The Situation

Another firm brought me an EB-1C denial to reverse. The beneficiary was the manager of a hotel, who reported to the owner. The owner had two companies, one operating the hotel in the U.S. and one abroad. He controlled both, holding eighty percent of the company abroad and half of the U.S. company. The U.S. hotel operated under a franchise agreement with a national brand.

That franchise agreement carried the entire denial. The USCIS examiner read it to mean the owner had ceded control of the U.S. company to the franchisor, and reasoned that an owner who no longer controlled the company could not tie it to the company abroad. No common control—no affiliate relationship—no qualifying relationship for the petition. The underlying ownership was never in dispute.

The Denial

A franchise agreement is a long list of things the franchisee may not do. This one was typical. The brand dictated the name, the furnishings, the supplies, the operating standards, the manager training, the marketing. It reserved the right to audit the books and walk the premises. It forbade remodeling the building or selling the business without permission. The examiner read the list, totaled the prohibitions, and concluded that the company no longer ran itself:

“…the petitioner has lost any realistic ability to control, direct, or develop the enterprise. Therefore, there is no qualifying relationship between the foreign entity and the petitioner as control over the petitioner’s business has been ceded to the franchisor.”

Read that conclusion against the question whether the U.S. company and the foreign company have a qualifying relationship through common ownership and control, as parent and subsidiary or as affiliates. The examiner answered by weighing what the U.S. company owed its brand. He had taken the contract between the franchisor and the petitioner and used it to decide the relationship between the petitioner and a third party the franchise agreement never bound at all: the company abroad. They are two different relationships.

The Argument

So I put the two relationships side by side.

The franchise agreement governs how the petitioner uses a brand. It is a contract between the petitioner and the franchisor, terminable, the kind of arm’s-length commercial tie that has never by itself created a qualifying relationship. Matter of Schick, 13 I&N Dec. 647, 649 (Reg. Comm. 1970). The qualifying relationship runs elsewhere, between the petitioner and the company abroad, and it is built from one thing: common ownership and control. 8 C.F.R. § 204.5(j)(2); Matter of Church Scientology International, 19 I&N Dec. 593, 595 (Comm. 1988). One owner held and controlled both companies. Under the regulation, that makes them affiliates. Nothing in a brand-licensing contract reaches that, any more than a tenant’s lease decides who holds the deed.

That alone disposed of the denial. But the examiner’s reading of the franchise agreement was also wrong on its own terms. He had counted only the restrictions, when the agreement had to be read whole. Matter of Siemens Medical Systems, Inc., 19 I&N Dec. 362, 364-65 (Comm. 1986). The same agreement said, in its own words, that the petitioner was the true owner of the hotel and held its title; that the petitioner alone set room rates and hired, paid, and managed the staff; that the petitioner had put its own capital at risk and would succeed or fail on its own judgment; that the franchisor was not its partner, its principal, or its master. A contract that says all of that does not describe a company that has surrendered control. The contract describes an owner who agreed to hang someone else’s sign over the door. The restrictions the examiner cited are the price of the name, not the loss of the business.

The same reading of a franchise agreement had already been rejected in a treaty-investor case, where the agreement’s restrictions, weighed against everything it left the owner, were found not to cost him control. Matter of Kung, 17 I&N Dec. 260 (Comm. 1978).

The Result

The motion was granted and the petition approved in about six weeks. The facts that decided the qualifying relationship had been in the stock certificates the whole time: eighty percent ownership of the company abroad, fifty percent of the U.S. company.