Zhang v. Capitalnexus, LLC

• Court: North Carolina Business Court
• Decided: June 25, 2026
• Docket: 24-CVS-55589
• Status: Published
• Author: Adam M. Conrad

Opinion

Zhang v. CapitalNexus, LLC, 2026 NCBC 59.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 24CV055589-590

HUI ZHANG; JING ZHANG; and CHARLOTTE HARRIS CORNER’S MARRIOTT HOTEL INVESTORS FUND LP,

Plaintiffs,

v.

CAPITALNEXUS, LLC; TAO “TONY” ZHANG; MJM GROUP ORDER AND OPINION MANAGERS, INC.; ANUJ N. ON MOTIONS TO DISMISS MITTAL; VINITA J. MITTAL; MJM GROUP LLC; AVIVAR HOSPITALITY, LLC; QC VANTAGE INVESTMENT PARTNERS, LLC; CLT AIRPORT ALOFT EB-5 LP; NOVUS DEVELOPMENT GROUP LLC; STERLING HOLDINGS, LLC; ATHENA HOLDINGS COMPANY LLC; LOTUS HOLDINGS, LLC; IRIS HOTEL HOLDING, LLC,

Defendants.

1. This complex case arises out of a failed hotel development in Charlotte,

North Carolina. The plaintiffs are Chinese citizens who invested in the project in

connection with the federal government’s EB-5 immigration program, which allows

foreign citizens to obtain permanent residency in the United States. Having lost most

of their investments (and worried about their immigration status), they now accuse

a host of individuals and entities of fraud, self-dealing, breach of contract, and related

misconduct. The defendants’ motions to dismiss are pending. For the following

reasons, the Court GRANTS in part and DENIES in part each motion. Spengler & Agans PLLC, by Eric Spengler, for Plaintiffs Jing Zhang and Hui Zhang.

Cranfill Sumner LLP, by Rebecca A. Knudson, Mica Nguyen Worthy, Taylor Sumner Sweet, and Dakota Lipscombe, for Defendants QC Vantage Investment Partners, LLC, Novus Development Group LLC, Athena Holdings Company LLC, CapitalNexus, LLC, and Tao “Tony” Zhang.

Morningstar Law Group, by Christopher T. Graebe and John William Graebe, for Defendants CLT Airport Aloft EB-5 LP, Lotus Holdings, LLC, Iris Hotel Holding, LLC, MJM Group Managers, Inc., Anuj Mittal, Vinita Mittal, MJM Group, LLC, and Avivar Hospitality, LLC.

Whelehan Law Firm, LLC, by Rory D. Whelehan, for Defendant Sterling Holdings, LLC.

No counsel appeared for Nominal Party Charlotte Harris Corner’s Marriott Hotel Investors Fund LP.

Conrad, Judge.

I. BACKGROUND

2. The second amended complaint contains nearly 500 paragraphs detailing

fourteen claims for relief asserted by two plaintiffs against fifteen defendants.

Wading through the mass of allegations is not a task for the faint of heart. In the

background that follows, the Court has done its best to identify the key players and

summarize the disputed transactions, assuming all the while that the allegations are

true.

3. Plaintiffs Hui Zhang (“Hui”) and Jing Zhang (“Jing”) are Chinese citizens.

Hui is a homemaker and former accountant. Jing is a teacher. Neither Hui nor Jing

speaks English, though both studied the language in school during their formative

years. (See 2d Am. Compl. ¶¶ 1, 2, 34–36, ECF No. 55.) 4. Through a friend, Hui met Defendant Tony Zhang (“Tony”) in late 2016. She

introduced Jing to Tony a few months later. Tony resides in North Carolina and has

experience with the federal government’s EB-5 immigration program. At the risk of

oversimplifying what is undeniably a complex set of laws, the EB-5 program allows a

foreign citizen to apply for permanent residency in the United States—popularly

known as a green card—if he or she invests in a business that creates jobs for

American workers. (See 2d Am. Compl. ¶¶ 28–31, 37, 38.)

5. Tony gave Hui and Jing a promotional brochure describing an EB-5

investment opportunity in Charlotte, North Carolina. Written in Chinese, the

brochure outlines a plan to develop a hotel (Northlake Hotel) using a combination of

bank loans, EB-5 investments by foreign citizens, and capital contributed by the

developer (identified as MJM Group 1). According to the brochure, Tony and MJM

Group had already developed at least three successful hotels, and this new project

offered a reliable path to a green card and financial gain. The brochure identifies

Tony as “Director, Foreign Investments” of MJM Group. (See 2d Am. Compl. ¶¶ 39,

41, 44–49.)

