June 13, 2001
U.S. IMMIGRATION & NATURALIZATION SERVICE
CALIFORNIA SERVICE CENTER
P.O. BOX 10526
LAGUNA NIGUEL, CA 92607-0526
ATTENTION : RFE CSC 9417 WS 241 DIV I
RESPONSE TO REQUEST FOR EVIDENCE
I-829 PETITION BY : SZE, RAYMOND YUNG
ENTERPRISE : VON VERDE LIMITED PARTNERSHIP
FILE : A# 46 069 222 WAC# 98 212 00047
We write in response to your Form I-797 request for evidence dated March 28, 2001.
Mr. Sze Raymond Yung invested $500,000 in Von Verde Limited Partnership (“VVLP”)
and filed an I-526 petition on December 12, 1995 for classification under the
employment-based fifth preference (EB-5) immigrant visa category. The Immigration &
Naturalization Service (“INS”) approved his petition and Mr. Sze entered the U.S. as a
conditional lawful permanent resident on July 12, 1996.
On April 23, 1998, petitioner timely filed an I-829 petition to remove the conditional
basis of his permanent residence based on the same investment reviewed and approved
by INS in his original I-526 petition.
As reflected in the record, VVLP was formed on July 15, 1992 to create a vertically
integrated citrus enterprise to engage in farming, harvesting, packing and distribution of
citrus fruits. In 1994, VVLP diversified into investments in commercial and residential
development in the Mesa Del Sol real estate project.
To finance its agricultural and commercial activities, VVLP limited partnership interests
were sold to a total of 90 limited partners for U.S.$500,000 each, that figure satisfying
immigration regulations because the commercial enterprise is located in Yuma, Arizona,
a designated high unemployment area.
Beginning in April, 1995, VVLP investors began to file petitions for removal of the two
year conditional period of their resident status in accordance with INA §216A. In
support of these removal of conditions petitions, each VVLP petitioner submitted Federal
and State Income Tax Returns for the years VVLP had been in operation along with
copies of his/her K-1 Partner’s Shares of Income, Credits, Deductions etc. as well as
information about the full-time employees hired. The INS, however, withheld
adjudication of 16 such petitions because of its relative inexperience in the adjudication
of removal of conditions based on “pooled investments”, and because of internal
discussion among high level INS officials concerning the validity of certain features of
pooled investment programs.
After a substantial delay, the INS issued a request for further evidence which included
asking for a description of the enterprise, how the funds invested by the investors were
“at risk”, copies of payroll ledgers, I-9s, W-4s for all employees hired, proof of the
capital assets held by the partnership and a host of additional issues which had to be
addressed in further detail.
In response to concerns expressed at the delay in such adjudication by counsel for VVLP
and questions from counsel for other pooled investment programs, the INS held a briefing
at its California Service Center (“CSC”) on September 15, 1995. Among those in
attendance were Terrance O’Reilly, then Chief of the Immigrant Branch at INS
headquarters in Washington D.C.; Michael Straus, then Senior Immigration Examiner of
the Adjudications Division at INS headquarters who was responsible for employment
creation immigrant regulations and policy; Joseph Thomas, then Director of the CSC;
Ken Takeda, the CSC’s ombudsman; Mary Agnelly, CSC Supervisory Immigration
Examiner; four immigration examiners; attorneys from Bryan Cave, then counsel for the
general partner of VVLP, and counsel for other pooled investment programs.
Central topics for discussion at the meeting were two recently published opinions of the
INS’s general counsel. One had been dated September 10, 1993 and the other June 27,
1995. In response to concerns expressed, Mr. Straus specifically stated in that meeting
that petitions and applications submitted in good faith and adjudicated favorably by INS
would not be denied at the removal stage because of a change in interpretation by the
then General Counsel, that several points in that General Counsel’s legal opinion were
incorrect on the law and that no one would be held to performance based on erroneous
interpretations of the law as stated in the General Counsel’s opinion. Mr. Thomas and
Ms. Agnelly further added that the General Counsel’s opinion was, in any event, advisory
and not binding on the CSC and petitioners would not be harmed by readjudication of
issues clearly considered and approved previously.
Mr. Michael Straus further disclosed at said meeting that the INS was then considering
the publication of revised regulations to take the impact of the general counsel’s opinions
into account and that such regulations, if adopted, would not be applied retroactively:
that is, they would not be applied to petitions approved prior to the publication of any
such regulations by investors who had in good faith followed then existing regulations
and INS interpretations. He also said that any other newly published INS interpretations
would not be applied to petitions approved before dissemination of any such new
interpretations. Joseph Thomas and Mary Agnelly said they would not re-adjudicate
previously approved investor petitions.
After that large meeting, Mr. Thomas met with the three counsel from Bryan Cave in a
smaller meeting to discuss the Von Verde project specifically. He called in Mr. Ken
Takeda (the Ombudsman) and Mr. Michael Straus and it was agreed that Von Verde
would be permitted to prepare one core response rather than to have to duplicate and
respond to each individual removal of conditions case filed. Mr. Thomas further directed
that two CSC adjudicators be assigned to review all Von Verde cases under the
supervision of Ms. Mary Agnelly.
Since the tax returns submitted to the CSC did not tell the full story of the extent of Von
Verde’s business activities, and in view of the voluminous documentation requested by
INS and to obviate the need to submit repetitive information for each petition then
pending, the CSC further agreed that the best way to review the Von Verde project was
for counsel for VVLP to make a “live” factual and legal presentation with respect to the
16 withheld removal of conditions petitions. All issues raised by the INS could then be
addressed in the give and take of a “live” discussion and additional documentation
submitted and explained.
The presentation took place on November 6, 1995 and included an update on all of
VVLP’s business activities, the submission of financial statements, aerial and ground
photographs of the citrus groves operated by VVLP, the commercial development, in
addition to federal and state tax returns for VVLP’s then three years of operations, and
other documentation confirming the good faith of its business activities, an explanation of
the viability of VVLP’s business projects, and lists of employees along with I-9s and W-
4s which confirmed the employment of at least ten U.S. citizens or lawful permanent
residents per immigrant investor. Specifically, schedules of full-time employees of Von
Verde Harvesting, Inc., the 100% subsidiary of VVLP as of October 22, 1995 were
presented along with a projection that full-time positions were slated to increase to 375
by the end of 1995.
During that presentation, VVLP provided the CSC with a comprehensive business plan
through 1999. Among other things, the plan pointed out that the entire Yuma, Arizona,
citrus industry had been devastated recently by a disease known as coniophora; and that,
as a result, VVLP would have to replant everything during the next several years and
would be establishing another partnership, VVPH, to raise critically needed new capital
for such planting and subsequent harvesting operations and to purchase, modernize and
operate a new citrus packing plant. As a result, VVLP pointed out that the ventures could
not expect to earn income for at least four years and would be dependent during that time
on capital invested by prospective immigrants.
After that presentation, follow-up documentation was provided on November 15, 1995 to
the CSC about the full-time qualifying employees which had been hired by VVLP’s
100% owned subsidiary, Von Verde Harvesting, Inc., in a format agreed to with the CSC.
Specifically, because of the high employee turnover rate in the citrus industry, it had been
agreed with the CSC that in addition to the boxes of employees’ documentation already
submitted at the “live” presentation, it would be more manageable to present schedules of
full-time employees hired to date, allocating 10 full-time positions in support of each
investor seeking removal of conditions. After this additional submission, the INS found
VVLP’s pooled investment program in full compliance with the law and immigration
regulations under §203(b)(5) of the Immigration & Nationality Act and approved all 16
petitions on November 16, 1995.
As of December, 1997, the INS had removed the conditions on the lawful permanent
resident status of 66 immigrant investors in the VVLP program based on updated federal
and state tax returns and updated schedules of employees submitted in the agreed upon
format when they became available.
