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Mirror Lake Village, LLC v. Nielson

United States District Court, District of Columbia

December 14, 2018

MIRROR LAKE VILLAGE, et al, Plaintiffs,
KIRSTJEN NIELSON, Secretary of the United States Department of Homeland Security, et al, Defendants.


          Thomas F. Hogan, Senior United States District Judge

         The plaintiffs in this suit are Mirror Lake Village, LLC ("Mirror Lake"), a company formed to develop a senior living community in Washington state, and seven Chinese nationals who invested $500, 000 each in Mirror Lake (the "plaintiff-investors"). They are challenging the United States Citizenship and Immigration Services' ("USCIS") denial of the plaintiff-investors' 1-526 petitions for visas under the "EB-5" immigrant investor program, which provides visas for individuals who make qualifying investments in American companies. The main issue before the Court is whether USCIS acted in an arbitrary and capricious manner by denying the plaintiff-investors' visas on the grounds that their investments in Mirror Lake were not "at risk" as required by the applicable regulations. The parties have filed cross motions for summary judgment. [ECF Nos. 18 and 21].

I. Regulatory Background

         The Immigration and Naturalization Act ("INA") authorizes USCIS to issue visas to "qualified immigrants seeking to enter the United States for the purpose of engaging in a new commercial enterprise ... in which such alien has invested ... capital." 8 U.S.C. § 1153(b)(5)(A). In order to qualify for visas under the "EB-5 program," as it is known, the investments must meet specific, employment-focused criteria. They must create "full-time employment for not fewer than 10 United States citizens" or other legal immigrants. Id. at § 1153(b)(5)(A)(ii). For investments in "targeted employment areas"-rural areas or those with high unemployment-the investments must be at least $500, 000. Id. at § 1153(b)(5)(B)(ii); 8 C.F.R. § 204.6(f)(2).

         Although the statute does not define the term "invest," implementing regulations clarify that to "invest" means "to contribute capital." 8 C.F.R. § 204.6(e); see also 8 U.S.C. §§ 1103(a)(1); (a)(3) (charging the Secretary of Homeland Security with the "administration and enforcement" of the INA, and giving him or her the authority to issue regulations "as he [or she] deems necessary for carrying out his [or her] authority" under the INA). According to the regulations, these contributions of capital must not be in the form of debts. See 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 contribution of capital.... "). Investors must demonstrate that they have "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).

         In addition to the regulations, Matter of Izummi, a 1998 decision by the Board of Immigration Appeals ("BIA"), provides further guidance on the agency's requirement that investments be "at risk." Matter of Izummi, 22 I. & N. Dec. 169 (BIA 1998). In Matter of Izummi, the agency upheld the denial of a Form I-526 petition because, inter alia, the petitioner's investment included a put option that allowed the investor to force the company to buy his investment back at the original price, discounted by the amount the company had already repaid the investor. Matter of Izummi found that the investment could not "be considered to have been properly 'invested'" and was "not at risk" because "the petitioner ... entered into an agreement to pay $290, 000 in exchange for a promise that he can receive the $290, 000 back six months later." Izummi, 22 I. & N. Dec. at 188. Because the Department of Homeland Security has designated Matter of Izummi as a precedential opinion, it "serve[s] as precedent[] in all proceedings involving the same issue(s)" and, except if modified or overruled by later precedential decisions, is "binding" on the agency. 8 C.F.R. § 103.3(c).

         II. Factual Background

         a. The Investments in Mirror Lake

         According to Mirror Lake's Limited Liability Company Operating Agreement (hereinafter "the Agreement"), which outlines the terms of the plaintiffs' investments in the company, the seven plaintiff-investors-Yanxue Deng, Hui Ge, Lei Hu, Ge Li, Zhichun Li, Ying Su, and Yue Wang, each invested $500, 000 in Mirror Lake. J.A. at 18. Despite their equal investments, they received different percentages of interests in the company, ranging from .5% to 3%. Id. The investors each have the right to exercise a put option allowing them to force the company to buy back their interests at the purchase price. The Agreement sets forth the put option as follows:

At the expiration of the At Risk Period[1] applicable to a Class A Member, the Company shall provide the Class A Member with a one-time right and option to compel the Company to purchase, subject to the Company having sufficient Available Cash Flow (excluding capital contributed by Members), 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).

J.A. at 12. The Agreement defines "Available Cash Flow" as "the total cash available to the Company from all sources less the Company's total cash uses before payment of debt service." Id. at 5.

         Alongside the Agreement, Mirror Lake's Confidential Offering Memorandum repeats the details of the put option and emphasizes the risks associated with the investment, including the risk that the company does not acquire sufficient financing and the risk that the plaintiff-investors do not receive equity in proportion to their investments. Id. at 24. The Offering Memorandum also states that "[t]here can be no guarantee of the return of invested capital to any EB-5 Member." Id.

         b. The I-526 Petitions and Denials

         The plaintiff-investors filed 1-526 petitions in October and November of 2014. Compl. ¶ 79. USCIS issued Notices of Intent to Deny ("NOIDs") each petition in December of 2015. Id. U 81. The plaintiffs responded to the NOIDs in January of 2016, id. ¶ 86, and USCIS denied all seven of the petitions in February of 2016, id. ¶ 91. The plaintiff-investors then filed "Motions to Reopen and Reconsider a Denied Form 1-526" in March of 2016. Id. f98. USCIS denied six of the motions in May and June of 2016. Id. ¶ 104. Because the parties have asserted that the petitions and denials were virtually identical, and have only filed the record associated with the adjudication of Lei Hu's petition, the Court treats that record as representative of the other adjudications. Defs.' Mot. for Summ. J. at 5 [ECF No. 18]; Pls.' Mot. for Summ. J. at 4-11 [ECF No. 21].[2]

         In its Notice of Intent to Deny plaintiff Lei Hu's petition, USCIS concluded that the record did "not demonstrate that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the investment." J. A. at 54. Citing Matter of Izummi, USCIS noted that "[f]or 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." Id. at 55. UCSIS did not mention the Agreement's condition that the company have available cash flow in order for the plaintiff-investors to exercise their put option.

         In her response to the agency's NOID, Lei Hu pointed to the Agreement and the Offering Memorandum and emphasized that the "right of investors to exercise the Put Option ... is expressly contingent upon the availability of cash flow." J. A. at 59 (emphasis in original). She also emphasized that she exchanged capital for a 2% ownership ...

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