EB-5 Immigrant Investors’ Class Action Suit against Law Firms Raises Anti-SLAPP Defense
We’ve blogged about legal document translation services for EB-5 immigrant investor visa petitioners and about immigration document translation services accepted by the USCIS. The EB-5 Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (USCIS) was created in 1990. The program allows for eligible immigrant investors to become lawful permanent residents—or “green card” holders—by investing at least $500,000 ($900,000 after November 21, 2019) to finance a business in a targeted employment area in the United States that will employ at least ten American workers, full-time.
Unfortunately, the EB-5 program has been used as a tool for scammers to lure prospective investors in search of a green card to invest fortunes in fraudulent commercial enterprises. The most recent class action civil litigation to address this issue was in Zhao Hui Shi v. Wolfsdorf Rosenthal, LLP, decided on October 29, 2019, in the California Court of Appeals.
In this litigation, Chinese-speaking plaintiff investors sued two law firms—Wolfsdorf Rosenthal, LLP (Wolfsdorf) and Miller Mayer, LLP (Miller)—for their participation in a fraudulent EB-5 investment scam. The defendant law firms claimed that the investors’ lawsuits were SLAPP (“Strategic Lawsuit against Public Participation”) suits and should be dismissed pursuant to the applicable anti-SLAPP provision in California.
The Proposed EB-5 Fund
Using the EB-5 program, Charles C. Liu, the founder of Pacific Proton Therapy Center, LLC (Pacific Proton) purportedly attempted to develop Beverly Proton Center, LLC (Beverly Proton), which was presented as a proton therapy cancer treatment center in Southern California. Liu held a 75% interest in Beverly Proton. His partner, Dr. John Thropay, a radiation oncologist, held a 25% interest.
To finance the center, Liu formed the Pacific Proton EB-5 Fund, LLC (EB-5 Fund), which the USCIS approved in June 2012. From that time, Beverly Proton was qualified as a regional center that could be funded by eligible EB-5 immigrant investors. However, the project was a scam, and Liu, his wife (Lisa Wang), and Thropay conspired to advertise Beverly Proton as a legitimate project to lure prospective investors to invest in the fraudulent cancer treatment center.
Between October 2014 and April 2016, 54 investors (including the plaintiffs) each invested at least $500,000 in the EB-5 Fund. Investments from all investors totaled almost $27,000,000.
The Terms of the Investment
According to the terms of the Private Offering Memorandum (POM) for the project, the investors’ capital contributions would be used only for the development and operation of Beverly Proton. Administrative fees were to be used to pay commissions and offering expenses. However, the POM and other marketing materials were materially misleading. Instead, Pacific Proton paid Liu a salary of $350,000. Liu also earned $200,000 from the EB-5 Fund. Although Dr. Thropay performed no work for Beverly Proton, he received $680,000 and spent $300,000 improving a private parcel of land. Indeed, neither Liu nor Thropay ever intended for the cancer center to be built.
In the end, Liu and his wife diverted more than $21 million from the EB-5 Fund for their personal use. By June 2016, with no progress made on the development of the treatment center, less than $235,000 of the $26.9 million that the plaintiffs contributed remained in the project.
Law Firms Aiding and Abetting
The court determined that Liu and Thropay were aided and abetted in their fraudulent venture by many professionals, including the defendant law firms, Miller and Wolfsdorf. The court found that the participation of the law firms “gave the project a veneer of legitimacy.”
Miller prepared the documents used to establish the fraudulent EB-5 fund. The court held that
[Miller] knew of the fraudulent scheme to steal money by false pretenses from potential immigrants, or should have known of said scheme but for their willful ignorance, and nonetheless assisted the perpetrators knowing that plaintiffs’ money would be stolen. It prepared the POM knowing that it would be presented to potential investors like plaintiffs as marketing material.