However, beginning on December 19, 1997, the INS began to stop further processing of
virtually all immigrant investor petitions and removal of conditions petitions on the
authority of a general counsel opinion issued that date concluding that certain investment
programs had features in their investment plans which did not meet the requirements of
Despite the INS’s long history of approving identical petitions filed by VVLP investors
and the fact that the Von Verde project had none of the offending features and had relied
on substantive and thorough reviews of its program instead of on the lobbying efforts of
former government officials which some other large “pooled investment” programs had
relied on, the INS stopped adjudicating the I-829 petitions filed by VVLP investors.
On July 23, 1998, relying on Acting Assistant Commissioner for Adjudications,
Jacquelyn A. Bednarz’s memorandum of May 21, 1998 (HQ 40/6.1.3) to all Service
Centers that attorneys who believe they have EB-5 petitions which should not be subject
to the “hold” may fax a request to the Deputy Director of the Service Center with
jurisdiction over their cases to request that their cases be removed from the “hold”,
counsel made a submission to the Acting Director of the CSC to explain to the CSC that
the Von Verde project did not have any of the features found objectionable by INS as
announced in its general counsel’s memorandum of December 19, 1997 and should
therefore be removed from the “hold”. A copy of that submission is attached in the
Appendix as Exhibit (1) for your easy reference.
On August 19, 1998, a supplementary submission was made by Roxana Bacon, Esq. of
Bacon & Merritt which presented documentary materials about VVLP and VVPH.
This submission included an application of funds schedule prepared as of April 30, 1998
explaining in detail how the investment funds from Von Verde investors have actually
been used, aerial and on the ground photographs of the citrus groves and other
photographs of the hard assets of the business and Von Verde’s workers; a summation of
the history of the project, and information about the Mesa Del Sol real estate
development project in which Von Verde has significant interests. It also reiterated an
on-going invitation for INS to visit Von Verde’s substantial operations to ensure its
A copy of Ms. Bacon’s letter which accompanied this documentary submission,
including an extra copy of the Von Verde Program Summary update through July, 1998
is attached as Exhibit (2).
In addition, we are incorporating by reference the documents which were sent along with
Ms. Bacon’s submission which are presently still on file with the CSC since those
documents were sent as a submission on behalf of all Von Verde cases on “hold”. In the
event this removal of conditions is denied and we have a need to renew our application
before an immigration judge or to seek review in the federal courts, these documents are
attached collectively here as Exhibit (3) and include:
An Application of Funds schedule accounting for the usage of the funds raised by
VVLP and VVPH through April 30, 1998.
1992 aerial photographs of the Von Santau Ranch.
Photographs of the original 840 acres of the Von Santau Ranch where diseased
trees have been replaced by new trees.
Photographs of 400 acres of barren land purchased in 1995 which have been
planted in 1996 with minneola trees and photographs of state land lease - 160
acres planted in 1997-1998 with lemon trees.
1996 aerial photographs of Von Santau Ranch.
1998 aerial photographs of Von Santau Ranch.
1996 aerial photographs of Ranch 1100.
1998 aerial photographs of Ranch 1100 and photographs of Ranch 1100 - tree
Photographs of Verde Growers Packing House.
Photographs of Von Verde Citrus Packing House and sketch of preliminary
changes and upgrades to existing facility.
Mesa Del Sol commercial/residential development aerial photographs taken in
Photographs of Rancho Del Oro and Unit 9 developments.
Photographs of Harvesting crews employed by Von Verde Harvesting Inc., VV
Harvesting, Inc. and Yuma Citrus Harvesting, Inc., all wholly owned subsidiaries
of VVLP and VVPH.
Map of proposed annexation by City of Yuma.
At about the time petitioner’s counsel submitted his request to have the Von Verde
investors’ cases removed from the hold, the INS’s Administrative Appeals Office (AAO)
published four precedent decisions to provide guidance in the adjudication of EB-5 cases:
Matter of Soffici, I.D.3359 (Assoc. Comm. Examinations, June 30, 1998); Matter of
Izumii, I.D. 3360 (Assoc. Comm. Examinations July 13, 1998); Matter of Ho, I.D. 3362
(Assoc. Comm. Examinations, July 31, 1998) and Matter of Hsiung, I.D. 3361 (Assoc.
Comm. Examinations, July 31, 1998).
On January 25, 1999, the CSC Director Dona L. Coultice wrote to the petitioner’s
counsel in response to his letter dated July 23, 1998 to advise that “A sampling of the
Von Verde cases subject to the hold have been re-reviewed to verify if the hold criteria
was correctly applied, and it was determined that they should remain subject to the hold”.
Ms. Coultice further noted that “A specially trained team of seasoned Adjudication
Officers have been and will continue to review those cases subject to the hold … [and
that] [u]pon completion of the extensive review and adjudication process by the team in
receipt number order, you be notified of any action taken”.
The instant request for further evidence (RFE) was received by petitioner’s counsel in
Hong Kong on April 6, 2001. While the RFE facially appears to be a good faith attempt
by the INS to seek additional evidence to clarify petitioner’s eligibility for removal of
conditions and does not refer specifically to the four AAO precedent decisions which
radically altered previous long standing INS policy, an examination of most of the issues
raised by the RFE reveals that the RFE is in reality an attempt by the INS to apply the
more restrictive new requirements announced in the four AAO precedent decisions on a
This Response will now address each of the issues raised in the RFE.
(1) PARTICIPATION IN THE ESTABLISHMENT OF A NEW
The first issue raised in the RFE is the imposition of the requirement first
announced in Matter of Izumii that the petitioner must either show that he
“participated in the establishment of a new commercial enterprise” or “show that
[his] investment has resulted or will result in the restructuring or reorganization of
the existing business” or show that his investment has expanded VVLP’s net
worth or number of employees by 40 percent.
Since VVLP was established in 1992 and petitioner invested in the partnership on
December 4, 1995, the RFE concludes he has failed to show that he “has
established” VVLP and requests evidence that petitioner’s investment has
expanded VVLP’s net worth or number of employees by 40 percent.
While Matter of Izumii and the other AAO precedents are binding on newly-filed
I-526s, they have also been applied retroactively by the INS to support the
revocation of I-526 petitions previously approved where the petitioners have not
yet become conditional permanent residents. They are not binding, however, on
the INS in the I-829 context, where petitioners have already become conditional
permanent residents prior to the publication of the precedents in reliance of past
long-standing INS policy interpretations.
If the INS is just beginning to implement the EB-5 program legislated by
Congress, we would not quarrel with the AAO conclusion that Section 203(b)(5)
of the Immigration & Nationality Act literally states that the employment creation
visas for qualified immigrants are to be provided to immigrants who seek to enter
the U.S. for the purpose of engaging in a commercial enterprise which the alien
has established (emphasis added) in which said alien has invested or is actively in
the process of investing the requisite statutory amount of US$500,000 or $1
However, the fact of the matter is that lawyers practicing in the EB-5 field have
had to rely completely on the interpretation which INS officials charged with
implementing the law have given and INS’s established practice for the past eight
years until the Izumii decision was published as a precedent.
To further the legislative intent to promote the infusion of capital and to create
jobs for U.S. workers, and perhaps in recognition of the fact that the person who
actually signs the formation or establishment documents of a business entity may
be a lawyer, paralegal, secretary, accountant or the like who is performing a
routine administrative task and may not be the person or persons actually involved
in the business later and that this ministerial task is really “form over substance”,
the former General Counsel, former Executive Associate Commissioner, former
Associate Commissioner for Examinations, former Assistant Commissioner, and
two successive Immigrant Branch Chiefs – the highest level officials of INS –
chose to interpret the “establishment” requirement flexibly to permit limited
partners joining pooled investments at varying periods of time to be regarded as
having constructively complied with the “establishment” requirement provided
that the dual congressional purposes of infusion of foreign capital and creation of
jobs are met.
