Court Opinion

ID: 2665471
Source: CourtListenerOpinion
Date Created: 2014-04-04 07:44:53.348676+00
Date Added: 2024-06-11T13:24:22.796261
License: Public Domain

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

                                  -2-
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.

                                 -3-
      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

                                        -4-
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).

                               -5-
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

                                      -6-
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

                                          -7-
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.

                                  -8-
      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

                                    -9-
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.

                                  -10-
     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.

                                 -11-
     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

                                       -12-
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.

                                     -13-
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

                                        -14-
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.

                                     -15-
                            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

                               -16-