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Tort/Negligence – Fraud – Limited Partnership – Breach of Contract – Unjust Enrichment – EB-5 Program

Tort/Negligence – Fraud – Limited Partnership – Breach of Contract – Unjust Enrichment – EB-5 Program

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In an effort to obtain U.S. visa preference pursuant to the EB-5 program, the Chinese plaintiffs invested a plan to develop part of the Wilmington waterfront, but the actual development was extremely scaled back from the plans presented to plaintiffs. Plaintiffs’ fraud claim fails to meet the requirements of N.C. R. Civ. P. 9(b) in that (1) plaintiffs allege misrepresentations against defendants as a group, rather than specifying the misrepresentations made by each defendant and (2) plaintiffs allege they were misled by marketing materials without specifying which plaintiffs were misled by which statements in which marketing materials. Over the course of more than 19 months of litigation, plaintiffs have repeatedly failed to cure deficiencies when pleading their fraud–based claims. The court, in its discretion, determines that plaintiffs have been afforded sufficient opportunities to do so. Accordingly, plaintiffs’ claims for fraud, negligent misrepresentation and violation of G.S. Chapter 78A are dismissed with prejudice.

Defendants’ motions to dismiss are granted in part, denied in part.

In their conversion claims, plaintiffs allege that they were fraudulently induced to hand over funds to defendants who, from the beginning never intended to honor their alleged promises. The allegations are that the wrongful taking and defendants’ possession of the funds were simultaneous.  Consequently, defendants exercised unlawful dominion over the funds from the start, and no demand and refusal was necessary to start the running of the statute of limitations. Accordingly, plaintiffs’ 2021 and 2023 complaints show that their conversion claims, based on transactions occurring in or before 2014, are barred by the applicable three-year statute of limitations. However, plaintiffs have adequately pled that the statute should be tolled as to defendants Charles Schoninger and Wilmington Waterfront Development, LLC (Wilmington Development).

Plaintiffs are all accredited investors who (1) warranted that all information they had requested had been made available to them prior to investing, (2) acknowledged that the investment was highly speculative and that there was a  possibility of the complete loss of all contributed capital; (3) warranted that they had been given access to the books and records of the Northern Riverfront Marina and Hotel LLLP (NRMH); (4) were repeatedly warned to consult their own professional advisors about the risks of investing; and (5) warranted that they understood English or had the subscription agreement at issue translated by a trusted advisor. No de facto fiduciary relationship arose under these facts.

As general partner, Wilmington Development owed a fiduciary duty to the limited partnership. Plaintiffs allege that Wilmington Development breached that duty. However, plaintiffs allege no distinct injury that would permit their direct claim against Wilmington Development.

Plaintiffs’ breach of contract claims cite to marketing materials. Yet the contracts allegedly breached were a subscription agreement and a partnership agreement. The marketing materials clearly provide that only the terms in the partnership and subscription agreements control. The subscription agreement contains a merger clause specifying that the subscription agreement “constitutes the entire agreement among the parties hereto with respect to the subject matter hereof.” Therefore, representations in the marketing materials do not constitute contract terms.

The subscription agreement attached to plaintiff Chi’s complaint includes a page entitled “Agreement on Investment Period.” It defines the investment term as commencing on the day NRMH has use of the investors’ funds and extending a maximum of five years. It then states, “NRMH will repurchase the limited partnership units on a (FIFO) first in first out manor (sic).” Given Rule 12(b)(6)’s liberal standard, plaintiffs have alleged that the subscription agreement includes a promise to repurchase partnership units.

Plaintiffs have also sufficiently alleged that, as to Wilmington Development, the statute of limitations should be equitably tolled. Accordingly, their breach of contract claim against Wilmington Development on this basis may proceed.

The subscription agreement limits NRMH’s ability to sell the property on which the investor relies “for EB-5 visa approval until removal of the [investor’s] conditional permanent residence status.” Although plaintiffs do not specifically allege when each of them successfully removed the conditions on their permanent resident status, a January 2020 letter from Schoninger to plaintiffs includes his congratulations to some plaintiffs: “Regarding the USCIS, it looks like we are finally getting our early investors through the I-829 process!”

Given this statement in January 2020, plaintiffs have alleged a breach of the subscription agreement with respect to any sale of the project property that occurred prior to removal of conditions on plaintiffs’ permanent resident status years later. This contract claim may also proceed.

Where plaintiffs allege that NRMH wrongfully transferred property to other defendants, plaintiffs have not alleged unjust enrichment because plaintiff themselves did not make the transfers.

Motion granted in part, denied in part.

Chi v. Northern Riverfront Marina & Hotel, LLLP (Lawyers Weekly No. 020-047-23, 54 pp.) (Julianna Theall Earp, J.) 2023 NCBC 47. Michelle Ledo and Katherine Burghardt Kramer for plaintiffs; George Oliver and Jennifer Carpenter for defendants. North Carolina Business Court

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