8 CFR §204.6(g)(1), the implementing regulation which discusses petitions by
multiple investors, states:
“The establishment of a new commercial enterprise may be
used as the basis of a petition for classification as an alien
entrepreneur by more than one investor, provided each
petitioning investor has invested or is actively in the
process of investing the required amount for the area in
which the new commercial enterprise is principally doing
business, and provided each individual investment results
in the creation of at least ten full-time positions for
qualifying employees. The establishment of a new
commercial enterprise may be used as the basis of a
petition for classification as an alien entrepreneur even
though there are several owners of the enterprise, including
persons who are not seeking classification under §203(b)(5)
of the Act and non-natural persons, both foreign and
domestic, provided that the source(s) of all capital invested
is identified and all invested capital has been derived by
Nowhere in this regulation does the INS impose a requirement that the investor in
a multiple-investor commercial enterprise must play a participatory role in the
establishment of the new commercial enterprise. Instead, consistent with the
statutory intent of attracting investment capital into the U.S. economy and creation
of jobs for American workers, the regulation as promulgated flexibly and simply
states that “The establishment” (emphasis added) of a new commercial enterprise
may be used as the basis of a petition, not that each investor in a multiple investor
commercial enterprise must have “participated in the establishment” of the
The petitioner in the instant case and his counsel has had to rely completely on the
interpretation which the senior immigration officials charged with implementing
the law have consistently given to the adjudication of multiple-investor EB-5
petitions and INS’s established policy that limited partners joining a partnership
over varying periods of time can be regarded as complying with the requirement of
having “established” the commercial enterprise he/she is investing in so long as the
dual congressional intent to promote the infusion of capital into the U.S. economy
and the creation of jobs are met.
Furthermore, 8 CFR§204.6(e), the INS regulation implementing §203(b)(5) of the
Act, defines a “new” enterprise as a business enterprise established after
November 29, 1990 and Von Verde Limited Partnership was established on July
As stated earlier, 8 CFR Section 204.6(g) permits the establishment of a new
enterprise to be used as the basis of a petition for classification as an alien
entrepreneur by multiple investors, provided each petitioning investor has invested
or is actively in the process of investing the required capital amount and provided
that each individual investment results in the creation of at least ten full-time jobs.
Because the business reality is that it is virtually impossible for businesses who put
together pooled investments such as a limited partnership to first secure a pool of
investors committed to go forward with an investment before joining together to
“establish” the business entity and because it is common business practice to
establish the entity and then offer subscriptions to interested investors, the Service
has interpreted the “has established” requirement flexibly and concluded that an
investor meets this requirement and can thus qualify for alien entrepreneur
immigrant classification even though he/she is joining a new commercial
enterprise after its actual initial establishment as a business entity until the AAO’s
decision in Izumii.
Until Izumii, this interpretation has been the INS’s consistent view affirmed by its
highest officials over the entire history of the program. In reliance on this flexible
interpretation and the INS’s consistent and established policy of approving
petitions from investors who are limited partners joining limited partnerships over
varying periods of time, limited partners such as Mr. Sze has invested in VVLP
and VVLP has made business commitments and spent millions in capital to
acquire and develop citrus groves, packing houses, wind machines, fruit protection
and irrigation systems and machinery and equipment for harvesting and farming
and to acquire other real estate for development purposes.
In addition to established practice and INS memoranda issued by the most senior
INS officials charged with implementing the law, Von Verde Limited Partnership
also relied specifically on INS clearances in 1994 and 1995.
In 1994, 23 or more approved visa petitions were returned by the U.S. Consulate
in Hong Kong and other petitions pending at the CSC based on an investment in
Von Verde were placed on “hold” as a result of allegations made by an INS
official in Hong Kong (who interestingly was later placed on “administrative
leave” for alleged unethical or corrupt practices). After an intensive review and a
4-month delay, all recalled and pending cases were approved and cleared by INS.
In 1995, as already explained above, the Von Verde project was scrutinized in
connection with the removal of conditions cases filed by its investors. This time,
after about seven months from the date the first petition was held up, all pending
cases were again cleared and approved.
It should be further noted that unlike other large-scale projects which had never
been specifically scrutinized until the INS General Counsel’s opinion of
December, 1997, the INS clearances (in 1994 and 1995) were obtained only after
a thorough investigation and examination with input from the INS Central Office
To the extent there have been excesses and objectionable characteristics in certain
pooled investment projects, these have been adequately addressed by the General
Counsel’s Opinion of December 19, 1997 and the four AAO precedent decisions.
But the present interpretation of the “establishment” requirement as expressed by
the AAO in its Izumii decision is dicta totally unnecessary to the disposition of
the Izumii case and certainly ought not be binding in the removal of conditions
The “establishment” aspects of the Izumii decision are simply an unnecessary tool
to combat perceived abuses of the investor category by some programs. To
implement, especially on a retroactive basis, the “establishment” aspects of the
Izumii decision would be the death knell of all multiple-investor EB-5 projects
and akin to “throwing out the baby with the bath-water” for it would financially
ruin perfectly legitimate EB-5 projects which have acted in good faith and thwart
the legislative intent to attract investment capital into the U.S. economy and create
First of all, the “establishment” aspects of the Izumii decision are so inconsistent
with the INS’s previously expressed interpretation of the law and its own
regulations, it is violative of the Administrative Procedure Act unless the Service
enacts a regulation imposing such a requirement after due notice and opportunity
for public comment in the Federal Register. It should not be implemented as a
matter of law through ad hoc adjudication.
Secondly, Izumii does not bind the INS to conclude that a Von Verde petitioner
who has already had an I-526 approved and become a conditional permanent
resident must now meet the “establishment” requirement for purposes of removal
of conditions. This new interpretation should be applied only on a prospective
basis to I-526 cases filed after the publication date of the Izumii decision. As a
matter of basic fairness, it most certainly should not be applied to a case such as
Mr. Sze’s, whose original I-526 was filed and approved by the INS almost three
years prior to Izumii’s publication as a precedent.
While 8 CFR §103.3(e) states that INS precedent decisions are binding on all
Service employees in the administration of the Act, decisions which are
designated precedents only bind future cases. The Izumii decision and the other
three AAO precedent decisions do not state that they are to apply retroactively to
conditional residents who have already immigrated on the basis of I-526 petitions
approved before the precedent decisions were issued in mid-1998.
A. The Administrative Procedure Act is Violated if the Requirement That the
Alien Must Have Participated in the Establishment of the Business
Announced in Izumii Is Applied to This Case
The Administrative Procedure Act (APA), 5 U.S.C. § 552 et seq., requires that
before an agency may issue a rule1, it must first publish the proposed rule in the
Federal Register to provide the public with notice of the rule, permit interested
persons the opportunity to provide comment on the proposed rule and participate
in the rulemaking process, address and respond to each comment provided, and
incorporate in the rule a concise general statement of the rule‟s basis and purpose.
5 U.S.C. § 553(b), (c).
Only after the APA‟s “notice and comment” requirements are met may the agency
then issue the final rule. This rulemaking process under the APA is mandatory,
not discretionary. If an agency has violated the APA‟s rulemaking requirements
by issuing a rule in an adjudicative proceeding without notice and comment, the
rule is deemed invalid. Linoz v. Heckler, 800 F.2d 871, 878 (9th Cir. 1986).
It is well-settled that a statement, explanation, clarification, or interpretation is
deemed to be a “substantive” (or “legislative”) rule, which requires notice and
comment rulemaking, if it constitutes an agency statement of binding and general
or particular applicability and future effect, alters, changes or adds to existing
rules, policies, or interpretations, affects the rights and obligations of parties, adds
to the legal norm by creating new rights or duties, has widespread application,
and/or is inconsistent with a prior rule, policy, practice or interpretation. Alaska
Professional Hunters Ass‟n, Inc. v. FAA, 177 F.3d 1030, 1035 (D.C. Cir. 1999);
Syncor Int‟l Corp. v. Shalala, 127 F.3d 90, 93-96 (D.C. Cir. 1997); Yesler Terrace
Community Council, 37 F.3d 442, 448-49 (9th Cir. 1994); Ford Motor Co. v.
