Zhang v. CapitalNexus, LLC
2026 NCBC 59
STATE OF NORTH CAROLINA, MECKLENBURG COUNTY, IN THE GENERAL COURT OF JUSTICE, SUPERIOR COURT DIVISION
24CV055589-590
Conrad, Judge
ORDER AND OPINION ON MOTIONS TO DISMISS
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.
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.)
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 Group1). 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.)
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
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
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.)
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’
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.)
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
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
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
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,
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
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
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
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.”
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.
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).
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.”).
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
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
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
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.)
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)).
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
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, 162 N.C. App. at 484 (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
69. Allegations of fraudulent and negligent misrepresentation must “be stated with particularity.”
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
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
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
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
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
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
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.)
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.
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
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
95. Accordingly, the Court dismisses the
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
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.
105. Hui and Jing seek to enforce their statutory and contractual inspection rights—specifically, the rights to inspect partnership records granted by
106. CapitalNexus argues that it has produced thousands of pages of documents during this litigation, thereby fulfilling its obligations under
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.
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.
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:
- Demand for inspection of books and records (first claim for relief), against CapitalNexus;
- Declaratory judgment (second claim for relief), against CapitalNexus;
- Civil conspiracy and facilitation of fraud (third claim for relief), against the Conspiracy Defendants;
- 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;
- Breach of partnership agreement (eighth claim for relief), against Tony and CapitalNexus; and
- 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.
/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases