945 N.W.2d 911
S.D.2020Background:
- The EB‑5 federal investor‑visa program allows foreign nationals to obtain immigration benefits by investing in job‑creating commercial projects; SD designated a regional center administered under contract with SDRC, Inc.
- DTSD (later GOED/Dept. of Tourism) contracted with SDRC to administer and market the regional center; SDRC and affiliates formed SDIF LP6 and solicited Chinese investors via an Offering Memorandum.
- Thirty‑five Chinese investors (LP6 Claimants) each invested $530,000 through SDIF LP6 to fund the Northern Beef Packers plant; the project failed and the investors lost about $18 million collectively.
- Claimants sued the State agencies, SDRC, SDIF LLC6, and Joop Bollen for fraud and related torts; the State moved to dismiss asserting sovereign immunity (and raised notice/statute‑of‑limitations defenses).
- The circuit court dismissed Claimants’ suit against the State on sovereign‑immunity grounds; Claimants appealed, arguing (1) immunity does not bar suits arising from State commercial activities and (2) the Legislature waived immunity for EB‑5 activity.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sovereign immunity bars claims arising from State commercial activities | State was operating a commercial enterprise (administering/promoting EB‑5) so sovereign immunity should not apply | Sovereign immunity covers all State functions unless the Legislature expressly waives it | Immunity applies to commercial activities absent an express legislative waiver; High‑Grade Oil rule controls |
| Whether the Legislature expressly waived sovereign immunity for EB‑5 claims | Waiver exists via (a) SDCL ch. 21‑32A risk‑sharing/insurance language requiring SDRC to insure the State; and (b) (on appeal) the Uniform Securities Act | No express legislative waiver exists; SDCL 21‑32A expressly excludes the State from its waiver; any securities‑act argument was not preserved below and would be an implied waiver insufficient under precedent | No express waiver for EB‑5 activity; insurance requirement does not waive immunity; securities‑act claim not considered and implied waiver would fail |
Key Cases Cited
- High‑Grade Oil Co., Inc. v. Sommer, 295 N.W.2d 736 (S.D. 1980) (establishes that only an express legislative waiver permits suits against the State)
- Arcon Constr. Co., Inc. v. South Dakota Cement Plant, 349 N.W.2d 407 (S.D. 1984) (U.C.C. waiver allowed contract suits against the state cement plant)
- L.R. Foy Constr. Co. v. S.D. State Cement Plant Comm’n, 399 N.W.2d 340 (S.D. 1987) (extended contractual waiver to commercial torts for cement plant; limited to that entity/waiver)
- Kunkel v. United Sec. Ins. Co. of New Jersey, 168 N.W.2d 723 (S.D. 1969) (recognizes independent obligations may arise in contractual settings)
- Aune v. B‑Y Water Dist., 464 N.W.2d 1 (S.D. 1990) (distinguishes business enterprises with commercial purposes from sovereign‑immunity contexts)