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Wang v. Liu

United States District Court, D. Massachusetts

March 14, 2018

YIMING WANG, Plaintiff,


          Denise J. Casper United States District Judge

         I. Introduction

         Plaintiff Yiming Wang (“Yiming”) has filed this lawsuit against Defendants Xinyi Liu (“Liu”), Yuanlong Huang (“Huang”), Zhaonan Wang (“Wang”), Bling Entertainment, LLC (“Bling”), Shengxi Tina Tian (“Tian”) and MT Law, LLC (“MT Law”) (collectively, “Defendants”). He alleges breach of fiduciary duty (Count I), civil conspiracy (Count II), fraud (Count III), breach of contract (IV), breach of the covenant of good faith and fair dealing (Count V), violation of the Securities Act of 1933, 15 U.S.C. §§ 77a et seq. (Count VI), violation of the Massachusetts Uniform Securities Act (“MUSA”), Mass. Gen. L. c. 110A, §101 (Count VII), demand for accounting (Count VIII), professional malpractice (Count IX), breach of contract (Count X) and unjust enrichment (Count XI). D. 16. Defendants Liu, Huang and Wang (collectively, “Bling Defendants”) have moved to dismiss all counts against them, including Counts I, II, III, VI, VII, and VIII, [1] under Fed.R.Civ.P. 12(b)(6) and Rule 12(b)(7).[2] D. 25. For the reasons stated below, the Court ALLOWS the motion to dismiss as to Counts VI and VII, and DENIES the motion as to the other claims.

         II. Standard of Review

         On a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court must determine “whether the well-pleaded factual allegations, viewed in the light most favorable to the plaintiff, state a claim for which relief can be granted.” Germanowski v. Harris, 854 F.3d 68, 71 (1st Cir. 2017). To do so, the Court performs a two-step analysis. See, e.g., Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016). First, the Court “distinguish[es] the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).” Id. (quoting Cardigan Mountain Sch. v. N.H. Ins. Co., 787 F.3d 82, 84 (1st Cir. 2015)). The Court will “isolate and ignore statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). Second, taking the well-pled facts as true and “drawing all reasonable inferences in the pleader's favor, ” the Court determines if the facts “plausibly narrate a claim for relief.” Id.

         III. Factual Background

         The following facts are based upon the allegations in Yiming's amended complaint, D. 16, and are accepted as true for the consideration of the motion to dismiss. Bling Defendants are the controlling members of Bling, a Massachusetts limited liability company “formed for the stated purpose of developing and operating a luxurious, state-of-the-art bar, karaoke, and restaurant facility in Malden, Massachusetts.” D. 16 ¶¶ 1, 17. Liu and Huang are married and Wang is their cousin. D. 16 ¶¶ 8-9. In June 2013, Defendants Liu and Wang (and two others) incorporated Bling. D. 16 ¶ 17. Liu was Bling's manager. D. 16 ¶ 18. Huang was not identified in Bling's filing papers, but he ran Bling's day-to-day operations and was later identified as its co-manager. D. 16 ¶ 19.

         Yiming is a Chinese citizen who was seeking to obtain legal permanent resident status in the United States for himself and his wife through the United States Customs and Immigration Services (“USCIS”) EB-5 Program. D. 16 ¶ 20. The EB-5 Program requires an investment of “at least $1 million into an eligible business that is designed to promote job growth in the targeted area, ” and that the applicant “take an active management role with the business.” Id. At some point in 2014, Wang learned “[t]hrough a mutual acquaintance” that Yiming was seeking an eligible business for an EB-5 investment and Wang discussed it with Liu and Huang. D. 16 ¶¶ 22-23. Yiming communicated to Wang that he only wanted to invest in a company that was on strong financial footing and had other EB-5 investors. D. 16 ¶ 25. Wang communicated this sentiment to Liu and Huang. Id.

         On or around May 21, 2014, Yiming and his wife met with Wang at Huang's business office. D. 16 ¶ 27. Huang did not participate in the meeting, but Yiming alleges that Huang assisted Wang in preparing for the meeting and was on the premises when the meeting occurred. Id. Wang told Yiming that Huang was running day-to-day operations and would be responsible for the project's management. D. 16 ¶ 29. Yiming asked to speak with Huang, but Wang declined, insisting instead that he represented both Huang and Liu, who knew and approved Wang's statements at the meeting. D. 16 ¶ 31. At the meeting, Wang presented Bling's business plans, stating that “the Project was already sufficiently funded with an aggregate investment of $5 million - $1.5 million from the Bling Defendants combined, an additional $1.5 million from the other two original members, and $1 million each from two other individuals who Mr. Wang represented were EB-5 investors.” D. 16 ¶ 28. He told Yiming that the facility was to be completed in December 2014 and that because the project was “nearing its final stages, ” Yiming's $1 million investment was needed “only to add the final, high-end upgrades” and he would need to invest soon if he wanted to use it for the EB-5 program. D. 16 ¶ 29.

