS 8 C.F.R. § 103.3(c).................................................................................................................... 4, 15 8 C.F.R. § 204.6(e)................................................................................................................. passim 8 C.F.R. § 204.6(f) ...................................................................................................................... 2, 4 8 C.F.R. § 204.6(j) ......................................................................................................................... 4 8 C.F.R. § 216.6(a)(4)(iv) ............................................................................................................... 2 FEDERAL RULES OF CIVIL PROCEDURE Fed. R. Civ. P. 56 ............................................................................................................................ 6 LEGISLATIVE HISTORY S. Rep. No. 101-55 ...................................................................................................................... 2, 3 Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 7 of 29 1 INTRODUCTION Where, as here, the United States Citizenship and Immigration Services (“USCIS”) denies an immigrant visa petition on grounds supported by both substantial evidence and a reasonable interpretation of a decades-old agency decision, the Court must affirm that denial under the Administrative Procedure Act’s highly-deferential standard. See Ind. Mun. Power Agency v. FERC, 56 F.3d 247, 254 (D.C. Cir. 1995). In this case, USCIS correctly identified the simplest reason why Plaintiffs’ I-526 immigrant visa petitions must be denied: Plaintiffs’ invested capital was not sufficiently “at risk” because the investment was structured in such a way as to constitute an impermissible redemption agreement between the alien investors and the new commercial enterprise. Summary judgment should be granted in favor of Defendants because the agency’s bases for the denials were appropriately reasoned and consistent with the records. The Plaintiffs are seven individual alien investors seeking an immigrant visa (“green card”) through the employment-based, fifth preference (“EB-5”) immigrant-investor visa program and a single organizational Plaintiff. USCIS initially denied the individual Plaintiffs’ I-526 Immigrant Petitions for Alien Entrepreneur (“I-526 petitions”) in February 2016. They are now challenging these denials under the Administrative Procedure Act (“APA”). Ultimately, USCIS denied the I- 526 petitions because they were based on impermissible redemption agreements rather than qualifying investments in the organizational plaintiff that were truly “at risk” under EB-5 program requirements and thus failed to meet their eligibility burdens. And because the certified administrative records support the agency’s decisions, USCIS properly denied the Plaintiffs’ I-526 petition. Accordingly, the Court should deny Plaintiffs’ claims in their entirety, affirm the agency’s denials of their I-526 petitions, and grant summary judgment in favor of Defendants. Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 8 of 29 2 BACKGROUND I. Statutory History. In 1990, Congress amended the Immigration and Nationality Act (“INA”) to provide for classification of “employment creation immigrants who invest capital in new commercial enterprises in the United States that create full-time employment of United States workers” (colloquially referred to as the “EB-5 program”). See Immigration Act of 1990, Pub. L. No. 101- 649, § 121(a) (Nov. 29, 1990) (codified at 8 U.S.C. § 1153(b)(5)). Congress set the qualifying capital investment level for aliens who participate in the EB-5 program at one million dollars, but aliens may qualify for classification by investing at least $500,000 in a “targeted employment area” or “TEA.” 8 U.S.C. § 1153(b)(5)(B)(ii), (C); 8 C.F.R. § 204.6(f). The investment must “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[.]” 8 U.S.C. § 1153(b)(5)(A)(ii). If USCIS determines that an alien’s investment qualifies under the employment creation program, the agency may then grant permanent resident status to the qualifying alien for a conditional two-year period. See 8 U.S.C. § 1186b(a)(1). During this conditional time frame, the alien entrepreneur must directly create “ten full-time jobs for qualifying employees,” or show the ability to do so within “a reasonable time.” 8 C.F.R. § 216.6(a)(4)(iv); S. Rep. 101-55 at 22 (the mandatory conditional residency period is meant “to encourage all aliens receiving visas ... to continue their new commercial enterprises so that the creation of U.S. jobs and the infusion of capital into the U.S. economy is sustained”). In 1993, Congress further expanded the employment-creation program by establishing the regional center “pilot program,” which authorized “regional center[s] in the United States … for the promotion of economic growth, including increased export sales, improved regional Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 9 of 29 3 productivity, job creation, or increased domestic capital investment.” See Departments of State, Justice, and Commerce, the Judiciary and Related Agencies Appropriations Act of 1992, Pub. L. No. 