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Chang v. United States Citizenship and Immigration Services

United States District Court, District of Columbia

February 7, 2018

CHIAYU CHANG, et al., Plaintiffs,



         Federal law provides a path to the United States for foreign citizens who finance American businesses. To become eligible for a visa, however, an investor must actually invest. That is, she must place her money at risk of loss in hopes of potential gain. The question in this case is whether United States Citizenship and Immigration Services (USCIS) acted in an arbitrary and capricious manner when it declared plaintiffs ineligible for visas because their investments came with a “call option, ” which gave the company in which they invested the choice to buy plaintiffs out. Because the call option at issue here does not provide the investors with any right to repayment, the Court answers this question in the affirmative and grants partial summary judgment to plaintiffs.

         I. BACKGROUND

         A. Statutory Background

         The Immigration and Nationality Act (INA) authorizes the United States to issue visas “to qualified immigrants seeking to enter the United States for the purpose of engaging in a new commercial enterprise (including a limited partnership).” 8 U.S.C. § 1153(b)(5). As the fifth category of employment-based preferences listed in § 1153(b), this provision is often referred to as the “EB-5” visa program. To be eligible for EB-5 visas, applicants must have “invested . . . capital” of a specified amount in a business “which will benefit the United States economy and create full-time employment for not fewer than 10 United States citizens” or legal immigrants. Id. § 1153(b)(5)(A). Normally, someone looking for an EB-5 visa must invest $1 million, id. § 1153(b)(5)(C)(i), but only $500, 000 is required if the investment is made “in a targeted employment area, ” id. § 1153(b)(5)(C)(ii); 8 C.F.R. § 204.6(f)(2).[1] If multiple EB-5 applicants invest in the same business, each must proffer at least $1 million (or $500, 000), and each applicant's investment must create at least ten new full-time jobs. 8 C.F.R. § 204.6(g)(1).

         Aliens who meet the INA's requirements may file a Form I-526 petition, the approval of which allows them to apply for EB-5 visas. See 8 U.S.C. § 1202(a); 8 C.F.R. § 204.6(a). Those who are awarded visas are admitted as lawful residents on a conditional basis, along with their spouses and children. See 8 U.S.C. § 1186b(a)(1). Within ninety days of the two-year anniversary of their admission, if they are still fulfilling the EB-5 requirements, they may petition to remove the condition so that they and their families can become lawful permanent residents. See Id. § 1186b(c)(1), (d)(2)(A). The EB-5 process thus consists of three steps: the Form I-526 petition, the initial visa application, and the application to lift conditional status.

         Although the entire EB-5 program is predicated on foreign investment, the INA does not specify what it means to invest. But a Department of Homeland Security (DHS) regulation does: it defines “invest” as “to contribute capital, ” id. § 204.6(e), and requires “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).[2] DHS has likewise clarified what the word “invest” does not mean. “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. § 204.6(e). Thus, debt arrangements like the examples given in the regulation are not visa-worthy.

         Pursuant to its statutory and regulatory authority, see 5 U.S.C. § 301; 8 C.F.R. § 103.3(c), DHS has also designated four decisions by the Board of Immigration Appeals (BIA) as precedential, thus rendering particular readings of the EB-5 provision and regulations binding on the agency, see, e.g., Doe v. USCIS, 239 F.Supp.3d 297, 303 n.3 (D.D.C. 2017). One of these decisions, Matter of Izummi, 22 I. & N. Dec. 169 (BIA 1998), rejected Form I-526 applications from aliens whose investment agreements contained a “sell option.” The sell option gave the aliens the right to end their partnerships with the business they had funded, in exchange for a specified portion of their original investments plus profits. The BIA determined that the sell option constituted a debt arrangement because the investors' capital “cannot be said to be at risk”: “it is guaranteed to be returned, regardless of the success or failure of the business.” Id. at 184. In other words, this sort of redemption agreement “constitutes a straight loan, ” id. at 185, and thereby does not count as a qualifying investment under the applicable regulations.

