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Doe v. United States Citizenship & Immigration Services

United States District Court, District of Columbia

March 10, 2017

JOHN DOE, et al ., Plaintiffs,
v.
UNITED STATES CITIZENSHIP & IMMIGRATION SERVICES, et al., Defendants.

          MEMORANDUM OPINION

          COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE

         Plaintiffs in this lawsuit are foreign individuals seeking conditional permanent residence in the United States via the EB-5 Immigrant Investor Program. Plaintiffs challenge the decision of United States Citizenship & Immigration Services (“USCIS”) to deny their petitions under that program as arbitrary and capricious, not supported by substantial evidence, and beyond the scope of USCIS's statutory authority. Presently before the Court is Plaintiffs' [60] Motion for Summary Judgment and Defendants' [67] Cross-Motion for Summary Judgment on the Administrative Record.

         Upon consideration of the pleadings, [1] the relevant legal authorities, and the record as a whole, the Court GRANTS-IN-PART and DENIES-IN-PART Plaintiffs' Motion. The Court GRANTS Plaintiffs' Motion in that it finds that certain aspects of USCIS's adjudication of Plaintiffs' petitions were arbitrary and capricious. First, the reasoning underlying USCIS's denial of an initial set of Plaintiffs' petitions was arbitrary and capricious and counter to the evidence before USCIS. Second, USCIS's decision to treat the petitions of certain Plaintiffs differently than others, despite the fact that all of the Plaintiffs presented effectively equivalent petitions, without providing any explanation for doing so, was also arbitrary and capricious. The Court DENIES Plaintiffs' Motion to the extent it requests the Court order Plaintiffs' petitions granted, and will instead REMAND this case to USCIS for further consideration of Plaintiffs' petitions consistent with this Memorandum Opinion. Defendants' Cross-Motion is DENIED.

         I. BACKGROUND

         A. Statutory and Regulatory Background

         The EB-5 Program was created by Congress as part of the Immigration Act of 1990. See Immigration Act of 1990, Pub. L. No. 101-649, 104 Stat 4978. The program is codified at 8 U.S.C. § 1153(b)(5). Pursuant to the EB-5 Program, “[v]isas shall be made available . . . 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 . . . 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)(A). Subparagraph (C) sets the amount of capital that must be invested in order to participate in the program at $1, 000, 000. Id. § 1153(b)(5)(C)(i). However, the statute also provides that the Attorney General may reduce the required amount of investment for investments made in “targeted employment areas” (“TEA's”), id. § 1153(b)(5)(C)(ii), which are defined as “a rural area or an area which has experienced high unemployment (of at least 150 percent of the national average rate), ” id. § 1153(b)(5)(B)(ii). By regulation that reduced amount has been set at $500, 000. 8 C.F.R. § 204.6(f)(2).

         The Immigration and Naturalization Service-an agency that no longer exists under that name-published regulations regarding the EB-5 Program in 1991. These regulations set forth the requirements for classifying an alien under the EB-5 Program, including, preliminarily, the filing of a Form I-526 Immigrant Petition by Alien Entrepreneur, id. § 204.6(a), which “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 10 qualifying employees, ” id. § 204.6(j). As particularly relevant to this Memorandum Opinion, these regulations more specifically require that, “[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 purpose of generating a return on the capital placed at risk.” Id. § 204.6(j)(2). The regulations also define “invest” for the purposes of the EB-5 Program as meaning “to contribute capital.” Id. § 204.6(e). They state that “[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.” Id.

         B. Factual Background

         1. The Investment

         Plaintiffs in this case are foreign individuals who filed Form I-526 petitions with USCIS seeking permanent residence in the United States under the EB-5 Program. Each of the Plaintiffs filed their petitions based on the same investment: a $500, 000 contribution to an Idaho Limited Partnership entitled Quartzburg Gold, LP (“Quartzburg Gold”). See JohnDoe1000006-13; JohnDoe2000001-3; JohnDoe3000002-5; see also JohnDoe1000057 (Quartzburg Gold, LP Certificate of Limited Partnership). The Plaintiff-investors were to serve as the limited partners in Quartzburg Gold, and an entity entitled ISR Capital, LLC, an Idaho Limited Liability Company, was to serve as its general partner. See generally JohnDoe1000202-33 (Quartzburg Gold, LP Limited Partnership Agreement) (“LPA”); see also JohnDoe1000058 (ISR Capital LLC Certificate of Organization).[2]

