The USCIS Relaxes "Successor-In-Interest" Standard
The life of an immigration attorney is full of surprises. Few areas of law change as often and as drastically as the administrative regulations that rule immigration attorneys' and their clients' businesses. To provide the correct advice, immigration counsel must keep abreast of myriad administrative law changes promulgated daily by the United States Departments of State ("DOS"), Labor ("DOL"), and Homeland Security ("DHS"), as well their agencies, most notably, Citizenship and Immigration Services ("CIS") formerly known as Immigration and Naturalization Service ("legacy INS"). These administrative law changes require continuous adjustment in our practice, analysis and judgment. While some become quickly obsolete, few long-awaited agency changes deserve praise. The one handed down on August 6, 2009 in the form of the USCIS Memorandum by Donald Neufeld belongs to the latter category and is a very welcome one.1
Over the past few years, the concept of "successor-in-interest" grew murkier. Just a few months ago, Karin Wolman addressed this issue in an article that summoned "Alice in Wonderland" to describe the bewilderment over the self-serving and ever-changing determinations regarding this concept by the USCIS.2 In an effort to come up with a bright line simple rule, the USCIS has resurrected an old and factually-specific case from 1986.3 Attorneys often complain about bad facts resulting in bad cases and such cases, in turn, resulting in bad law. This is precisely the story of Matter of Dial Auto Repair Shop Inc., where the new company could not show the ownership of the original petitioner; the predecessor lacked ability to pay the preferred wage, and the entire company was so unsophisticated and insignificant in size that it should have never carried the precedent impact on modern multi-national corporations. Unfortunately, the misfortunes of a little repair shop impacted large companies for years to come. According to Matter of Dial Auto Repair Shop Inc., the validity of the initial I-140 petition and the labor certification may continue only if the successor petitioner had assumed all of the rights, duties, obligations, and assets of the original employer and continued to operate the same type of business as the original employer. In addition, the new employer had to establish the ability to pay the proffered wage specified on the labor certification. The Matter of Dial Auto Repair Shop Inc.'s standard ruled our world for almost a decade by becoming the legacy INS' standard.4
As corporate reorganizations gained frequency, speed and size, clients grew increasingly frustrated. Legacy INS could no longer ignore the realities of the business world. Without formal rule-making, in 1995, legacy INS adopted a lower standard in its Adjudicator's Field Manual ("AFM").5 The successor-in-interest had to assume substantially all, rather than all of the rights, duties, obligations and assets of the original employer.6 Corporate America and its immigration counsels breathed a sigh of relief when legacy INS relaxed the artificial "all or nothing" standard.
The "thaw" continued when in 2001, in a series of letters to immigration practitioners, then Director of INS Business & Trade Services, Efren Hernandez III, articulated a new standard.7 The Hernandez's guidance stands for the assumption of all immigration-related rights and liabilities.8 Between late 2001 and mid 2007, the assumption of all immigration-related rights and liabilities served as the standard for assessing whether the acquirer company is the "successor-in-interest" for immigration purposes. Looking back, the life of a corporate immigration counsel was simpler. We had our bright line test and could focus on additional issues brought onto by the portability of AC219 and the new labor certification system ("PERM").10
The life of an immigration attorney is full of déjà vu. In August 2007, the USCIS reverted back to the unrealistic standard from Matter of Dial Auto Repair Shop Inc. and The Puleo Memo, repudiated Efren Hernandez's "policy statements," and began issuing denials of Forms I-140 unless the acquirer succeeded to all of the rights, duties, assets and obligations of the original employer.11 For over a year, immigration practitioners were visited by "ghosts of Christmases past." The reinstatement of the "all or nothing" standard by only one of the two USCIS service centers and rule-making in the form of FAQ following an AILA liaison meeting seemed more unfair than even The Queen's Croquet of Alice in Wonderland.12
The life of an immigration attorney is full of rewards. The often short life of an immigration case brings instant gratification. Our grateful individual clients make us feel appreciated. On occasion, immigration attorneys are also rewarded with better legal rules. The murky, outdated, and unworkable "successor-in-interest" standard is out. In its place is a new flexible three-pronged approach. Without overruling Matter of Dial Auto Repair Shop Inc., the USCIS for the first time stated what immigration practitioners said all along: Matter of Dial Auto Repair Shop Inc. was not about "successor-in-interest" because the company had never acquired the petitioning employer in the first place.
