Chen Fang v. CMB Export Infrastructure Investment Group 48 LP

Opinion

CHANG FANG, et al., No. 2:24-cv-01618-DJC-SCR Plaintiffs, v. ORDER

INVESTMENT GROUP 48, LP, et al., Defendants. Plaintiffs brought the present action on behalf of themselves and those similarly situated. Plaintiffs claim that they were induced to invest in a limited partnership in order to obtain EB-5 visas due to Defendants’ misrepresentations and that their investment was lost due to Defendants’ mismanagement of the limited partnership. Defendants have filed a Motion to Dismiss (ECF No. 35) that seeks dismissal of all of Plaintiffs’ claims, on a variety of bases. For the reasons stated below, Defendants’ Motion to Dismiss is granted in part and denied in part.1 //// //// 1 The Court simultaneously addresses the Motions to Dismiss in this action and the related action, Bai v. CMB Export Infrastructure Investment Group 48, LP, No. 2:24-cv-00807-DJC-SCR. Plaintiffs Chang Fang and Yu Lin are spouses who invested $500,000 in a limited partnership, Defendant Group 482, as limited partners. Plaintiffs’ investment qualified them for a visa via the EB-5 Immigrant Investor Program. Defendant Group 48 was set up by Defendant CMB Export with Defendants CMB Export and NK Immigration Services, LLC serving as general partners of Defendant Group 48 and EB- 5 investors serving as limited partners. Defendant CMB Export itself was established by Defendant CMB Regional Centers, a privately held, federally designated regional center for EB-5 investors. Defendant Patrick Hogan originally founded Defendant CMB Regional Centers, and he serves as its CEO. Defendant Patrick Hogan also manages Defendant CMB Export and was previously listed as owner, though ownership has since transferred to two trusts. Defendant Group 48 was created for the purpose of partially funding the redevelopment of the Century Plaza (the “Project”). Defendant Group 48 entered into an agreement with the developer of the Project to provide $450 million in funding for the Project. The agreement set up this funding as a loan subordinate to a construction loan. Defendants subsequently marketed the Project as an investment opportunity to potential EB-5 investors, in part using a 34-page “Project Overview Document” which provided the details of the investment. After Plaintiffs agreed to invest in Group 48, they were provided a Limited Partnership Agreement (“LPA”) which they signed. When the Project faced financial difficulty, additional funding was brought in to secure the Project. However, the newer investments were given priority over Group 48’s investment. Ultimately, the Project failed and Group 48’s investment (and thus Plaintiffs’ investments) was lost due to the presence of loans with senior position.

2 Group 48’s full name is CMB Export Infrastructure Investment Group 48, LP. Given the similarity in name between three defendants (CMB Export LLC, CMB Export Infrastructure Investment Group 48, LP, and CMB Regional Centers), the Court refers to the limited partnership (CMB Export Infrastructure Investment Group 48, LP) as “Group 48”, CMB Export LLC as “CMB Export”, and CMB Regional Centers by its full name. Plaintiffs claim that Defendants failed to take proper action to protect the Plaintiffs’ investment and ignored risks to that investment that were readily apparent. Plaintiffs also claim that Defendants misrepresented their own experience and skills to induce them to invest in Group 48 as well as misrepresenting the status of the Project as it progressed. Defendants have now filed a Motion to Dismiss for Lack of Personal Jurisdiction as to Defendant Noreen Hogan under Federal Rule of Civil Procedure 12(b)(2) and for Failure to State a Claim under Federal Rule of Civil Procedure 12(b)(6). (Mot. (ECF No. 35).) This matter has been fully briefed and on October 31, 2024, the Court heard oral argument from the parties, at which time the matter was submitted. (See Mot.; Opp’n (ECF No. 41); Reply (ECF No. 42); see also ECF No. 45.) MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION I. Legal Standard A. Personal Jurisdiction Generally Rule 12(b)(2) allows a party to assert a lack of personal jurisdiction as a defense and request dismissal of the suit. Fed. R. Civ. P. 12(b)(2). “Although the defendant is the moving party on a motion to dismiss [for lack of personal jurisdiction], the plaintiff bears the burden of establishing that jurisdiction exists.” Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002). “[I]n the absence of an evidentiary hearing, the plaintiff need only make ’a prima facie showing of jurisdictional facts to withstand the motion to dismiss.’” Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124, 1127 (9th Cir. 2010) (quoting Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006)). “The court may consider evidence presented in affidavits to assist it in its determination and may order discovery on the jurisdictional issues.” Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001), abrogated on other grounds by Daimler AG v. Bauman, 571 U.S. 117, 126 (2014) (citing Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1285 (9th Cir. 1977)). Facts presented by the plaintiff are taken as true for the purposes of a 12(b)(2) motion to dismiss, except where contradicted by an affidavit, and any “conflicts between the facts contained in the parties' affidavits must be resolved in [plaintiff's] favor for purposes of deciding whether a prima facie case for personal jurisdiction exists.” AT&T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996) (citations omitted); see Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1223 (9th Cir. 2011) (“We may not assume the truth of allegations in a pleading which are contradicted by affidavit, but we resolve factual disputes in the plaintiff's favor.” (citations and internal quotations removed)). “In exercising personal jurisdiction, a federal district court is constrained by the Fourteenth Amendment's Due Process Clause and the long-arm statute of the state in which it sits.” Impossible Foods Inc. v. Impossible X LLC, 80 F.4th 1079, 1086 (9th Cir. 2023). California’s long-arm