2002 WL 32102791 (9th Cir

2002 WL 32102791 (9th Cir.)

Briefs and Other Related Documents

United States Court of Appeals, Ninth Circuit.

SPENCER ENTERPRISES, Inc., Li-Hui Chang, Petitioners-Appellants,

UNITED STATES OF AMERICA, Immigration and Naturalization Service, Respondents- Appellees.

No. 01-16391

May 9, 2002.

Appeal from Judgment of the United States District Court, Eastern District of California, the Honorable Oliver W. Wanger, Case No. CV-99-06117-OWW

Reply Brief of Petitioners and Appellants Spencer Enterprises, Inc. and Li-Hui

Chang

H. Ronald Klasko, Dechert, 1717 Arch Street, 4000 Bell Atlantic Tower, Philadelphia, PA 19103, (215) 994-4000, Russell K. Ryan, Parr, Waddoups, Brown, Gee and Loveless, 185 South State Street, Suite 1300, Salt Lake City, UT 84111, (801) 364-9124

*i TABLE OF CONTENTS

I. INTRODUCTION ... 1

II ARGUMENT ... 2

A. RLILP DOES NOT CONTROL ANY OF THE ISSUES PRESENTED IN THIS CASE ... 2

1. Chang's investment petition contains none of the problematic features contained in the RLILP investment that were the motivation behind the issuance of the precedent decisions ... 2

2. In RLILP, expert opinions were not considered because they were not presented to the AAO ... 5

3. In RLILP, application of the precedent decisions disposed of all relevant issues, while application of the precedent decisions to Chang's petition does not dispose of any relevant issues ... 5

4. In RLILP, the District Court held that application of the precedent decisions to the RLILP investment did not violate the Ruangswang trilogy of cases, but here INS imposed additional new requirements ... 8

5. Although the only documentation of source of funds or tracing of funds presented in RLILP was an affidavit from the investor, Chang submitted substantial evidence of source of funds and substantial documentation to trace her investment funds ... 11

6. Unlike in RLILP, Chang does not argue on appeal that estoppel bars denial of her petition ... 12

7. RLILP establishes that the application of the precedent decisions did not violate the APA, but this issue is not raised in this appeal ... 13

B. THE DISTRICT COURT'S CONCLUSIONS REGARDING THE MERITS OF CHANG'S PETITION ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE ... 14

III. CONCLUSION ... 18

*ii TABLE OF AUTHORITIES

FEDERAL CASES

Bahat v. Sureck, 637 F.2d l315 (9th Cir. 1981) ... 8

Patel v. INS, 638 F.2d 1199 (9th Cir. 1980) ... 8

R.L. Investment Limited Partners v. Immigration and Naturalization Service, 86 F. Supp.2d 1014 (D. Haw. 2000), affirmed, 273 F.3d 874 (9th Cir. 2001) ... passim

Ruangswang v. INS, 591 F.2d 39 (9th Cir. 1978) ... 8, 9

INS DECISIONS

In re Ho. Int. Dec. No. 3362, 1998 WL 483979 (Exam. Comm. July 31, 1998) ... 3, 7, 11, 15

In re Hsiung, Int. Dec. No. 3361, 1998 WL 483978 (Exam. Comm. July 31, 1998) ... 3, 4

In re Izumii, Int. Dec. No. 3360, 1998 WL 483977 (Exam. Comm. July 13, 1998) ... 3, 4

In re Soffici, Int. Dec. No. 3359, 1998 WL 471519 (Exam. Comm. June 30, 1998) ... 2, 4, 7, 11

FEDERAL REGULATIONS

8 C.F.R. § 204.6(e) ... 9

*1 I. INTRODUCTION

Appellants Spencer Enterprises, Inc. ("Spencer") and Li-Hui Chang ("Chang") seek reversal of sumrnary judgment granted to the U.S. Immigration and Naturalization Service ("INS") and the denial of summary judgment to Chang and Spencer. As described in Appellants' principal brief, Spencer is one of the largest residential home builders in the Fresno, California area, and Chang is a Taiwanese national who invested $500,000 cash in a new commercial enterprise in Fresno established to build single family residences and employ U.S. workers. Chang's investment was made pursuant to the EB-5 immigrant investor program, the details of which are addressed extensively in Chang's and Spencer's principal brief.

In response to that brief, the INS argues two points: (1) that R.L. Investment Limited Partners v. Immigration and Naturalization Service, 86 F. Supp.2d 1014 (D. Haw. 2000), affirmed, 273 F.3d 874 (9th Cir. 2001) ("RLILP"), governs most of the issues presented in this appeal; and (2) that the District Court's conclusions are correct regarding the remaining issues relating to the merits of Chang's petition.