102-395, § 610(a) (Oct. 6, 1992).1 This program allows economic units, whether public or private, engaged in the promotion of economic growth to seek regional center status with USCIS to allow alien investors to fund proposed economic development plans through pooled investments. See 58 Fed. Reg. 44,606; 44,608 (INS) (Aug. 24, 1993). Regardless of this nuance, the statutory purpose of the EB-5 program is to incentivize genuine investments by petitioning immigrants and to create and sustain jobs for United States workers .S. Rep. No. 101-55, at 21 (June 19, 1989).2 Thus, 8 U.S.C. § 1186b(d) also states, in part, that termination of an investor’s conditional permanent residence is proper if “the alien did not invest or was not actively in the process of investing, the requisite capital; or ... was not sustaining [the investment] throughout the period of the alien’s residence in the United States[.]” II. Regulatory History. In 1991, the legacy Immigration and Naturalization Service (“INS”)3 published regulations through notice-and-comment rulemaking interpreting the EB-5 statute and establishing procedures for aliens to file petitions for classification as alien entrepreneurs (“Form I-526 petitions”). See 56 1 The regional center program is no longer in a “pilot” form, although it is currently scheduled to sunset on September 30, 2017. See Consolidated Appropriations Act, 2017, Pub. L. No. 115-31 (May 5, 2017). 2 Indeed, Senator Simon clarified the congressional intent to encourage legitimate investment when he stated, “In enacting the investor visa program, we want to attract entrepreneurs and job‐creators into the U.S. economy, and as long as their investment is legitimate, we do not want or need excess or arbitrary industrial policy tests about what constitutes a worthwhile investment.” S. Rep. No. 101-55, at 21 (statement of Sen. Simon) (emphasis added). 3 Under the Homeland Security Act of 2002, Congress abolished the INS. See Pub. Law No. 107-296, § 471 (Nov. 25, 2002). Congress transferred the authority to adjudicate immigrant visa petitions from the Commissioner of INS (and the Attorney General) to USCIS, an agency within the Department of Homeland Security. Id. at § 451(b)(1). Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 10 of 29 4 Fed. Reg. 60,897; 60,910-13 (INS) (Nov. 29, 1991) (codified at 8 C.F.R. § 204.6). Those implementing regulations require alien investors to submit evidence that the alien “has invested or is actively in the process of investing lawfully obtained capital in a new commercial enterprise in the United States which will create full time positions for not fewer than 10 qualifying employees.” 8 C.F.R. § 204.6(j). To satisfy this investment rule, the alien must submit evidence that the alien has “placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk. 8 C.F.R. § 204.6(j)(2) (emphasis added). Furthermore, the regulations are clear that any contribution of capital in exchange for any form of debt arrangement between the investor and the new commercial enterprise “does not constitute a contribution of capital for [EB- 5] purposes.” 8 C.F.R. § 204.6(e). In addition to these regulations, USCIS has designated four agency “EB-5 program precedential decisions,” to provide alien investors with additional guidance on the rules and requirements of the EB-5 program.4 See 8 C.F.R. § 103.3(c). Courts have recognized these four agency-designated decisions as precedents in all proceedings involving the same issues. See, e.g., R.L. Inv. Ltd. Partners v. INS, 86 F. Supp. 2d 1014, 1018 (D. Haw. 2000) (hereinafter, “RLILP”), aff’d 273 F.3d 874 (9th Cir. 2001). “These AAO decisions were designated pursuant to regulation to ‘serve as precedents in all proceedings involving the same issue(s). Except as these decisions may be modified or overruled by later precedent decisions, they are binding[.]” Id. (quoting 8 C.F.R. § 103.3(c) (1999)). 4 See Matter of Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998); Matter of Soffici, 22 I. & N. Dec. 158 (Assoc. Comm. 1998); Matter of Ho, 22 I. & N. Dec. 206 (Assoc. Comm. 1998); Matter of Hsiung, 22 I. & N. Dec. 201 (Assoc. Comm. 1998). These decisions established several rules of the EB-5 program relating to, inter alia, an investor establishing his lawful source of funds. Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 11 of 29 5 With this backdrop, investing the requisite capital requires alien entrepreneurs to place funds or other qualifying capital assets “at risk,” which requires undertaking an actual business venture. See Matter of Ho, 22 I. & N. Dec. 206, 210 (Assoc. Comm. 1998); 56 Fed. Reg. 60,902 (INS) (Nov. 29, 1991). Because the EB-5 program’s focus is on job creation and sustained growth for the areas of investment, entering into a redemption agreement at the time of making a purported investment in order to receive a return of capital after obtaining unconditional permanent resident status (particularly when coupled with so little risk as to provide virtually no downside or chance for upside) fails to satisfy the purpose of the statute and may provide a basis for denial of a petition. See Matter of Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998). Aliens cannot satisfy this “at