statute allows the exercise of personal jurisdiction to the extent allowed by the United States Constitution. See Cal. Code Civ. Proc. § 410.10. Accordingly, the Court need only assess whether the exercise of jurisdiction in this case comports with due process. B. General and Specific Jurisdiction “The Due Process Clause permits the exercise of personal jurisdiction if the defendant has sufficient minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Impossible Foods, 80 F.4th at 1086. Courts may have general or specific jurisdiction over an entity depending on the nature and extent of that entity’s contact with the forum state. A court may exercise general jurisdiction over a corporation in a state where the corporation is “at home,” which is the case when its “affiliations . . . are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” Daimler, 571 U.S. at 119 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). This is generally where the corporation is incorporated and where it maintains its principal place of business. Id. Here, it is uncontested by Plaintiffs that the Court lacks general jurisdiction over Defendant Noreen Hogan. (See Opp’n at 10–12 (arguing only that the Court has specific jurisdiction over Defendant Noreen Hogan).) Where general jurisdiction is lacking, courts may have specific jurisdiction over corporations if there is sufficient contact with the forum state and the claims arise out of that contact. Bristol-Myers Squibb Co. v. Superior Court, 582 U.S. 255, 262 (2017) (“[T]here must be ‘an affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State and is therefore subject to the State's regulation.’” (quoting Goodyear, 564 U.S. at 919)). In the Ninth Circuit, specific jurisdiction is determined by a three-prong test: “(1) the defendant must either ‘purposefully direct his activities’ toward the forum or ‘purposefully avail[ ] himself of the privileges of conducting activities in the forum’; (2) ‘the claim must be one which arises out of or relates to the defendant's forum-related activities’; and (3) ‘the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.’” Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1068 (9th Cir. 2017) (quoting Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002)). “The plaintiff bears the burden of satisfying the first two prongs of the test” while the burden of the third prong shifts to the defendant. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004). 1. Purposeful Availment While the first prong of the specific jurisdiction test is often called the “purposeful availment” prong, courts situationally apply either a purposeful availment or purposeful direction analysis. See Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1210 (9th Cir. 2006). The question of whether to apply a purposeful direction or purposeful availment analysis “turns on the nature of the underlying claims.” Impossible Foods, 80 F.4th at 1088 (citing Ayla, LLC v. Alya Skin Pty. Ltd., 11 F.4th 972, 979 (9th Cir. 2021)). While there is no “rigid dividing line between purposeful availment and purposeful direction[,]” purposeful direction is generally preferred when analyzing tort claims as these claims typically involve fact patterns where “a defendant's conduct primarily occurs outside the forum state.” Id. at 1088–89. “To have purposefully availed itself of the privilege of doing business in the forum, a defendant must have performed some type of affirmative conduct which allows or promotes the transaction of business within the forum state.” Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir. 2008) (citations and internal quotations removed). “A showing that a defendant purposefully availed himself of the privilege of doing business in a forum state typically consists of evidence of the defendant's actions in the forum, such as executing or performing a contract there.” Schwarzenegger, 374 F.3d at 802. Likewise, purposeful direction involves intentional contact with the forum state. It is “the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there” that are relevant to the inquiry. Walden v. Fiore, 571 U.S. 277, 285 (2014). The defendant’s mere knowledge that the plaintiff resides in the forum state “will not, on its own, support the exercise of specific jurisdiction.” Axiom Foods, 874 F.3d at 1070. However, “a defendant's contacts with the forum State may be intertwined with his transactions or interactions with the plaintiff . . . .” Walden, 571 U.S. at 286. Only purposeful contacts, and not random, fortuitous, or attenuated contacts will give rise to personal jurisdiction. Id. 2. Relation of Claim to Forum Activities The claims brought by the plaintiff must arise out of or relate to the defendant’s contacts with the forum in order for the court to exercise jurisdiction. Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 592 U.S. 351, 361–62 (2021). However, a strict causal relationship is not required to satisfy the relation prong. Id. Rather, there need only be a “connection” between the forum-related activity and the injury claimed. Id. The Ninth Circuit employs a “but for” test to determine whether a plaintiff’s claims arise out of the defendant’s forum-related activities. Menken v. Emm, 503 F.3d 1050, 1058 (9th Cir. 2007). 