R&Sl, Inc v. Usdhs ( 2023 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 23 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
R&SL, INC, DBA Total Employment and No. 22-70026
Management (TEAM),
DHS No.
Petitioner, OCAHO Case No. 19A00044
v.
MEMORANDUM*
U.S. DEPARTMENT OF HOMELAND
SECURITY; U.S. IMMIGRATION AND
CUSTOMS ENFORCEMENT,
Respondents.
On Petition for Review of an Order of the
Department of Homeland Security
Submitted February 16, 2023**
San Francisco, California
Before: WARDLAW, NGUYEN, and KOH, Circuit Judges.
R&SL, Inc., doing business as Total Employment and Management
(“TEAM”), petitions for review of a decision by the Administrative Law Judge
(“ALJ”) imposing penalties totaling $1,527,308.90 for the untimely and improper
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
completion of employment eligibility verification forms of more than a thousand
employees. TEAM challenges the ALJ’s finding that it did not demonstrate an
inability to pay the penalties. We have jurisdiction under 8 U.S.C. § 1324a(e)(8).
Reviewing the ALJ’s factual determinations for substantial evidence, see Frimmel
Mgmt., LLC v. United States, 897 F.3d 1045, 1050–51 (9th Cir. 2018), we deny the
petition for review.
TEAM primarily contends that the ALJ arbitrarily and capriciously relied on
gross receipts and gross profits rather than its preferred metric—cash flow. The
ALJ considered all of TEAM’s evidence, including its limited cash flow and
reliance on factoring, an expensive method of financing, to cover its payroll
expenses. The ALJ agreed with TEAM that “[c]ash flow is a relevant data-point”
but found that it was not dispositive to the analysis because “cash flow can look
different at different times of year” for companies like TEAM with cyclical
earnings. The ALJ thus considered additional metrics, including the upward
“trend” in gross profits and receipts as well as TEAM’s business expansion.
Substantial evidence supports these findings.
TEAM’s expert, CPA Andrew Manning, testified that it would be “very
difficult” for TEAM to pay a penalty of any amount. Manning explained that at
the end of March 2021, TEAM’s short term financial obligations exceeded the
amount of cash it had on hand and could be expected to generate by factoring its
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existing invoices. Manning also relied on evidence showing that TEAM had
negative cash flow from its operating activities during various intervals over the
preceding 30 months—with a focus on the first six months of TEAM’s fiscal year. 1
However, TEAM’s co-owner, Randy Lustig, testified that TEAM’s business
is cyclical—demand peaks in September and October and is at its lowest in mid-
November through January. For example, TEAM’s revenues in the last five
months of fiscal year 2019 (May through September 2019) were more than double
its revenues during the first seven months (October 2018 through April 2019).
Given this cyclicality, the ALJ reasonably considered annual metrics in addition to
TEAM’s stock of available cash at a low point in the fiscal year.
Nor was it arbitrary and capricious for the ALJ to focus on gross profits and
receipts rather than some other annual measure of TEAM’s financial health.
Contrary to TEAM’s assertion, gross profits includes both “cash coming in and . . .
cash going out.” Gross profits account for operating expenses, including labor
expenses, but not “overhead and things like that,” such as administrative costs and
legal expenses. Due to the investigation of TEAM’s employment eligibility
verifications, TEAM’s legal expenses had ballooned in recent years—from
1
Manning discussed TEAM’s cash flow on an annual basis for fiscal years
2019 and 2020. While in both years TEAM experienced negative cash flow from
its operations, its overall cash flow—which also included cash flow from its
investing and financing activities—was positive.
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between $3,000 and $40,000 per year to more than $230,000 during the first six
months of fiscal year 2021. TEAM’s accountant testified that she expected these
costs to “decline significantly” when the instant litigation ends. Because the
litigation-related legal costs would not recur and skewed TEAM’s net profits, the
ALJ reasonably considered TEAM’s gross profits, which excluded such costs.
And the ALJ did not assess the penalties based on TEAM’s gross profits or
receipts in a particular year, but rather considered the upward trend in both
indicators. This, too, was reasonable.
TEAM also contends that the ALJ “mischaracteriz[ed] the evidence related
to TEAM’s decision to open new offices” as a business “expansion” rather than “a
less expensive way of managing existing accounts.” But the ALJ acknowledged
that TEAM “financed [the] two new locations by using assets it already owned”
and that “profits generated by these locations only sustain operations at the
locations.” And the ALJ did not mischaracterize the record. Lustig agreed that
TEAM “expanded to two additional locations” and testified that the goal was to
“expand and generate more cash, which gives us cash flow.”
PETITION DENIED.
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