Now, for canadian PR's, the state departments position is pretty clear:
http://travel.state.gov/visa/temp/info/info_1294.html#canada
Questions Concerning Permanent Residents of Canada
Q. I came to the U.S. from a country other than Canada on a J-1 visa, and after completion of my J program I moved to Canada and acquired landed immigrant status in Canad
A. Which country am I subject to return to for my two-year residence requirement -- my former country of residence or my current one, Canada?
A. You are subject to return to your former country of residence. J-1 regulations stipulate that an exchange visitor is subject to the country of his/her legal permanent residence at the time that the visitor acquires the J-1 status. The visitor must return to his/her former country of residence in order to fulfill the two-year home residence requirement or he/she must receive a waiver of the requirement.
Given that your friend is NOW a citizen of canada it does get interesting. Here is the wording of 212e:
Section 212(e) of the Immigration and Nationality Act
(e) Educational visitor status; foreign residence requirement; waiver. No
person admitted under section 101(a)(15)(J) [8 USC §1101(a)(15)(J)] or
acquiring such status after admission (i) whose participation in the
program for which he came to the United States was financed in whole or
in part, directly or indirectly, by an agency of the Government of the United
States or by the government of the country of his nationality or his last
residence, (ii) who at the time of admission or acquisition of status under
section 101(a)(15)(J) [8 USC §1101(a)(15)(J)] was a national or resident of a
country which the Director of the United States Information Agency,
pursuant to regulations prescribed by him, had designated as clearly
requiring the services of persons engaged in the field of specialized
knowledge or skill in which the alien was engaged, or (iii) who came to the
United States or acquired such status in order to receive graduate medical
education or training, shall be eligible to apply for an immigrant visa, or for
permanent residence, or for a nonimmigrant visa under section
101(a)(15)(H) or section 101(a)(15)(L) [8 USC §1101(a)(15)(H) or (L) ] until it is established that such person has resided and been physically present in
the country of his nationality or his last residence for an aggregate of at
least two years following departure from the United States:
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Some people read this last sentence in a way that IF you acquire canadian citizenship, you DON't have to return to india for your HRR. I looked into this very issue a while ago, back then I couldn't find any firm guidance as to how USCIS reads this sentence. (after finding out how they twisted the words 'any physician' into 'only certain primary care physicians', I am not sure whether they are actually bound to the letter of the law.)
If they received an RFE, there is no need to 'appeal' the case. If this citizenship argument is indeed valid, all they have to do is to reply to the RFE within the 120 days usually granted for the reply. The attorney writes a letter explaining the change in citizenship, and they submit copies of the canadian citizenship certificate and passport. But again, I don't know whether this is actually an argument accepted by USCIS.