3. Reasonableness The final prong of the personal jurisdiction analysis examines whether the court exercising jurisdiction would be reasonable. Menken, 503 F.3d at 1058. This determination requires consideration of seven factors: “(1) the extent of the defendants' purposeful interjection into the forum state's affairs; (2) the burden on the defendant of defending in the forum; (3) the extent of conflict with the sovereignty of the defendants' state; (4) the forum state's interest in adjudicating the dispute; (5) the most efficient judicial resolution of the controversy; (6) the importance of the forum to the plaintiff's interest in convenient and effective relief; and (7) the existence of an alternative forum.” Id. II. Analysis The parties agree that given the nature of Plaintiffs’ claims, the purposeful direction analysis used in the Ninth Circuit is appropriate. The purposeful direction analysis involves applying the Calder “effects” test which imposes three requirements, “the defendant allegedly must have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Yahoo!, 433 F.3d at 1206 (quoting Schwarzenegger, 374 F.3d at 803). As presently pled, the First Amended Complaint (“FAC”) fails to satisfy the first stage of this analysis. Plaintiffs’ allegations against Defendant Noreen Hogan are exceedingly limited. The FAC alleges only that Defendant Noreen Hogan is the daughter of Defendant Patrick Hogan and that she has been President of CMB Regional Centers since 2017. (FAC ¶¶ 16, 19.) In their Opposition, Plaintiffs assert they alleged an intentional act by Defendant Noreen Hogan when Plaintiff Lin was sent the Project Overview Document. (See Opp’n at 11 (citing FAC ¶¶ 45–47.).) But the portion of the FAC cited by Plaintiffs does not allege that Defendant Noreen Hogan sent the Project Overview Document and contains no direct or implicit reference to Defendant Noreen Hogan at all. Instead, it simply states that Plaintiffs were sent a CMB brochure by “Jessica Zhou, a CMB Regional Center employee,” along with information about the brochure and later communications between Plaintiffs and Zhou. (FAC ¶¶ 45–47.) Plaintiffs’ Opposition also attempts to rely on the allegation in paragraph 19 of the FAC that Defendant Noreen Hogan “manages the day-to-day operations of the Company as well as implementing strategic initiatives for CMB.” (Opp’n at 11.) However, such general allegations of Defendant Noreen Hogan’s connection to corporate defendants without any actions attributed to Defendant Noreen Hogan cannot form the basis of personal jurisdiction. Davis v. Metro Prods., Inc., 885 F.2d 515, 520 (9th Cir. 1989) (“[A] person's mere association with a corporation that causes injury in the forum state is not sufficient in itself to permit that forum to assert jurisdiction over the person.”). There are no facts alleged within the FAC that attribute any intentional action to Defendant Noreen Hogan. As such, the FAC fails to allege sufficient facts to satisfy the Calder effects test and establish this Court’s personal jurisdiction over Defendant Noreen Hogan. Defendants’ Motion to Dismiss will thus be granted as to Defendant Noreen Hogan, though leave to amend will be granted.3 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM I. Legal Standard A party may move to dismiss for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The motion may be granted only if the complaint lacks a “cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). The court assumes all factual allegations are true and construes “them in the light most favorable to the nonmoving party.” Steinle v. City & County of San Francisco, 919 F.3d 1154, 1160 (9th Cir. 2019). However, if the complaint's allegations do not 3 While the Court dismisses all claims against Defendant Noreen Hogan for lack of personal jurisdiction, the Court addresses below some of the dismissed claims against Defendant Noreen Hogan, but only where it might help the parties narrow the issues in this case for subsequent amendment and motion practice. “plausibly give rise to an entitlement to relief” the motion must be granted. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). A complaint need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), not “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, this rule demands more than unadorned accusations; “sufficient factual matter” must make the claim at least plausible. Iqbal, 556 U.S. at 678. In the same vein, conclusory or formulaic recitations of elements do not alone suffice. Id. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. II. Analysis A. Choice of Law As an initial matter, the parties disagree over whether Delaware or California law properly applies to this action. As this case was removed to federal court on the basis of diversity jurisdiction, the Court applies the choice of law rules of the forum state. Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005). California employs different choice of law tests depending on whether there is a contractual choice of law provision that applies to the claims. The Nedlloyd test applies when there is a contractual choice of law and the claim falls within the scope of that agreement, whereas the “governmental interest” test applies where there is no choice of law provision encompassing the claim, but one party asserts a different state's law is nevertheless applicable. Wash. Mut. Bank, FA v. Superior Ct., 24 Cal. 4th 906, 919 (2001). Under the governmental interest test, first, the court must determine whether the foreign law “materially differs” from the forum law; next the court must determine whether the foreign state has an interest in applying its law; and finally, only if the first two steps are satisfied, the court must “select the law of the state whose interests would be ‘more impaired’ if its law were not applied.” Id. at 920. By comparison, where a claim falls within a choice of law provision, the court applies the Nedlloyd approach which adopts the view of the Second Restatement of Conflict of Laws § 187(2). Id. at 916. Under that measure, “the court must first determine: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law.” Id. (cleaned up). If either of these tests are met, “the court must next determine whether the chosen state's law is contrary to a fundamental policy of California. If there is no such conflict, the court shall enforce the parties' choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a materially greater interest than the chosen state in the determination of the particular issue.” Id. (cleaned up). Here, there is a contractual choice of law provision contained within the LPA which requires that “laws of the State of Delaware now or hereafter in effect, . . . shall be used to construe and govern this Agreement. “ (LPA (FAC, Ex. G) at 3.) However, simply because there is a choice of law provision within the LPA does not mean that it covers each claim. While both parties seem to argue for the universal application of California or Delaware state law to