HUASHAN ZHANG AND MASAYUKI HAGIWARA, APPELLEES v. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES, ET AL., APPELLANTS
No. 19-5021
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 21, 2020
Decided October 27, 2020
Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-00995)
Christopher A. Bates, Counsel to the Assistant Attorney General, U.S. Department of Justice, argued the cause for appellants. With him on the briefs were Matthew J. Glover, Counsel to the Assistant Attorney General, Glenn M. Girdharry, Assistant Director, and Aaron S. Goldsmith, Senior Litigation Counsel. Joshua S. Press, Attorney, entered an appearance.
Ira Kurzban argued the cause for appellees. With him on the brief was John P. Pratt.
Before: MILLETT, KATSAS, and RAO, Circuit Judges.
Opinion for the Court filed by Circuit Judge KATSAS.
I
A
In 1990, Congress amended the Immigration and Nationality Act (INA) to establish the employment-based, fifth preference immigrant visa program, commonly known as the EB-5 visa program. See
In 1991, the Immigration and Naturalization Service (INS) promulgated implementing regulations for the EB-5 visa program. From then until 2019, the regulations defined the terms “capital” and “invest” as follows:
Capital means cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness.
* * *
Invest means to contribute capital. 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 purposes of this part.
In 1998, the INS rendered precedential decisions applying these regulatory requirements to loans and promissory notes. One decision held that a loan from the investor to the enterprise does not qualify as an investment of capital. Matter of Soffici, 22 I. & N. Dec. 158, 162-63 (Assoc. Comm. 1998). A second decision explained that a promissory note from the investor to the enterprise may constitute either indebtedness or evidence that the investor is “in the process of investing other capital, such as cash.” Matter of Izummi, 22 I. & N. Dec. 169, 193 (Assoc. Comm. 1998) (cleaned up). A third decision held that such a promissory note, to qualify as capital under the indebtedness prong of the definition, must be secured by assets amenable to seizure. Matter of Hsuing, 22 I. & N. Dec. 201, 202 (Assoc. Comm. 1998).
This case presents the further question of how the regulation treats the cash proceeds of a loan. The INS‘s successor agency, the United States Citizenship and Immigration Services (USCIS), addressed that question on a conference call with outside parties held on April 22, 2015. During that call, a deputy chief within the Immigrant Investor Program Office (IPO) of USCIS stated that, when a foreign investor invests cash from a loan in a new U.S. enterprise, USCIS treats the investment as indebtedness rather than cash. Thus, according to the deputy chief, “[p]roceeds from a loan may qualify as capital used for EB-5 investments, provided that the requirements placed upon indebtedness by
B
The two plaintiffs in this case were denied EB-5 visas based on this interpretation of the regulation. One denial occurred shortly before USCIS publicly announced its position, and the other shortly after.
Masayuki Hagiwara is a Japanese citizen. In 2013, Hagiwara borrowed $500,000 from a corporation that he controlled and invested the money in a new commercial enterprise in Nevada, a targeted area. In 2014, Hagiwara filed what USCIS calls Form I-526, a petition to establish his eligibility for an EB-5 visa. In March 2015, USCIS denied the petition. It reasoned that the loan proceeds invested by Hagiwara in the Nevada enterprise constituted indebtedness, not cash, under
The case of Huashan Zhang, a Chinese citizen, is similar. In 2013, Zhang borrowed $500,000 from a corporation that he controlled, invested the money in a new commercial enterprise in Nevada, and filed a Form I-526 petition. In May 2015, USCIS denied Zhang‘s petition on the same ground: the loan proceeds constituted indebtedness, which failed to qualify as capital because Zhang‘s assets did not secure the loan.
C
On June 23, 2015, Zhang and Hagiwara sued to challenge what they described as
Zhang and Hagiwara sought to represent a class of EB-5 investors who made investments and filed visa applications before the 2015 conference call. Specifically, they sought to represent a class defined as
[a]ll Form I-526 petitioners who: (1) invested cash in a new commercial enterprise in an amount sufficient to qualify as an EB-5 investor; (2) obtained some or all of the cash invested in the new commercial enterprise through a loan; (3) filed a Form I-526 petition prior to April 22, 2015 based on that investment; and (4) received or will receive a denial of their I-526 petition on the ground that the loan used to obtain the invested cash fails the collateralization test described in the announcement made by USCIS during its April 22, 2015 EB-5 stakeholder engagement.
