Zhang v. CapitalNexus, LLC, 2026 NCBC 59.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 24CV055589-590
HUI ZHANG; JING ZHANG; and
CHARLOTTE HARRIS CORNER’S
MARRIOTT HOTEL INVESTORS
FUND LP,
Plaintiffs,
v.
CAPITALNEXUS, LLC; TAO
“TONY” ZHANG; MJM GROUP ORDER AND OPINION
MANAGERS, INC.; ANUJ N. ON MOTIONS TO DISMISS MITTAL; VINITA J. MITTAL; MJM
GROUP LLC; AVIVAR
HOSPITALITY, LLC; QC VANTAGE
INVESTMENT PARTNERS, LLC;
CLT AIRPORT ALOFT EB-5 LP;
NOVUS DEVELOPMENT GROUP
LLC; STERLING HOLDINGS, LLC;
ATHENA HOLDINGS COMPANY
LLC; LOTUS HOLDINGS, LLC; IRIS
HOTEL HOLDING, LLC,
Defendants.
1. This complex case arises out of a failed hotel development in Charlotte,
North Carolina. The plaintiffs are Chinese citizens who invested in the project in
connection with the federal government’s EB-5 immigration program, which allows
foreign citizens to obtain permanent residency in the United States. Having lost most
of their investments (and worried about their immigration status), they now accuse
a host of individuals and entities of fraud, self-dealing, breach of contract, and related
misconduct. The defendants’ motions to dismiss are pending. For the following
reasons, the Court GRANTS in part and DENIES in part each motion.
Spengler & Agans PLLC, by Eric Spengler, for Plaintiffs Jing Zhang and
Hui Zhang.
Cranfill Sumner LLP, by Rebecca A. Knudson, Mica Nguyen Worthy,
Taylor Sumner Sweet, and Dakota Lipscombe, for Defendants QC
Vantage Investment Partners, LLC, Novus Development Group LLC,
Athena Holdings Company LLC, CapitalNexus, LLC, and Tao “Tony”
Zhang.
Morningstar Law Group, by Christopher T. Graebe and John William
Graebe, for Defendants CLT Airport Aloft EB-5 LP, Lotus Holdings,
LLC, Iris Hotel Holding, LLC, MJM Group Managers, Inc., Anuj Mittal,
Vinita Mittal, MJM Group, LLC, and Avivar Hospitality, LLC.
Whelehan Law Firm, LLC, by Rory D. Whelehan, for Defendant Sterling
Holdings, LLC.
No counsel appeared for Nominal Party Charlotte Harris Corner’s
Marriott Hotel Investors Fund LP.
Conrad, Judge.
I.
BACKGROUND
2. The second amended complaint contains nearly 500 paragraphs detailing
fourteen claims for relief asserted by two plaintiffs against fifteen defendants.
Wading through the mass of allegations is not a task for the faint of heart. In the
background that follows, the Court has done its best to identify the key players and
summarize the disputed transactions, assuming all the while that the allegations are
true.
3. Plaintiffs Hui Zhang (“Hui”) and Jing Zhang (“Jing”) are Chinese citizens.
Hui is a homemaker and former accountant. Jing is a teacher. Neither Hui nor Jing
speaks English, though both studied the language in school during their formative
years. (See 2d Am. Compl. ¶¶ 1, 2, 34–36, ECF No. 55.)
4. Through a friend, Hui met Defendant Tony Zhang (“Tony”) in late 2016. She
introduced Jing to Tony a few months later. Tony resides in North Carolina and has
experience with the federal government’s EB-5 immigration program. At the risk of
oversimplifying what is undeniably a complex set of laws, the EB-5 program allows a
foreign citizen to apply for permanent residency in the United States—popularly
known as a green card—if he or she invests in a business that creates jobs for
American workers. (See 2d Am. Compl. ¶¶ 28–31, 37, 38.)
5. Tony gave Hui and Jing a promotional brochure describing an EB-5
investment opportunity in Charlotte, North Carolina. Written in Chinese, the
brochure outlines a plan to develop a hotel (Northlake Hotel) using a combination of
bank loans, EB-5 investments by foreign citizens, and capital contributed by the
developer (identified as MJM Group 1). According to the brochure, Tony and MJM
Group had already developed at least three successful hotels, and this new project
offered a reliable path to a green card and financial gain. The brochure identifies
Tony as “Director, Foreign Investments” of MJM Group. (See 2d Am. Compl. ¶¶ 39,
41, 44–49.)
6. As they weighed whether to invest, Hui and Jing asked Tony about the risk
involved and pointed to their inability to speak English. Tony allegedly downplayed
the risk, assuring them that their investment principal would be protected. He also
promised to translate documents as needed. (See 2d Am. Compl. ¶¶ 50, 51, 53.)
1 The second amended complaint uses the words “Developer” and “MJM” to refer to four
affiliated entities: MJM Group Managers, Inc.; MJM HC Hotel Managers 4 LLC; MJM Real Estate Group, LLC; and MJM Group LLC. (2d Am. Compl. ¶ 12.)
7. In March 2017, Tony sent Hui and Jing a 99-page batch of English-language
legal documents, including an offering memorandum, subscription agreement, and
partnership agreement. The offering memorandum describes the investment in
detail. Defendant Avivar Hospitality, LLC (“Avivar”) was named as the owner and
operator of Northlake Hotel. Avivar’s majority member would be MJM Group
Managers Inc., a company owned by Defendants Anuj and Vinita Mittal (“the
Mittals”). The minority member would be Charlotte Harris Corner’s Marriott Hotel
Investors Fund LP (“Charlotte Harris”). Defendant CapitalNexus, LLC, a company
closely held by Tony, would serve as Charlotte Harris’s general partner, and
prospective EB-5 investors could participate in the project by paying $500,000 to
become limited partners. (See 2d Am. Compl. ¶¶ 1–4, 9–12, 39, 43; Compl. Ex. 3, ECF
No. 4.3.)
8. The offering memorandum warns prospective investors that “[t]here is no
guarantee that an Investor will receive either a return of his or her investment, or a
return on his or her investment.” The documents also encourage prospective
investors to seek independent counsel and to obtain translations if unable to read and
understand English. (Compl. Ex. 3 at 5, 11, 40, 87 (emphasis in original).)
9. A few days later, Tony followed up with a one-page summary (“Investment
Summary”) of the offering memorandum in Chinese. The Investment Summary
includes a section titled “Project Highlights” that states, in part, that “[i]nvestors will
receive a fixed 5% dividend annually, and upon the completion of obtaining the green
card, investors will receive a repayment of $500,000 principal!” Another section titled “Application Process” lists four steps in the process for obtaining a green card. (See
2d Am. Compl. ¶¶ 54, 57, 58; Compl. Ex. 4 [“Investment Summary”], ECF No. 4.4.)
10. After receiving these documents, Hui and Jing asked Tony for complete
translations. Tony instead referred them to the promotional brochure and the
Investment Summary. He also promised to meet them in person in China for the
purpose of putting certain terms into a separate, Chinese-language document
(“Investment Memo”). At that point, Hui and Jing signed the offering memorandum
despite not having read it and not having obtained a translation. Several weeks later,
Tony, Hui, and Jing met in China as planned and signed the Investment Memo. This
document includes the following statement: “Regardless of the reason, before an
investor obtains permanent residency and within 180 days of applying for
withdrawal, the $500,000 investment capital and dividends . . . will be refunded to
the investor’s account.” (2d Am. Compl. ¶¶ 59–61, 63; Compl. Ex. 6 [“Investment
Memo”], ECF No. 4.6.)
11. In June 2017, Hui wired $500,000 to Charlotte Harris’s bank account. In
July 2017, Jing did so as well. Each also paid a $45,000 management fee. Their
initial immigration petitions were filed almost immediately. (See 2d Am. Compl.
¶¶ 70, 71.)