In fact, close analysis of the facts and legal issues in RLILP reveals that RLILP governs none of the issues presented in this appeal. Also, careful review of *2 the record, as extensively discussed in Appellants' initial brief, reveals that the District Court's determinations regarding the merits of Chang's petition are not supported by substantial evidence. INS has not rebutted any of the arguments contained in Appellants' initial brief regarding the merits of Chang's petition.

II. ARGUMENT

A. RLILP DOES NOT CONTROL ANY OF THE ISSUES PRESENTED IN THIS CASE.

Contrary to the representation of INS, RLILP is completely distinguishable from this case. The central issues in RLILP were "whether the INS abused its discretion in denying [one] application after granting almost identical petitions by others," and also whether the application of the precedent decisions violated the Administrative Procedures Act ("APA"). RLILP. 86 F. Supp.2d at 1016. Not only are these not the central issues of this appeal, they are not issues at all. As the following discussion reveals, RLILP and this case are entirely distinguishable.

1. Chang's investment petition contains none of the problematic features contained in the RLILP investment that were the motivation behind the issuance of the precedent decisions.

As described by the parties, the INS issued four precedent decisions in 1998 that established new substantive requirements for immigrant investor petitions. Those decisions, *3In re Soffici, Int. Dec. No. 3359, 1998 WL 471519 (Exam. Comm. June 30, 1998), In re Hsiung, Int. Dec. No. 3361, 1998 WL 483978 (Exam. Comm. July 31, 1998), In re Ho, Int. Dec. No. 3362, 1998 WL 483979 (Exam. Comm. July 31, 1998) and In re Izumii, Int. Dec. No. 3360, 1998 WL 483977 (Exam. Comm. July 13, 1998), were designed to allow the INS to deny investor petitions which contain characteristics the INS had determined were troublesome.

INS described these troublesome characteristics in a field memorandum dated March 11, 1998, attached to this brief as Exhibit A. This memorandum addresses the use of: (1) a combination of a cash down payment with a promissory note; (2) a multi-year installment payment plan on a promissory note containing a substantial balloon payment available after removal of the conditions on the alien's lawful permanent resident status; (3) an alien's option to sell the investment for a fixed price that may be less than, equal to or greater than the alien's cash contribution, or an option to be released from a promissory note if the partnership becomes insolvent; (4) an option granted to the enterprise to purchase the alien's investment at a fixed price; (5) a provision that requires the enterprise to guarantee that funds will be available to the alien if the alien opts to sell; (6) withholding of a portion of the alien's capital contribution for administrative costs; and (7) a guaranteed return to the alien.

*4 The proposed investment in RLILP contained a number of the troublesome characteristics that led to the issuance of the precedent decisions. For example, the investment at issue in RLILP contained a promise to repay the immigrant investor within three years of the date of INS approval. RLILP at 1022-23. Therefore, both the INS and the District Court determined that the transaction was a debt arrangement, and not the requisite equity investment. Id. at 1023-24. The precedent decisions were specifically designed to prohibit this type of debt arrangement. See, e.g., In re Soffici (establishing that an investor cannot meet the investment of capital requirement by lending money to a commercial enterprise); see also In re Izumii.

Chang's business plan, however, contains no such "debt" arrangement. Nor does Chang's plan contain any of the other characteristics found troubling in the precedent decisions or those singled out in the March 11, 1998 memorandum. For example, in In re Hsiung, the AAO determined that an investor's capital was not at risk when the investment consisted of an unsecured promissory note. Chang's business plan contains no such arrangement. Chang's plan does not provide for any guaranteed return and does not amount to a debt arrangement. Chang's investment is completely at risk, is a full cash investment, involves no promissory note, contains no insolvency exit provision, contains no option for the enterprise to *5 buy the investment at a fixed price, and will be utilized in its entirety by the new commercial enterprise. Thus, none of the troublesome characteristics of the investment plan in RLILP are present in this appeal.

2. In RLILP, expert opinions were not considered because they were not presented to the AAO.

Another difference between RLILP and this appeal is that Chang presented to the AAO uncontroverted expert opinions confirming the credibility of Chang's business plan. See Brief for Appellants at 60-62 (describing opinions of three real estate construction experts). Neither the District Court nor the AAO in RLILP had similar opinions available to it because the investor in RLILP did not present any expert opinions to the AAO. RLILP at 1021. Inexplicably, however, neither the AAO nor the District Court considered the expert opinions submitted by Chang and Spencer. See Brief for Appellants at 62.

