That's how I understand OP, if that's legally true or not, I don't know.
However, what OP is missing is that rejecting the US citizen application based on their citizenship is still likely a prohibited discrimination case regardless of what they do with the existing employee.
They might be running afoul of discrimination laws if they only interview US citizens to cut down on their workload for fake interviews, but I'd guess someone this careful (e.g. not actually submitting the greencard sponsorship where many employers would with a wink and a nod) is likely careful enough to not filter candidates on such obvious things either.
It's a problem with the h1b (and green card) program itself, not OPs behavior. If anything, OP is probably in the top few percentile of ethical businesses/managers if they are actually denying the sponsorships because they made a good faith attempt to test to see if the local market had appropriate candidates.
As for actually submitting the application--as I understand they actually audit the job ad responses and your decisions--so if you didn't even pretend to have a reason for not hiring them, you would automatically be in a lot of trouble. The game is to come up with flaws in the citizen candidates by requiring highly specific experience--e.g. "JDK v17.0.9 Programming" vs "experience with Java" to justify your target being the only one qualified. That would ultimately be for the court to decide.
Only interviewing citizens to the exclusion of PR/EAD card holders as in your example as written would be a violation.
What I think you meant though, which is not interviewing those who don't have permission to work (without your future attempt to get it for them) is normally completely fine; however, this situation is a little different since you would be willing to provide that for the "target" employee but not the other applications. However, I still don't think it would run afoul of this particular law.
