Jun Li v. Colo. Reg'l Ctr. I

• Decision Date: 07 October 2022
• Docket Number: 21-1232,21-1253
• Parties: JUN LI; QI QIN; YI LIU; JIE YANG; YUQUAN NI; ZHONGZAO SHI; FANG SHENG; SHUNLI SHAO; KAIYUAN WU; ZHIJIAN WU; ZHONGWEI LI; YUWEI DONG; LIN QIAO; JINGE HU; RUJUN LIU; FAN ZHANG; LU LI; SA WU; YING XU; CAO XIAOLONG; HSIN-YI WU, Plaintiffs-Appellants, v. COLORADO REGIONAL CENTER I, LLC; SOLARIS PROPERTY OWNER I LLC; PETER KNOBEL; COLORADO REGIONAL CENTER PROJECT SOLARIS LLLP, and all principals and ultimate owners of business entities pursuant to piercing of the limited liability veil, Defendants-Appellees. and DIANWEN CUI; LEI GU; SUFEN LENG; XUE MEI; ZHOU MEI; YAN SONG; LU WANG; YUE WU; ZHOU YANG; JINGWEN ZHANG; LEI ZHANG; LING ZHANG; XIAOHONG ZHANG; QIN ZHOU; XUN ZHU; CHUNYI ZOU, Plaintiffs, DIANWEN CUI; LEI GU; SUFEN LENG; XUE MEI; ZHOU MEI; YAN SONG; LU WANG; YUE WU; ZHOU YANG; JINGWEN ZHANG; LEI ZHANG; LING ZHANG; XIAOHONG ZHANG; QIN ZHOU; XUN ZHU; CHUNYI ZOU, Plaintiffs-Appellants, and JUN LI; QI QIN; YI LIU; JIE YANG; YUQUAN NI; ZHONGZAO SHI; FANG SHENG; SHUNLI SHAO; KAIYUAN WU; ZHIJIAN WU; ZHONGWEI LI; LIN QIAO; JINGE HU; RUJUN LIU; FAN ZHANG; LU LI; SA WU; YING XU; CAO XIAOLONG; WU HSIN-YI; YUWEI DONG, Plaintiffs, v. COLORADO REGIONAL CENTER LLC; COLORADO REGIONAL CENTER I, LLC; SOLARIS PROPERTY OWNER LLC; SOLARIS PROPERTY OWNER I LLC; COLORADO REGIONAL CENTER PROJECT SOLARIS LLLP; WAVELAND VENTURES, LLC, Defendants - Appellees, and PETER KNOBEL, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

JUN LI; QI QIN; YI LIU; JIE YANG; YUQUAN NI; ZHONGZAO SHI; FANG SHENG; SHUNLI SHAO; KAIYUAN WU; ZHIJIAN WU; ZHONGWEI LI; YUWEI DONG; LIN QIAO; JINGE HU; RUJUN LIU; FAN ZHANG; LU LI; SA WU; YING XU; CAO XIAOLONG; HSIN-YI WU, Plaintiffs-Appellants, and DIANWEN CUI; LEI GU; SUFEN LENG; XUE MEI; ZHOU MEI; YAN SONG; LU WANG; YUE WU; ZHOU YANG; JINGWEN ZHANG; LEI ZHANG; LING ZHANG; XIAOHONG ZHANG; QIN ZHOU; XUN ZHU; CHUNYI ZOU, Plaintiffs,
v.
COLORADO REGIONAL CENTER I, LLC; SOLARIS PROPERTY OWNER I LLC; PETER KNOBEL; COLORADO REGIONAL CENTER PROJECT SOLARIS LLLP, and all principals and ultimate owners of business entities pursuant to piercing of the limited liability veil, Defendants-Appellees.