3. In RLILP, application of the precedent decisions disposed of all relevant issues, while application of the precedent decisions to Chang's petition does not dispose of any relevant issues.

The INS' objections to the investment plan at issue in RLILP were directly rooted in the precedent decisions. Review of the record in that case could not alleviate the discord between the RLILP plan and the precedent decisions. In RLILP. similar petitions filed by other investors were approved before the issuance *6 of the precedent decisions. RLILP at 1021. As explained by the District Court in RLILP, "the parties agree that the difference results from the INS's publication of four precedent decisions." Id. If the precedent decisions are applied to the investment plan of the petitioner in RLILP, the parties agreed the investment plan fails because it contains the type of "debt" arrangement directly prohibited by the precedent decisions.

Here, application of the precedent decisions does not yield such a result because INS' principal objections to Chang's investment are not rooted in the precedent decisions. As contrasted with RLILP, Appellants assert that the precedent decisions do not control the outcome of this case and that Chang's investment complies fully with the precedent decisions.

In fact, the current INS focus on the precedent decisions is contrary to its representation at oral argument before the District Court that Chang's petition should be examined without reference to the precedent decisions. See Reporter's Transcript of Proceedings (September 8, 2000) at 18, 27, 28, 57, 67, 68. At oral argument, the District Court expressly clarified that the INS was not relying on the precedent decisions. The court stated:

*7 I will say that after reading the AAO decision, I don't see any specific reg or rule or interpretation of the precedent decisions being relied on. And that's where Ms. Reyna started in this case, that being the government position. And so I'm going to say, "Speak now or forever hold your peace." That is the way I'm going to decide this case unless somebody tells me that there is anything in the precedent decisions, any specific interpretation or rule that is being used to say, "This is why it's incredible, this is why it doesn't pass muster." And if I don't hear anything, then I'm going to decide the case based on the law and the precedent that everybody cited and the normal rules and interpretation that apply.

Id. at 67-68. Counsel for both parties agreed that the court's statement was a correct interpretation of the parties' positions. Id. at 68.

Additionally, even if the precedent decisions are used to evaluate Chang's petition, Chang's petition meets the requirements of the precedent decisions and contains none of the troublesome features addressed by the precedent decisions. The AAO only mentioned two of the precedent decisions in its opinion regarding Chang's petition. It referenced In re Ho for the proposition that submission of a comprehensive and credible business plan is required. It also referenced In re Soffici to support its explanation that the investor must meet the burden of establishing that an area qualifies as a targeted employment area. As explained in Chang's and Spencer's initial brief, Chang does not challenge and clearly meets these requirements. See Brief for Appellants at 34- 38, 49-62.

*8 Through the precedent decisions, the AAO did not hold that the requirement of creating "full-time" employment can only be met by establishing that employment is also "continuous" and "permanent." These are new requirements imposed upon Chang. Neither the AAO nor the District Court cited to a precedent decision as support for these new requirements that "full-time" employment must also be "continuous" and "permanent." Unlike in RLILP, here INS has applied new requirements that it does not trace to the precedent decisions.

The petitioner in RLILP also argued that the INS abused its discretion under Ruangswang v. INS, 591 F.2d 39 (9th Cir. 1978), Patel v. INS, 638 F.2d 1199 (9th Cir. 1980), and Bahat v. Sureck, 637 F.2d 1315 (9th Cir. 1981). RLILP at 1021. The District Court in RLILP explained that "these three cases stand for the proposition that an agency abuses its discretion when its decisions either are contrary to the plain language of a statute or regulation or add a requirement not contained in the statute." Id. at 1022. The court concluded that the application of the precedent decisions in RLILP was not an abuse of discretion because "here, Plaintiffs do not argue that there is a statute, regulation or published decision *9 interpreting the immigrant investor statute that has been contravened, either by an additional requirement or a contrary interpretation." Id. at 1022.

However, neither the INS, nor the District Court, nor this Court, could make that same statement about Appellants. Chang and Spencer are arguing that the INS interpretation of the immigrant investor statute is contrary to the language and meaning of the statute and regulations and that the INS has added a requirement not contained in the statute after Chang made her investment. Chang's and Spencer's initial brief contains an entire section of argument explaining that the INS interpretation of the term "full-time" constitutes an interpretation that is plainly contrary to the statute and represents the addition of a wholly new requirement not contained in the statute. See Brief for Appellants at 22-24. INS does not even argue that the employment created by Chang does not create "full-time" employment as that term is commonly understood and as that term is defined in the regulation. See 8 C.F.R. § 204.6(e) (defining "full-time" employment as employment that "requires a minimum of 35 working hours per week"). Chang and Spencer maintain that the interpretation of "full-time" to mean continuous and permanent employment "is an incorrect legal standard as a matter of statutory interpretation and legislative history." Id. at 22. There is certainly nothing in the RLILP decision that undercuts the validity of the Ruangswang line of cases or that *10 addresses whether the addition of the "continuous" and "permanent" requirements "are contrary to the plain language of [the] statute or regulation or add a requirement not contained in the statute." RLILP at 1022.

