River Street Donuts, LLC v. Napolitano

United States Court of Appeals
For the First Circuit

No. 07-2504

RIVER STREET DONUTS, LLC,

Plaintiff, Appellant,

v.

JANET NAPOLITANO*,
SECRETARY OF THE DEPARTMENT OF HOMELAND SECURITY,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, U.S. District Judge]

Before

Torruella, Stahl, Circuit Judges,
and García-Gregory,** District Judge.

Raymond E. Gillespie for appellant.
Gisela A. Westwater, Trial Attorney, Office of Immigration
Litigation, Civil Division, U.S. Department of Justice, with whom
Gregory G. Katsas, Assistant Attorney General, and Elizabeth J.
Stevens, Assistant Director, were on brief for appellee.

March 4, 2009

*
Pursuant to Fed. R. App. P. 43(c)(2), Secretary Janet
Napolitano has been substituted for former Secretary Michael
Chertoff.
**
Of the District of Puerto Rico, sitting by designation.
 GARCÍA-GREGORY, District Judge. River Street Donuts, LLC

(“River Street”) appeals an order of the district court affirming

a decision of the Administrative Appeals Office (“AAO”) which had

affirmed the Bureau of Citizenship and Immigration Services’

(“CIS”)1 denial of River Street’s employment-based visa petition to

legally employ a foreign worker, Farag Mohamed (“Mohamed”) as a

skilled worker in the position of head baker/supervisor in its

donut baking facility. The AAO examined River Street’s IRS-

certified tax returns for 2001 and 2002 and found that River Street

was financially incapable of paying Mohamed’s wage because the

company’s net income and net current assets were less than the

proffered wage. River Street now requests this Court to vacate the

district court’s order and remand its visa petition to the AAO

because the AAO allegedly failed to address material evidence. In

the alternative, River Street seeks reversal of the order

contending that the AAO abused its discretion by not adding the

amounts deducted for depreciation in the 2001 and 2002 tax returns

to River Street’s net income when assessing River Street’s

financial ability to pay Mohamed’s wage.

We find that River Street waived its claim for remand to

the AAO on the issue of additional evidence because it failed to

properly raise and argue this issue in the district court.

1
The AAO is part of the CIS, which is a subordinate agency
within the Department of Homeland Security.

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Moreover, we hold that the AAO did not abuse its discretion by not

adding depreciation to net income when determining River Street’s

capacity to assume Mohamed’s wage. Accordingly, we affirm the

district court’s judgment.

FACTUAL AND PROCEDURAL BACKGROUND

On January 23, 2003, River Street filed a petition with

the CIS seeking to legally employ Mohamed, a foreign national, as

a skilled worker2 under section 203(b)(3)(I) of the Immigration &

Naturalization Act (the “Act”), 8 U.S.C. § 1153(b)(3).3 Pursuant to

River Street’s petition, Mohamed’s wage would consist of $19.61 per

hour (equivalent to $784.40 per week or $40,788.80 annually). On

July 20, 2004, the CIS denied River Street’s petition because after

reviewing River Street’s 2001 and 2002 tax returns, it determined

that River Street did not have the financial ability to pay

Mohamed’s salary. Specifically, the CIS noted that River Street’s

2001 tax return showed a loss of $32,309 and current liabilities

greater than current assets. The CIS further noted that the 2002

tax return showed an ordinary income of $4,677 and current

liabilities again greater than current assets. In both returns,

large amounts had been deducted for depreciation: $63,959 in 2001

and $50,614 in 2002.

2
The position that River Street seeks to fill is that of
head/baker supervisor.
3
Section 1153(b)(3)(A)(i) allows skilled workers to receive
immigrant visas.

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 On August 17, 2004, River Street appealed the CIS’

decision to the AAO. On September 16, 2004, River Street submitted

its brief arguing that its depreciation deductions were only paper

losses and should be added back to its net income to demonstrate

its ability to pay Mohamed’s wage. River Street did not submit

additional evidence at that time. On December 29, 2005 (15 months

after filing its brief), however, River Street filed additional

evidence in the form of bank records and an audited CPA statement.