J.A. 31. On behalf of the class, the plaintiffs sought to require USCIS to reopen applications that it had denied based on the collateralization rule, and to prohibit the agency from applying the rule to pending applications.
The plaintiffs moved for class certification, and the parties then filed cross-motions for summary judgment. The district court simultaneously resolved all these motions. Zhang v. USCIS, 344 F. Supp. 3d 32 (D.D.C. 2018).
As for summary judgment, the court held that the agency‘s interpretation of
The district court then certified a class under
[a]ll Form I-526 petitioners who: (1) invested cash in a new commercial enterprise in an amount sufficient to qualify as an EB-5 investor; (2) obtained some or all of the cash invested in the new commercial enterprise through a loan; (3) filed a Form I-526 petition based on that investment; and (4) received or will receive a denial of their I-526 petition
solely on the ground that the loan used to obtain the invested cash fails the collateralization test described in the USCIS 2015 IPO Remarks announcement.
Combining these rulings, the court vacated the denial of I-526 petitions filed by class members, and it remanded the case to USCIS for further consideration. 344 F. Supp. 3d at 60.
II
We begin with the district court‘s summary-judgment rulings. Under the Administrative Procedure Act, a reviewing court must set aside agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
A
The district court correctly concluded that loan proceeds qualify as cash, not indebtedness, under the EB-5 visa program. The INA makes these visas available to prospective immigrants who have “invested” or are actively “investing” a minimum amount of “capital” in a new United States enterprise.
From 1991 through 2019, the regulation defined capital as “cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness.”
Start with “cash.” It means “[m]oney; in the form of coin, ready money.” Cash, Oxford English Dictionary (2d ed. 1989). This definition easily encompasses loan proceeds. When a person takes out a loan, he receives money in exchange for a promise to repay the funds. And when that person uses the funds to purchase goods, he buys them with cash. Imagine someone wishes to sell a used car for payment “in cash only.” If a buyer offered the cash proceeds of a loan, the seller would happily oblige, for the payment would be “in cash.” Cash is fungible, and it passes from buyer to seller without imposing on the seller any of the buyer‘s obligations to his own creditors. The buyer‘s source of cash—whether paycheck, gift, or loan—makes no legal or practical difference. Here, when Zhang and Hagiwara took out loans from their companies, they received cash proceeds. And when they invested the proceeds into
Now consider “indebtedness.” It means either “[t]he condition of being indebted or in debt” or “[t]he extent to which one is indebted; the sum owed; the actual debt.” Indebtedness, Oxford English Dictionary (2d ed. 1989). Neither definition captures loan proceeds, which are the product of a debt, not the condition of being in debt or the debt itself. Moreover, eligibility for an EB-5 visa turns on whether capital is “invested” in the enterprise,
Instead, an investment of indebtedness is more naturally understood as a promise to give the enterprise something of value. When an investor gives the enterprise a promissory note, he incurs a liability—the “indebtedness“—to the enterprise—and the enterprise can list the note as an asset on its balance sheet, just as it can list as assets the other kinds of capital described in the regulation. In this way, the indebtedness prong of the regulation implements the statutory provision extending EB-5 visa eligibility not only to any foreign investor who “has invested” the minimum amount of capital, but also to any foreign investor who “is actively in the process of investing” the capital.
The structure of
Another contextual clue buttresses our reading. To qualify as capital, an investment of indebtedness must be secured by the foreign investor‘s assets.
In response, USCIS highlights the proviso that indebtedness, to qualify as capital, cannot be secured with the assets of the enterprise.
USCIS further invokes
This argument runs into several obstacles. For starters, the meaning of “capital” is controlled by the definition of that term in
USCIS also advances several policy arguments. According to the agency, if the proceeds of unsecured loans qualified as capital, then wealthy third parties could buy visas for foreigners unlikely to create jobs, and foreign investors could qualify for visas by investing domestic funds. The plaintiffs respond that the statute sets forth requirements for the enterprise (not the investor) to create jobs, and it does not prohibit investments (secured or otherwise) involving the U.S. funds of foreign investors. We need not engage these arguments, for we cannot disregard the plain meaning of a regulation based on policy considerations. Mercy Hosp., Inc. v. Azar, 891 F.3d 1062, 1070 (D.C. Cir. 2018). Likewise, given the clarity of the governing regulation, we cannot defer to the agency‘s contrary interpretation. Kisor v. Wilkie, 139 S. Ct. 2400, 2415 (2019).
