Corporate – Breach of Fiduciary Duty – De Jure or De Facto Fiduciary Relationship

No de jure or de facto fiduciary relationship exists between managers at the company’s management committee and the limited partnership.

The Court granted the Individual Defendants’ motion to dismiss Plaintiff’s claim for breach of fiduciary duty.

The Nominal Defendant (the partnership) is a North Carolina limited partnership of 151 investors, all of whom are Chinese nationals. The partnership was formed to manage approximately $75 million of investment funds and to make qualifying “at risk” investments in commercial enterprises to satisfy the requirements of the EB-5 immigration program. Defendant (the company), a North Carolina limited liability company with its registered office located in Nash County, is the current General Partner of The partnership. The company, in turn, is managed by a nine-member management committee. Pro se plaintiffs and the Individual Defendants are limited partners of the partnership, members of the company, and members of the company’s management committee.

As a result of a settlement in a related bankruptcy case, proceeds of approximately $30 million were wired to the partnership. The company, as general partner of the partnership, was responsible for managing the partnership’s bank accounts and the settlement proceeds and ensuring those proceeds were invested in accordance with the partnership’s Partnership Agreement and the EB-5 immigration program’s regulations.

The action currently before this Court concerned the use and management of the funds received by the partnership from the bankruptcy proceeding. Plaintiffs claimed they initiated the litigation because they “were concerned that Defendants intended to disburse the funds in the [the partnership’s] bank account in a manner inconsistent with law, the Operating Agreement, and the Partnership Agreement of [the partnership].”

Plaintiffs sought a temporary restraining order, preliminary injunction, and a declaratory judgment that the company’s Management Committee “had removed Individual Defendants from their former positions as managers and, as a result, Defendants could not exercise power to move funds from the partnership’s bank account.” Plaintiffs amended their complaint, adding claims for appointment of a receiver, breach of contract, and breach of fiduciary duty.

Among other things, the court granted the Individual Defendants’ motion to dismiss Plaintiff’s claim for breach of fiduciary duty. The Individual Defendants are not in a de jure or de facto fiduciary relationship with the partnership or its limited partners, and, hence, cannot be liable for breach of fiduciary duty. Members of an LLC that is the general partner of a limited partnership do not owe any fiduciary duties as a matter of law to the limited partnership, even if those members serve on the management committee of the general partner. Further, this Court has stated previously that the Individual Defendants do not owe de facto fiduciary duties to the partnership.

Granted in part, denied in part.

Qian v. Li (Lawyers’ Weekly No. 020-049-25, 14 pp.) (A. Todd Brown, J.) 2025 NCBC 49. Jia Qian, Jiangang Jiao, and Lina Li, pro se. Reid & Wise, LLC, by Matthew Sava, and Fitzgerald, Hanna & Sullivan, PLLC, by Douglas W. Hanna, for Intervenor Plaintiffs. Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Jennifer K. Van Zant, Kearns Davis, William A. Robertson, Cameron V. Ervin, and Jimmy Chang, for Defendants Lijia Zheng, Yawei Zheng, Fang Lin, and Haoyu Qi. Wagner Hicks, PLLC, by Sean C. Wagner, Jonathon D. Townsend, and Meagan L. Allen, for Defendant Halifax Safeguard Property LLC. North Carolina Business Court