Huashan Zhang v. U.S. Citizenship & Immigration Servs.

• Decision Date: 30 November 2018
• Docket Number: Case No. 15-cv-995 (EGS)
• Citation: 344 F.Supp.3d 32
• Parties: HUASHAN ZHANG, et al., Plaintiffs, v. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES, et al., Defendants.
• Court: U.S. District Court — District of Columbia

344 F.Supp.3d 32

HUASHAN ZHANG, et al., Plaintiffs,

v.UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES, et al., Defendants.

Case No. 15-cv-995 (EGS)

United States District Court, District of Columbia.

Signed November 30, 2018

Edward F. Ramos, Pro Hac Vice, Ira Jay Kurzban, Pro Hac Vice, John Patrick Pratt, Kurzban, Kurzban, Weinger, Tetzeli, & Pratt, P.A., Miami, FL, for Plaintiffs.

Glenn M. Girdharry, Kathryne Marie Gray, Yamileth G. Davila, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

Emmet G. Sullivan, United States District Judge

I. Introduction

Almost thirty years ago, Congress established the EB-5 Visa Program ("the Program") to stimulate the economy and create jobs through foreign capital investment. Under the Program, "alien investors" may become eligible to immigrate to the United States in return for investing certain qualifying amounts of capital in a commercial enterprise in the United States. Plaintiffs in this case are individual alien investors whose EB-5 visa petitions were denied by the agency that oversees the Program: the United States Citizenship and Immigration Services ("USCIS"). Plaintiffs allege that their petitions were denied based on USCIS' flawed interpretation of its own regulation. As such, they challenge USCIS' decisions to deny their petitions as arbitrary and capricious in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, and the Immigration and Nationality Act ("INA"), 8 U.S.C. § 1153(b)(5). Plaintiffs also claim that USCIS exceeded its statutory authority under the INA by denying their petitions and impermissibly applying its interpretation retroactively. Finally, plaintiffs claim that USCIS engaged in improper rulemaking without notice and comment, also in violation of the APA.

Pending before the Court are: (1) plaintiffs' motion for summary judgment; (2) USCIS' cross-motion for summary judgment; (3) plaintiffs' motion to certify class; and (4) plaintiffs' motion to amend the complaint. Upon consideration of the motions, the responses and replies thereto, the relevant case law, and the entire record herein, the Court GRANTS IN PART plaintiffs' motion for summary judgment, DENIES USCIS' cross-motion for summary judgment, GRANTS plaintiffs' motion to certify class (albeit with a modified class definition), and DENIES AS MOOT plaintiffs' motion to amend the complaint. Rather than approve plaintiffs' petitions, however, the Court instead VACATES USCIS' denials of the class members' petitions and REMANDS the denials to USCIS for reconsideration consistent with this Memorandum Opinion.

II. Background

A. Statutory and Regulatory Background

The INA authorizes the United States to issue visas to certain qualified immigrants. See Pub. L. No. 101-649 § 121(a) (codified as 8 U.S.C. § 1153(b)(5)(1990) ). In 1990, Congress created the EB-5 Visa Program as one of five categories of employment-based immigration preferences to "create new employment for U.S. workers and to infuse new capital into the country." S. Rep. No. 101-55, at 21 (1989). To be eligible for an EB-5 visa, an alien must "invest[ ]" a certain amount of "capital" in a "commercial enterprise" to "benefit the United States economy and create full-time employment for not fewer than [ten] United States citizens or aliens lawfully admitted ...." 8 U.S.C. § 1153(b)(5)(A). An alien investor must generally invest $1,000,000 of "capital" into a new commercial enterprise, but in economically depressed areas, or "targeted employment areas," the required amount of capital may be reduced to $500,000. Id. § 1153(b)(5)(C) ; 8 C.F.R. § 204.6(f) (regulating the "required amounts of capital").

In 1991, the Immigration and Naturalization Service ("INS")–USCIS' predecessor agency–promulgated regulations to implement the EB-5 Program. See 8 C.F.R. § 204.6 (1991). Among other things, the regulations set forth the criteria necessary to qualify for an EB-5 visa preference. See id. To apply, an alien investor must first submit a Form I-526 immigration petition ("petition" or "I-526 petition"). Id. § 204.6(a). The petition must be "accompanied by 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 [ten] qualifying employees." Id. § 204.6(j). If the alien investor's I-526 petition is approved, he or she may apply for a visa, which would allow the alien and his or her spouse and children to be admitted to the United States on a conditional basis. See 8 U.S.C. § 1202(a) ; 8 U.S.C. § 1186b(a)(1). If the alien investor fulfills the EB-5 visa requirements within two years, he or she may petition for permanent residence. Id. § 1186b(c)(1), (d)(2)(A). The burden of proof to establish eligibility rests with the alien investor. See 8 U.S.C. § 1361.

