R.L. Inv. Ltd. Partners v. I.N.S.

• Decision Date: 03 March 2000
• Docket Number: No. Civ. 98-00943 SOM.,Civ. 98-00943 SOM.
• Citation: 86 F.Supp.2d 1014
• Parties: R.L. INVESTMENT LIMITED PARTNERS and Wanxuan Zou, Plaintiffs, v. IMMIGRATION AND NATURALIZATION SERVICE, Defendant.
• Court: U.S. District Court — District of Hawaii

86 F.Supp.2d 1014

R.L. INVESTMENT LIMITED PARTNERS and Wanxuan Zou, Plaintiffs, v. IMMIGRATION AND NATURALIZATION SERVICE, Defendant.

No. Civ. 98-00943 SOM.

United States District Court, D. Hawaii.

March 3, 2000.

COPYRIGHT MATERIAL OMITTED

Ronald K.K. Sakimura, Honolulu, Hawaii, for plaintiff R.L. Investment Limited Partners.

Thomas T.M. Ho, Honolulu, Hawaii, for plaintiffs.

Ronald T. Oldenburg, Honolulu, Hawaii, for plaintiffs.

Theodore G. Meeker, Office of the United States Attorney, Honolulu, Hawaii, John C. Cunningham, Office of Immigration Litigation, Civil Division, Dept. of Justice, Washington, DC, for defendant.

AMENDED ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

MOLLWAY, District Judge.

Plaintiffs R.L. Investment Limited Partners ("RLILP") and Wanxuan Zou ("Zou") are challenging the denial by the Immigration and Naturalization Service ("INS") of Zou's petition for preferred visa status as an immigrant investor under section 203(b)(5) of the Immigration and Nationality Act ("INA"), 8 U.S.C. § 1153(b)(5). At issue is whether the INS abused its discretion in denying Zou's application after granting almost identical petitions by others. Between the adjudication of Zou's petition and the adjudication of the other petitions, the INS issued precedent decisions that required the denial of Zou's petition. Because the INS did not abuse its discretion and because the INS did not announce new rules that should have been subjected to the notice and comment provisions of the Administrative Procedures Act ("APA"), the court grants summary judgment in favor of the INS and against Plaintiffs.

BACKGROUND

I. The Immigrant Investor Program

In October 1990, Congress enacted section 203(b)(5) of the Immigration and Nationality Act of 1990, which provides that an alien investor may qualify for preferred visa status if the alien is "seeking to enter the United States for the purpose of engaging in a new commercial enterprise," "which the alien has established," and "which will benefit the United States economy and create full-time employment for not fewer than 10 United States citizens" or lawful aliens. 8 U.S.C. § 1153(b)(5)(A) (1999). Because the immigrant investor program is the fifth preference in the "employment-based" visa preference category, it is commonly referred to as the "EB-5" program.

The statute imposes specific capitalization requirements for the purpose of creating jobs. The alien must have invested or be "actively in the process of investing" at least $1,000,000 in the new commercial enterprise, unless the investment is to be made in a "targeted employment area," in which case the investment must be at least $500,000. Id. § 1153(b)(5)(C)(i) to (ii).

Aliens may qualify for EB-5 preferred visa status by investing in a "regional center" and demonstrating by "reasonable methodologies" their compliance with the job creation requirements. Pub.L. No. 102-395, § 610, 110 Stat. 1874 (1992). The statute does not define "reasonable methodologies," but the minimum of ten full-time jobs may include "jobs which are estimated to have been created indirectly through revenues generated from increased exports." Id.

An alien seeking to obtain lawful permanent residence in the United States under the EB-5 statute must first file an I-526 petition. If the I-526 petition is approved, the immigrant investor (as well as dependents, if any) is admitted for permanent residence on a conditional basis. See 8 U.S.C. § 1186b(a)(1). The investor must subsequently file an I-829 petition to have the conditional status removed within ninety days of the second anniversary of his lawful admission for permanent residence. See id. §§ 1186b(c)(1), (d)(2). The EB-5 petition is granted if the INS determines that the alien sustained the required investment and entrepreneurial activities during the period of his conditional residency. See id. § 1186b(d)(1); see also 8 C.F.R. § 216.6(a)(4).

II. RLILP's EB-5 Program

On August 8, 1996, RLILP, a Hawaii limited partnership, was formed to develop and operate a luxury retirement condominium project in Honolulu, Hawaii. RLILP is managed by its general partner, Pacific M & A Group, Inc. Royal Lunalilo, Inc. and Jack L. Tyrell Acquisition Corp. are "original limited partners." To raise capital for the project, RLILP, with the assistance of experienced immigration counsel, devised an investment plan that would allow alien investors to immigrate to the United States under the immigrant investor program. Under the partnership agreement, an alien investor held "special distribution rights" that allowed him to ask for the return of his investment and offered a "priority return" of 4 percent per annum. See Exhibit D at 4, attached to Defendant's Motion for Summary Judgment.

