United States District Court, D. Vermont
OPINION AND ORDER GRANTING IN PART AND DENYING IN
PART PLAINTIFFS' THIRD MOTION TO AMEND COMPLAINT AND TO
ADD CLASS ACTION CLAIMS AND GRANTING SILVER DEFENDANTS'
MOTIONS TO DISMISS (DOCS. 67, 86, & 87)
CHRISTINA REISS JUDGE.
August 11, 2017, Plaintiffs Wei Wang, Guangyi Xiong, and
Xiaofeng Feng filed a Complaint in this court alleging legal
malpractice; breach of contract; breach of the implied
covenant of good faith and fair dealing; unjust enrichment;
violations of Sections 10(b) and 10b-5 of the Securities
Exchange Act of 1934; unfair and deceptive practices in
violation of the Vermont Consumer Protection Act, 9 V.S.A.
§§ 2451-82J; and breach of fiduciary duty against
Jianming Shen and ShenLaw LLC (collectively, the
"Shen Defendants"). Plaintiffs' claims arise
out of development projects in Jay Peak, Burke, and the
greater Newport area of Vermont comprised of eight phases in
various stages of completion (the "Jay Peak
before the court is Plaintiffs' third motion to amend the
Complaint and to add class action claims (Doc. 67). Also
pending before the court are a motion to dismiss
Plaintiffs' claims for lack of personal jurisdiction
pursuant to Rule 12(b)(2) (Doc. 86), a motion to dismiss for
lack of subject matter jurisdiction pursuant to Rule
12(b)(1), and a motion to dismiss for failure to state a
claim pursuant to Rule 12(b)(6) (Doc. 87) filed by Defendants
Darren Silver and Darren Silver & Associates LLP (the
issue is whether Plaintiffs should be permitted to amend
their Complaint a third time; whether Plaintiffs'
proposed class action claims are futile; whether
Plaintiffs' motion to amend should be denied on the
grounds of undue delay; whether Plaintiffs have standing to
assert their proposed class action claims; whether the court
has subject matter jurisdiction in light of the absence of
diversity of citizenship between proposed new plaintiff
Stephen Webster and the Silver Defendants; and whether the
court may properly exercise personal jurisdiction over the
22, 2018, approximately ten months after filing their initial
Complaint, Plaintiffs moved to amend their Complaint to add
class action claims. In their First Amended Complaint,
Plaintiffs, individually and on behalf of similarly situated
class members, alleged four causes of action against a
proposed class of defendants: breach of fiduciary duty;
unfair and deceptive practices in violation of the Vermont
Consumer Protection Act, 9 V.S.A. §§ 2451-82J;
legal malpractice; and breach of the implied covenant of good
faith and fair dealing. The Shen Defendants opposed the
motion to amend.
August 13, 2018, prior to the court's ruling on their
first motion to amend, Plaintiffs filed a second motion to
amend their Complaint to add Stephen Webster as a plaintiff
and to add the Silver Defendants as defendants. Plaintiffs
served their proposed Second Amended Complaint without
withdrawing their proposed First Amended Complaint.
hearing on November 5, 2018, the court granted
Plaintiffs' oral motion to withdraw their first motion to
amend the Complaint and granted in part and denied in part
Plaintiffs' second motion to amend the Complaint. The
court ruled that the class action allegations as pled were
futile because the proposed class of plaintiffs lacked
standing to sue the proposed class of defendants. At
Plaintiffs' request, the court granted Plaintiffs thirty
days to file a Third Amended Complaint (hereinafter,
"TAC") to correct certain factual errors in their
Second Amended Complaint. The court did not foreclose the
possibility of revised class action claims. Thereafter,
Plaintiffs embarked upon what they characterize as a
"vast overhaul of Part II" (Doc. 67 at 2) of their
Complaint. They seek to add claims for violations of the
Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1962 (Count I);
conspiracy to violate 18 U.S.C. § 1962(c) (Count II);
civil conspiracy to violate 13 V.S.A. § 1108 (Count
III); and unjust enrichment (Count IV). They propose
asserting these claims on behalf of a class of plaintiffs
comprised of "individuals who retained the Defendant
Attorneys to perform all necessary legal services for their
investment at the Jay [Peak] Projects under and pursuant to
the United States Citizenship and Immigration Services
Employment-Based, Fifth Preference ('EB-5')
immigrant-investor program" (the "Proposed Class
Plaintiffs") against a proposed class of defendants
comprised of individuals or business entities "hired by
a Plaintiff to represent them in their investment with the
Jay Peak Projects" (the "Proposed Class
Defendants"). (Doc. 67-1 at 31, ¶¶ 16, 21.)
further seeks to add Siyi Chen as a plaintiff and to add
defendants Darren Silver; Darren Silver & Associates
Dai & Associates LLP; Nguyen Huuan; Ting Geng; the Law
Offices of Geng & Zhang, PLLC; Leslie I. Snyder, BSC;
Ruben Flores; and Cheng Yun & Associates, PLLC. The TAC
seeks to remove defendants Schnader, Harrison, Segal &
Lewis LLP; the Flores Group; and Yun Cheng.