risk” requirement by merely depositing funds into an account held by the new commercial enterprise. Matter of Ho, 22 I. & N. Dec. at 210. They must instead provide evidence demonstrating how the new commercial enterprise will actually use the deposited funds; otherwise USCIS has no assurance that the new commercial enterprise will in fact use the alien’s capital investment funds to finance its business operations. See id. at 210–11. III. Factual History. All seven individual Plaintiffs in this case filed similar I-526 petitions in October and November of 2014 based on their relationship with the organizational Plaintiff, Mirror Lake Village, LLC (“Mirror Lake”). See Plaintiffs’ Complaint (ECF No. 1) (hereinafter, “Pls. Compl.”) at ¶ 79. USCIS issued largely identical Notices of Intent to Deny (“NOIDs”) for each petitioner in December 2015. Id. at ¶ 81. Each of the NOIDs related to the individual Plaintiffs’ “Put Options,” or the right to compel Mirror Lake to purchase their interests at one of two points (upon either the final adjudication of the individual Plaintiffs’ I-829 petitions or the second anniversary of the final adjudication of the I-829 petition of each investor). Id. at ¶ 84. The NOIDs indicated USCIS’s Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 12 of 29 6 concern that the Plaintiffs had not made qualifying investments into Mirror Lake based on prior published agency decisions, specifically, Matter of Izummi. See id. at ¶¶ 84–85; see also Certified Administrative Record of Lei Hu, hereinafter “CAR” at 1683–85. The individual Plaintiffs filed nearly identical arguments in response to the NOIDs in January 2016. Pls. Compl. at ¶¶ 86–90. Specifically, they argued that the Put Options were not contrary to past agency precedents and that they were genuinely “at risk” “[b]ecause the Put Option[s] g[a]ve[] the investors a right to exit the investment, subject to [Mirror Lake]’s ability to pay, only after the conditional residence period—when they [would] no longer [be] subject to the EB-5 requirements[.]” Id. at ¶ 89; see also CAR at 1687–1693. USCIS denied the Plaintiffs’ I-526 petitions based on the aforementioned rationale in February 2016. Pls.’ Compl. at ¶ 91. The next month, the individual Plaintiffs filed nearly identical motions to reopen and reconsider with USCIS. Id. at ¶ 91. USCIS did not believe that the individual Plaintiffs’ arguments regarding Izummi were correct, and issued denials accordingly. See id. at ¶¶ 104–09. STANDARDS OF REVIEW I. Petitioners Have The Burden Of Proof. In adjudicating an I-526 petition, USCIS must determine whether the facts stated in the petition and supporting documents are true, see 8 U.S.C. § 1154(b), and it may reject statements that it finds unsubstantiated or without a factual basis. See Systronics Corp. v. INS, 153 F. Supp. 2d 7, 15 (D.D.C. 2001). The burden of proof rests on the alien investor to establish by a preponderance of evidence that he is fully qualified for the benefit sought. 8 U.S.C. § 1361; Doe v. Johnson, No. 15-cv-01387, 2017 WL 1151036, at *2 (N.D. Ill. Mar. 28, 2017) (“It is the investor’s burden to demonstrate these requirements by a preponderance of the evidence.” (citation omitted)); Matter of Chawathe, 25 I. & N. Dec. 369, 375 (AAO 2010). Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 13 of 29 7 II. Review Of Agency Action Under The APA. “[I]n a case involving review of a final agency action under the [APA] ... the standard set forth in Rule 56[a] does not apply because of the limited role of a court in reviewing the administrative record.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89 (D.D.C. 2006) (citations omitted). Merits briefing may therefore serve as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review. Id. at 90 (discussing summary judgment for APA claims). As the D.C. Circuit has put it, “when a party seeks review of agency action under the APA [before a district court], 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). Furthermore, a court may only set aside final agency action under the APA if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Under the “arbitrary and capricious standard, the standard is narrow and the court should not substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Courts must simply assure themselves that the agency has “examine[d] the relevant data and articulate[d] 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) (quotations omitted). The agency’s decisions are entitled to a “presumption of regularity,” and although “inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 416 (1971). The Court’s review is confined to the administrative record, subject to limited exceptions not applicable here. See Camp v. Pitts, 411 U.S. 138, 142 (1973) (“[T]he Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 14 of 29 8 focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court.”). ARGUMENT In this case, USCIS correctly identified how Plaintiffs’ capital was not properly “invested” and was not sufficiently at risk because the investment agreements were structured so as to constitute mere redemption agreements between the Plaintiffs and Mirror Lake. See, e.g., CAR at 1698–99; 1703–05. Plaintiffs disagree and argue two points: (1) USCIS misapplied Izummi and the relevant regulatory language and, if not, (2) Izummi is ultra vires, inconsistent with the EB-5 statutory and regulatory regime, or should be limited to its specific facts. See Pls.’ Compl. at ¶¶ 118–33. These arguments are addressed below in reverse order. Simply put, Izummi was a well-reasoned agency decision entitled to deference. Moreover, Plaintiffs arguments against Izummi amount to little more than the legally unsupportable claim that USCIS may not deny any petitions on the basis of the reasoning in Izummi unless it is an exact match to the facts in that case. This reflects a fundamental misunderstanding of the discretion accorded to USCIS and its expertise in managing the EB-5 program, as well as the precedential value of AAU decisions beyond the particular facts of a case. In Izummi, the INS elucidated a number of important guideposts for determining what types of investments satisfy Congress’s standards for the EB-5 program. USCIS was well within its authority to apply those concepts beyond that case’s instant facts. I. USCIS Did Not Violate The APA By Relying Upon Matter of Izummi. At its core, Plaintiffs are challenging USCIS’s finding that they did not “invest,” as that term is defined by statute and regulation. The individual plaintiffs proposed to meet this statutory requirement by “investing” $500,000 in Mirror Lake. Rather than investments, however, USCIS Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 15 of 29 9 correctly noted that the Mirror Lake arrangements were actually debt arrangements because of the redemption agreements covering the individual Plaintiffs’ contribution of capital to Mirror Lake. This conclusion was drawn from the following aspects of plaintiffs’ investment arrangements: Mirror Lake would have the option to “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” and “the Company will provide 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.” CAR at 1704–05. The agency, relying upon Matter of Izummi, rejected this approach. It found that, for purposes of meeting the statutory and regulatory definition of “invest” (generally defined to mean a “contribution of capital” subject to certain exceptions), an alien may not enter into such a redemption agreement that grants him the right to sell his interest back to the partnership. Such an agreement, according to the agency, converts the alien’s purported investment from the required equity investment into something much more akin to a loan (i.e. a non-qualifying debt arrangement). The agency’s decision referred to 8 C.F.R. § 204.6(e), which defines the term “invest” as follows: “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.” CAR at 1703 (emphasis added). The plain language of 8 C.F.R. § 204.6(e) prohibits “any debt arrangement” and further suggests broad discretion with respect to looking beyond the form of any particular transaction and examining the substance of such transaction in order to determine whether it is, in fact, a prohibited “debt arrangement.” This prohibition appeared in the regulations as initially proposed, Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 16 of 29 10 56 Fed. Reg. 30703‐01 (INS) (July 5, 1991) and remained unchanged in the final regulations as promulgated (without any negative comments noted), 56 Fed. Reg. 60891‐01 (INS) (Nov. 29, 1991). It remains unchanged to this day. The regulation uses a broad term such as “debt arrangements” as a catch‐all. When coupled with the other examples that precede it, the regulation signals how the regulatory definition of “invest” does not only preclude investment arrangements that take the actual form of debt—such as simple loans where one party has a legal obligation to repay another—but other types of arrangements that are debt-like in substance despite being in some other form (such as an equity security coupled with a redemption agreement). In this case, because the redemption agreement with Mirror Lake allowed the individual plaintiffs to get their money back after a set period of time, the agency considered the transaction an impermissible “debt arrangement” under USCIS’s interpretation of the regulation. Plaintiffs pointed out that they risked losing their initial investment if Mirror Lake was unprofitable. CAR at 1705, 1688. But, as other courts have concluded when faced with exactly the same argument, “this only meant that the loan was unsecured. It does not negate the [agency]’s conclusion that [plaintiffs] had a debt arrangement.” RLILP, 86 F. Supp. 2d at 1023. A. Matter of Izummi While the broad prohibition on various types of debt arrangements contained within the definition of “invest” at 8 C.F.R. § 204.6(e) is consistent with, and advances, congressional intent with respect to the types of investment that form the basis of a legitimate investment, it does not contain specific guidance with respect to how to determine when a particular structure constitutes a prohibited “debt arrangement.” Further interpretative guidance was provided in Izummi, “which held inter alia that Immigrant Investors’ I-526 petitions could not be approved if the Immigrant Investors were not partners at the inception of a partnership or if their investment plans featured a Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 17 of 29 11 redemption agreement or related provisions.” Chang v. United States, 327 F.3d 911, 917 (9th Cir. 2003). In Matter of Izummi, the INS’s Administrative Appeals Unit (“AAU”) (now the USCIS Administrative Appeals Office or “AAO”) noted the important purpose behind the statute and interpreted the statute to require the agency to conduct an inquiry into terms of the investment to “ascertain the true substance of the transaction.” 