6. As they weighed whether to invest, Hui and Jing asked Tony about the risk

involved and pointed to their inability to speak English. Tony allegedly downplayed

the risk, assuring them that their investment principal would be protected. He also

promised to translate documents as needed. (See 2d Am. Compl. ¶¶ 50, 51, 53.)

1 The second amended complaint uses the words “Developer” and “MJM” to refer to four

affiliated entities: MJM Group Managers, Inc.; MJM HC Hotel Managers 4 LLC; MJM Real Estate Group, LLC; and MJM Group LLC. (2d Am. Compl. ¶ 12.) 7. In March 2017, Tony sent Hui and Jing a 99-page batch of English-language

legal documents, including an offering memorandum, subscription agreement, and

partnership agreement. The offering memorandum describes the investment in

detail. Defendant Avivar Hospitality, LLC (“Avivar”) was named as the owner and

operator of Northlake Hotel. Avivar’s majority member would be MJM Group

Managers Inc., a company owned by Defendants Anuj and Vinita Mittal (“the

Mittals”). The minority member would be Charlotte Harris Corner’s Marriott Hotel

Investors Fund LP (“Charlotte Harris”). Defendant CapitalNexus, LLC, a company

closely held by Tony, would serve as Charlotte Harris’s general partner, and

prospective EB-5 investors could participate in the project by paying $500,000 to

become limited partners. (See 2d Am. Compl. ¶¶ 1–4, 9–12, 39, 43; Compl. Ex. 3, ECF

No. 4.3.)

8. The offering memorandum warns prospective investors that “[t]here is no

guarantee that an Investor will receive either a return of his or her investment, or a

return on his or her investment.” The documents also encourage prospective

investors to seek independent counsel and to obtain translations if unable to read and

understand English. (Compl. Ex. 3 at 5, 11, 40, 87 (emphasis in original).)

9. A few days later, Tony followed up with a one-page summary (“Investment

Summary”) of the offering memorandum in Chinese. The Investment Summary

includes a section titled “Project Highlights” that states, in part, that “[i]nvestors will

receive a fixed 5% dividend annually, and upon the completion of obtaining the green

card, investors will receive a repayment of $500,000 principal!” Another section titled “Application Process” lists four steps in the process for obtaining a green card. (See

2d Am. Compl. ¶¶ 54, 57, 58; Compl. Ex. 4 [“Investment Summary”], ECF No. 4.4.)

10. After receiving these documents, Hui and Jing asked Tony for complete

translations. Tony instead referred them to the promotional brochure and the

Investment Summary. He also promised to meet them in person in China for the

purpose of putting certain terms into a separate, Chinese-language document

(“Investment Memo”). At that point, Hui and Jing signed the offering memorandum

despite not having read it and not having obtained a translation. Several weeks later,

Tony, Hui, and Jing met in China as planned and signed the Investment Memo. This

document includes the following statement: “Regardless of the reason, before an

investor obtains permanent residency and within 180 days of applying for

withdrawal, the $500,000 investment capital and dividends . . . will be refunded to

the investor’s account.” (2d Am. Compl. ¶¶ 59–61, 63; Compl. Ex. 6 [“Investment

Memo”], ECF No. 4.6.)

11. In June 2017, Hui wired $500,000 to Charlotte Harris’s bank account. In

July 2017, Jing did so as well. Each also paid a $45,000 management fee. Their

initial immigration petitions were filed almost immediately. (See 2d Am. Compl.

¶¶ 70, 71.)

12. According to Hui and Jing, it was all downhill from there, starting with an

amendment of Avivar’s operating agreement in early 2018 that disfavored Charlotte

Harris and its EB-5 investors. Among other things, the amendment gave Anuj Mittal

virtually unfettered managerial control, authorized a sizeable project management fee for the Mittals, permitted interim distributions to entities controlled by Tony and

the Mittals, and restricted Charlotte Harris’s economic rights. The amendment also

coincided with a reshuffling of Avivar’s membership. In addition to Charlotte Harris,

Avivar’s original members included MBIL LLC (“MBIL”) and MJM HC Hotel

Managers 4 LLC (“MJM HC”), not MJM Group Managers Inc. as stated in the offering

memorandum. MBIL transferred its interest to Defendant Sterling Holdings, LLC

(“Sterling”), and MJM HC transferred its interest to the Mittals. Meanwhile, one of

Tony’s closely held companies—QC Vantage Investment Partners, LLC (“QC

Vantage”)—became a member as well. Hui and Jing were unaware of the amendment

to Avivar’s operating agreement and the changes to its membership. (See 2d Am.