River Street did not explain this late filing or seek leave to

submit this additional evidence. On January 9, 2006, the AAO denied

River Street’s appeal. In its opinion, the AAO first recognized

that River Street had submitted “a brief and additional evidence”

and then proceeded to explain its holding that River Street failed

to establish its ability to pay Mohamed’s wage. The AAO’s

conclusion was based on its analysis of the 2001 and 2002 tax

returns submitted by River Street. The AAO determined that the net

income and net current assets in both returns were less than the

proposed wage for Mohamed. In addition, it found unconvincing River

Street’s argument that the depreciation deduction in both returns

should be included in the calculation of its ability to pay

Mohamed’s wage. The AAO stressed that, even though a depreciation

deduction does not reflect an actual cash expenditure, neither does

it represent cash that would be otherwise available to pay wages

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because it is a systematic allocation of the cost of a tangible

long-term asset.

On March 10, 2006, River Street filed a complaint in the

district court arguing that the AAO’s decision not to add back

depreciation was arbitrary, capricious, an abuse of discretion, and

not supported by substantial evidence in the record.4 In the

complaint, River Street did not refer to the additional evidence

submitted to the AAO (bank statements and CPA statement) nor did it

claim that the AAO had not considered this additional evidence.

River Street only vaguely and perfunctorily requested the Court in

its third alternative prayer for relief to remand the case for

further proceedings. The government moved to affirm the AAO’s

decision and to dismiss the complaint filed by River Street. The

district court granted the government’s motion and dismissed River

Street’s complaint. River Street timely appealed the district

court’s decision.

River Street brings two claims for relief before this

Court. First, River Street requests that the district court’s order

be vacated and the entire case remanded to the AAO for review of

additional evidence because the AAO never considered the accountant

and bank statements it submitted 15 months after it filed its

brief. Alternatively, River Street seeks reversal of the district

4
The complaint is the only document that River Street filed
with the district court.

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court’s order by challenging the AAO’s refusal to add the

depreciation expense in its 2001 and 2002 tax returns to net income

when determining whether it can pay Mohamed’s wage.

STANDARD OF REVIEW

“We are bound by the same ground rules as the district

court in assessing agency decisions.” Royal Siam Corp. v. Chertoff,

484 F.3d 139, 144 (1st Cir. 2007) (citing S. Shore Hosp., Inc. v.

Thompson, 308 F.3d 91, 97 (1st Cir. 2002)). “Thus, the district

court’s decision in this case engenders de novo review.” Id.

Our standard for reviewing the AAO’s decision is governed

by section 706(2)(A) of the Administrative Procedure Act (“the

APA”), which provides that a “reviewing court shall ... hold

unlawful and set aside agency action, findings, and conclusions

found to be ... arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 5 U.S.C. § 706(2). Review

under the arbitrary and capricious standard is narrow and this

Court may not substitute its judgment for that of the agency, even

if it disagrees with the agency’s conclusions. Trafalgar Capital

Assocs. v. Cuomo, 159 F.3d 21, 26 (1st Cir. 1998) (internal

quotation marks and citations omitted). Accordingly, our review

under section 706(2)(A) is highly deferential, and the agency’s

actions are presumed to be valid. Carcieri v. Kempthorne, 497 F.3d

15, 43 (1st Cir. 2007). Under this standard, we are required to

determine whether the agency’s decision is supported by a rational

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basis, and if so, we must affirm. Bowman Transportation, Inc. v.

Arkansas-Best Freight System, Inc., 419 U.S. 281, 290 (1974);

Carcieri, 497 F.3d at 43 (noting that “[a]n agency’s determination

is arbitrary and capricious if the agency lacks a rational basis

for making the determination or if the decision was not based on

consideration of the relevant factors”).

DISCUSSION

1. Waiver of the Remand Claim

River Street first requests that we remand to the AAO for

consideration of its late filed evidence. However, River Street

raises this argument for the first time on appeal, having failed to

raise it before the district court. It is well settled that,

“absent the most extraordinary circumstances, legal theories not

raised squarely in the lower court cannot be broached for the first

time on appeal.” Teamsters, Chauffeurs, Warehousemen & Helpers

Union, Local No. 59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st

Cir. 1992). Further, River Street proposes no reason for us to

relax this raise or waive rule, nor do we find any such cause.5

5
This Court has the discretion to apply the plain error
doctrine and consider issues not adequately raised below. Rocafort
v. IBM Corp., 334 F.3d 115, 122 (1st Cir. 2003) (internal citations
omitted). We are “particularly cautious in exercising [this]
discretion and do so only when ‘error is plain and the equities
heavily preponderate in favor of correcting it.’” Id. (internal
citations omitted). We are not persuaded that this case is one that
merits the exercise of our discretion under this doctrine.

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Therefore, River Street’s request for a remand for consideration of

additional evidence is denied.

