Strength in Numbers: Pooled Litigation

Investors may wish to soften the steep costs associated with a decent legal team by bringing in other investors from their chosen New Commercial Enterprise (NCE) into the lawsuit. In such cases, investors can divide the cost of an attorney across all parties wishing to pursue litigation against a defendant. 

Attorneys should always be consulted when weighing one’s options for pursuing pooled litigation. Investment issuers, general partners, and other parties the investor signed contracts with often protect themselves by adding in confidentiality clauses, which prevent the investor from congregating with other investors in their projects and potentially unionizing when litigating. However, some state laws give LLC members or partners in a partnership certain discovery rights to review the books and records of the business entity outside of litigation, which would reveal the identities of other investors. The less agency offered to each investor by the investment issuer, the weaker they are in countering the large and oftentimes exploitative power of investment issuers and partners. Additionally, while advertising litigation to other investors is usually fair game, soliciting partners in a litigation case is generally illegal. Seeking the advice of an attorney in how to find other investors to start a pooled litigation fund is one of the ways an investor can prevent counterclaims filed against them by these large entities.

Investors must keep in mind that litigating against an investment issuer or other parties on behalf of a singular investor is extremely complex for attorneys, let alone a pooled lawsuit with significantly more paperwork. Filing a suit correctly requires a significant amount of time, so investors must exercise patience to develop a solid case. Investors should expect to dedicate a significant time commitment into compiling documents and communicating with lawyers while the case is being prepared.

Creating a “Pool” of Litigants

In the case that an investor finds a group of investors also looking to litigate against an investment issuer, the investors must find “commonality” which unites all the investors in their litigation goals. Ethically, attorneys can only represent all litigants in a lawsuit if their interests align for the entirety of the litigation period. Therefore, investors must establish commonality with each other through a variety of factors, including:

• Being in the same step in the immigration process
• Invested in the same NCE with the same RC
• Using the same law firm, agent or broker
• Honoring legal obligations, paying bills on time, general compliance with the law

Filing a suit is almost never a uniform endeavor. Therefore, the circumstances constraining potential litigation pools differ on a case-by-case basis. As such, investors should always seek out the advice of an attorney before creating or joining a group of potential litigators.

Usually, the complexity of the EB-5 process prevents groups of investors from filing for a class-action lawsuit. The differing objectives and placement in the immigration process of each investor prevents them from being able to form a meaningfully unified and convincing legal case. Forming a small group of defrauded investors is easier for both the investors and the litigation team to handle, given the need for case-specific details and commonality between the investors. However, an attorney with experience in class action litigation may be able to use this tool effectively in the EB-5 context.

Choosing a Leader or Leadership Committee

An attorney representing a group of investors will make each investor sign a retention agreement, which outlines the unified position of all investors involved in the suit, as agreed to by each of the litigants. The language in this agreement asks that all investors continue making unanimous decisions and act in an unified manner. This agreement will include indemnity clauses for investors who choose to dissent against the agreed terms of the litigation suit, and usually require them to pay a fee to the investor group before leaving the lawsuit completely.

Before a suit can formally proceed, investors must figure out the following logistical arrangements:

• Settlement objectives (what they want from the lawsuit)
• How attorney fees will be divided amongst investors
• Whom amongst the plaintiffs will constitute the leader/leadership committee

Fluency in English is a preferred trait of an ideal group leader for the ease of communication, unless you are able to find an attorney who is fluent in another language. An investor leading a group of litigants will need to communicate with attorneys frequently on behalf of the group, and this leader will most likely be the most ideal candidate to testify in court. The group leaders should also be business savvy, communicative, and comfortable speaking in front of the court during the trial. Once a group has been established, a committee of investors must be appointed to represent all investors involved in the case. This committee will make most of the decisions in a case, and serve as the intermediary communicator between the investors and their legal team.

Investors should keep in mind that U.S. court proceedings are usually public and require a large amount of private information to be publicly exposed on behalf of the investor. When opting to pursue litigation, investors should be prepared for uncomfortable amounts of private information to be disclosed in court. Although the leader of a group of plaintiffs will most likely be called to testify, any investor from the group is legally able to be called if the defendants can present a creative enough argument explaining why. When litigating, investors should keep in mind that even though the leader bears the brunt of responsibility, all investors must be individually prepared to go to trial.