Interim Decision #2762
MATTER OF KUNG
In Section 248 Proceedings
A-22870733
Decided by Commissioner June 29, 1978
(1) Applicant filed application for change of nonimmigrant status under section 248 of
the Immigration and Nationality Act, 8 U.S.C. 1258, from that of nonimmigrant
student to that of treaty investor under section 101(a)(15)(E)(ii) of the Act, S U.S.C.
1101(a)(15)(E)(ii). The application was denied on grounds that the applicant failed to
establish his investment did not represent a small amount of capital in a marginal
enterprise; failed to demonstrate an ability to control the enterprise; and was not in
lawful nonimmigrant student status when the application for change of mournmigrant status was filed.
(2) Where applicant as sole investor invested $53,000 in a restaurant and evidence
glinwed he had available an additional S46,000 in reserve funds on which to draw, it
cannot be said that he has invested in a marginal business solely to earn a Living.
Therefore, applicant is not precluded from qualifying for treaty investor status on
that ground.
(3) Where applicant was limited by certain requirements in the franchise agreement
under which he had purchased his restaurant, but those limiting requirements were
overshadowed by non-limiting factors such as ability to purchase non-specified products and services on the open market, and ability to hire and fire employees, set wage
scales and set the hours of business, applicant has the necessary latitude to control,
direct, and develop the enterprise and is not precluded from qualifying for treaty
investor status on this ground.
(4) Where the record did not contain sufficient information regarding the nature and
scope of the applicant's involvement and participation in the business enterprise at
the time he was a student, to determine whether or not applicant was actually
employed without Service authorization, the record would be remanded in order to
develop facts on this issue.
ON BEHALF OF APPLICANT: George K. Rosenberg, Esquire
3600 Wilshire Boulevard
Suite 1902
Los Angeles, California 90100
This matter is before the Commissioner on certification as provided
by 8 C.P.R. 103.4 for review of the Regional Commissioner's decision to
dismiss the appeal from the District Director's decision to deny the
application for change of nonimmigrant status.
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The applicant is a 28-year-old native and citizen of China. He last
entered the United States on September 11, 1974, as a nonimmigrant
student, classification F4. His authorized stay in this status has been
extended to June 15, 1978. On September 8, 1976, the applicant
purchased a franchised restaurant in Monrovia, California, for the
sum of $53,000. On December 16, 1976, he filed an application to change
his nonimmigrant status from student to that of a treaty investor
(E 2) pursuant to section 248 of the Immigration and Nationality Act,
-
8 U.S.C. 1258.
An applicant for change of nonimmigrant classification under section 248 of the Act must establish that he has been lawfully admitted
to the United States as a nonimmigrant and that he is continuing to
maintain that status at the time of filing the application. In addition,
the applicant must be eligible for the nonimmigrant status sought as
described in section 101(a)(15) of the Act, 8 U.S.C. 1101(a)(15).
On October 3, 1977, the District Director denied the application for
reasons which may be summarized as follows:
1. The applicant failed to establish that his investment did not represent a small
amount of capital in a marginal enterprise and made solely for the purpose of
earning a living.
2. The applicant failed to demonstrate an ability to control the enterprise, thereby
not qualifying as an alien entitled to enter the United States in pursuance of a
treaty of commerce and navigation coming to develop and direct an enterprise in
which he had invested.
3. The applicant was statutorily ineligible in that he was not maintaining his
nonimmigrant student status at the time the application was filed.
On March 20, 1978, the Regional Commissioner dismissed the appeal
from the District Director's decision and affirmed that decision.
