Potnuru v. United States Department of Homeland Security

• Court: District Court, D. Arizona
• Decided: March 4, 2025
• Docket: 2:23-cv-02423
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Srinivasa Rao Potnuru, et al., No. CV-23-02423-PHX-DLR

10 Plaintiffs, ORDER

11 v.

12 United States Department of Homeland Security, 13 Defendant. 14 15 This case arises from the United States Customs and Immigration Services’ 16 (“USCIS”) administration of the H-1B visa program, of which Plaintiffs were all 17 beneficiaries. USCIS is an agency within the Department of Homeland Security (“DHS”), 18 the Defendant here. Plaintiffs allege that DHS violated the Administrative Procedure Act 19 (“APA”) in promulgating and enforcing certain rules as part of the program. Before the 20 Court is DHS’s motion to dismiss (Doc. 28) Plaintiffs’ Amended Complaint (Doc. 14). The 21 motion is fully briefed1 (Docs. 25, 29). For the following reasons, the motion is granted in 22 part and denied in part. 23 I. Background2 24 a. The H-1B Visa Process 25 The Immigration and Nationality Act (“INA”) provides a vehicle for foreign 26 1 Oral argument is denied because the motions are adequately briefed, and oral 27 argument will not help the Court resolve the issues presented. See Fed. R. Civ. P. 78(b); LRCiv. 7.2(f). 28 2 The following facts are drawn from the allegations in the Amended Complaint (Doc. 14), which the Court accepts as true for the purposes of this order. See supra Part II. 1 nationals3 to obtain nonimmigrant visas to perform specialty occupations in the United 2 States, known as H-1B visas. 8 U.S.C. §§ 1101(a)(15)(H)(i)(b); 1184(c)(1); see also 3 Greater Mo. Med. Pro-Care Providers, Inc. v. Perez, 812 F.3d 1132, 1133 n.1 (8th Cir. 4 2015) (explaining that “[t]he H-1B visa takes its name from 8 U.S.C. § 5 1101(a)(15)(H)(i)(B)”). Admission to H1-B status is based “upon petition of the importing 6 employer.” 8 U.S.C. § 1184(c)(1). Admission is for such time and under such conditions 7 as the Attorney General and the Secretary of Homeland Security may by regulations 8 prescribe. 8 U.S.C. §§ 1184(a)(1). 9 The INA limits the number of H-1B petitions at a statutory “cap” in any fiscal year 10 of 65,000 and an additional 20,000 for individuals who have earned a master’s or higher 11 degree from a United States institution of higher learning. 8 U.S.C. § 1184(g). Because the 12 demand for H-1B status exceeds the statutory cap each year, regulations provide rules for 13 the administration of the H-1B cap selection process, commonly known as the lottery. 8 14 C.F.R. § 214.2(h)(8)(iii). 15 The process is divided into two parts. At step one, the petitioner-employer must 16 register to file a petition on behalf of a foreign national on the USCIS website, and the 17 registration must be made in “accordance with 8 CFR 103.2(a)(1), paragraph (h)(8)(iii) of 18 this section [8 C.F.R. § 214.2] and the form instructions.” Id. § 214.2(h)(8)(iii)(A)(1). As 19 part of the registration, a petitioner-employer must complete an attestation, under penalty 20 of perjury, that the petitioner-employer “has not worked with, or agreed to work with, 21 another registrant, petitioner, agent, or other individual or entity to submit a registration to 22 unfairly increase chances of selection for the beneficiary[.]” H-1B Electronic Registration 23 Process, U.S. Citizenship & Immigr. Servs., https://www.uscis.gov/working-in-the- 24 united-states/temporary-workers/h-1b-specialty-occupations/h-1b-electronic-registration- 25 process (Feb. 2, 2025).4 26

27 3 This order uses the term “foreign national” as equivalent to the statutory term “alien” used in the INA. 28 4 Plaintiffs call this attestation the “anti-collusion rule.” The Court will hereinafter refer to it as the “attestation requirement.” 1 After the close of the registration period, USCIS performs the computer-generated 2 lottery selection. 8 C.F.R. §§ 214.2(h)(8)(iii)(A)(5)(ii); 214.2(h)(8)(iii)(A)(6)(ii). USCIS 3 then notifies those petitioners whose registrations were selected and sends them an online 4 account with filing instructions. Id. § 214.2(h)(8)(iii)(C); see also id. § 5 214.2(h)(8)(iii)(D)(2). Those petitioners must then file a petition in accordance with 8 6 C.F.R. § 214.2(h)(4)(iii)(B).5 USCIS notifies the petitioner—not the beneficiary—of the 7 approval, denial, intent to revoke, or revocation of an H-1B petition. Id. §§ 214.2(h)(9)(i), 8 (h)(10)(ii), (h)(11). USCIS may issue a notice of intent to revoke (“NOIR”) or a notice of 9 intent to deny (“NOID”) to a petitioner if it finds the application contains fraud or 10 misrepresents a material fact. Id. § 214.2(h)(11)(iii)(B). 