Compl. ¶¶ 131, 146, 147, 160, 161.)

13. As alleged, Tony and the Mittals made these changes with an eye toward

selling Northlake Hotel even before it opened. Anuj Mittal supposedly agreed to sell

the hotel for $39 million, but the sale fell through when the buyer backed out. Hui

and Jing, who did know about this, believe that the sale would have conflicted with

EB-5 regulations and would have jeopardized their immigration status. (See 2d Am.

Compl. ¶¶ 154, 155, 159.)

14. In June 2018, Northlake Hotel opened. In early 2019, Tony told the EB-5

investors that the hotel had created enough jobs to qualify for the EB-5 program. And

by the end of 2019, Tony reported to investors that the hotel was profitable. (See 2d

Am. Compl. ¶¶ 73, 74.) 15. Despite these positive reports, Avivar obtained a $9 million loan from Access

Point in late 2019, ostensibly to cover budget overruns. But Hui and Jing believe that

the loan served other purposes. They allege that Avivar was low on cash because the

Mittals never contributed capital to the company as promised and paid themselves

excessive developer fees, recklessly reducing working capital. (See 2d Am. Compl.

¶¶ 166, 168, 169.)

16. A major corporate restructuring followed in January 2020, again without

the EB-5 investors’ knowledge. Through this restructuring, Charlotte Harris ceased

to be a member of Avivar and obtained new interests in Defendants Lotus Holdings,

LLC (“Lotus”) and Iris Hotel Holdings, LLC (“Iris”). Lotus acquired sole membership

in Avivar plus sole membership in a second company that also owned and operated a

hotel. Lotus supposedly paid about $2 million for Avivar’s entire membership

interest, but only Tony and the Mittals received any of the proceeds. Iris similarly

held sole membership in two companies, each of which owned and operated a hotel.

As a result, Charlotte Harris had indirect interests in four hotels, including

Northlake Hotel, that were developed by Tony and the Mittals. (See 2d Am. Compl.

¶¶ 172, 166, 178, 186.)

17. Charlotte Harris lost more than it gained in these transactions, say Hui and

Jing. Charlotte Harris was allegedly treated as a second-class member: it was given

nonvoting units, and upon the sale of any of the hotels in the portfolio, it would be

paid last. The other members included several companies owned by Tony and the

Mittals, all of which received preferential treatment. For example, one of the Mittals’ companies—Zion Hotel Fund IV, LLC (“Zion”)—obtained distribution priority and

complete control over Iris. (See, e.g., 2d Am. Compl. ¶¶ 192–96, 249, 251, 252, 254.)

18. Perhaps more worrying for Hui and Jing, the restructuring potentially

jeopardized their immigration status. Their view is that the EB-5 investors’ funds

were to be used only for Northlake Hotel, both because Charlotte Harris’s partnership

agreement required as much and because that was the basis for the investors’

immigration petitions. They fault Tony for failing to consult an attorney to ensure

compliance with immigration regulations. (2d Am. Compl. ¶¶ 173–76, 248, 457, 459.)

19. Just weeks after Charlotte Harris exchanged its interest in Avivar for

interests in Iris and Lotus, Tony spoke with Hui and Jing. He mentioned a proposal

to merge Northlake Hotel with another hotel, without telling them that a broader

restructuring had already occurred. (See 2d Am. Compl. ¶¶ 77–82.)

20. In March 2020, the COVID-19 pandemic began. Avivar immediately

defaulted on its loans. In a letter to secured lenders, Anuj Mittal explained that “we

must conserve available cash to maintain the underlying asset, and to the extent

possible, our trained and capable staff through this crisis.” As alleged, though, Avivar

did not conserve cash and instead continued to make distributions to the Mittals.

Then, in June 2020, Avivar gave Sterling a sweetheart deal, paying it a large sum of

cash and converting its equity stake into debt guaranteed by Lotus. This left Avivar

in a precarious position and put Sterling at an advantage over other members,

including Charlotte Harris. (2d Am. Compl. ¶¶ 206, 209, 210, 212.) 21. Around this time, Tony contacted the EB-5 investors and cautioned that the

pandemic would likely delay dividends for two or three years. He also mentioned a

potential “asset restructuring and asset optimization” but gave no explanation and

again did not disclose the earlier changes in Charlotte Harris’s assets. Included in

his report were rental rates and other information about Northlake Hotel and three

other Marriott hotels. (2d Am. Compl. ¶¶ 79, 80.)