12. According to Hui and Jing, it was all downhill from there, starting with an
amendment of Avivar’s operating agreement in early 2018 that disfavored Charlotte
Harris and its EB-5 investors. Among other things, the amendment gave Anuj Mittal
virtually unfettered managerial control, authorized a sizeable project management fee for the Mittals, permitted interim distributions to entities controlled by Tony and
the Mittals, and restricted Charlotte Harris’s economic rights. The amendment also
coincided with a reshuffling of Avivar’s membership. In addition to Charlotte Harris,
Avivar’s original members included MBIL LLC (“MBIL”) and MJM HC Hotel
Managers 4 LLC (“MJM HC”), not MJM Group Managers Inc. as stated in the offering
memorandum. MBIL transferred its interest to Defendant Sterling Holdings, LLC
(“Sterling”), and MJM HC transferred its interest to the Mittals. Meanwhile, one of
Tony’s closely held companies—QC Vantage Investment Partners, LLC (“QC
Vantage”)—became a member as well. Hui and Jing were unaware of the amendment
to Avivar’s operating agreement and the changes to its membership. (See 2d Am.
Compl. ¶¶ 131, 146, 147, 160, 161.)
13. As alleged, Tony and the Mittals made these changes with an eye toward
selling Northlake Hotel even before it opened. Anuj Mittal supposedly agreed to sell
the hotel for $39 million, but the sale fell through when the buyer backed out. Hui
and Jing, who did know about this, believe that the sale would have conflicted with
EB-5 regulations and would have jeopardized their immigration status. (See 2d Am.
Compl. ¶¶ 154, 155, 159.)
14. In June 2018, Northlake Hotel opened. In early 2019, Tony told the EB-5
investors that the hotel had created enough jobs to qualify for the EB-5 program. And
by the end of 2019, Tony reported to investors that the hotel was profitable. (See 2d
Am. Compl. ¶¶ 73, 74.)
15. Despite these positive reports, Avivar obtained a $9 million loan from Access
Point in late 2019, ostensibly to cover budget overruns. But Hui and Jing believe that
the loan served other purposes. They allege that Avivar was low on cash because the
Mittals never contributed capital to the company as promised and paid themselves
excessive developer fees, recklessly reducing working capital. (See 2d Am. Compl.
¶¶ 166, 168, 169.)
16. A major corporate restructuring followed in January 2020, again without
the EB-5 investors’ knowledge. Through this restructuring, Charlotte Harris ceased
to be a member of Avivar and obtained new interests in Defendants Lotus Holdings,
LLC (“Lotus”) and Iris Hotel Holdings, LLC (“Iris”). Lotus acquired sole membership
in Avivar plus sole membership in a second company that also owned and operated a
hotel. Lotus supposedly paid about $2 million for Avivar’s entire membership
interest, but only Tony and the Mittals received any of the proceeds. Iris similarly
held sole membership in two companies, each of which owned and operated a hotel.
As a result, Charlotte Harris had indirect interests in four hotels, including
Northlake Hotel, that were developed by Tony and the Mittals. (See 2d Am. Compl.
¶¶ 172, 166, 178, 186.)
17. Charlotte Harris lost more than it gained in these transactions, say Hui and
Jing. Charlotte Harris was allegedly treated as a second-class member: it was given
nonvoting units, and upon the sale of any of the hotels in the portfolio, it would be
paid last. The other members included several companies owned by Tony and the
Mittals, all of which received preferential treatment. For example, one of the Mittals’ companies—Zion Hotel Fund IV, LLC (“Zion”)—obtained distribution priority and
complete control over Iris. (See, e.g., 2d Am. Compl. ¶¶ 192–96, 249, 251, 252, 254.)
18. Perhaps more worrying for Hui and Jing, the restructuring potentially
jeopardized their immigration status. Their view is that the EB-5 investors’ funds
were to be used only for Northlake Hotel, both because Charlotte Harris’s partnership
agreement required as much and because that was the basis for the investors’
immigration petitions. They fault Tony for failing to consult an attorney to ensure
compliance with immigration regulations. (2d Am. Compl. ¶¶ 173–76, 248, 457, 459.)
19. Just weeks after Charlotte Harris exchanged its interest in Avivar for
interests in Iris and Lotus, Tony spoke with Hui and Jing. He mentioned a proposal
to merge Northlake Hotel with another hotel, without telling them that a broader
restructuring had already occurred. (See 2d Am. Compl. ¶¶ 77–82.)
20. In March 2020, the COVID-19 pandemic began. Avivar immediately
defaulted on its loans. In a letter to secured lenders, Anuj Mittal explained that “we
must conserve available cash to maintain the underlying asset, and to the extent
possible, our trained and capable staff through this crisis.” As alleged, though, Avivar
did not conserve cash and instead continued to make distributions to the Mittals.
Then, in June 2020, Avivar gave Sterling a sweetheart deal, paying it a large sum of
cash and converting its equity stake into debt guaranteed by Lotus. This left Avivar
in a precarious position and put Sterling at an advantage over other members,
including Charlotte Harris. (2d Am. Compl. ¶¶ 206, 209, 210, 212.)
21. Around this time, Tony contacted the EB-5 investors and cautioned that the
pandemic would likely delay dividends for two or three years. He also mentioned a
potential “asset restructuring and asset optimization” but gave no explanation and
again did not disclose the earlier changes in Charlotte Harris’s assets. Included in
his report were rental rates and other information about Northlake Hotel and three
other Marriott hotels. (2d Am. Compl. ¶¶ 79, 80.)
22. Things soon went from bad to worse. In August 2020, Access Point filed suit
over the loan default, and Avivar then entered Chapter 11 bankruptcy. Lotus, as
Avivar’s sole member, authorized the bankruptcy filing. According to Hui and Jing,
the bankruptcy was unnecessary and occurred only because Tony and the Mittals had
taken large, impermissible distributions, thereby depleting Avivar’s cash reserves.
(See 2d Am. Compl. ¶¶ 216, 217, 222.)
23. Tony sent another update to the EB-5 investors in November 2020. He said
nothing about the bankruptcy, instead reporting that he and the Mittals had
contributed an additional $500,000 each (which was allegedly false) and that there
was an agreement with an unspecified bank to restructure outstanding debt. He also
discussed a proposed consolidation of Northlake Hotel and three other Marriott hotels
into a new company called Athena Holdings Company, LLC (“Athena”). This
proposed consolidation never took place, although filings in the bankruptcy
proceeding suggest that it was under serious contemplation. Hui and Jing also allege
that they later discovered a transfer of $50,000 from Charlotte Harris to Athena, for which Charlotte Harris received nothing in return. (See 2d Am. Compl. ¶¶ 81–83,
218, 219; Compl. Ex. 8, ECF No. 4.8.)
24. In April 2021, Iris’s two subsidiaries filed for bankruptcy, just as Avivar had
the previous August. Hui and Jing allege that these bankruptcies were unnecessary,
again driven by improper distributions to Tony and the Mittals. As the bankruptcies
moved forward, Tony demanded that Iris return Charlotte Harris’s capital
contribution, but the demand was refused. Later, Tony lodged an objection on
Charlotte Harris’s behalf, which the bankruptcy court overruled for lack of standing.
Ultimately, Iris’s subsidiaries liquidated the two hotels that they owned, and
Charlotte Harris did not receive any of the proceeds. (See 2d Am. Compl. ¶¶ 260, 261,
264, 271.)
25. Meanwhile, it seems that Avivar’s bankruptcy proceeding was hotly
contested. Access Point, as the largest secured creditor, opposed the original plan of
reorganization on the ground that it would have allowed Tony and the Mittals to keep
$3 million in ill-gotten distributions. Internally, a disagreement arose between Tony
and Anuj Mittal about whether to keep or sell Northlake Hotel. Eventually, in
mid-2021, Avivar sought and obtained the bankruptcy court’s approval to sell
Northlake Hotel. Access Point then withdrew its objection and received the bulk of
the sale proceeds. In April 2022, the bankruptcy court dismissed the proceeding and
authorized Avivar to pay its unsecured creditors. Sterling was among those that
received at least a partial return. Charlotte Harris, however, received nothing and never participated in the bankruptcy proceeding. (See 2d Am. Compl. ¶¶ 224, 227,
232, 233, 246, 247.)
26. It was not until December 2021 that Tony told Hui and Jing about the
bankruptcy. Tony claimed that he had tried to block the bankruptcy and that he was
“currently seeking potential investment recovery.” But by that point, Northlake
Hotel had already been liquidated. A few weeks later, Tony asserted that Charlotte
Harris’s investment had been transferred out of Northlake Hotel and into a different
hotel (Residence Inn Steele Creek Hotel). An immigration attorney advised Tony of
a “small risk” that these events could derail the EB-5 investors’ immigration
petitions. (2d Am. Compl. ¶¶ 88, 93, 94, 234, 235, 248.)
