EB-5 program changes that critics say make it harder to attract foreign investment in urban areas could soon be reversed due to illegitimate appointments of former Trump administration Homeland Security officials.
SAN FRANCISCO (CN) — In a lawsuit challenging Trump-era changes to the EB-5 immigrant investor program, a federal judge signaled Thursday she will likely abolish those changes based on the illegitimate appointment of acting Homeland Security secretaries in 2019.
“If I were to vacate it because I find it was invalid, it goes back to the secretary who could reimpose it if he agrees with it,” U.S. Magistrate Judge Jacqueline Scott Corley said during a virtual court hearing Thursday.
Corley is overseeing a lawsuit brought by Behring Regional Center, a real estate investment firm and affiliate of Behring Capital LLC, which channels EB-5 investment funds into real estate projects in Northern California.
Congress established the EB-5 program in 1990 to encourage foreign investment and job creation. It allows non-citizens that invest in job-creating projects to obtain visas to enter and stay in the United States.
Behring claims the Department of Homeland Security issued an “arbitrary and capricious” rule in November 2019 which makes it harder for immigrant investors to qualify for the program. The rule raised required investments levels from $500,000 to $900,000 for targeted employment areas (TEAs) and from $1 million to $1.8 million for non-targeted areas. TEAs are designated areas with high unemployment for which foreign investment is incentivized by lower spending requirements.
The rule also gave DHS sole authority to designate TEAs, eliminating the role of individual states in deciding where to prioritize investments. Behring says the changes also favor rural areas by making cities and towns with 20,000 or more in population ineligible for TEA designation.
“Essentially what DHS has done is written out of TEAs large urban areas such as Oakland even if they have high unemployment,” Behring attorney Todd Pickles said in court Thursday.
Behring is seeking a preliminary injunction to undo the changes. It says its EB-5 investments have dwindled to zero since the new rule took effect and that it will go out of business unless these changes are reversed.
The government says changes to TEA designation are intended to make the process more transparent and less subject to “political whims” and “political pressures” in each state.
“That was in response to the gerrymandering that DHS found where states were designating TEA areas,” Justice Department lawyer Vanessa Molina told the judge.
The government says the rule did not eliminate TEAs in urban areas. It simply limited the size of TEAs to smaller plots of land established as “tracts” by the U.S. Census Bureau.
“There could be designated areas of TEA within Oakland, but perhaps not of Oakland,” Molina said. “To say it’s only available to rural areas that have 20,000 or less in population is incorrect.”
Behring says the new TEA designation process contradicts the plain language of the law passed by Congress, which defines TEAs as either a rural area or an area experiencing high unemployment.
“The statute does not limit qualification for a high unemployment TEA by population size or whether the city is included within a metropolitan area, nor does the statute give preference to rural areas,” Behring argued in its motion.
Judge Corley asked a few probing questions about the TEA designation changes but turned most of her focus to another issue — whether two acting DHS secretaries who were never officially appointed to the role had authority to issue the rule.
The proposed rule was first issued in July 2019 under acting DHS secretary Kevin McAleenan. The final rule was issued on Nov. 21, 2019 under acting DHS secretary Chad Wolf, who had assumed the role two days earlier after McAlennan resigned.
Multiple courts and a congressional watchdog have found that McAleenan and Wolf were improperly elevated to the role of acting secretary. According to the U.S. Government Accountability Office, the job should have gone to Christopher Krebs, who was then director of the Cybersecurity and Infrastructure Security Agency, when the Trump administration’s last confirmed DHS secretary, Kirstjen Nielsen, resigned in April 2019.
On Thursday, Corley asked if any court has found McAleenan’s appointment valid.
U.S. Justice Department lawyer August Flentje acknowledged that no federal court has made such a finding.
Noting that the secretary’s legitimacy is a purely legal question that involves no factual disputes, Corley said she would convert the request for a preliminary injunction into a motion for summary judgment on that issue.
“That then sends it back to the secretary who’s going to have to take another look at it and decide what they want to do with it,” Corley said.
Justice Department lawyers asked to submit further arguments on the “de facto officer doctrine,” which they say allows the rule to stand even if it was issued under an illegitimate secretary.
The doctrine is intended to prevent “chaos that could result if a defect in an officer’s appointment required the mass invalidation of the officer’s past acts,” according to the government’s written arguments.
The government also requested an opportunity to file written briefs on what the proper remedy would be if the court finds the rule is invalid.
“Vacating the rule would be disruptive,” Flentje said. “People are preparing their investments based on the current standard.”
Corley hinted that she would not be easily persuaded by that argument.
“I don’t know how that disrupts any expectations because it just makes it broader,” Corley said. “Someone who couldn’t apply under the new rule now could apply.”
Corley ordered both sides to submit briefs on the “de facto officer” doctrine and remedy issue through April 22, and she set a tentative hearing date on the remedy for May 6.