22 I. & N. Dec. at 186. Although Plaintiffs believe that Izummi should be overruled or limited to its facts, Pls.’ Compl. at ¶ 133, the Government has consistently interpreted the decision to illustrate one example of an impermissible “debt arrangement”—but not the only one. Although the underlying investment documents at issue contained both a sell and a buy option, the decision focuses its analysis on the sell option. That said, the various holdings of Izummi largely speak of “redemptions” generically—very much like the one at issue in this case. Because the Izummi decision focuses on sell options, its analysis discusses two separate legal issues in tandem: whether the EB‐5 investor has been guaranteed a return on his or her investment, and whether the sell option causes the investment to constitute a prohibited “debt arrangement.” For example, the AAU stated: 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. See 8 C.F.R. § 204.6(e). 22 I & N Dec. at 184. It is reasonable to interpret this guidance as finding that a sell option is prohibited not only because it guarantees return to the investor, but is also separately prohibited because it effectuates a redemption for a set price at a set time, which causes the investment to be Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 18 of 29 12 more debt‐like than equity‐like, which is a prohibited arrangement under 8 C.F.R. § 204.6(e). In other words, regardless of the AAU’s holding with respect to sell options, the decision did not hold that a debt arrangement only exists when an unconditional, contractual promise to repay exists. The interpretation adopted by USCIS is supported by language elsewhere in Izummi, where the rationale does not hinge on the “right” held by the investor and the obligation of the investing company (such as Mirror Lake here) to return the investment. The purpose of this inquiry, according to the AAU, is to ensure that the “investment” is not a loan or other debt arrangement masquerading as an otherwise permissible investment. The AAU noted the following features of a debt-arrangement and discussed why they are inconsistent with the program’s statutory purpose: 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. 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. Here, the AAU got to the heart of the debt-arrangement analysis: a narrow interpretation of Izummi would allow any provision where the investor doesn’t hold the “right” to demand a redemption of the equity and return of capital, and yet the investor could still enter into the investment with the “preconceived intent to unburden [him]self of the investment as soon as Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 19 of 29 13 possible after unconditional permanent resident status is attained.” Id. In addition, the investor could enter into the investment knowing that “he already has a willing buyer in a certain number of years ... [and] assured that he will receive a certain price.” Id. This intent and knowledge would be achieved in spite of the investor not holding the right to exercise the option, but through a contractual provision that allows the recipient company to exercise the option for the set price at a set time, coupled with assurances from the recipient company in other documentation that signals to the investor that there is a “willing buyer” at a “certain price” once the conditions on lawful permanent residence have been removed. The arrangement at issue in Izummi, as well as the very similar debt arrangement at issue in this case, goes directly against the purpose of the EB-5 program. Congress’s creation of the program sought to encourage legitimate investment and job creation in the United States. And to advance Congress’s expressed desire that the investment be legitimate and not simply be used as a means of providing immigrant visas to wealthy individuals, the definition of “invest” at 8 C.F.R. § 204.6(e) excludes the contribution of capital in exchange for debt arrangements such as how the Plaintiffs’ purported “investments” into Mirror Lake are structured. Thus, under the circumstances of this case, “where the agency’s interpretation of [its regulation] is at least as plausible as competing ones, there is little, if any, reason not to defer to its construction.” Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993). B. The Agency’s Interpretation Of Matter of Izummi Is Entitled To Deference Although Plaintiffs present their claim as somewhat novel, this is not the first time Izummi has been challenged. Indeed, faced with a similar attack against both Izummi and the agency’s interpretation of its own regulations, the RLILP court decided that it would “not disturb the [agency]’s interpretation of the term ‘invest’ even if, as [p]laintiffs argue[d], that interpretation Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 20 of 29 14 ‘ignor[ed] business reality.’” RLILP, 86 F. Supp. 2d at 1023 (quoting the RLILP plaintiffs’ briefs). Nevertheless, the RLILP court’s approach to this dispute was grounded in both common sense and deference to agency expertise. “It is not the court’s place ‘to decide which among several competing interpretations best serves the regulatory purpose,’” because “[s]uch a decision would implicate policy, not law.” Id. at 1023–24 (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994). Indeed, plaintiffs’ attack against Izummi’s continued validity ignores how USCIS’s interpretation (of its own regulation) must be given “controlling weight unless it is plainly erroneous or inconsistent with the regulation.” Thomas Jefferson Univ., 512 U.S. at 512. And as the D.C. Circuit has explained before, “when [courts] review an agency’s interpretation of its own regulations, [they] do not ‘decide which among several competing interpretations best serves the regulatory purpose.’” Rush Univ. Med. Ctr. v. NLRB, 833 F.3d 202, 206 (D.C. Cir. 2016) (quoting Thomas Jefferson Univ., 512 U.S. at 512). The D.C. Circuit “afford[s] such deference based on the Supreme Court’s decisions in Auer v. Robbins, 519 U.S. 452 (1997), and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945).” Tilden Mining Co., Inc. v. Sec’y of Labor, 832 F.3d 317, 322 (D.C. Cir. 2016). And this is especially true in immigration matters, where courts have noted how “[i]n no area of the law is judicial authority more restrained …. [Because t]he [agency] regulations and precedent decisions limit [a] court’s ability to grant the relief sought.” Spencer Enters., Inc. v. United States, 229 F. Supp. 2d 1025, 1037 (E.D. Cal. 2001) (facing a similar challenge to an I-526 denial). Moreover, the agency’s definition of “invest” rationally advances the job-creation purposes of the statute by requiring that a qualifying EB-5 investment be substantively in the nature of equity rather than a loan or other debt arrangement. If the alien has placed his money fully at risk of Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 21 of 29 15 potential downside and chance for upside with no specifically preconceived agreement for reimbursement, he is more likely to be involved in the enterprise (even if he is only a limited partner), and his entrepreneurial talents are more likely to be brought to bear on advancing the enterprise’s success, with the concomitant creation of jobs and other positive economic benefits that Congress envisioned. And when there is no preconceived agreement for repayment, the enterprise's managers are free to use the money to stimulate the economy and create jobs, instead of holding funds in reserve to repay the alien. With these reasons in mind, USCIS did not abuse its discretion in denying Plaintiffs’ petitions. II. USCIS Reasonably Denied The Petitions On The Ground That Plaintiffs’ Redemption Agreements Violated The Regulation And Matter of Izummi. Based on the aforementioned understanding of Izummi, USCIS properly denied the petitions in this case because Plaintiffs’ “investments” were not true equity investments into Mirror Lake with potential for downside and genuine growth potential. Rather, they were structured in such a way made it more like a prohibited debt arrangement. See 8 C.F.R. § 204.6(e). USCIS’s legal inquiry into the investment structure was not arbitrary or capricious, but is fully consistent with its obligations as interpreted by Izummi to ensure that the statutory purpose of the program is satisfied by the particular investment on which an individual petitioner relies as a basis for its request for admission into the United States through the EB-5 program. See Doe v. USCIS, — F. Supp. 3d —, 2017 WL 972086, at *4 n.3 (D.D.C. Mar. 10, 2017) (noting how “Izummi is one of four published ‘precedent decisions’ relating to the EB–5 Program” that “are binding on all [USCIS] employees in the administration of the Act” under 8 C.F.R. § 103.3(c)). In this case, USCIS’s factual conclusions that Plaintiffs’ investments are covered by redemption agreements and therefore more akin to a debt arrangement rather than genuinely “at risk” equity investments, are likewise consistent with the record. See CAR at 1704–05. Accordingly, Plaintiffs’ challenge Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 22 of 29 16 to USCIS’s denials on this basis is nothing more than their attempt to second-guess the agency’s considered judgment regarding the purpose of the EB-5 program and the agency’s broad discretion to administer it in a manner consistent with Congress’s goals. A. USCIS’s Conclusions That Plaintiffs’ “Investments” Were More Debt-like Than Equity-like Were Supported By The Record USCIS’s factual conclusions that the structure of the investments are more debt-like than equity-like are themselves entitled to deference. Zhang v. Napolitano, 604 F. Supp. 2d 77, 82 (D.D.C. 2009) (“[J]udicial deference to the Executive Branch is especially appropriate in the immigration context where officials exercise especially sensitive political functions that implicate questions of foreign relations.” (quotations