         Quartzburg Gold's business plan was presented to the Plaintiff-investors in a Confidential Private Offering Memorandum (“Offering Memorandum”). JohnDoe1000059-125. In sum, the Offering Memorandum stated that Quartzburg Gold intended to aggregate the Plaintiff-investors' $500, 000 contributions and use them to finance several gold mining projects (the “Projects”). JohnDoe1000063. This financing would take the form of a loan (the “ISGC Loan”) of the aggregate amount of the Plaintiff-investors' capital contributions to an entity entitled Idaho State Gold Company, LLC (“ISGC”). Id. ISGC would in turn loan or invest the money it borrowed from Quartzburg Gold into several “Mining Companies” that would then pursue the Projects. Id. The Offering Memorandum explained how Quartzburg Gold hoped to generate a profit for the Plaintiff-investors, and also the risks associated with the investment:

The Partnership hopes to receive a return on its investments in the form of interest payments by [ISGC] on the ISGC Loan made by the Partnership. The sole source of funds for [ISGC] to make interest payments on the ISGC Loan and to repay the principal amount of the ISGC Loan on maturity will be profits [ISGC] and the Mining Companies intend to achieve through successful operation of the Projects. If the Projects are not successful in generating sufficient revenues, then the Mining Companies will not be able to repay the Mining Company Loans from [ISGC], in a case where [ISGC] has lent funds to the Project, or provide sufficient returns on ISGC's equity investment, in a case where [ISGC] has made an equity investment in the Project. In this situation, ISGC in turn will not have sufficient funds to repay the ISGC Loan from the Partnership, and the Partnership will suffer a partial or total loss of its investment.

Id. 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. See, e.g., JohnDoe1000070 (“[i]nvestment in the Partnership is speculative and involves a high degree of risk . . . an investment in the Partnership is subject to the risks normally encountered in the resource exploration, development and mining business”); see also JohnDoe1000193 (“an investment in the Limited Partner Interests is a speculative investment that involves a high degree of risk, including the risk of loss of the entire investment of the Subscriber in the Partnership”).

         2. The Call Option

         Despite the risk, if Quartzburg Gold turned out to be profitable and received sufficient returns from the ISGC Loan such that it had funds available to distribute to the Plaintiff-investors, a provision in the LPA referred to as a “Call Option” would come into play. The Call Option provision allowed the general partner of Quartzburg Gold to effectively cap the return of the Plaintiff-investors at a certain level by giving the general partner the right, but not the obligation, to “repurchase the interest of a Limited Partner for a purchase price of either (i) $550, 000 in cash, or (ii) 400 ounces of gold (99% purity).” JohnDoe1000065-66. The Call Option, provided for in section 12.11 of the LPA, stated in relevant part that:

(1) General. The Partnership shall have an option (“Call Option”), but not an obligation, to purchase the entire Interest owned by a Limited Partner . . . from such Limited Partner . . . the Partnership may exercise the Call Option at any time by delivering written notice (“Repurchase Notice”) to the Seller of its election to purchase. Upon delivery of a Repurchase Notice to a Limited Partner, the Partnership shall be obligated to purchase, and each Seller shall be obligated to sell, the Interest, at a purchase price equal to the Applicable Call Option Price [$550, 000 in cash or 400 ounces of gold].

JohnDoe1000219. In other words, if the mining projects were successful such that the Plaintiff-investor's interest in Quartzburg Gold exceeded a certain value somewhat higher than its original cost, the Call Option allowed the partnership to buy back that interest at that increased value and then to retain any additional profits the partnership went on to generate for itself. JohnDoe1000066 (“In the event the Partnership exercises the call option, any additional profits from the Projects [would] be retained by [ISGC] and/or the General Partner.”).

         Importantly, the Call Option was a right exercisable by Quartzburg Gold or its general partner, not the Plaintiff-investors, and the Quartzburg Gold documents made clear that there was no guarantee that it would be exercised. Despite statements that the general partner would strive to be able to exercise this option and buy out the Plaintiff-investors, both the LPA and the Offering Memorandum made clear that “[t]here [was] no guarantee regarding when the Partnership shall exercise such call option, or if such call option shall ever be exercised at all.” Id. Indeed, the LPA expressly provided:

(3) No Guaranteed Redemption. For the avoidance of doubt, there is no guaranteed redemption or repurchase of a Limited Partner's Interest and the General Partner is under no obligation to exercise the Call Option. The Limited Partners acknowledge that the Partnership's ability to exercise the Call Option and redeem the Interest of a Limited Partner is entirely dependent upon the repayment of the ISGC Loan by Idaho State Gold Company. The ability of [ISGC] to repay the ISGC Loan, in turn, is entirely dependent upon repayment of the Mining Company Loans and the success of the Projects. . . .

JohnDoe1000220. The Call Option accordingly did not guarantee Plaintiff-investors anything, nor did it have any effect on the risk that the Plaintiff-investors faced that they might lose their capital contributions if ...


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