Lin v. Veritex Cmty. Bank
| Decision Date | 21 February 2022 |
| Docket Number | Civil Action H-20-1904 |
| Parties | YUQI “RICHARD” LIN, Plaintiff, v. VERITEX COMMUNITY BANK, N.A. f/n/a GREEN BANK, N.A., Defendant and Third-party Plaintiff, v. RG OPPORTUNITIES I, LP, Third-party Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Richard Lin sued Veritex Community Bank for breach of contract and breach of fiduciary duty, alleging that Veritex prematurely released money he had invested from escrow. Veritex responds that the money belonged to RG Opportunities I, LP, not Lin and that Lin is only a partner in RGO. Veritex contends that as a result, Lin lacks standing to bring his claims against Veritex. Veritex filed a third-party complaint against RGO and New City Advisors LLC, seeking indemnity, contribution and attorney's fees and expenses. The court dismissed the breach of fiduciary duty claim and the claim against New City. Lin and Veritex cross-moved for summary judgment, and Veritex moved for summary judgment on its third-party claims. The issues have been thoroughly argued in the parties' briefs, responses, and replies.
Based on the pleadings; the motions, responses and replies; the applicable law; the summary judgment record; and the parties' briefs; Veritex's motion for summary judgment as to its third-party claims, (Docket Entry No. 49), is granted as to RGO and denied as moot as to New City. Veritex's motion for partial summary judgment as to Lin's claims, (Docket Entry No. 61), is granted. Lin's motion for partial summary judgment, (Docket Entry No. 62), is denied. The reasons for these rulings are explained below.
The United States Citizenship and Immigration Services EB-5 program permits immigrant investors to become lawful permanent residents if they invest money in United States businesses to create at least 10 full-time jobs. See 8 U.S.C. § 1153(b)(5). Richard Lin, a Chinese national, applied for an EB-5 visa. (Docket Entry No. 62-1 at 2). Under this program, he was required to file a I-526 petition with the USCIS showing that he was committing the required amount of lawfully acquired capital. (Docket Entry No. 62-1 at 2). Lin invested with RGO Opportunities I, LP, which is a company set up to provide Chinese nationals with a means of qualifying for an EB-5 visa. RGO was in the business of opening and running a chain of Brazilian barbecue restaurants. (Docket Entry No. 61-1 at 49-50). RGO entered into an Escrow Agreement to hold Lin's and other investors' funds until certain conditions were met, including that the USCIS approved the investors' I-526 petitions. (Docket Entry No. 62-1 at 2). If and when the specific conditions were met, the funds would be released to RGO, in increments, to allow it to develop the business and create the required jobs. (Docket Entry No. 62-9 at 3; Docket Entry No. 62-1 at 3).
Veritex was the escrow agent. The Escrow Agreement governed how Veritex would hold, disburse, and return the funds it held in the escrow account. NESF Escrow Services Corporation, a wholly owned subsidiary of NES Financial Corporation, served as the escrow administrator and as the liaison between Veritex and other parties to the Escrow Agreement. New City served as the Subscriber Representative, responsible for representing the interests of all the investors in RGO, including Lin. (Docket Entry No. 62-9 at 1).
The Escrow Agreement referred to the foreign investors as “Subscribers.” Each Subscriber invested in units of $500, 000.00, referred to in the Escrow Agreement as the “Subscription Proceeds.” Lin was a Subscriber, but he was not a party to the Escrow Agreement. (Docket Entry No. 62-9 at 1).
Various provisions of the Escrow Agreement identify the escrowed funds as “investor funds, ” which were disbursed based on the progress of each investor's I-526 application. When an investor first filed an I-526 petition, Veritex was authorized to release $125, 000 of that investor's contribution, in accordance with a Written Direction from RGO and New City. (Docket Entry No. 62-9 at 3). When two investors' I-526 petitions were approved, Veritex was authorized to release an additional $325, 000 from each of the approved investors' contributions to the RGO account. (Docket Entry No. 62-9 at 3). Before releasing any funds, Veritex needed to receive a Written Direction from RGO and the Subscriber Representative, New City, stating that the I-526 application was at the required stage. (Docket Entry No. 62-9 at 3). To make the additional disbursement of $325, 000, Veritex needed to receive a Written Direction from RGO and New City with a certification from the USCIS that two investors in RGO had received approval of their I-526 petitions. (Docket Entry No. 62-9 at 3).