the entire FAC, the appropriate law to apply must be determined on a claim by claim both based on whether the choice of law provision within the LPA applies to that claim and which state’s law applies to the specific cause of action at issue. See Zinser v. Accufix Rsch. Inst., Inc., 253 F.3d 1180, 1188 (9th Cir. 2001) (“the three-part California choice of law inquiry requires comparison of each non-forum state's law and interest with California's law and interest separately.” (citations omitted)). B. Claims against Noreen Hogan, Patrick Hogan, and Group 48 Defendants first argue that Plaintiffs have generally failed to adequately allege any claims against Noreen Hogan, Patrick Hogan, or Group 48 due to a failure to allege how they were involved in the course of conduct giving rise to this dispute. Looking at the FAC, Defendants are correct that the FAC lacks any factual allegations regarding Defendant Noreen Hogan’s involvement in any of the claims at issue. (See supra Motion to Dismiss for Lack of Personal Jurisdiction section II.) As such, the claims against Defendant Noreen Hogan must be dismissed. As to Defendant Patrick Hogan, the FAC alleges that Defendants CMB Regional Centers, NK Immigration Services, and CMB Export act as alter egos for Defendant Patrick Hogan, thus making him liable for the acts of those alleged alter egos. (See FAC ¶¶ 25–26.) However, while the Court takes as true Plaintiffs’ allegations at this stage, the FAC only includes bare assertions that these Defendants are alter egos of one another. The FAC does not meaningfully address any of the elements necessary to establish liability under an alter ego theory and does not include factual allegations to support such a theory of liability. See Xyience Beverage Co. v. Statewide Beverage Co., No. 15-cv-02513-MMM, 2015 WL 13333486, at *8 (C.D. Cal. Sep. 24, 2015) (dismissing claims where the plaintiff failed to allege sufficient facts to establish alter ego liability). Accordingly, Plaintiffs’ claims against Defendant Hogan under an alter ego theory must also be dismissed for failure to state a claim on this theory of liability. In their Opposition, Plaintiffs contend that independent of an alter ego theory, Defendant Patrick Hogan is also liable based on his “personal participation in wrongful acts” (Opp’n at 15–16), and Plaintiffs do include some allegations in the FAC about Defendant Patrick Hogan’s personal conduct. Specifically, Plaintiffs allege that Defendant Patrick Hogan was responsible for an early marketing email sent to one of the Plaintiffs (FAC ¶ 48) and that he wrote updates to the limited partners that contained misleading information (id. ¶¶ 65–69, 71, 73–74, 77). While it is not fully clear how each of these allegations fits within each of Plaintiffs’ claims, the Court will address allegations against Defendant Patrick Hogan in the discussion of the adequacy of specific claims. However, as to Defendants’ argument that the FAC generally fails to allege facts regarding Defendant Patrick Hogan’s individual liability, the Motion to Dismiss is denied on this basis. //// Finally, while Plaintiffs’ allegations certainly concern the events around Group 48, Plaintiffs have not alleged that Group 48 itself participated in any misconduct giving rise to liability. Plaintiffs argue that Group 48 is also an alter ego but the FAC lacks any factual allegations to this effect. Unlike as to Defendants Patrick Hogan, CMB Export, CMB Regional Centers, and NK Immigration Services, Plaintiffs do not even allege in conclusory fashion that Group 48 is an alter ego of these parties. (See FAC ¶¶ 25–26.) Given the lack of any factual allegations supporting an alter ego theory of liability against Group 48 or establishing actions by Group 48 individually, Plaintiffs’ claims against Defendant Group 48 must be dismissed with leave to amend. C. Fraudulent Inducement Plaintiffs allege that Defendants induced them to invest in Group 48 through fraudulent representations in marketing material about “Defendants’ skill and record of success, as well as the safety of the investment” as well as “the facts about the construction loan.” (FAC ¶ 96.) Regardless of whether California or Delaware law applies, a three-year statute of limitations applies to claims of fraudulent inducement. Cal. Civ. Proc. Code section 338(d); see Kline v. Turner, 87 Cal. App. 4th 1369, 1373 (2001); see 10 Del. C. § 8106. Plaintiffs signed the LPA in 2015, meaning this period had run well in advance of Plaintiffs filing the present action. Plaintiffs argue in their Opposition that the discovery rule should apply to delay accrual as they did not discover a cause of action “. . . until February 2023 at the earliest when the Loan Agreement and its terms were first disclosed as an exhibit . . .” in a state court action. (Opp’n at 20.) However, the FAC lacks any allegations concerning delayed discovery whether through disclosure of the Loan Agreement or otherwise. A plaintiff must allege facts that support that a complaint is timely filed. See Chestra v. Davis, 747 Fed. Appx. 626, 627 (9th Cir. 2019) (citing Gregg, 870 F.3d at 887). The Court cannot look beyond the FAC for assurance that it was timely filed or that the discovery rule applies. As presently pled, the FAC does not contain any information sufficient to establish that these claims are timely through application of the discovery rule. As such, Plaintiffs’ fraudulent inducement claims are dismissed as untimely, though Plaintiffs will be granted leave to amend. This same reasoning also applies to Plaintiffs’ tenth cause of action of “recission for fraudulent misrepresentation.” As alleged, the basis of this claim is identical to Plaintiffs’ fraudulent misrepresentation claim. (FAC ¶¶ 92–99, 153–156.) As such, this claim is also dismissed on the same grounds, with leave to amend. D. Negligence and Gross Negligence 1. Delaware Law Applies to Allegations that Defendants Mismanaged the Limited Partnership Plaintiffs’ negligence and gross negligence claims concern Defendants’ alleged false and misleading statements to Plaintiffs as well as Defendants’ alleged failures to adequately