22. Things soon went from bad to worse. In August 2020, Access Point filed suit

over the loan default, and Avivar then entered Chapter 11 bankruptcy. Lotus, as

Avivar’s sole member, authorized the bankruptcy filing. According to Hui and Jing,

the bankruptcy was unnecessary and occurred only because Tony and the Mittals had

taken large, impermissible distributions, thereby depleting Avivar’s cash reserves.

(See 2d Am. Compl. ¶¶ 216, 217, 222.)

23. Tony sent another update to the EB-5 investors in November 2020. He said

nothing about the bankruptcy, instead reporting that he and the Mittals had

contributed an additional $500,000 each (which was allegedly false) and that there

was an agreement with an unspecified bank to restructure outstanding debt. He also

discussed a proposed consolidation of Northlake Hotel and three other Marriott hotels

into a new company called Athena Holdings Company, LLC (“Athena”). This

proposed consolidation never took place, although filings in the bankruptcy

proceeding suggest that it was under serious contemplation. Hui and Jing also allege

that they later discovered a transfer of $50,000 from Charlotte Harris to Athena, for which Charlotte Harris received nothing in return. (See 2d Am. Compl. ¶¶ 81–83,

218, 219; Compl. Ex. 8, ECF No. 4.8.)

24. In April 2021, Iris’s two subsidiaries filed for bankruptcy, just as Avivar had

the previous August. Hui and Jing allege that these bankruptcies were unnecessary,

again driven by improper distributions to Tony and the Mittals. As the bankruptcies

moved forward, Tony demanded that Iris return Charlotte Harris’s capital

contribution, but the demand was refused. Later, Tony lodged an objection on

Charlotte Harris’s behalf, which the bankruptcy court overruled for lack of standing.

Ultimately, Iris’s subsidiaries liquidated the two hotels that they owned, and

Charlotte Harris did not receive any of the proceeds. (See 2d Am. Compl. ¶¶ 260, 261,

264, 271.)

25. Meanwhile, it seems that Avivar’s bankruptcy proceeding was hotly

contested. Access Point, as the largest secured creditor, opposed the original plan of

reorganization on the ground that it would have allowed Tony and the Mittals to keep

$3 million in ill-gotten distributions. Internally, a disagreement arose between Tony

and Anuj Mittal about whether to keep or sell Northlake Hotel. Eventually, in

mid-2021, Avivar sought and obtained the bankruptcy court’s approval to sell

Northlake Hotel. Access Point then withdrew its objection and received the bulk of

the sale proceeds. In April 2022, the bankruptcy court dismissed the proceeding and

authorized Avivar to pay its unsecured creditors. Sterling was among those that

received at least a partial return. Charlotte Harris, however, received nothing and never participated in the bankruptcy proceeding. (See 2d Am. Compl. ¶¶ 224, 227,

232, 233, 246, 247.)

26. It was not until December 2021 that Tony told Hui and Jing about the

bankruptcy. Tony claimed that he had tried to block the bankruptcy and that he was

“currently seeking potential investment recovery.” But by that point, Northlake

Hotel had already been liquidated. A few weeks later, Tony asserted that Charlotte

Harris’s investment had been transferred out of Northlake Hotel and into a different

hotel (Residence Inn Steele Creek Hotel). An immigration attorney advised Tony of

a “small risk” that these events could derail the EB-5 investors’ immigration

petitions. (2d Am. Compl. ¶¶ 88, 93, 94, 234, 235, 248.)

27. In May 2022, Hui and Jing asked for a refund of their principal investment,

plus dividends. The investment was not returned. (See 2d Am. Compl. ¶¶ 96, 97.)

28. As the bankruptcy proceedings played out, the relationship between Tony

and the Mittals deteriorated. Over the course of late 2021 and early 2022, they filed

multiple lawsuits against one another, which included claims by Charlotte Harris

against Iris. The hostilities ended in a global, mediated settlement among fourteen

parties, including Tony, the Mittals, Charlotte Harris, Iris, Lotus, and others.

According to Hui and Jing, the settlement was favorable for everyone but Charlotte

Harris and the EB-5 investors. Among the settlement’s many terms, Charlotte

Harris received just $100,000 from the Mittals in exchange for its entire interest in

Iris. Worse yet, Charlotte Harris ceded its entire interest in Lotus for nothing. Hui

and Jing believe that the settlement allowed Tony and the Mittals to retain millions of dollars siphoned from Avivar, Iris, and Lotus, while purporting also to grant broad

releases to them for all alleged wrongs. (See 2d Am. Compl. ¶¶ 263, 264, 269, 278,

279, 281(b),(f); 2d Am. Compl. Ex. 22, ECF No. 55.2.)

