WanXuan Zou, a national and resident of the People's Republic of China, is suing the INS over their denial of his petition for classification as an "immigrant investor." Zou has invested $500,000 in R.L. Investment Limited Partners, a business organized under Hawaiian laws.

Zou claims the denial was error under the Immigration and Naturalization Act section 203(b)(5) and its accompanying regulations. Under section 203(B)(5), an alien qualifies for immigrant investor status if he has invested $500,000 in a commercial enterprise located in a "targeted area" in the U.S. that creates at least 10 full time jobs for U.S. workers. The INS has designated the entire state of Hawaii as a targeted area.

Four other foreign investors in R.L. Investment have received INS approval of their petitions for immigrant investor status. Zou's was denied. The reason for the denial was a decision of the Administrative Appeals Unit, Matter of Isumii, on July 13, 1998, which marked a significant departure from previous law on immigrant investors.

The INS gave four grounds for denial of Zou's petition. First, they ruled that by investing in an already existing business, the investor was not helping to "establish" a new commercial enterprise. As Zou's lawyers point out, such an approach ignores the reality of the business world in which business entities are usually formed before investment is sought. Second, the INS held the investment was not at risk because Zou could recoup his initial investment after two years. Previous INS policy statements had stated that such an arrangement was in accord with the statutory requirement that the investment be at risk. Third, the INS cited a provision for the payment of preferred returns to the immigrant investors as unacceptably reducing the at risk nature of the investment. According to Zou's lawyers, this payment depends on whether the business is profitable. The fourth ground for denial, that Zou failed to submit sufficient evidence, is claimed to be error because the other four immigrant investors whose petitions were approved submitted the same evidence.

Zou's claim is essentially that by giving precedent effect to the Izumii decision, the INS violated rule making procedures.