FTC, 673 F.2d 1008, 1009-10 (9th Cir. 1981); Bahat v. Sureck, 637 F.2d 1315
(9th Cir. 1981); Patel v. INS, 638 F.2d 1199 (9th Cir. 1980); Ruangswang v. INS,
591 F.2d 39 (9th Cir. 1978); NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764-65
(1969); Linoz, 800 F.2d at 878.
By contrast, an “interpretive” or “adjudicative” rule is generally defined as a mere
agency explanation or clarification of an existing statute made to address specific
and narrow facts that arise in a single, isolated adjudicative proceeding. An
interpretive rule may be issued without notice and comment only if such rule: (1)
is not inconsistent with any prior rule, policy or interpretation; (2) does not affect
the rights or obligations of parties; (3) does not alter or add to existing rules or
interpretations; (4) does not have binding future effect of general or particular
applicability; and (5) does not add to the legal norm by creating new rights or
The APA defines a “rule”, requiring notice and comment, as “the whole or part of an agency statement of
general or particular applicability and future effect designed to implement, interpret, or prescribe law or
policy or describing the organization, procedure, or practice requirements of any agency.” 5 U.S.C.§551(4).
duties. Syncor, 127 F.3d at 93-96; Yesler, 37 F.3d at 448-49; Linoz, 800 F.2d at
878; Ford Motor Co., 673 F.2d at 1009-10; Patel, 638 F.2d at 1199; Ruangswang,
591 F.2d at 39; NLRB v. Wyman-Gordon, 394 U.S. at 764-65.
If the “interpretive rule” fails to meet any of these requirements, it by definition is
a “substantive rule” and is invalid if made without prior notice and comment. The
term “interpretive rule” is not synonymous with the word “interpretation.” The
latter is deemed a substantive rule if it meets the above definition, even if it
“interprets” an agency policy or rule. The interpretive rule exception is narrowly
construed. In determining whether a rule is “substantive,” the APA focuses on
the effect and impact the agency statement will have on all future adjudications
and requires the statement to be reviewed in conjunction with all prior rules,
interpretations and policies, to determine whether it is inconsistent with or has
added to or changed an existing rule, interpretation or policy. The agency‟s
rationale and purpose for making the statement is of no consequence to whether
the statement constitutes a substantive rule requiring rulemaking. “The primary
distinction between a substantive rule--really any rule--and a general statement of
policy, then, turns on whether an agency intends to bind itself to a particular
legal position.” Syncor, 127 F.3d at 94 (emphasis added).
Once a rule is deemed substantive, based on its future effect and/or inconsistency
with prior rules, interpretations, policy, etc., it is deemed invalid if issued in an
adjudicative proceeding. In NLRB v. Wyman-Gordon Co., 394 U.S. 759 (1969),
the Supreme Court invalidated a substantive rule that the National Labor
Relations Board (NLRB or Board) had created by adjudication. The Court held
that the NLRB could not promulgate a substantive rule under the APA without
notice and comment simply by claiming it was an adjudication:
The rule-making provisions of the Act, which the Board would
avoid, were designed to assure fairness and mature consideration
of rules of general application. See H.R. Rep. No. 1980, 79th
Cong., 2d Sess., 21-26 (1946); S. Rep. No. 752, 79th Cong., 1st
Sess., 13-16 (1945). They may not be avoided by the process of
making rules in the course of adjudicatory proceedings. There is no
warrant in the law for the Board to replace the statutory scheme
with a rule-making procedure of its own invention. Id. at 764.
Similarly, in Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir. 1981), the Ninth
Circuit held that the Federal Trade Commission exceeded its authority by creating
a new law of general application through adjudication rather than by rulemaking.
The court held that “agencies can proceed by adjudication to enforce discrete
violations of existing laws where the effective scope of the rule‟s impact will be
relatively small; but an agency must proceed by rulemaking if it seeks to change
the law and establish rules of widespread application.” Id.. at 1009 (emphasis
added). The court found that the agency‟s new rule would not just apply to the
plaintiff, but would essentially change existing law and have widespread
application. As such, the agency was required to proceed by rulemaking. Id. at
In Pfaff v. HUD, 88 F.3d 739 (9th Cir. 1996), the Ninth Circuit invalidated a new
rule that the U.S. Department of Housing and Urban Development (HUD) had
announced by adjudication because the rule was found to be broad, general, and
prospective in application, and because it was inconsistent with and departed
abruptly from HUD‟s previous interpretations.
The Pfaff case involved certain FHA regulations covering discrimination in
privately owned rental housing on the basis of family status. The Pfaffs were
landlords who refused to rent a house to a family composed of two adults and
three children. They had decided that the house was large enough for a family of
only four. Under a HUD policy, a landlord‟s restrictions on family size were
permissible if reasonable. But in the midst of their case, HUD came down with a
ruling in a particular case to the effect that a landlord had to show a compelling
business necessity in order to justify discrimination based on family size.
While agreeing that a compelling business necessity might be an appropriate
standard, the Ninth Circuit said, it would be “fundamentally unfair to hold the
Pfaffs to this standard given HUD‟s truly appalling conduct in this matter.” Pfaff
True, an agency‟s decision is entitled to deference whether by rule making or
adjudication, but “Justice dictates, however, that our general rule of deference to
announcements of law by adjudication have its exceptions. As the Supreme Court
has cautioned, “there may be situations where the [agency‟s] reliance on
adjudication would amount to an abuse of discretion …”. Bell Aerospace, 416
U.S. at 294. Such a situation may present itself where the new standard, adopted
by adjudication, departs radically from the agency‟s previous interpretation of the
law, where the public has relied substantially and in good faith on the previous
interpretation, where fines or damages are involved and where the new standard is
very broad and general in scope and prospective in application. Bell Aerospace,
416 U.S. at 295; Ford Motor Co.v. FTC, 673 f.2D 1008, 1009-10 (9th Cir. 1981);
Patel v. INS, 638 F.2d 1199, 1203-05 (9th Cir. 1980); Ruangswang v. INS, 591
F.2d 39, 44 (9th Cir. 1978); see also Ford Motor, 673 F.2d at 1009 (retroactive
application of new rule disfavored when adopted by adjudication).”
No such deference is called for here because the new compelling business
necessity standard “departs abruptly from HUD‟s preexisting “reasonableness”
standard. Radically inconsistent interpretations of a statute by an agency, relied
upon in good faith by the public, do not command the usual measure of deference
to agency action.” 88 F. 3d at 749.
The Pfaffs‟ conduct took place before the case imposing the new standard was
decided. The “element of retroactivity” said the court, “only amplifies the
unfairness of holding the Pfaffs to [the new standard]” at 749. So the court
reversed the HUD ruling.
The court was especially troubled in Pfaff that “HUD has made inconsistent and
misleading representations to those regulated . . . and, in so doing, has led them
down the garden path.” Id. at 747. The court further reasoned:
The disadvantage to adjudicative procedures is the lack of notice
they provide to those subject to the agency‟s authority. While
some measure of retroactivity is inherent in any case-by-case
development of the law, and is not inequitable per se, this problem
grows more acute the further the new rule deviates from the one
before it. Adjudication is best suited to incremental developments
to the law, rather than great leaps forward. The APA contains
numerous mechanisms, such as the notice and comment
rulemaking procedure, by which the public is given notice of
proposed changes before they occur. See generally APA § 552,
553, 557. For this reason, the Supreme Court has concluded that
“rulemaking is generally a better, fairer, and more effective
method of announcing a new rule than ad hoc adjudication.”