discharge their duties to protect Group 48’s investment in the Project. Most of these allegations fall under the scope of the LPA and its choice of law provision as they address Defendants’ management of the limited partnership. The parties are reasonably connected to Delaware given Group 48 is a Delaware limited partnership, thus the choice of Delaware law is reasonable. Plaintiffs have not established that Delaware negligence law is contrary to fundamental California policy and the Court is unaware of any reason that it would be contrary. Accordingly, for the claims concerning Defendants’ alleged negligence and gross negligence in the management of Group 48, Delaware law applies to these claims. These claims are barred under Delaware law by the economic loss doctrine. The economic loss doctrine prohibits recovery in tort for a harm that is solely economic. Kuhn Const. Co. v. Ocean and Coastal Consultants, Inc., 844 F. Supp. 2d 519, 526 (D. Del. 2012). While the economic loss rule finds its origins in product liability, it applies to all cases and requires that a plaintiff “sue in contract and not in tort where an action is based entirely on a breach of the terms of a contract between the parties and not on a violation of an independent duty imposed by law.” Israel Discount Bank of New York v. First State Depository Co., LLC, No. 7237-VCP, 2012 WL 4459802, at *14 (Del. Ch. Sept. 27, 2012) (internal citations and quotation marks omitted). This rule applies here to bar Plaintiffs from bringing claims of negligence or gross negligence based on Defendants’ performance of their duties as these claims allege the same breach of duty as those brought under breach of contract. Plaintiffs are correct that the economic loss doctrine would not bar Plaintiffs’ negligence claims related to the inducement of the contract as this concerns a breach of duty separate from the contract. See R. Keating & Sons, Inc. v. Chiselcreek Dev., LLC, No. CV N17C- 05-195 VLM, 2020 WL 6390676, at *4 (Del. Super. Ct. Oct. 30, 2020). But this does not save Plaintiffs’ claims that Defendants did not make truthful disclosures as general partners, “fail[ed] to properly manage, control, administer and operate the business of the partnership[,]” ignored their duties as general partner, or similar claims predicated on Defendants’ performance of their duties under the LPA. (FAC ¶¶ 134, 136, 142.) Accordingly, these claims must be dismissed. As the economic loss doctrine presents a clear bar to these claims, they are dismissed without leave to amend. 2. Plaintiffs’ Inducement-Based Claims are Untimely Plaintiffs’ remaining negligence and gross negligence claims concerning Defendants’ alleged inducement of Plaintiffs’ investment are barred as untimely on the same basis as Plaintiffs’ fraudulent inducement claims above. (See supra Motion to Dismiss for Failure to State a Claim section II.C.) Regardless of whether California or Delaware law applies, negligent misrepresentation claims are subject to, at most, the same three-year statute of limitations as fraudulent inducement claims. See 10 Del. C. § 8106; see also Krahmer v. Christie’s Inc., 903 A.2d 773, 778 (Del. Ch. 2006) (“the applicable statute of limitations is 10 Del. C. § 8106, which imposes a three-year period for claims of negligent misrepresentation”); see also Ventura Cnty. Nat. Bank v. Macker, 49 Cal. App. 4th 1528, 1531 (1996) (applying a two or three-year state of limitations dependent on whether a negligent misrepresentation claim more closely resembled fraud or negligence). As Plaintiffs’ investment occurred in 2015, Plaintiffs’ failure to allege sufficient facts to support application of the discovery rule discussed above is similarly fatal to Plaintiffs’ negligence and gross negligence claims related to the inducement of Plaintiffs’ investment. As such, these claims will be dismissed with leave to amend. E. Breach of Fiduciary Duty 1. Delaware Law Applies The alleged breach of fiduciary duties of the limited partnership’s general partners plainly falls within the scope of the LPA and its choice of law provision applies. Thus, the Court applies the Nedlloyd analysis. As noted previously, the parties have good reason to select Delaware law and Delaware law on breach of fiduciary duty does not violate California’s fundamental policy interests. See Kaul v. Mentor Graphics Corp., 730 Fed. Appx. 437, 439 (2018) (“The choice of Delaware law also does not violate a fundamental California public policy, even though Delaware law would not allow Plaintiffs’ fiduciary duty claim.”). As such, Delaware law properly applies to these claims. 2. Non-parties Defendants correctly identify that Plaintiffs’ breach of fiduciary duty claims are only presently viable against the general partners. The presence of the LPA creates fiduciary duties for the general partners to the limited partnership and the limited partners. JER Hudson GP XXI LLC v. DLE Investors, LP, 274 A.3d 755, 783–84 (Del. Ch. 2022); (see FAC ¶ 113–14 (claiming that under the LPA the general partners owed Plaintiffs fiduciary duties).) However, non-parties to a contract do not bear its contractual liabilities, including the fiduciary duties it creates. Gelfman v. Weeden Invs., LP, 792 A.2d 977, 992 n.24 (Del. Ch. 2001). Thus, the limited partnership, Group 48, itself does not owe Plaintiffs fiduciary duties under the LPA as Group 48 is a product of that agreement, not a party to it. Defendants Noreen and Patrick Hogan could, in theory, be liable for breach of fiduciary duty if they were directors of the general partners. See Wallace ex rel. Cencom Cable Income Partners II, Inc. v. Wood, 752 A.2d 1175, 1180–82 (Del. Ch. 1999). But such claims require allegations that establish that they “acted in a way that is potentially advantageous to their personal interests and at the expense of the limited partners . . .” and caused the general partner to breach its fiduciary duty. Gelfman, 792 A.2d at 992 n.24. No such allegations are presently contained in the FAC. As a result, Plaintiffs’ breach of fiduciary duty claims must be dismissed except as to the general partners, Defendants CMB Export and NK. Leave to amend is granted as to Defendants Noreen and Patrick Hogan, but not as to Group 48. 