In response to the argument of Chang and Spencer that the interpretation of "full-time" employment to require continuous and permanent employment is contrary to the statute, INS states that Congress did not express clear intent as to the type of investment required, and that INS "fill the gap" interpretations are entitled to substantial deference. See Brief for Appellee at 18. Chang and Spencer disagree, and instead suggest that statutory interpretation is a legal issue for this Court to decide. See Brief for Appellants at 23. Additionally, Chang and Spencer assert that inconsistent agency interpretations are entitled to less deference. Id. at 29. This should not be interpreted as an APA or an abuse of discretion argument. Instead, it is a contention that inconsistent INS interpretations on the same type of investment plan are entitled to less deference than consistent interpretations.

Parenthetically, even if the continuous and permanent standards are appropriate, Chang meets these new requirements. See Brief for Appellants at *11 32-34. This is in stark contrast to RLILP where the parties agreed that the investment at issue did not meet the INS' new heightened requirements.

In RLILP, the investor submitted only his own affidavit as proof of the lawful source of his funds and to document the tracing of his funds to the investment enterprise. RLILP at 1025-26. The District Court in RLILP held that more than a petitioner's affidavit is required to establish the lawful source of funds. The District Court explained, "documentary evidence, in the form of, for example, tax returns and foreign business registration records, is required." Id. at 1026. In contrast, Chang submitted substantial documentation of exactly the type required by the court in RLILP regarding the source of her investment funds, as well as substantial documentation to trace the invested funds to their legal source.

Chang and Spencer presented extensive argument in their initial brief that Chang complied with all requirements regarding proof of the legal source of her investment funds. See Brief for Appellants at 42-48. As described in the principal brief, even if In re Soffici and In re Ho require every dollar invested to be traced to its legal source, Chang complied with that requirement. Id. at 45.

*12 Interestingly, INS does not directly respond to the careful roadmap of funds contained in Appellants' brief. It merely incorporates the District Court's analysis. See Brief for Appellee at 26. However, Chang and Spencer contend that the District Court's review of the record should have revealed the evidence presented to the INS that is detailed in Appellants' brief, and that this evidence supports the claim that Chang did adequately trace the source of her funds. For example, the District Court imposed a requirement that Chang should have submitted tax information "for five years." [E.R. 562]. The discussion in Chang's and Spencer's brief, however, explains that the regulations only require submitted tax information to have been filed "within five years." See Brief for Appellants at 43.

6. Unlike in RLILP, Chang does not argue on appeal that estoppel bars denial of her petition.

In RLILP, the District Court rejected the investor's estoppel argument. RLILP at 1026-27. Chang's estoppel argument was similarly disposed of by the District Court. [E.R. 572-74]. On appeal, Chang and Spencer have not made any arguments based on the concept of estoppel. Therefore, INS' arguments citing RLILP regarding the merits of an estoppel argument are superfluous.

*13 7. RLILP establishes that the application of the precedent decisions did not violate the APA, but this issue is not raised in this appeal.

One of the main issues in RLILP was whether the INS violated the APA by applying the precedent decisions to the investment at issue in RLILP. The petitioner in RLILP argued that application of the precedent decisions to its plan amounted to a reversal of INS policy that should have been accomplished by formal rulemaking. RLILP at 1024. The District Court determined that, through the precedent decisions, the INS "did not announce new rules that should have been subjected to the notice and comment provisions of the Administrative Procedures Act." Id. at 1016.

Here, however, any potential APA issue has not been raised on appeal. Thus, this central issue of RLILP is not an issue here, and INS arguments regarding whether application of the precedent decisions violates the APA are superfluous and unresponsive to any argument made in Appellants' initial brief.

The differences between RLILP and this appeal reveal that this Court's affirmance of the decision in RLILP does not in any aspect dictate the outcome of this appeal, as suggested by INS. At most, RLILP expresses this Court's opinion that the issuance of the precedent decisions did not violate the APA and did not amount to an abuse of discretion as applied in RLILP. RLILP does not, however, *14 address Chang's and Spencer's contention that the INS has imposed impermissible new interpretations of the immigrant investor statute. Nor does RLILP settle their contention that Chang's investment is in full compliance with the dictates of the precedent decisions. In fact, RLILP controls none of the issues presented in this appeal.