Community Television of S. Cal. v. Gottfried, 459 U.S. 498, 511
103 S. Ct. 885, 893, 74 L. Ed. 2d 705 (1983). Id. at 748.
In Ruangswang v. INS, 591 F.2d 39 (9th Cir. 1981), the Ninth Circuit found that
the INS violated the APA and abused its discretion by attempting to establish a
new standard for immigrant investors through the adjudicatory process and then
tried to apply the new standard to the alien. The adjudicatory opinion sought to be
applied to Ruangswang‟s immigrant investor petition had, like the new rules in
the AAO 1998 EB-5 “precedent” decisions, been published in a prior adjudicative
proceeding: Matter of Heitland, 14 I. & N. Dec. 563 (BIA 1974).
Heitland was decided after Ruangswang had already made her investment, in
reliance upon the INS‟s prior policy and application of the law and the Ninth
Circuit reasoned that even if there was a valid adjudicatory creation of an agency
standard, the INS abused its discretion by applying that standard to Ruangswang,
who had no prior notice under the APA of its existence.
The court quoted from NLRB v. Bell Aerospace Co., 416 U.S. 267, 295 (1974),
that the “adverse consequences ensuing from . . . reliance [upon the agency‟s past
decisions may be] so substantial that the [agency] should be precluded from
reconsidering the issue in an adjudicative proceeding.” Ruangswang, 591 F.2d at
44. It therefore concluded that “the Board improperly applied the law [issued in
Heitland] to Mrs. Ruangswang‟s application, whether it was attempting to create a
new standard of conduct by adjudication or believed that it was merely
interpreting the relevant regulation.” Id. at 46.
Likewise, in Patel v. INS, 638 F.2d 1199 (9th Cir. 1980), the INS, by an
administrative adjudication (Matter of Heitland), added a requirement to the
regulations governing the eligibility of immigrant investors for visas. The Ninth
Circuit, relying on NLRB v. Wyman-Gordon, disallowed the requirement because
it changed past practices through the “prospective announcement of a broad,
generally applicable requirement, amount[ing] to „an agency statement of general
and future effect.‟” Patel, 638 F.2d at 1204 n.5 (quoting the APA).
The Patel court held that the INS, by applying its adjudicatory decision in
Heitland to the petitioner, abused its discretion because it was doubtful the alien
“could have clearly determined what he must do to qualify for the exemption.
The INS had been sending aliens confusing signals.” Id. at 1205. The Court of
Appeals reasoned that the rule of law at issue should have been established by
rulemaking because the situation called for a general standard, not a case-by-case
Furthermore, Alaska Professional Hunters Ass‟n, Inc. v. FAA, 177 F.3d 1030
(D.C. Cir. 1999), contains many parallels to the situation here. In that case, the
appellants were hunting and fishing guides in Alaska who flew light aircraft as
part of their guiding services. Since 1963, the FAA‟s Alaska Region had
consistently advised guides in that state that they were not governed by the
agency‟s regulations for commercial pilots, but were only subject to the general
rules governing private aviation.
Then, in 1998, the FAA‟s headquarters in Washington, believing that the Alaska
Region‟s long-standing advice was premised on an erroneous reading of an old
Civil Aeronautics Board decision, published a “Notice to Operators” in the
Federal Register, informing Alaska guide pilots that they were now subject to the
commercial aviation regulations. The guides challenged that change, alleging that
the FAA was trying to evade its rulemaking obligations under the APA. The
FAA‟s principal defense was that the “Notice to Operators” was merely an
interpretive rule, and therefore exempt from the APA‟s normal notice and
The Court of Appeals disagreed, ruling that “[w]hen an agency has given its
regulation a definitive interpretation, and later significantly revises that
interpretation, the agency has in effect amended its rule, something it may not
accomplish without notice and comment.” 177 F.3d at 1034. Nor was the court
swayed by the agency‟s argument that the Alaska Region‟s advice to the guide
pilots represented a “local enforcement omission, in conflict with the agency‟s
policy in the rest of the country.” The court found that:
Those regulated by an administrative agency are entitled to „know
the rules by which the game will be played.” Alaska guide pilots
and lodge operators relied on the advice FAA officials imparted to
them—they opened lodges and built up businesses dependent on
aircraft, believing their flights were subject to [general aviation
requirements] only. That advice became an authoritative
departmental interpretation, an administrative common law
applicable to Alaskan guide pilots. The FAA‟s current doubts
about the wisdom of the regulatory system followed in Alaska for
more than thirty years does not justify disregarding the requisite
procedures for changing that system.
Id. at 1035 (citations omitted).
The same considerations outlined by the D.C. Circuit in Alaska Professional
Hunters apply with equal force to this RFE. Mr. Sze made his investment for EB-
5 purposes in justifiable reliance on opinion letters, memoranda, and the INS‟s
numerous prior approvals of similar investor visa petitions in the identical project.
If the Service now decides that the regulatory regime for that program is not
accomplishing the statutory purpose, it is of course entitled to change the rules—
but only in the manner provided for by the APA, and not with retroactive
In the present case, the INS‟s existing EB-5 regulations already presented a
generalized standard for agency action. The 1998 adjudications by the AAO
added new generalized standards to the existing regulations. These were not mere
prospective refinements in an individual case, but were set forth in the
“precedent” decisions as broad rules of general application. These decisions
constitute substantive “rules” for APA purposes. Since the INS failed to comply
with the APA‟s notice and comment rulemaking requirements, the “rules” created
by the “precedent” decisions are invalid and hence cannot be relied upon in the
B. The “Precedent” EB-5 Decisions Cannot be Applied Retroactively to Mr. Sze
For the record, the INS has also violated the APA by applying the “rules” set forth
in the four “precedent” decisions retroactively to Mr. Sze. The APA expressly
prohibits retroactive application of new substantive rules. See 5 U.S.C. § 551(4)
(rules, by their definition, may have only “future effect”).
Courts enforce this rule by presuming that rules and laws generally do not apply
retroactively. See, e.g., Bowen v. Georgetown University Hospital, 276 U.S. 204,
208 (1988) (“[C]ongressional enactments and administrative rules will not be
construed to have retroactive effect unless their language requires this result. . . .
By the same principle, a statutory grant of legislative rulemaking authority will
not, as a general matter, be understood to encompass the power to promulgate
retroactive rules unless that power is conveyed by Congress in express terms.”)
(citations omitted). See also Uzuegbu v. Caplinger, 745 F. Supp. 1200, 1215
(E.D. La. 1990) (“Under general rules of statutory construction, a substantive,
noncurative, adverse change in administrative rules is not to be applied
retroactively unless the language of both the administrative rule and the statute
authorizing the rule requires such a result.”).
As the INS‟s new requirements for EB-5 petitions set forth in the four
“precedent” AAO decisions are substantive “rules” under the APA, their
retroactive application violates the APA and is also arbitrary, capricious, and an
abuse of discretion.
Retail, Wholesale and Department Store Union v. NLRB, 466 F.2d 380, 390-93
(D.C. Cir. 1972), sets forth criteria to determine whether an agency‟s rules have
an impermissible retroactive effect. Five considerations determine whether a rule
is being applied retroactively:
(1) whether the particular case is one of first impression, (2)
whether the new rule represents an abrupt departure from well
established practice or merely attempts to fill a void in an unsettled
area of law, (3) the extent to which the party against whom the new
rule is applied relied on the former rule, (4) the degree of the burden
which a retroactive order imposes on a party, and (5) the statutory
interest in applying a new rule despite the reliance of a party on the
old standard. Id. at 390.
Each of these elements exists here. First, the four EB-5 “precedent” decisions
created new rules that reversed years of longstanding INS policy. They therefore
constituted cases of first impression. Second, the new requirements set forth in
the so-called precedent decisions abruptly and drastically departed from the INS‟s
own longstanding and consistent prior practice. The INS approved Mr. Sze‟s I-
526 petition based on its existing rules. Yet the RFE questions Mr. Sze‟s I-829
petition, which is based on the same facts. Third, Mr. Sze detrimentally relied
upon the INS‟s prior rules and longstanding policy and practice by making his
investment in compliance with the INS‟s prior rules.
