On Nov 17 2016 by H. Ronald Klasko
A Business Plan is Not a Statue – Impacts of Business Plan Changes
A business plan that never changes is definitely the exception – not the rule. With the duration of EB-5 projects lasting longer than ever before, we find ourselves advising our clients on a regular basis regarding the impacts of changes in a business plan. In many of these discussions, we have to explain that the impact of the change varies depending upon when it occurs and the context in which the question is raised.
The purpose of this blog is to discuss the impact of changes that occur during the course of a project in four completely different contexts, each of which involves different considerations.
The first issue is whether a change requires notice to investors in a project, including the right of investors to rescind. This is a securities law question, and not an immigration law question. The issue is whether the change would constitute a material change under the securities law such as would require notice to investors and right for the investors to revoke their investments should they choose to do so. While the definition of material change under the securities law is not for our firm as immigration counsel to opine on, we do make it clear to our clients that a material change for securities law purposes may or may not be a material change for immigration law purposes, and vice versa.
The next issue is whether a change to a project affects the deference that would otherwise be given to a project exemplar approval. It is not at all clear that USCIS considers this to be a material change issue. Under the USCIS prevailing policy memorandum, USCIS considers that any change – material or otherwise – could lead it to re-evaluate the project regarding its compliance with USCIS policy and EB-5 law. Presumably, if the change is not material to any approvability issue, the re-evaluation would still result in the project being approved. However, there is no certainty that USCIS would apply deference without performing the reconsideration.
The third issue is whether a change meets the USCIS definition of “material change” such as to require an investor to file a new I-526 petition with a new priority date. This gets a bit complicated. Let’s start with the basics. What is a “material change”? One searches in vain for a comprehensible USCIS definition. In my opinion, it shouldn’t be too difficult. A material change should be a change that makes an approvable project un-approvable, or makes an un-approvable project approvable.
A change that makes an un-approvable project approvable is a material change under governing USCIS precedent because USCIS policy is to deny an investor a place in line – a priority date – based upon a petition that was not approvable when filed. A change that makes an approvable project un-approvable is obviously also a material change that would result in a denial of the project.
USCIS’ policy is to give different significance to a material change depending upon when it occurs. If it occurs after an investor obtains conditional resident status, the May 30, 2013 policy memorandum states that the change does not affect the investor’s ability to remove conditions as long as the basic condition removal requirements are still met – the investment has been sustained in the NCE and the jobs have been created.
The issue becomes murkier if the material change occurs before the investor obtains conditional resident status. This will be happening more and more often given the China quota backlog since investors will not become conditional residents for lengthy periods of time – five years or longer. It is therefore more important than ever to ascertain the impact of a material change that occurs before conditional permanent residence is granted.
The basic rules above regarding making an un-approvable project approvable or making an approvable project un-approvable do not change. However, the big issue is what happens if a project is approvable at the time of filing the I-526 petition, subsequent changes occur that meet whatever the definition of “material” might be and the end result of the changes is that the approvable project is still approvable – just with different facts. The USCIS position is that such a change results in the investor having to file a new petition with a new priority date. I believe that position is incorrect. Especially given the lengthy quota backlog and the aging out of minor children, the stakes are huge.
The reasons why I believe the USCIS position is incorrect are grounded both in EB-5 law and in other areas of immigration law. The only EB-5-specific law is found in Matter of Izummi. Matter of Izummi states that a change that results in a project that was un-approvable at the time it was filed becoming approvable based on the change in facts requires the filing of a new petition. Clearly, that standard should not result in an approved I-526 investor awaiting the quota before becoming a conditional resident having to file a new petition since the clearest evidence that the petition was not un-approvable at the time it was filed is the fact that it was, in fact, approved by USCIS. So this is clearly a case of a change making an approvable petition still approvable under a different set of facts, which may trigger the need for an amended petition or an interfiling containing the new facts, but should not result in the necessity for filing a new petition.
The issue is less clear if the material change occurs while the I-526 petition is still pending. In that case, USCIS will never adjudicate whether the petition was approvable under the original facts because it is on notice that those original facts no longer exist. Although it is not as clear, I still believe that an investor should have the ability to prove that the petition was approvable at the time it was filed, such that the change – material or not – is a change to make a project that was approvable under one set of facts still approvable under the changed facts. Again, in my opinion, this should provide for an amended petition filing, rather than a new filing with a new priority date.
Let’s look at a typical regional center loan model project and an investor from China. In a high percentage of these cases, the loan will be paid off at the conclusion of its term with the loan proceeds redeployed, or the loan will be prepaid, or the project will be sold after the approval of the I-526 petition and before the investor becomes a conditional resident. It certainly makes no sense for these events to constitute a material change requiring the investor to file a new petition with a new priority date. Since USCIS has not articulated a clear policy, I will step into the void and suggest the following policy:
- If an event occurs that was anticipated in the offering documents or business plan – such as loan prepayment, redeployment after loan payoff, etc. – there is no material change.
- Even if there is a material change – no matter how defined – there is no impact on the investor if the investment in the NCE is sustained and the jobs have already been created.
I mentioned that there are helpful analogies to how changes are dealt with on other types of immigration petitions. In the H-1B visa context, USCIS states that a material change in the terms and conditions of employment or in the beneficiary’s eligibility for the benefit does not require a new H-1B petition. Rather, it requires an amended petition. The procedure for O-1 visa beneficiaries is consistent with the H-1B petition procedures. USCIS requires a new petition if there is a change of petitioning employers. However, if the conditions of the employment change, even if the changes are “material changes in terms and conditions of employment or the beneficiary’s eligibility”, no new petition is required – only an amended petition.
With respect to immigrant petitions, perhaps the I-140 petition is the most analogous to the I-526 petition. If there is a material change in the job opportunity necessitating a new labor certification application, the labor certification can be submitted in support of the pending I-140 petition without requiring a new I-140 petition. Previous legacy INS memoranda stated specifically that a “material change in the terms and conditions of employment or the beneficiary’s eligibility” requires an amended petition.
Therefore, if the change is not material, no additional petition should be required; and the Service can be advised of the change at the I-829 stage. If there is a material change, consistent with Service policy as stated above, the remedy should be an amended I-526 petition and not a new I-526 petition.
The final scenario involving the impact of changes is, in some ways, the murkiest. The issue is the need to notify USCIS of a change in a project that the investor and his counsel do not believe is material but that clearly provides a different set of facts than the facts the USCIS adjudicator is presented with in the pending petition. In my opinion, the action to be taken varies depending upon the facts in each case. As noted at the beginning of this blog, business plans change constantly. It would make no sense to notify USCIS every time there is a change in a project, no matter how minor. On the other hand, it is in everyone’s interest that the adjudicator not approve a petition based on facts that don’t exist at the time of adjudication. There really is no answer to this other than the immigration attorney, counseling the investor, the regional center and/or the developer, making a decision whether a change is significant enough that notice should be given to an adjudicator. The reason to do so is both so that the adjudicator will adjudicate on the correct set of facts and so that the investor will be protected against USCIS taking a position at the I-829 stage – or a U.S. consular officer taking a position at the immigrant visa application stage – that the adjudication is invalid because the adjudicator did not have all the facts at his or her disposal. Worse yet, we would want to make sure that no government official could blame the investor for failing to notify the government of changes that render his petition no longer factually correct.
The issue of project changes is occurring with greater frequency as the processing times and the quota backlogs increase. The importance of dealing with these issues will correspondingly increase over time. As a result, it will become more important than ever for USCIS policy to adapt to the changing realities.