Similar to the USCIS Memorandum on Ability-to-Pay analysis,13 the new Neufeld Memorandum focused on three factors: (1) whether it is the same job; (2) whether the successor has established eligibility for the requested visa classification in all respects; and (3) whether the successor has adequately detailed the nature of the transfer of rights, obligations, and ownership of the prior entity. If the petitioning employer "can establish these three factors, it is possible to find a valid successor-in-interest relationship even in situations where a successor does not wholly assume a predecessor entity's rights, duties and obligations14. Documenting "the nature of the transfer of rights, obligations, and ownership of the prior entity," the last prong of the new test, is a much more relaxed standard as compared to the previous proof of the assumption of all of the rights, duties, obligations, and assets of the original employer.
The life of an immigration attorney is full of cautious optimism. Just as the seemingly-clear USCIS Memorandum articulating the three-pronged Ability-to-Pay test proved to be imperfect and often challenged in the AAO decisions,15 immigration practitioners should pause and ponder before concluding that the new "successor-in-interest" test is clear.
The first factor reiterates the DOL's long-held standard codified at 20 CFR §656.30(c)(2): "a labor certification involving a specific job offer is valid only for the specific job opportunity and for the area of intended employment as described in the application form." One must first examine whether the job offered by the successor is the same as the job described in the labor certification application. In carrying out their analysis, the examiners are instructed to accept no changes to the items which relate to the labor market test as they were specified in the labor certification application.16 The Memorandum specifies the rate of pay, job description and job requirements as items which must remain "written in stone." With the exception of the increase in the rate of pay enjoyed by the foreign national since the time when the labor certification was filed, no other change will be forgiven.
Interestingly, the "no change in the job opportunity" factor is silent on title. What will happen if the successor's petition contains a different title in view of the Neufeld Memorandum's first factor? Will it automatically invalidate the successor's petition? One can argue that some changes in the foreign national's title have no impact on the job opportunity and it remains the same described in the filed labor certification application. Provided that the job duties, job requirements and job location remain intact, would a change in title alone result in denial of the successor's petition? Based on the Neufeld Memorandum's test of the remaining job opportunity, the answer should be No.
Any company that was merged or acquired by a larger organization has witnessed the reorganization of its many business functions and the restructuring of personnel structure which often results in changes to the management and professional employees' titles. Numerous companies pride themselves for their proprietary and unique title structures. We all recall the time when our human resources clients were renamed "talent acquisition" or "talent management" professionals. As the technology and science advanced, industrial engineers became supply chain management professionals and software engineers turned into business analysts. It is reasonable to anticipate that the successor may wish to change some of the employees' titles following corporate reorganization and/or acquisition. How should the immigration counsel address the title change in the successor's petition? Cautiously and carefully, on a case-by-case basis, is the answer.
What if the change in title does not move the position into a different occupational classification? It appears that the first prong will be satisfied. If the Service meant such a desperate treatment, it would have listed title in the same list of vital job characteristics as the job description and job requirements. Since the title of the job is omitted from the list, it must mean that a change in title alone may not invalidate the successor's petition. As long as the immigration counsel and its corporate client can document that the change in title alone could not have affected the number or type of available U.S. workers who applied for the job, the job opportunity remains intact.
Some changes in title, however, could be so drastic that the job opportunity may float into a different occupational classification. According to the USCIS, the job opportunity remains unchanged only if it stays within "the same or similar occupational classification." In an example when the foreign national's title is changed so radically that it now belongs to a significantly different occupational classification, the change will adversely affect the successor's ability to use the predecessor's materials and will necessitate a new test of the labor market. Only if one can demonstrate that the job opportunity remains the same, a change in title should not automatically result in the denial of the successor's petition.