If the INS denies Mr. Sze‟s I-829 petition, he and his family may be forced to
return to their home country. Fourth, Mr. Sze will unquestionably be burdened by
a retroactive application of the new rules if his I-829 is denied as he and his
family may be removed despite all the money he has invested. Fifth, the statutory
interest in applying the new rules does not outweigh the detrimental reliance on
the prior rules experienced by Mr. Sze and his family. Mr. Sze has complied with
the statutory interest to create jobs for U.S. workers by investing his money in the
Von Verde Limited Partnership.
Based on these factors, it is clear under Retail, Wholesale and Department Store
Union that the INS‟s issuance of new rules in the four “precedent” EB-5 decisions
have an impermissible retroactive effect and violates the APA. For that reason,
the INS cannot rely on the reasoning announced and use those cases even if the
present RFE does not mention the cases by name.
Recent court rulings in another immigration context illustrate the illegality of
applying new rules retroactively. The Immigration Act of 1990 (“1990 Act”)
granted special immigrant status to certain immigrant dependents of a juvenile
court.2 The 1990 Act required such aliens to be declared dependent on a juvenile
court and placed under the custody of a state agency. The 1990 Act also required
a determination that it would not be in the alien‟s best interest to be returned to his
or her homeland. Congress restricted this provision in 1997.3 After enactment of
the 1997 amendment, the INS sought to apply the more restrictive rules set forth
in the 1997 statute to special immigrant juvenile (SIJ) applications that had been
filed but not approved before November 26, 1997.
The INS stated that if an SIJ application had been filed before the 1997 law‟s
enactment date and had been approved or adjusted status after that date, the
Service intended to review the approval under the new law and rescind those
approvals that did not comport with the requirements of the new law. A federal
district court struck down this interpretation, holding that the 1997 amendment
applied only to cases filed after the passage of the amendment, not to cases filed
before its passage but adjudicated subsequent to its enactment. Yue Yu v. Brown,
92 F. Supp. 2d 1236, 1250 (D.N.M. 2000). See also Gao v. Jenifer, 185 F.3d 548
(6th Cir. 1999) (same).
Similarly, the INS lacks legal authority to apply the so-called precedent decisions
retroactively to Mr. Sze, whose I-526 petition was approved before the AAO
decisions were issued, and whose I-829 petition is based on the underlying
approved I-526 petition.
Finally, the four AAO EB-5 “precedent” decisions do not state that they are to
apply retroactively. They do not address how to deal with I-829 petitions filed by
investors whose I-526 petitions were approved before the so-called precedent
decisions. Thus, even if the precedent decisions bind later I-526 petitions, they
are not binding on I-829 petitions filed that are based on I-526 petitions approved
before the “precedent” decisions.
C. The INS is Estopped from Applying the Four “Precedent” Decisions to Mr.
“Estoppel is an equitable doctrine invoked to avoid injustice in particular cases.”
Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. 51, 59-
60 (1984) (rejecting government‟s urging to adopt flat rule prohibiting estoppel
claims against the government). A leading case on governmental estoppel is
Watkins v. United States Army, 875 F.2d 699, 706-07 (9th Cir. 1989) (en banc)
Immigration Act of 1990, Pub. L. No. 101-649, § 153, 104 Stat. 5005 (1990).
Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act,
Pub. L. No. 105-119, § 113, 111 Stat. 2440 (1997).
(“„where justice and fair play require it,‟ estoppel will be applied against the
government”) (citation omitted).
Here, the INS is estopped from applying its new requirements retroactively and
from denying the petition to remove the conditions on Mr. Sze‟s permanent
residency on the basis of the new rules set forth in the four “precedent” EB-5
decisions even if the RFE does not specifically cite to those cases. Mr. Sze
reasonably relied on the statements, assurances, representations, and prior
adjudications of the INS in similar cases in the same project in making his own
investment and the government‟s arbitrary and capricious act in imposing new
retroactive requirements that cannot be complied with amounts to affirmative
misconduct for estoppel purposes.
Finally, the INS has intentionally circumvented the APA and its act of unlawfully
issuing new rules in an adjudicative proceeding and applying them retroactively
will cause a serious injustice to Mr. Sze. For these reasons, the INS is estopped
from applying the new rules set forth in the so-called precedent decisions to Mr.
Sze‟s I-829 petition.
D. The INS’s New Requirements Violate the Statute
The INS‟s so-called precedent decisions issued in mid-1998 dramatically altered
the rules and regulations governing the EB-5 program and may result in the denial
of Mr. Sze‟s I-829 petition if applied retroactively at this time. The “precedent”
decisions created over a dozen major changes in the EB-5 program. For example,
as already discussed above, the “precedent” decisions established a rule that
requires an investor to be present at the inception of the partnership to be
considered an investor. This reversed the INS‟s prior rule, which at no time
required an investor to be present at or to play a hand in the legal formation of the
commercial enterprise in which he has invested. If this change is applied to an I-
829 applicant such as Mr. Sze, he cannot retroactively cure the fact that he
invested in the Von Verde Limited Partnership and became a limited partner after
the date of its legal formation.
INA § 203(b)(5) does not contain these and other requirements imposed by the
“precedent” decisions. The INS‟s application of these requirements therefore
violate the statute. As such they cannot be lawfully applied to decide Mr. Sze‟s I-
(2) GENERAL PARTNER FEES
Again, without specifically referring to Matter of Izumii, the RFE requests
petitioner to show that the requisite amount of capital has been paid into VVLP
and finds fault with the fact that under Article 8.5 of the Original Agreement of
Limited partnership, an annual base fee of $100,000 will be “set aside” (emphasis
added) to pay the General Partner for management and supervisory services since
“any part of [the petitioner’s] investment that is used to pay fees is not available
and may not be computed as part of the qualifying investment”. The petitioner is
then requested to show he has invested or is actively in the process of investing
the required amount of capital in excess of any base fees or expenses.
While we have already stated our position that Matter of Izumii may not be
applied retroactively, a closer examination indicates that the CSC has misquoted
and misinterpreted Section 8.5 of the VVLP partnership agreement.
The instant case is totally unlike the Izumii case, where the AAO was objecting to
the stripping out of fees and expenses from each investor’s capital contribution
(finder’s fees, attorney’s fees, consulting fees etc) so that the full capital
contribution never gets infused into the commercial enterprise for the purpose of
What Section 8.5 the Von Verde Limited Partnership Agreement actually states is
“8.5 Fees and Expenses
(a) The General Partner shall be reimbursed for all reasonable expenses
incurred in the performance of its duties hereunder and in the management
of the Partnership’s affairs that are not borne and paid by the Partnership
and that are approved in writing by a Majority-in-Interest of the Limited
(b) The Partnership will pay (emphasis added) the General Partner an
annual base fee of US$100,000 for management and supervisory services.
The General Partner will be responsible for the general management and
oversight of the Partnership’s affairs and will hire qualified personnel,
perhaps including affiliates of the General Partner, to perform this
Nothing has been “set aside” or withheld from each investor’s capital contribution
for attorney’s or finder’s fees, or administrative costs. Instead, each VVLP
investor’s entire capital contribution has been received in full by the partnership
without the stripping out of any fees and expenses.
As in any limited partnership, however, the day to day management of the
operations of the partnership is handled by the General Partner rather than the
limited partners and the $100,000 annual base fee which the partnership as a
whole pays the General Partner annually is for its services, just as the partnership
pays for other routine ongoing operational expenses such as salaries for its
These costs are fully accounted for as legitimate business expenses by VVLP
under the Internal Revenue Code, are reasonable and customary in the industry,
and paid as and when due from available cash, not deducted from the investor’s
original capital contribution.
There is no withholding, ear-marking or set asides from each alien investor’s
capital contribution which would result in less than the full capital contribution
being made available to the commercial enterprise, which is what the AAO found
objectionable in Izumii.
