Broadgate Inc. v. United States Citizenship & Immigration Services

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
BROADGATE INC., et al., )
)
Plaintiffs, )
)
v. ) No. 09-cv-1423 (GK)
)
UNITED STATES CITIZENSHIP & )
IMMIGRATION SERVICES, et al., )
)
Defendants. )
___________________________________)
MEMORANDUM OPINION
Plaintiffs Broadgate, Inc., Logic Planet, Inc., DVR Softek
Inc., TechServe Alliance, and the American Staffing Association
(“ASA”) bring this action under the Administrative Procedure Act
(“APA”), 5 U.S.C. § 551 et seq., and the Regulatory Flexibility
Act, 5 U.S.C. § 601 et seq., against Defendants United States
Citizenship and Immigration Services (“USCIS”), Alejandro Mayorkas,
Director of USCIS, United States Department of Homeland Security,
and Janet Napolitano, Secretary of Homeland Security. This matter
is before the Court on Plaintiffs’ Motion for Preliminary
Injunction [Dkt. No. 3]. On July 7, 2010, the parties submitted a
Joint Praecipe indicating their agreement with the Court’s proposal
to consolidate the hearing on the motion for a preliminary
injunction with a determination on the merits under Federal Rule of
Civil Procedure 65(a)(2). The parties presented oral argument at a
Motions Hearing held on August 5, 2010. Upon consideration of the
parties’ arguments, the Motion, Opposition, Reply, and the entire
record herein, and for the reasons stated below, Plaintiffs’
Complaint is dismissed.
I. Background
Plaintiffs Broadgate, Logic Planet, and DVR are software
development and information technology firms which rely on a pool
of foreign citizens and permanent residents in order to meet the
hiring needs of their clients. Plaintiffs TechServe and ASA are
not-for-profit membership corporations that qualify as small
entities under the Regulatory Flexibility Act, 5 U.S.C. § 601(6),
which supply temporary employees to other businesses. Plaintiffs
Broadgate, Logic Planet, and DVR are third-party employers, as are
the members of Plaintiffs TechServe and ASA, and all Plaintiffs are
small businesses within the meaning of § 3 of the Small Business
Act, 5 U.S.C. § 601(3). Compl. ¶¶ 3-7.
Plaintiffs regularly submit petitions to Defendant USCIS for
H1-B visas on behalf of the foreign employees they wish to hire.
See 8 U.S.C. § 1101(a)(15)(H)(i)(b) (H-1B visa program). The H-1B
visa program permits aliens to enter the United States under a visa
to perform services in a “specialty occupation,” which is an
occupation that “requires (a) theoretical and practical application
of a body of highly specialized knowledge, and (b) attainment of
bachelor’s or higher degree in the specific specialty (or its
equivalent) as a minimum for entry into the occupation in the
United States.” 8 U.S.C. § 1184(i)(1). If approved, an H-1B visa
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lasts for three years, and is renewable. 8 U.S.C. § 1184(g)(4); 8
C.F.R. §§ 214.2(h)(15)(ii)(B)(1), 214.2(h)(13)(iii) (A). While only
65,000 H-1B visas are permitted each fiscal year, 8 U.S.C. §
1184(g), USCIS has granted Plaintiffs and their members thousands
of H-1B visas. See Pls.’ Mot. for Preliminary Injunction [Dkt. No.
3] at 3.
In 2009, USCIS issued an immigration regulation, codified at
8 C.F.R. § 214.2, which sets forth special requirements for the
admission, extension, and maintenance of status for certain “non-
immigrant classes” (“Regulation”). One of the non-immigrant classes
addressed is “temporary employees,” which includes the foreign
employees that Plaintiffs rely on in order to operate their
businesses. The Regulation requires that H-1B petitions be filed by
a “United States employer,” defined as:
[A] person, firm, corporation, contractor, or
other association, or organization in the
United States which (1) engages a person to
work within the United States; (2) has an
employer-employee relationship with respect to
employees under this part, as indicated by the
fact that it may hire, pay, fire, supervise,
or otherwise control the work of any such
employee; and (3) has an Internal Revenue
Service Tax Identification number.
