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SDIF Limited Partnership 2 v. Tentexkota, LLC

United States District Court, D. South Dakota, Northern Division

September 5, 2017

SDIF LIMITED PARTNERSHIP 2, a South Dakota Limited Partnership; Plaintiff,
v.
TENTEXKOTA, LLC, a South Dakota Limited Liability Company; W. KENNETH ALPHIN, TIMOTHY J. CONRAD, MICHAEL R. GUSTAFSON, GEORGE D. MITCHELL, DALE MORRIS, MARC W. OSWALD, RONALD W. WHEELER, and DWIGHT P. WILES, Defendants and Third Party Plaintiffs,
v.
JOOP BOLLEN, SDRC, INC., S.D. INVESTMENT FUND LLC2, and JOHN DOE 1-75, Third Party Defendants

          ORDER ON MOTIONS

          CHARLES B. KORNMANN United States District Judge.

         BACKGROUND

         This lawsuit arises out of the U.S. Citizenship and Immigration Service's ("USCIS") EB-5 Lawful Permanent Resident Visa Program established by the Immigration Act of 1990, Pub. L. 101-649 §121, 104 Stat 4978, codified at 8 U.S.C. § 1153(b)(5).[1] The EB-5 program, as relevant to this litigation, allows alien entrepreneurs (and their spouses and unmarried children under age 21) to receive permanent resident status upon the investment of at least $500, 000 to create at least ten full-time jobs in South Dakota.

         One method for immigrant investors to qualify for an EB-5 visa was to pool their capital in a "regional center" - defined as "any economic unit, public or private, which is involved with the promotion of economic growth, including .. .job creation, and increased domestic capital investment" - approved by the USCIS to administer EB-5 investments. 8 C.F.R. §§ 204.6(e) and (m)(3). A regional center is essentially an entity that receives special designation from USCIS to administerforeign investments by those seeking EB-5 visas.

         The South Dakota International Business Institute/Dairy Economic Development Program ("SDIBI") was formed in 1994 in an effort to increase opportunities for international exports of agricultural products from South Dakota. Third Party Defendant Joop Bollen was hired as the director of that state agency with offices in Pierre. Later, the program moved to the campus of Northern State University (NSU) in Aberdeen, South Dakota. Either when SDIBI was initially formed or sometime thereafter, the Governor's Office of Economic Development ("GOED") and Northern State University signed a contract formalizing SDIBFs role in the activities of the GOED. According to Mr. Bollen, the GOED would fund the program at the University and Mr. Bollen was a salaried employee of the University.

         At some point during the late Governor Bill Janklow's second eight year term, he asked SDIBI to develop a program that would attract foreign investment to the State of South Dakota.

         SDIBI filed an application for EB-5 regional center designation in 2004. Matter of SDRC Certification of Immigrant Investor Program Office Decision Benefit: Regional Center Designation. 2017 WL 1133342 (March 15, 2017).

USCIS granted that application in 2004. Although not strictly a governmental office, the purpose of the SDIBI was to support the South Dakota Department of Tourism and State Development (DTSD) in facilitating and enhancing international trade and investment in the state. To this effect, SDIBI received a portion of its funding from DTSD, which itself was associated with the office of the Governor of South Dakota.

Id. According to the federal Web-site, SDIBI was and is the only regional center approved by the USCIS in South Dakota, https://www.uscis.gov/working-united-states/ permanent workers/ emplovment-based-immigration-fifth-preference-eb-5/immigrant-investor-regional-centers (visited August 25, 2017). This is incorrect since the federal agency has approved a change to SDRC, Inc. as the regional center. This may show the danger of relying on federal government Web-sites.

         The SDIBI regional center was initially authorized to attract immigrant investor capital into twelve counties in eastern South Dakota for dairy farm and heifer ranch operations. In December 2004, SDIBI requested approval from USCIS to expand its geographic area to cover an additional 33 counties in eastern South Dakota, to revise its business plan to allow for pooled investments through limited partnerships, and to eliminate SDIBI's self-imposed minimum of 51% alien investor ownership in newly established operations. Those amendments were approved by the USCIS in June 2005. In December 2005, USCIS approved a second amendment to SDIBI's business plan to, inter alia, include meat and dairy processing operations and cattle feedlots.