11 When a petition is approved, the petitioner may employ the beneficiary, and the 12 beneficiary receives a “cap number” making them “cap exempt.” 8 U.S.C. § 1184(g)(7). A 13 cap-exempt beneficiary is no longer counted against the statutory cap and may accept 14 employment with another employer during the time the visa is valid without repeating the 15 two-step process. Id. When a petition is revoked, so too are the visa and cap number—that 16 is, the foreign national loses their H-1B status. See id. § 1184(g)(3). 17 b. Factual Background 18 Plaintiffs are all nationals originally from India. (Doc. 14 ¶¶ 1–9.) Some currently 19 reside in the United States; others still live in India. (Id.) Various employers filed petitions 20 on behalf of each of the Plaintiffs. (Id. ¶¶ 131, 147, 160, 177, 192, 207, 221, 235, 248.) 21 USCIS approved all visa petitions submitted by their employers. (Id.) All Plaintiffs 22 received H-1B status and cap numbers. (Id. ¶¶ 132, 148, 161, 178, 193, 208, 222, 236, 23 249.) Plaintiffs were authorized to begin employment in October 2022. (Id.) Other 24 employers later submitted transfer petitions on behalf of Plaintiffs Srinivasa Rao Potnuru, 25 Dheeraj Mangu Venkata, Harikrishna Padarti, Krishna Sai Golakoti, Prajwal 26 Kandigemoole Lakshminarayan, and Raghupathy Kommidi. (Id. ¶¶ 134, 163–64, 180, 195, 27 5 “A United States employer seeking to classify an alien as an H-1B [rather than the 28 alien himself] must file a petition on the form prescribed by USCIS in accordance with the form instructions.” 8 C.F.R. § 214.2(h)(2)(i)(A). 1 210, 224.) USCIS determined that all employers who filed petitions on behalf of Plaintiffs 2 engaged in fraud and made false statements of material fact in the H-1B petitions. (Id. ¶¶ 3 138–39, 152–53, 168–69, 184–85, 198–99, 212–13, 227–28, 239–40, 254.) Specifically, 4 USCIS determined that the petitioner-employers falsely attested that they did not collude 5 with other employers to file multiple petitions on behalf of a single foreign national so as 6 to increase that person’s chances of being selected in the lottery. (Id.) USCIS therefore sent 7 each petitioner-employer a NOIR or NOID, stating its intent to revoke or deny the H-1B 8 petitions. (Id. ¶¶ 135, 150, 167, 181, 196, 211, 225, 238, 253.) 9 Plaintiffs allege three counts, all for violations of the APA. (Doc. 14 at 35, 37, 39.) 10 Count I alleges that DHS created an unlawful legislative rule that cannot be considered the 11 natural outgrowth of the rulemaking process. (Id. at 35.) Count II alleges that DHS’s 12 construction of INA §§ 1182(a)(6)(C)(i) and 1184(g)(3) contradicts the plain language of 13 those statutes. (Id. at 37.) Count III alleges that DHS’s revocation of Plaintiffs’ cap 14 numbers was procedurally deficient. (Id. at 39.) They ask the Court to enjoin DHS from 15 enforcing the rule and corresponding penalty; to declare DHS’s authority to revoke a cap 16 number for fraud is limited only to instances where a foreign national made knowingly 17 false statements; to declare DHS’s interpretation of the phrase “fraud or willfully 18 misrepresenting a material fact” in 8 U.S.C. §§ 1182(a)(6)(C)(i) and 1184(g)(3) is 19 unlawful; to order DHS to provide notice to Plaintiffs of its intent to revoke their cap 20 numbers and provide them an opportunity to be heard; and to reinstate Plaintiffs cap 21 numbers during the notice and hearing period. (Id. at 41.) 22 II. Legal Standards 23 a. Rule 12(b)(1) 24 Under Federal Rule of Civil Procedure 12(b)(1), a party may move to dismiss a case 25 for lack of subject matter jurisdiction. Tosco Corp. v. Cmtys. for a Better Env’t, 236 F.3d 26 495, 499 (9th Cir. 2001), overruled on other grounds by Hertz Corp. v. Friend, 559 U.S. 27 77 (2010); see also Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1227 (9th Cir. 28 2011). “Motions to dismiss under this Rule ‘may attack either the allegations of the 1 complaint as insufficient to confer upon the court subject matter jurisdiction, or the 2 existence of subject matter jurisdiction in fact.’” Sabra v. Maricopa Cnty. Comty. Coll. 3 Dist., 479 F. Supp. 3d 808, 813 (D. Ariz. 2020) (quoting Renteria v. United States, 452 F. 4 Supp. 2d 910, 919 (D. Ariz. 2006)). 