3. LPA Does Not Bar Plaintiffs’ Breach of Fiduciary Duty Claim Under Delaware law, Limited Partnership Agreements may disclaim “virtually all duties” with the exception of the covenant of good faith and fair dealing. Cohn v. SunCoke Energy Partners, L.P., 2021 WL 3877885, *4 (3rd Cir. Aug. 31, 2021) (citing Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 252 (Del. 2017), as revised (Mar. 28, 2017)). The LPA in the present action disclaims all liability for the general partner “to the fullest extent under Applicable Law” and expressly includes “any breach of duties (including fiduciary duties)[.]” (LPA at 50.) As such, the LPA effectively bars any fiduciary duty claims against the general partner. However, the LPA disclaimer of liability applies “unless the loss or damage shall have been the result of the General Partner’s material breach of this Agreement causing a Material Adverse Effect to the Partnership, gross negligence, or willful or wanton misconduct.” (LPA at 30.) In the FAC, Plaintiffs allege that Defendants were grossly negligent in the discharge of their duties as general partners. (FAC ¶ 142.) This places Plaintiffs’ claims in the exception of the LPA’s disclaimer of liability and thus, as alleged, these claims are not barred by that disclaimer. 4. Timeliness Defendants also contend that “large swaths” of Plaintiffs’ fiduciary duty claim are time-barred by Delaware’s three-year statute of limitations for such claims. (Mot. at 28.) There are portions of the claim that clearly fall outside the statute of limitations period absent application of the discovery rule which is presently unsupported by the allegations in the FAC. (See supra Motion to Dismiss for Failure to State a Claim section II.C.) Specifically, events preceding the LPA (see FAC ¶ 115.a-b) and concerning misrepresentations of the construction loan in the LPA (id. ¶ 115.c) are events that occurred in 2015 and are thus untimely. Other breaches that are alleged may be at least partially timely but are presently vaguely alleged such that it is impossible to determine if they are timely. (Id. ¶ 115.d–e, g.) For example, Plaintiffs allege that Defendants breached their fiduciary duty by “failing to ensure that capital was not wasted by the Developer by failing to monitor the project’s progress and annual budgets[.]” (Id. ¶ 115.e.) The FAC contains numerous allegations of Defendants’ misconduct, including that they failed to adequately monitor the progress of the Project. (Id. ¶¶ 7, 78.) But these are general allegations not clearly tied to any of the allegations in Plaintiffs’ breach of fiduciary duty claim. It is thus impossible to determine if these claims are timely as currently pled.4 The one exception is the allegation that Defendants breached their fiduciary duty by “failing to declare default on the Group 48 loan or take other remedial action when the Developer breached the loan agreement.” (Id. ¶ 115.f.) This seemingly references Defendants’ response to the default of the Project on July 9, 2021. (Id. ¶ 76.) This alleged breach falls within the three-year statute of limitations for breach of fiduciary duty claims without the need to invoke the discovery rule. Accordingly, Plaintiffs’ breach of fiduciary duty claims against the general partners as presently pled must be dismissed as untimely, with the exception of Plaintiffs’ claim that the general partners breached their duty by failing to take remedial action in response to the breach of the loan agreement. Plaintiffs are //// 4 Again, Plaintiffs have not pled sufficient facts to support an invocation of the discovery rule. (See supra Motion to Dismiss for Failure to State a Claim section II.C.) granted leave to amend their other breach of fiduciary duty claims against the general partners of Group 48. F. Breach of Contract 1. Delaware Law Applies Plaintiffs alleged that Defendants breached their duties under the LPA “by taking on the job of general partner without the experience and skill necessary to handle the project, taking on the role of general partner in dozens of other partnerships that they were not equipped to manage, and failing to monitor the affairs of the Partnership so as to prevent it from becoming insolvent.” (FAC ¶ 109.) Plaintiffs' breach of contract claim naturally falls within the scope of the LPA and its choice of law provision given it concerns an alleged breach of the LPA’s terms. As already discussed, the parties have good reason to apply Delaware law as that is the state of incorporation for the limited partnership. Plaintiffs have not identified that Delaware state law conflicts with any fundamental policy of the State of California with regard to Plaintiffs’ breach of contract claims. Accordingly, the LPA’s choice of law provision applies under the Nedlloyd analysis and Delaware law is applicable to these claims. 2. Non-Parties to the LPA Defendants argue for dismissal of non-parties to the LPA on the basis that only a party to a contract may be sued for breach of that contract. (Mot. at 29–30.) Plaintiffs correctly note that they have sought to allege that other non-party Defendants are alter egos of the party Defendants. However, as discussed above, Plaintiffs have not presently adequately alleged their alter ego claims. (See supra Motion to Dismiss for Failure to State a Claim section II.B.) Thus, while it may be possible for Plaintiffs to state breach of contract claims against non-parties to the LPA under an alter ego theory, the FAC is presently inadequately pled to support this. Accordingly, claims against non-parties to the LPA (i.e., all parties except Defendants CMB Export and NK) for breach of contract are dismissed with leave to amend. 