In Chaudhry v. Holder, the key litigated issues were the meaning of "lawful status" under 8 U.S.C. § 1255(k) and whether a pending application for adjustment of status, during which the foreign national is in the US during a period of stay authorized by the US Attorney General, extends lawful status to the nonimmigrant for purposes of 8 U.S.C. § 1255(k).

In June 2003, Chaudhry entered the US as a lawful nonimmigrant under a B-1 visa. Later, he and his employer filed a Form I-129 to change his status from B-1 to L-1 (skilled worker). The US Citizenship and Immigration Services (CIS) approved this change, extending Chaudhry's lawful nonimmigration status to January 21, 2005.

In January 2004, Chaudhry filed a Form I-485 to adjust his status to lawful permanent resident, and his employer filed a Form I-140 visa petition to designate Chaudhry as a multi-national executive or manager. For an unspecified reason, Chaudhry and his employer filed these forms again in June 2005. CIS rejected these applications in December 2005 because Chaudhry no longer worked for the employer that filed the forms.

In May 2006, Chaudhry filed a third Form I-485 and his new employer filed a Form I-140. CIS approved the I-140 visa petition in 2007, but rejected the adjustment of status application in March 2008. CIS explained that Chaudhry was ineligible to become a lawful permanent resident because his lawful status had lapsed for more than 180 days, because more than 180 days had passed between the expiration of his lawful nonimmigrant status on January 21, 2005 and the filing of his third application for adjustment of status in May 2006. Chaudhry appealed this decision.

On January 17, 2013, the US Court of Appeals for the Seventh Circuit issued a decision in Chaudhry v. Holder denying Chaudhry's petition for review.

The Seventh Circuit explained that a foreign national is ineligible for adjustment of status to that of a lawful permanent resident if he is in unlawful immigration status on the date of the application or has failed to continuously maintain lawful status since entry to the US, subject to limited exceptions. One exception under 8 U.S.C. § 1255(k) provides a grace period of 180 days for certain foreign nationals who file employment-based applications for adjustment of status. During the 180-day period following the lapse of lawful status, the nonimmigrant remains eligible to adjust his immigration status.

Chaudhry argued that he maintained "lawful status" for purposes of 8 U.S.C. § 1255(k) during the pendency of his first two applications because he was in a "period of stay authorized by the [US] Attorney General." The Seventh Circuit ruled, however, that the period of stay authorized by the US Attorney General refers to lawful presence, not lawful status. As the court explained, lawful presence and lawful status are distinct concepts in immigration law. A person may be lawfully present in the US even though he no longer has a lawful immigration status.

The Seventh Circuit also looked to the regulatory definition of lawful status, which does not include nonimmigrants whose period of stay has been authorized by the US Attorney General (8 C.F.R. § 245.1(d)(1) (2012)). The Seventh Circuit held that the definition of "lawful immigration status" in the regulations is a reasonable agency interpretation entitled to deference and that the same definition applies to both 8 U.S.C. § 1255(c) and 8 U.S.C. § 1255(k), as well as all iterations of the term, including "lawful immigration status" and "lawful status."

In light of the Seventh Circuit's holding, a pending application for adjustment of status does not confer lawful status on the applicant. Although some applicants have a grace period of 180 days under 8 U.S.C. § 1255(k), they should remain in lawful status (or, if applicable, not allow their lawful status to lapse for more than 180 days) to ensure they do not become ineligible for adjustment of status on this ground.