Revisiting Katigbak and Izummi Again

by Joseph P. Whalen

In response to the AILA comment of Dec. 9, 2011, to USCIS on the Draft EB-5 Policy Guidance Document of Nov. 9, 2011, I again commend the organization's overall efforts but disagree in part. Katigbak and Izummi are validly applied to EB-5. It is the degree of their applicability that remains to be accurately expressed by anyone. Katigbak is the case that makes clear that you must actually be eligible for the visa classification sought in order to secure the priority date established by the filing date for that particular petition. Izummi is the case that expands on that and prohibits material changes.

Some of the findings in Izummi were too case specific for proper extrapolation as generally applicable principles and made for poor case law on certain points as a result. Izummi successfully blocks "bait and switch" tactics and shuts off any amelioration of any course of action consisting of "behaving unethically and acting beyond authorization" (i.e. outside the limits of the licensure or Regional Center Designation Approval). The Regional Center through which petitioner Izummi invested only attempted to bring itself into compliance by offering improper late-stage amendments to its own designation and scope after being caught in the act of misbehaving. In that case, the Regional Center was trying to use the alien investor's money to do business outside its designated geographic area and at the reduced TEA rate outside of TEAs. The alien petitioner submitted brand new agreements created by the Regional Center AFTER the I-526 petition was denied. AAO refused to incorporate that new evidence during the appeal of that Regional Center affiliated I-526. In essence, the Regional Center was trying to push through an amendment of the Regional Center's underlying designation via the alien investor's I-526 appeal process after it was caught in the act of doing business outside its authorized scope.

I have to agree that a "material change" may indeed be impermissible but only under certain circumstances, such as, but not limited to:

1.) being truly statutorily ineligible at time of filing (insufficient, unlawful or unauthorized funds-such as: laughable "promissory notes", criminal proceeds, or lacking an OFAC License, or offering one that does not cover transactions nunc pro tunc. I would warn against trying to invest funds earned in the U.S. from unauthorized employment^[1] ; or Ponzi Schemes);
2.) being in clear contravention of established procedures;
3.) attempting to avoid prosecution or a finding of fraud/misrepresentation; or
4.) finally attempting to conform to "ethical conduct" even if such prior "unethical" conduct might not have been found criminal and/or successfully prosecuted, such as: "bait and switch" involving partnership agreements, operating agreements, or financial transaction documents from EB-5 compliant to non-compliant documents (such as slipping in some impermissible redemption agreements or money-back guarantees);

The material change prohibition as to "basic eligibility" really must only apply very narrowly to the actual statutory requirements for the specific visa classification sought. The real question that needs a solid answer is: What must be demonstrated, as per the statute, at time of filing an I-526, in order to secure a priority date for visa issuance purposes? (More is to follow on this point, later.)

The material change prohibition as to "acting, or attempting to act, in contravention to procedure" is still unsettled because clear procedures are in a state of flux at this time. That said, blatant corrupt actions that fly in the face of any "reasonable person" test or analysis are doomed to failure, and will be upheld as impermissible under any conceivable judicial review.

The material change prohibition as to "unethical conduct, including attempts to avoid criminal prosecution, and/or administrative findings of fraud and misrepresentation" is something that should not have to be stated in the first place. I doubt that even the Ninth Circuit would find in favor of an argument that boils down to: "I didn't know I couldn't be unethical because they never said so." However, as has already proven to be the case, it still happens. Caveat investor!

The AILA comment makes some good points but dances around the underlying question without actually even attempting to answer it. The bare bones of eligibility for the alien entrepreneur or investor is merely a showing of sufficient lawful funds and having a pulse. USCIS will never agree to that. So, to make it more palatable, the investor must demonstrate through credible evidence:

1.) sufficient lawful funds for the investment (completed or in-process) and;
2.) either:

(a) show that the required jobs have already been created, or
(b) present a plan to create sufficient jobs through the planned investment.

It must be clearly understood that the stand-alone EB-5 entrepreneur or non-Regional Center-affiliated EB-5 investor group (non-RC) is not similarly situated to the Regional Center-affiliated (RC) investor in terms of "investment or business plan" requirements and expectations nor job creation requirements. The non-RC investor is encouraged and expected to submit a Matter of Ho compliant business plan up-front. However, this non-RC investor can react to market forces and concentrate solely on results. Conditions will be lifted regardless of straying from the plan if the investment otherwise meets the statutory requirements which includes only EB-5 "direct jobs" and the full infusion of the required funds.