8 C.F.R. § 214.2(h)(4)(ii). Thus, the Regulation establishes five
factors, referred to as the “control test,” to assess whether there
is an “employer-employee relationship” sufficient to grant an H-1B
visa: whether the employer hires, pays, fires, supervises, or
otherwise controls the work of an employee.
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On January 8, 2010, Donald Neufeld, Associate Director of
Defendant USCIS, issued a memorandum (“Neufeld Memorandum” or
“Memorandum”) to Service Center Directors relating to USCIS’s H-1B
visa program. Memorandum from Donald Neufeld, Associate Director,
Serv. Ctr. Operations, USCIS, to Serv. Ctr. Dirs. (Jan. 8, 2010)
(Ex. A to Pls.’ Mot. for Preliminary Injunction) [hereinafter
“Memorandum”]. The Neufeld Memorandum purports to clarify the
Regulation’s control test by setting forth eleven factors that
adjudicators must consider in determining whether an employer-
employee relationship exists between a sponsor and a candidate for
a H-1B visa program. See Memorandum at 4-5. Plaintiffs argue,
however, that the Neufeld Memorandum establishes a different
standard from the Regulation’s control test, and therefore
constitutes a new, binding rule. Because the Memorandum was not
issued in accordance with the APA’s procedures for agency
rulemaking, Plaintiffs argue that this new “rule” must be
invalidated.
Plaintiffs bring five counts in their Complaint. In Count I,
Plaintiffs claim that Defendants are liable for violation of the
notice and comment requirements of the APA, 5 U.S.C. §§ 553, 706.
In Count II, Plaintiffs claim that Defendants violated the
Regulatory Flexibility Act, 5 U.S.C. § 601 et seq., by failing to
perform a Regulatory Flexibility Act Analysis before issuing the
Memorandum. In Count III, Plaintiffs claim that the Neufeld
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Memorandum is in excess of regulatory and statutory authority under
8 C.F.R. § 214.2(h)(4)(ii) and the APA, 5 U.S.C. §§ 706(2)(A) and
(C). In Counts IV and V, Plaintiffs claim that Defendants have
engaged in arbitrary and capricious rulemaking in violation of 5
U.S.C. § 706(2)(A) and (D) because the Memorandum redefines the
employer-employee relationship without justification or authority
and was written by Neufeld, a USCIS employee not authorized by law
to issue rules.
Defendants respond that the Neufeld Memorandum is not a
substantive rule setting forth a new standard, but instead a policy
statement or interpretive rule that clarifies the common law
background of the Regulation’s control test. Defendants therefore
argue that Plaintiffs’ Complaint is a broad programmatic challenge
to one of its general policies--namely, the agency’s internal
guidelines for determining an employer-employee relationship for
the H-1B program--which is not entitled to judicial review under §
702 of the APA. Defendants also argue that Plaintiffs fail to state
a claim under the APA in Counts I and III-V because the Memorandum
does not constitute final agency action subject to judicial review
under § 704 and notice and comment rulemaking under § 553. See
Defs.’ Opp’n at 13-26. Finally, Defendants argue that Count II
fails to state a claim because the Regulatory Flexibility Act does
not apply to guidance documents or interpretive statements such as
the Memorandum. See 5 U.S.C. §§ 603(a), 604(a).
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II. Standard of Review
The first requirement for judicial review under the APA is
that the complaint must challenge “agency action.” 5 U.S.C. § 702(“A person suffering legal wrong because of agency action, or
adversely affected or aggrieved by agency action within the meaning
of a relevant statute, is entitled to judicial review thereof.”);
Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 890, 110 S.Ct. 3177,
111 L.Ed.2d 695 (1990); Cobell v. Norton, 240 F.3d 1081, 1095 (D.C.
Cir. 2001). Programmatic challenges lacking “some concrete action
applying the regulation to the claimant’s situation in a fashion
that harms or threatens to harm him” do not qualify as agency
action, and so are not “ripe” for judicial review under the APA.
Lujan, 497 U.S. at 891.
Second, the challenged agency action must be “final.” 5 U.S.C.
§ 704 (authorizing judicial review under APA of “[a]gency action
made reviewable by statute and final agency action for which there
is no other adequate remedy in a court”); Lujan, 497 U.S. at 882.
