EB-5 Min. Investment Back to US$500k as Court Vacates Modernization Rule – For Now

The US Northern District Court of California yesterday ruled in favor of Behring Regional Center in its case against Chad Wolf (Acting Secretary of the Department of Homeland Security).

Initially filed in December, the regional center’s lawsuit alleged that the DHS violated federal law by issuing an arbitrary and capricious rule when it instated the EB-5 Modernization Rule in November 2019. The plaintiff, represented by leading immigration law firm Greenberg Traurig, also alleged that the DHS did not have the necessary legal authority to enact the Rule.

The Modernization Rule, among other effects, raised the minimum investment requirements for the US EB-5 program from US$500,000 and US$1 million to US$900,000 and US$1.8 million.

Acting without proper authority

The court yesterday ruled in favor of Behring Regional Center, finding that former acting DHS Secretary Kevin McAleenan had acted improperly under the Federal Vacancies Reform Act when promulgating the Rule. As a consequence, the court further ruled that the Modernization Rule of 2019 must be vacated, i.e., set aside.

The court further ruled that current DHS Secretary Mayorkas’ March 2021 ratification of the Modernization Rule did not “cure” the initial improper implementation.

One firm that had hinted that hopes for such a ruling were more than a “Hail Mary” when the news of the lawsuit first surfaced was the Galati Law Firm, as indicated by its January 8th post:

While some in the EB-5 industry may be quick to dismiss suits seeking to set aside unfavorable regulations, the allegation that federal officials (namely Former acting DHS Secretary Kevin McAleenan, current Acting DHS Secretary Chad Wolf, and de facto USCIS Chief Ken Cuccinelli) did not have authority to enact the Rule has strong precedent in federal court decisions and government actions of late. For example, in September 2020, a Maryland Federal judge ruled that Wolf was illegally appointed, resulting in the partial blocking of the Trump Administration’s restrictive asylum regulations. In November, a New York judge came to a similar conclusion regarding Wolf in restoring the Deferred Action for Childhood Arrivals program. Decisions holding Cuccinelli’s appointment as being illegal stretch back roughly a year. Indeed, last summer the Federal Government itself – through the independent investigative Government Accountability Office – issued findings that all three men had been illegally appointed.

Today, the same firm wrote that it was “ecstatic” about the outcome, which immediately vacates the Modernization Rule and, by extension, brings the EB-5 program’s minimum investments back to pre-November 2019 levels.

The Galati Law Firm, however, tempered its jubilation by pointing out the DHS may yet decide to appeal and ask the judge to stay the ruling.

Implications for long-term reauthorization bill

In a parallel development yesterday, Senators Grassley and Leahy informed their respective caucuses that they would seek a unanimous consent vote on their EB-5 Reform and Integrity Act, a standalone bill that seeks long-term reauthorization for the regional center program, using what’s known as the “hotline process”. In an update to members, Aaron Grau, Executive Director of IIUSA, explained how the hotline process works:

Barring passage of the EB-5 Reform and Integrity Act, the regional center program’s authorization will expire on June 30th.

Questioned by IMI as to what implications the ruling will have for the Leahy/Grassley bill, Matthew Galati, Principal of the eponymous firm, indicated the Behring-case outcome will raise a number of strategic questions.

“First, we don’t know whether the bill’s proponents had secured unanimous consent, so I am not sure whether the hotlining tactic would work. Second, as we know Grassley was a fan of the Modernization Rule, he may want to tweak the bill to override the Behring decision legislatively.”

For the moment, he emphasizes, it’s difficult to say definitively what the final outcomes of either yesterday’s ruling or hotlining will be:

“The entire landscape could change by the hour. This decision is only about 12 hours old right now and Washington had already closed for business when it was issued.”