         B. Factual Background

         Plaintiffs are sixteen foreign nationals, each of whom invested $500, 000 to become a limited partner in Lucky's Farmers Market, LP (“Lucky's”). AR 4 (Joint Appendix [ECF No. 24]).[3] Lucky's was a new commercial enterprise at the time of plaintiffs' investments, and at least one of its six planned grocery stores was to be located in a targeted employment area. AR 25, 33, 36. Lucky's used plaintiffs' investments to fund a loan to Lucky's Farmers Market Resources Center LLC, guaranteed by substantially all of the latter's assets; the Market Resources Center in turn lent most of the money to each of the Lucky's Markets stores to cover construction costs. AR 33. The Market Resources Center managed the stores, while the stores pledged substantially all of their assets as security for the Market Resources Center's repayment of its original loan to Lucky's. AR 33. Thus, Lucky's wholly owns the individual stores, and plaintiffs' investment funded the stores' construction and management. AR 37.

         Plaintiffs, as limited partners, have little control over Lucky's operations or finances. Instead, full “management, operation and control of” Lucky's is “vested exclusively in the General Partner, ” a company named LFM Stores, LLC. AR 18, 101-02. The general partner can distribute profits to the limited partners “at such times as determined by the General Partner in its sole discretion, ” up to a maximum 1% annual return on their original investments. AR 92, 99-100. The Lucky's Limited Partnership Agreement (“LPA”) also includes two sections regulating the redemption of plaintiffs' investments. The first provision, Section 3.3, prohibits plaintiffs from exercising a sell option unless they are denied EB-5 eligibility. AR 95 (“Except in the case where a Limited Partner's EB-5 Immigrant Petition Form I-526 has been denied by USCIS, no Partner shall have the right to withdraw from the Partnership or require that the Partnership purchase all or any portion of such Partner's Interest. No Partner shall have a right to receive a return of its Capital Contributions or a dividend in respect of such Partner's Interest . . . .”). The second, Section 3.4, provides the general partner with a call option (also known as a “buy option”):[4]

Notwithstanding anything to the contrary in Section 3.3, during the following periods, the General Partner may cause a Limited Partner's withdrawal from the Partnership by paying to such Limited Partner its (i) unpaid Preferred Return through the date of withdrawal and (ii) Unrecovered Capital Contribution:
(a) Prior to such Limited Partner's participation in the Loan through its Investment Contribution; or
(b) At any time after final adjudication of such Limited Partner's Form I-829, Petition to Remove Conditions, if applicable.

AR 95. Thus, under the LPA, the general partner can buy out a limited partner either before her investment is used to provide the loan to the Market Resources Center or after she becomes a lawful permanent resident, but not in between.

         Plaintiffs each filed a Form I-526 petition between December 2013 and September 2014 based on their Lucky's investments. Compl. [ECF No. 1] ¶ 38. USCIS issued each plaintiff a Request for Evidence in late July or August 2015, asking plaintiffs to provide more documentation to prove that Lucky's would create at least ten new jobs per applicant. Id. ¶ 40; AR 914-17.[5]

         Plaintiffs and Lucky's provided the asked-for evidence, AR 920-23, 931, which USCIS acknowledged receiving without any suggestion of insufficiency, AR 1520. However, USCIS issued each plaintiff a Notice of Intent to Deny (“NOID”) their Form I-526 petitions in December 2015. AR 1518. The NOIDs were based, not on the agency's initial objections, but instead on its previously undisclosed concerns about the call option contained in the LPA. AR 1520-23. The “deficiency” created by the call option, according to USCIS, was “revealed” during “a final review of the petition[s].” AR 1520. USCIS read Matter of Izummi as requiring immigration officials to scrutinize “the substance of the investment . . . over its form in order to determine if an investment is really a prohibited ‘debt ...

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