Wu v. Colo. Reg'l Ctr. Project Solaris LLLP

Derivatively: Hsin-Yi Wu, and Qi Qin, in their capacity as limited partners of

Colorado Regional Center Project Solaris LLLP, Plaintiffs v. Colorado Regional Center Project Solaris LLLP, Nominal Defendant,andDirectly: Hsin-Yi Wu, Jun Li, Qi Qin, Yi Liu, Jie Yang, Yuquan Ni,Zhongzao Shi, Fang Sheng, Shunli Shao, Kaiyuan Wu,Zhijian Wu, Zhongwei Li, Sa Wu, Fan Zhang, Lin Qiao,Jinge Hu, Rujun Liu, Ying Xu, Lu Li, Cao Xiaolong, and Yuwei Dong, Plaintiffs, v. Colorado Regional Center LLC, Colorado Regional Center I, LLC,

Solaris Property Owner LLC, Solaris Property Owner I LLC, Peter Knobel, and

Colorado Regional Center Project Solaris LLLP, and

all principals and ultimate owners of business entities pursuant to

piercing of the limited liability veil, Defendants.

Dianwen Cui, Lei Gu, Sufen Leng, Xue Mei, Zhou Mei,Yan Song, Lu Wang, Yue Wu, Zhuo Yang, Jingwen Zhang,Lei Zhang, Ling Zhang, Xiaohong Zhang, Qin Zhou,Xun Zhu, and Chunyi Zou, Plaintiffs, v. Waveland Ventures LLC, Colorado Regional Center Project Solaris LLLP,

Colorado Regional Center I, LLC, Solaris Property Owner LLC,

Solaris Property Owner I, and Peter Knobel, Defendants.

Civil Action No. 19-cv-02443-RM-STV

C/w 19-cv-2637-RM-STV

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

March 2, 2021

Judge Raymond P. Moore

Civil Action No. 19-cv-02443-RM-STV ("Li Plaintiffs") Civil Action No. 19-cv-2637-RM-STV ("Cui Plaintiffs")

ORDER ON PENDING MOTIONS

This matter is before the Court on the following motions: (1) "CRC Defendants' Fed. R. Civ. P. 12(b)(6) Motion To Dismiss Cui Plaintiffs' Third Amended Verified Complaint [ECF 190] And Li Plaintiffs' Third Amended Complaint [ECF 121]" (the "CRC Defendants' Motion to Dismiss")¹; (2) Li Plaintiffs' "Motion To Dismiss Counterclaim By CRC Defendants Under Fed. R. Civ. P. 12(b)(6) And For Order Declaring General Partner Removed Instanter" (the "Li Plaintiffs' Motion to Dismiss")²; (3) "Solaris Property Owner, Solaris Property Owner I and Peter Knobel's Amended[] Motion to Dismiss the Li and Cui Complaints" (the "SPODefendants' Motion to Dismiss")³; (4) "Plaintiffs' Motion for Appointment of Receiver (On Ex Parte Basis Without Bond As Permitted by the Loan Documents)" (the "Cui Plaintiffs' Motion for Receiver")⁴; and (5) Li Plaintiffs' "Motion for Admonishment and Attorney Fees against attorney Ty Gee under 28 U.S.C. §1927" (the "Li Plaintiffs' Motion for Sanctions")⁵ (collectively, the "Motions"). The Court held a hearing on all Motions except for Li Plaintiffs' Motion for Sanctions. After considering the Motions,⁶ applicable parts of the court record, arguments of counsel, and relevant legal authorities, and being otherwise fully advised, the Court finds and orders as follows.

I. BACKGROUND

Based on the well-pled factual allegations of the operative complaints and counterclaim, which the Court accepts as true for the purposes of the motions to dismiss, and documents which the Court may consider in evaluating motions to dismiss, the alleged events giving rise to these consolidated actions are summarized as follows.

Colorado Regional Center Project Solaris LLLP ("CRCPS") is a limited liability limited partnership, allegedly created by Colorado Regional Center, LLC ("CRC") and Waveland Ventures, LLC ("Waveland"). CRC is an approved EB-5 Regional Center,⁷ authorized by the U.S. Citizenship and Immigration Services ("USCIS") to operate in the State of Colorado. Colorado Regional Center I, LLC ("CRC I"), a subsidiary of CRC, is the general partner ofCRCPS. Plaintiffs in these consolidated actions are some of the 165 Chinese investors who each purchased a limited partnership interest in CRCPS for approximately $500,000, as part of an approved EB-5 Program for foreign nationals to obtain a permanent residence visa. CRCPS loaned the investors' money to Solaris Property Owner LLC ("SPO") to fund completion of its condominium project (hereafter "The Residences" or "Solaris") in Vail, Colorado.

This transaction - the investment in limited partnership interests in CRCPS and the loan of the investors' funds - was effectuated and memorialized through several documents. The relevant documents, and a summary of what they cover, are as follows:

• CRCPS's Confidential Information Memorandum ("CIM")⁸ dated March 31, 2011: this contained a summary of the offering; a statement of risks; the terms of the offering; the subscription procedures; the "English Language Proficiency" acknowledgement an investor was required to sign, acknowledging the investor has read the CIM and is proficient in the English language; and copies of various documents which would be entered into in conjunction with the offering. Those documents include the Promissory Note, the Limited Liability Limited Partnership Agreement ("Partnership Agreement"), and the Yield Enhancement Agreement ("YEA").