3. Waiver of Breach of Contract Claims Defendants also argue that Plaintiffs waived their breach of contract claims in prior state court proceedings. (Mot. at 30.) However, this argument seems to misconstrue a prior statement by Plaintiffs which conceded only that Plaintiffs were unable to state a breach of contract claim against Group 48 as it was not a party to the LPA. The full statement cited by Defendants is “Defendants claim that, among other things, because Defendant Group 48 is not a party to the LPA, so Plaintiffs cannot allege breach of contract. Plaintiffs agree . . . .” (ECF No. 35-1, Ex. 2 at 8; Opp’n at 29.) This statement does not seem to be a waiver of any breach of contract claim, nor is it even clear that it is a waiver of any breach of contract claim of Group 48 based on an alter ego theory. As such, Defendants’ Motion to dismiss Plaintiffs’ breach of contract claims on this basis is denied. 4. Sufficiency of Breach of Contract Allegations Plaintiffs have not sufficiently alleged their breach of contract claims. In their Motion, Defendants contend that these claims are insufficiently alleged as Plaintiffs failed to identify specific provisions of the contract allegedly breached by Defendants. Plaintiffs are correct that it is not necessary for them to identify the exact section or subject headings of the contract that they claim Defendants breached. See Ryan v. Buckeye Partners, L.P., No. CV 2021-0432-JRS, 2022 WL 389827, at *6 n.60 (Del. Ch. Feb. 9, 2022). However, the FAC must still clearly reference the portions of the LPA that they claim Defendants breached. Id. The FAC presently states that “the General Partners had duties under the contract which included the responsibility to manage the business affairs of Group 48,” that the general partners had the exclusive power and authority to manage the affairs of the partnership, and that the general partners agreed to perform its duties in good faith. (FAC ¶¶ 107–08.) While the contractual duties identified in Paragraph 108 of the FAC are clearly connected to Article VI, Section G of the LPA, the contractual duties alleged in Paragraph 107 do not clearly reference any particular portion of the LPA. As a result, it is unclear which contractual provisions are being breached by the acts alleged in Paragraph 109. Thus, Plaintiffs have failed to adequately allege and put Defendants on notice as to what provisions of the LPA were breached and in what manner. Given the lack of clarity in Plaintiffs’ breach of contract allegations, the Court dismisses these allegations with leave to amend to allow Plaintiffs to state with more particularity which provisions of the contract form the breach of contract claim and how those provisions were breached. G. Breach of Implied Covenant of Good Faith and Fair Dealing 1. Delaware Law Applies Both California and Delaware recognize an implied covenant of good faith and fair dealing contained in every contract. See San Jose Prod. Credit Ass'n v. Old Republic Life Ins., 723 F.2d 700, 703 (9th Cir. 1984); Anderson v. Wachovia Mortg. Corp., 497 F. Supp. 2d 572, 581 (D. Del. 2007). As such, the breach of this covenant is covered by the LPA and its choice of law provision. Applying Nedlloyd, the parties have good reason to select Delaware law (see supra Motion to Dismiss for Failure to State a Claim section II.D.1), and Delaware law on the implied covenant of good faith and fair dealing is not contrary to California policy, see Oracle Corp. v. ORG Structure Innovations LLC, No: 11-cv-3549-SBA, 2012 WL 12951187, at *7 (N.D. Cal. Mar. 30, 2012). Thus, Delaware law applies to Plaintiffs’ breach of the implied covenant of good faith and fair dealing claim. 2. Application of the Covenant Plaintiffs have not alleged sufficient facts to justify invocation of the covenant of good faith and fair dealing. “Under Delaware law, the implied covenant of good faith and fair dealing exists in every contract.” Fundingsland v. OMH Healthedge Holdings, Inc., 329 F. Supp. 3d 1123, 1137 (S.D. Cal. 2018) (citing Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017)). “The covenant is best understood as a way of implying terms in the agreement, whether employed to analyze unanticipated developments or to fill gaps in the contract's provisions.” Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 441 (Del. 2005) (cleaned up). The covenant cannot be used to state a claim based on conduct authorized or otherwise handled by the contract, and a plaintiff seeking to invoke it must identify the specific implied contractual obligation that is not within the terms of the agreement. Id. at 441–42; see Kyle v. Apollomax, LLC, 987 F. Supp. 2d 519, 527 (D. Del. 2013). “[T]he elements of an implied covenant claim are those of a breach of contract claim: a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damage to the plaintiff.” Fundingsland, 329 F. Supp. 3d at 1137 (cleaned up). Here, Plaintiffs’ breach of the implied covenant of good faith and fair dealing claim lacks the necessary allegations to support such a cause of action. Plaintiffs argue that their covenant claim is based on allegations that the Defendants executed their duties in bad faith, including affirmatively lying and misleading the Plaintiffs. (Opp’n at 30–31.) However, the allegations within the FAC fail to establish that such claims are not covered by the LPA. (See FAC ¶¶ 116–25.) The application of the implied covenant of good faith and fair dealing is a “cautious enterprise” under Delaware law and courts are particular in ensuring that its invocation is necessary. Kyle, 987 F. Supp. 2d at 527. The covenant can only be invoked where the conduct in question is not addressed by the contract. Dunlap, 878 A.2d at 441. Given the Plaintiffs’ failure to allege sufficient facts in the FAC to establish that invocation of the covenant is necessary, Defendants’ Motion to Dismiss this claim will be granted, with Plaintiffs being granted leave to amend. H. Unjust Enrichment Under both California and Delaware law, unjust enrichment is commonly applied as a quasi-contract claim that can serve in lieu of an express enforceable contract. Tolliver v. Christina Sch. Dist., 564 F. Supp. 2d 312, 315 (D. Del. 2008); Echo & Rig Sacramento, LLC v. AmGuard Ins., 698 F. Supp. 3d 1210, 1218 (E.D. Cal. 2023). In both California and Delaware courts, even where a contract exists a claim of unjust enrichment can still be brought where the contract was procured by fraud. Echo & Rig Sacramento, LLC, 698 F. Supp. 3d