omitted)). As explained above, the agency’s decision pointed to the existence of how the individual Plaintiffs will be able to exercise their Put Options “[a]t the expiration of the At Risk Period … a one-time right and option to compel [Mirror Lake] 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).” CAR at 1704. Additionally, the decision emphasized the definition of “Put Option” in the Plaintiffs’ Offering Memorandum: “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.” Id. at 1704–05. Taken together, the existence of the “Put Option” and the ability of the individual Plaintiffs to force Mirror Lake to exercise it led to USCIS’s reasonable determination that the facts support a finding that the investors had, in fact, not made a qualifying contribution of capital, because they appeared to have entered into the partnership intending to contribute capital in exchange for a debt Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 23 of 29 17 arrangement versus a true equity investment. Plaintiffs argue that USCIS’s application of Matter of Izummi to the facts of this case exceeds its authority, and attempt to distinguish the “put” or “sell” option used as an example in the Izummi case from the “Put Options” in this case based largely upon the exact same argument of “debt” versus “equity” that was rejected in RLILP. Compare CAR at 1693 (Plaintiffs arguing that “the exercise of the Put Option is wholly contingent on the availability of funds, and the documents specifically contemplate that there might never be sufficient funds to enable Petitioner to receive a return …. [Because t]he exchange of capital for an ownership interest is a hallmark of an equity investment, not of debt”); with RLILP 86 F. Supp. 2d. at 1023 (responding to plaintiff’s argument by noting how “[t]here is admittedly no simple rule for distinguishing debt from equity. One might conclude that Zou’s lack of any right to share in any of RLILP’s profits above 4 percent per annum rendered Zou’s agreement a debt arrangement,” but concluding that it “will not disturb the INS’s interpretation of the term ‘invest’ even if, as Plaintiffs argue, that interpretation ‘ignor[es] business reality’”). Plaintiffs’ arguments today are just as wrong as they were seventeen years ago. Furthermore, although Izummi’s discussion of redemption agreements provisions focuses primarily on the example of a sell option, it does not define the outer limits of what constitutes an impermissible debt arrangement. Here, as in many other EB-5 decisions that USCIS makes every day, the plain language of the regulation must control. Under 8 C.F.R. § 204.6(e), 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 qualifying contribution of capital. In Matter of Izummi, the AAU observed how an arrangement may appear to be an equity investment in form, but an adjudicator could analyze the actual substance of the arrangement and determine that it is in fact debt-like, rather than equity-like, in Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 24 of 29 18 nature. Izummi, 22 I & N Dec. at 186. This observation is just as apt (and controlling) today as it was nearly twenty years ago. B. There Is No Reason To Bar Matter of Izummi’s Application To This Case Finally, Defendants anticipate that Plaintiffs will point to Judge Kollar-Kotelly’s recent decision in Doe v. USCIS as support for their arguments regarding “Put Options.” In that case, Judge Kollar-Kotelly reviewed Izummi and found the extension of its “guaranteed return” holding to “Call Options” (rather than the “Put Options” at issue here) as impermissible. 2017 WL 972086, at *7–8. But even if Plaintiffs attempt to rely upon this argument, Doe is entirely distinguishable and any attempt to equate this case to it would be fruitless. First, Doe dealt with a buy option—not a sell option as in this case—and the decision was specifically opining on an agency denial that was worded incorrectly (equating buy options with guaranteed returns) rather than opining on any limitations regarding the interpretation of Izummi as it bears on the debt-arrangement determination. See id. at *7. By contrast, the petitioners in this case hold sell options and specifically have the “right to receive [their] capital back at a set price” in addition to and separate from the structure of their investment constituting an impermissible debt arrangement as set forth above. Id. at *8. Moreover, the Plaintiffs here make much of a provision where the ability to exercise the option is contingent on cash flow. See CAR at 1687– 88; see also Pls.’ Compl. at ¶¶ 85, 87, 101, 110, 118. That issue was not under consideration in Doe. Second, these same arguments regarding sell-option redemption agreements have been made and rejected long before Doe. Specifically, counsel in the Izummi case claimed that the invested Company’s ability to honor the sell option was contingent on its ongoing viability to do so, but the AAU was not swayed. 