Shen Defendants filed an initial opposition on February 1,
2019 and a supplemental opposition on March 13, 2019.
Plaintiffs filed a reply on March 15, 2019 and a supplemental
reply on March 27, 2019, at which time the court took the
pending motion under advisement. The Silver Defendants filed
motions to dismiss on March 7, 2019 which Plaintiffs opposed
on May 31, 2019. The Silver Defendants replied on June 21,
2019, at which time the court took those motions under
advisement. In light of the overlap among the pending
motions, the court addresses them in a single opinion.
are represented by Russell D. Barr, Esq. and Chandler W.
Matson, Esq. The Shen Defendants are represented by Andrew H.
Montroll, Esq. The Silver Defendants are represented by
Christopher E.H. Sanetti, Esq.
The TAC's Factual Allegations.
Allegations Against the Shen Defendants
are individuals who sought to invest and reside in the United
States pursuant to the United States Citizenship and
Immigration Services ("USCIS") employment-based
fifth preference ("EB-5") visa program. This
program authorizes foreign investors who have invested
capital in a commercial enterprise in the United States to
file an 1-526 Petition requesting conditional permanent
residency status for a two-year period. An 1-526 Petition
requires a petitioner to acquire and supply evidence that the
chosen EB-5 investment project will create ten full-time
positions for qualifying employees. If the foreign investor
satisfies certain criteria, he or she may apply to have the
conditions removed from his or her visa in order to
permanently live and work in the United States.
Shen is an attorney who is the managing partner and president
of ShenLaw LLC which has its principal place of business in
New York. ShenLaw LLC handles transactions for immigrant
investors through the EB-5 program. Attorney Shen allegedly
"holds himself out to be an experienced EB-5 attorney
with a nationwide presence." Id. at 8, ¶
contend that Attorney Shen directed them to invest in the Jay
Peak Projects and, on multiple occasions, authored, procured,
and disseminated advertisements to foreign investors in which
he endorsed the Jay Peak Projects as being one of the best
EB-5 enterprises in the United States with a 100% 1-526
Petition approval rate. More specifically, Attorney Shen
allegedly directed approximately seventy clients, including
Plaintiffs, to invest in Phase VII of the Jay Peak Projects,
which included the Jay Peak Biomedical Research Park L.P.
Feng retained Attorney Shen in December 2013, although
Attorney Shen maintains that Plaintiff Feng did not pay his
retainer or bills for legal fees. Plaintiff Wang retained
Attorney Shen in May 2014 and paid approximately $18, 000 in
legal fees and filing costs to the Shen Defendants. Plaintiff
Xiong retained Attorney Shen in March 2016 and paid
approximately $14, 500 in legal fees and filing costs to the
retaining Attorney Shen, Plaintiffs received the investment
offering documents for Phase VII. The offerings required each
Plaintiff to make a capital contribution of $500, 000 and pay
a separate administrative or management fee of $50, 000 which
was used to pay fees and expenses incurred by the promoters,
including the payment of commissions and finder's fees.
Each Plaintiff complied with these requirements and
transferred $550, 000 to the Phase VII promoters.
Shen allegedly "explicitly assured" Plaintiffs that
he would assist with the necessary due diligence and ensure
the "immigration suitability" of the Jay Peak
Projects; however, he allegedly did not conduct any due
diligence regarding Plaintiffs' investments. Id.
at 13, ¶ 56. Plaintiffs assert that "[t]he most
basic and standard legal due diligence would have revealed
that [Plaintiffs] were throwing their money into a complete
sham." Id. at 14, ¶ 60. Attorney Shen did
not request financial information regarding how EB-5 investor
funds were spent, and the Jay Peak Projects did not disclose
that information. In 2012, public allegations of wrongdoing
by the Jay Peak Projects promoters emerged. By May 2014, a
group of twenty investors had complained about the
misappropriation of investor funds.
VII's parent company, AncBio, was ultimately sold at
auction in May 2014 to satisfy creditors. Phase VII did not
obtain approval from the U.S. Food and Drug Administration
for the research center's products-a prerequisite for the
operation of Phase VII and the use of Plaintiffs'
investment funds. Plaintiffs allege that Attorney Shen failed
to inform them of wrongdoing at the Jay Peak Projects because
he was receiving direct and indirect compensation in exchange
for referring foreign investors to the Jay Peak Projects.
result of the Shen Defendants' acts and omissions,
Plaintiffs allege that they have "lost their initial
investment, their initial path to immigration in the United
States, their administrative fees, and the fees paid to
[Attorney] Shen." Id. at 17-18, ¶ 82.