         Wang showed Bling's business plan to Yiming, stating it was prepared by Huang and Liu. D. 16 ¶ 30.[3] Yiming alleges the business plan “repeated many of the representations made by Wang verbally during this meeting.” Id. The business plan lists Bling's budget as $4, 500, 000, “which will be sourced from three (3) EB-5 investors”-including Yiming-“each of whom have invested/will invest a minimum of $1, 000, 000.” D. 16-1 at 3, 16-17. It states that the remaining $1.5 million was composed of investments by the four founding members. D. 16-1 at 3, 16-17. Yiming alleges that the business plan also contained financial projections “that were completely made up and lacked any basis in reality or any sort of risk analysis.” D. 16 ¶ 34.

         Yiming sought legal representation to assist him with his EB-5 application and Wang referred him to Tian and MT Law. D. 16 ¶ 36. These parties had a pre-existing relationship with the Bling Defendants, but agreed to guide Yiming in the immigration petition process and “review all legal documents from the Project.” D. 16 ¶¶ 37, 40.

         In August 2014, Yiming invested $1 million in Bling and received a five percent ownership interest in the company. D. 16 ¶ 42. Yiming “has since learned” that at the time of his investment, the original members had invested only $470, 340.39 total, and that of the additional $2 million purportedly invested by EB-5 investors, only one $500, 000 investment had been received. D. 16 ¶ 44. Additionally, Huang “later admitted to Yiming [that] the remaining $1.5 million” of these EB-5 investments were not equity investments, but were, instead, loans that Huang and Liu “used to justify Liu's substantial ownership interest and management powers in Bling.” D. 16 ¶ 45. Yiming alleges that Huang admitted that Liu and Huang “were responsible for falsely inflating the number, source, and amount of these purported investments and that he was responsible for preparing the Company's business plan.” Id. Nevertheless, Bling Defendants submitted documentation to USCIS in September 2014 representing that Bling had been funded with $3.5 million prior to Yiming's investment. D. 16 ¶¶ 50, 52.

         Yiming entered into an Escrow Agreement with Bling that required “expressly or implicitly” that the Company would use Yiming's investment “only for construction-related expenses.” D. 16 ¶ 53. Instead of using Yiming's investment for construction-related expenses, however, Yiming contends Bling Defendants paid themselves, through “highly suspicious payments” that were “funneled through Bling's operation.” D. 16 ¶¶ 54-55. Bling Defendants also fabricated documents such as forged letters by “non-existent investors and distributors” to support Yiming's EB-5 petition and “avoid the repayment obligation to him if the petition failed.” D. 16 ¶ 59. For example, in January 2016, Bling provided information to USCIS on Yiming's behalf that falsely represented a forthcoming investment of $3 million. D. 16 ¶ 60. Yiming alleges that, based on Huang's “history with Bling, ” Huang and Liu's status as co-managers and their signatures on these documents, they “were personally responsible for creating and fabricating these fraudulent documents.” D. 16 ¶ 61. In a June 2016 meeting with the Bling Defendants, Huang admitted to Yiming that he created the document detailing the false $3 million investment for the sole purpose of getting Yiming's petition approved. D. 16 ¶ 64. Yiming alleges that the terms of his investment required Bling to repay him if USCIS denied his immigration petition. D. 16 ¶ 61. Yiming's immigration petition was conditionally approved, but neither he nor his wife have taken further steps to obtain a green card through the EB-5 Program. D. 16 ¶ 73.

         Despite initial estimates that work would be completed in December 2014, the “Project remains far from complete, with no work having been performed in nearly a year.” D. 16 ¶ 58. Bling Defendants now assert the company's budget needs to double to complete the project. Id. On December 5, 2016, Yiming sent a letter to Bling Defendants demanding an accounting. D. 16 ¶ 65. They refused and instead stated there was a new investor willing to invest in Bling, but only if Yiming would sign a release of claims against Bling Defendants. Id.

         IV. Procedural History

         Wang instituted this action on December 22, 2016. D. 1. Wang filed the amended complaint on March 17, 2017. D. 16. On March 29, 2017, Bling filed a petition for Chapter 7 bankruptcy. D. 22; D. 26 at 2 n.1; see In re Bling Entertainment, LLC, No. 17-11058 (Bankr. D. Mass.). In accordance with 11 U.S.C. § 362(a), claims against Bling in this case were automatically stayed pending the bankruptcy proceedings. See D. 22. Bling Defendants have now moved to dismiss all claims against them. The Court heard the parties on the pending motion and took the matter under advisement. D. 39.

         V. Discussion

         A. Considering a Stay as to Bling Defendants

         As an initial matter, Bling Defendants argue the Court must stay this case pending Bling's ongoing proceedings in bankruptcy court. D. 26 at 19. Bling Defendants explain “complete relief cannot be afforded” in Bling's absence-specifically the $1 million rescission Yiming ...

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