2. Financial Ability to Pay the Skilled Worker’s Wage

River Street’s second argument on appeal is that the AAO

abused its discretion by not adding depreciation to the net income

reflected in its federal income tax returns. River Street stresses

that prior to 2003, the AAO took into account amounts deducted for

depreciation in its tax return when computing a prospective

employer’s financial ability to pay the proffered wage.

Nevertheless, River Street acknowledges that before reaching a

determination in the present case, the AAO had reversed its policy

of adding depreciation back to net income when determining a

prospective employer’s financial ability to employ a foreign

skilled worker.6 Nevertheless, River Street argues that the AAO has

been inconsistent in how it treats depreciation and, therefore, has

abused its discretion in not adding back depreciation in the

present case. River Street also argues that the AAO’s change of

policy does not warrant deference under Chevron U.S.A., Inc. v.

Natural Res. Def. Council, Inc., 467 U.S. 837, 843-844 (1984), and

must be evaluated under the more neutral framework delineated in

6
Together with its brief, River Street submitted several AAO
decisions, which clearly demonstrate that since the year 2003
depreciation was no longer counted in an employer’s favor.

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Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944).7 The government

avers that the AAO’s decision is entitled to Chevron deference.

In Chevron, the Supreme Court held that when a statute

within an agency’s jurisdiction is ambiguous and the implementing

agency’s construction is reasonable, federal courts must accept the

agency’s construction of the statute. Chevron, 467 U.S. at 843-44

& n.11. Under this framework, unexplained inconsistency in an

agency’s interpretation of a statute can be a reason for holding

the agency’s actions to be an arbitrary and capricious change from

agency practice under the APA. Nat’l Cable & Telecomms. Ass’n. v.

Brand X Internet Servs., 545 U.S. 967, 981 (2005). This Court

cannot “attempt to supply a reasoned basis for the action that the

agency itself has not given.” Citizens Awareness Network v. United

States Nuclear Regulatory Comm’n, 59 F.3d 284, 291 (1st Cir. 1995)

(citing Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 43 (1983)). However, pursuant to Chevron, an

agency’s change in precedent is not invalidating if the agency

adequately explains its reasons. Id. The agency’s explanation must

7
If the Skidmore standard is applied to an agency’s decision,
the decision is entitled to less deference than if the Chevron
deference is applied. See McLaughlin v. Boston Harbor Cruise Lines,
Inc., 419 F.3d 47, 50 (1st Cir. 2005). Under Skidmore, the agency’s
decision will not be disturbed if it is persuasive. Skidmore, 323
U.S. at 140. Pursuant to Chevron, an agency’s decision is given
particular deference and said deference will only be withheld if
the reviewing court finds that implementing the agency’s
construction of a statute or regulation is unreasonable. Chevron,
467 U.S. at 843-44 & n.11.

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be accompanied by some reasoning that indicates that the shift is

rational and, therefore, not arbitrary and capricious. Id.

(internal citations omitted). “[T]his is not a difficult standard

to meet.” Id.

We have recognized that after the Supreme Court’s

decision in United States v. Mead Corp., 533 U.S. 218 (2001), the

level of deference owed to an informal agency interpretation is

“freighted with uncertainty.” Doe v. Leavitt, 552 F.3d 75, 79 (1st

Cir. 2009) (noting that Mead “does not clarify the circumstance in

which Congress should be deemed to have intended an informal agency

interpretation to carry the force of law and thus, attract Chevron

deference”). Arguably, the AAO’s unpublished decision may lack

force and as such, Chevron deference could be inappropriate. See

Mead, 533 U.S. at 221 (holding that a tariff classification does

not warrant judicial deference under Chevron because there was no

indication that Congress intended such a ruling to carry the force

of law);8 Christensen v. Harris County, 529 U.S. 576, 587 (2000)

(finding that interpretations contained in an opinion letter, much

like interpretations contained in policy statements, agency

manuals, and enforcement guidelines lack the force of law and,

8
In Mead, the Supreme Court noted that “the overwhelming
number of [its] cases applying Chevron deference have reviewed the
fruits of notice-and-comment rulemaking or formal adjudication.”
Mead, 533 U.S. at 230. However, the Court did not affirm, or even
mention, the application of Chevron to an agency’s unpublished
decisions.