5 DHS levies a facial attack to subject matter jurisdiction as to Counts I and III, 6 arguing that Plaintiffs have failed to plausibly allege standing. In resolving a facial attack, 7 the court must accept the allegations in the complaint as true and construe them in a light 8 most favorable to the plaintiff. Renteria, 452 F. Supp. 2d at 919. Dismissal is improper 9 unless it appears beyond doubt that the plaintiff can prove no set of facts supporting his 10 claim that would entitle him to relief. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 11 1989). As for Count II, DHS levies a factual attack, arguing Plaintiffs cannot show standing 12 because they lack an injury in fact. In resolving a factual attack, the court does not attach 13 presumptive truthfulness to the allegations in the pleading, and the court may review any 14 evidence outside the pleadings, including affidavits and testimony, to resolve factual 15 disputes concerning the existence of jurisdiction. McCarthy v. United States, 850 F.2d 558, 16 560 (9th Cir. 1988). 17 b. Rule 12(b)(6) 18 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 19 Procedure 12(b)(6), a complaint must include sufficient facts to demonstrate that the claim 20 is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. 21 Twombly, 550 U.S. 544, 570 (2007). When analyzing the sufficiency of a complaint, the 22 Court accepts all well-pled factual allegations as true and construes those allegations in a 23 light most favorable to the non-moving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 24 (9th Cir. 2009). Still, the Court is not required “to accept as true a legal conclusion couched 25 as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). 26 III. Analysis 27 The Court will first address standing issues, as DHS raises standing challenges to 28 each of the three counts. Then the Court will turn to DHS’s 12(b)(6) argument for dismissal 1 of Count I. 2 a. Plaintiffs plausibly allege standing for all Counts. 3 “Article III of the Constitution confines the federal courts to adjudicating actual 4 ‘cases’ and ‘controversies.’” Allen v. Wright, 468 U.S. 737, 750 (1984). Standing is “an 5 essential and unchanging part of the case-or-controversy requirement of Article III.” 6 Wolfson v. Brammer, 616 F.3d 1045, 1056 (9th Cir. 2010) (quoting Lujan v. Defenders of 7 Wildlife, 504 U.S. 555, 560 (1992)). At the pleadings stage, standing requires a plaintiff 8 plausibly allege the following three elements: “(1) an injury in fact that is (a) concrete and 9 particularized and (b) actual or imminent; (2) causation; and (3) a likelihood that a 10 favorable decision will redress the injury.” Id.; see also Barnum Timber Co. v. U.S. Env’t 11 Prot. Agency, 633 F.3d 894, 899 (9th Cir. 2011). 12 DHS claims that Plaintiffs fail to demonstrate standing for each of their three claims. 13 It claims that Count I is not traceable to it or redressable by a decision in Plaintiffs’ favor; 14 that Plaintiffs’ fail to allege an injury in fact for Count II; and that Count III fails to satisfy 15 any of the three elements of standing. (Doc. 28 at 10, 14–15.) The Court deals with Counts 16 I and III together, as DHS levies a facial attack on the two that can be resolved together. 17 Then the Court briefly addresses DHS’s objection to standing for Count II. 18 i. Counts I and III 19 In a remarkably similar case to the present one, a district court in the Ninth Circuit 20 held that the plaintiffs had standing to challenge DHS’s actions. Narambatla v. U.S. Dep’t 21 of Homeland Sec., No. 2:23-cv-01275, 2024 WL 1659025, at *4 (W.D. Wash. Apr. 17, 22 2024). In Narambatla, USCIS revoked each of the plaintiffs’ cap numbers on a finding that 23 the petitioner-employers conspired with other companies to submit multiple H-1B 24 registrations on behalf of each of the plaintiff-beneficiaries to increase the odds that those 25 beneficiaries would be selected in the lottery. Id. The plaintiffs asserted as their injuries the 26 “lost opportunity” to receive notice and a meaningful opportunity to respond to the NOIRs 27 and the revocation of their H-1B cap numbers. Id. They alleged that those injuries were 28 traceable to DHS’s actions because “the unnoticed agency action made Plaintiffs 1 vulnerable to accumulating unlawful status and unauthorized employment. . . . The 2 agency’s procedural errors foreclosed any opportunity for Plaintiffs to raise legal issues 3 and for Defendant to articulate its position on the question of law.” Id. The court further 4 held that these injuries are redressable because courts may compel or set aside agency 5 actions under the APA, allowing the Court to potentially vacate the cap number revocations 6 and order DHS to provide proper notice and an opportunity to be heard. Id. at *6. 