COURT DEALS BLOW TO EB-5 CASES

A federal district court in Hawaii has issued a decision severely limiting the avenues of recourse for those who were denied immigrant investor visa status when the INS policy on adjudication of such cases changed.  Readers may be familiar with the ongoing disputes about the immigrant investor visa program, commonly known as the EB-5 visa. 

This category allows a person to gain permanent residence through the investment of at least million (0,000 if the investment is made in certain areas).  After the program was created in 1990, many enterprises sprang up designed to assist those who were interested in the program.  One of the most common investment plans allowed the intending immigrant to collect interest on the amount invested, and guaranteed that the investment could be returned after permanent residency was granted.  After a few years of approving petitions submitted by such companies, the INS began to express concern that the investments were not being made in a way that followed regulations.  A hold on processing was implemented while the INS investigated the matter.

During the summer of 1998, the INS issued four legally binding decisions (referred to as precedent) on all future EB-5 applications.  The important result was a stricter attitude toward examining the nature of the investment.  Investment plans such as those described above were no longer sufficient for the EB-5 program.

In the case that prompted this lawsuit, five people filed EB-5 applications after investing in R.L. Investment Limited Partners.  Each of these applications was filed at the same time.  Four were granted, but a fifth was delayed because of the INS processing hold.  When adjudication began again following the release of the precedent decisions, this fifth application was denied.

Following an appeal to the Administrative Appeals Office, which was denied, the fifth investor filed suit against the INS, alleging that the denial of his application was an abuse of discretion, and that in adopting the new precedent decisions the INS failed to follow required rules for creating new regulations.  The district court disagreed, and found for the INS.

On the first issue – whether the INS abused its discretion in denying a case after approving four identical ones – the court found the answer was clearly no.  For a decision of the INS to be an abuse of discretion, it must be contrary to the language of a statute or regulation, or impose an additional requirement not found in the statute or regulation.  According to the court, the definition of “invest” found in the precedent decisions is not contrary to the statute or regulations, in which investment is not defined.  Although there may be other reasonable definitions of investment, it is not the role of the court to make such a policy decision. 

The court also found that the INS did not violate rules for creating new regulations.  Under the Administrative Procedures Act, “legislative” rules,those that create a change in policy, must be subject to a notice and comment period during which the public can submit reactions to a proposed agency rule.  Such procedures are not required for interpretive rules, which are those that clarify existing regulations.  Prior to the 1998 precedent decisions, the INS had not issued any official statement regarding its adjudication of EB-5 applications.  There were some unofficial guidance documents, many of which were available to immigration practitioners, but none of them were official.  Because these unofficial documents had not been subjected to the notice and comment process, they could not constitute regulations with the force of law.  Therefore, the INS was not required to have a notice and comment period before adopting its new interpretation.