One reason cited by the District Director and upheld by the Regional
Commissioner for denying the instant application is that the applicant
had invested a small amount of capital in a marginal enterprise solely
for the purpose of earning a living and therefore could not qualify as a
treaty investor. An analogy was drawn between the instant case and
Matter of Lee, 15 I&N Dec. 187 (BIA 1975) which held that where the
investor could not prove that a reasonable return was forthcoming
from the enterprise in which the investment had been made, it was a
marginal enterprise entered into solely for the purpose of earning a
living. A comparison of the two cases reveals few if any analogous
relationships. In Matter of Lee, supra, the applicant was only one of
three partners and had invested only $10,000 in a business worth six to
nine times that amount. In the instant case evidence has been submitted that the applicant has invested $53,000 as a sole owner of the
enterprise. In Matter of Lee, supra, no showing was made that the
applicant had other funds or sources of income. In the instant case
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evidence has been submitted that the applicant had $46,000 in reserve
funds.
The term "small amount of capital in a marginal enterprise solely to
earn a living" must be applied to a given situation in its entirety. In the
instant case we have an investor who has invested $53,000 in what
could only be a marginal enterprise since no evidence of the actual or
contemplated return on the investment has been submitted. However,
the applicant has produced evidence that he has an additional $46,000
on which he can draw. It can hardly be said that such a person has
invested in a marginal business solely to earn a living. Therefore, I
conclude the District Director and the Regional Commissioner erred in
finding that the applicant was not qualified as a treaty investor on this
ground.
Another issue is the degree of control the applicant has over his
investment. Citing Matter of Lee, supra, the District Director concluded that the applicant had not demonstrated that he was able to
control and develop the enterprise in which he had invested. His
conclusions were, in part, based on the fact that the enterprise was a
franchised restaurant and that the franchiser (Kentucky Fried
Chicken, Inc.) imposed strict conditions on the franchisee (the applicant) that effectively reduced the degree of control over the operation
of the restaurant to the point where the applicant could not direct and
develop the enterprise. The Regional Commissioner sustained the
allegation of the District Director.
I find no fault with the precept set forth in Matter of Lee, supra, in
that an investor must show that he has the ability to control the
investment, thereby fulfilling that part of the definition of treaty
investor contained in section 101(a)(15)(E)(ii) of the Act. ("Solely to
develop and direct the operation of the enterprise or of an enterprise in
which he is actively in the process of investing.") However, the degree
of ability to control the business or enterprise in Matter of Lee, supra,
and the instant case are on two completely divergent planes. (In
Matter of Lee, supra,) the principal had invested $10,000 in a three way
partnership agreement which had an unproved net worth of $90,000.
When questioned as to the degree of control he would be able to
exercise and proof of the net worth of the enterprise, the price was
revised downward to $64,000 and the principal stated he would, at a
future date, invest additional funds to insure 51% ownership of the
enterprise. No specific date for this was set nor was it shown that the
principal had. the funds available to make such an additional investment. In the instant case the applicant purchased an operating business for $53,000. He is the sole owner of the business and the question
of control is confined in the franchise agreement under which the
business was purchased.
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The Regional Commissioner has set forth four conditions imposed
by the franchise agreement which he concludes shows "that the inherent nature of the franchise agreement prohibits the degree of control
necessary to qualify the applicant as a treaty investor" The four
conditions are:
1. 3.5 percent of the gross sales must be expanded in advertising.
2. The franchisee must use only the batter mix provided by the franchiser.
3. The franchisee may sell only those products approved by the franchiser.
4. The franchiser may terminate for default of the agreement and thereafter has the
option of purchasing the business.
In the interest of fairness, it would seem that in order to apply these
factors in an adverse ruling, we must consider the other side of the coin
and discuss the factors which enhance, or make possible a showing that
the applicant does have the ability to control the business.
The 3.5 percent of gross sales that is mandated for advertising is for
local advertising. Therefore, the franchisee receives the full benefit of
this advertising. There is no other condition set on the manner in
which the franchisee must conduct this advertising. Thus it may be
assumed that he controls this facet of directing and developing the
business.
The franchisee may only use the "batter mix" provided by the
franchiser. However, the agreement sets forth that the franchisee may
purchase on the open market all other services, supplies, products,
fixtures, or any other goods. By open market shopping he can exercise
control by purchasing products at reduced rate or by volume buying.
Quality may be maintained by selective buying.