7 The court acknowledged that the Ninth Circuit has yet to address the issue of 8 standing in this context but ultimately held that the plaintiffs had met their burden to 9 establish standing at the pleadings stage. Id. at *4. It found that the plaintiffs’ “loss of H-1B 10 status and lack of notice in the NOIR process are cognizable injuries that are concrete, 11 particularized, and traceable to DHS’s revocation of their legal nonimmigrant status.” Id. 12 at *5. All elements of standing were present. 13 Like the plaintiffs in Narambatla, Plaintiffs here allege two injuries: (1) lack of 14 notice and opportunity to respond to the NOIRs and (2) revocation of the H-1B cap 15 numbers previously assigned to each of them. (See Doc. 25 at 13–14.) The Court sees no 16 reason to depart from the reasoning employed by the court in Narambatla. Plaintiffs 17 plausibly allege that they lost an opportunity to maintain their H-1B status and work in the 18 United States lawfully when USCIS exceeded its authority by unlawfully revoking their 19 status. Plaintiffs plausibly allege that USCIS exceeded its authority in erroneously 20 enforcing an unlawful legislative rule and failing to provide them notice and an opportunity 21 to respond to the NOIRs and NOIDs. The Court could set aside Plaintiffs’ cap number 22 revocations and order DHS to provide notice and an opportunity to be heard, redressing 23 Plaintiffs’ injuries. Plaintiffs have plausibly alleged injuries that are fairly traceable to 24 DHS’s conduct and likely to be redressed by a decision in their favor sufficient to confer 25 standing for Counts I and III. 26 ii. Count II 27 Count II alleges that DHS’s construction of INA §§ 1182(a)(6)(C)(i) and 1184(g)(3) 28 contradicts the plain language of both. (Doc. 14 at 37.) DHS frames the injury underlying 1 this claim as Plaintiffs’ belief that DHS found each of them guilty of fraud individually and 2 thus made them inadmissible. (Id. at 14.) DHS submits the declaration of Sharon Orise, 3 USCIS Adjudications Division Chief for the Service Center Operations Directorate, which 4 states that USCIS did not making an adverse finding against any of the Plaintiffs. (Doc. 5 28-1 ¶ 13.) Because no Plaintiff was found inadmissible, DHS asserts that Plaintiffs fail to 6 allege an injury sufficient to confer standing for Count II. (Doc. 28 at 14–15.) 7 The Court disagrees. The Court accepts Orise’s declaration and understands that no 8 individual findings of inadmissibility have been made, but the fact remains that Plaintiffs 9 have alleged an injury by way of the revocation of their cap numbers that justifies each of 10 the three counts. Ignoring the allegations relating to the inadmissibility findings, the Court 11 finds that Plaintiffs still sufficiently plead the elements of standing. Plaintiffs plausibly 12 allege that their cap numbers would not have been revoked had DHS properly interpreted 13 the INA. This injury stems from DHS’s interpretation of the INA to grant it power to revoke 14 H-1B petitions based on fraud or material misstatement by the employer, rather than the 15 petitioner. Further, that injury would be redressed if the Court determines that DHS’s 16 construction of the statute is incorrect. 17 b. Count I of the Amended Complaint fails to state a claim upon which 18 relief can be granted. 19 DHS also argues that Count I fails to state a claim under the APA. (Id. at 12.) The 20 basis of Count I is Plaintiffs’ claim that the attestation requirement is a legislative or 21 substantive rule that DHS created and enforced without following proper 22 notice-and-comment rulemaking procedures. (Doc. 14 at 262–69.) DHS claims that it 23 followed “current governing regulations that allow for the revocation of Plaintiffs’ H-1B 24 petitions based on fraud” and that the attestation requirement is merely interpretive. (Doc. 25 28 at 12.) 26 In general terms, interpretive rules merely explain, but do not add to, the substantive law that already exists in the form of a 27 statute or legislative rule. . . . Legislative rules, on the other hand, create rights, impose obligations, or effect a change in 28 existing law pursuant to authority delegated by Congress. 