The RC-affiliated investor is reliant on the plans and projects provided by the Regional Center for his/her use. The affiliated investor is also reliant on the "indirect jobs" forecast by an accepted economic analysis based on a USCIS-vetted econometric model or methodology. The affiliated investor's Regional Center itself has a particularly defined scope within which it may act and still include indirect jobs in the final job creation accounting. The initial plan proffered to USCIS with the RC-affiliated I-526 and the final job-creating RC-affiliated project executed need not be an exact match. However, in order to count indirect jobs, the end-result project must still fall within the approved Regional Center parameters, i.e. "within the scope of the Regional Center". If the end-result project is not within the scope, then the RC-affiliated investor is in the same position as the non-RC-affiliated EB-5 investor in terms of showing full statutory compliance, including EB-5 "direct jobs".

Here is an excerpt from AILA's comment, with my commentary added:

"18. Page 17, B: The first paragraph is very helpful in explaining the realities of the business world. We commend USCIS's intention to modify its prior position regarding approvability of Form I-829 notwithstanding changes in the business plan contained in the I-526 petition. For the reasons set forth in AILA's January 21, 2011 comments, we believe that requiring an unchanged business plan at the I-829 phase is flawed as a matter of law and accordingly welcome this change.

I agree with AILA on the above point. I disagree with AILA on the next point highlighted below. Most certainly, any "bait and switch" will not survive scrutiny.

However, the Memorandum should make clear that Matter of Izummi and Matter of Katigbak do not relate in any way to material changes subsequent to the approval of an I-526 petition and prior to the filing of the separate I-829. The Draft Memorandum incorrectly references Katigbak, a decision adopted in the EB-5 context in Izummi. USCIS's construction of Katigbak and Izummi laid the flawed groundwork to its material change policy in the December 2009 Memorandum. We are troubled to see that the Draft Memorandum expresses an even further departure from the actual holdings in these cases when it reformulates Katigbak and Izummi as supporting the position that "a petition cannot be approved if, after filing, the petitioner becomes eligible under a new set of facts or circumstances." Under this formulation, even if eligibility is met at the time of filing and the petitioner demonstrates continued eligibility under different facts, USCIS will find Katigbak and Izummi violations. Katigbak and Izummi do not support this conclusion. Accordingly, we offer an analysis of these cases in the hope that USCIS will properly apply these authorities in EB-5 policy and adjudication.

Again, I must protest. AILA's comment above shows that it accepted the USCIS misinterpretation as correct. Folks, the "business plan" is merely one piece of supporting evidence. The business plan is NOT a petition. The business plan is not even an absolute EB-5 requirement. An alien entrepreneur may forego any written plan by simply showing that jobs have already been created. The Matter of Ho compliant business plan is truly needed when no jobs have yet been created upon filing an I-526 or as primary supporting documentation in support of an I-924.

I offer this analogy for an EB-5 Regional Center. The RC is like an animal marking its territory. It marks its area's boundaries (when bears rub up against trees-they are not merely scratching their backs, they are depositing their scent to warn off other bears). The bear makes displays of aggression and growls and charges in order to demonstrate what it can do when put to the test. Think about it.

In Katigbak, the alien was seeking P3-1 classification not EB-3 which came into existence through IMMACT90 (20 years after Katigbak's petition was filed).

In Katigbak, the beneficiary did not qualify for the EB-3 preference category at the time of filing a petition on December 6, 1970. She lacked the required academic preparation to qualify as an accountant, a "member of the professions," when the petition was filed, having only 19 2/3 semester units toward an accounting degree rather than the generally required 24. The petitioner claimed that in 1971, after the petition was filed and denied, the petitioner fulfilled the unit requirements. Rejecting these post-filing attempts to qualify, Katigbak held:

A petition may not be approved for a profession for which the beneficiary is not qualified at the time of its filing. A beneficiary cannot expect to qualify subsequently by taking additional courses and then still claim a priority date as of the date the petition was filed, a date on which he was not qualified.

In Katigbak, therefore, there was ineligibility ab initio as a matter of fact.

In Izummi, after the I-526 was filed, the petitioner amended, among other documents, the limited partnership agreement in two stages. The second stage amendments, the petitioner contended, would make the I-526 approvable. Citing Katigbak, the AAO refused to recognize the second stage amendments, stating, "the Service cannot consider facts that come into being only subsequent to the filing of a petition." Izummi states:

A petition must establish eligibility at the time of filing; a petition cannot be approved at a future date after the petitioner becomes eligible under a new set of facts. See Matter of Katigbak, 14 I&N Dec. 45, 49 (Comm. 1971). Therefore, a petitioner may not make material changes to a petition that has already been filed in an effort to make an apparently deficient petition conform to Service requirements.

The facts in Izummi were analogous to Katigbak where there was ineligibility ab initio sought to be cured after filing. A "material change" therefore is a change made post-filing to cure an ineligibility defect. If the petitioner demonstrates eligibility at the time of filing, Katigbak and Izummi are improper authorities to disallow post-filing change, as such changes do not attempt to cure an ab initio ineligibility defect.

I agree with the statement highlighted above as far as it goes. However, it is only one of several possible definitions that coexist for that term. See non-exhaustive list above. Any post-filing change might be an impermissible material change if it is of such a nature as to render the applicant or petitioner ineligible.

Similarly, contrary to the Draft Memorandum, Katigbak and Izummi do not concern cases where "the petitioner becomes eligible under a new set of facts or circumstances." USCIS's new articulation of Katigbak and Izummi in the Draft Memorandum is particularly concerning because, if adopted, USCIS would now find a Katigbak and Izummi problem where (1) a petitioner establishes eligibility ab initio; and (2) continues to establish eligibility, though under changed facts. Under these authorities properly understood, either fact actually renders Katigbak or Izummi inapposite.

Contrary to the assertion highlighted above, Katigbak sought to have post-filing education accepted in order to cure a deficiency that existed at time of filing her petition. If that does not represent "new facts or circumstances" then I don't know know what does.

"Counsel argues that these units, earned subsequent to filing of the petition and subsequent to the District Director's denial decision, should be totalled with the units applicant had previously earned prior to the time of filing her petition. We do not agree." At p. 49

Izummi on the other hand, involved a real mess of interrelated yet distinct underlying benefits. Izummi was an alien investor whose I-526 was denied. The Regional Center sought to usurp Izummi's I-526 appeal process to push through a Regional Center amendment. (A case of trying mix apples and oranges.) If AAO had allowed the Regional Center to do this, it would have had the effect of allowing Izummi to retain an earlier priority date to which he was not entitled. (I know it was virtually meaningless then as now, but an I-526 is a preference visa classification petition subject to limits.) If amending the Regional Center does not represent "new facts or circumstances" then I don't know know what does.

"If counsel had wished to test the validity of the newest plan, which is materially different from the original plan, he should have withdrawn the instant petition and advised the petitioner to file a new Form I-526. The case shall be analyzed only on the basis of the original documents and the revisions that correct the original inconsistencies." At p. 176

So, if the original or most recent amendment of a Regional Center designation has utilized transparent complexity to build-in sufficient flexibility, it could avoid such problems.

Another way to express "eligibility at time of filing" is to say "approvable when filed". For that reasoning see Ogundipe v. Mukasey, 541 F.3d (4th Cir. 2008).

In Ogundipe, the dissent observed that the majority stated in its analysis:

"We find nothing in the applicable statutes or regulations that prevents an IJ in removal proceedings from considering other evidence that a petition was approvable when filed, even if that evidence was never submitted in conjunction with the original petition."

Again, this proposition relies on pre-existing facts and circumstances rather than newly created facts and circumstances that come into being post-filing.

USCIS's surface interpretation of Katigbak and Izummi has resulted in, or at least supported, policies distrustful of inevitable business changes. As we have advanced in our earlier comments, the law and existing regulations are not hostile to business changes attending EB-5 enterprises, but rather encourage adjudication flexibility to accommodate such changes. USCIS should not use Katigbak and Izummi to uphold rigidity in dealing with post-filing changes, particularly where petitioners demonstrate continued eligibility."

________________________________________________________________________

I am on board with the concept of a reasonable amount of adjudication flexibility but its's just not that simple. The desired flexibility is easier to obtain when the Regional Center does a good job of planning in the first place by utilizing transparent complexity up-front. Regional Centers that fail to plan are planning to fail because they will have painted themselves into corners from which there is no planned escape route. That sounds like a bunch of clichés and platitudes because that is what they are. However, they are true.

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Footnotes

¹See: Matter of Lett, 17 I&N Dec. 312 (BIA 1980).

About The Author

Joseph P. Whalen is not an attorney. He is a former government employee who is familiar with the INA. His education is in Anthroplogy with a concentration in Archaeology and has both a BA (from SUNY Buffalo) and an MA (from San Francisco State University) in Anthroplogogy. He previously worked as an Archaeologist for the U.S. Forest Service before becoming an Adjudicator with INS which became USCIS.

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