DIANWEN CUI; LEI GU; SUFEN LENG; XUE MEI; ZHOU MEI; YAN SONG; LU WANG; YUE WU; ZHOU YANG; JINGWEN ZHANG; LEI ZHANG; LING ZHANG; XIAOHONG ZHANG; QIN ZHOU; XUN ZHU; CHUNYI ZOU, Plaintiffs-Appellants, and JUN LI; QI QIN; YI LIU; JIE YANG; YUQUAN NI; ZHONGZAO SHI; FANG SHENG; SHUNLI SHAO; KAIYUAN WU; ZHIJIAN WU; ZHONGWEI LI; LIN QIAO; JINGE HU; RUJUN LIU; FAN ZHANG; LU LI; SA WU; YING XU; CAO XIAOLONG; WU HSIN-YI; YUWEI DONG, Plaintiffs,
v.
COLORADO REGIONAL CENTER LLC; COLORADO REGIONAL CENTER I, LLC; SOLARIS PROPERTY OWNER LLC; SOLARIS PROPERTY OWNER I LLC; COLORADO REGIONAL CENTER PROJECT SOLARIS LLLP; WAVELAND VENTURES, LLC, Defendants - Appellees,

and PETER KNOBEL, Defendant.

Nos. 21-1232, 21-1253

United States Court of Appeals, Tenth Circuit

October 7, 2022

(D.C. No. 1:19-CV-02443-RM-STV) (D. Colo.)

Before MATHESON, KELLY, and PHILLIPS, Circuit Judges

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ORDER

This matter is before the court on Peter Knobel's Petition for Panel Rehearing for Purposes of Clarification ("Petition"). Upon careful consideration, the Petition is GRANTED to the extent of the modifications^[1] in the attached revised order and judgment. The court's September 12, 2022 order and judgment is withdrawn and replaced by the attached revised order and judgment, which shall be filed as of today's date.

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ORDER AND JUDGMENT ^[*]

Scott M. Matheson, Jr. Circuit Judge

Appellants are two groups of Chinese investors, the Li Appellants and the Cui Appellants. Each investor purchased a limited partnership interest in Colorado Regional Center Project Solaris LLLP ("CRCPS"). Through its general partner, CRCPS loaned the proceeds from the investments to a real estate development project. After the project produced low returns and defaulted on the loans, each group of Appellants separately sued CRCPS, its general partner, and other parties involved in the real-estate project.

The district court dismissed both complaints, denied several motions filed by Appellants, and ordered them to pay attorney fees. Each group of Appellants appealed. We consolidated their appeals. Exercising jurisdiction under 28 U.S.C. § 1291, we

(A) affirm the district court's dismissal of Appellants' claims under Federal Rule of Civil Procedure 12(b)(6) except for the Li Appellants' claim for breach of fiduciary duty, which we affirm in part and reverse in part

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(B) affirm dismissal of the Cui Appellants' remaining state law claims for lack of subject-matter jurisdiction;

(C) reverse the district court's denial of the Cui Appellants' motion to amend their complaint;

(D) affirm the district court's denial of the Li Appellants' motion for default judgment; and

(E) vacate the awards of attorney fees as described herein.

We remand to the district court for further proceedings consistent with this Order and Judgment.

I. BACKGROUND

A. Factual Background^[1]

1. The Parties

CRCPS is a limited liability limited partnership created by Colorado Regional Center, LLC ("CRC") and Waveland Ventures, LLC. It serves as an EB-5 Regional Center, an entity approved by the federal government to promote economic growth by encouraging investments by foreign persons in exchange for permanent resident cards (green cards). As described in Liu v. SEC, 140 S.Ct. 1936, 1941 (2020), "[t]he EB-5 Program, administered by the U.S. Citizenship and Immigration Services,

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permits noncitizens to apply for permanent residence in the United States by investing in approved commercial enterprises that are based on proposals for promoting economic growth." (quotations omitted). Colorado Regional Center I LLC ("CRC I"),^[2] a subsidiary of CRC, manages CRCPS as its general partner.

Appellants, two groups of Chinese investors, purchased limited partnership interests in CRCPS. In total, 165 investors each paid approximately $500,000 for their limited partnership interests, totaling $82.5 million. CRCPS loaned the proceeds from these investments to Solaris Property Owner, LLC ("SPO") to fund the completion of a condominium complex in Vail, Colorado. 2. Governing Documents

Three documents set forth the terms of the parties' arrangements.

First, CRCPS's "Partnership Agreement" (undated) set the terms of CRCPS's internal management. It provided that CRC I had the exclusive right to manage, operate, and control CRCPS. Neither CRCPS nor the limited partners could hold CRC I liable for any acts or omissions unless CRC I acted in bad faith, gross negligence, or willful misconduct. The Partnership Agreement allowed limited partners to exercise a put option^[3] to sell their interest to the partnership.