27. In May 2022, Hui and Jing asked for a refund of their principal investment,
plus dividends. The investment was not returned. (See 2d Am. Compl. ¶¶ 96, 97.)
28. As the bankruptcy proceedings played out, the relationship between Tony
and the Mittals deteriorated. Over the course of late 2021 and early 2022, they filed
multiple lawsuits against one another, which included claims by Charlotte Harris
against Iris. The hostilities ended in a global, mediated settlement among fourteen
parties, including Tony, the Mittals, Charlotte Harris, Iris, Lotus, and others.
According to Hui and Jing, the settlement was favorable for everyone but Charlotte
Harris and the EB-5 investors. Among the settlement’s many terms, Charlotte
Harris received just $100,000 from the Mittals in exchange for its entire interest in
Iris. Worse yet, Charlotte Harris ceded its entire interest in Lotus for nothing. Hui
and Jing believe that the settlement allowed Tony and the Mittals to retain millions of dollars siphoned from Avivar, Iris, and Lotus, while purporting also to grant broad
releases to them for all alleged wrongs. (See 2d Am. Compl. ¶¶ 263, 264, 269, 278,
279, 281(b),(f); 2d Am. Compl. Ex. 22, ECF No. 55.2.)
29. By the end of 2022, Charlotte Harris had no ongoing interest in Northlake
Hotel or any other hotel, and its only assets included the $100,000 received for its
interest in Iris. In April 2023, Tony invested that money in a coffee shop, without
first consulting Hui, Jing, and the other EB-5 investors. He also purported to amend
the partnership agreement to broaden Charlotte Harris’s business purpose to go
beyond the development of Northlake Hotel. Charlotte Harris’s year-end tax returns
for 2022 showed a loss of $7.9 million with corresponding losses for each EB-5
investor. (See 2d Am. Compl. ¶¶ 290, 293–96.)
30. In late 2024, Hui and Jing filed this lawsuit. They allege that they have lost
their investments and that Charlotte Harris’s switch from hotel development to
coffee-shop investment has endangered their chances of obtaining green cards. Tony,
the Mittals, and their related companies have, by contrast, allegedly received a
windfall from one-sided distributions, excessive fees, and other instances of
self-dealing. In their second amended complaint, Hui and Jing assert a mix of
individual claims and derivative claims on behalf of Charlotte Harris. (See 2d Am.
Compl. ¶¶ 304, 305, 307, 313.)
31. The fifteen named defendants can be broken into three groups. First, the
CapitalNexus Defendants include Tony Zhang, CapitalNexus, QC Vantage, Novus,
and Athena. Second, the Mittal Defendants include Anuj Mittal, Vinita Mittal, Avivar, Lotus, Iris, MJM Group, MJM Group Managers, and CLT Airport Aloft Eb-5
LP. Third, Sterling stands apart as a group of its own. Notably, the second amended
complaint also uses the label “Conspiracy Defendants” to refer to every defendant
except Avivar, Iris, and Lotus. (See 2d Am. Compl. ¶ 347.)
32. Listed in the order they appear in the second amended complaint, the claims
are as follows: (1) a direct claim for inspection of books and records (against
CapitalNexus); (2) direct and derivative claims for declaratory judgment (against
CapitalNexus, Avivar, Lotus, Iris, and Athena); (3) direct and derivative claims for
civil conspiracy and facilitation of fraud (against the Conspiracy Defendants); (4) a
direct claim for fraud in the inducement (against the Conspiracy Defendants); (5) a
direct claim for negligent misrepresentation (against the Conspiracy Defendants);
(6) a direct claim for violations of the North Carolina Securities Act (against the
Conspiracy Defendants); (7) a direct claim for breach of the Investment Memo and
Investment Summary (against the Conspiracy Defendants); (8) direct and derivative
claims for breach of Charlotte Harris’s partnership agreement (against the
Conspiracy Defendants); (9) direct and derivative claims for breach of fiduciary duty
(against the Conspiracy Defendants); (10) direct and derivative claims for
constructive fraud (against the Conspiracy Defendants); (11) direct and derivative
claims for wrongful interference with contract (against Sterling and the Mittals);
(12) direct and derivative claims for breach of the operating agreements of Avivar,
Iris, and Lotus (against the Conspiracy Defendants); (13) direct and derivative claims
for fraud (against the Conspiracy Defendants); and (14) direct and derivative claims for unfair or deceptive trade practices under N.C.G.S. § 75-1.1 (against the
Conspiracy Defendants).
33. The CapitalNexus Defendants, the Mittal Defendants, and Sterling have
filed separate motions to dismiss. Taken together, these motions aim to dismiss the
second amended complaint in its entirety. (See ECF Nos. 85, 87, 104.)
34. All three motions are ripe for decision.
II.
LEGAL STANDARD
35. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the
complaint.” Isenhour v. Hutto, 350 N.C. 601, 604 (1999) (citation and quotation marks
omitted). Dismissal is proper when “(1) the complaint on its face reveals that no law
supports the plaintiff’s claim; (2) the complaint on its face reveals the absence of facts
sufficient to make a good claim; or (3) the complaint discloses some fact that
necessarily defeats the plaintiff’s claim.” Corwin v. Brit. Am. Tobacco PLC, 371 N.C.
605, 615 (2018) (citation and quotation marks omitted).
36. In deciding the motion, the Court must treat the well-pleaded allegations of
the complaint as true and view the facts and permissible inference “in the light most
favorable to the non-moving party.” Sykes v. Health Network Sols., Inc., 372 N.C.
326, 332 (2019) (citation and quotation marks omitted). But the Court need not
accept as true any “conclusions of law or unwarranted deductions of fact.” Wray v.
City of Greensboro, 370 N.C. 41, 46 (2017) (citation and quotation marks omitted). It
is appropriate to consider documents “attached to and incorporated within” the pleading without converting the motion into a motion for summary judgment. Weaver
v. St. Joseph of the Pines, Inc., 187 N.C. App. 198, 204 (2007).
III.
ANALYSIS
37. A few initial observations will help frame the discussion below. First, the
second amended complaint is full of group pleading, referring again and again to
“Conspiracy Defendants” without attributing alleged acts to a specific person or
entity. In a similar vein, the second amended complaint uses “Tony” to mean both
Tony Zhang and CapitalNexus, and it uses “the Mittals” to mean not only Anuj and
Vinita Mittal but also Zion (a nonparty) and four entities with MJM in their names
(two parties, two nonparties). Jumbling parties together in this way frustrates the
basic purpose of pleading, which is to give defendants in litigation notice of what they
are supposed to have done wrong. For that reason, this Court has “express[ed] its
strong disapproval of this practice.” DT Lulana Gardens LLC v. SDCK I LLC, 2026
NCBC LEXIS 99, at *2 n.1 (N.C. Super. Ct. Apr. 28, 2026); see also Spring v. Lawson,
2026 NCBC LEXIS 97, at *8 (N.C. Super. Ct. Apr. 27, 2026) (disapproving “improper
group pleading”).
38. Second, Hui and Jing have muddled their theories of liability. On its face,
the second amended complaint claims that all the so-called Conspiracy Defendants
are liable not only as conspirators (meaning that each is liable for the acts of others
done in furtherance of the conspiracy) but also as individuals (meaning that each is
independently liable for his own acts) for nearly a dozen causes of action. It is clear,
though, that Hui and Jing do not believe that all these defendants are individually liable for all these claims. The failure to delineate one theory of liability from another,
combined with pervasive group pleading, has made it unusually difficult for the
defendants and the Court to comprehend the allegations.
39. Third, despite collectively using tens of thousands of words, the parties
occasionally look past or otherwise fail to engage with their opponents’ arguments.
By doing so, they have tacitly conceded certain points or, at the very least, left those
points uncontested. See Elhulu v. Alshalabi, 2021 NCBC LEXIS 44, at *21 (N.C.
Super. Ct. Apr. 29, 2021); see also Glover Constr. Co. v. Sequoia Servs., LLC, 2020
NCBC LEXIS 76, at *23 (N.C. Super. Ct. June 18, 2020).
40. With these observations in mind, the Court has endeavored to give a fair
reading to the allegations and arguments in the discussion below.
