Chen v. U.S. Bank N.A.

• Decision Date: 18 November 2020
• Docket Number: Case No. 16-1109RSM
• Court: U.S. District Court — Western District of Washington
• Parties: CHI CHEN, et al., Plaintiffs, v. U.S. BANK NATIONAL ASSOCIATION, et al., Defendants.

CHI CHEN, et al., Plaintiffs, v. U.S. BANK NATIONAL ASSOCIATION, et al., Defendants.

Case No. 16-1109RSM

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

November 18, 2020

ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT

I. INTRODUCTION

This matter comes before the Court on Defendant U.S. Bank's Motion for Summary Judgment, Dkt. #309, and Plaintiffs' Motion for Partial Summary Judgment, Dkt #316. U.S. Bank moves for summary judgment dismissal of Plaintiffs' claims for inability to prove gross negligence, because certain knowledge is imputed to them by their agents, and based on the doctrines of estoppel, waiver, and laches. Id. Plaintiffs oppose this Motion, arguing there are genuine disputes as to material facts. Dkt. #328. Plaintiffs "request that the Court grant Partial Summary Judgment that U.S. Bank's actions are the 'primary cause' of Plaintiffs' loss of funds." Dkt. #316 at 3. U.S. Bank opposes this Motion, also arguing a genuine dispute as to material facts. Dkt. #320 at 16. The Court finds oral argument unnecessary. For the reasons stated below, the Court DENIES both Motions.

II. BACKGROUND

This is not the first time the Court has ruled on summary judgment and the Court will not recite all the facts of this case. The Court will only focus on those facts necessary to resolve these Motions. Many facts presented by the parties in briefing will be relevant to other motions or at trial.

The Court has previously summarized this case as follows:

Plaintiffs in this case are Chinese citizens who each invested $500,000 in a mining venture run by Defendants Quartzburg Gold, LP ("Quartzburg") and Idaho State Regional Center, LLC, in order to qualify for the United States' EB-5 immigration investor program. Dkt. #3 at 2-3. At issue in this Motion is the Master Escrow Agreement used by Defendants to structure the receipt and distribution of investment funds. Dkt. #237-1 at 2. Although the original agreement was between Defendants, Plaintiff investors later executed Joinders making each of them an "Investor... to the same extent as if such Person had originally executed this Master Escrow Agreement." Id.

Under the Agreement U.S. Bank was the "Escrow Agent." Dkt. #237-1 at 2. The "Background" section states that the money was entering and exiting escrow to permit investors to qualify for EB-5 visas "with the objective of attaining lawful permanent residence in the United States." Id. A choice of law provision sets Washington State as the source of governing law. Id. at 12.

The parties agreed that U.S. Bank would disburse the investors' funds held in escrow "upon receipt of, and in accordance with a Written Direction." Id. at 4. A Written Direction was to be "executed by the Issuer Representative" only. Id. "Issuer" refers to Quartzburg, and the Issuer Representative is listed as Debra Riddle, who worked for Quartzburg. Id. at 15. To put it another way, this agreement permitted the investor's funds to be disbursed to Quartzburg upon the written request of Quartzburg without any further authorization from the investors.

An example of what was required in a Written Direction is found at Exhibit I to the Agreement. See id. at 17. According to this example, Ms. Riddle would send Written Directions to U.S. Bank listing specific Investors and the change to their immigration status that warranted distribution of funds. The form lists five possible reasons why the funds would be disbursed: a) Approval ofInvestor's I-526 Petition with attached I-797 Notice of Action—funds to be wired to Quartzburg; b) approval of Investor's I-526 Petition with attached Immigrant Visa Application Processing Fee Bill Invoice—funds wired to Quartzburg; c) denial of Investor's I-526 Petition with attached Form I-797 Notice of Action—funds wired back to Investor; d) passage of 18 months with no action or information from USCIS—funds wired back to Investor; e) Quartzburg's approval of Investor's request for return of escrow funds—funds wired back to Investor. Id. at 17-18.