29. By the end of 2022, Charlotte Harris had no ongoing interest in Northlake

Hotel or any other hotel, and its only assets included the $100,000 received for its

interest in Iris. In April 2023, Tony invested that money in a coffee shop, without

first consulting Hui, Jing, and the other EB-5 investors. He also purported to amend

the partnership agreement to broaden Charlotte Harris’s business purpose to go

beyond the development of Northlake Hotel. Charlotte Harris’s year-end tax returns

for 2022 showed a loss of $7.9 million with corresponding losses for each EB-5

investor. (See 2d Am. Compl. ¶¶ 290, 293–96.)

30. In late 2024, Hui and Jing filed this lawsuit. They allege that they have lost

their investments and that Charlotte Harris’s switch from hotel development to

coffee-shop investment has endangered their chances of obtaining green cards. Tony,

the Mittals, and their related companies have, by contrast, allegedly received a

windfall from one-sided distributions, excessive fees, and other instances of

self-dealing. In their second amended complaint, Hui and Jing assert a mix of

individual claims and derivative claims on behalf of Charlotte Harris. (See 2d Am.

Compl. ¶¶ 304, 305, 307, 313.)

31. The fifteen named defendants can be broken into three groups. First, the

CapitalNexus Defendants include Tony Zhang, CapitalNexus, QC Vantage, Novus,

and Athena. Second, the Mittal Defendants include Anuj Mittal, Vinita Mittal, Avivar, Lotus, Iris, MJM Group, MJM Group Managers, and CLT Airport Aloft Eb-5

LP. Third, Sterling stands apart as a group of its own. Notably, the second amended

complaint also uses the label “Conspiracy Defendants” to refer to every defendant

except Avivar, Iris, and Lotus. (See 2d Am. Compl. ¶ 347.)

32. Listed in the order they appear in the second amended complaint, the claims

are as follows: (1) a direct claim for inspection of books and records (against

CapitalNexus); (2) direct and derivative claims for declaratory judgment (against

CapitalNexus, Avivar, Lotus, Iris, and Athena); (3) direct and derivative claims for

civil conspiracy and facilitation of fraud (against the Conspiracy Defendants); (4) a

direct claim for fraud in the inducement (against the Conspiracy Defendants); (5) a

direct claim for negligent misrepresentation (against the Conspiracy Defendants);

(6) a direct claim for violations of the North Carolina Securities Act (against the

Conspiracy Defendants); (7) a direct claim for breach of the Investment Memo and

Investment Summary (against the Conspiracy Defendants); (8) direct and derivative

claims for breach of Charlotte Harris’s partnership agreement (against the

Conspiracy Defendants); (9) direct and derivative claims for breach of fiduciary duty

(against the Conspiracy Defendants); (10) direct and derivative claims for

constructive fraud (against the Conspiracy Defendants); (11) direct and derivative

claims for wrongful interference with contract (against Sterling and the Mittals);

(12) direct and derivative claims for breach of the operating agreements of Avivar,

Iris, and Lotus (against the Conspiracy Defendants); (13) direct and derivative claims

for fraud (against the Conspiracy Defendants); and (14) direct and derivative claims for unfair or deceptive trade practices under N.C.G.S. § 75-1.1 (against the

Conspiracy Defendants).

33. The CapitalNexus Defendants, the Mittal Defendants, and Sterling have

filed separate motions to dismiss. Taken together, these motions aim to dismiss the

second amended complaint in its entirety. (See ECF Nos. 85, 87, 104.)

34. All three motions are ripe for decision.

II. LEGAL STANDARD

35. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the

complaint.” Isenhour v. Hutto, 350 N.C. 601, 604 (1999) (citation and quotation marks

omitted). Dismissal is proper when “(1) the complaint on its face reveals that no law

supports the plaintiff’s claim; (2) the complaint on its face reveals the absence of facts

sufficient to make a good claim; or (3) the complaint discloses some fact that

necessarily defeats the plaintiff’s claim.” Corwin v. Brit. Am. Tobacco PLC, 371 N.C.

605, 615 (2018) (citation and quotation marks omitted).

36. In deciding the motion, the Court must treat the well-pleaded allegations of

the complaint as true and view the facts and permissible inference “in the light most

favorable to the non-moving party.” Sykes v. Health Network Sols., Inc., 372 N.C.

326, 332 (2019) (citation and quotation marks omitted). But the Court need not

accept as true any “conclusions of law or unwarranted deductions of fact.” Wray v.

