United States Court of Appeals
          FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued February 4, 2020              Decided August 21, 2020

                          No. 19-5025

             MIRROR LAKE VILLAGE, LLC, ET AL.,
                      APPELLANTS

                              v.

  CHAD F. WOLF, ACTING SECRETARY , U.S. DEPARTMENT OF
              HOMELAND SECURITY, ET AL.,
                      APPELLEES


         Appeal from the United States District Court
                 for the District of Columbia
                     (No. 1:16-cv-01955)


    H. Ronald Klasko argued the cause and filed the briefs for
appellants.

    Joshua S. Press, Attorney, U.S. Department of Justice,
argued the cause for appellees. With him on the brief was Glenn
M. Girdharry, Assistant Director.
                                 2

   Before: HENDERSON and GARLAND, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.*

    Opinion for the Court filed by Circuit Judge GARLAND.

    Concurring opinion filed by Circuit Judge HENDERSON.

     GARLAND, Circuit Judge: The EB-5 program allots visas
to immigrants who have “invested . . . capital” in a new
commercial enterprise that will “benefit the United States
economy” and “create full-time employment” for ten citizens or
non-citizens with work authorization.                 8 U.S.C.
§ 1153(b)(5)(A)(i)-(ii). The plaintiffs in this case are Mirror
Lake Village, LLC, a new commercial enterprise set to construct
and operate a senior living facility in rural Washington, and five
foreign nationals who each contributed $500,000 to Mirror
Lake. The foreign nationals sought to obtain lawful permanent
resident status under the EB-5 immigrant-investor program. The
U.S. Citizenship and Immigration Services (USCIS) denied their
EB-5 visa petitions on the stated ground that none had made a
qualifying investment. The plaintiffs contend that the denials
were arbitrary and capricious. Because USCIS failed to offer a
reasoned explanation for its denials, we agree.




    *
        The late Senior Circuit Judge Stephen F. Williams was a
member of the panel at the time the case was argued and participated
in its consideration before his death on August 7, 2020. Because he
died before this opinion’s issuance, his vote was not counted. See
Yovino v. Rizo, 139 S. Ct. 706, 710 (2019). Judges Henderson and
Garland have acted as a quorum with respect to this opinion and
judgment. See 28 U.S.C. § 46(d).
.
                              -3-

                                I

     The EB-5 program, so-named because it is the fifth
employment-based visa category available to foreign nationals,
is part of the Immigration and Nationality Act. See 8 U.S.C.
§§ 1101 et seq.; id. § 1153(b)(5). As quoted above, it allots
visas to immigrants who have “invested . . . capital” in a new
commercial enterprise that “will benefit the United States
economy and create full-time employment” for ten citizens or
non-citizens with work authorization. Id. § 1153(b)(5)(A)(i)-
(ii). At the relevant time here, an immigrant investing in an
enterprise located in a rural area had to contribute at least
$500,000 to qualify. Id. § 1153(b)(5)(B)(ii); EB-5 Immigrant
Investor Program Modernization, 84 Fed. Reg. 35,750, 35,806
n.149 (July 24, 2019).

      Although the statute does not define the term “invest,” the
Department of Homeland Security (DHS) has defined it by
regulation as “to contribute capital.” 8 C.F.R. § 204.6(e).
According to DHS, a “note, bond, convertible debt, obligation,
or any other debt arrangement . . . does not constitute a
contribution of capital.” Id. In order to distinguish between a
qualifying capital contribution and a prohibited debt
arrangement, USCIS determines whether an immigrant-investor
has “placed the required amount of capital at risk.” Id.
§ 204.6(j)(2) (emphasis added); see also 84 Fed. Reg. at 35,756
(providing that an EB-5 petition “must be supported by evidence
that the foreign national’s lawfully obtained capital is invested
(i.e., placed at risk)”).

     The road to lawful permanent resident status under the EB-5
program is as follows. An immigrant first files an EB-5 visa
petition. Once the petition is processed and a visa becomes
available -- which may take years -- the immigrant advances to
“conditional” lawful permanent resident status. 8 U.S.C.
                                -4-

§ 1186b(a). Eventually, the immigrant may file a petition to
have the “conditional” basis of his or her lawful permanent
resident status removed. That petition must be accompanied by
evidence that the immigrant has “maintained his or her capital
investment” for over two years and “created or can be expected
to create within a reasonable time ten full-time jobs for
qualifying employees.” 8 C.F.R. § 216.6(a)(4)(iii)-(iv). The
immigrant then undergoes another processing period of
uncertain length. Only after the second petition is approved
does an EB-5 immigrant graduate to full lawful permanent
resident status.

