U.S. ALERT – Federal Court Vacates Delay of International Entrepreneur Rule

Federal Court Vacates Delay of International Entrepreneur Rule

On December 1, 2017, federal district Judge James E. Boasberg vacated the Trump administration’s delay of an Obama-era rule that would have allowed certain foreign entrepreneurs to obtain immigration parole (to temporarily enter the United States despite lacking a visa or permanent residence). At the outset of the opinion, the court said, “Elections have consequences. But when it comes to federal agencies, the Administrative Procedure Act [APA] shapes the contours of those consequences.”

The “International Entrepreneur Rule” was set to take effect July 17, 2017, but shortly beforehand, the Department of Homeland Security (DHS) issued the “Delay Rule,” delaying the effective date of the original rule until March 14, 2018. The court noted that the agency did so without providing notice or soliciting comment from the public, which is generally required by the APA. The plaintiffs alleged that the agency lacked good cause to dispense with the APA’s strictures and that the Delay Rule was therefore invalid, and the court agreed.

The court noted that the Obama-era DHS promulgated the International Entrepreneur Rule to encourage international entrepreneurs to create and develop start-up entities with high growth potential in the United States. DHS believed that attracting foreign entrepreneurs would “benefit the U.S. economy through increased business activity, innovation, and dynamism.” Before issuance of the regulation, the court observed, foreign entrepreneurs “lacked a clear-cut avenue for entry into this country. …The United States had no dedicated visa category for foreign entrepreneurs, and other visa options were frequently unavailable to that group.” The executive branch, however, cannot unilaterally create a new visa category, the court noted, so it turned to a more temporary solution for these entrepreneurs: parole. This allows a foreign national to be physically present in the United States for a specific, temporary period, ranging from days to years. Parole does not constitute formal “admission” to the United States and gives the recipient no formal immigration status.

To be considered for a discretionary grant of parole for up to 30 months (with reapplication for up to an additional 30 months based on certain conditions) under the International Entrepreneur Rule, an entrepreneur would generally need to demonstrate the following:

  1. The applicant must have formed a new start-up entity in the United States within 5 years of the application;
  2. The applicant must (a) possess at least a 10% ownership interest in the business; and (b) “have an active and central role” in its operations and future growth; and
  3. The applicant must validate the business’s potential “for rapid growth and job creation” by showing (a) it has received at least $250,000 from established U.S. investors; or (b) it has received at least $100,000 in grants from government entities.

The rule also created “alternative criteria” for meeting the final prong: a person partially meeting one of the investment thresholds could provide “additional reliable and compelling evidence” of the company’s potential for rapid growth and job creation. U.S. Citizenship and Immigration Services (USCIS) would also consider other relevant information in making its discretionary determination, such as any criminal history or other serious adverse factors.

The court noted that the agency “meaningfully” revised the final version in response to 763 comments received on the proposed rule. DHS changed the minimum investment amount, the definition of an entrepreneur, and the definition of a start-up entity.

Six days before the effective date of the rule, USCIS issued the superseding Delay Rule postponing the effective date by eight months, to March 14, 2018, but without offering the public advance notice or an opportunity to comment. Instead, it provided a short window for comments only after the Delay Rule took effect. Further, DHS indicated that it was “highly likely” to rescind the International Entrepreneur Rule. Its Delay Rule, therefore, appeared designed to ensure that the Obama-era rule would never take effect, the court noted.

The plaintiffs included two foreign nationals, two U.S. businesses, and the National Venture Capital Association, an organization of individuals who invest in businesses founded by foreign entrepreneurs. The plaintiffs all claimed that the Delay Rule seriously injured their businesses or investments. The Trump administration argued that the APA’s “good cause” exception applied, which allows an agency to dispense with notice-and-comment when it “for good cause finds…that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” The court noted that because notice-and-comment is “the default,” the onus is on the agency to establish that a notice-and-comment opportunity should not be given, and an agency “faces an uphill battle to meet that burden.”

Among other things, the plaintiffs argued that through its own delay, the agency forfeited any “good cause” defense. Citing related decisions, the court noted that good cause cannot arise as a result of an agency’s own delay; otherwise, an agency unwilling to provide notice or an opportunity to comment could simply wait until the even of a statutory, judicial, or administrative deadline, then raise up the “good cause” banner and promulgate rules without following APA procedures. In this case, the court said, the government’s briefing never explained the time lag and “struggled” to explain what the agency did between learning of the executive order and issuing the Delay Rule. DHS primarily justified the Delay Rule by citing the expense of implementing the new parole system, among other arguments. The court said that the agency’s proffered reasons for bypassing notice-and-comment were unpersuasive and “easily [fell] short of good cause.” The court noted that the agency estimated it would process roughly 2,900 applications this year and receive $1,285 each in filing fees, generating more than $3.5 million, and that the asserted expense to the government without evidence was not sufficient to overcome the notice-and-comment requirement.

The court concluded, ” If Defendants have additional reasons why a stay might be appropriate pending any appeal, they can so move. Until then, the Court believes that vacatur is the appropriate remedy.”

The full text of the opinion, National Venture Capital Association, et al., v. Elaine Duke, et al., Civil Action No. 17-1912 (JEB), is at http://bit.ly/2BGcN2T.