22 I & N Dec. at 184–86. The same argument about business Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 25 of 29 19 realities was put forward in RLILP, and the district court ruled in exactly the same way. RLILP, 86 F. Supp. 2d at 1023 (“Because the partnership agreement allowed Zou to get his money back after a set period of time, the INS considered the transaction a debt arrangement. Plaintiffs point out that Zou risked ultimately losing his initial investment if RLILP was unprofitable…. [But this did] not negate the INS’s conclusion that Zou had a debt arrangement.”). Even apart from these distinctions, common sense, and the deference canons discussed above, USCIS has a strong interest in adopting a broad interpretation of what may constitute an impermissible “debt arrangement” in order to examine the facts of each particular case “to ascertain the true substance of the transaction.” Izummi, 22 I & N Dec. at 185. Investments can be structured in an infinite number of ways, and USCIS has an obvious interest (as all governmental agencies) to guard against the new and inventive ways in which investors may try to circumvent the statute and regulations through artfully drafted contracts. If agencies must necessarily adopt the narrower interpretation of their own regulations or operative statute, then they would be unable to effectively implement congressional intent—fostering an environment whereby petitioners can exploit loopholes to gain a benefit through evasion of immigration laws. See, e.g., Back Country Horsemen of Am. v. Johanns, 424 F. Supp. 2d 89, 95 (D.D.C. 2006) (citing New York v. EPA, 413 F.3d 3, 23 (D.C. Cir. 2005)); Sharma v. Taylor, 50 F. Supp. 3d 749, 757–58 (E.D. Va. 2014) (“To be sure, the regulation might be construed to be narrowly and strictly limited to apply only to pardons. But ‘an agency’s interpretation need not be the only possible reading of a regulation—or even the best one—to prevail.’…. Thus, USCIS’s interpretation … deserves deference and must stand.” (quoting Decker v. Nw. Envt’l Def. Ctr., 133 S. Ct. 1326, 1337 (2013))). In addition, USCIS’s interpretation encourages investments where investors are committed to and have properly vetted each project’s long‐term viability and profitability. This is because Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 26 of 29 20 such investment projects are likely to end up being stronger and more productive investments for both the U.S. economy and the investors. If investors are only committed for the period of time necessary to obtain a green card and structure their investments with that preconceived intent, such as through redemption agreements exercisable as soon as the conditions on their status is removed, they are less likely to choose projects for long‐term viability and retention of permanent jobs. This will weaken the overall integrity and goal of the EB‐5 program. The same is true by allowing investors to focus primarily on the immigration benefits without regard for the viability of the investment itself—which will ultimately harm investors by producing more failed or fraudulent projects that ultimately result in investors not being able to obtain permanent status, remove conditions on their status, or recoup their investments. CONCLUSION Based on the foregoing, this Court must affirm USCIS’s decision. Plaintiffs are simply not entitled to have this Court undertake a “do-over” regarding either their I-526 petitions or policy determinations from decades-old regulatory decisionmaking. They are only entitled to have this Court review whether USCIS’s actions were arbitrary or capricious. Because they were neither, the Court should affirm USCIS’s denials of their petitions and grant summary judgment in favor of the Defendants. Respectfully submitted this 17th day of May, 2017: CHAD A. READLER Acting Assistant Attorney General WILLIAM C. PEACHEY Director GLENN GIRDHARRY Assistant Director Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 27 of 29 21 By: /s/ Joshua S. Press JOSHUA S. PRESS Trial Attorney United States Department of Justice Civil Division Office of Immigration Litigation District Court Section P.O. Box 868, Ben Franklin Station Washington, DC 20044 Tel: (202) 305-0106 Fax: (202) 305-7000 e-Mail: joshua.press@usdoj.gov Attorneys for Defendants Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 28 of 29 22 CERTIFICATE OF SERVICE I certify that on May 17, 2017, I electronically filed the foregoing MOTION FOR SUMMARY JUDGMENT with the Clerk of Court by using the CM/ECF system, which will deliver a copy to all counsel of record. By: /s/ Joshua S. Press JOSHUA S. PRESS Trial Attorney United States Department of Justice Civil Division Case 1:16-cv-01955-TFH Document 18 Filed 05/17/17 Page 29 of 29 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) MIRROR LAKE VILLAGE, et al., ) ) Plaintiffs, ) ) v. ) Civil Action No.: 16-1955-TFH ) JOHN F. KELLY, Secretary of the ) United States Department of Homeland ) Security, et al. ) ) Defendants. ) ) [PROPOSED] ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Before the Court is Defendants’ motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. Having considered the motion, Plaintiffs’ opposition thereto, any reply, and oral argument, if any, the Court hereby GRANTS Defendants’ Motion for Summary Judgment in its entirety. Dated: ______________________ ____________________________ Hon. Thomas F. Hogan United States District Judge Case 1:16-cv-01955-TFH Document 18-1 Filed 05/17/17 Page 1 of 1