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Shim v. Lawler

United States District Court, N.D. California

July 9, 2019

TAE YOUN SHIM, et al., Plaintiffs,
MARTIN J. LAWLER, et al., Defendants.



         Plaintiffs Ji Taek Kim (“Kim”), Tae Youn Shim (“Shim”), and Hua Xue (“Xue”) are foreign nationals who made substantial investments in a United States company, pursuant to the EB-5 Immigrant Investor Program, in order to become eligible for green cards. Plaintiffs each retained attorney Martin Lawler (“Lawler”) and his law firm Lawler & Lawler (collectively, “Defendants”) to guide them through the EB-5 application process. Although each Plaintiff ultimately obtained a green card, the company in which they invested fared poorly. Plaintiffs have now sued Defendants, alleging that Defendants violated their professional obligations and fiduciary duties by misleading Plaintiffs about the nature of their investments and representing other parties involved in the EB-5 program with interests adverse to Plaintiffs'.

         Pending before the Court is Defendants' motion for summary judgment, Docket No. 61 (“Def. Mot.”), and Plaintiffs' motion for partial summary judgment, Docket No. 62 (“Pl. Mot.”). For the reasons discussed below, Defendants' motion for summary judgment is GRANTED and Plaintiffs' motion for partial summary judgment is DENIED.

         I. BACKGROUND

         A. The EB-5 Program

         This case arises out of Defendants' alleged conduct in connection with the EB-5 Immigrant Investor Program. The EB-5 program affords certain foreign investors a path to becoming lawful permanent residents (“LPRs”) in the United States. See 8 U.S.C. § 1153(b)(5). Eligible investors must show that they have invested or are in the process of investing a specified amount of capital in a new commercial enterprise, and that their investment will create at least 10 jobs for United States workers. Id. § 1153(b)(5)(A). Where the new commercial enterprise is based in a “targeted employment area, ” investors must invest a minimum of $500, 000 in the enterprise to qualify for the program. Id. § 1153(b)(5)(C). The investment must be “at risk.” 8 C.F.R. § 204.6(j)(3). This means “there must be a risk of loss and a chance for gain”; “[i]f the immigrant investor is guaranteed a return, or a rate of return on all or a portion of his or her capital, ” the investment does not meet EB-5 requirements. U.S. Citizenship and Immigration Services, Policy Manual, Vol. 6, Part G, Ch. 2, (last visited July 5, 2019).

         An EB-5 application passes through two stages. First, the investor files a petition for EB-5 status (the “I-526 petition”) with United States Citizenship and Immigration Services (“USCIS”), “seeking approval of their submitted investment and business plans.” Chang v. United States, 327 F.3d 911, 916 (9th Cir. 2003). If the I-526 petition is approved, the investor and his or her dependents “may enter the country as conditional LPRs.” Id. Second, between 21 and 24 months after the I-526 petition, the investor must file a second petition (the “I-829 petition”). Id. USCIS approves the I-829 petition and grants unconditional LPR status if it finds that the investor made no material misrepresentations in the I-526 petition and complied with the EB-5 program requirements. Id. (citing 8 C.F.R. §§ 204.6, 216.6).

         There are two ways for EB-5 investors to invest in qualifying enterprises. The first is to invest directly in an enterprise that employs qualifying employees. See U.S. Citizenship and Immigration Services, About the EB-5 Visa Classification, classification (last visited June 5, 2019). The second is to invest indirectly through “regional centers.” See Id. Regional centers are USCIS-approved entities that support economic growth in particular regions by coordinating investments in EB-5 enterprises. See id.; 8 C.F.R. § 204.6(e), (m)(2). Regional centers coordinate investors and allows them to pool their investments in qualifying enterprises. See U.S. Citizenship and Immigration Services, Policy Manual, Vol. 6, Part G, Ch. 1, (last visited July 5, 2019). A regional center can direct investments into multiple EB-5 enterprises, and will typically set up a separate investment fund, or “Newly Created Entity, ” to accept investments in each enterprise. Docket No. 61-3 (Ahn Decl.) ¶ 12.

