By Lulu Gordon
After almost a year of limbo for the industry, the EB-5 Reform and Integrity Act of 2022 (“RIA”) was signed into law. Less than two months later, USCIS upended the legislation and derailed the industry via a website alert. The only viable solution was litigation. Here is the story of that litigation with all of its twists and turns and the important result it achieved.
1. THE ROLLER COASTER RIDE
Revival: Enactment of the EB-5 Reform and Integrity Act of 2022 Despite ongoing efforts by EB-5 industry stakeholders to secure full reauthorization of the EB-5 Program (the “Program”), on June 30, 2021, Section 610(b) of the 1992 Appropriations Act (the “Act”) lapsed. This section specified the number of visas to be set aside for the Program. The preceding section, Section 610(a) of the Act, which authorized the Program’s existence and did not have a sunset provision, remained in effect. At the time, USCIS took the position that the Program had “sunset” without distinguishing between the two sections and would accept no new filings1. In addition, it took a “pencils down” approach to pending petitions. The industry was in Program limbo; however, regional centers’ contractual and fiduciary obligations remained. An interminable eight months later, RIA was signed into law on March 15, 2022, offering a collective sigh of relief for the industry. For the first time since 2015, the industry had a multi-year reauthorization. Most regional centers had been treading water for the last year, and the lapse of the Program, combined with the economic impact of Covid-19 on many projects, had been very difficult, if not devasting. The industry was ready to get back to work on May 14 when the new legislation became effective. Whatever flaws the bill might have, at least we were back in business, or so we thought.
2. Dead on Arrival: Deauthorization
On April 11, 2022, the first day of the IIUSA Annual Conference in Orlando (which was in person for the first time in 3 years), USCIS unceremoniously, and in total disregard of the Administrative Procedures Act, deauthorized all existing regional centers. The agency posted an announcement on its website proclaiming that all currently existing regional centers were deauthorized and would need to apply for designation once USCIS issued the new form. [R]egional centers previously designated under section 610 are no longer authorized. The EB-5 Reform and Integrity Act of 2022 requires all entities seeking regional center designation to provide a proposal in compliance with the new program requirements, which will be effective on May 14, 2022. We will provide further guidance to entities desiring to be designated as regional centers under the new Program2 It was a staggering blow. A sense of dread settled over the industry, particularly because of USCIS’ prior pattern of policymaking hindering the Program. If regional center designation applications required USCIS approval before a regional center could operate under RIA, this could mean years of delay before regional centers could return to business. At the time, USCIS’ median adjudication time for I-924 regional center applications was 22 months3. To avoid such an outcome, IIUSA submitted a proposal to USCIS for an expedited designation method for previously approved regional centers.4
3. Tactical Decisions / Preparing for Battle
• Marshalling Forces
At the conference, EB5 Capital discussed a potential lawsuit with a group of friendly competitors. Our firm wanted well-established and well-respected regional centers that were geographically diverse, representative of the industry, IIUSA members – and willing to share the considerable expense of the litigation. Four or five seemed like a good number – enough to share the cost burden but not so many as to make consensus on strategic decisions difficult. Along with EB5 Capital, four regional centers stepped up – Civitas Capital Group, Golden Gate Global, CanAm Enterprises, and Pine State Regional Center. IIUSA also agreed to join as an organizational plaintiff. IIUSA represented a broad spectrum of the regional center industry, and its presence would bolster the case for the nationwide relief we intended to seek. EB5 Capital, Civitas, and Golden Gate Global were all long-time clients of Klasko Immigration Law Partners, and as such, the group naturally turned to Ron Klasko to handle the litigation, along with Paul Hughes of the McDermott Will & Emery firm. Ron Klasko is one of the preeminent immigration attorneys in the country, and Paul Hughes is a highly skilled federal court and U.S. Supreme Court litigator. They, individually and collectively, had an exemplary track record of successfully challenging the U.S. Department of Homeland Security (“DHS”) actions that did not comply with the law. Ron arrived at the IIUSA conference after the USCIS alert was out. On the plane, he scribbled notes of the potential arguments for a lawsuit. Ron, Brian Ostar, and I attended the IIUSA board meeting on the last day of the conference. Our purpose was to obtain the board’s approval for IIUSA to serve as the organizational plaintiff in our case. Ron brilliantly presented his arguments to the board. The regional center plaintiffs had agreed that IIUSA, as a non-profit, would not be expected to contribute to the legal fees and costs. The IIUSA board approved our request, so in a matter of days, we had our dream team. There was much work to be done and the need to move forward quickly. It was agreed that to streamline the process, I would serve as plaintiffs’ liaison with outside counsel, participating in and representing the plaintiffs with counsel in the day-to-day strategy decisions and preparation of pleadings, getting group input, and reporting back to the group on strategy and case progress. All plaintiffs participated in important strategic and cost decisions.
• When to strike?
One short week later, on April 19, 2022, USCIS announced it would host a stakeholder call on April 29, 2022, about the implementation of the RIA. We decided to wait until after the stakeholder call to file our case. We had hoped they might announce an expedited process for previously approved regional centers as had been proposed by IIUSA. We thought any litigation on the topic would chill their willingness to engage or consider other options. We would file sometime after the stakeholder call, if necessary. The USCIS stakeholder call confirmed the industry’s worst fears. All regional centers were required to file anew for designation, with a new form – not currently available – and wait to proceed with any new projects. In the meantime, on April 22, the Behring Regional Center (“Behring”) filed a complaint in the Northern District of California for a temporary restraining order (“TRO”) and declaratory relief – and subsequently filed a motion based on violations of the Administrative Procedures Act (“APA”) Behring Regional Center LLC v. Mayorkas et al. Case Number 3:22-cv-02487 (the “CA Case”).5
• Attack On Two Fronts
Did a second lawsuit add value? For many reasons, the answer was yes. Our plaintiffs’ group included five regional centers and the industry trade association. Since we would seek industrywide relief, this broader representation would be helpful. Just filing a second suit would put more pressure on USCIS to consider settlement and would also give the industry a second bite at the apple if things did not go well in the CA Case. In addition, we would put forth additional arguments not raised in the Behring pleadings.
• Choosing The Best Battlefield
Our next decision was where to file the case6. Given the breadth of jurisdictions the plaintiffs’ regional centers covered, we had many options. We narrowed it down to a district court in the 5th Circuit and the D.C. Circuit. After a thorough analysis – and a gut check – we selected the D.C. Circuit, drafting the complaint, and follow-on motions began soon thereafter.
4. A TKO on the TRO?
In the CA Case, the parties agreed to convert the motion for a temporary restraining order (“TRO”) into a preliminary injunction motion (“PI”).7 Unfortunately, the May 10 hearing did not go well8, and the industry uttered a collective groan. Judge Vincent Chhabria, the Judge presiding over the CA Case, seemed inclined to rule against Behring. He determined that the record was insufficient to issue a preliminary injunction. The Judge offered to convert the hearing back to a TRO and rule or allow supplemental briefings and evidence to be presented by the parties. It was up to the plaintiff to decide. It was clear to all who attended (including industry members listening remotely) that the TRO would be denied. Wisely Behring agreed to forgo a decision on the TRO. Further briefing would be provided to the Court, and Judge Chhabria would schedule another hearing if necessary.
5. A Friend Indeed: The Amicus
One of the reasons we decided to proceed with a second suit was to ensure a second bite at the apple. However, an adverse ruling in the Behring case could also negatively impact our case. We agreed with the Judge that the record was incomplete. Furthermore, we thought critical legal arguments were missing – arguments we would raise in our D.C. litigation. Since the Behring case was well ahead of ours, we concluded that we should seek leave to file an amicus curiae brief and an opportunity to participate in the second PI hearing if scheduled. This was an unexpected turn of events and expense for our plaintiffs’ group. Counsel for Behring was amenable, and the government did not oppose it. As an organizational plaintiff, IIUSA seemed the best choice to serve as the amicus curiae party. On May 23, we filed our motion9 for leave to file an amicus curiae brief and appear at any hearing supporting the plaintiff, and on May 24, Judge Chhabria granted our motion. In parallel, we filed our complaint, EB5 Capital et al. vs. DHS et al., in the District Court for the District of Columbia on May 24 (the “DC Case” or the “EB5 Capital et al. Case”).10
6. Fasten Your Seatbelts: Hearing on Preliminary Injunction Motion Round 2
The parties in the CA Case filed supplemental briefs, as did IIUSA as amicus curiae, and the Court scheduled a second hearing on the preliminary injunction motion for June 2. Our counsel was invited to participate in the hearing. Judge Chhabria opened the hearing as follows: Okay. I don’t even know where to begin. I guess I’ll say that you know, when I first started looking at this case, I thought that it was a relatively easy win for the Government. And now I am finding it very very difficult, both on the merits and on the other Winter factors.11 With the additional briefing – including our amicus brief – it appeared the Judge was about to do an about-face – but not without some twists and turns along the way. The hearing was 2.5 hours long and a masterclass in the Socratic method. Judge Chhabria posed every possible resolution to the parties to hear their arguments. Our arguments included the usual suspects