The job opportunity must remain not only the same but also valid and available from the time of the filing of the labor certification with the DOL until the issuance of immigrant visa or grant of adjustment of status in the United States.17 The Neufeld Memorandum provides several examples where the original job opportunity ceases to exist as a result of a temporary closure of the employer's business or due to the employer's inability to pay the wage for a period of time. In the real world, companies scrutinize corporate reorganizations very closely. In today's economy, it is very unlikely that a business will acquire a company only to close its operations immediately. The Neufeld Memorandum's examples demonstrate that the Service will continue to closely examine petitions filed by small companies. The recent intolerance and higher scrutiny against smaller employers by the USCIS is evident in the Neufeld Memorandum.
The life of an immigration attorney is full of "back to the future" moments. The "successor-in-interest" test and the immigration attorney's job require a look into the past at the predecessor company's financial documents. The Neufeld Memorandum has articulated the second factor in a flexible and all-encompassing manner: "The successor bears the burden of proof to establish eligibility for petition approval, as of the date of filing of the labor certification with the DOL."18 In addition to demonstrating the foreign national beneficiary's qualifications for the job opportunity and the successor's eligibility (read "the ability-to-pay"), the petitioner must also document the predecessor company's ability to pay the proffered wage from the date of the labor certification application's filing until the date of the corporate reorganization.19 Although the immigration counsel is often the last one to be informed regarding the client's corporate reorganization, one must be vigilant and remind corporate clients to preserve and keep the predecessor company's financial reports and statements. In devising check lists for both I-140 filings and corporate reorganization review, one should add the predecessor company's past annual reports or audited financial statements going quite a few years back. Given the ever growing backlog of PERM labor certification applications at the DOL, especially in its audit and supervised recruitment queues, it could take 3-4 years until a PERM filing is finally certified. As a result, an immigration counsel must establish a priority date for each pending labor certification application which is filed by the predecessor and request a company's financial statements going back to the date of filing also known as "priority date."
Companies are sold and reorganized for a reason. A common one is unprofitability. As the auto industry drama has played out in 2009, some of the automakers' business units were bought straight out of bankruptcy. Will the successor to these business units be out of luck on the I-140 petition? The answer is not all that clear. The Neufeld Memorandum provides an example of an insolvent predecessor a lá Heller Ehrman. According to the Neufeld Memorandum, and if a company is bought out of insolvency, the successor will have to re-test the labor market. On a positive note, and where the successor acquired only an insolvent division or unit of a larger company, the petitioner can show the financial results for the entire predecessor company. In these "partial transfers," the successor will have more flexibility to establish the eligibility for the predecessor's labor certification application. The opportunity to present the entire financial picture of the predecessor provides a flexible and workable standard for immigration practitioners, their corporate clients and the clients' financial advisors.
The life of an immigration attorney is full of solitary work. On occasion, we collaborate with colleagues in other areas of law. The third prong of the Neufeld Memorandum requires immigration attorneys to work closely with the client's corporate counsel. According to the last factor, the "successor-in-interest" must fully describe and document the transfer and assumption of the ownership of the predecessor by the successor." This is a very different rule from the old Matter of Dial Auto Repair Shop Inc.'s standard requiring the "successor-in-interest" to show the assumption of "all of the rights, duties, obligations, and assets of the original employer and continuous operations of the same type of business as the original employer." As one continues to read the explanation following the third prong, the excitement starts to wear off. The Neufeld Memorandum goes on to say that: "The evidence provided must show that the successor not only purchased the predecessor's assets but also that the successor acquired the essential rights and obligations of the predecessor necessary to carry on the business in the same manner as the predecessor. The successor must continue to operate the same type of business as the predecessor, and the manner in which the business is controlled and carried on by the successor must remain substantially the same as it was before the ownership transfer."20 Is the new standard really different from the old one? The short answer is: definitely.