Five investors—Sang Ro Lee, Chuan Chang, Chun Jung Chiu, Meng-Xiong Zhu, and Zou—filed EB-5 petitions with the INS for classification as immigrant investors based on their investment in RLILP. The petitions submitted by Lee, Chang, Chiu, and Zhu were granted. Zou's petition, filed the same day as Zhu's, was denied based on INS precedent decisions issued after Zhu's petition had been granted and while Zou's petition was still pending.

III. Precedent Decisions

During the first four years of the immigrant investor program (fiscal years ("FY") 1992-95), the number of immigrant investor petitions ranged from 356 to 513. See Exhibit B at 3, attached to Defendant's Motion for Summary Judgment. Beginning in FY 1996, the number of petitions began to rise sharply, increasing from 801 in FY 1996 to 1,290 in FY 1997, and then to 1,368 in FY 1998. Id. The INS attributed the increase to the Immigrant Investor Pilot Program's liberalized standards and to marketing efforts overseas by American private sector promoters like RLILP. Id. at 5. Many of the petitions did not set forth proposals by individual aliens to invest in businesses they would start up and run themselves. Rather, numerous petitions reflected efforts by American organizations to recruit aliens to invest in them, typically as limited partners. The American organizations proposed to use the aliens' capital in projects that would be controlled by persons other than the aliens. Id. INS adjudicators approved some of these innovative applications.

By late 1997, however, the INS had become aware that some of the EB-5 petitions contained features that appeared to be contrary to the immigrant investor regulations. Pending a full review of the situation, the INS placed an administrative hold on all EB-5 petitions with problematic features to prevent any more approvals that might be contrary to section 203(b)(5) and its regulations. Id. at 6.

In the summer of 1998, the Administrative Appeals Office ("AAO") published four "precedent decisions" addressing a number of the substantive issues that had arisen under the immigrant investor program: Matter of Ho, Int.Dec. No. 3362, 1998 WL 483979 (Exam.Comm. July 31, 1998); Matter of Hsiung, Int.Dec. No. 3361, 1998 WL 483978 (Exam.Comm. July 31, 1998); Matter of Izummi, Int.Dec. No. 3360, 1998 WL 483977 (Exam.Comm. July 13, 1998) (referred to by some as Izummi but more commonly known as Izummi by immigration specialists); Matter of Soffici, Int.Dec. No. 3359, 1998 WL 471519 (Evam.Comm. June 30, 1998).

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 on all Service employees in the administration of the Act. Precedent decisions must be published and made available to the public." See 8 C.F.R. § 103.3(c) (1999).

Following the issuance of the precedent decisions, the immigrant investor petitions that had been subject to the administrative hold, one of which was Zou's petition, were adjudicated under the guidance of the precedent decisions.

IV. Denial of Zou's Petition

Zou filed his petition on March 5, 1998, before the precedent decisions were issued. See Exhibit E, attached to Defendant's Motion for Summary Judgment. At the time he filed his petition, the INS had not published any opinions or decisions validating Zou's form of investment for EB-5 purposes. At most, there were private publications that had disseminated nonbinding INS statements addressing arguably related EB-5 issues. On August 18, 1998, after the issuance of the precedent decisions, the Director of the INS's California Service Center denied Zou's petition based on the precedent decisions, particularly Matter of Izummi. See Exhibit A, attached to Plaintiffs' Motion for Summary Judgment.

The AAO affirmed the Director's decision denying Zou's petition on April 30, 1999. See Exhibit B, attached to Plaintiffs' Motion for Summary Judgment. The AAO based the affirmance on several grounds. First, the AAO found that Zou had not established a commercial enterprise, as required by 8 U.S.C. § 1153(b)(5)(A)(i). Second, the AAO found that Zou had not invested the amount of capital required by 8 U.S.C. § 1153(b)(5)(A)(ii) and 1153(b)(5)(C). Third, the AAO found that Zou had not made the qualifying investment required by 8 U.S.C. § 1153(b)(5)(A)(ii) and defined by 8 C.F.R. § 204.6(e). That is, Zou's right to redeem his capital within three years of his initial investment, along with the cap of 4 percent per annum on his rate of return, kept his financial arrangement from being an investment. Fourth, the AAO found that Zou had not met the requirements of 8 C.F.R. § 204.6(e) and 204.6(j)(3) that he document the source of his funds to assure that he had obtained them by lawful means. Fifth, the AAO held that Zou had not shown that RLILP's plan to build and operate a retirement condominium would generate the required number of jobs that could be attributed to him.

V. This Action

On November 27, 1998, Plaintiffs filed a Complaint, amended on ...