Sutton v. Vt. Reg'l Ctr.
| Decision Date | 31 July 2020 |
| Docket Number | No. 2018-158,2018-158 |
| Citation | 2019 VT 71 A |
| Court | Vermont Supreme Court |
| Parties | Antony Sutton et al. v. Vermont Regional Center et al. |
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.
On Appeal from Superior Court, Lamoille Unit, Civil Division
Russell D. Barr, Chandler W. Matson and Benjamin E. Novogroski of Barr Law Group, Stowe, for Plaintiffs-Appellants.
Thomas J. Donovan, Jr., Attorney General, and Benjamin D. Battles, Solicitor General, Montpelier, for Defendants-Appellees.
PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.
¶ 1. ROBINSON, J. Plaintiff investors appeal the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. We reverse the dismissal of plaintiffs' claims of negligence against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. We affirm the dismissal of plaintiffs' remaining claims.1
¶ 2. At this stage in the litigation, we assume for the purpose of evaluating defendants' motion to dismiss that the allegations in plaintiffs' complaint are true.2 Plaintiffs have alleged as follows. The employment-based fifth preference visa, or EB-5, program, which is run by USCIS, is intended to stimulate the U.S. economy and create jobs through capital investment from foreign investors. Through this program, foreign investors and their spouses and children can become eligible for green cards if they make the required investment in a commercial enterprise in the United States and plan to create at least ten permanent full-time jobs for U.S. workers. Under the Immigrant Investor Program, a certain number of EB-5 visas are designated for foreign nationals who invest $500,000 in commercial enterprises associated with regional centers approved by USCIS based on proposals promoting economic growth. There are hundreds if not thousands of regional centers throughout the United States, and virtually all of them are private ventures. Some regional centers provide little more than administrative services such as submitting information to USCIS for a project and its investors. Others take a more active role in administration, oversight, auditing, and consultation to ensure investment projects comply with USCIS EB-5 regulations, immigration law, and securities laws.
¶ 3. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC).3 The VRC held itself out as a regional center that took a more active role in administration, oversight, auditing, and consultation. It was not the only state-affiliated regional center, but it was the only one that represented itself as a "state-run agency." The VRC billed itself as an attractive option for development and foreign investment due to its superlative "oversight powers," the overwhelming investor confidence that came from its "stamp of approval," and the State of Vermont's backing that would result in a "faster path to approval."
¶ 4. In 2006, the VRC partnered with a series of projects led by Ariel Quiros and William Stenger (referred to as the "Jay Peak Projects"). The phased series of eight proposed projects included building a hotel, indoor water park, ice rink, golf club house, medical center, and other facilities in Jay, Vermont; a biomedical research facility in Newport, Vermont; and a hotel, conference center, aquatic center, tennis center, and mountain bike facility in Burke, Vermont.
¶ 5. ACCD entered into a memorandum of understanding (MOU) with the Jay Peak Projects for each project. Each recited that "ACCD desires to obtain assistance in the planning and management of the Jay Peak EB-5" project "to assure the project's compliance with U.S. immigration law and regulations . . . and, thereby, to have greater assurance of its compliance with regional center requirements." Accordingly, the parties agreed that the Jay Peak Projects would, among other things, "support ACCD's compliance with regional center requirements by providing on a quarterly basis formal written progress reports" that would "set forth for the preceding quarter and year-to-date the number of investors, the status of alien investor capital (in escrow, transfers from escrow to the limited partnership) and activity of the limited partnership in furtherance of the project."4 These MOUs were included in the offering documents for the Jay Peak Projects. Offering documents were issued to each investor.
¶ 6. Employees of ACCD—including defendants James Candido and Brent Raymond, both former executive directors of the VRC, and John Kessler, general counsel for ACCD—traveled with Jay Peak representatives to EB-5 tradeshows, at which they would share a table and jointly solicit investors and promote the Jay Peak Projects.
¶ 7. ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the Jay Peak Projects a particularly sound investment. They told prospective investors that the VRC conducted quarterly reviews to ensure that projects complied with all applicable laws and regulations and "engag[ed] in the financial monitoring and auditing of projects to ensure legitimacy," and they represented that the MOUs imposed "strict covenants and obligations on the project to ensure compliance with all applicable laws and regulations."
¶ 8. Plaintiffs reasonably relied on these statements by ACCD employees in investing in the Jay Peak Projects.
¶ 9. Unbeknownst to the investors, but known to the VRC officials, no such state oversight by the VRC existed. The VRC never issued any of the quarterly reports contemplated in the MOUs. Defendant Brent Raymond, in fact, eventually confirmed that the VRC "does not prepare quarterly reports on projects."
¶ 10. Defendants and the Jay Peak Projects worked with a consulting firm that helped solicit potential investors. In early 2012, the firm's owner raised concerns with the VRC that the Jay Peak Projects were illegally misappropriating funds. His attorney requested financial documents for the Jay Peak Projects. The firm's owner held a conference call with VRC employees to discuss potential fraud in the Jay Peak Projects. That February, the firm ended its business dealings with the Jay Peak Projects and announced it had lost confidence in the finances and representations of the Jay Peak Projects and ACCD. The VRC effectively prevented the consulting firm from doing further work in Vermont.
¶ 11. James Candido then conducted an "audit-visit" to the Jay Peak Projects. He reported finding "no issues" with the Projects' financials, but made no record of his findings. He also coordinated with an immigration attorney—who plaintiffs allege had a longstanding referralrelationship with the Jay Peak Projects and thus a financial stake in them—to inspect the Projects and issue a report responding to the consulting firm's claims. Plaintiffs allege that the attorney spent "an extravagant weekend" at the Jay Peak Projects, after which he issued a report "painting a glowing picture of a successful EB-5 project" that "highlight[ed] the first-class amenities at the Jay Peak Projects, its high sale figures, and the 'particularly careful' oversight" by the VRC. That report also said that James Candido inspected the Jay Peak Projects' financial records quarterly and that the Projects' records would also be audited by an independent accounting firm.
¶ 12. The VRC, and in particular James Candido, used this report to assure prospective and existing immigrant investors that the consulting firm's concerns about misappropriation of funds within the Jay Peak Projects were unfounded. They said the consulting firm made the allegations because of a "business dispute." James Candido reassured investors that he had investigated the Jay Peak Projects and it was safe to invest in them, and investors accordingly relied on these statements in investing in the Projects. Plaintiffs allege this was an intentional misrepresentation.
¶ 13. At least one other individual also contacted John Kessler and James Candido in 2012 to inform them that the Jay Peak Projects might be committing securities violations and misusing investor funds.
¶ 14. Plaintiffs allege that "the VRC responded not by engaging in . . . audit and oversight" but rather "by stepping up promotion of the Jay Peak Projects," and that Brent Raymond and James Candido "deflected investor complaints."
¶ 15. In 2014, about twenty investors, including plaintiff Antony Sutton, sent complaints to Brent Raymond alleging that the Jay Peak Projects was misappropriating investor funds. They specifically alleged that the Jay Peak Projects had conducted fraudulent sales of penthouse suites, converted their equity interests into an unsecured promissory note, and had not made available any financials showing the source and use of investor funds.
¶ 16. In response, Brent Raymond told the investors that the VRC had no legal authority to conduct financial reviews. In an email to Antony Sutton, he chastised "Mr. Sutton and the Jay Peak Investors for 'how farfetched' their expectations were for the VRC to monitor, oversee, or otherwise review financial documents relating to the Jay Peak Projects." He said the VRC had "not been auditing [the Jay Peak Projects'] financials—nor are we required to, or ever represented that we we...
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