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USCIS Lawsuit Challenges the Validity of New EB-5 Program Rules

Regional Center Challenges the Validity of the EB-5 Immigration Investor Program Modernization Final Rule

On November 26, 2019, Florida EB5 Investments, LLC (the “Plaintiff”), filed a civil action against the Department of Homeland Security (DHS) and the United States Citizenship & Immigration Services (USCIS) (the “Complaint”) challenging the validity of the recently implemented EB-5 Immigration Investor Program Modernization Final Rule (the “Final Rule”).

Click here to download the full Complaint seeking a temporary restraining order and preliminary injunction to halt the implementation of the recently implemented Final Rule.

The Plaintiff, a regional center and participant in the EB-5 Immigrant Investor Program, contends that the Department of Homeland Security (DHS) implemented the Final Rule without considering the harmful economic effects the rule change would have. Moreover, the Plaintiff alleges that the program changes violate the Administrative Procedure Act (APA) and the 10th Amendment, and the Final Rule should thus be vacated.

The Plaintiff requests that the Court grant a temporary restraining order and preliminary injunction barring the DHS, USCIS, and the Immigrant Investor Program Office from implementing the Final Rule published in July 24, 2019, and effective from November 21, 2019. The Plaintiff further requests declaratory judgments confirming that the Final Rule is invalid, vacating the Final Rule, and confirming that it violates the APA.

Although the Final Rule introduces numerous changes, the Complaint focuses on two key revisions. The first is the significant increases in investment amounts, which rose from $1 million to $1.8 million for regular investments, and $500,000 to $900,000 within targeted employment areas (TEAs). The second relates to the changes to the TEA designation system that shift the responsibility for designation away from state agencies toward the DHS and USCIS.

The Plaintiff argues that these changes, particularly the increased investment amounts, will make the EB-5 program less attractive to investors and developers alike. According to the particulars of claim, several of the Plaintiff’s affiliates withdrew from the EB-5 program following the announcement of the Final Rule, with some completely abandoning projects. If more affiliates abandon the program, which the Plaintiff expects to happen, the Plaintiff may go out of business.

The Plaintiff further alleges that DHS and USCIS were aware of several studies on the economic impacts of the rule changes, despite their initial claim that they did not have adequate data to make an evidence-based decision. He notes that during the rulemaking process, commenters drew rule makers’ attention to several research studies conducted by reputable organizations, including the Department of Commerce, on the effects of the EB-5 program. However, DHS chose to ignore the findings of these studies when implementing the program changes, allegedly to avoid Congressional oversight of the rulemaking process. Rule changes with an effect of more than $100 million on the economy are classified as major rules, which require Congressional approval.

The studies cited in the Complaint show that in an unconstrained environment, the EB-5 program brings about extensive benefits to the U.S. economy. For example, trade group Invest in the USA (IIUSA) found that during FY2010–2011 the program contributed $2.6 billion to U.S. GDP and created or supported 33,000 jobs. The Department of Commerce’s analysis of FY2012 and FY2013 data indicated that the program created 170,000 jobs and drew $5.8 billion in capital during the study period. Similarly, Economic & Policy Resources Inc. determined that during FY2014–2015, the program provided 2% of all foreign direct investment inflows, contributed $11 billion to the U.S. economy, and created more than 335,000 jobs.

The Plaintiff’s contention that the Final Rule should be vacated is based on three allegations related to violation of the APA: (1) TheFinal Rule violates the APA because it is “arbitrary and capricious.” (2) Under the APA, the Department of Labor should have performed a Regulatory Flexibility Act (RFA) analysis to determine how the changes will affect small businesses like the Plaintiff, which is defined as a small business by the RFA and Small Business Administration. (3) “DHS’s attempts to designate TEAs exceeds its statutory authority,” as the Final Rule does not cite the statute that authorizes the DHS to designate TEAs. Although the DHS claims that its authority stems from its mission to “ensure that the overall economic security of the United States is not diminished by efforts, activities, and programs aimed at securing the homeland,” its mandate is security and protection, not promoting economic development.

The Plaintiff further argues that the Final Rule should be vacated because it violates the 10th Amendment. By shifting TEA designation from state agencies to federal government agencies, DHS limits states’ ability to “conduct their own government and foster economic development within their respective borders.”

The Complaint filed in the U.S. District Court for the District of Columbia names Chad Wolf, acting secretary of the DHS; Kenneth T. Cuccinelli, acting director of USCIS; and Edie Pearson, policy branch chief of the Immigrant Investor Program Office (the “Defendants”) in their professional capacities. The Defendants have 60 days from service of summons to respond, so we can expect an update early in 2020.