REPORT AND RECOMMENDATION THIS CAUSE came before the Court upon the following submissions:
➢ Defendants PNC Bank, N.A. ("PNC Bank") and Ruben Ramirez ("Ramirez") (together, "PNC Defendants") Motion to Dismiss the Amended Complaint (hereafter, "PNC Defendants' Motion to Dismiss") [D.E. 51]; and
➢ Defendants Greystone Hotel Miami, LLC ("Greystone Hotel Miami"), United EB5 LLC ("United EB5"), Santa Barbara 230, LLC ("Santa Barbara 230"), Greystone Terra Firma, LLC ("Greystone Terra Firma"), VOS Holdings I, LLC ("VOS Holdings I"), VOS CRE I, LLC ("VOS CRE I"), Greystone Hospitality, LLC ("Greystone Hospitality"), Greystone Holdco, LLC ("Greystone Holdco"), Greystone Managing Member, LLC ("Greystone Managing Member"), Greystone Master Tenant, LLC ("Greystone Master Tenant"), Greystone Tenant, LLC ("Greystone Tenant"), Greystone Option Holder, LLC ("Greystone Option Holder"), Trans Inn Associates, LLC ("Trans Inn Associates"), VOS Hospitality, LLC ("VOS Hospitality"), BBM 3, LLC ("BBM 3"), BBM 3 II, LLC ("BBM 3 II"), James Vosotas ("J. Vosotas"), Daniel Vosotas ("D. Vosotas"), and Branden Muhl's ("Muhl") (collectively, "Greystone Defendants") Motion to Dismiss Amended Complaint (hereafter, "Greystone Defendants' Motion to Dismiss") [D.E. 68].1
These matters were referred to the undersigned pursuant to 28 U.S.C. § 636 by the Honorable Darrin P. Gayles, United States District Judge [D.E. 106]. The undersigned held a hearing on these matters on June 17, 2020 [D.E. 110]. For the reasons stated below, the undersigned respectfully recommends that the PNC Defendants' Motion to Dismiss [D.E. 51] and the Greystone Defendants' Motion to Dismiss [D.E. 68] be GRANTED IN PART.
PROCEDURAL AND FACTUAL BACKGROUND Plaintiffs Yuanxiao Feng, Kiu Chun Saxon Hui, Lai King Hui, Jing Kuang, Chuen Ping Ng, Minyang Tian, Hongsen Zhang, and Yan Zhang (collectively, "Plaintiffs"), all of whom are foreign nationals, commenced this action on October 8, 2019 [D.E. 1]. In their Amended Complaint, filed on December 2, 2019, Plaintiffs allege that they were defrauded out of millions of dollars that they claim to have invested through Defendant Walsh to obtain permanent residence in the United States through the federally-sanctioned EB-5 Immigrant Investor Program (hereafter, "EB-5 Program"). See Am. Compl. [D.E. 44].2
Plaintiffs further allege that:
➢ Walsh, through his entity the Greystone EB-5 Partnership, offered and sold limited partnership units to foreign investors seeking to participate in an approved EB-5Program.
➢ Walsh falsely represented to investors that the Greystone EB-5 Partnership would develop, renovate, and operate two adjacent properties in Miami Beach, Florida (hereafter, "Greystone Properties"), one of which would become the Greystone Hotel (hereafter, "Greystone Hotel Project").3
➢ Each partnership unit required an investment of $500,000 and an additional $60,000 in administrative and legal fees, which monies were collectively authorized to be spent for the renovation and development of the Greystone Properties.
➢ The Greystone Defendants participated in the drafting and dissemination of transactional documents for the Greystone Hotel Project to give the false impression that the project was bona fide.
➢ Those transactional documents were: Limited Partnership Agreement; Subscription Agreement; Private Placement Memorandum; Legal Services Agreement; Loan and Security Agreement; Escrow Agreement; Business Plan; and Economic Report (hereafter, "Transactional Documents").
➢ Pursuant to the terms of the Transactional Documents, the Greystone EB-5 Partnership was obligated to hold each $500,000 cash investment in one escrow account at PNC Bank pending the EB-5 visa processing and approval process. Upon release of Plaintiffs' funds from escrow, the Greystone EB-5 Partnership would loan those funds to Defendant Greystone Hotel Miami to develop the Greystone Properties and meet the EB-5 Program's requirements.
➢ Walsh, Walsh, Jr., and other Defendants traveled to China where they knowingly made false statements about the Greystone Hotel Project in order to persuade Plaintiffs to invest in the Greystone EB-5 Partnership.
➢ Those false statements included promises that the funds in the Greystone EB-5 Partnership's escrow account were guaranteed by an entity by the name of United EB-5, LLC, and were secured by a mortgage on the Greystone Hotel in the event that Plaintiffs' EB-5 visa applications were denied.
➢ Plaintiffs, relying on the false statements made during those in-person meetings, executed the Transactional Documents and, in exchange for the required investment fees and costs, received one unit each, consisting of a limited partnership interest in the Greystone EB-5 Partnership.