A. Derivative Claims
41. The Court begins with the derivative claims that Hui and Jing assert on
behalf of Charlotte Harris. There are nine such claims. Defendants challenge all
nine on procedural grounds, arguing that dismissal is appropriate because Hui and
Jing did not verify their complaint and made no prelitigation effort to convince
Charlotte Harris’s general partner to bring the claims directly.
42. By rule, “the complaint shall be verified by oath” in any derivative action
brought by “one or more shareholders or members of a corporation or an
unincorporated association.” N.C. R. Civ. P. 23(b). This “is not simply a technicality.”
Marcoux v. Prim, 2004 NCBC LEXIS 4, at *23 (N.C. Super. Ct. Apr. 16, 2004). It is
“a means to discourage strike suits by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate
managers to settle worthless claims in order to get rid of them.” Alford v. Shaw, 327
N.C. 526, 532 (1990) (cleaned up). Verification ensures “that the plaintiff has
investigated the charges and found them to be of substance.” Id. (citing Halsted
Video, Inc. v. Guttillo, 115 F.R.D. 177 (N.D. Ill. 1987)).
43. Hui and Jing argue that derivative actions on behalf of limited partnerships,
such as Charlotte Harris, are exempt from this requirement because limited
partnerships are neither corporations nor unincorporated associations. They are
wrong.
44. Rule 23(b) uses the term “corporation” in its broad, ordinary sense to mean
an entity “that has a legal personality distinct from the natural persons who make it
up, exists indefinitely apart from them, and has the legal powers that its constitution
gives it.” Corporation, Black’s Law Dictionary (10th ed. 2014); see also Potts v. KEL,
LLC, 2021 NCBC LEXIS 100, at *29 n.6 (N.C. Super. Ct. Nov. 5, 2021) (comparing
similar definitions, both past and present). This definition covers not only entities
organized under the North Carolina Business Corporation Act but also professional
corporations, limited liability companies, and limited partnerships. See Trujillo v.
N.C. Grange Mut. Ins. Co., 149 N.C. App. 811, 815 (2002) (“A partnership is a distinct
entity from the individual members constituting it.” (citation and quotation marks
omitted)). For that reason, courts have routinely—and without controversy—applied
Rule 23(b) to derivative actions brought on behalf of all sorts of corporate entities,
including partnerships. See, e.g., Peak Coastal Ventures, L.L.P. v. SunTrust Bank, 2011 NCBC LEXIS 13, at *23–24 (N.C. Super. Ct. May 5, 2011) (dismissing derivative
action on behalf of LLC partly due to plaintiff’s failure to verify complaint); see also,
e.g., Cohen v. Flat Stone Dev. Co., 2018 U.S. Dist. LEXIS 243688, at *8 (S.D. Tex. Oct.
5, 2018) (applying analogous federal rule to partnership); Abeloff v. Barth, 119 F.R.D.
332, 334 (D. Mass. 1988) (observing that the analogous federal rule “is equally
applicable to partnerships”).
45. Because Hui and Jing did not verify the second amended complaint, the
Court dismisses their derivative claims without prejudice. Having done so, the Court
need not decide whether Hui and Jing complied with other procedural requirements
for derivative claims.
B. Contract Claims
46. Turning to the direct claims, the Court next considers three claims for
breach of contract. Hui and Jing assert claims for breach of the Investment Memo
and Summary, the partnership agreement for Charlotte Harris, and the operating
agreements for Avivar, Iris, and Lotus. These claims—all of which are asserted
against the Conspiracy Defendants—appear as the seventh, eighth, and twelfth
claims for relief.
47. To state a claim for breach of contract, a plaintiff must allege the
“(1) existence of a valid contract and (2) breach of the terms of that contract.” Poor v.
Hill, 138 N.C. App. 19, 26 (2000). For purposes of a motion to dismiss, the contract
itself is controlling and takes precedence over conflicting allegations in the pleading.
See, e.g., Reese v. Mecklenburg Cnty., 204 N.C. App. 410, 421 (2010).
48. Investment Memo & Summary. According to Hui and Jing, the
Investment Memo guarantees a return of their investments plus dividends upon
demand for any reason. In addition, they say, the Investment Summary bolsters that
guarantee with promises not to liquidate Northlake Hotel or dispose of their equity
interests in Charlotte Harris. Although Hui and Jing assert this claim against all
Conspiracy Defendants, the second amended complaint states only that “Tony and
the Mittals breached” the alleged promises. (See 2d Am. Compl. ¶¶ 400, 401, 405.)
49. Defendants move to dismiss this claim on a host of grounds. The
CapitalNexus Defendants contend, among other things, that they did not personally
guarantee a return of principal; rather, it was Charlotte Harris that promised a
refund upon certain conditions. The Mittal Defendants dispute whether the
Investment Summary is a contract at all and contend that they are not parties to the
Investment Memo or Summary, assuming either is a contract. Sterling’s arguments
echo those of the Mittal Defendants.
50. These arguments are persuasive. On its face, the Investment Summary
contains nothing more than a brief description of the hotel project and the steps
involved in applying for a green card through the EB-5 program. The document does
not purport to be a contract and therefore cannot serve as the basis for a claim for
breach of contract. See, e.g., Woods v. Sentry Ins. a Mut. Co., 2008 N.C. App. LEXIS
1773, at *17 (N.C. Ct. App. Oct. 7, 2008) (unpublished) (“Because there was no
settlement agreement between Plaintiffs and Defendants, Defendants could not have
breached the alleged agreement.”).
51. As for the Investment Memo, its text contradicts what is alleged. The
document does not use the word “guarantee.” Nor does it state that Tony, the Mittals,
or any related party would act as a guarantor. All that is stated is that “the $500,000
investment capital and dividends . . . will be refunded to the investor’s account” if Hui
or Jing demand a refund before obtaining permanent residency. (Investment Memo
(emphasis added).) Assuming that the Investment Memo is an enforceable
agreement, this is at most a promise by Charlotte Harris to refund the capital that it
received from Hui and Jing. Had Hui and Jing wanted Tony or anyone else to
guarantee Charlotte Harris’s obligation, they could have included appropriate
language. Because they did not, they may not assert a claim for breach of a
nonexistent guarantee. See, e.g., Wrightsville Health Holdings, LLC v. Buckner, 2017
N.C. App. LEXIS 124, at *8–9 (N.C. Ct. App. Feb. 21, 2017) (unpublished) (affirming
dismissal of claim for breach of contract when defendant had no contractual
obligation).
52. Accordingly, the Court grants the motions to dismiss the claim for breach of
the Investment Memo and Summary. In its discretion, and considering that Hui and
Jing have already amended their complaint twice, the Court dismisses this claim with
prejudice. See First Fed. Bank v. Aldridge, 230 N.C. App. 187, 191 (2013) (“The
decision to dismiss an action with or without prejudice is in the discretion of the trial
court . . . .”).
53. Partnership Agreement. Hui and Jing assert a claim for breach of more
than a dozen provisions of Charlotte Harris’s partnership agreement. Although they assert this claim against all Conspiracy Defendants, they specify that “Tony
materially breached the Partnership Agreement.” As examples, Hui and Jing
challenge the compensation that Tony received, the preferred treatment allegedly
given to a few other EB-5 investors, the liquidation of Northlake Hotel, the transfer
of Charlotte Harris’s equity in Avivar to other entities, and the redirection of capital
from hotel operations to a coffee shop. (See, e.g., 2d Am. Compl. ¶¶ 407–10, 414, 415,
426.)
54. The Mittal Defendants correctly observe that they are not parties to the
partnership agreement. So too for Sterling, QC Vantage, Novus, and Athena. In
their response briefs, Hui and Jing do not address this point or provide any basis to
maintain a claim for breach of contract against these individuals and entities.
Indeed, the second amended complaint does not name them as contracting parties or
allege that any of them performed any act constituting a breach of the agreement’s
terms. The Court therefore dismisses with prejudice the claim as asserted against
the Mittal Defendants, Sterling, QC Vantage, Novus, and Athena. See, e.g., Canady
v. Mann, 107 N.C. App. 252, 259 (1992) (“Since defendant Johnson was not a party to
the contract, as a matter of law he cannot be held liable for any breach that may have
occurred.”).