Additionally, Liu referred the plaintiff investors to Wolfsdorf. Approximately 35 of the plaintiffs retained Wolfsdorf to prosecute immigration petitions on their behalf. However, the plaintiffs never met with Wolfsdorf attorneys. The court held that
[Wolfsdorf] knew that [it was] receiving clients en masse by the opposing party in the transactions, and therefore [was] aware of [its] heightened ethical duty to investigate the circumstances of the retention and the ethical duty to conduct due diligence to insure that the representation was not being obtained for an improper purpose (which in fact is was).
Instead, Wolfsdorf limited the scope of its representation of plaintiffs and drafted documents that contained no safeguards or protections for the investors, or any obligation to investigate the legitimacy of the underlying transactions. It allowed its clients’ investments to be released directly to the fraudulent EB-5 fund without assuring the use of escrow accounts or capital controls to protect the investors’ capital.
The court further held that
Wolfsdorf either knew of the scheme to defraud potential immigrants or should have known but for their willful ignorance, or negligently and recklessly ignored the high probability that its clients’ money would be stolen, yet allowed and encouraged plaintiffs to invest in the scheme. . . . In short, . . . [Wolfsdorf] violated ethical standards and improperly limited the scope of [its] representation so as to allow [it] to keep making money off the scheme without having to report anything negative to [its] clients which might scare them off.
The Chinese Investors’ Claims
As a direct and proximate result of these actions, the Chinese-speaking plaintiffs each lost over $500,000. Plaintiffs asserted causes of action against the law firms for fraud, negligent misrepresentation, attorney fees, and treble damages afforded under California Penal Code § 496(c).
The Law Firms’ Anti-SLAPP Claims
The defendant law firms responded by moving to dismiss the investors’ claims as violating California’s anti-SLAPP provision (California Code of Civil Procedure § 425.16), which allows a defendant to seek early dismissal of an harassing lawsuit when the claims alleged involve constitutionally protected speech or petition activity of public importance. Upon the assertion of this defense, the plaintiffs must show that there is a probability that they will prevail in their lawsuit against the defendants.
In its defense, Miller asserted that the plaintiffs’ lawsuit against it was based on its constitutionally protected right to submit, on its client’s behalf, an application to the USCIS for the right to operate as a regional center under the EB-5 immigration program. Miller also asserted that the plaintiffs’ suit was without merit because Miller made no representations to the plaintiff investors, had no duty to make any representations, and had no knowledge of the alleged wrongdoing until it had already completed its work of filing its client’s application for the program.
Likewise, Wolfsdorf asserted that the investors’ claims “were designed to deter it from engaging in constitutionally protected activities of its clients in the form of preparing and filing their immigration visa petitions.” It also argued that plaintiffs’ claims were without merit. It claimed that these particular plaintiffs lacked standing, since they were not clients of Wolfsdorf and did not discover Wolfsdorf’s involvement until after they had already decided to invest and, therefore, could not have relied on Wolfsdorf’s participation when deciding the legitimacy of the investment.
In this case, the trial court granted the law firms’ motion to dismiss the investors’ claims as violating the anti-SLAPP provision, and the investors appealed.
The Chinese Investors’ Opposition to the Law Firms’ Anti-SLAPP Claims
The foreign investors claimed that their causes of action against the law firms were not based on, and did not arise from, any activity by the law firms that is constitutionally protected. Therefore, their case should not be dismissed.
As to Miller, the plaintiffs asserted that although the acts of advising Liu and submitting applications to the USCIS might be constitutionally privileged activity, Miller’s activity of creating documents that it knew would be used to commit fraud and not disclosing that fraud are not protected activities. Therefore, their asserted cause of action for treble damages and attorney fees cannot be the subject of an anti-SLAPP suit.
Likewise, as to Wolfsdorf, the plaintiffs asserted that the anti-SLAPP statute did not apply because the conduct alleged in their complaint was not Wolfsdorf’s presentation of their visa petitions but, rather, “aiding and abetting fraud, malpractice, negligent ratification of the project, and retention of funds procured by fraud—none of which fall under the statute.” Plaintiffs argued that even though they were not direct clients of Wolfsdorf, they nevertheless were baited by Wolfsdorf’s alleged attorney representation and were injured by Wolfsdorf’s failure to disclose the fraudulent activity. Therefore, plaintiffs argued that they have standing to assert their claims.