Final agency action “must generally ‘mark the consummation of the
agency’s decisionmaking process’ and either determine ‘rights or
obligations’ or result in ‘legal consequences.’” Ctr. for Auto
Safety v. Nat’l Highway Traffic Safety Admin., 452 F.3d 798, 800
(D.C. Cir. 2006) (quoting Bennett v. Spear, 520 U.S. 154, 178, 117
S.Ct. 1154, 137 L.Ed.2d 281 (1997)) (emphasis in original).
Legislative or substantive rules are, by definition, final agency
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action, while interpretive rules and general policy statements are
not. Id. at 805-07.
Notice and comment procedures are only required under APA §
533 for legislative rules with the force and effect of law;
“interpretive rules, general statements of policy, or rules of
agency organization procedure, or practice” are exempted. 5 U.S.C.
§ 553(b)(A) ; see also Nat’l Ass’n of Broadcasters v. FCC, 569 F.3d
416, 425-26 (D.C. Cir. 2009). Finally, the Regulatory Flexibility
Act, 5 U.S.C. §§ 601-612, only applies when an agency is required
to publish general notice of proposed rulemaking. 5 U.S.C. §§
603(a), 604(a).
III. Analysis
First, the parties dispute whether USCIS’s issuance of the
Neufeld Memorandum constitutes agency action. Defendants argue that
it is not, and that Plaintiffs’ action is a non-justiciable
programmatic challenge to USCIS’s administration of the H-B1 visa
program.
In RCM Technologies, Inc. v. United States Dep’t of Homeland
Security, 614 F.Supp.2d 39 (D.D.C. 2009), this District Court
considered whether a group of employment recruiters could challenge
USCIS’s alleged policy requiring that foreign occupational and
physical therapists possess master’s degrees in order to obtain H-
1B visas. Relying on Lujan, the court concluded that the
plaintiffs’ challenge to the alleged policy was not reviewable
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under the APA. RCM Technologies, 614 F.Supp.2d at 44-45. Instead,
the proper challenge would have been to a specific denial of a visa
application by the agency. Id. at 45; see also Sierra Club v.
Peterson, 228 F.3d 559 (5th Cir. 2000).
Plaintiffs seek to distinguish RCM Technologies on the ground
that Defendant USCIS argues that the Neufeld Memorandum is either
a policy statement or an interpretive rule. If the Court accepts
the Government’s argument that the Memorandum is an interpretive
rule, Plaintiffs argue, then the Memorandum constitutes agency
action under Lujan and RCM Technologies.1 At this juncture the
Court need not decide whether the Memorandum constitutes a policy
statement or an interpretive rule because the parties have raised
an equally dispositive issue: whether the Memorandum is a
legislative rule, which it must be under the APA to qualify as
final agency action subject to judicial review. See Center for Auto
Safety, 452 F.3d at 805-07 (only agency rules that establish
binding norms or agency actions that occasion legal consequences
are subject to review under the APA).
1
Plaintiffs also seek to distinguish RCM Technologies on
the ground that the parties in that case disputed whether the
policy in question even existed. Pls.’ Reply at 5 n.2. Because the
District Court in RCM Technologies drew its conclusions regarding
the action’s reviewability on the assumption that the alleged
policy did in fact exist, this argument is unpersuasive. 614
F.Supp.2d at 43-45.
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If the Memorandum is a legislative rule, then it is final
agency action under the APA subject to judicial review, and it is
subject to notice and comment rulemaking under § 553. However, as
just stated, if the Memorandum is an interpretive rule or general
policy statement, the opposite is true: it is not final agency
action subject to judicial review under the APA and it is not a “de
facto rule or binding norm that could not properly be promulgated
absent the notice-and-comment rulemaking required by § 533 of the
APA.” Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin.,
452 F.3d 798, 806 (D.C. Cir. 2006). As explained above, the
Memorandum is subject to the Regulatory Flexibility Act only if
notice and comment rulemaking is required.
Whether a disputed “rule” is a legislative rule turns on
whether it has “the force of law,” meaning that “Congress has
delegated legislative power to the agency and [] the agency
intended to exercise that power in promulgating the rule.” Am.
Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106, 1109
(D.C. Cir. 1993). The agency’s intent to exercise legislative power
may be shown where the second rule effectively amends the
previously adopted legislative rule, either by repudiating it or by
virtue of the two rules’ irreconcilability. Id. Another indication
of a legislative rule is whether, in the absence of the rule, the
agency would lack an adequate legislative basis to ensure the
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performance of duties. Id. at 1112.2 In contrast, a good indication
of a general policy statement is the agency’s use of permissive,
rather than binding, language; if the “rule” leaves the agency free
to exercise discretion, it is likely a policy statement. Id. at
1111.
First, Plaintiffs argue that the Neufeld Memorandum is a
legislative rule because it is binding, both on its face and as
applied. However, the evidence demonstrates that the Memorandum is
intended to provide only guidance for application of the
Regulation, not to establish independent binding rules. To begin
with, the Memorandum states as much: it declares that it “is
intended to provide guidance, in the context of H-1B petitions, on
the requirement that a petitioner establish that an employer-
employee relationship exists and will continue to exist with the
beneficiary throughout the duration of the requested H-1B validity
period.” Memorandum at 1. In addition, the Memorandum explains that
the impetus for its issuance was the “lack of guidance” on the
Regulation’s application, which in some contexts, including third-
party employment, “has raised problems.” Id. at 2.
2
The parties do not dispute that, in the absence of the
Memorandum the agency has an adequate basis--the Regulation--to
ensure the performance of its duties in reviewing and approving or
denying H-1B visa applications. Am. Mining Congress, 995 F.2d at
1110. The Court’s analysis thus focuses on whether the Memorandum
is binding on USCIS adjudicators or substantively amends the
Regulation.
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The Memorandum also explains that the approach it relies on to
interpret the definition of “employer-employee relationship” under
the Regulation is in keeping with the agency’s long-standing
approach: “[t]o date, USCIS has relied on common law principles and
two leading Supreme Court cases [Nationwide Mutual Ins. Co. V.
Darden, 503 U.S. 318, 322-23, 112 S.Ct. 1344, 117 L.Ed.2d 581(1992) and Clackamas Gastroenterology Assoc. v. Wells, 538 U.S.
440, 123 S.Ct. 1673, 155 L.Ed.2d 615 (2003)] in determining what
constitutes an employer-employee relationship.” Id. The Memorandum
states that its eleven factors are derived from the common law, and
the Memorandum emphasizes that “no one factor [is] decisive” and
that “the common law is flexible about how [they] are to be
weighed.” Id. at 5. On its face, then, the Memorandum clearly does
not purport to establish a new substantive rule with binding
effect.
Turning to the Memorandum’s application, there is no evidence
that it either binds USCIS adjudicators or requires a different
outcome for third-party employers like Plaintiffs than the
Regulation does. In fact, in addition to emphasizing that no single
factor among the eleven is dispositive, the Memorandum instructs
USCIS adjudicators to look to the totality of the circumstances in
each case to determine whether there is an employer-employee
relationship. Id. at 4.
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Plaintiffs respond by arguing that the Memorandum “ordains the
result in any petition filed by a third-party contractor” because
it describes scenarios involving business models identical to
Plaintiffs’ and instructs adjudicators that such third-party
employers do not exercise sufficient control to find an employer-
employee relationship. Pls.’ Reply at 10; Memorandum at 6-7, 14-15.
However, the Memorandum makes very clear that the scenarios are
“meant to be illustrative examples.” Memorandum at 5 n.7. Indeed,
Plaintiffs do not dispute that USCIS has approved four H-1B visa
applications by third-party employers since the Neufeld Memorandum
was issued, thereby indicating that the scenarios do not pre-ordain
the outcome of Plaintiffs’ H-1B visa applications. Defs.’ Opp’n at
41-42. Because the Memorandum, both on its face and in its
application, leaves USCIS adjudicators considerable discretion in
applying the eleven factors, the Court concludes that it is not
binding.
Second, Plaintiffs argue that the Memorandum effectively
amends the Regulation because its eleven factors “do not merely add
crispness to guidelines,” but instead replace the five-factor
control test. Pls.’ Reply at 6. Specifically, Plaintiffs point to
three factors in the Memorandum which they argue are unrelated to
control: (i) does the beneficiary use proprietary information of
the petitioner to perform the duties of employment; (ii) does the
beneficiary produce an end product that is directly linked to the
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petitioner’s line of business; and (iii) does the petitioner
provide the tools or instrumentalities needed by the beneficiary to
perform the duties of employment. Id. at 11; Memorandum at 4-5.