for an APA claim and many technical statutory construction arguments from the text of the RIA. The mutual esteem and respect between Judge Chhabria and Paul Hughes were apparent. Together they concluded that the only correct statutory interpretation was that Congress did not repeal the Program and did not intend for existing regional centers to be terminated. However, the Judge was concerned about his authority to set aside agency action in a motion for temporary relief12. He wanted to get this right. Perhaps he could only return regional centers to the pre-RIA limbo while USCIS underwent a proper APA process. Mr. Hughes offered that the Court did have legal authority based on 5 U.S.C. Sections 705 and 70613. While Judge Chhabria seemed to agree, he then offered to convert this motion to an expedited summary judgment motion to alleviate his concerns about the Court’s authority to provide nationwide temporary relief. Alternatively, he offered that he could order relief solely for Behring. The government argued that the monopoly created by relief for only one regional center was not in the public interest. Judge Chhabria suggested USCIS could fix that problem by offering the same relief to all other regional centers. Ultimately the parties did not agree to convert to an expedited summary judgment. The Judge requested an additional briefing by the parties and IIUSA on the Court’s authority to provide a nationwide injunction.14
7. Excuse Me While I Intervene: IIUSA as Intervenor
At the June 2 hearing, the government indicated to our counsel that it would appeal any preliminary injunction in the plaintiffs’ favor. At this point, we believed our participation in the CA Case was essential to a win for the industry. We would not be able to participate in additional briefings, an appeal, or settlement negotiations if we were not an actual party to the case. We decided that IIUSA was the appropriate intervenor; it could best represent the industry as an organizational plaintiff and the industry trade association. In addition, should the Judge decide to provide relief only to the plaintiffs, all IIUSA members would be entitled to that relief. On June 5, we filed IIUSA’s voluntary dismissal in the D.C. Case15. On June 6, we filed IIUSA’s motion to intervene in the CA Case along with our brief supporting the plaintiff’s preliminary injunction motion.16 17 The government opposed our motion to intervene and changed its position on singular relief for Behring Regional Center in its Section 705 brief18. Now, more than ever, IIUSA’s intervention was crucial. As stated in our motion to intervene: The specter of individualized interim relief solely for Behring Regional Center would be devastating to IIUSA’s members and the Regional Center Program, only compounding the harm to the industry caused by USCIS’s unlawful action. … That is why IIUSA seeks to intervene here: IIUSA must protect the interests of its members and the EB-5 industry for which it advocates.19
8. Life after Death: An Industry-wide Preliminary Injunction
On June 24, Judge Chhabria issued an industry-wide preliminary injunction 20, and an industry-wide collective cheer resounded. Several key factors swayed the Judge. First, the government admitted that Section 610(a) did not sunset, meaning regional centers had been authorized all along – despite Section 610(b) lapse.21 Therefore, RIA did not create a brand-new Program, starting from scratch, and the government committed a legal error in deauthorizing all regional centers without going through the APA process. In addition, plaintiffs were likely to prevail on the merits, as USCIS would have to show that the legislation specifically deauthorized all existing regional centers – something it could not do. And, importantly, based on 5 U.S.C. Section 706, the Court had the authority to set aside agency action as temporary relief pending final review. Judge Chhabria stated: It would make no sense to afford relief to just Behring while allowing the agency to continue to treat more than 600 other existing regional centers as deauthorized. Although district courts retain equitable discretion to fashion injunctive remedies narrowly, it would be unfair to cabin the relief to Behring alone. If the agency were enjoined from deauthorizing only Behring, the firm would receive a windfall: It would be the only designated regional center in the United States. Foreign investors eager to apply for EB-5 visas would likely flood Behring with Capital, leaving the other 600-plus regional centers throughout the United States on the bench. But many of those regional centers are not sitting idly by. Invest in the USA, an amicus in this case, has moved to intervene on behalf of over 100 regional centers throughout the country. In any event, such limited relief would be difficult to square with Section 706 of the APA, which authorizes courts to “set aside” unlawful agency actions. 5 U.S.C. § 706(2). Where a reviewing court determines that agency actions violate the law, “the ordinary result” is that the action is “vacated,” and not that the “application to the individual petitioners is proscribed.” 22.