City of Greensboro, 370 N.C. 41, 46 (2017) (citation and quotation marks omitted). It

is appropriate to consider documents “attached to and incorporated within” the pleading without converting the motion into a motion for summary judgment. Weaver

v. St. Joseph of the Pines, Inc., 187 N.C. App. 198, 204 (2007).

III. ANALYSIS

37. A few initial observations will help frame the discussion below. First, the

second amended complaint is full of group pleading, referring again and again to

“Conspiracy Defendants” without attributing alleged acts to a specific person or

entity. In a similar vein, the second amended complaint uses “Tony” to mean both

Tony Zhang and CapitalNexus, and it uses “the Mittals” to mean not only Anuj and

Vinita Mittal but also Zion (a nonparty) and four entities with MJM in their names

(two parties, two nonparties). Jumbling parties together in this way frustrates the

basic purpose of pleading, which is to give defendants in litigation notice of what they

are supposed to have done wrong. For that reason, this Court has “express[ed] its

strong disapproval of this practice.” DT Lulana Gardens LLC v. SDCK I LLC, 2026

NCBC LEXIS 99, at *2 n.1 (N.C. Super. Ct. Apr. 28, 2026); see also Spring v. Lawson,

2026 NCBC LEXIS 97, at *8 (N.C. Super. Ct. Apr. 27, 2026) (disapproving “improper

group pleading”).

38. Second, Hui and Jing have muddled their theories of liability. On its face,

the second amended complaint claims that all the so-called Conspiracy Defendants

are liable not only as conspirators (meaning that each is liable for the acts of others

done in furtherance of the conspiracy) but also as individuals (meaning that each is

independently liable for his own acts) for nearly a dozen causes of action. It is clear,

though, that Hui and Jing do not believe that all these defendants are individually liable for all these claims. The failure to delineate one theory of liability from another,

combined with pervasive group pleading, has made it unusually difficult for the

defendants and the Court to comprehend the allegations.

39. Third, despite collectively using tens of thousands of words, the parties

occasionally look past or otherwise fail to engage with their opponents’ arguments.

By doing so, they have tacitly conceded certain points or, at the very least, left those

points uncontested. See Elhulu v. Alshalabi, 2021 NCBC LEXIS 44, at *21 (N.C.

Super. Ct. Apr. 29, 2021); see also Glover Constr. Co. v. Sequoia Servs., LLC, 2020

NCBC LEXIS 76, at *23 (N.C. Super. Ct. June 18, 2020).

40. With these observations in mind, the Court has endeavored to give a fair

reading to the allegations and arguments in the discussion below.

A. Derivative Claims

41. The Court begins with the derivative claims that Hui and Jing assert on

behalf of Charlotte Harris. There are nine such claims. Defendants challenge all

nine on procedural grounds, arguing that dismissal is appropriate because Hui and

Jing did not verify their complaint and made no prelitigation effort to convince

Charlotte Harris’s general partner to bring the claims directly.

42. By rule, “the complaint shall be verified by oath” in any derivative action

brought by “one or more shareholders or members of a corporation or an

unincorporated association.” N.C. R. Civ. P. 23(b). This “is not simply a technicality.”

Marcoux v. Prim, 2004 NCBC LEXIS 4, at *23 (N.C. Super. Ct. Apr. 16, 2004). It is

“a means to discourage strike suits by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate

managers to settle worthless claims in order to get rid of them.” Alford v. Shaw, 327

N.C. 526, 532 (1990) (cleaned up). Verification ensures “that the plaintiff has

investigated the charges and found them to be of substance.” Id. (citing Halsted

Video, Inc. v. Guttillo, 115 F.R.D. 177 (N.D. Ill. 1987)).

43. Hui and Jing argue that derivative actions on behalf of limited partnerships,

such as Charlotte Harris, are exempt from this requirement because limited

partnerships are neither corporations nor unincorporated associations. They are

wrong.

44. Rule 23(b) uses the term “corporation” in its broad, ordinary sense to mean

an entity “that has a legal personality distinct from the natural persons who make it

up, exists indefinitely apart from them, and has the legal powers that its constitution

gives it.” Corporation, Black’s Law Dictionary (10th ed. 2014); see also Potts v. KEL,

LLC, 2021 NCBC LEXIS 100, at *29 n.6 (N.C. Super. Ct. Nov. 5, 2021) (comparing

similar definitions, both past and present). This definition covers not only entities

organized under the North Carolina Business Corporation Act but also professional

corporations, limited liability companies, and limited partnerships. See Trujillo v.