• The Loan Agreement - signed by CRCPS and SPO, dated and effective November 5, 2010;⁹

• The Promissory Note with two exhibits which are supposed to identify the units which would serve as collateral and their value - from SPO to CRCPS;¹⁰• The YEA - between SPO and CRCPS, dated November 10, 2010;¹¹ and

• The Partnership Agreement of CRCPS.

(ECF Nos. 203-1, 203-3, 203-5, 203-6.) At some point in time prior to April 18, 2012, SPO assigned its rights and obligations under the loan to SPO I. According to Cui Plaintiffs, SPO I is a wholly owned subsidiary of SPO.

As relevant here, the terms of the loan and the parties' relationship were as follows. CRCPS's loan to SPO I was to be funded in multiple advances over a period of time, accruing interest at 5% per annum, with a term of five years for each loan advance.¹² The loan advances were collateralized with recorded deeds of trust on certain condominium units (the "Collateral Units") owned by the borrower. The borrower had no right to prepay for the first three years of each loan advance. At any time after three years of each loan advance, the borrower could repay each loan advance with either cash or the associated Collateral Unit(s) used to secure that advance.¹³ Also, beginning three years after the date in which a limited partner has held his or her limited partnership interest, the limited partner may exercise a "put option" to cause CRCPS to redeem his or her limited partnership interest.¹⁴

CRCPS made 19 loan advances, with the first loan advanced completed April 18, 2012 and the last completed January 30, 2015.¹⁵ On January 29, 2015, Exhibit A to the Promissory Note was completed, showing, as to each loan advance, one condominium that was used as the Collateral Unit, the alleged value of the Collateral Unit, when the loan advance was completed,and its maturity date.¹⁶ Exhibit A showed the value of the 19 Collateral Units totaled $82,500,000 and the 19 loans advanced totaled $82,500,000.

On April 17, 2015, about three years after the first loan advance was completed, CRC I (as general partner of CRCPS) and SPO I entered into the Agreement Regarding Collateral Units ("ARCU").¹⁷ The ARCU stated that SPO I gave notice that it intended to pay the loan advances with the Collateral Units. However, under the ARCU, SPO I would "temporarily" refrain from transferring title to the Collateral Units to CRCPS, the title to the Collateral Units would continue to be held in the name of SPO I but CRCPS would be responsible for paying fees and costs associated with the Collateral Units. But, "for purposes of calculating interest under the Loan Documents," SPO I would be deemed to have tendered the Collateral Units in repayment of the loan advances.¹⁸

Starting in 2016, CRC and CRCPS started sending sixth-month notices to limited partners listing the Collateral Units as CRCPS partnership property even though title was still held by SPO I and stating that "we are working with the developer to transfer title."¹⁹

The maturity dates stated for all loan advances have now passed. And, according to Li and Cui Plaintiffs (collectively, "Plaintiffs"), representations that were made that the loan was fully secured (100% collateralized) were false and the loan is in default but yet unpaid. Therefore, Plaintiffs have filed two separate actions, now consolidated, against various defendants. Li Plaintiffs' action was filed on August 28, 2019, and Cui Plaintiffs' action was filed on September 16, 2019.

Li Plaintiffs' Claims. Li Plaintiffs' operative complaint raised seven derivative counts on behalf of CRCPS under Fed. R. Civ. P. 23.1 and three direct counts. But, as set forth in Li Plaintiffs' response brief,²⁰ and subsequently ordered by the Court during the hearing, the following five counts have been dismissed: Count IV (derivative) - transfer of title; Count VII (first - derivative) - removal of CRC I as general partner; Count VII (second - direct) - fraud; Count VII (third - direct) - fraud; and Count VII (fourth - direct) - piercing the corporate veil.²¹ Thus, all direct counts have been dismissed. The Li Plaintiffs' remaining five claims are derivative and are as follows:

Five Derivative

Counts

Defendant(s)

Basis

Count I

CRC I

Breach of Fiduciary Duty

Count II

CRC, SPO, SPO I, Knobel, and

"LLC Principals"

Civil Theft

Count III

SPO I

Breach of Loan Agreement

Count V

CRC I

Federal Securities Fraud

Count VI

CRC and its principals; Knobel22

State Securities Fraud

Cui Plaintiffs' Claims. Cui Plaintiffs' operative complaint²³ contains eight counts with six defendants. During the hearing, Cui Plaintiffs conceded, or voluntarily withdrew, the following claims: Count III (direct) - violation of the Colorado Consumer Protection Act (against all Defendants - withdrawn entirely); Count IV (direct) - Investment Company Act(against CRCPS and CRC I - withdrawn entirely)²⁴; and Count VI (direct and derivative) - Breach of Contract (against SPO I - direct claim withdrawn). In addition, during the hearing, Cui Plaintiffs agreed that Count VIII for Piercing the Corporate Veil (Direct) against CRCPS and SPO I was not a claim but a remedy. Thus, by this count,...