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hence, do not warrant Chevron deference). The Chevron standard was

developed in the context of precedential administrative decisions,

where an agency’s interpretation of a statute has the force of

law.9 In the case at bar, we are dealing with an agency’s change of

policy in an unpublished, non-precedential decision10 and not with

an agency’s precedential interpretation of a particular statute

within its jurisdiction.11 Some Circuits including this one have

applied the Skidmore standard when examining non-precedential

agency decisions. E.g., Leavitt, 552 F.3d at 79-80 (recognizing

that “if an informal agency interpretation is deemed not to warrant

Chevron deference, it may nonetheless lay claim to a lesser degree

of deference under the Skidmore banner”); Godinez-Arroyo v.

Mukasey, 540 F.3d 848, 850 (8th Cir. 2008) (holding that the less

deferential Skidmore standard was a more appropriate standard to be

applied to an agency’s unpublished opinion); Boykin v. KeyCorp, 521

9
Precedent decisions of the CIS are binding on all its
employees in the administration of the Act. 8 C.F.R. § 103.3(c).
10
“AAO decisions [are] deemed precedent decisions or non-
precedent decisions. 8 CFR § 103.3(c). Precedent decisions are
published by the U.S. Government Printing Office in bound volumes
titled ‘Administrative Decisions Under Immigration and Nationality
Laws of the United States.’ ... Precedent decisions [are] reviewed
and approved by DHS and the Department of Justice. 68 Fed Reg. 9824
(Feb. 28, 2003).” Recommendation from the CIS Ombudsman to the
Director, USCIS (Dec. 6, 2005) available at
http://www.dhs.gov/xlibrary/assets/CISOmbudsman_PR_20_Administrat
ive_Appeals_12-07-05.pdf.

11
Precedent decisions must be designated and published in
bound volumes or as interim decisions. 8 C.F.R. § 103.9(a).

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F.3d 202, 208 (2d Cir. 2008); Ortega-Cervantes v. Gonzales, 501

F.3d 1111, 1113 (9th Cir. 2007). Pursuant to Skidmore, an agency’s

“interpretation is ‘entitled to respect’ only to the extent it has

the ‘power to persuade.’” Gonzales v. Oregon, 546 U.S. 243, 256

(2006) (citing Skidmore, 323 U.S. at 140). Under Skidmore, the

weight afforded to “a judgment in a particular case will depend

upon the thoroughness evident in [the agency’s] consideration, the

validity of its reasoning, its consistency with earlier and later

pronouncements, and all those factors which give it power to

persuade, if lacking power to control.” Skidmore, 323 U.S. at 140.

Other factors may be considered when evaluating the persuasiveness

of an agency’s interpretation. Leavitt, 552 F.3d at 81 (noting that

the list of factors stated in Skidmore is non exhaustive). Said

factors include the formality of the adjudication and the agency’s

expertise.12 Id. at 81-82.

Contrary to River Street and the government’s assertions,

we find that the standard of review under which the AAO’s decision

not to add back depreciation should be reviewed is neither Chevron

or Skidmore but the APA’s “arbitrary and capricious” standard, i.e.

whether the action was “arbitrary, capricious, an abuse of

discretion or otherwise not in accordance with law.” 5 U.S.C. §

12
As to formality, “[g]reater weight ordinarily is due to
interpretations that result from a structured interpretive process
as opposed to a catch-as-catch-can interpretive process.” Id. at
81.

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706(2)(a).13 As explained above in the standard of review section,

under this deferential standard, “[a]n agency’s determination is

arbitrary and capricious if the agency lacks a rational basis for

making the determination or if the decision was not based on

consideration of the relevant factors.” Carcieri, 497 F.3d at 43.

Departure from agency precedents embodied in prior adjudicative

decisions can constitute an abuse of discretion if the reasons for

the failure to follow precedent are not explained. See Shaw’s

Supermarkets, Inc. V. NLRB, 884 F.2d 34, 37 (1st Cir. 1989).

Chevron and Skidmore are not applicable to the claim

before us because those standards are directed at whether the

agency acted within its authority - statutory or regulatory. See

Arent v. Shalala, 70 F.3d 610, 615-16 (D.C. Cir. 1995)

(distinguishing between Chevron deference and APA’s “arbitrary and

capricious review” and explaining that while “Chevron is

principally concerned with whether an agency has authority to act

under a statute” the question of “whether the [agency’s] discharge

of that authority was reasonable . . . falls within the province of

traditional arbitrary and capricious review under 5 U.S.C. §

706(2)(a)”). “When the question is not one of the agency’s

authority but of the reasonableness of its actions, the ‘arbitrary

and capricious’ standard of the APA governs.” New York Public

13
This standard was explained by the Supreme Court in Motor
Vehicle Manufacturers Ass’n v. State Farm Mutual Auto. Ins. Co.,
463 U.S. 29 (1983).