Through separate litigation, the federally appointed receiver
of the Jay Peak Projects secured a settlement from which each
Plaintiff was offered $500, 000. Plaintiffs Wang and Feng
each accepted the $500, 000, while Plaintiff Xiong did not.
Proposed Class Allegations and Claims.
Class Plaintiffs are over one hundred individuals who
invested in the Jay Peak Projects and retained Proposed Class
Defendants to perform legal services in support of their EB-5
visa applications. Proposed Class Defendants are
approximately seventy-one attorneys or law firms who
allegedly marketed and promoted the Jay Peak Projects to
potential investors, including Proposed Class Plaintiffs.
Class Defendants collected legal fees from Proposed Class
Plaintiffs of approximately $13, 000 to $18, 000 per class
member. Proposed Class Plaintiffs and Proposed Class
Defendants reviewed investment offering documents for the Jay
Peak Projects which described how the investors' money
was to be used and how the profits would be allocated to the
Class Plaintiffs were required to invest a capital
contribution of $500, 000 and pay a separate administrative
fee of $50, 000 which was "supposed to be used to pay
legitimate fees and expenses incurred by the Jay Peak
Projects and the promoters of the Projects."
Id. at 38, ¶ 54. However, these funds were
allegedly commingled by the Jay Peak Projects and some of the
funds were allegedly used to pay individual kickback payments
of $5, 000 to $30, 000 to Proposed Class Defendants for each
individual who invested in the Jay Peak Projects. The alleged
kickback payments were memorialized in agreements (the
"Kickback Agreements") between the Jay Peak
Projects and each Proposed Class Defendant. Proposed Class
Plaintiffs do not allege any agreements between and among the
Proposed Class Defendants regarding the Kickback Agreements.
Proposed Class Plaintiffs were not aware of the Kickback
Agreements at the time they retained Proposed Class
Defendants to provide legal services. "In general,"
Proposed Class Defendants "agreed that they would be
paid money by Jay Peak after, and only after, one of their
client's money was released from escrow to the Jay Peak
Projects." Id. at 38, ¶ 52. Proposed Class
Plaintiffs' funds were held in an escrow account to be
released only after their initial 1-526 Petition was
approved, however, "upon information and belief, this
escrow arrangement was not always followed[.]"
Id. at 38, ¶53.
Kickback Agreements allegedly formed the basis of a
"Kickback Association or Enterprise" which was
"an ongoing organization that functioned as a continuing
unit over the course of many years, and at least from 2007 to
April of 2016" and allowed Proposed Class Defendants to
profit from funds paid to them by the Kickback Association or
Enterprise. Id. at 39, ¶ 59. Proposed Class
Defendants "appear to have received" kickbacks
totaling more than $4.6 million. Id. at 41, ¶
76. The TAC alleges that each time a Proposed Class Defendant
received money from the Jay Peak Projects, this created a
deficit in funding that needed to be rectified by further
investment by a subsequent immigrant investor.
2012, each Proposed Class Defendant allegedly received a
letter from Douglas Hulme, an immigration advisor to the Jay
Peak Projects, explaining that the Jay Peak Projects had
orchestrated a Ponzi-scheme. Proposed Class Defendants
allegedly failed to disclose this information to their
clients and "assisted the Jay Peak Projects in hiding
the allegations and reporting of the Jay Peak
Ponzi-scheme[.]" Id. at 43, ¶ 85.
Conclusions of Law and Analysis.
Whether to Allow Plaintiffs' Amendments to the Factual
Allegations in Part I of the TAC.
Shen Defendants do not squarely oppose Plaintiffs'
request to amend their factual allegations as set forth in
Part I of the TAC. With regard to those revisions, Plaintiffs
were granted leave to amend by the court. At least insofar as
their new factual allegations are concerned, there is no
challenge to the proposed amendments on the grounds of bad
faith, undue delay, or futility. Plaintiffs' motion to
amend to include these revised factual allegations in Part I
of the TAC is therefore GRANTED. See Fed. R. Civ. P.
15(a)(2) ("The court should freely give leave [to amend]
when justice so requires.").
Whether to Permit Plaintiffs' Third Motion to Amend Part
II of their Complaint.
to Fed.R.Civ.P. 15(a)(1), "[a] party may amend its
pleading once as a matter of course within ... 21 days after
service of a responsive pleading or 21 days after service of
a motion under Rule 12(b), (e), or (f), whichever is
earlier." If more than twenty-one days have elapsed,
"a party may amend its pleading only with the opposing
party's written consent or the court's leave[,