(3) INVESTMENT CAPITAL AT RISK
The RFE questions whether petitioner’s investment capital is truly at risk because
page 2 of the Subscription Agreement for a partnership unit in VVLP, executed
on November 13, 1995, states that the subscription will terminate and the original
investment amount will be returned if the subscription is not accepted within 90
days from the signed date, if the petitioner’s visa petition is not approved by the
INS, or if the partnership fails to sell 4 or more units.
Because of these conditions, the CSC concludes that the investment is guaranteed
safe return by VVLP if certain negative conditions occur and does not appear to
qualify as an “at risk” investment for purposes of the I-829 petition.
It is clear that to qualify for EB-5 states that the petitioner must place his capital
“at risk”. However, what is required is the placing of finds or other capital assets
at risk commercially in the hope of generating a return on the funds risked. The
conditions in the subscription agreement which petitioner executed are standard
business terms which do not negate petitioner’s risk whatsoever once the
investment is accepted by the partnership.
First of all, all of the conditions which provide the petitioner an opportunity not to
proceed with the investment have not come to pass and, once the investor has
proceeded with the investment, there is no basis now to seek the partnership to
return his funds. The funds invested are therefore unconditionally at risk.
The fact of the matter is that the subscription was immediately accepted by the
partnership and the funds wired into the partnership’s business account the same
day. Thus, the possibility of having the subscription terminated because of the
partnership not accepting the subscription within 90 days of execution is an
Secondly, the reason why the subscription provides for a possible termination and
return of the investment if less than 4 investors subscribed is simply because that
would make the project commercially non-viable.
Mr. Sze was the 84th limited partner in VVLP. Thus, this negative condition also
could not possibly occur since much more than four investors have already joined
the partnership at the time of his subscription.
Finally, what the petitioner is required to assume is “commercial risk”, not the
risk that the INS would deny his I-526 petition. Thus, the promise that the
petitioner could seek the return of his contribution should INS deny his petition is
a perfectly legal condition of the investment.
The INS has long accepted the fact that the funds invested by an alien seeking
EB-5 classification may be held in escrow and returned to the alien should the I-
526 petition be denied.
A provision permitting the return of the escrowed funds does not run afoul of the
“at risk” requirement. So long as the required initial capital contribution is
actually irrevocably committed to be released to the new commercial enterprise
for the purpose of job creation purposes immediately upon approval of the
petition and visa issuance or adjustment, the escrowed funds are “at risk”.
This view was officially reconfirmed by Robert L. Bach, Executive Associate
Commissioner, Office of Policy and Planning in a Field Memorandum dated
August 28, 1998 (HQ 40/6.13) (reprinted in Interpreter Releases, Vol. 75 No. 54
September, 1998) after the publication of the four AAO EB-5 precedents.
In the present case, the initial required capital contribution was never even held in
escrow but immediately wire-transferred into VVLP’s business account for job
creation purposes subject only to the condition that the funds would be returned
should the I-526 visa petition be denied.
This condition providing for the return of the funds upon denial of the visa
petition is a valid one consistent with the INS’s view except that, unlike an alien
whose funds are in escrow, Mr. Sze took a further risk that the partnership may
not be in a position to refund his capital contribution should his petition actually
This, of course, did not occur in the instant case and, upon the approval of Mr.
Sze’s I-526 petition and the issuance of his immigrant visa, he no longer has a
basis for a refund and his capital has been placed unconditionally at risk.
(4) CAPITAL OBTAINED THROUGH LEGAL MEANS AND EVIDENCE OF
PROMISSORY NOTE PAYMENT
The CSC next raises questions as to the specific source of the funds transferred
from the petitioner’s bank into the VVLP’s bank account and questions how the
jointly owned foreign cash assets and properties of the petitioner which had been
pledged as a personal guaranty to secure the promissory note he has executed in
favor of ABT Partnership for the purchase of an undivided interest in real
property which he has transferred to VVLP might be considered as “legally
It further finds fault with the fact that a detailed evidentiary trail of the funds used
to procure said properties had not been submitted.
In arriving at these questions, the CSC notes that “the petitioner has submitted
only a partial copy of the original I-526 petition in this case” so “the Service has
[included] a copy of that petition and supporting documents within the present I-
829 file”. It then proceeds to reexamine the documentation submitted earlier in
support of the Form I-526 and notes “it has not been shown that the final
$250,000 due has been invested directly into the job-creating enterprise or that
[petitioner has] paid off the loan (via the promissory note to “ABT
Partnership…”) or that “ABT Partnership” in turn has executed a final
reconveyance of the 1/16th share of the Yuma, Arizona property to VVLP.
Further, the RFE states that “the record contains insufficient evidence to ensure
that the investment in the Yuma, Arizona property has been finalized, and that all
monies due have been paid” and that the record is unclear as to how [petitioner’s]
investment in the 1/16th share of the Yuma, Arizona property relates directly to
[the] required investment of $250,000 into the Von Verde Limited Partnership”.
RFE at P. 4.
8 CFR §204.6(3) sets forth the evidence which is required to be submitted to
show that the capital invested by the petitioner is obtained by legal manes.
As explained in the original I-526 submission, petitioner was a seasoned business
executive employed by an engineering firm in Hong Kong for 15 years and
transferred to Singapore as Managing Director for a publicly-listed company from
1990 to 1994. In late 1994, Mr. Sze joined with two other shareholders and
established two companies in Hong Kong, one engaged in the export of cosmetics
and household and food products to China and the other one engaged in the sale
and export of drycleaning machines to S.E. Asia, Australia and New Zealand.
Mr. Sze and his wife accumulated their wealth through earnings from Mr. Sze’s
employment and their savings for the past twenty years before Mr. Sze submitted
Proof of Mr. Sze’s employment and shares in his businesses as well as the real
estate and bank statements held by Mr. Sze completely satisfied the INS as to the
legal source of Mr. Sze’s funds when his I-526 was approved.
8 CFR §216.6 asks that the petition for removal of conditions be accompanied
with evidence that a (1) commercial enterprise was established, (2) that the alien
has invested or is actively in the process of investing the requisite capital, (3) that
the alien has sustained the above two actions required for removal of conditions
throughout the period of the alien’s residence in the U.S. provided that the alien
will be considered to have sustained the actions required for removal of
conditions if he has in good faith substantially met the capital investment
requirement of the statute and continuously maintained his capital investment
over the two years of conditional residence and (4) that the alien provide evidence
that he has created or can be expected to create, within a reasonable time, ten full-
time jobs for qualifying employees.
Nowhere in the regulations is the petitioner required to resubmit the original I-526
petition and supporting documentation for a readjudication.
While it is true that 8 CFR §216.6(c)(2) does provide an opportunity for the
petitioner to rebut any derogatory information if “it becomes known to the
government that the entrepreneur obtained his or her investment funds through
other than legal means “such as through the sale of illegal drugs”, there is not a
shred of evidence to suggest that Mr. Sze did not obtain his funds legally.
INS approved Mr. Sze’s I-526 petition with its eyes wide open. There was no
concealment of any facts whatsoever and both the INS and the U.S. Consulate
were satisfied that the source of Mr. Sze’s funds were legal before his I-526
petition was approved and an immigrant visa issued to him.
Thus, in the absence of the discovery of new derogatory information which would
have prompted a denial of the I-526 petition in the first place, the CSC cannot, in
I-829 proceedings, readjudicate the issue of the legality of the source of the funds
invested by Mr. Sze as the issue is administrative res judicata.
This is in contrast, for example, to Tongatapu Woodcraft Hawaii v.Feldman 736
F2d 1305 (9th Cir 1984) where the Ninth Circuit affirmed the right of the INS to
revoke a previously approved petition when it discovered new evidence later on
that the employer was financially unable to pay the wages offered to the
immigrant in a labor certification it had obtained for him.
With respect to the RFE’s questions about the $250,000 in real property which
Mr. Sze purchased from ABT and then reconveyed to VVLP, proof of the duly
executed and notarized warranty deeds from the seller to Mr. Sze and from Mr.
Sze to VVLP were previously submitted in support of the original I-526 petition
and part of Mr. Sze’s immigration file.