The Court’s Decision
The appellate court held that the trial court erred by granting Miller’s motion to dismiss but correctly dismissed the plaintiffs’ claims as to Wolfsdorf.
As to Miller, the court held that plaintiffs’ causes of action were not based on, and did not arise from, an exercise of the constitutional rights of petition or free speech that are protected by the anti-SLAPP provision. In fact, the court held that the fact that Miller submitted the EB-5 application is irrelevant. The injurious facts alleged are that Miller presented the POM documents and other advertising material to the plaintiffs, knowing that the materials were fraudulent. The court reasoned that
[t]he protected activity is merely incidental. In fact, the harm to plaintiffs occurred years after the application was filed, when plaintiffs were presented with the POM as a means of inducing them to invest. Plaintiffs alleged that they relied on the fraudulent representations in the POM in making the decision to invest, and suffered the loss of $500,000 each as a result of their reliance.
Accordingly, the court held that the anti-SLAPP provision did not apply to the injurious activity asserted by the plaintiffs.
To the contrary, the court held that, with respect to Wolfsdorf, the plaintiffs’ allegations arose from the firm’s prosecution of plaintiffs’ visa applications for permanent residency, which is protected activity under the anti-SLAPP provision. However, the court further concluded that the plaintiffs failed to satisfy the second prong of its claim—a probability of success on the merits—because it failed to sufficiently assert that Wolfsdorf was directly tied to the fraudulent activity or was aware that the proposed project was a scam.
The court held that “[t]o sustain their burden on the second prong on their fraud claims, plaintiffs must show ‘(1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity …; (3) intent to defraud …; (4) justifiable reliance; and (5) resulting damage.’” But the court held that the plaintiffs offered “nothing to connect Wolfsdorf to the alleged wrongdoing,” such as taking action beyond prosecuting visa petitions, making false representations, or having knowledge of the fraudulent investment scheme.
Accordingly, the court affirmed the trial court’s judgment with respect to plaintiffs’ claims against Wolfsdorf.
Legal Translation of Clear, Comprehensive, and Specific Pleadings
Fraudulent activity perpetrated against eligible immigrants participating in the EB-5 “green card” program is not new. However, in this most recent decision on the issue, the court confronts the anti-SLAPP aspects of civil litigation related to the program. As can be gleaned from this article, these aspects of civil litigation involving EB-5 investments, “green card” immigration, and permanent residency status, are significant and common. And they highlight the importance of professional certified translation and interpretation services for EB-5 investors.
The court specifically noted that, “[i]n the anti-SLAPP context, the critical consideration is whether the cause of action is based on the defendant’s protected free speech or petitioning activity.’” And the critical aspect of asserting successful claims on this issue lies in the specificity of the allegations asserted in the plaintiffs’ Complaint. As expressed by the court, the critical consideration is “the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” In asserting these claims, “[t]he plaintiff may rely on affidavits and transcripts of testimony in court proceedings . . . .”
Therefore, if you are involved in any representative relationship or in any civil proceedings involving the EB-5 Immigrant Investor Program, particularly for which foreign language is a factor, it is prudent to have in place certified interpretation and translation services for yourself or your clients. All Language Alliance, Inc. is ready and able to provide the legal interpreting and translating services from Simplified Chinese, Vietnamese, Traditional Chinese, Arabic, Portuguese, Korean, Cantonese, Spanish, Mandarin Chinese, and other languages. Reach out to us to translate your affidavits, interrogatories, pleadings, and other relevant litigation documents from any foreign language to English, and from English to different foreign languages. Call us at 303-470-9555 or email us from our website at www.languagealliance.com.
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*** This legal translation services blog article should not be construed as legal advice. You should always consult a lawyer regarding your specific legal needs.***