While Defendants have not identified any common law authority
for these three factors, the question before the Court is not
whether the agency has properly interpreted the common law, but
whether the Memorandum’s inclusion of these factors substantively
amends the Regulation by repudiating it or by rendering the two
irreconcilable. See Ctr. for Auto Safety, 452 F.3d at 808. The
control test states that an employer-employee relationship may be
established for employers who hire, pay, fire, supervise, or, in a
catch-all provision, “otherwise control the work of [an] employee.”
8 U.S.C. § 214.2. Because the catch-all provision’s breadth means
the agency possesses wide latitude in interpreting the Regulation,
the three factors that Plaintiffs challenge cannot be said to
substantively amend the Regulation’s control test.3
Plaintiffs argue in the alternative that the Memorandum
substantively amends the agency’s Adjudicator’s Field Manual, which
3
Plaintiffs’ likely response is that the Memorandum’s
inclusion of these factors, even if not a substantive amendment of
the Regulation, marks a shift in the agency’s interpretation of the
Regulation which requires notice and comment. See Pls.’ Mot. at 11-
12; Envt’l Integrity Project v. EPA, 425 F.3d 992 (D.C. Cir. 2005).
However, the Neufeld Memorandum constitutes the agency’s first
written guidance on the definition of “employer-employee
relationship” under the Regulation. In the absence of evidence that
the use of these three factors is inconsistent with a prior
interpretation of the agency, this argument must be rejected.
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is binding on USCIS adjudicators. However, as the Government
explains, the Manual provides that memoranda lacking the
designation “P”, such as the Neufeld Memorandum, are merely
advisory. See USCIS, Adjudicator’s Field Manual § 3.4(a) (2010). In
addition, the Manual’s statement that “[p]olicy material is binding
on all USCIS officers and must be adhered to unless and until
revised” simply refers to the fact that an agency’s interpretation
of its own regulations is binding, see Am. Mining Congress, 995
F.2d at 1110, not that the guidelines establish an independent
source of binding legal authority. See also Defs.’ Opp’n at 24-25.
To summarize, the Court concludes that the Memorandum
establishes interpretive guidelines for the implementation of the
Regulation, and does not bind USCIS adjudicators in their
determination of Plaintiffs’ H-1B visa applications. In addition,
the Court is satisfied that the Memorandum does not amend the
Regulation by repudiating or being irreconcilable with it. The
Memorandum therefore does not constitute a legislative rule.
This conclusion also comports with the more general test
established in Bennett v. Spears for determining when agency action
is “final”: “the action must mark the ‘consummation’ of the
agency’s decision making process - it must not be of a merely
tentative or interlocutory nature. . . . [and] the action must be
one by which rights or obligations have been determined, or from
which legal consequences flow.” 520 U.S. at 177-78 (citation and
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internal quotations omitted). For the reasons stated, even if the
Court were to consider the Memorandum to be the “consummation” of
the agency’s decision making process--which it does not--the
Memorandum does not determine, as a matter of law, the rights or
obligations of H-1B visa applicants, the agency, or any other
entity, and no discernible legal consequences flow from it. See
also Ctr. for Auto Safety, 452 F.3d 798 (concluding that guidelines
issued by the National Highway Traffic Safety Administration which
interpreted the scope of an agency regulation were not final agency
action, and therefore not reviewable under the APA).
In short, the Memorandum does not constitute final agency
action subject to judicial review and the notice and comment
requirements under the APA. Counts I, III, IV, and V alleging
violations of the APA must therefore be dismissed for failure to
state a claim under § 704. The only remaining count in the
Complaint, Count II, which alleges a violation of the Regulatory
Flexibility Act, must also be dismissed, as the Memorandum is not
subject to notice and comment or publication, since it is not a
legislative rule, and thus the statute does not apply.
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CONCLUSION
For the reasons set forth above, this case is dismissed with
prejudice. A separate Order will accompany this Memorandum Opinion.
/s/
August 13, 2010 Gladys Kessler
United States District Judge
Copies to: attorneys on record via ECF
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