The fraud claims of Chinese investors who each invested approximately $500,000 in a start-up car company without reading the underlying investment documents were dismissed because the investors could not have justifiably relied on stray misstatements made by the company’s founders in various media outlets.
Plaintiffs are a group of 27 Chinese citizens who invested in GreenTech Automotive Partnership A-3 LP, which was created to collect capital and loan it to GreenTech Automotive, a Mississippi corporation founded in 2008 which planned to enter the hybrid and electric vehicle markets by producing “MyCar,” a vehicle that would travel at low speeds and thus be subject to lower levels of regulatory scrutiny. GreenTech sought to raise funds from foreign investors who might qualify under the EB-5 program which offered a path to permanent residency for foreign investors whose investments in American projects created or preserved at least ten jobs for American workers.
Plaintiffs’ investments were governed by a series of documents that were distributed to them in English only, not Chinese. Plaintiffs did not have the documents translated into their native language and signed them without conducting any review. Pursuant to the agreement, each of the plaintiffs paid $500,000 for a partnership share in A-3 sometime between July 2012 and December 2013 and remitted an administrative fee of approximately $60,000 to Gulf Coast Funds Management LLC, a GreenTech affiliate that managed the A-3 partnership.
Defendant Terry McAuliffe was the co-founder and former chairman of GreenTech and defendant Anthony Rodham was the CEO of both the A-3 partnership and another entity that was formed to serve as A-3’s general partner, GreenTech Automotive Capital A-3 GP LLC. Rodham also served as president and CEO of Gulf Coast.
Plaintiffs claim that Rodham and McAuliffe made a series of false statements relating to the A-3 partnership’s fundraising efforts in 2011 and 2012 and that they relied on these statements before signing the agreements. GreenTech ultimately failed to manufacture and sell vehicles according to its business plan and defaulted on the loan from the A-3 partnership. Plaintiffs now seek to recover the losses on their failed investments.
The district court dismissed plaintiffs’ fraud claims for their failure to plead reliance with the required particularity. This appeal followed.
As an initial matter, the material misstatements identified by plaintiffs go beyond puffery and projection and are actionable. However, we agree with the district court that plaintiffs’ complaint falls far short of plausibly pleading justifiable reliance.
Notably, the complaint fails to state which of the named plaintiffs claims to have relied on each statement, or where or how any specific plaintiff even heard or learned of the identified statements. The facts of this case make these omissions particularly glaring as most of the misstatements were made in English, a language many of the plaintiffs claim to not understand. In addition, as many of the misstatements were made to American media, sometimes of the local variety, it is far from clear how or whether plaintiffs learned of these statements. Under these circumstances, we are not satisfied that plaintiffs have substantial pre-discovery evidence of these facts.
In any event, even if plaintiffs had properly described who relied on each misstatement and how that person heard of it, they fail to plead justifiable reliance. Investments often boil down to a series of written contracts, and the written offering documents must control. In this case, those documents plainly contradicted the stray media statements attributed to McAuliffe and Rodham.
In this case, the plaintiffs were putting more than half a million dollars in the hands of foreigners with whom they alleged no prior relationship. It was unjustifiable to make such an investment in reliance on stray media statements without so much as translating or even reviewing the investment documents before signing them.
Moreover, there is no plausible allegation in the complaint that defendants diverted plaintiffs from conducting a prudent and objectively reasonable investigation before investing. Defendants had no generalized duty to translate the investment document for the benefit of the foreign investors and imposing such a duty would hike the costs of international financing for many nations, encourage new mistranslation lawsuits, and open the door to additional forms of mischief.
Bi v. McAuliffe (Lawyers Weekly No. 001-131-19, 20 pp.) (J. Harvie Wilkerson, J.) Case No. 18-2194. July 9, 2019. From E.D. Va. (Claude Hilton, J.) Gerard Patrick Fox and Marina Vladimir Bogorad for Appellants; Marc Erik Elias for Appellees.