B. THE DISTRICT COURT'S CONCLUSIONS REGARDING THE MERITS OF CHANG'S PETITION ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.

Appellants' initial brief contains detailed discussion of why many of the conclusions reached by the District Court regarding the merits of Chang's investment are not supported by the record. Instead of rebutting this detailed analysis, INS simply refers to the "painstakingly-detailed analysis" of the District Court. See Brief for Appellee at 14. This approach fails to address the argument that the District Court's analysis is not supported by substantial evidence in the record. This approach also fails to refute Appellants' specific citations to the record where information exists that contradicts the District Court's conclusions.

For example, Chang and Spencer argue that both the AAO's and the District Court's determinations that Chang's petition is not credible are not supported by substantial evidence. See Brief for Appellants at 49-57. Chang and Spencer have *15 submitted substantial evidence, including unrebutted expert opinions, that Chang's petition is credible, satisfying any credibility requirement contained in In re Ho.

Additionally, Chang and Spencer argue that this Court should not give deference to the INS' credibility determinations regarding the viability of a real estate development plan, a subject clearly outside of the agency's expertise. Id. at 57. While INS argues in its brief that it is entitled to deference on this issue because Congress has delegated it authority to administer the immigrant investor program, see Brief for Appellee at 21, Chang and Spencer submitted various expert opinions that were ignored by INS in favor of its own speculation.

The District Court also determined that Chang's capital was not placed at risk. Contrary to the District Court's conclusion, a careful examination of the record reveals that Chang placed $500,000 of her own funds at risk. The record also reveals, and the District Court missed, that even if Chang hadn't placed $500,000 at risk, she meets the regulatory standard of being actively in the process of investing the required amount. See Brief for Appellants at 39.

Additionally, INS fails to acknowledge or rebut Appellants' contention that the District Court overlooked evidence in the record that Chang's petition meets even the new continuous and permanent standards imposed by INS with regard to *16 the meaning of "full-time" employment. Even if these new, extra-regulatory standards apply, Appellants' brief explains that the District Court misinterpreted Chang's business plan when it determined that the number of employees will fluctuate based on the fact that the types of functions performed by employees will vary. See Brief for Appellants at 32-33. The District Court did not realize that a change in any employee's functions does not signify a termination, but instead signifies merely a change in duties. As explained in the initial brief, functions would change; employees would not. Id. The District Court also did not reference the expert opinions submitted by Chang and Spencer on this subject.

The District Court also concluded that Chang did not show that Fresno, California was a targeted employment area as of the date of the filing her petition. As explained in detail in Appellants' brief, Chang maintains she did submit sufficient evidence. Id. at 36. Regardless, Spencer and Chang contend that this Court should take judicial notice of the facts which unequivocally establish Fresno as a targeted employment area at the time of the filing of Chang's petition. Id. at 37.

In support of this argument, Chang and Spencer filed a Request for Judicial Notice. Attached to this request are official publications of the California Trade *17 and Commerce Agency, Office of Foreign Investment. These official publications confirm that in 1998, the year in which Chang filed her petition, the State of California was advertising that Fresno qualified as a targeted investment area. See Exhibit C to Appellants' Request for Judicial Notice. These publications also confirm that in 1998 the annual average unemployment rate for Fresno was 14.1%. See Exhibit D to Appellants' Request for Judicial Notice. Also attached to the Request for Judicial Notice is a government publication establishing that the national unemployment rate for 1998 was 4.5%. See Exhibit B to Appellants' Request for Judicial Notice. Once these government publications are noticed, it becomes clear that in 1998 Fresno's unemployment rate was far greater than 150% of the national employment rate. In its brief, INS does not mention, let alone object to, Appellants' Request for Judicial Notice. The facts unequivocally support Appellants' claim that at the time of Chang's investment, Fresno qualified as a targeted employment area.

*18 III. CONCLUSION

INS raises only two arguments in its response to Appellants' brief. The first argument is that RLILP controls the outcome of this appeal. As the above discussion reveals, RLILP and this case are fundamentally different; and the issues of this case were not addressed in RLILP. The second argument is that the District Court's conclusions regarding the merits of Chang's petition are correct. To the contrary, Appellants have presented detailed arguments challenging the District Court's conclusions, and INS chose not to rebut any of these arguments in its brief. Therefore, INS has not presented any arguments that would bar the success of this appeal.

Date: May 7, 2002