55. That leaves Tony and CapitalNexus, whose opening brief does not clearly
state their grounds for moving to dismiss this claim. As best the Court can tell, they
contend that Hui and Jing lack standing to pursue individual claims for breach. It is
clear, though, that Hui and Jing are parties to the partnership agreement, and a contracting party will generally have standing to sue for breach. See King Fa, LLC
v. Chen, 248 N.C. App. 221, 224–25 (2016) (“In the context of a breach of contract
claim, the parties who execute an agreement are real parties in interest and have
standing to sue.” (emphasis omitted)). Arguably, a limited partner may lack standing
to sue for breach of a contractual provision that creates a duty owed only to the
partnership. See 759 Ventures, LLC v. GCP Apt. Invs., LLC, 2018 NCBC LEXIS 82,
at *10–11 (N.C. Super. Ct. Aug. 13, 2018) (“To the extent the relevant term in an
operating agreement gives rise to a duty owed to the company, a claim for breach of
that duty is one belonging to the company, and not generally to its members or
managers.”). But Tony and CapitalNexus do not distinguish between those
provisions that Hui and Jing may and may not enforce directly. The Court will not
make that argument for them and therefore denies the motion to dismiss the claim
for breach of the partnership agreement against Tony and CapitalNexus.
56. Operating Agreements. Avivar’s operating agreement obligates its
members and managers to “make reasonable efforts to conduct the affairs of the
Company in a manner that complies with all rules and regulations associated with
the EB-5 Program.” Similar provisions appear in the operating agreements for Iris
and Lotus. As alleged, “the Conspiracy Defendants breached each of the operating
agreements” by failing to keep the capital of Charlotte Harris deployed, disregarding
Charlotte Harris’s business plan, and failing to consult immigration counsel
concerning these decisions. Although Hui and Jing are not contracting parties, they
allege that they are third-party beneficiaries of each operating agreement and therefore may sue for breach. (See 2d Am. Compl. ¶¶ 458, 459; Avivar Op. Agrmt.
¶ 4.7, ECF No. 4.12; Lotus Op. Agrmt. 1 ¶ 4.7, ECF No. 55.1; Iris Op. Agrmt. ¶ 4.7,
ECF No. 4.18.)
57. “North Carolina recognizes the right of a third-party beneficiary to sue for
breach of a contract executed for his benefit.” Raritan River Steel Co. v. Cherry,
Bekaert & Holland, 329 N.C. 646, 651 (1991) (cleaned up). “When a third person
seeks enforcement of a contract made between other parties, the contract must be
construed strictly against the party seeking enforcement.” Babb v. Bynum &
Murphrey, PLLC, 182 N.C. App. 750, 754 (2007) (citation and quotation marks
omitted).
58. No defendant contends, at least for purposes of these motions, that Hui and
Jing are not third-party beneficiaries. Instead, the Conspiracy Defendants raise a
smattering of other arguments.
59. The Mittal Defendants contend that Hui and Jing cannot enforce rights
unrelated to their immigration status and that the allegations show that no alleged
breach has imperiled their applications for permanent residency. That is not readily
apparent, however. The second amended complaint alleges repeatedly that the
actions allegedly constituting the breaches of contract are also violations of EB-5
regulations. (See 2d Am. Compl. ¶¶ 103(g)(ii), 152, 155, 248, 267, 456, 457.) Taking
the allegations as true, these actions have jeopardized Hui’s and Jing’s immigration
applications, which remain pending. (See 2d Am. Compl. ¶¶ 101, 459.)
60. The Mittal Defendants also argue that the statute of limitations bars this
claim because Hui and Jing should have known of the facts giving rise to their claim
sometime in 2020. 2 Rarely do courts dismiss claims at the Rule 12(b)(6) stage as
untimely. A statute of limitations “may be the basis” for dismissal only “if on its face
the complaint reveals the claim is barred.” Forsyth Mem’l Hosp., Inc. v. Armstrong
World Indus., Inc., 336 N.C. 438, 442 (1994) (citations omitted). But what Hui and
Jing should have known is a fact-intensive question not suited to a Rule 12(b)(6)
motion. It is far from clear on the face of the second amended complaint that Hui and
Jing could have or should have discovered the alleged misconduct any earlier than
they did. See Jordan v. Bradsher, 2016 N.C. App. LEXIS 720, at *6–8 (N.C. Ct. App.
July 5, 2016); see also Hunter v. Guardian Life Ins. Co. of Am., 162 N.C. App. 477,
486 (2004) (noting that when a plaintiff should have discovered alleged wrongdoing
is usually a question of fact (citing Feibus & Co., Inc. v. Godley Constr. Co., 301 N.C.
294, 304–05 (1980))).
61. As best the Court can tell, Tony and CapitalNexus dispute whether Hui and
Jing have individual standing. Again, though, if Hui and Jing are third-party
beneficiaries of the operating agreements, they have standing to sue for breach. See
Raritan River Steel, 329 N.C. at 651 (recognizing “the right of a third-party
beneficiary to sue for breach” (emphasis added)).
2 Notably, Sterling offers no argument specifically directed to this claim. Sterling does appear
to rely generally on the statute of limitations for reasons similar to those given by the Mittal Defendants.
62. In addition, QC Vantage, Novus, and Athena appear to contend in passing
that they are not contracting parties and could not have breached the operating
agreements. Some factual development is needed on this point, however, given that
at least QC Vantage and Novus are alleged to have been members of one or more of
the subject LLCs. Sorting out each LLC’s membership is a task better left for
summary judgment.
63. Accordingly, the Court denies the motion to dismiss this claim.
C. Fraud & Related Claims
64. Next, the Court turns to a series of claims that sound in fraud. One group
of claims is based on allegations that Hui and Jing were fraudulently or negligently
induced to invest in Charlotte Harris. An additional, separate claim concerns
allegations of fraud in connection with Avivar’s bankruptcy proceeding.
65. Wrongful Inducement. Hui and Jing allege that Tony made a series of
misrepresentations designed to induce them to invest in Charlotte Harris: first, that
Tony’s Chinese translations of legal documents “were accurate, reliable, and binding”;
second, that “Charlotte Harris had the intent and ability to return” Hui’s and Jing’s
principal investments upon demand; third, that the Conspiracy Defendants “had an
unblemished record of successfully developing hotel properties”; fourth, that “the only
other member of Avivar was MJM Group Managers and that MJM Group Managers
had contributed $8 million (or its cash equivalent) to Avivar”; and fifth, that
Northlake Hotel would not be liquidated “prior to final I-829 adjudication of all the
EB-5 Investors.” (2d Am. Compl. ¶¶ 364–68.) According to Hui and Jing, these allegations support claims against all Conspiracy Defendants for fraudulent
misrepresentation, negligent misrepresentation, and securities violations under
N.C.G.S. § 78A-56. These claims appear as the fourth, fifth, and sixth claims for
relief.
66. Fraud has five “essential elements”: (a) a false representation or
concealment of a material fact, (b) calculated to deceive, (c) made with intent to
deceive, (d) that did in fact deceive, and (e) that resulted in damage to the injured
party. Rowan Cnty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 17 (1992). The
plaintiff must show not only that she actually relied on the misrepresentation but
also that her reliance was reasonable. See Forbis v. Neal, 361 N.C. 519, 527 (2007).
Ordinarily, “[r]eliance is not reasonable where the plaintiff could have discovered the
truth of the matter through reasonable diligence, but failed to investigate.” Cobb v.
Pa. Life Ins. Co., 215 N.C. App. 268, 277 (2011).
67. “The tort of negligent misrepresentation occurs when a party justifiably
relies to his detriment on information prepared without reasonable care by one who
owed the relying party a duty of care.” Hunter v. Guardian Life Ins. Co. of Am., 162
N.C. App. 477, 484 (2004) (citation and quotation marks omitted). Justifiable reliance
is analogous to the element of reasonable reliance in fraud cases. See Marcus Bros.
Textiles, Inc. v. Price Waterhouse, L.L.P., 350 N.C. 214, 224 (1999).
68. The North Carolina Securities Act “creates private rights of action that are
complementary to federal securities schemes.” Piazza v. Kirkbride, 246 N.C. App.
576, 595 (2016), aff’d in part and modified in part on other grounds, 372 N.C. 137 (2019). Hui and Jing rely on section 78A-56(a)(1), which addresses conduct akin to
common-law fraud. See Brown v. Secor, 2020 NCBC LEXIS 134, at *29 (N.C. Super.