     The five foreign nationals here each contributed $500,000
to Mirror Lake Village, LLC, in exchange for membership
interests in the company. Because Mirror Lake is a closely held
corporate entity, the plaintiffs were warned beforehand that
“[t]here [would be] no secondary market” for their membership
interests and that it was “not expected that any w[ould]
develop.” Offering Memorandum at 4 (J.A. 22). But the Mirror
Lake Operating Agreement does provide the plaintiffs with two
opportunities to sell their ownership shares.

     First, each plaintiff has a “one-time right and option” to sell
all or part of the plaintiff’s membership interest back to Mirror
Lake “at the purchase price thereof” once the conditional basis
of the plaintiff’s lawful permanent resident status is removed.
Operating Agreement at 8 (J.A. 8); see id. at 1 (J.A. 1). Second,
beginning two years after that, each plaintiff can sell 20% of the
plaintiff’s interest to Mirror Lake each year “at a price equal to
the Fair Market Value thereof,” such that a full interest can be
sold back to the company over five years. Id. at 9 (J.A. 9).1


    1
     The Operating Agreement defines “Fair Market Value”
with respect to a membership interest as “the price a
knowledgeable, willing, and unpressured buyer would probably
                               -5-

     Critically for our purposes, the ability of a plaintiff to
exercise either of these sell-back options is contingent on Mirror
Lake having “sufficient Available Cash Flow” at the time the
option is triggered. See id. at 8, 9 (J.A. 8, 9). “Available Cash
Flow,” according to the Operating Agreement, equals the “total
cash available to the Company from all sources less the
Company’s total cash uses before payment of debt service.” Id.
at 1 (J.A. 1). The sell-back options are further subject to Mirror
Lake having sufficient available cash flow “excluding capital
contributed by Members.” Id. at 8, 9 (J.A. 8, 9).

     The plaintiffs filed identical EB-5 visa petitions with
USCIS, providing evidence of their capital contributions to
Mirror Lake. USCIS denied each, finding that the plaintiffs
“fail[ed] to establish that [they] ha[d] placed the required
minimum amount of capital at risk.” Visa Denial at 5 (J.A. 65);
see 8 C.F.R. § 204.6(j)(2).

     The denials hinged on the presence of the sell-back options
in the Mirror Lake Operating Agreement. Visa Denial at 5-6
(J.A. 65-66). In USCIS’s view, the “Operating Agreement . . .
stated explicitly . . . that [each] investor’s capital will be
returned upon demand at the end of the petitioner’s conditional
residency.” Id. at 6 (J.A. 66). USCIS acknowledged that the
sell-back options are “expressly contingent” on Mirror Lake’s
available cash flow and hence on its “future financial
performance.” Id. Nevertheless, the agency said, if Mirror Lake
is “profitable” and has “sufficient cash flow,” the plaintiffs can
redeem their membership interests. Id. Therefore, it concluded,
the plaintiffs’ capital “is not properly . . . ‘at risk.’” Id.


pay to a knowledgeable, willing, and unpressured seller in the
market . . . as determined by an independent third-party
valuation service or as otherwise agreed by relevant parties.”
Operating Agreement at 2 (J.A. 2).
                               -6-

     The plaintiffs filed motions requesting that USCIS reopen
and reconsider the denials of their EB-5 petitions. USCIS
denied those motions, too, finding that the plaintiffs had “still
not demonstrated that the required minimum amount of capital
was placed at risk.” Denial of Mot. at 5 (J.A. 87). Again,
USCIS rejected the contention that the plaintiffs faced a risk of
loss because exercise of the sell-back options turned on
available cash flow. “This argument neglects to contemplate
[Mirror Lake’s] potential success,” USCIS said. Id.

    Having exhausted their opportunities for recourse at
USCIS, the five plaintiffs, along with Mirror Lake, filed an
Administrative Procedure Act challenge in the district court.
See 5 U.S.C. § 702.2 Together, they argued that USCIS’s
denials of the plaintiffs’ EB-5 visa petitions were arbitrary and
capricious or otherwise in excess of statutory authority.
Disagreeing, the district court granted summary judgment to
USCIS. Mirror Lake Village v. Nielsen, 345 F. Supp. 3d 56, 64-
68 (D.D.C. 2018).