Following a Written Direction from RGO and New City that an investor's I-526 application was denied, Veritex was required to return the investor's investment to that investor without deducting or paying interest. (Docket Entry No. 62-9 at 3). If there were insufficient funds remaining in escrow, the Escrow Agreement required RGO and New City to “exercise their rights in the Payment Guaranty to ensure prompt repayment of the Subscription Proceeds of any denied Subscriber.” (Docket Entry No. 62-9 at 3).
The Escrow Agreement required RGO to provide Veritex “schedules disclosing the name, address and Tax Identification Number (as applicable) of each of the Subscribers, and such other information as will enable the Escrow Agent to attribute to a particular Subscriber all Subscription Proceeds received by the Escrow Agent.” (Docket Entry No. 62-9 at 1). Under the Escrow Agreement, New City was the tax owner of record and each investor was responsible to New City for its part of the taxes on the earnings of its investment. (Docket Entry No. 62-9 at 4).
Lin's I-526 petition was approved on February 28, 2017, the first petition of the RGO investors to be approved. (Docket Entry No. 62-1 at 2). On March 2, 2017, Veritex received a Written Direction to disburse $375, 000 of funds associated with Lin to RGO under Paragraph 3(b) of the Escrow Agreement. (Docket Entry No. 62-13). The Direction was signed by RGO and New City, as required by the Escrow Agreement. (Docket Entry No. 62-13). On March 8, 2017, Veritex released the funds from escrow. (Docket Entry No. 62-1 at 3).
Lin alleges that the $375, 000 came from his individual investment in RGO and that Veritex breached the Escrow Agreement by releasing these funds before a second I-526 petition was approved. (Docket Entry No. 23 at 2). As a result, he alleges, RGO management misspent his investment and he lost $375, 000. (Docket Entry No. 62-1 at 4).
Lin sued. The court granted Veritex's motion to dismiss on Lin's fiduciary duty claim, leaving his breach of contract claim. Veritex asserted third-party claims against RGO and New City for contribution, indemnity, and breach of the Escrow Agreement, based on their failure to defend and indemnify Veritex. New City was dismissed. Veritex and RGO moved for summary judgment as to liability for Lin's claims, and Veritex moved for summary judgment as to its claims against RGO.
“Summary judgment is appropriate only when ‘the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Shepherd ex rel. Estate of Shepherd v. City of Shreveport, 920 F.3d 278, 282-83 (5th Cir. 2019) (quoting Fed.R.Civ.P. 56(a)). “A material fact is one that might affect the outcome of the suit under governing law, ” and “a fact issue is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Renwick v. PNK Lake Charles, LLC, 901 F.3d 605, 610 (5th Cir. 2018) (quotations omitted). The moving party “always bears the initial responsibility of informing the district court of the basis for its motion, ” and identifying the record evidence “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
“Where the non-movant bears the burden of proof at trial, ‘the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating'” that “there is an issue of material fact warranting trial.'” Kim v. Hospira, Inc., 709 Fed.Appx. 287, 288 (5th Cir. 2018) (quoting Nola Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)). The moving party must demonstrate the absence of a genuine issue of material fact, but it need not need to negate the elements of the nonmovant's case. Austin v. Kroger Tex., LP, 864 F.3d 326, 335 (5th Cir. 2017). “If the moving party fails to meet [its] initial burden, [the summary judgment motion] must be denied, regardless of the nonmovant's response.” Pioneer Expl., LLC v. Steadfast Ins. Co., 767 F.3d 503, 511 (5th Cir. 2014) (quoting Kee v. City of Rowlett, 247 F.3d 206, 210 (5th Cir. 2001)).
“When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings.” Duffie v United States, 600 F.3d 362, 371 (5th Cir. 2010). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014). “A party cannot defeat summary judgment with conclusory allegations, unsubstantiated assertions, or only a scintilla of evidence.” Lamb v. Ashford Place Apartments LLC, 914 F.3d 940, 946 (5th Cir. 2019). In deciding a summary judgment motion, “the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn...
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