         B. The Parties and Relevant Entities

         Defendant Lawler is an immigration attorney who has represented clients in connection with the EB-5 program since 1991. Docket No. 61-1 (Lawler Decl.) ¶ 3. He and his law firm, Lawler & Lawler, are the named defendants in this suit. Id. ¶ 1. Plaintiffs Shim, Xue, and Kim each retained Defendants to assist them in applying for EB-5 visas. Id. ¶ 18.

         Simon Ahn, who is not a party to this action, is an investor and attorney who helped found the Green Detroit Regional Center (“GDRC”) between 2009 and 2010 and was its CEO. Ahn Decl. ¶¶ 1-3. The purpose of GDRC was to bring in foreign investments through the EB-5 program and direct them to qualifying enterprises. Id. ¶ 3. To become a qualified EB-5 regional center, GDRC had to apply for and secure USCIS approval. Id. ¶ 4. GDRC retained Lawler “to file the original I-924 application [to become a qualified regional center] for GDRC and subsequent amendments.” Id. ¶ 5. Lawler's “role was to provide legal services to GDRC to facilitate the process with USCIS for immigration matters dealing with GDRC relating to maintaining regional center status under the EB-5 program.” Id. GDRC eventually obtained USCIS approval as an EB-5 regional center. Lawler Decl. ¶¶ 10-11. Ahn also set up SMS Investment Group, LLC (“SMS”) as the “Newly Created Entity” to accept the EB-5 investments in ALTe. Ahn Decl. ¶ 12. Investors thus became limited partners in SMS, and their investments were directed ALTe. Id.

         One enterprise in which SMS invested was ALTe LLC (“ALTe”), which “developed electric powertrain systems for commercial vehicles.” Lawler Decl. ¶ 10; Ahn Decl. ¶ 12. GDRC “worked with migration agents . . . to bring in potential foreign investors for ALTe.”[1] Ahn Decl. ¶ 9. Each Plaintiff invested $500, 000 in ALTe to qualify for the EB-5 program. Kim invested in ALTe directly, on or around August 16, 2010. Docket No. 63 (First Hinton Decl.), Exh. 4 (Lawler Deposition) at 91:1-8; id., Exh. 5 (Subscription Agreement). Shim and Xue each invested in ALTe indirectly on or around July 5, 2010, via SMS. See Docket No. 70 (Second Hinton Decl.), Exh. 95 (Shim Deposition) at 34:5-10; id., Exh. 96 (Xue Deposition) at 41:10-17. Each Plaintiff decided to invest in ALTe after consulting with their respective migration agents. See First Hinton Decl., Exh. 2 (Kim Deposition) at 37:23-25; Shim Deposition at 24:2-21; Xue Deposition at 22:2-12.

         C. Plaintiffs' EB-5 Applications

         Each Plaintiff retained Defendants as counsel in connection with his or her EB-5 application after making the decision to invest in ALTe. See Kim Deposition at 37:18-25; Shim Deposition at 39:16-21; Xue Deposition at 14:14-16. Kim retained Defendants in 2010. He was referred to Defendants by Kukje Immigration Development Corp. (“KIDC”), a South Korean migration agency. Lawler Decl. ¶ 22. The retainer agreement provided that Kim employed Defendants “as attorneys to represent me and my spouse and children under age 21 for permanent resident status in the United States via the EB-5 investor category.” Docket No. 61-2 (Roeca Decl.), Exh. C. at 1. The agreement also provided that:

Lawler & Lawler has not advised me to invest in any particular project. I understand I must conduct a due diligence analysis of any investment. Lawler & Lawler will provide no business advice. I hereby hold Lawler & Lawler harmless from any loss I may incur in the investment I make for the EB-5 visa.
. . . .
It is understood that Lawler & Lawler provides no business advice and has not and will not make recommendations for a business investment from an economic viewpoint, but only provides services for an EB-5 visa.

Id. at 1, 2 (emphasis in original).

         Kim also signed a “waiver of conflict of interest [and] consent to joint representation.” Id., Exh. D. The waiver informed the investor that “Lawler & Lawler represents both the Green Detroit Regional Center and Ahn & Associates and SMS Investment Group, LLC . . . and the Investor in securing an immigrant visas [sic] for the Investor.” Id. Kim's I-526 petition was approved on June 22, 2011, his conditional LPR status was approved on May 10, 2012, and his full LPR status was approved on November 14, 2016. Lawler Decl. ¶¶ 25, 31.

