Xia Bi v. McAuliffe

• Decision Date: 12 June 2019
• Docket Number: No. 18-2194,18-2194
• Parties: XIA BI; Nian Chen; Yuanyuan Chen; Ying Cheng; Jun Huang; Kui Le; Chungsheng Li; Zhonghui Li; Lin Lin; Lan Liu; Meiming Shen; Yunping Tan; Bixiang Tang; Chun Wang; Rui Wang; Yahong Wang; Yue Wang ; Jian Wu ; Lei Yan; Junping Yao; Jin You; Zhen Yu; Houqian Yu; Nianqing Zhang; Xuemei Zang; Huibin Zhao; Yan Zhao, Plaintiffs – Appellants, v. Terry MCAULIFFE; Anthony Rodham, Defendants – Appellees and Xiaolin "Charles" Wang; Does 1-100, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

927 F.3d 177

XIA BI; Nian Chen; Yuanyuan Chen; Ying Cheng; Jun Huang; Kui Le; Chungsheng Li; Zhonghui Li; Lin Lin; Lan Liu; Meiming Shen; Yunping Tan; Bixiang Tang; Chun Wang; Rui Wang; Yahong Wang; Yue Wang ; Jian Wu ; Lei Yan; Junping Yao; Jin You; Zhen Yu; Houqian Yu; Nianqing Zhang; Xuemei Zang; Huibin Zhao; Yan Zhao, Plaintiffs – Appellants,

v.Terry MCAULIFFE; Anthony Rodham, Defendants – AppelleesandXiaolin "Charles" Wang; Does 1-100, Defendants.

No. 18-2194

United States Court of Appeals, Fourth Circuit.

Argued: May 7, 2019

Decided: June 12, 2019

Amended: July 9, 2019

ARGUED: Gerard Patrick Fox, Marina Vladimir Bogorad, GERARD FOX LAW P.C., Los Angeles, California, for Appellants. Marc Erik Elias, PERKINS COIE LLP, Washington, D.C., for Appellees. ON BRIEF: Scott M. Abeles, GERARD FOX LAW P.C., Washington, D.C., for Appellants. Bruce V. Spiva, Amanda R. Callais, PERKINS COIE LLP, Washington, D.C., for Appellees.

Before WILKINSON and NIEMEYER, Circuit Judges, and DUNCAN, Senior Circuit Judge.

Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge Niemeyer and Senior Judge Duncan joined.

WILKINSON, Circuit Judge:

Twenty-seven Chinese investors appeal from the dismissal of their claims against Terry McAuliffe and Anthony Rodham stemming from failed investments in an electric vehicle startup. For the reasons that follow, we affirm.

I.

A.

We accept as true the following facts, which come from plaintiffs’ amended complaint. Plaintiffs-Appellants are a group of twenty-seven Chinese citizens who invested $ 500,000 each in a partnership that loaned their money to GreenTech Automotive. GreenTech, founded in 2008, was a Mississippi corporation that wanted to enter the hybrid and electric vehicle markets. Initially, GreenTech planned to produce the "MyCar," a vehicle that would travel at low speeds and thus be subject to lower levels of regulatory scrutiny.

This ambitious plan required a great deal of capital. GreenTech sought to raise some funds from foreign investors who might qualify under the Employment-Based Immigration Fifth Preference, or EB-5, Program. See 8 U.S.C. § 1153(b)(5). This program offered a path to permanent residency for foreign investors whose investments in American projects created or preserved at least ten jobs for American workers. While the program ordinarily required a $ 1 million investment, investments of $ 500,000 in certain rural areas or areas with high unemployment may also qualify under the EB-5 program.

GreenTech thus planned to build a new manufacturing facility in Tunica, Mississippi to take advantage of the lower investment threshold. The company collected funds from potential EB-5 immigrants through several different investment platforms. Some Chinese investors, for example, purchased preferred shares directly from GreenTech. The plaintiffs in this lawsuit, however, invested their money in GreenTech Automotive Partnership A-3, LP (the "A-3 partnership"), which was created to collect capital and then loan it to GreenTech. Plaintiffs’ investments were governed by a series of documents, including "the private placement memorandum, the subscription agreement, the limited partnership agreement, a construction loan agreement, [and] a power of attorney agreement." J.A. 155. These documents were distributed to plaintiffs in English only, not Chinese.

Plaintiffs allege that they signed the subscription documents "without reviewing any version" and do not claim to have translated the documents into their native language. Id. at 181, 186. Pursuant to those written agreements, each of the twenty-seven plaintiffs paid $ 500,000 for a partnership share in A-3 sometime between July 2012 and December 2013. They each also remitted an "Administrative Fee" of $ 60,000 or $ 61,000 to Gulf Coast Funds Management, LLC, a GreenTech affiliate that managed the A-3 partnership.

In total, the A-3 partnership collected $ 500,000 from each of eighty-six investors, and then loaned the total of about $ 43 million to GreenTech. The loan terms were "not the result of arm’s length negotiations." Id. at 169. The Private Placement Memorandum reveals that the loan, which was non-recourse, "specifically exclude[d] customary provisions designed to protect the interests of lenders." Id. at 278. GreenTech would make interest-only payments to the A-3 partnership at a 4% interest rate; of that amount, 1.5% would be used to pay Gulf Coast yearly management fees. Id. at 257.