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Interest Research Group v. Whitman, 321 F.3d 316, 324 (2d Cir.

2003).

In the present case, River Street does not contend that

the AAO acted outside the scope of authority delegated to it by

statute in deciding to not credit River Street for depreciation

amounts deducted from its net income. There is no question that the

AAO has discretion to decide how to weigh relevant evidence in

assessing a prospective employer’s ability to pay a proffered wage.

Rather, River Street claims that in departing from its prior

precedents without explanation, the AAO exercised its undisputed

discretion in this area in an arbitrary and capricious manner. This

type of inquiry is governed by section 706(2)(a). Whitman, 321 F.3d

at 324. Moreover, this is the standard that this Court has recently

applied in reviewing discretionary decisions by CIS.14 Royal Siam

Corp., 484 F.3d at 148 (holding that CIS rejection of visa renewal

application was not arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law). Thus, we will proceed to

determine whether the AAO’s decision was supported by a rational

basis. Bowman, 419 U.S. at 290. We conclude that it was.

The AAO decision in this case adequately explained why

amounts deducted for depreciation should not be added to River

Street’s net income. Usually, the AAO requires a prospective

14
The AAO is the appeals unit of CIS and its decision
constitutes the final decision of the CIS.

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employer to evidence its ability to employ an alien skilled

worker’s wage through either copies of annual reports, federal tax

returns, or audited financial statements. 8 C.F.R. § 204.5(g)(2).

After examining River Street’s federal income tax returns, the AAO

determined that in 2001 and 2002, River Street’s net income and net

current assets were less than the proffered wage for Mohamed. The

AAO also explained that it would not revert to its pre-2003 policy

where depreciation was added to net income. The AAO recognized that

a depreciation deduction is a systematic allocation of the cost of

a tangible long-term asset and does not represent a specific cash

expenditure during the year claimed. Furthermore, the AAO indicated

that the allocation of the depreciation of a long-term asset could

be spread out over the years or concentrated into a few depending

on the petitioner’s choice of accounting and depreciation methods.

Nonetheless, the AAO explained that depreciation represents an

actual cost of doing business, which could represent either the

diminution in value of buildings and equipment or the accumulation

of funds necessary to replace perishable equipment and buildings.

Accordingly, the AAO stressed that even though amounts deducted for

depreciation do not represent current use of cash, neither does it

represent amounts available to pay wages.

We find that the AAO has a rational explanation for its

policy of not adding depreciation back to net income. Namely, that

the amount spent on a long term tangible asset is a “real” expense.

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 Furthermore, we find that the AAO consistently applied

its position regarding depreciation. River Street concedes that

beginning in 2003, the AAO no longer added amounts deducted for

depreciation to net income to determine a petitioner’s financial

capacity to pay the proffered wage. Furthermore, River Street

submitted several AAO non-precedential decisions which show that,

since 2003, the AAO has consistently refused to add depreciation to

net income. In addition to the AAO decisions submitted by River

Street, this Court examined other AAO decisions that were issued

after the 2003 change of policy. They are all consistent in that,

in the usual course, depreciation is apparently no longer added to

net income. E.g., 32 Immig. Rptr. B2-116 AAO Designation:B6 (Nov.

10, 2005); 33 Immig. Rptr. B2-1 AAO Designation:B6 (Sep. 16, 2005);

32 Immig. Rptr. B2-9 AAO Designation:B6 (Jan. 13, 2005); 31 Immig.

Rptr. B2-8 AAO Designation:B6 (Dec. 30, 2004); 31 Immig. Rptr. B2-1

AAO Designation:B6 (Nov. 22, 2004); 28 Immig. Rptr. B2-7 (Aug. 6,

2003); 27 Immig. Rptr. B2-77 (Apr. 9, 2003); but see, e.g., 25

Immig. Rptr. B2-82 AAO Designation:B6 (May 7, 2002). These

decisions lend ample support to the consistency displayed by the

AAO in applying its policy regarding depreciation.

In sum, since the AAO has proffered a rational reason for

its reversal in policy and because it has consistently applied that

policy since 2003, we see no reason to interfere with the AAO’s

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change of policy regarding depreciation and its denial of River

Street’s employment based visa application.

CONCLUSION

The judgment of the district court is AFFIRMED.

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