         Shim retained Defendants in 2010. Lawler Decl. ¶ 22. She was referred to Defendants by KIDC. Id. Shim's retainer agreement contained the same express language limiting the scope of Defendants' representation to EB-5 immigration services only, the same as Kim's retainer agreement. See Roeca Decl., Exh. M; Shim Deposition at 47:15-50:4. Shim also signed the same waiver of conflict and consent to joint representation as Kim. See Roeca Decl., Exh. N; Shim Deposition at 50:8-21. Shim's I-526 petition was approved on July 27, 2011, her conditional LPR status was approved on April 3, 2012, and her full LPR status was approved on March 28, 2016. Lawler Decl. ¶¶ 26, 30.

         Xue retained Defendants in 2011. Lawler Decl. ¶ 24. She was referred to Defendants by an attorney named Peter Jensen. Id. Xue's retainer agreement contained the same express language limiting the scope of Defendants' representation to EB-5 immigration services only as in Kim's retainer agreement. Roeca Decl., Exh. S. Xue also signed the same waiver of conflict and consent to joint representation as Kim. Id., Exh. T. Xue's I-526 petition was approved on September 7, 2011 and her conditional LPR status was approved on May 22, 2012. Lawler Decl. ¶ 27. Xue did not retain Defendants to prepare her I-829 petition, but with the assistance of other counsel she also obtained full LPR status. Id. ¶ 29.

         D. Conversion of Kim's ALTe Investment

         Kim entered into a Subscription Agreement with ALTe on August 16, 2010 pursuant to which he made a direct investment of $500, 000 in ALTe. See First Hinton Decl., Exh. 5. However, Kim asserts that “his direct holdings in ALTe would last but a week, ” because on August 23, 2010, his “direct equity interest in ALTe was eliminated” and converted into an indirect interest via SMS, such that his investment in ALTe was “held indirectly under the control of SMS.” Pl. Mot. at 6. Kim claims that “[t]his conversion was done without [his] knowledge or authorization.” Id.; see Kim Deposition at 84:3-14. However, a letter sent by GDRC to USCIS in support of Kim's I-829 petition states that “Mr. Kim elected to have SMS manage his shares.” First Hinton Decl., Exh. 21 at 2.

         On October 15, 2014, Lawler sent Kim an email notifying him of “problems pertaining to ALTe's job creation, ” which are discussed in more detail below. Lawler Decl., Exh. C. In the email, Lawler also reported that he was recently apprised of the conversion of Kim's interest in ALTe, and warned Kim that the conversion may have consequences for his EB-5 status:

You transferred your EB-5 funds and filed your visa petition as a direct investor in ALTe. SMS recently notified me just prior to filing your I-829 petition that your ownership interest has been transferred from ALTe to SMS, and you became a limited partner in SMS, and therefore there are no records of your current ownership in ALTe. I was also notified that you no longer hold a position on the Advisory Board at ALTe. USCIS may challenge whether you have properly maintained your investment in ALTe as a direct investor. . . . It is unclear how this will affect you as a direct investor.

Id. Lawler concluded by informing Kim that his services were limited to immigration issues, and advised Kim to contact SMS or ALTe about his investment:

As you know, I am only involved in the immigration visa matters, not the finance or business matters related to the Regional Center or it's [sic] projects. If you have any questions regarding the business aspects or job creation, I encourage you to contact Simon Ahn, the Principal of SMS Investment Group, LLC, or Darren Post, the CEO of ALTe Technologies, Inc. If you have any questions about the immigration implications, please let me know and I am happy to have a call.