➢ Although Walsh told Plaintiffs that the investment funds would be held in an escrow account at PNC Bank and then loaned to Defendant Greystone Hotel Miami, they were instead placed in a business checking account that appeared to be an escrow account at PNC Bank (characterized by Plaintiffs as the "Fake Escrow Account").
➢ The PNC Defendants agreed to allow Walsh and SARC, an entity controlled by Walsh and also one of the Greystone EB-5 Partnership's general partners, to open and operate a business checking account with PNC Bank's escrow services. The purpose of this was to make the business checking account appear as a legitimate escrow account to Plaintiffs. However, the account was not a real escrow account, nor did it have the restrictions of a real escrow account.
➢ The PNC Defendants' agreement with Walsh violated PNC Bank's internal rules and policies.
➢ After they were deposited in the Fake Escrow Account, Plaintiffs' funds were transferred to another account belonging to an entity controlled by Walsh, rather than used for the Greystone Hotel Project.
➢ The Fake Escrow Account was the "conduit that fed [Walsh's] fraud machine."
➢ Walsh embezzled the Greystone EB-5 Partnership's funds, and the Greystone EB-5 Partnership was unable to loan funds to support the Greystone Hotel Project.
➢ Although the PNC Defendants knew the Fake Escrow Account would be accepting EB-5 Program investor money, they did not take any affirmative action to warn Plaintiffs or stop Walsh from transferring money out of the Fake Escrow Account.
➢ As a result of Walsh's embezzlement, Plaintiffs lost their investments and the federal government denied Plaintiffs' EB-5 resident visa applications on the basis that they did not financially benefit the Greystone Hotel Project.
See Am. Compl. [D.E. 44].
Based on these factual allegations, Plaintiffs assert the following causes of action against some or all of the PNC Defendants or Greystone Defendants, as follows:
➢ Counts 4-9 - Aiding and Abetting Conversion against: J. Vosotas (Count 4); D. Vosotas (Count 5); Muhl (Count 6); the Vosotas Entities4 (Count 7); and the PNC Defendants (Counts 8-9);
➢ Counts 11-14 - Fraud in the Inducement against: J. Vosotas (Count 11); D. Vosotas (Count 12); Muhl (Count 13); and the Vosotas Entities (Count 14);
➢ Counts 16-17 - Aiding and Abetting Fraud in the Inducement against the PNC Defendants;➢ Count 19 - Breach of Fiduciary Duty against J. Vosotas and United EB5;
➢ Counts 20-23 - Aiding and Abetting Breach of Fiduciary Duty against: D. Vosotas (Count 20); the Vosotas Entities (Count 21); and the PNC Defendants (Counts 22-23);
➢ Count 25 - Fraud against J. Vosotas;
➢ Count 26 - Violation of Florida's Civil Racketeer Influenced and Corrupt Organizations Act ("Florida RICO") against the PNC Defendants and the Greystone Defendants;
➢ Count 28 - Constructive Fraud against J. Vosotas and United EB5;
➢ Count 29 - Civil Conspiracy against the PNC Defendants and the Greystone Defendants;
➢ Count 31 - Equitable Lien on 1920 Collins Avenue (the location of the Greystone Hotel);
➢ Count 32 - Equitable Lien on 230 Santa Barbara St. (the location of the Santa Barbara Apartments);
➢ Count 33 - Violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"), Florida Statutes § 501.201 et seq., against J. Vosotas, D. Vosotas, United EB-5, and Muhl;
➢ Count 36 - Equitable Accounting against J. Vosotas and United EB5;
➢ Count 40(a)5 - Violations of Section 10(b) of the Securities Exchange Act (hereafter, "Exchange Act") and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC") against Muhl;
➢ Count 40(b) - Violations of Section 20(a) of the Exchange Act against Muhl; and
➢ Count 41 - Civil Conspiracy Under Federal RICO against the PNC Defendants and the Greystone Defendants.
See Am. Compl. [D.E. 44].
The PNC Defendants move to dismiss Counts 8-9, 16-17, 22-23, 26, 29, and 41 of the Amended Complaint for failure to state a cause of action pursuant to Rules 12(b)(6) and 9(b) ofthe Federal Rules of Civil Procedure (hereafter, "Rule 12(b)(6)" and "Rule 9b," respectively). See PNC Defs.' Mot. to Dismiss [D.E. 51].
The Greystone Defendants move to dismiss Counts 4-7, 11-14, 19-21, 25-26, 28-29, 31-33, 36, 40(a)&(b), and 41 of the Amended Complaint with prejudice on the grounds that it constitutes a shotgun pleading and that it fails to state a cause of action, pursuant to Rule 12(b)(6), Rule 9(b), and the Private Securities Litigation Reform Act of 1995 ("PSLRA"). See Greystone Defs.' Mot. to Dismiss [D.E. 68].