Ct. Nov. 13, 2020). A person who materially aids another in committing securities
fraud may be secondarily liable under section 78A-56(c). See id. at *28–29.
69. Allegations of fraudulent and negligent misrepresentation must “be stated
with particularity.” N.C. R. Civ. P. 9(b); see also Value Health Sols., Inc. v. Pharm.
Rsch. Assocs., Inc., 385 N.C. 250, 265 (2023) (applying Rule 9(b) to claims for negligent
misrepresentation); NNN Durham Office Portfolio 1, LLC v. Highwoods Realty Ltd.
P’ship, 2013 NCBC LEXIS 11, at *35–36 (N.C. Super. Ct. Feb. 19, 2013) (applying
Rule 9(b) to claims under N.C.G.S. § 78A-56(a)(1)). This “requirement is met by
alleging the time, place, and content of the fraudulent representation, identity of the
person making the representation and what was obtained as a result of the
fraudulent act or representations.” Terry v. Terry, 302 N.C. 77, 85 (1981).
70. Defendants seek to dismiss these claims on a host of grounds. They argue,
among other things, that the allegations are not stated with particularity, that the
various contracts contradict certain allegations, that Hui and Jing did not reasonably
rely on any representations, and that the claims are time-barred.
71. Let’s take the alleged misrepresentations one at a time, beginning with the
allegation that the project brochure given to Hui and Jing represented that the
developers had an unblemished record of success. As the Mittal Defendants correctly
point out, the project brochure highlights examples of successful past projects but
does not say that the developers had an unblemished record. Hui and Jing contend that it was fraudulent to identify successes without also identifying failed projects,
including a failed hotel development on the site chosen for the Northlake Hotel.
Nowhere, though, does the second amended complaint plead with particularity that
Tony—much less the other Conspiracy Defendants—had a duty to disclose failed
projects. See, e.g., Comput. Decisions, Inc. v. Rouse Office Mgmt. of N.C., Inc., 124
N.C. App. 383, 389 (1996) (observing that parties had “no duty of disclosure” when
negotiating a commercial transaction). Absent a false representation or concealment
of fact, this allegation cannot support the asserted claims.
72. Next, consider the alleged representation that Tony’s translations of legal
documents were accurate and binding. The subscription agreement expressly
contradicts this allegation. In that document, Hui and Jing affirm that each of them
“either reads and understands English, or has had” all contracts and related legal
documents “translated by a trusted advisor into a language that the investor does
understand.” (Compl. Ex. 3 at 87 (all caps omitted).) The subscription agreement
goes on to state that any translation provided by Charlotte Harris “has been provided
only for the convenience of the reader and shall not be enforceable by or against any
party for any purpose.” (Compl. Ex. 3 at 87.)
73. Hui and Jing are bound by these contractual acknowledgments. Although
they now contend that they do not understand English and therefore could not read
the legal documents given to them, “parties to a contract have an affirmative duty to
read and understand a written contract before they sign it.” Westmoreland v. High
Point Healthcare Inc., 218 N.C. App. 76, 83 (2012). Hui and Jing had the documents in hand; they could have obtained an independent translation. Indeed, the offering
memo urges each investor “to consult with his own counsel,” (Compl. Ex. 3 at 40), and
the contracts include an acknowledgment that each investor “has consulted with his
or her own legal, accounting, tax, investment and other advisers to the extent the
Investor has deemed necessary,” (Compl. Ex. 3 at 86). Their failure to investigate—
and instead to rely on Tony’s one-page Chinese summary of ninety-nine pages of
English legal documents—was not reasonable. See, e.g., Calloway v. Wyatt, 246 N.C.
129, 135 (1957) (“The policy of the courts is, on the one hand, to suppress fraud and,
on the other, not to encourage negligence and inattention to one’s own interest.”);
Weaver v. St. Joseph of the Pines, Inc., 187 N.C. App. 198, 213 (2007) (“The law will
not relieve one who can read and write from liability upon a written contract, upon
the ground that he did not understand the purport of the writing . . . when he could
inform himself and has not done so.” (cleaned up)).
74. A third alleged representation is that Charlotte Harris had the intent and
ability to return Hui’s and Jing’s principal investments upon demand. The
documents contradict this allegation as well. The offering memorandum expressly
warns that “[t]here is no guarantee that an Investor will receive either a return of his
or her investment, or a return on his or her investment.” (Compl. Ex. 3 at 11
(emphasis in original).) In addition, the partnership agreement restricts each limited
partner’s ability to withdraw and retrieve capital. (See Compl. Ex. 3 at 67.)
75. The remaining allegations fare better, however. As alleged, Hui and Jing
were told that Avivar would not liquidate Northlake Hotel before the EB-5 investors completed the regulatory process for permanent residency (that is, final adjudication
of what is known as an I-829 petition). (2d Am. Compl. ¶ 368.) Indeed, the offering
memo states that Charlotte Harris would “endeavor to ensure” that liquidation would
“not occur until after the adjudication of all Limited Partners’ I-829 petitions.”
(Compl. Ex. 3 at 11.) But Tony and the Mittals allegedly had plans to liquidate the
hotel as soon as construction ended and had promised as much to Sterling. (2d Am.
Compl. ¶¶ 153, 368.) It is well settled that “a promissory misrepresentation may
constitute actual fraud if the misrepresentation is made with intent to deceive and
with no intent to comply with the stated promise or representation.” Braun v. Glade
Valley School, Inc., 77 N.C. App. 83, 87 (1985).
76. Similarly, Tony allegedly represented that “the only other member of Avivar
was MJM Group Managers and that MJM Group Managers had contributed $8
million (or its cash equivalent) to Avivar.” (2d Am. Compl. ¶ 367.) Hui and Jing
allege that both statements were false: MJM Group Managers did not become a
member of Avivar, and the Mittals did not contribute $8 million. (See, e.g., 2d Am.
Compl. ¶¶ 131, 132.) The capital shortfall, according to Hui and Jing, was material
and led to Avivar’s eventual insolvency.
77. Taken as true, the allegations concerning these latter two
misrepresentations are sufficiently particular to support a claim for fraud against
Tony and CapitalNexus. 3 But Hui and Jing cannot stretch the claim through group
3 Although Tony and CapitalNexus (and the other Defendants) again contend that the claim
is barred by the statute of limitations, the Court disagrees. When Hui and Jing should have become aware of the facts supporting their claim is a fact-intensive question. The claim is not untimely on the face of the complaint.
pleading to include each and every one of the so-called Conspiracy Defendants. There
are no particularized allegations tending to show that anyone other than Tony and
CapitalNexus made misrepresentations to Hui and Jing. Whether the rest of the
Conspiracy Defendants may be held liable as conspirators is a different question,
addressed below.
78. Accordingly, the Court denies the motions to dismiss the fourth, fifth, and
sixth claims for relief, albeit limited to Tony and CapitalNexus and to the alleged
misrepresentations concerning the liquidation of Northlake Hotel and the
membership and capital contribution of MJM Group Managers.
79. Post-investment Fraud. An additional fraud claim—separate and
distinct from the claim for fraudulent inducement—appears as the thirteenth claim
for relief. In this claim, Hui and Jing allege that Tony told Charlotte Harris’s limited
partners that Northlake Hotel was operating normally when, in fact, it had defaulted
on its secured debt and entered Chapter 11 bankruptcy. At the same time, Tony
allegedly concealed Charlotte Harris’s status as an interested party from the
bankruptcy court. Unaware of the bankruptcy proceeding, Hui and Jing say, the
EB-5 investors were unable to intervene and prevent Northlake Hotel’s liquidation.
(See 2d Am. Compl. ¶¶ 85, 88, 214–17.)
80. Our Supreme Court has “equated the status of limited partners in a
partnership to the relationship that exists between corporate shareholders and the
corporation.” Energy Invs. Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 335
(2000). Just as a shareholder may not sue individually for a cause of action belonging to the corporation, “one partner may not sue in his own name, and for his benefit,
upon a cause of action in favor of a partnership.” Id. (citation and quotation marks
omitted). An exception exists when a limited plaintiff alleges either that she has
suffered a separate and distinct injury or that the alleged wrongdoer owes her a
special duty. See id.; see also Jackson v. Marshall, 140 N.C. App. 504, 508 (2000).