1 Hemp Indus. Ass’n v. Drug Enf’t Admin., 333 F.3d 1082, 1087 (9th Cir. 2003) (citations 2 omitted). There are three circumstances where a rule has the “force of law” such that it is 3 legislative: “(1) when, in the absence of the rule, there would not be an adequate legislative 4 basis for enforcement action; (2) when the agency has explicitly invoked its general 5 legislative authority; or (3) when the rule effectively amends a prior legislative rule.” 6 Erringer v. Thompson, 371 F.3d 625, 630 (9th Cir. 2004). 7 The rule cannot be read as legislative. The attestation requirement is contemplated 8 in a final rule published in 2019, which went through the notice-and-comment process. 9 Registration Requirement for Petitioners Seeking to File H-1B Petitions on Behalf of Cap- 10 Subject Aliens, 84 Fed. Reg. 888 (Jan. 31, 2019) (codified at 8 C.F.R. § 214). The rule 11 authorizes USCIS to collect sufficient information for each registration to mitigate the risk that the registration system will 12 be flooded with frivolous registrations. For example, each registration will require completion of an attestation, and 13 individuals or entities who falsely attest to the bona fides of the registration and submitted frivolous registrations may be 14 referred to appropriate federal law enforcement agencies for investigation and further action as appropriate. 15 16 84 Fed. Reg. at 900. And the applicable regulations state that “a registration must be 17 properly submitted in accordance with 8 C.F.R. § 103.2(a)(1), paragraph (h)(8)(iii) of this 18 section, and the form instructions.” 8 C.F.R. § 214.2(h)(8)(iii)(A)(1) (emphasis added). 19 Further, the registration regulation provides that 20 [i]f USCIS believes that related entities (such as a parent company, subsidiary, or affiliate) may not have a legitimate 21 business need to file more than one H-1B petition on behalf of the same alien subject to the numerical limitations of section 22 214(g)(1)(A) of the Act or otherwise eligible for an exemption under section 214(g)(5)(C) of the Act, USCIS may issue a 23 request for additional evidence or notice of intent to deny, or notice of intent to revoke each petition. If any of the related 24 entities fail to demonstrate a legitimate business need to file an H-1B petition on behalf of the same alien, all petitions filed on 25 that alien’s behalf by the related entities will be denied or revoked. 26 27 8 C.F.R. § 214.2(h)(2)(i)(G). It also states that a “petitioner may only submit one 28 registration per beneficiary in any fiscal year. If a petitioner submits more than one 1 || registration per beneficiary in the same fiscal year, all registrations filed by that petitioner relating to that beneficiary for that fiscal year will be considered invalid[.]” □□□ § 3}| 214.2(h)(8)Gii)(a)(2). 4 The plain language of the regulation clearly requires that a petitioner cannot work 5 || with other petitioners to increase a beneficiary’s chances of being selected in the lottery, || and the final rule authorizes USCIS to collect information sufficient to ensure no petitioner 7|| does so. The attestation requirement is a prophylactic measure that attempts to ensure 8 || petitioners do not violate the rules. In the absence of the attestation requirement, DHS would still have authority to revoke the petitions because the regulations allow for 10 || revocation when related entities fail to demonstrate a legitimate business need for multiple 11 || H-1B petitions on behalf of one beneficiary. Plaintiffs do not allege that DHS has invoked || general legislative authority to justify the rule nor that the rule effectively amends a prior 13 || rule. In fact, the rule is in line with the regulation prohibiting collusion. Plaintiffs fail to 14]| state a claim on Count I. The Court therefore dismisses it. 15 IV. Conclusion 16 Plaintiffs plead allegations sufficient to confer standing on all counts, but because 17 || Count I fails to state a claim upon which relief can be granted, the Court dismisses it. 18 || Plaintiffs may proceed on Counts II and II. 19 IT IS ORDERED that DHS’s motion to dismiss (Doc. 28) is GRANTED in part 20 || and DENIED in part. 21 Dated this 4th day of March, 2025. 22 23 24 {Z, 25 {UO 26 Son United States District Judge 27 28

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