N.C. Grange Mut. Ins. Co., 149 N.C. App. 811, 815 (2002) (“A partnership is a distinct

entity from the individual members constituting it.” (citation and quotation marks

omitted)). For that reason, courts have routinely—and without controversy—applied

Rule 23(b) to derivative actions brought on behalf of all sorts of corporate entities,

including partnerships. See, e.g., Peak Coastal Ventures, L.L.P. v. SunTrust Bank, 2011 NCBC LEXIS 13, at *23–24 (N.C. Super. Ct. May 5, 2011) (dismissing derivative

action on behalf of LLC partly due to plaintiff’s failure to verify complaint); see also,

e.g., Cohen v. Flat Stone Dev. Co., 2018 U.S. Dist. LEXIS 243688, at *8 (S.D. Tex. Oct.

5, 2018) (applying analogous federal rule to partnership); Abeloff v. Barth, 119 F.R.D.

332, 334 (D. Mass. 1988) (observing that the analogous federal rule “is equally

applicable to partnerships”).

45. Because Hui and Jing did not verify the second amended complaint, the

Court dismisses their derivative claims without prejudice. Having done so, the Court

need not decide whether Hui and Jing complied with other procedural requirements

for derivative claims.

B. Contract Claims

46. Turning to the direct claims, the Court next considers three claims for

breach of contract. Hui and Jing assert claims for breach of the Investment Memo

and Summary, the partnership agreement for Charlotte Harris, and the operating

agreements for Avivar, Iris, and Lotus. These claims—all of which are asserted

against the Conspiracy Defendants—appear as the seventh, eighth, and twelfth

claims for relief.

47. To state a claim for breach of contract, a plaintiff must allege the

“(1) existence of a valid contract and (2) breach of the terms of that contract.” Poor v.

Hill, 138 N.C. App. 19, 26 (2000). For purposes of a motion to dismiss, the contract

itself is controlling and takes precedence over conflicting allegations in the pleading.

See, e.g., Reese v. Mecklenburg Cnty., 204 N.C. App. 410, 421 (2010). 48. Investment Memo & Summary. According to Hui and Jing, the

Investment Memo guarantees a return of their investments plus dividends upon

demand for any reason. In addition, they say, the Investment Summary bolsters that

guarantee with promises not to liquidate Northlake Hotel or dispose of their equity

interests in Charlotte Harris. Although Hui and Jing assert this claim against all

Conspiracy Defendants, the second amended complaint states only that “Tony and

the Mittals breached” the alleged promises. (See 2d Am. Compl. ¶¶ 400, 401, 405.)

49. Defendants move to dismiss this claim on a host of grounds. The

CapitalNexus Defendants contend, among other things, that they did not personally

guarantee a return of principal; rather, it was Charlotte Harris that promised a

refund upon certain conditions. The Mittal Defendants dispute whether the

Investment Summary is a contract at all and contend that they are not parties to the

Investment Memo or Summary, assuming either is a contract. Sterling’s arguments

echo those of the Mittal Defendants.

50. These arguments are persuasive. On its face, the Investment Summary

contains nothing more than a brief description of the hotel project and the steps

involved in applying for a green card through the EB-5 program. The document does

not purport to be a contract and therefore cannot serve as the basis for a claim for

breach of contract. See, e.g., Woods v. Sentry Ins. a Mut. Co., 2008 N.C. App. LEXIS

1773, at *17 (N.C. Ct. App. Oct. 7, 2008) (unpublished) (“Because there was no

settlement agreement between Plaintiffs and Defendants, Defendants could not have

breached the alleged agreement.”). 51. As for the Investment Memo, its text contradicts what is alleged. The

document does not use the word “guarantee.” Nor does it state that Tony, the Mittals,

or any related party would act as a guarantor. All that is stated is that “the $500,000

investment capital and dividends . . . will be refunded to the investor’s account” if Hui

or Jing demand a refund before obtaining permanent residency. (Investment Memo

(emphasis added).) Assuming that the Investment Memo is an enforceable

agreement, this is at most a promise by Charlotte Harris to refund the capital that it

received from Hui and Jing. Had Hui and Jing wanted Tony or anyone else to

guarantee Charlotte Harris’s obligation, they could have included appropriate

language. Because they did not, they may not assert a claim for breach of a

nonexistent guarantee. See, e.g., Wrightsville Health Holdings, LLC v. Buckner, 2017

N.C. App. LEXIS 124, at *8–9 (N.C. Ct. App. Feb. 21, 2017) (unpublished) (affirming

dismissal of claim for breach of contract when defendant had no contractual

obligation).