81. Here, Hui and Jing allege that Charlotte Harris was kept on the sidelines
during Avivar’s bankruptcy, unable to protect its interests. Any injury that Hui and
Jing suffered is derivative of the injury to the partnership as a whole. They have not
alleged a separate, distinct injury that might support an individual claim. See
Jackson, 140 N.C. App. at 509 (“The question is not whether the plaintiff is in a less
favorable position than the general partner, but whether the plaintiff is in a less
favorable position when compared to all other limited partners.”). Nor have they
alleged that any defendant owed them a special duty. See Gaskin v. J.S. Procter Co.,
LLC, 196 N.C. App. 447, 456 (2009) (concluding that partnership agreement did not
create a special duty). Accordingly, Hui and Jing do not have standing to pursue an
individual claim for harm stemming from Charlotte Harris’s exclusion from the
bankruptcy proceeding.
82. More fundamentally, the claim bears all the hallmarks of an impermissible
collateral attack on the bankruptcy proceeding. Hui and Jing go so far as to allege
that the bankruptcy court was “defrauded”—effectively, asking this Court to conclude
that the bankruptcy court erred or at least that it would have decided not to liquidate
Northlake Hotel had it known all the facts. (See 2d Am. Compl. ¶ 466.) But this is the wrong forum for such a challenge. See, e.g., Reusser v. Wachovia Bank, N.A., 525
F.3d 855, 861 (9th Cir. 2008) (“Thus, a final order lifting an automatic stay is binding
as to the property or interest in question—the res—and its scope is not limited to the
particular parties before the court.”); Regions Bank v. J.R. Oil Co., 387 F.3d 721, 732
(8th Cir. 2004) (“A bankruptcy sale under 11 U.S.C. § 363, free and clear of all liens,
is a judgment that is good as against the world, not merely as against parties to the
proceedings.”).
83. Having concluded that Hui and Jing lack standing to pursue this claim, the
Court dismisses it without prejudice. See, e.g., Button v. Level Four Orthotics &
Prosthetics, Inc., 2020 NCBC LEXIS 30, at *21 n.6 (N.C. Super. Ct. Mar. 13, 2020)
(“A dismissal for lack of subject matter jurisdiction is generally a dismissal without
prejudice.” (cleaned up)).
D. Fiduciary Claims
84. Hui and Jing assert related claims for breach of fiduciary duty and
constructive fraud against all Conspiracy Defendants. These claims, enumerated as
the ninth and tenth claims for relief, rest on two separate sets of allegations.
85. First, Hui and Jing allege that Tony, as general partner, had a fiduciary
responsibility to Charlotte Harris. Tony allegedly breached his fiduciary duties by,
among other things, engaging in self-dealing, giving preferential treatment to the
Mittals and others at the expense of Charlotte Harris, and forfeiting control over
Avivar and Iris. (See, e.g., 2d Am. Compl. ¶¶ 432–34, 438, 439, 441–43, 447.)
86. Second, Hui and Jing allege that the Mittals, as managers of Avivar and
Iris, owed fiduciary duties to Charlotte Harris. The Mittals allegedly breached their
fiduciary duties by engaging in self-dealing, removing Charlotte Harris as a member
of Avivar, and more. (See, e.g., 2d Am. Compl. ¶¶ 432–34, 438, 439, 441–43, 447.)
87. Constructive fraud and breach of fiduciary duty are distinct claims with
overlapping elements. To state a claim for breach of fiduciary duty, the plaintiff must
plead the existence of a fiduciary duty, a breach of that duty, and injury proximately
caused by the breach. See Green v. Freeman, 367 N.C. 136, 141 (2013). Constructive
fraud requires, as an additional element, that the defendant sought to benefit himself
through the breach. See White v. Consol. Planning, Inc., 166 N.C. App. 283, 294
(2004).
88. For reasons similar to those discussed above, the Court concludes that Hui
and Jing lack standing. The thrust of the allegations is that Tony and the Mittals
breached duties owed to Charlotte Harris, not to Hui and Jing personally. Any injury
that Hui and Jing suffered is derivative of the injury to the partnership. See, e.g.,
Chi v. N. Riverfront Marina & Hotel LLLP, 2023 NCBC LEXIS 89, at *45 (N.C. Super.
Ct. July 27, 2023) (dismissing individual claim for breach of fiduciary duty when
based on an allegation that defendant “breached its fiduciary duties to the
partnership as a whole”). Absent allegations sufficient to establish a separate,
distinct injury or a special duty, they lack standing to pursue an individual claim.
See Jackson, 140 N.C. App. at 509; Gaskin, 196 N.C. App. at 456.
89. The Court therefore dismisses these claims without prejudice for lack of
standing.
E. Tortious Interference with Contract
90. Hui and Jing assert their eleventh claim—for tortious interference with
contract—against Sterling and the Mittal Defendants. As alleged, Sterling and the
Mittal Defendants improperly interfered with the Investment Memo, Investment
Summary, and Partnership Agreement. (See 2d Am. Compl. ¶¶ 450, 451.)
91. To state a claim for tortious interference with contract, the plaintiff must
allege that a valid contract exists between it and a third person and that the
defendant knew of the contract, intentionally induced the third person not to perform
the contract, did so without justification, and caused actual damage. See Embree
Constr. Grp., Inc. v. Rafcor, Inc., 330 N.C. 487, 498 (1992). Inducement requires
purposeful conduct by the defendant. See, e.g., Truist Fin. Corp. v. Rocco, 2024 NCBC
LEXIS 62, at *38 (N.C. Super. Ct. Apr. 25, 2024); Gallaher v. Ciszek, 2020 NCBC
LEXIS 124, at *16 (N.C. Super. Ct. Oct. 16, 2020).
92. Sterling and the Mittal Defendants argue that the allegations of inducement
are conclusory and therefore insufficient to state a claim. The Court agrees. The only
paragraph in the second amended complaint on this point alleges in conclusory
fashion that “[t]he Mittals and, upon information and belief, Sterling . . . intentionally
induced Tony not to perform under the contracts.” (2d Am. Compl. ¶ 451.) As
numerous decisions have held, however, “[c]onclusory allegations that merely state
that a defendant has ‘induced’ or ‘caused’ a third party to breach a contract with a plaintiff . . . are insufficient to satisfy the inducement element.” Truist, 2024 NCBC
LEXIS 62, at *38–39; see also, e.g., Barings LLC v. Fowler, 2025 NCBC LEXIS 18, at
*16–17 (N.C. Super. Ct. Feb. 13, 2025) (dismissing claim because allegations of
inducement were conclusory); Prometheus Grp. Enters., LLC v. Gibson, 2023 NCBC
LEXIS 42, at *28 (N.C. Super. Ct. Mar. 21, 2023) (same); Morris Int’l, Inc. v. Packer,
2020 NCBC LEXIS 122, at *18 (N.C. Super. Ct. Oct. 15, 2020) (same); Se.
Anesthesiology Consultants, PLLC v. Rose, 2019 NCBC LEXIS 52, at *29 (N.C. Super.
Ct. Aug. 20, 2019) (same).
93. The Court therefore grants the motion to dismiss this claim. Because Hui
and Jing have already amended their complaint twice, the Court dismisses this claim
with prejudice.
F. Section 75-1.1
94. The fourteenth claim for relief is a catchall claim, again asserted against all
Conspiracy Defendants. In short, Hui and Jing claim that the alleged fraudulent
acts, breaches of fiduciary duty, and other misconduct are also unfair or deceptive
trade practices under section 75-1.1. But all the alleged misconduct involves
investment solicitations, acquisition of capital, and mismanagement and self-dealing
internal to the partnership and related businesses. Our appellate courts have
repeatedly held that this sort of conduct is not “in or affecting commerce” within the
meaning of section 75-1.1. See Nobel v. Foxmoor Group, LLC, 380 N.C. 116, 121–22
(2022) (affirming dismissal of claim based on misuse of capital contribution); White v. Thompson, 364 N.C. 47, 51–52 (2010) (affirming dismissal of claim based on conduct
“solely related to the internal operations” of business).
95. Accordingly, the Court dismisses the section 75-1.1 claim with prejudice.
G. Conspiracy
96. The third claim for relief is for civil conspiracy and facilitation of fraud. It
is—no surprise—asserted against the Conspiracy Defendants.