9. California, Here We Come: The DC Case is Transferred to the Northern District of CA
On July 5, Judge Amit P. Mehta of the District Court for the District of Columbia sought to transfer the DC Case sua sponte for consolidation with the CA Case. We did not oppose it, and Judge Chhabria scheduled a case management hearing to discuss how the case would proceed. We filed a case management statement for putative intervenor IIUSA and the five regional center plaintiffs transferred from DC23. Our primary reason for continuing to have IIUSA intervene in the Behring case was to ensure we would have an opportunity to participate in any appeal of the preliminary injunction by the government. As the Court is aware, IIUSA has a pending motion to intervene in Behring Regional Center. As IIUSA explained in its motion for intervention, it had initially joined the EB5 Capital complaint, but it voluntarily dismissed its claims in that action and sought intervention here. IIUSA did so because its members would have been affirmatively harmed—over and above the injury inflicted by USCIS’s unlawful action) — had this Court accepted the government’s position that any interim relief entered “should be limited to Behring.” IIUSA thus recognized it had considerable interests that no other party was positioned to protect. Further, IIUSA sought to participate in later proceedings before this Court and to have party status in the event any appeal should result, given the different arguments advanced by the parties. If the government were to appeal the Court’s preliminary injunction order, IIUSA submits that it would be critical that it be granted intervention rights in Behring Regional Center, allowing its participation as a party. If the government were to appeal, it would likely repeat its argument requesting relief specific to Behring only, which could result in affirmative harm to IIUSA’s members. More, IIUSA presents unique arguments. In IIUSA’s view, accordingly, the importance of the pending motion to intervene turns on whether the government intends to appeal.24 [Internal citations omitted.] Alternatively, if the government could confirm there would be no appeal of the preliminary injunction, we asked that IIUSA be permitted to rejoin the EB5 Capital et al. The case is now before Judge Chhabria. At the case management hearing on July 14, the government could not confirm that it would not file an appeal. On July 28, Judge Chhabria entered an order granting IIUSA’s intervention in the Behring Case and set a briefing schedule for cross-summary judgment motions in the joined cases, with a hearing on those cross-motions scheduled for September 8.
10. The Settlement
Settlement negotiations ensued almost immediately after the case management conference, even before the Court’s July 28 order. There were many rounds of proposals and counterproposals. At this point, all plaintiffs in both cases united on the essential terms. Preexisting regional centers must be allowed to return to business filing I-956Fs for new projects without waiting for I-956 approval. USCIS had to expedite receipt notices for I-956F filings so that investors could file I-526Es reflecting proof of the I-956F filing. Importantly, pre-RIA investors had to be protected even if their sponsoring regional centers did not file an I-956. The Court approved the settlement agreement on September 1, 202226. The final terms accomplished this and more. The settlement agreement also mandated quarterly meetings between representatives of plaintiffs and USCIS. We hoped that the quarterly settlement meetings would facilitate a smooth implementation of the settlement and RIA and perhaps could lead to an open dialogue and meaningful exchange between the industry and USCIS apart from these quarterly meetings. We continue to believe this is critical to the implementation of RIA and the long-term success of the EB-5 Program.
11. An Uneasy Peace: The Long and Winding Road Ahead
Where do we go from here? We don’t expect the implementation road ahead to be smooth. It is a complex Program, and RIA has many implementation challenges. As an industry, we must continue pushing for a Program that fulfills the goals of economic development and job creation, supports an ethical and thriving regional center industry, and protects investors from harm. In an ideal world, we would accomplish this together through meaningful dialogue between industry and USCIS during RIA’s implementation process. In our less-than-ideal world, further policy litigation is likely. We stand at the ready.
This litigation was a roller coaster ride with many procedural twists and turns; As a former litigator, it was both exhilarating and a privilege to work with Ron Klasko and Paul Hughes as an integral part of their litigation team. I want to thank Behring Regional Center and its counsel, Laura Reiff, and the Greenberg Traurig litigation team for collaborating on this significant endeavor. I am grateful that EB5 Capital fully supported me in undertaking the time-consuming role of plaintiffs’ liaison and that IIUSA agreed to serve the vital role of organizational plaintiff. Finally, I am honored that our fellow plaintiffs, Civitas, Golden Gate Global, CanAm, and Pine State, trusted me as their liaison. Above and beyond the excellent outcome, working with bright and dedicated colleagues from these other regional centers was extremely rewarding. EB-5 is a very competitive industry, and to have five top-notch competitors act as one for the benefit of the industry was truly remarkable. We continue to maintain these valuable relationships as we venture forward in the post-RIA world, working together to implement the settlement and sharing ideas and strategies for the road ahead.