at 1219; Chumash Cap. Inv., LLC v. Grand Mesa Partners, LLC, No. N23C-07-209 SKR CCLD, 2024 WL 1554184, at *16 (Del. April 10, 2024). While Plaintiffs’ allegations related to unjust enrichment are extremely limited, the FAC is clear that Plaintiffs believe that the LPA was the product of fraud by Defendants. (See FAC ¶¶ 95–99.) Taken as true, Plaintiffs’ factual allegations supporting that the contract was the product of fraud are sufficient at this stage to state an unjust enrichment claim in the alternative. Accordingly, Defendants’ Motion to Dismiss is denied as to Plaintiffs’ Unjust Enrichment claim. I. UCL Claims 1. UCL Claims Related to Defendants’ Conduct Within the Limited Partnership The bulk of Plaintiffs’ theories of liability under the UCL concern Defendants’ conduct as general partners to the limited partnership. (See FAC ¶ 101.b–i.) The Court’s consideration of these UCL claims concerning Defendants’ conduct within the limited partnership begins and ends with the choice of law analysis. These claims expressly concern the adequacy of Defendants’ conduct in relation to the limited partnership and the LPA itself. (Id.) Thus, the choice of law provision in the LPA applies and the Court applies the Nedloyd analysis. As discussed above, the parties had good reason to select Delaware state law as the law applicable to the LPA. Courts have generally found that UCL itself does not represent a fundamental policy of California. See Yiren Huang v. FutureWei Techs., Inc., No. 18-cv-00534-BLF, 2018 WL 10593813, at *7 (N.D. Cal. Sept. 24, 2018) (finding that the UCL does not represent a fundamental California policy in part because it does not contain an anti- waiver provision); see also Century 21 Real Est. LLC v. All Pro. Realty, Inc., 889 F. Supp. 2d 1198, 1217 n.15 (2012) (noting that “courts have held that application of a choice- of-law provision that bars a UCL claim does not violate a fundamental California public policy.”). Plaintiffs cite several cases in which courts did find that a fundamental policy existed. But the cited cases largely concern California’s fundamental policy in favor of class action relief and generally find that there is a fundamental policy to permit plaintiffs “to recover minor amounts of money obtained in violation of the UCL” as a class action remedy. Aral v. Earthlink, Inc., 134 Cal. App. 4th 544, 564 (2005); see Van Slyke v. Capital One Bank, 503 F. Supp. 2d 1353, 1361 (N.D. Cal. 2007) (finding there is “there is a substantial risk that a California fundamental public policy in favor of class actions” (emphasis added)); see also Am. Online, Inc. v. Superior Ct., 90 Cal. App. 4th 1, 17–19 (2001). Those cases represent a fundamentally different situation than here given that Plaintiff is not presently “rel[ying] solely on the UCL to support his claims.” Aral, 134 Cal. App. 4th at 564. Given the above, the Court finds that general application of the UCL does not represent a fundamental California policy. As such, Delaware law applies. The UCL is not a Delaware law and thus Plaintiffs cannot bring claims under the UCL based on Defendants actions as general partners to the limited partnership. As such, Plaintiffs’ UCL claims as to subparagraphs (b) through (i) of paragraph 101 must be dismissed. 2. UCL Claim Based on Inducement The sole remaining basis for Plaintiffs’ UCL claims states that Defendants violated the UCL by “making false and misleading statements about Defendants’ experience, skill and track record as an investor in limited partnerships and the safety of investing in Group 48 which induced Plaintiffs to invest[.]” (FAC ¶ 101.a.) As this concerns actions prior to the signing of the LPA, the LPA and its choice of law provision do not apply here. However, even if these claims may fall under California law under the “governmental interest” test and are thus not barred as Plaintiffs’ other theories of UCL liability are, they would still fail for the same reason as Plaintiffs’ other inducement-based claims: Plaintiffs have not presently alleged sufficient facts to establish such claims are timely. //// Claims under California’s UCL have a four-year statute of limitations. Cal. Bus. & Prof. Code § 17208; see Aryeh v. Canon Bus. Sols., Inc., 55 Cal. 4th 1185, 1192 (2013). UCL claims are governed by common law accrual rules and thus accrue when the harm is complete. Beaver v. Tarsadia Hotels, 816 F.3d 1170, 1178 (9th Cir. 2016). Given Plaintiffs signed the LPA in 2015, absent application of the discovery rule, which applies to California UCL claims, Plaintiffs’ claims are untimely even if California law applies to those claims. As discussed related to other claims above, Plaintiffs have not alleged sufficient facts to apply the discovery rule. Thus, Plaintiffs’ remaining UCL claims must presently be dismissed as untimely. For the foregoing reasons, IT IS HEREBY ORDERED that: 1. Defendants’ Motion to Dismiss (ECF No.35) is GRANTED IN PART and DENIED IN PART as follows: a. Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction over Defendant Noreen Hogan under Federal Rule of Civil Procedure 12(b)(2) is GRANTED; b. Defendants’ Motion to Dismiss for Failure to State a Claim under Federal Rule 12(b)(6) is DENIED as to Plaintiffs’ unjust enrichment claim and claims against Defendant Patrick Hogan generally; and c. Defendants’ Motion to Dismiss for Failure to State a Claim under Federal Rule 12(b)(6) is GRANTED on all other bases as stated above. 2. Plaintiffs’ First Amended Complaint is DISMISSED with leave to amend except as to those claims identified above for which leave to amend was expressly not granted. 5 5 Plaintiffs also brought “imposition of a constructive trust” as a cause of action but both parties seem in agreement that this is not a separate cause of action, but a form of relief Plaintiffs may seek. (Opp’n at 36; Reply at 15.) Accordingly, this will be dismissed as a separate cause of action without leave to amend. 3. Plaintiffs shall file an amended complaint within thirty days of this order. Dated: _March 28, 2025 “Dane A Ch brett Hon. Daniel alabretta UNITED STATES DISTRICT JUDGE pJc1 —fang24ev01618.mtd 25