Dkt. #249 at 2-3. Each Plaintiff filed his or her EB-5 forms, deposited $500,000 in escrow with U.S. Bank, and agreed to be bound by the Master Escrow Agreement by signing a joinder. See id. at 3. These joinders named attorney Jason Blatt as "Investor Representative" who would "represent [investors] for all purposes in connection with the funds to be deposited" in escrow. Dkt #237-1 at 2. USCIS issued receipts of the EB-5 petitions, however these did not reflect approval and stated at the top, "THIS NOTICE DOES NOT GRANT ANY IMMIGRATION STATUS OR BENEFIT." See id. Quartzburg nevertheless submitted Written Directions instructing U.S. Bank to disburse to it the escrow funds from the investors, with attached copies of receipts with the above language from USCIS. Id. These were sent out between September 2012 and March 2014. See Dkt. #233 at Exhibits C-G and Dkt. #236 at Exhibits B-C. Although these forms did not reflect approval of the investors' I-526 petitions, the Written Directions "direct[ed] release" of the identified escrow funds and expressly represented that the directed "release is in accordance with Exhibit I of Schedule A to the Escrow Agreement" based on the investor's "Receipt of [Form] I-797C from USCIS." Id. U.S. Bank erroneously relied on these Written Directions and released the funds. Plaintiffs' EB-5 petitions were not approved and Plaintiffs have not received refunds from Quartzburg.

U.S. Bank submits evidence that many or all of the Plaintiffs worked with a company, Westlead, to handle their investment and immigration paperwork. See Dkt. #309 at 6 (citingDkt. #311 Ex. 12 (Tao Dep.) at 78:2-79:22, 92:3-20; Ex. 9 (Muroff Dep.) at 57:24-58:16, 82:2-15; Ex. 17; Ex. 16; Ex. 11 (Song Dep.) at 188:3-12). The terms of that arrangement have not been fully presented to the Court, however it appears that Westlead agreed, e.g., to "[t]racking the latest situation in the [I-526] application process and informing [Plaintiffs] in a timely manner." See Dkt. #311-22 at 2. It is unclear whether Westlead agreed to track the flow of the investment money through escrow. All or nearly all of Plaintiffs worked with attorney Jason Blatt, as part of the services provided by Westlead. See Dkt. #311, Ex. 3 (Blatt Dep.) at 16:17-17:1; 28:9-15. Mr. Blatt was notified in September of 2013 of the disbursements out of escrow and has stated in his deposition that he knew of the disbursements no later than October of that year. Id. at 84:18-25, 85:21-24, 86:22-89:2, 90:18-91:25. He did not seek a return of Plaintiffs' funds and apparently used evidence of the disbursements to fight on behalf of Plaintiffs' immigration case before USCIS. Dkt. #311, Exs. 24 and 25. No other person at Westlead demanded that Quartzburg return the investors' funds or notified U.S. Bank of any purported problem at this time.

In November 2014, Westlead met in Taiwan with Defendant Sima Muroff on behalf of Quartzburg and another company working with Plaintiffs, Worldway. The parties signed a confidential "memorandum" confirming their discussion, under which Westlead agreed that Quartzburg had released the funds from escrow and would announce that doing so was consistent with the parties' agreements, and that the funds were being used for Quartzburg's business plan. Dkt. #311-47 at 2. The exact language used was "Regional Center and GP shall provide a statement that releasing Escrow Funds before any I-526 approval is pursuant to Escrow Agreement... before Nov 25, 2014." Id. Regional Center and GP refers to Defendants Idaho State Regional Center, LLC and ISR capital, LLC. Later the document states that"Regional Center and GP []released the Escrow Funds from Escrow Account without notifying the EB 5 investors..." Id. The parties also agreed that investors who desired to withdraw could seek refunds from Quartzburg and Muroff, while the parties also committed to persuading investors not to withdraw.

The instant suit was filed on December 3, 2015. Dkts. #1-2. Plaintiffs allege that U.S. Bank breached the escrow agreement, causing the loss of the $500,000 investments.

U.S. Bank has focused on Section 8 of the Escrow Agreement as a basis for limiting liability. Section 8 states, in part:

Liability of Escrow Agent. The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no duties shall be implied. The Escrow Agent shall have no liability under and no duty to inquire as to the provisions of any agreement other than this Master Escrow Agreement. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that the Escrow Agent's gross negligence or willful misconduct was the primary cause of any loss to an Investor or Issuer.... Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice of any fact or circumstance not specifically set forth herein. Escrow Agent may rely upon any notice, instruction, request or other instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall believe to be genuine and to have been signed or presented by the person or parties purporting to sign the same. In no event shall Escrow Agent be liable for incidental, indirect, special, consequential or punitive damages....

Dkt. #237-1 at 7.

On March 3, 2020, three months before the instant Motion was filed, the Court issued an Order on a summary judgment motion brought by a single Plaintiff, stating in part:

As one would expect, Defendant U.S. Bank relies heavily on Section 8, which purports to limit U.S. Bank's liability to situations of willful misconduct or gross negligence. U.S. Bankargues that under Washington law, "'[w]illful' requires a showing of actual intent to harm" and that "acting volitionally upon a mistake does not show willfulness."

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