Court Opinion

ID: 9374693
Source: CourtListenerOpinion
Date Created: 2023-02-23 19:00:36.294486+00
Date Added: 2024-06-11T17:16:52.426122
License: Public Domain

NOT FOR PUBLICATION                        FILED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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