The life of an immigration attorney is filled with precise words. All, substantially all, and the essential... To some, these words may describe similar terms. To an immigration attorney analyzing the "successor-in-interest" test, they are a sea apart. The new test requires the true "successor-in-interest" to purchase all assets, but is flexible on the amount of rights and obligations (see liabilities) of the predecessor. As long as the essential rights and obligations are coupled with all assets of the predecessor, the deal is acceptable for the immigration "successor-in-ownership" third prong. For the first time, the Service has expressly recognized the realities of the business reorganization and permitted asset purchases (in addition to mergers and stock acquisitions) to take their rightful place on the list of acceptable successorship transactions. Off go our clients' hats, but not their heads.21
The life of an immigration attorney is filled with procedural changes. Just recently, I marveled at the suggestion that some service centers might be receptive to reviewing a "class representative" non-immigrant visa petition upon a corporate reorganization and applying its finding to all similarly-affected foreign national H-1B workers.22 With respect to immigrant visa petitions which are based on the predecessor company's labor certification applications, I no longer need to just fantasize about the joy of securing consistent adjudication for identical petitions. The Neufeld Memorandum specifically advises corporate immigration attorneys about the consolidated processing of multiple "successor-in-interest" petitions at a service center. The trouble is that getting in touch with the responsible Service Center Directors may take months. The savings in the form of copies of Annual Reports and Forms K-10 may not justify the wait. The outcome of consistent adjudication may be worth its wait time. It appears that the immigration counsel and their corporate client will have to make a specific determination regarding the procedural filing of the successor-in-interest petitions.
In conclusion, the relaxed "successor-in-interest" standard is more flexible and clear that the ones that were in place for he past decade. The assumption of essential rights and obligations of the predecessor are lesser than substantially all. It remains to be seen whether the Service will indeed review each corporate reorganization transaction in detail in determining whether the new test has been satisfied.
End Notes1USCIS Memorandum, D. Neufeld, Acting Associate Director, Domestic Operations, "Successor-in-Interest Determinations in Adjudication of Form I-140 Petitions; Adjudicators Field Manual ("AFM") Update to Chapter 22.2(b)(5)," (Aug. 6, 2009) published on AILA InfoNet at Doc. No. 09090362 (posted Sep. 3, 2009)
6For a detailed treatment of successor-in-interest" standard up to mid 2008, see S. Ellison & P. Hejinian, "USCIS Says, 'All or Nothing': Latest Developments on Successor-in-Interest," Immigration & Nationality Law Handbook 93 (AILA 2007-2008 Ed.). See also Rulon and G. Forney, "Is 'Successor In Interest' Dead and Buried Under PERM?" Immigration & Nationality Law Handbook 211 (AILA 2007-2008 Ed.).
7Letter of Efren Hernandez III, Director, INS Business & Trade Services, to Steven M. Ladik, HQ 70/6.2.8 (March 22, 2001), reproduced in 78 Interpreter Releases 21, App. III (Apr. 2, 2001), published on AILA InfoNet at Doc. No. 01032901 (posted Mar. 29, 2001). Letter of Efren Hernandez III, Director, INS Business & Trade Services, to J. Douglas Donenfeld, HQ 70/6.1.3 (Oct. 17, 2001), published on AILA InfoNet at Doc. No. 01101939 (posted Oct. 19, 2001).
10The Program Electronic Review Management (PERM) system was set in place on March 28, 2005, with the publication of the final rule implementing the new labor certification program. See 54 Fed. Reg. 77326 (Dec. 27, 2004); U.S. Department of Labor, FY 2005 Performance and Accountability Report 130, available at www.dol.gov/_sec/media/reports/annual2005/annualreport.pdf.
11AILA/TSC Liaison Meeting, Dec. 3, 2007, Questions and Answers No. 11, published on AILA InfoNet at Doc. No. 08010365 (posted Jan. 3, 2008). See also Minutes of AILA/USCIS Liaison Meeting (Oct. 28, 2008), question #4, published on AILA InfoNet at Doc. No. 08110767 (posted Nov. 2008).
13USCIS Memorandum, William R. Yates, Associate Director for Operations, Determination of Ability to Pay Under 8CFR204.5(g)(2); (May 4, 2004) published on AILA InfoNET at Doc. No. 04051262 (posted May 12, 2004)
Ellen Freeman, Esq. is an attorney in the Immigration Practice of Buchanan Ingersoll & Rooney PC. She focuses her practice on employment-based immigration such as temporary work visas and permanent residence, including PERM/labor certification applications, preference petitions and consular processing/adjustment of status.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.