Court Opinions: 10th Circuit Court of Appeals Opinion for Sept. 12

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.


Li, et al., et al. v. Colorado Regional Center I, et al.

The appellants are two groups of Chinese investors, the Li appellants and the Cui appellants. Colorado Regional Center Project Solaris LLLP is a limited liability limited partnership created by Colorado Regional Center, LLC and Waveland Ventures LLC. It’s an EB-5 regional center, an entity approved by the federal government to promote economic growth by encouraging foreign investments in exchange for permanent resident cards. Colorado Regional Center I LLC is a subsidiary of CRC and manages CRCPS as its general partner. 

The two investor groups purchased limited partnership interests in CRCPS. In total, 165 investors from the two investor groups each paid approximately $500,000 for their limited partnership interests, totaling $82.5 million. CRCPS loaned the proceeds from these investments to Solaris Property Owner LLC to fund the completion of a condominium complex in Vail, Colorado. 

In 2019, the two groups of limited partners — the Li and the Cui appellants — filed lawsuits alleging state and federal claims against various defendants. In general, they alleged that SPO and Solaris Property Owner I,  its wholly owned subsidiary,  misrepresented the value of the collateral condominium units and that CRC I violated its duties as the general partner of CRCPS. The appellants alleged the appellees misrepresented the loan was fully secured when it was not, and that the misrepresentations led to losses of over $40 million and that SPO and SPO I have now defaulted on their loans.  

The Li appellants also brought several direct and derivative claims against CRC, CRC I, SPO, SPO I, Peter Knobel, SPO’s owner and Waveland Ventures, LLC. The Cui appellants separately sued all of the same groups, as well as CRCPS, on direct and derivative claims. In both complaints, the derivative claims were brought on behalf of CRCPS.

The appellees made motions to dismiss, and before the district court ruled on the motions, the appellants voluntarily dismissed some of their claims. The Li appellants’ remaining claims were a derivative breach of fiduciary duty claim against CRC I; a derivative civil theft claim against CRC, SPO, SPO I, Knobel and the “LLC Principals;” a derivative breach of contract claim against SPO I; a derivative federal securities fraud claim against CRC I and a derivative state securities fraud claim against CRC, its principals and Knobel. 

The Cui appellants’ remaining claims were a direct fraud claim against all appellees, a direct and derivative breach of fiduciary duty claim against CRC and CRC I; a direct federal securities fraud claim against all appellees; a derivative breach of contract claim against SPO I and a direct and derivative claim for declaratory relief against CRCPS, SPO and SPO I. 

The district court granted the appellees’ motions to dismiss in part and denied them in part. Then only state law claims against SPO and SPO I remained, the court ordered the parties to address whether diversity jurisdiction existed. After briefing, the court determined that it lacked diversity subject-matter jurisdiction over the appellants’ remaining state law claims against SPO and SPO I, declined to exercise supplemental jurisdiction over those claims and dismissed them. Among the district court denial of motions from the Li and Cui appellants, the Cui appellants moved to file a fourth amended complaint, which the district court also denied. 

The appellees moved for attorney fees under Colorado law, which the district court granted their motions in part. It ordered the Li appellants to pay about $390,000 to the CRC defendants and $244,000 to the SPO defendants. It ordered the Cui appellants to pay about $140,000 to the CRC Defendants and $77,000 to the SPO defendants. The court also separately awarded attorney fees under the Private Securities Litigation Award Act against the appellants’ attorneys. 

The 10th Circuit Court of Appeals affirmed the district court’s dismissal of appellants’ claims under Federal Rule of Civil Procedure 12(b)(6) except for the Li appellants’ claim for breach of fiduciary duty, which the court affirmed in part and reversed in part.

The court also affirmed the dismissal of the Cui appellants’ remaining state law claims for lack of jurisdiction; reversed the district court’s dismissal of the Cui appellants’ motion to amend their complaint; affirmed the district court’s denial of the Li appellants’ motion for default judgment; and vacated the awards of attorney fees. The 10th Circuit remanded the case to the district court for further proceedings consistent with the order and judgment.

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