         Initially, either the GOED or the South Dakota Department of Agriculture would contact SDIBI recommending a project in which the state was interested. Bollen would forward the project's contact information to the Hanul Professional Law Corp. in Los Angeles, California. That law firm would, at least in theory, conduct a due diligence inquiry into the proposed project and decide if the project was appropriate for the law firm's investor-clients. In South Dakota, those investors were typically from Korea. Hanul would prepare and distribute offering memorandum to market and promote the EB-5 projects to prospective investors. Hanul also acted as the immigration attorneys for the investors, preparing and submitting the necessary immigration paperwork to obtain the visas. SDIBI did not have any contracts with Hanul nor did SDIBI receive any funds in connection with its efforts in attracting foreign investments. SDIBI was never a legal entity and was "just a name, " according to Mr. Bollen.

         Between 2004 and 2008, EB-5 investment projects included the Northern Beef Packing plant near Aberdeen and the Dakota Provisions turkey processing plant near Huron, South Dakota. Apparently, by 2008, SDIBI's EB-5 efforts had stalled and there were concerns that Hanul and others were not accurately vetting proposed projects to ensure their long-term viability. SDIBI and SDRC entered into a memorandum of understanding on May 1, 2008, to advise the USCIS that a new entity was involved in the operational aspects of the regional center. Mr. Bollen signed on behalf of SDIBI and Mr. Park signed on behalf of SDRC.

Because of the awkward organizational framework of SDIBI and the governmental offices within South Dakota that provided funding and which it served, the parties involved created SDRC, Inc. in 2009. SDRC, Inc. is a private corporation that effectively became the Applicant's management company by agreement between SDRC, Inc. and the SDIBI office.

Matter of SDRC Certification of Immigrant Investor Program Office Decision Benefit: Regional Center Designation, 2017 WL 1133342 (March 15, 2017). It seems to the court to be inaccurate to state that "the parties involved" created SDRC, Inc. In fact, SDRC, Inc. was and is a for-profit South Dakota corporation and it appears that Mr. Bollen, at least for most of its existence, was the sole stockholder and officer. Thus, it appears that Mr. Bollen, in connection with the transaction between SDRC, Inc. and SDRCI was, for all practical purposes, "contracting" with himself. Mr. Bollen denies ever having profited financially from SDRC and there is no apparent reason to dispute that. However, matters appear to have changed radically when the EB 5 program went from a quasi-government program (SDRCI) to a for-profit "private" corporation (SDRC, Inc.) with no apparent supervision from either the state or the federal government. SDRC received very large sums of money (millions of dollars), either directly or through a subsidiary. All facts as to what happened with SDRC, as well as funds received and funds disbursed, are not yet a matter of record, at least to the knowledge of this court. In the normal course of enforcing guarantee agreements as to a valid debt, such questions would have no relevance. Here, however, matters of equity are intertwined with possible violations of South Dakota law as to liability or non-liability of members of a limited liability company.

         As I went through the tangle of paperwork in this case, including the offering memorandum, different limited partnerships, limited liability companies, management agreements, consulting agreement, agreements as to loan origination fees, escrow agreements, personal guarantees and pledge agreements, credit agreements, forbearance agreements, government or development company agreements for aid to entities involved with the Black Hills investment and arrangements between and among the various entities, as well as the creation of and management of SDRC, Inc., I am reminded of the words of the lyrical Tevye from "Fiddler on the Roof, that these matters would be "enough to cross a Rabbi's eyes."

         In obtaining foreign EB-5 investors involved in the present case, an offering memorandum was used. The EB-5 program was explained in part: "Under the Program, the investor is required to be an 'active participant' in the management of the commercial enterprise, but such participation in connection with the activities of a limited partnership is subject to limitations set out in the relevant legislation. Notwithstanding such limitations, limited partnerships have been recognized as appropriate investment vehicles under the Program." No explanation was given as to who recognized what. Later, in the same document, it is stated: "Under the laws of South Dakota, in order to maintain their limited liability, limited partners of the limited partnership may not take part in the management or control of the limited partnership." There was no discussion about South Dakota law as to Limited Liability Companies despite the fact that the loan was to be made to a Limited Liability Company, Tentexkota, LLC.

         Articles of Incorporation for SDRC, Inc. ("SDRC"), a for-profit business corporation, were filed with the Secretary of State on January 10, 2008, the sole incorporator being Mr. Bollen. The office address was 405 8th Ave. NW, Suite 330, Aberdeen, S.D. 57401. The Articles and the consent to act as registered agent were signed by Mr. Bollen as president on January 3, 2008. SDRC was the private entity then administering the EB-5 program in South Dakota. Mr. Bollen was and is at least a "part-owner" and manages the corporation. The name of any other stockholder, officer or director of SDRC is unknown to the court. "Owner" refers to stockholders since an individual may not, of course, "own" a corporation. Mr. Bollen denies ever having profited financially from SDRC. I fail to understand this contention since SDRC received large sums of money, either directly or through a subsidiary.

         One of the annual reports for SDRC was signed by Mr. Bollen as president on December 28, 2008, showing that Mr. Bollen was the president, secretary and treasurer. A statement of change" was filed on April 7, 2009, and returned to Hanul Professional Law Corp. in Los Angeles, CA. The change in registered agent was from Mr. Bollen to James J. Park, shown to be the president of SDRC. The address remained the same. Amended Articles of Incorporation were filed on June 1, 2009, and returned to Aberdeen attorney Jeffrey Sveen. The address of the corporation was changed to 1201 N. Main Street in Aberdeen, S.D. and Mr. Bollen was named as the registered agent. Mr. Bollen signed the document without any indication as to his corporate officer status. Mr. Bollen filed the annual report for SDRC, Inc. on December 8, 2009, as president. On December 6, 2009, Mr. Bollen signed the statement of change of registered office or registered agent or both, changing the address to 416 Production Street North, Aberdeen, SD. He showed the new address as well in the annual report filed on January 11, 2011. Another annual report was filed on January 6, 2012, showing Mr. Bollen as president and Pyush Patel of 128 Stillwater Trace, Griffin, GA 30223, was vice president. The annual report filed on January 3, 2013, showed the same information, as did the annual report filed on January 9, 2014, the annual report filed on January 12, 2015, and the annual report filed on January 7, 2016.

         Also on January 10, 2008, (the date of the filing of Articles of Incorporation for SDRC, Inc., ) the Articles of Organization for S.D. Investment Fund LLC1 ("LLC1") and S.D. Investment Fund LLC2 ("LLC2") (a third party defendant in this lawsuit) were caused to be filed by Mr. Bollen who showed himself as the organizer, member manager, president, and registered agent of the two limited liability companies. Those entities were formed under the South Dakota Limited Liability Company Act, SDCL Chapter 47-34A. Mr. Bollen has apparently continued to be the member manager for each year thereafter. Mr. Park was briefly listed as the registered agent and president of LLC1 in 2009.

         Also on January 10, 2008, domestic certificates of limited partnership for SDIF Limited Partnership 1 ("LP1") and SDIF Limited Partnership 2 ("LP2") (the plaintiff in this lawsuit) were filed in the office of the South Dakota Secretary of State. Those partnerships were formed under the South Dakota Limited Partnership Act, SDCL Chapter 48-7. The initial filings stated that the general partner of LP1 was LLC1. Joop Bollen signed the LP1 filing as president of LLC1 and he was also named as registered agent of LP1. A certificate of cancellation was filed on behalf of LP1 on July 22, 2016.

         The initial filings on January 10, 2008, stated that the general partner of LP2 was LLC2, a wholly owned subsidiary of SDRC, Inc. Joop Bollen signed the LP2 filing as the president of LLC2 and he was also named as the registered agent of LP2.[2]

         LLC2 is a wholly owned subsidiary of SDRC, Inc. LLC2 is the general partner of LP2. Normally, a lawsuit on behalf of a limited partnership would be filed by its general partner but that is not the case here.

         Other entities were formed to utilize the EB-5 program in South Dakota but these are not material as to the present lawsuit.

         A third proposed amendment to SDIBI's regional center application was submitted to the USCIS, requesting approval to, inter alia, expand the geographic area of the regional center to encompass 63 counties in South Dakota, excluding the cities of Rapid City, Aberdeen, and Watertown, to add additional target industry economic clusters, to change the name of the regional center to the South Dakota Regional Center, and to recognize the memorandum of understanding between SDIBI and SDRC, Inc. The USCIS approved those ...


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