Defendants-appellees are Terry McAuliffe and Anthony Rodham.¹ McAuliffe was the co-founder and former Chairman of GreenTech. Rodham was the CEO of both the A-3 partnership and another entity that was formed to serve as A-3’s general partner, GreenTech Automotive Capital A-3 GP, LLC. Rodham also served as President and CEO of Gulf Coast, the management company that received plaintiffs’ administrative fees.

Plaintiffs claim that Rodham and McAuliffe made a series of false statements relating to the A-3 partnership’s fundraising efforts. The complaint alleges that Rodham made the following misstatements:

(1) On April 25, 2011, Rodham claimed that EB-5 funds accounted for only 7.8% of GreenTech’s capital during an event in Beijing, China.

(2) At this same event, Rodham expressed that Gulf Coast "chose" GreenTech as a suitable investment.

The complaint alleges that these statements were false because (1) far more than 7.8% of GreenTech’s funds came from EB-5 investors; and (2) Gulf Coast could not choose GreenTech since they were under joint ownership and management.

The plaintiffs also allege that McAuliffe made four misstatements:

(1) On November 11, 2011, McAuliffe told a CNBC interviewer that GreenTech "ha[d] only sold 11,000 cars, but it’s still a new business for us." J.A. 154.

(2) On January 14, 2012, McAuliffe informed Jan Paynter during an interview that GreenTech’s first-year’s production of electric vehicles would be sold to the country of Denmark.

(3) On July 23, 2012, McAuliffe said in an interview with three Chinese reporters that GreenTech was the first corporation to mass produce low-speed electric cars.

(4) On December 5, 2012, McAuliffe stated in an interview with a local NBC station that GreenTech "had a thousand employees." J.A. 155.

The complaint alleges that each of those statements was false when made because GreenTech (1) had not sold 11,000 cars; (2) did not have a contract with Denmark; (3) had not mass-produced any electric vehicles; and (4) had fewer than one hundred employees.

Plaintiffs allege that they each "relied on some or all of the statements in these newsletters, statements on GreenTech’s websites and social media, and statements made by Mr. McAuliffe [and] Mr. Rodham ... during roadshows, in interviews, and in written materials they authorized before signing the subscription agreement ...." J.A. 162. But there are no specific allegations that any individual plaintiff encountered any of those alleged misstatements in promotional materials or on Greentech’s website. Twenty-two plaintiffs, moreover, allege that they moved to the United States on provisional visas in reliance on defendants’ misrepresentations.

GreenTech, along with a web of related corporate entities, eventually failed to manufacture and sell vehicles according to its business plan. GreenTech defaulted on the loan from the A-3 partnership, and the plaintiffs have not recovered their $ 500,000 investments. As of the filing of the amended complaint, GreenTech and several of the related entities had filed for bankruptcy. Plaintiffs now seek, inter alia , to recover the losses from their failed investments in the A-3 partnership.

B.

Plaintiffs filed their original complaint in Virginia state court. After removing the suits to the Eastern District of Virginia, McAuliffe and Rodham filed motions to dismiss. The district court granted the motions under Federal Rule of Civil Procedure 12(b)(6). With respect to the fraud claims so central to the complaint, it held that the plaintiffs had failed "to identify the facts needed to adequately plead claims ... with particularity," J.A. 134, including allegations over "the manner in which [any false statements] misled the plaintiff[s], and the manner in which plaintiff[s] relied on the statements." Id. at 133-34. Plaintiffs were allowed twenty days to file an amended complaint.

The amended complaint honed plaintiffs’ allegations by reducing the number of claims and dropping from the case several corporate defendants, which by that point had filed for bankruptcy and thus stayed any actions against them. The amended complaint raised claims against both McAuliffe and Rodham for fraud in the inducement (Count I); fraud (Count II); federal securities fraud (Count III); and conspiracy to commit fraud and breach fiduciary duties (Count VII). Plaintiffs also brought claims against Rodham for breach of fiduciary duty (Count IV); accounting (Count V); aiding and abetting a breach of fiduciary duty (Count VI); unjust enrichment (Count VIII); and negligence (Count IX).

McAuliffe and Rodham again moved to dismiss the claims against them for failure to state a claim under Rule 12(b)(6). And the district court again granted the motion, this time with prejudice. As to the fraud claims, the court noted that "[p]laintiffs do not state which of the named [p]laintiffs claims to have relied on each statement, or where or how any specific [p]laintiff heard or learned of the alleged statements." J.A. 478-79. For that reason, plaintiffs still had failed to plead reliance with the particularity required under the Rules of Civil Procedure. See Fed. R. Civ. P. 9(b). The court also noted that any reliance on the alleged misstatements was unreasonable because plaintiffs by their own admission did not read or review the offering documents.

The court also dismissed the claims for breach of fiduciary duty, unjust enrichment, and negligence because plaintiffs were not the appropriate party to bring these claims, which properly should have been brought...