         On June 23, 2016, Lawler sent a letter to Kim reiterating his concerns that the conversion of Kim's interest in ALTe, among other issues, could jeopardize Kim's pending I-829 petition:

You initially made your EB-5 investment directly in ALTe . . . .
The I-526 petition was filed and approved based on this direct investment in ALTe. Your I-829 was also filed based on this direct investment.
I have received some conflicting information about whether you have maintained your investment in ALTe. . . . I am unclear if you still hold an ownership interest in ALTe for your direct investment. I was informed much later that you and Simon Ahn entered into an arrangement where you were also accepted as a limited partner in SMS. I was not aware when this change transpired, and it was completed without my knowledge or legal advice.
There is currently no accepted USCIS procedure for you to switch from a direct investor in ALTe to a Regional Center investor in SMS without filing a new I-526 petition. If you have failed to maintain your investment and interest in ALTe, and you are no longer serving in a management role with ALTe, your I-829 petition may be denied.

         Lawler Decl., Exh. D at 1. Lawler also repeated his disclaimer that he was “only involved in the immigration visa matters, not the finance or business matters related to the Regional Center of its projects, ” and his recommendation that Kim should contact SMS or ALTe with any questions about the business aspects of his investment. Id. at 2.

         E. Problems at ALTe

         GDRC produced materials promoting EB-5 investment in ALTe, including a document titled “United States EB-5 Immigrant Investor Program.” First Hinton Decl., Exh. 10; see also id., Exh. 11 (Chinese version of document), Exh. 12 (Korean version of document).[2] The document specifically targets investment in ALTe. See Id. at 3-4 (“The EB-5 immigration program of Green Detroit Regional Center, LLC (SMS) will make investment in a company which provides various technologies for electric and hybrid electric powertrain conversions.”). The document contains a number of statements touting ALTe, including:

• On the front cover, “Funds allocated by U.S. Department of Energy” is displayed in large text above logos for SMS and ALTe. Id. at 1.
• ALTe “has obtained direct support from high-ranking government officials in the United States, including the United States Secretary of Commerce, United States Secretary of Energy, governor of Michigan and several members of United States Congress.” Id. at 3; see Id. at 5 (listing specific government supporters).
• “Orders of 240, 000, 000 U.S. dollars' value already received.” Id. at 5.
• “The project does not rely on EB-5 investment because 80% of its capitals [sic] are from the Department of Energy of the federal government and the product orders it already confirmed.” Id.

         The reality turned out to be less rosy. Theodore Oshman, an ALTe investor and board member who is not a party to this suit, recounted that ALTe sought a loan from the Department of Energy (“DOE”) but was unsuccessful. First Hinton Decl., Exh. 13 at 51:24-52:2 (“Q. So ultimately the Department of Energy did not provide a loan to ALTe?” A. Correct, they ultimately did not.”). The only sale ALTe made was for one prototype truck to Southern California Edison. See Id. at 70:9-16.

         Lawler's October 15, 2014 email to Kim stated that “[t]here are problems pertaining to ALTe's job creation.” Lawler Decl., Exh. C. The email explained that in the course of preparing responses to a Request for Evidence issued by USCIS to several investors with pending I-829 petitions, Lawler

was informed by [GDRC] and ALTe executives that due to various business issues, ALTe has not been able to create the number of jobs they originally expected. Over the years the company has hired many employees, but many of these jobs had to be laid off last year. We do not know if USCIS will accept these jobs for the EB-5 job creation requirement because they were laid off.
. . . .
It is possible that USCIS may allow SMS to show more jobs will be created within a year. I am told ALTe is working on several new business deals that they believe will create new jobs again.


         Eventually, ALTe ceased operations. According to Ahn, “ALTe came to the point where it was better to focus on manufacturing energy storage units.” Ahn Decl. ¶ 13. ALTe thus “[m]orph[ed]” into a company named eMatrix. Def. Mot. at 16. Ahn represents that he “negotiated that the EB-5 investors [in ALTe] would retain their same interest in eMatrix of approximately 29 percent (the percentage they had held in ALTe)” after the transition. Ahn Decl. ¶ 13. It appears that eMatix is still an active company, and “SMS investors got the same shares in eMatrix as they had in ALTe in the beginning.” Id. ¶ 14.


         A. Legal Standard

         Federal Rule of Civil Procedure 56 provides that summary judgment shall be rendered on a claim or defense, or part of a claim or defense, “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict” for either party. Id. “The mere existence of a scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” ...

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