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Second, the "Loan Agreement," dated November 5, 2010, provided for CRCPS to loan funds to SPO to complete development of SPO's condominium project.

Third, the "Confidential Information Memorandum," dated March 31, 2011, set the terms of each investor's purchase of the limited partnership stake. It stated that each investor would pay approximately $500,000 for a limited partnership interest in CRCPS. CRCPS would loan the proceeds to SPO, which would use these funds to pay project development costs for the condominium complex. The Memorandum also stated that certain condominium units in the building would be used as collateral for the loan. A related document designated 19 condominium units as collateral.

The Confidential Information Memorandum provided that CRCPS would fund the loan through multiple advances, and each advance would carry a 5% interest rate. The principal balance and accrued interest on each advance was due within five years of each advance. SPO could not prepay any of the balance for three years, but after the three-year-period, it could repay with cash or a collateral condominium unit. CRCPS could refuse repayment through cash and compel SPO to convey the collateral condominium unit.

3. Investments and Loans

Based on the documents, CRCPS began soliciting investments. Investors purchased limited partnership interests in CRCPS between 2012 and 2015. Before receiving any advances, SPO assigned its rights and obligations under the arrangement to its wholly owned subsidiary, Solaris Property Owner I ("SPO I").

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Between April 2012 and January 2015, CRCPS made 19 loan advances to SPO I. About three years after the first advance, CRCPS and SPO I entered into an agreement regarding the collateral condominium units (the "Agreement Regarding Collateral Units" or "ARCU"). Under the ARCU, SPO I gave CRCPS notice that it would pay back the loan advances by conveying the collateral condominium units. The ARCU stated that SPO I would not immediately transfer the deed to the condominium units but CRCPS would be responsible for all fees and costs associated with the units and would pause the accrual of interest on the advances. Thus, under the ARCU, SPO I was deemed to have repaid the loan advances.

In 2016, CRC I and CRCPS began sending notices to the limited partners that identified the collateral condominium units as partnership property but acknowledged that SPO I still held title. The notices stated that CRCPS was coordinating with SPO I to transfer title.

B. District Court Proceedings^[4]

In 2019, the two groups of limited partners-the Li and the Cui Appellants- filed lawsuits alleging state and federal claims against various defendants. In general, they alleged that SPO and SPO I misrepresented the value of the collateral condominium units and that CRC I violated its duties as the general partner of CRCPS. According to Appellants, Defendants-Appellees misrepresented that the

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loan was fully secured when it was not. They alleged that these misrepresentations led to losses of over $40 million and that SPO and SPO I defaulted on their loans.

In their operative complaint, the Li Appellants brought several direct and derivative^[5] claims against CRCPS, CRC, CRC I, Waveland Ventures, LLC, SPO, SPO I, and Peter Knobel (SPO's owner).^[6] Separately, the Cui Appellants sued CRCPS, CRC, CRC I, Waveland Ventures, LLC, SPO, SPO I, and Mr. Knobel

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alleging both direct and derivative claims.^[7] In both complaints, the derivative claims were brought on behalf of CRCPS.^[8]

1. Motions to Dismiss and Other Motions

Appellees moved to dismiss both operative complaints for failure to state a claim. CRC I also filed a counterclaim against the Li Appellants after the Li Appellants alerted the district court that CRC I had been removed as general partner of CRCPS for cause. CRC I argued its removal as general partner was improper. The Li Appellants moved to dismiss the counterclaim, and the Cui Appellants moved for a receiver to be appointed to manage CRCPS.

Before the district court ruled on the motions to dismiss, Appellants voluntarily dismissed some of their claims. The Li Appellants' remaining claims were:

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(1) a derivative breach-of-fiduciary-duty claim against CRC I;

(2) a derivative civil-theft claim against CRC, SPO, SPO I, and Mr. Knobel;^[9]

(3) a derivative breach-of-contract claim based on the Loan Agreement against SPO I;^[10]

(4) a derivative federal securities-fraud claim against CRC I; and

(5) a derivative state securities-fraud claim against CRC, its principals, and Mr. Knobel.

...