This transaction was later duly recorded with the Yuma County Recorder’s
Office. As explained in petitioner’s bullet points summary previously submitted
to the CSC and attached again in this response as Exhibit (1), Mr. Sze, as a Class
C limited partner in VVLP, has made an “all equity” investment of $500,000 –
consisting of $250,000 in cash and the contribution of a $250,000 interest in
certain real property in Yuma, Arizona which the investor has purchased from
ABT Partnership and transferred to VVLP.
In accordance with the definition of “capital” provided in 8 CFR §204.6(e), the
“capital” which was contributed to VVLP by Mr. Sze consists of $250,000 in
“cash” and $250,000 in “tangible property”. It does not consist partially of
“indebtedness”. Hence, there is no need to prove the “final $250,000 due has
been invested directly into the job-creating enterprise” as real property with a
$250,000 value has already been contributed to VVLP.
While it is true that the $250,000 real property was purchased from a third party
with a secured promissory note, the Izumii decision and INS’s new policy only
addresses the situation where an investor is contributing “indebtedness” in the
form of a promissory note executed in favor of the commercial enterprise to meet
the statutory capital requirement because of concern that the investor may in fact
not make those payments to the commercial enterprise. It has no applicability to
the instant case.
As noted in the General Counsel’s opinion (HQ204.27-C CO204.6) issued on
June 27, 1995 and never contradicted or reversed in any of the INS policy
pronouncements or AAO precedents issued to date, “Nothing in the statute or
relevant regulations require an employment creation immigrant to repay borrowed
capital by a date certain, at least where a third party lender is involved.”
Thus, when Mr. Sze pays off his promissory note to ABT Partnership is none of
the Service’s business. For the Service to require the note to be paid off is an
improper tampering of a contractual transaction between third parties without any
legal basis. It is an ultra vires act as the issue at hand is whether Mr. Sze has
placed the requisite capital amount at risk in the commercial enterprise and
whether the conditions imposed on his permanent residency should be removed,
not when he pays off the third party he purchased the land from since the land has
already been conveyed to VVLP.
(5) FULL-TIME EMPLOYMENT OF QUALIFIED EMPLOYEES
Finally, with respect to proof that petitioner’s investment has resulted in the
creation of the minimum ten full-time positions for qualified employees, the CSC
refers to the various tax returns of VVLP (specifically, Schedule F, item 24 which
shows that the amount of money paid to hired labor) which seems to indicate that
less then full-time workers have been hired. In fact, there has been a
misunderstanding because petitioner has only submitted the VVLP Partnership
Tax Returns in support of his I-829.
Petitioner apologizes for any confusion caused by his submission of employee
lists of its two wholly-owned subsidiaries, Von Verde Harvesting Inc. and VV
Harvesting Inc., without the tax returns of these entities even though Von Verde
Harvesting Inc’s tax returns were previously submitted in connection with the
1995 “live” presentation.
As previously explained in its presentation to the CSC in 1995, VVLP is a
holding company which holds farm land and other capital assets and does not
directly employ workers. All of the full-time positions which are created are with
VVLP’s wholly-owned subsidiaries, Von Verde Harvesting Inc. and VV
Harvesting Inc., which were created to employ the laborers for corporate limited
Thus, the “hired labor” wages reflected in Schedule F, item 24 of VVLP’s tax
return is a reflection of the money ($790,687 in 1997 in the example cited by the
CSC) which was paid by VVLP for its portion of custom farming charges charged
by Von Verde Harvesting Inc. that year. It is not a reflection of VVLP’s total
number of employees as VVLP does not employ anyone but simply pays its
wholly-owned subsidiaries for “hired labor”.
VVLP’s wholly-owned subsidiary, Von Verde Harvesting Inc., performs various
functions for the Von Santau Ranch, which is owned by VVLP and bills the entity
accordingly. Von Verde Harvesting, Inc. also bills Mesa Del Sol Inc. and Ranch
1100 for custom farming, harvesting and landscape work while VV Harvesting
bills other outside growers for whom it performs harvesting and picking work.
For the sake of completeness, we are submitting as Exhibit (4), the 1998 and 1999
U.S. Corporation Income Tax Returns of Von Verde Harvesting Inc., and VV
Harvesting Inc.4 which are the most recent tax years available as the year 2000
tax returns have not yet been prepared.
An examination of item 13 of these tax returns (Salaries and Wages) reveals the
Von Verde VV Harvesting
Harvesting Inc. Inc. Total
1998 $2,114,829 $4,082,532 $6,197,371
1999 $2,279,343 $5,760,451 $8,039,794
Adopting the rough calculation method of the CSC, we divide up $8,039,794 of
wages by the 900 positions the VVLP limited partners are responsible for
creating, to come up with average wages of $8,933 per person per annum. Based
on the fact that most of the farm laborers are paid minimum wage ($5.15 per
hour) and that “full-time” employment is defined as a position requiring 35
working hours per week in 8 CFR §204.6(e), each worker is working roughly
49.56 weeks per year in 1999 ($8,933 5.15 = 1,734.56 hours divided by 35
Confirmation of the fact that these two entities are wholly-owned by VVLP can be found in Schedule K,
item 5, Statement 5, which indicates 100% ownership by VVLP.
hours/week) and 38.2 weeks in 1998 ($6,197,371 900 employees) = ($6,886 per
annum 5.15) = (1,337.09 hours divided by 35 hours per week).
As also previously explained and accepted by the CSC in the live presentation in
1995 in connection with earlier removal of conditions cases, full-time
employment in the citrus industry is usually 9 months per year, with only some
employees getting 10-12 months employment. This is because the months of
June and July prohibits almost all farming activities because of intense hot
weather (reaching a high of 115°). Thus, the farming season starts in August and
is generally finished by the end of April, depending on when the Valencia oranges
are ready for harvest.
We trust this information and documentation clarifies that the requisite qualifying
full-time positions have been created.
Congress established the immigrant investor program to attract investment capital into
the U.S. economy and to create jobs for American workers.
VVLP is a legitimate enterprise which was established in good faith to meet these goals.
It has created employment for some 900 American workers and has admirably fulfilled
the dual intent of Congress in enacting §203(b)(5) of the Immigration & Nationality Act
and has paid more than $8 million in wages to U.S. workers in 1999.
We do not dispute that there may have been abuses by some large-scale “pooled
investment” programs which have taken advantage of certain loopholes in the law which
prompted the “hold” of I-526 and I-829 cases and resulted in the subsequent publication
of the four AAO precedent decisions in mid-1998 to provide guidance and clarification of
However, in its zeal to curb the perceived abuses by some of the investment programs,
we hope the INS will nevertheless objectively evaluate the merits of each individual case
and the commercial enterprise the investor has invested in and focus on whether the
capital raised from the foreign investors has actually been utilized by the commercial
enterprise’s operations for the acquisition of productive assets as well as in the creation of
VVLP is not a consulting company or a conduit for funds raised from investors but part
of a vertically integrated and real operating business with real employees and real needs
whose conditional lawful permanent resident limited partners will be irreparably injured
if the INS retroactively apply new, more restrictive standards on their removal of
We urge the CSC not to lose sight of the INS position articulated by Commissioner Doris
Meissner in her letter of June 16, 1998 to former Senator Spencer Abraham, then
Chairman of the Subcommittee on Immigration that “the Service believes that the
immigrant investor program can have a positive economic impact on the United States by
attracting foreign capital to establish new job-creating business”. The CSC should
therefore flexibly interpret the law as a matter of due process and fundamental fairness,
especially in its interpretation of the “establishment” aspects of the Izumii decision in the
context of those who have already immigrated on the basis of an approved I-526 petition
years before the publication of that precedent.
In Commissioner Meissner’s words, the Service should work “to administer the program
in a way that encourages foreign investors to take advantage of the program and invest
the full amount of the money required by congress to create full-time jobs for United
We therefore respectfully request that the present I-829 be approved.