EB-5 Investors Have the Right to Sue for Recovery of Their Investment In U.S. Courts

In the United States, some rights enumerated in the federal Constitution are extended to non-citizens, such as the Equal Protection clause, which says “the state cannot deny any person within its jurisdiction the equal protection of the laws” including deprivation of “life, liberty and property”. This clause extends the protection of law to any individual living within the territorial boundaries of the United States, regardless of their citizenship or immigration status.

Additionally in the United States, the right to Due Process (meaning the fundamental right to pursue legal redress) is heavily protected throughout the U.S. Constitution. Although the Due Process clause strictly protects U.S. citizens, the right to pursue litigation is extended to any individual conducting their affairs on U.S. soil, including EB-5 investors. Many immigrants fear that pursuing litigation can harm their investment or immigration goals, yet they have a fundamental right to enter a lawsuit seeking reparations when wrongdoing is committed by another party.

Hence, the right to litigate is extended to any individual conducting their affairs or living in U.S. territory, including EB-5 investors who invest in a U.S. enterprise. Many immigrants wrongly fear that pursuing litigation can harm their investment or immigration goals. This is not necessarily true. EB-5 investors have a right to sue U.S.- based issuers or other entities, and, if successful, collect damages from them when ordered by court. Crucially, even if an immigrant or foreign national loses a civil lawsuit, in most cases it is without prejudice to any immigration adjudications by the U.S. Citizenship and Immigration Services.

Venue and Jurisdiction

This article is dedicated to common situations when EB-5 investors sue their issuers-NCEs (sometimes mistakenly referred to as Regional centers which have nothing to do with capital repayment) when repayment of investment is delayed by issuers or when there are grounds to believe that investment is mismanaged or misappropriated. There could be other scenarios when investors would want to assert claims against issuers which are not the focus of this material.

As US nationals, all EB-5 issuers (NCEs) are subject to jurisdiction of the US court system. The US court system is composed of federal and state courts. At the federal level, the US is divided into 94 judicial districts where some states have multiple district federal courts. On the state level, each state and some U.S. territories have their own court system. Oftentimes, investors are bound to specific court by forum selection clauses of the subscription documents they signed: Subscription Agreement (“SA”), and Operating Agreement (“OA”) for issuers created as Limited Liability Companies or Partnership Agreement (“PA”) for issuers created as Limited Partnership. Sometimes, these documents have conflicting forum selection clauses. If your cause of action occurs after completion of the subscription phase, which is most often the case, the rules of OA/PA, including forum selection clause, will likely control. Hence, before engaging in any legal dispute, EB-5 investors will have to carefully study their subscription documents to verify forum selection clauses for appropriate court venues. 

Federal courts are courts of limited jurisdiction. Which means that only specific types of cases fall under jurisdiction of federal courts. To keep it simple for the purposes of EB-5 disputes, federal courts have jurisdiction when there is: 1) federal question: cases that arise under the U.S. Constitution, federal laws, or treaties; or 2) diversity of parties: disputes between citizens (residents) of different states and the amount in controversy exceeds $75,000. 

There are several advantages to federal court jurisdiction. One is that federal district judges, who receive lifetime appointments, are less likely to favor U.S. issuers located in particular states, while in state courts judges are locally elected and may have more grounds for bias. Another advantage of federal courts over state is a more efficient docket management. Federal judges tend to manage their caseloads closely, strictly enforce deadlines and control discovery processes, leading to a quicker litigation pace and faster resolution. State courts often have heavier caseloads and may move at a slower speed with more lenient deadlines, continuances and stays favorable to defendants trying to impede the process.

When an immigrant investor is considering filing a claim against their EB-5 issuer, they should consult with their litigation attorney and consider filing in federal court if this choice is available to them. Oftentimes, if there are no evident violations of Federal securities law during subscription phase (fraud, concealment of material facts, misrepresentation, securities sale violations, etc.), EB-5 investors will have a state law cause of action based on derivative claim theory and no choice but to file in state court. 

That said, sometimes subscription documents contain a binding arbitration clause, which will leave investors with no choice but to take their claim to arbitration. Arbitration tribunals are not part of the public court system, its arbitrators are, oftentimes, attorneys or former judges. While offering a more streamlined process, arbitration has a number of disadvantages, including higher filing and arbitrators’ fees, finality of arbitration award, limited discovery tools and injunctive relief, and so forth.

When strategizing an EB-5 case with your litigation attorney, you will review potential venues and applicable law options. However, in most cases, claimants will be bound by forum selection and choice of law clauses. It is in your interest to inquire with your attorney and ensure they explore all options for venue and applicable law when pursuing legal recourse. Sometimes, mistakes made at this stage can cost dearly.

Threat of Retaliation

Many EB-5 investors are keenly aware of the industry, which is full of powerful development companies, and dozens of legal and compliance teams familiar with ways to trick investors. Even among investors who know their right to litigate, many investors fear that pursuing litigation will affect their immigration process and, thus, decline to bring suits against parties committing wrongdoing.

However, it is important to note that the U.S. takes protections against retaliation very seriously. Your employment, business relationships, and immigration status can be protected against retaliation. If you have worked with a party which has immediately threatened your immigration process, a lawyer, a regional center, and even USCIS itself, you may have a case. It is critical to contact a trusted attorney to determine your legal options in such cases. Know that even if you decide to pursue a legal suit against a party you have worked with in your EB-5 process, your immigration process should not be affected. 

If an investor is faced with threats from an investment issuer, partner, or other party in the EB-5 process, documentation is critical. Investors should rigorously preserve all documentation related to their investment; they should especially do so in cases of a dispute. If investors threaten litigation against a party which has acted against the investor’s interests, they may face verbal threats of losing their Lawful Permanent Residency. These threats are oftentimes oral, rather than written, to avoid giving the investor evidence to use in court. In whatever manner they are delivered, however, they are usually baseless and should be documented and then ignored.

It is critical to document all threats made against an investor’s immigration status, which can be leveraged in court as evidence against the other party. If made verbally, an investor should immediately record such conversations. Many states and the District of Columbia are “one-party consent” states where you can record participants in your conversation without their consent. In these states, one should always record such conversations with hostile actors. Some states, however, are two-party consent states, which require you to seek the consent of any other party whose voice or appearance will be recorded, before beginning the recording.

When an investor has been threatened, the best course of action is to immediately confirm the harm that the other party has threatened. For example, if investors are threatened over a webinar or over the phone, sending a detailed email directly to the party making the claims as soon as possible can constitute evidence an investor can later use in court. The sooner a follow up is made, the greater quality evidence it becomes later on. In court, documentation such as this can be considered “extortion” or “undue influence” by the defendant/speaker.

Pursuing litigation against an investment issuer or developer can be necessary if corporate malfeasance affects an investor’s immigration or investment process. In these situations, it is advisable to work with a defamation and tort litigation attorney and an immigration attorney in coordination to seek recourse.