The franchisee may sell only those products approved by the
franchiser. This clause (If 10 in the franchise agreement) goes on to
state that the franchisee is not restricted in any way regarding the
retail pricing of such products. Here we see that the franchisee can
control and set his profit margin_ In addition, there appears to be no
restriction on the franchisee to submit a new or different product
which he wishes to sell for approval to the franchiser.
The franchiser may terminate for default of the agreement and
thereafter has the option of purchasing the business. Here we find that
there is a 15 day grace period. This gives the franchisee time to correct
any infringement and thereby protect his investment. The matter of
"option to repurchase" by the franchiser is vague as to its implications.
Since the franchise itself appears to be transferable through sale to a
third party as evidenced through the instant purchase by the applicant, it would appear that the franchiser has the right of first refusal
only.
When viewed in the above light, it becomes readily apparent that the
limiting factors imposed by the franchisee to direct, develop, and
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protect his investment are overshadowed by the nonlimiting factors.
There are additional favorable factors, such as, but not limited to
hiring and firing of employees, setting wage scales, and setting the
hours of business. Therefore, I conclude that the applicant has control
of his enterprise and thus can direct and develop the enterprise.
The question of whether the applicant violated his nonimmigrant
status during the period from September 8, 1976 (when he purchased
the business) and December 16, 1976 (the date on which the application
for change of nonimmigrant status was filed) is paramount. If there
was a violation of nonimmigrant status as determined by the District
Director, a determination sustained on appeal by the Regional Commissioner, then the applicant is rendered statutorily ineligible for a
change of nonimmigrant status under the provisions of section 248 of
the Act. However, if there was no violation of nonimmigrant status
during the aforementioned period (September 8 through December 16,
1976), then the applicant would not have been statutorily barred from
the benefits requested.
The District Director, without citing a specific instance, found that
"the record reflects that as early as September 8, 1976, you were
employed at the site of your investment as owner and operator." We
can only surmise that this finding was based on the applicant's answer
to item 18 of the instant application, where he indicated that he had
been employed and listed his occupation as owner and operator of a
restaurant. The District Director further found that the record was
void of any evidence that the, applicant had been authorized by this
Service to engage in employment while in student status. From these
conclusions the District Director determined that the applicant had
violated his nonimmigrant student status and was, therefore,
statutorily ineligible for the benefit sought.
Counsel for the applicant, in his brief supporting the appeal to the
Regional Commissioner, attacked the finding of the District Director
that the applicant had violated his nonimmigrant status on the ground
that it was only reasonable to assume that a person investing a
substantial amount of capital in an enterprise would immediately
become involved with the direction and development of that enterprise. Counsel argued that his client, in the instant case, was locked
into a "Catch 22" situation. The applicant was not eligible for the
status of treaty investor unless he was directing and developing an
enterprise in which he had invested but if he did so, he would be in
violation of his nonimmigrant student status and therefore statutorily
ineligible to apply for a change of nonimmigrant status.
The Regional Commissioner dismissed the "Catch 22" situation and
went on to specifically cite item 18 of the instant application as barring
relief under the statute. He relied on the definition contained in Black's
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Law Dictionary to sustain the District Director's contention that
"owning and operating" a business constituted. employment. He ruled
that since the Service had not authorized the applicant to be employed
while a nonimmigrant student, the applicant had violated the status
by accepting unauthorized employment during the period of
September 8, 1976, to December 16, 1976.
We shall not comment at this time on the Counsel's "Catch 22"
charge. We simply do not have sufficient information regarding the
nature and scope of the applicant's involvement and participation in
the operation of the business enterprise to make a decision on whether
the applicant was employed during the critical period. Details should
also be developed regarding number of hours spent by the applicant at
the business, the tasks performed by him, and number of employees
engaged at the enterprise and the hours and tasks performed by them.
The case will therefore be remanded so that further evidence may be
adduced on this issue.
ORDERS The case is remanded to the District Director for reopening and reconsideration.
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