To further delineate the general eligibility criteria, the EB-5 regulations define certain key terms that are otherwise undefined in the INA. 8 C.F.R. § 204.6(e). For example, to "invest" in the new commercial enterprise and create employment, the alien investor must "contribute [a qualifying amount of] capital" to that enterprise. Id. "Capital" is defined as "cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise ... are not used to secure any of the indebtedness." Id. To qualify as "capital," the invested asset must have been lawfully-obtained: "assets acquired, directly or indirectly, by unlawful means ... shall not be considered capital." Id. The regulations further clarify that a "contribution of capital in exchange for a note ... obligation, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise does not constitute a contribution of capital." Id.

At issue in this case is whether loan proceeds invested as cash constitute "cash," as plaintiffs claim, or "indebtedness," as USCIS claims. On April 22, 2015, USCIS' Immigrant Investor Program Office ("IPO") released remarks stating that invested loan proceeds "may qualify as capital used for EB-5 investments, provided that the requirements placed upon indebtedness by 8 C.F.R. § 204.6(e) are satisfied." See USCIS, Immigrant Investor Program Office, EB-5 Telephonic Stakeholder Engagement: IPO Deputy Chief's Remarks (Apr. 22, 2015), available at https://www.uscis.gov/sites/default/files/USCIS/Outreach/PED_IPO_Deputy_Chief_Julia_Harrisons_Remarks.pdf (hereinafter referred to as "2015 IPO Remarks")(emphasis in original). The remarks specifically mandated:

When using loan proceeds as EB-5 capital, a petitioner must demonstrate first that they are personally and primarily liable for the indebtedness. That is, they must demonstrate that they bear primary responsibility under the loan documents for repaying the debt that is being used to satisfy the petitioner's minimum required investment amount.

In addition, the petitioner must demonstrate that the indebtedness is secured by assets the petitioner owns and that the value of such collateral is sufficient to secure the amount of indebtedness that is being used to satisfy the petitioner's minimum required investment amount.

Id. at 1. Plaintiffs argue that the 2015 IPO Remarks "announced a change in [USCIS'] longstanding adjudicatory practice concerning the classification of loan proceeds." Pls.' Mot. for Summ. J. ("MSJ"), ECF No. 19 at 21.¹ In so doing, USCIS "fundamentally reworked the definition of ‘capital’ " under 8 C.F.R. § 204.6(e). Id. at 22. As such, plaintiffs challenge USCIS' interpretation of the regulation and argue that cash obtained from third-party loans and invested in an enterprise qualifies as "cash" within the regulatory definition of "capital" rather than "indebtedness." See generally Pls.' MSJ, ECF No. 19.

B. Plaintiffs' I-526 Petitions

The individually-named plaintiffs are two alien investors who challenge USCIS' decision to deny their petitions on behalf of a putative class of alien investors. Compl., ECF No. 1 ¶ 1; see Pls.' Mot. for Class Certification ("Pls.' Class Cert. Mot."), ECF No. 10. As certified below, the plaintiffs represent all Form I-526 petitioners who: (1) invested cash in a new commercial enterprise in an amount sufficient to qualify as an EB-5 investor; (2) obtained some or all of the cash invested in the new commercial enterprise through a loan; (3) filed an I-526 petition based on that investment;² and (4) received or will receive a denial of their I-526 petition solely on the ground that the loan used to obtain the invested cash fails the collateralization test described in the USCIS 2015 IPO Remarks announcement.

Named plaintiff Huashan Zhang is a citizen of the People's Republic of China seeking to immigrate to the United States with his wife and children. Zhang Admin. R. ("Zhang A.R."), ECF Nos. 27-2, 27-3, 27-4. On December 23, 2013, Mr. Zhang filed an I-526 petition claiming that he fulfilled the minimum capital requirement by investing $500,000 in cash in a new commercial enterprise in Las Vegas, Nevada. Zhang A.R., ECF No. 27-2 at 4-26. Mr. Zhang obtained the invested $500,000 via a loan from Shaanxi Northwest Textile and Dyeing Company ("Shaanxi Northwest"). Id. at 22. Mr. Zhang owns 99 percent of Shaanxi Northwest. Id. The loan was secured by his undistributed profits held by the company, which greatly exceeded $500,000. Id. at 22-25; Zhang A.R., ECF No. 27-3 at 4 (loan agreement between Shaanxi Northwest and Mr. Zhang). Shaanxi Northwest wired the loan proceeds to Mr. Zhang's personal account. Zhang A.R., ECF No. 27-2 at 20, 25-26. Mr. Zhang then converted the loan proceeds into U.S. currency and wired the funds into an escrow account earmarked for the new commercial enterprise. Id.

On May 28, 2015, USCIS denied Mr. Zhang's...