                                II

     We must hold unlawful agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). An agency’s
actions are arbitrary and capricious if they are not “reasonably
explained.” Jackson v. Mabus, 808 F.3d 933, 936 (D.C. Cir.
2015).



    2
      In the district court, the plaintiffs were joined by a sixth
EB-5 visa petitioner, Zhichun Li, who had not exhausted
administrative procedures before USCIS. The district court
dismissed Zhichun Li’s complaint. Mirror Lake Village, LLC v.
Nielsen, No. 16-cv-01955 (D.D.C. Feb. 6, 2019).
                                -7-

     1. In this case, USCIS did not reasonably explain its denials
of the plaintiffs’ visa petitions. In both its initial denials and in
rejecting the plaintiffs’ motions for reconsideration, USCIS
offered a clear definition of “capital at risk”: “For the capital to
be ‘at risk,’” the agency said, “there must be a risk of loss and
a chance for gain.” Visa Denial at 4 (J.A. 64); Denial of Mot. at
4 (J.A. 86). But as the plaintiffs point out, their investments fit
that description. Because the sell-back options in the Operating
Agreement are contingent on Mirror Lake’s available cash flow,
any return on capital is “entirely subject to business fortunes.”
Mirror Lake Br. 3. If Mirror Lake is unsuccessful -- or even just
short on cash -- the plaintiffs will be unable to recoup their
investments. Only if Mirror Lake is successful will they have an
opportunity for gain.

     The agency’s only response to this point was to say: “[T]he
petitioner is arguing that her capital is at risk only insofar as the
[business] is not profitable. Should the [business] be profitable
and have sufficient cash flow, the [sell-back] Option was clearly
written as an exit strategy.” Visa Denial at 6 (J.A. 66).
Elaborating on this explanation for why the capital was not “at
risk,” the agency’s denial of rehearing stated:                “[The
petitioner’s] argument neglects to contemplate the [business’]
potential success.” Denial of Mot. at 5 (J.A. 87).

     This “explanation” is no explanation at all. The possibility
that the business will succeed does not negate the risk of loss if
it does not. If it did, even the purest stock investment would not
be at risk because there is always the possibility (and the hope)
that a business will succeed. In fact, as quoted above, the
agency’s explanation directly contradicted its own definition of
“at risk,” as set out earlier in each USCIS decision under review.
In each, the agency explained that “for capital to be at risk there
must be a risk of loss and a chance for gain.” Visa Denial at 4
(J.A. 64); Denial of Mot. at 4 (J.A. 86). Here, there is a risk of
                               -8-

loss if there is insufficient cash flow, and a chance for gain (the
option is, after all, optional) if the business prospers.

     On appeal, the government does not even attempt to rescue
this explanation of why the petitioner’s capital is not at risk.
Indeed, its appellate brief does not even mention the cash-flow
contingency to the sell-back options. Hence, it offers no
explanation of why that contingency failed to put the plaintiffs’
investments “at risk,” as required by the regulation. See 8
C.F.R. § 204.6(j)(2).

    2. Instead, USCIS turns for support to an agency precedent.
But that precedent likewise provides no support for the visa
denials.

     USCIS focuses its briefing and argument on Matter of
Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998), which the
agency cited in its denials, and which also involved a rejected
EB-5 visa petitioner. There, the petitioner also had the
opportunity to sell his membership interest back to the business
in which he had invested. Yet, unlike in this case, there was no
contingency in Izummi. Instead, the petitioner’s capital was
“guaranteed to be returned, regardless of the success or failure
of the business.” Id. at 184. For that reason, the agency said,
the capital “cannot be considered to have been properly
‘invested’ and is not at risk.” Id. at 188.

     USCIS’s visa denial cites to isolated sentences in Izummi
that it reads to mean that any “redemption agreement”
constitutes a prohibited “debt arrangement.” Visa Denial at 6
(J.A. 66). But in context, it is plain that what Izummi meant by
“redemption agreement” was the kind of agreement at issue in
that case: one that guaranteed a return of capital, without risk.
See Izummi, 22 I. & N. Dec. at 185 (finding that the redemption
agreement there was no more than a “straight loan” because the
                               -9-

petitioner had made his money “available to [the business] with
the contractual expectation that it would be returned to him six
months later”). Indeed, the business in Izummi was required to
“deposit sufficient [cash] reserves for the purpose of enabling
[it] to meet its obligations under the sell-option agreement.” Id.
at 191 (internal quotation marks omitted).