Text, structure, and regulatory context show that the term “cash,” as used in
B
The district court further held that USCIS‘s interpretation of its own regulation, as announced in the April 2015 conference call, constituted a legislative rule requiring notice-and-comment rulemaking. USCIS contends that the announcement was not final agency action at all, and thus was unreviewable, or at most was an interpretive rule.
We need not attempt to categorize the April 2015 comments, for nothing would turn on it. USCIS wisely does not argue that telephone statements made by its IPO deputy chief were intended to change, or could change, a binding regulation published by a predecessor agency in the Code of Federal Regulations. Instead, the agency defends the statements as a permissible interpretation of the regulation and as a reiteration of its prior position. But whether the statements have no independent legal effect by design or because they were improperly adopted makes no difference. In either event, the regulation itself—not a statement made by an agency official on a conference call—governs the question of what constitutes a capital investment under the INA. We thus need not consider whether the statements amounted to an improperly promulgated legislative rule or something less binding.
Likewise, we need not consider whether those statements amounted to an interpretive rule or to non-final agency action. The question whether agency action is final and thus reviewable under the APA is not jurisdictional, Flytenow, Inc. v. FAA, 808 F.3d 882, 888 (D.C. Cir. 2015), so
Regardless of how the comments are characterized, we affirm the district court‘s conclusion that they are inconsistent with the regulation and thus can have no legal effect.
III
After rejecting USCIS‘s interpretation of
On appeal, USCIS raises one objection to the class certification: that the class is overbroad insofar as it sweeps in investors whose petitions were denied as far back as 1991. As USCIS explains, the statute of limitations for claims against the federal government is six years,
We are troubled by USCIS‘s failure to raise this argument before the district court and to afford that court the opportunity to address it in the first instance. At no point after the district court certified the class did USCIS voice its current objection. It did not raise this concern in a motion for clarification or reconsideration of the certification order, in a motion to amend the judgment under
But we need not address forfeiture in this case, for we see no indication that the district court included time-barred claimants in the certified class. Nothing in the court‘s thorough opinion indicates that it was doing so, despite the settled law noted above. Quite the opposite, the district court recognized and applied the six-year statute of limitations in concluding that the notice-and-comment claims were timely. USCIS had argued that the plaintiffs were making a time-barred challenge to the adoption of
The plaintiffs’ own arguments reinforce this conclusion. At every turn, the plaintiffs characterized the position taken by USCIS in April 2015 as a bolt out of the blue—a new position representing a sharp break from past agency practice. The complaint alleged that “class members were blindsided” by a new rule announced and applied “only after they made their investments and filed their Form I-526 petitions.” J.A. 31. The retroactivity and notice-and-comment counts, which focused on the April 2015 conference call as opposed to individual denials, rested centrally on the proposition that the agency had announced an unexpected new rule. J.A. 36 (“At the time Plaintiffs invested capital in a new commercial enterprise and submitted their Form I-526 petitions, Defendants treated the investment of cash proceeds from a third-party loan as cash, not ‘indebtedness.’ Defendants abruptly departed from this policy in adopting their collateralization rule and applying it retroactively to pending petitions like Plaintiffs.“); J.A. 38 (“Defendants’ collateralization rule, public[ly] announced for the first time on April 22, 2015, is a rule of general applicability that carries the force of law.“). The plaintiffs’ class-certification and summary-judgment motions repeatedly made similar characterizations. None of this suggested any challenge to agency actions more than six years before the complaint was filed, much less to agency actions some three decades earlier.
We recognize that USCIS expressed a different view as to the novelty of its 2015 position. USCIS claimed that the comments made in the April 2015 conference call, as well as its orders denying the petitions of Zhang and Hagiwara, reflect a consistent agency position dating back at least to the 1998 INS decisions. But the plaintiffs are the masters of their own complaint, which focused entirely on assertedly novel agency actions undertaken in 2015. And the district court correctly rejected USCIS‘s contention that its present position was supported by any past agency action. See 344 F. Supp. 3d at 53-55.3
We also recognize some fuzziness in determining which denials can fairly be tied to “the collateralization test described in the USCIS 2015 IPO Remarks announcement.” The class must encompass some denials that occurred before the April 2015
Finally, we reserve the question whether class certification under
IV
The district court correctly rejected USCIS‘s interpretation of
Affirmed.