97. Civil conspiracy comprises three elements: (1) a conspiracy; (2) wrongful
actions taken by at least one of the conspirators in furtherance of that conspiracy;
and (3) injury to the plaintiff as a result. See Krawiec v. Manly, 370 N.C. 602, 614
(2018). A conspiracy requires an agreement between at least two persons to take an
unlawful action or to take a lawful action in an unlawful manner. See id. at 613;
Evans v. Star GMC Sales & Serv., Inc., 268 N.C. 544, 546 (1966). Because these
elements “are broadly stated,” the burden in seeking to dismiss a conspiracy claim “is
difficult” to meet. Safety Test & Equip Co. v. Am. Safety Util. Corp., 2015 NCBC
LEXIS 40, at *48 (N.C. Super. Ct. Apr. 23, 2015).
98. Facilitation of fraud requires: “(1) that the defendants agreed to defraud the
plaintiff; (2) that defendants committed an overt tortious act in furtherance of the
agreement; and (3) that plaintiff suffered damages from that act.” Weaver v. Villmer,
2023 NCBC LEXIS 92, at *24 (N.C. Super. Ct. July 31, 2023) (citation and quotation
marks omitted). “Thus, where, as here, the object of the parties’ alleged agreement
is to defraud another, a claim for civil conspiracy to commit fraud and a claim for facilitating fraud are essentially the same claim.” TaiDoc Tech. Corp v. OK Biotech
Co., 2016 NCBC LEXIS 26, at *30 (N.C. Super. Ct. Mar. 28, 2016).
99. There is no standalone claim for civil conspiracy or facilitation of fraud.
“Only where there is an underlying claim for unlawful conduct can a plaintiff state a
claim for civil conspiracy by also alleging the agreement of two or more parties to
carry out the conduct and injury resulting from that agreement.” Toomer v. Garrett,
155 N.C. App. 462, 483 (2002). “The charge of conspiracy itself does nothing more
than associate the defendants together and perhaps liberalize the rules of evidence
to the extent that under proper circumstances the acts and conduct of one might be
admissible against all.” Dove v. Harvey, 168 N.C. App. 687, 690 (2005) (citation and
quotation marks omitted).
100. The Mittal Defendants argue only that this claim cannot survive because
there are no valid underlying claims. But the Court has not dismissed the claims
based on allegations of breach of the partnership agreement, breach of the operating
agreements, and fraudulent inducement.
101. The CapitalNexus Defendants argue that the allegations of the second
amended complaint are not believable. This is so, they say, because the alleged
conspirators eventually turned on one another and fought a protracted legal battle,
including multiple lawsuits and arbitrations. At this stage, however, the Court must
take the allegations as true. And the fact that the alleged conspirators had a falling
out does not negate the possibility that they conspired in the first place to the
detriment of Hui and Jing. Cf. United States v. Khan, 2008 U.S. Dist. LEXIS 43329, at *8–9 (E.D.N.Y. June 2, 2008) (“[T]he existence of hostility between allege
co-conspirators does not necessarily vitiate the possibility of a conspiracy between
them.”).
102. The CapitalNexus Defendants also rely on intracorporate immunity. This
doctrine holds that “there can be no conspiracy” between a corporation and its agents.
Chrysler Credit Corp. v. Rebhan, 66 N.C. App. 255, 259 (1984); Estate of Tipton v.
High Point Univ., 2015 N.C. App. LEXIS 479, at *7 (N.C. Ct. App. June 16, 2015)
(unpublished) (stating that “a corporation cannot conspire with itself”). According to
the CapitalNexus Defendants, the allegation that Tony acted as the Mittals’ agent
destroys any claim for conspiracy. Not so. A conspiracy may exist “if independent
third parties are alleged to have joined the conspiracy.” Potts v. KEL, LLC, 2019
NCBC LEXIS 30, at *23 (May 9, 2019) (citation and quotation marks omitted). The
alleged conspiracy includes Sterling, an independent party, even if Tony and the
Mittals are assumed not to be independent of one another. The Court therefore
cannot conclude that Hui and Jing have pleaded their claim in such a way as to be
self-defeating.
103. It appears that Defendants also rely on arguments made in connection with
other claims, such as a lack of individual standing and untimeliness under the statute
of limitations. Because the Court has addressed these arguments, there is no need
to repeat that discussion.
104. Accordingly, the Court denies the motion to dismiss the claim for conspiracy
and facilitation of fraud.
H. Inspection Rights
105. Hui and Jing seek to enforce their statutory and contractual inspection
rights—specifically, the rights to inspect partnership records granted by N.C.G.S.
§ 59-305 and sections 11.02 and 12.04 of Charlotte Harris’s partnership agreement.
This claim, enumerated as the first claim for relief, is asserted against only
CapitalNexus.
106. CapitalNexus argues that it has produced thousands of pages of documents
during this litigation, thereby fulfilling its obligations under section 59-305 and the
partnership agreements. Even if that is true, the Court must stay within the four
corners of the second amended complaint to determine whether Hui and Jing have
stated a claim. Hui and Jing allege that they made an inspection demand and that
their demand was refused (or, at least, met with a response so laden with unjustified
conditions as to have been refused). (See 2d Am. Compl. ¶¶ 333, 334.) This is
sufficient for pleading purposes. It may be the case that CapitalNexus’s production
of documents has rendered the claim moot, but that is a different question, and the
limited record precludes a finding of mootness at this stage. See, e.g., Gvest Real
Estate, LLC v. JS Real Estate Invs., LLC, 2017 NCBC LEXIS 32, at *7–9 (N.C. Super.
Ct. Apr. 6, 2017) (denying motion to dismiss inspection claim as moot).
107. Accordingly, the Court declines to dismiss this claim.
I. Declaratory Judgment
108. In their direct claim for declaratory judgment, Hui and Jing allege that there
are disputes about the composition of Charlotte Harris’s ownership and management. They ask the Court to declare that CapitalNexus has engaged in misconduct that
disqualifies it from serving as Charlotte Harris’s general partner. They also ask the
Court to issue a declaration that establishes their capital accounts and confirms their
ongoing right to any profits from Charlotte Harris.
109. A complaint sufficiently states a claim for declaratory judgment if it “alleges
the existence of a real controversy arising out of the parties’ opposing contentions and
respective legal rights under a . . . contract.” Morris v. Plyler Paper Stock Co., 89 N.C.
App. 555, 557 (1988). Dismissal is appropriate only “when the complaint does not
allege an actual, genuine existing controversy.” N.C. Consumers Power, Inc. v. Duke
Power Co., 285 N.C. 434, 439 (1974).
110. Whether CapitalNexus engaged in acts that permit its removal as general
partner is a genuine controversy. Indeed, CapitalNexus’s brief does not directly
address this portion of the claim and provides no basis for dismissal.
111. There are also genuine controversies concerning the status of Hui’s and
Jing’s capital accounts and partnership rights. Although CapitalNexus insists that
Hui and Jing are wrong, the test is not whether they will “be able to prevail” on their
claim. Id. Because the parties have a bona fide dispute on these matters, they “are
entitled to a declaration of their rights and liabilities and the action should be
disposed of only by a judgment declaring them.” Nationwide Mut. Ins. Co. v. Roberts,
261 N.C. 285, 288 (1964).
112. Accordingly, the Court denies the motion to dismiss the direct claim for
declaratory judgment.
IV.
CONCLUSION
113. For these reasons, the Court GRANTS in part and DENIES in part the
motions to dismiss as stated above. For clarity, these are the direct claims that will
proceed to discovery:
a. Demand for inspection of books and records (first claim for relief),
against CapitalNexus;
b. Declaratory judgment (second claim for relief), against CapitalNexus;
c. Civil conspiracy and facilitation of fraud (third claim for relief), against
the Conspiracy Defendants;
d. Fraud in the inducement, negligent misrepresentation, and violations of
the North Carolina Securities Act (fourth, fifth, and sixth claims for
relief), against Tony and CapitalNexus and limited to the alleged
misrepresentations concerning the liquidation of Northlake Hotel and
the membership and capital contribution of MJM Group Managers;
e. Breach of partnership agreement (eighth claim for relief), against Tony
and CapitalNexus; and
f. Breach of the operating agreements (twelfth claim for relief), against the
Conspiracy Defendants.
114. In addition, the Court ORDERS the parties to file a revised case
management report and proposed case management order no later than 16 July 2026. SO ORDERED, this the 25th day of June, 2026.
/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases