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SDIF Limited Partnership 2 v. Tentexkota, LLC

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

December 7, 2018

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

          OPINION AND ORDER

          CHARLES B. KORNMANN United States District Judge.

         BACKGROUND

         On September 19, 2018, SDIF Limited Partnership 2 ("SDIF") filed amotion for summary judgment to enforce personal guarantees signed by defendants for loans made to Tentexkota, LLC ("Tentexkota"). Defendants and third party plaintiffs ("defendants") filed cross-motions for summary judgment. Third party defendants also filed a cross-motion for summary judgment.; Plaintiffs argue that summary judgment is warranted as there is no issue of material fact that Tentexkota is in default on plaintiffs loans. Defendants argue that the personal guarantees violate SDCL § 47-34A-303 and are therefore unenforceable; that the personal guarantees violate the requirement that EB-5 capital contributions be put "at risk"; and that plaintiff is estopped from enforcing the personal guarantees based upon representations made by third party defendant Joop Bollen. Third party defendants allege that, since no claims are being made against them, summary judgment is warranted as to their inclusion in this dispute. Defendants counter that third party defendants induced them to sign personal guarantees for loans made to Tentexkota. For the reasons stated below, this Court denies plaintiffs and defendants' motions for summary judgment and grants third party defendants' motion for summary judgment.

         DECISION

         I. Standard of Review .

         The purpose of summary judgment is to determine whether there is a "genuine issue for trial" with regard to a claim or defense or "part of each claim or defense." Matsushita Elec. Indus. Co.. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fed.R.Civ.P. 56(a). Summary judgment should be granted only where there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). If facts are disputed, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed and "inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam). However, a nonmoving party "may not rest on mere allegations or denials" and "must do more than show that there is some metaphysical doubt as to the material facts." Anderson at 256; and Matsushita at 587. In sum, an issue of fact is genuine if, based upon the evidence in the record, a reasonable jury could return a verdict for the nonmoving party. Anderson at 248.

         II. The Court Has Addressed the "At Risk" Requirement for EB-5 Capital Contributions

         Defendants argue that the personal guarantees violate the requirement that EB-5 capital contributions be put "at risk." This is the same argument the Court addressed in its June 19, 2018, Order denying defendants' motion to compel. That defendants are raising this argument again belies the weakness of their position. The arguments raised in support of renewing this assertion are myriad and meritless: these include the testimony of Joop Bollen ("Bollen") that USCIS was "adamant in their attempt to apply new rules retroactively"; that Bollen stated the USCIS EB-5 approval office, staffed with "ex-military" members, was not capable of effectively managing the EB-5 program; the fact that the limited partners have hired an attorney; that it is unclear whether the Offering Memorandum ultimately submitted to USCIS referenced personal guarantees; and that the collateral backing the guarantees consists of government bonds and IRA accounts. Although the Court need not address these arguments-given that it has already ruled on the validity of the personal guarantees in conjunction with the "at risk" requirement-because the defendants' statements are immaterial, this Court will address them in turn.

         In referring to the "new rules" Bollen alleges the USCIS attempted to apply retroactively, defendants assert that Bollen knew that if USCIS were aware of the alleged strength of the guarantees it would have denied the investors' visa applications. There is no support for this statement either in the evidence cited by defendants or in Bollen's deposition. Rather, it is clear to this Court that the "new rules" Bollen refers to are the USCIS's revisions to the economic analysis calculations investors were required to submit as part of their visa petitions to demonstrate that, as required by the EB-5 visa program, their investments "have created or will create at least 10 full- time positions for qualifying employees." (Doc. 115, Ex. 1). As the USCIS admits in its Request for Evidence dated March 27, 2015, investors relied on a June 25, 2008, letter from the USCIS to Bollen stating that investors "need not show that the new commercial enterprises created ten new jobs indirectly," but that, in fact, "[c]ontrary to USCIS's statements in the June 25, 2008, letter, petitioners must show that the requisite No. of jobs have been or will be created within a reasonable time. . . ." Id. The letter then discusses econometric methods to calculate job creation. Defendants have submitted no evidence to suggest that USCIS has revised its rules regarding analysis of risk. The 2013 USCIS Policy Memorandum provides no new analysis of risk that the Court has not already addressed in its prior order. (Doc. 187, Ex. 1).

         Whom USCIS hires to adjudicate its EB-5 visa applications and Bollen's opinion of such individuals is no business of the Court.

         Defendants also attempt to argue that, because some of the limited partners hired an attorney to assist them in reviewing the status of their investment, and that that attorney then initiated litigation on behalf of the limited partners, this nullifies the risk in their debt arrangement. The 2013 USCIS Policy Memorandum submitted by defendants states that an agreement between a new commercial enterprise and immigrant investor which "provides that the investor may demand return of or redeem some portion of capital after obtaining conditional lawful permanent residence ... is not at risk." (Doc. 187, Ex. 1). As the Court previously noted in its June 19, 2018, Order, neither the Guaranty and Pledge Agreements nor the Limited Partnership Agreement contain language that allow the immigrant investors to demand returns of their investments. To suggest that the limited partners should have no access to legal representation to recoup their investment defies common sense.[1]

         Next, defendants argue that it is unclear whether the Offering Memorandum ultimately submitted to USCIS referenced personal guarantees. As support for this statement, defendants refer to an offering memorandum for SDIF LP 2 that does not mention personal guarantees, the ultimate loan amount secured, or issuance expenses, citing (referring, this Court notes, to the incorrect page numbers) Bollen's deposition that such offering memorandum "is not the final Offering Memorandum," "is a draft," that he doesn't "recall this version," and that he doesn't "think this OM [offering memorandum] was ever used" to support the statement that it is unclear which offering memorandum was submitted to USCIS for approval of SDIF LP2. (Doc. 187, Ex. 2). Support for this allegation, given Bollen's denial that the offering memorandum in dispute was used to promote the project, is extremely weak. Moreover, as this Court noted in its prior decision, numerous documents provided to USCIS mention the guarantees, including repeated references in the Amended Credit Agreement and Tentexkota's Financial Statements and Independent Auditor's Report.

         As further support, defendants cite a Notice of Intent to Terminate issued by USCIS to SDRC, Inc., which states concerns with "inaccurate or incomplete information" provided to USCIS on the Regional Center's "annual Form I-924A." (Doc. 198, Ex. 1). The Form I-924A is used "by approved regional centers to certify and demonstrate their continued eligibility for the regional center designation." Instructions for Annual Certification of Regional Center, USCIS, OMB No. 1615-0061. It is not the form used for the initial designation of the regional center under the Immigrant Investor Program or for the addition of a new commercial enterprise associated with the regional center. 1-924, Application for Regional Center Designation Under the Immigrant Investor Program, USCIS (Nov. 9, 2018), https://www.uscis.gov/i-924. The I-924A requires submission of information regarding the resulting aggregate capital investment and job creation of the regional center's investments. It also requires submission of information regarding the No. of approved and denied immigrant investor visa applications. Form I-924A is clearly intended not to evaluate the risk of a proposed commercial enterprise but rather to ensure that such enterprise is having the job creating impact required by the EB-5 program to retain its eligibility as a regional center. This is consistent with the concerns raised in the Notice of Intent to Terminate issued by USCIS to SDRC, Inc., which states that "USCIS has discovered ... that the Regional Center may no longer be able to promote economic growth," that SDRC, Inc., "violated the terms of escrow agreements with investors," and that the USCIS misrepresented "the job-creating activities to be facilitated by EB-5 investments" and the particular "NCE under [SDRC, Inc.'s] sponsorship."

         This Court notes that USCIS does state that investor petitions submitted as part of the EB-5 visa application "include questionable documents that appear to have been visibly altered and that did not have the signatures of the legitimate parties." USCIS cites petitions submitted by investors in which the financial documents, such as escrow and subscription agreements, listed different limited partnerships as investment vehicles for loans made by various petitioners, and alleges that SDRC, Inc., may have moved investors between NCEs. These concerns, as with the other concerns raised by USCIS with regard to the Form I-924A filings, are relevant to the job-creating impact of the regional center and are not relevant to whether investments made by each limited partnership were at risk. USCIS does not specifically raise concerns about SDIF LP2 in the analysis relevant to petitioner's visa applications. It is no secret to this Court or any citizen in South Dakota with access to a newspaper that SDRC, Inc. and Joop Bollen have been investigated for questionable banking practices and tax evasion. Indeed, Bollen was prosecuted in state court and received probation as a result of such investigations. SDRC, Lie's unorthodox banking practices and South Dakota's maturity with regard to regulating foreign direct investment have been addressed extensively elsewhere and are not on trial here. There is no indication in the documents provided by defendants and the Court has no reason to believe that the USCIS has ever questioned whether fraudulent misrepresentations regarding the personal ...


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