Judge Rules Against Trump Era Changes to EB-5

In a win for the real estate industry, the U.S. District Court of the Northern District of California ruled in favor of the Behring Co., operator of Behring Regional Center, in its request to vacate the EB-5 Modernization Rule implemented by the Department of Homeland Security (DHS) in 2019.

In the ruling, U.S. Magistrate Judge Jacqueline Scott Corley supported Behring’s argument that the DHS officials responsible for enacting the rule, which updated various regulations governing the EB-5 Immigrant Investor Visa Program, had no legal authority to make the changes because they were unlawfully appointed in violation of the Federal Vacancies Reform Act of 1998. The EB-5 program was created by the Immigration Act of 1990 as a method for providing qualified immigrant investors the opportunity to obtain a permanent green card.

Behring says the Modernization Rule made other problematic changes to the program’s Targeted Employment Area (TEA) designation process, including removing the states’ authority to determine TEA eligibility without a viable replacement. That resulted in processing times that could take years to complete.

“We had many concerns with the Modernization Rule. There were many legal problems that were challenged under the Administrative Procedure Act. The minimum investment ignored industry data, and TEA rules were completely unworkable. The plummeting participation proved that it had a devastating impact on the industry,” said Laura Foote Reiff, an immigration attorney with Greenberg Traurig, who represented Behring Co., in prepared remarks.

The ruling wasn’t a surprise to Ronald Fieldstone, who leads Saul Ewing Arnstein & Lehr’s EB-5 Law Group.

“The judge indicated on May 13th that she was going to rule against the government because the government took the position,” Fieldstone says.

The district court’s decision restores the original rules for the EB-5 program, which requires a minimum $500,000 investment in a U.S. business that would create at least 10 full-time jobs for American workers. The EB-5 Modernization Rule of 2019 increased this threshold to $900,000. Fieldstone and others say this lessened interest in the program. “When the industry was at $500,000 before the new regulations came into effect, there was a mad rush to get everybody filed,” Fieldstone says. “With all of the investments, it was great for the industry. But, once November 21st came, the number of applicants went down to a trickle.”

With the ruling, Fieldstone says the industry is trying to figure out what to do. While the old investors at $900,000 are grandfathered in, rule changes could take at least four months to be finalized. An appeal could be possible, but Fieldstone says that would take time.

“If they appeal, this judge is not going to stay her order because she felt very strongly about it,” Fieldstone says. “She doesn’t want the government delaying it and getting the same result. So the government can appeal, but an appeal will take a long time.”

With Corley’s decision, Fieldstone thinks there will be a resurgent investor in EB-5, assuming the program doesn’t expire after June 30th. “It’s an interesting timetable for us in the industry,” he says. “We feel there’s going to be a very strong demand from investors who understand that they now have a chance to invest $500,000 that they thought never would exist.”