     In denying the plaintiffs’ motion to reopen or reconsider
here, USCIS also cited Izummi for the proposition that a sell-
back option contingent on business success constitutes an
“illusory promise[]” that the agency will not accept. Denial of
Mot. at 5 (J.A. 87) (internal quotation marks omitted). On
appeal, USCIS does not attempt to defend that argument either,
and for good reason: it is a misreading of Izummi. Izummi
discussed “illusory promises” in the context of responding to an
attorney’s claim that the investment there was at risk, not
because its redemption was dependent on business success, but
because the business might simply refuse to repay the petitioner
as the contract required. “While most normal investors . . .
realize that they risk losses due to business downturns,” Izummi
explained, “the[] attorney believes that their risk instead
involves the refusal of the[] [business] to comply with the
written contract.” Izummi, 22 I. & N. at 185.

      Izummi refused to accept the risk of an “illusory promise”
-- i.e., a sell-back agreement that a business simply refused to
honor -- as “the kind of risk contemplated by 8 C.F.R.
§ 204.6(j)(2).” Id. The investment risk at issue here is not of
that illusory type. It is the risk of loss if a business does not
succeed, not the risk that the business will simply renege on its
contract.

    In sum, the plaintiffs put their capital at risk because the
redemption of their investments is dependent on the success of
the business. USCIS’s decision to deny the visas on the
                             -10-

purported ground that the investments are not at risk at all is
neither reasonably explained nor supported by agency precedent.
It is therefore arbitrary and capricious and must be set aside.
Fogo De Chao (Holdings) Inc. v. DHS, 769 F.3d 1127, 1141
(D.C. Cir. 2014).

                              III

     For the foregoing reasons, we reverse the judgment of the
district court and remand with instructions to set aside the
denials of the plaintiffs’ EB-5 petitions.

                                                   So ordered.
     KAREN LECRAFT HENDERSON, Circuit Judge, concurring:
Although I join the court’s opinion, I write separately to urge
caution. The EB-5 program is well known for its susceptibility
to fraud and abuse. See, e.g., Audrey Singer and Camille
Galdes, Improving the EB-5 Investor Visa Program:
International Financing for U.S. Regional Economic
Development, Brookings-Rockefeller Project on State and
Metropolitan       Innovation,      3,    11      (Feb.   2014),
https://www.brookings.edu/wp-content/uploads/2016/06/EB5
_Report.pdf (noting the EB-5 program’s “negative reputation,”
that it “faced widespread fraud and abuse in its first few years
of operation” and “[m]ore recently, several high-profile cases
have brought unfavorable attention to the program”). Given
this vulnerability, I believe we should hesitate to undo USCIS’s
efforts designed to ensure the integrity and further the purpose
of the program—i.e., to “benefit the United States economy
and         create        full-time      employment.” 8 U.S.C.
§ 1153(b)(5)(A)(ii). This includes its effort to ensure that the
funds invested in domestic businesses in exchange for
permanent residency remain there.

     I agree that the USCIS failed to explain adequately its
denial of the plaintiffs’ visa petitions but I believe the question
whether the investment was sufficiently “at risk,” see 8 C.F.R.
§ 204.6(j)(2), is close. If the only risk an investor must show
is that the business may not succeed or not be profitable
enough, that interpretation could undermine the purpose of the
program. The line between a business failing and a business
not being as successful or profitable as investors anticipated is
thin. Indeed, that risk is faced by any business investor. See
Matter of Izummi, 22 I. & N. Dec. 169, 185 (Assoc. Comm.
1998) (“The risk that the petitioner might not receive payment
if the Partnership fails is no different from the risk any business
creditor incurs.”). But the EB-5’s goal of “benefit [to] the
United States economy,” § 1153(b)(5)(A)(ii), contemplates
that the required investment in the business remain there,
including after a visa is obtained. Granted, the plaintiffs here
                              2
can exercise their put option only if Mirror Lake is profitable
enough that it has sufficient cash flow without regard to the
investment made pursuant to the EB-5 program. Operating
Agreement at 8 (J.A. 8) (put option “subject to the Company
having sufficient Available Cash Flow (excluding capital
contributed by Members)”). Nevertheless, to ensure that a
sufficient risk exists that does not simultaneously defeat the
purpose of the EB-5 program, the risk threshold—i.e., the
requisite success of the business—should plainly be something
more demanding than simply not going bankrupt.