52. Accordingly, the Court grants the motions to dismiss the claim for breach of

the Investment Memo and Summary. In its discretion, and considering that Hui and

Jing have already amended their complaint twice, the Court dismisses this claim with

prejudice. See First Fed. Bank v. Aldridge, 230 N.C. App. 187, 191 (2013) (“The

decision to dismiss an action with or without prejudice is in the discretion of the trial

court . . . .”).

53. Partnership Agreement. Hui and Jing assert a claim for breach of more

than a dozen provisions of Charlotte Harris’s partnership agreement. Although they assert this claim against all Conspiracy Defendants, they specify that “Tony

materially breached the Partnership Agreement.” As examples, Hui and Jing

challenge the compensation that Tony received, the preferred treatment allegedly

given to a few other EB-5 investors, the liquidation of Northlake Hotel, the transfer

of Charlotte Harris’s equity in Avivar to other entities, and the redirection of capital

from hotel operations to a coffee shop. (See, e.g., 2d Am. Compl. ¶¶ 407–10, 414, 415,

426.)

54. The Mittal Defendants correctly observe that they are not parties to the

partnership agreement. So too for Sterling, QC Vantage, Novus, and Athena. In

their response briefs, Hui and Jing do not address this point or provide any basis to

maintain a claim for breach of contract against these individuals and entities.

Indeed, the second amended complaint does not name them as contracting parties or

allege that any of them performed any act constituting a breach of the agreement’s

terms. The Court therefore dismisses with prejudice the claim as asserted against

the Mittal Defendants, Sterling, QC Vantage, Novus, and Athena. See, e.g., Canady

v. Mann, 107 N.C. App. 252, 259 (1992) (“Since defendant Johnson was not a party to

the contract, as a matter of law he cannot be held liable for any breach that may have

occurred.”).

55. That leaves Tony and CapitalNexus, whose opening brief does not clearly

state their grounds for moving to dismiss this claim. As best the Court can tell, they

contend that Hui and Jing lack standing to pursue individual claims for breach. It is

clear, though, that Hui and Jing are parties to the partnership agreement, and a contracting party will generally have standing to sue for breach. See King Fa, LLC

v. Chen, 248 N.C. App. 221, 224–25 (2016) (“In the context of a breach of contract

claim, the parties who execute an agreement are real parties in interest and have

standing to sue.” (emphasis omitted)). Arguably, a limited partner may lack standing

to sue for breach of a contractual provision that creates a duty owed only to the

partnership. See 759 Ventures, LLC v. GCP Apt. Invs., LLC, 2018 NCBC LEXIS 82,

at *10–11 (N.C. Super. Ct. Aug. 13, 2018) (“To the extent the relevant term in an

operating agreement gives rise to a duty owed to the company, a claim for breach of

that duty is one belonging to the company, and not generally to its members or

managers.”). But Tony and CapitalNexus do not distinguish between those

provisions that Hui and Jing may and may not enforce directly. The Court will not

make that argument for them and therefore denies the motion to dismiss the claim

for breach of the partnership agreement against Tony and CapitalNexus.

56. Operating Agreements. Avivar’s operating agreement obligates its

members and managers to “make reasonable efforts to conduct the affairs of the

Company in a manner that complies with all rules and regulations associated with

the EB-5 Program.” Similar provisions appear in the operating agreements for Iris

and Lotus. As alleged, “the Conspiracy Defendants breached each of the operating

agreements” by failing to keep the capital of Charlotte Harris deployed, disregarding

Charlotte Harris’s business plan, and failing to consult immigration counsel

concerning these decisions. Although Hui and Jing are not contracting parties, they

allege that they are third-party beneficiaries of each operating agreement and therefore may sue for breach. (See 2d Am. Compl. ¶¶ 458, 459; Avivar Op. Agrmt.

¶ 4.7, ECF No. 4.12; Lotus Op. Agrmt. 1 ¶ 4.7, ECF No. 55.1; Iris Op. Agrmt. ¶ 4.7,

ECF No. 4.18.)

57. “North Carolina recognizes the right of a third-party beneficiary to sue for

breach of a contract executed for his benefit.” Raritan River Steel Co. v. Cherry,

Bekaert & Holland, 329 N.C. 646, 651 (1991) (cleaned up). “When a third person

seeks enforcement of a contract made between other parties, the contract must be

construed strictly against the party seeking enforcement.” Babb v. Bynum &

Murphrey, PLLC, 182 N.C. App. 750, 754 (2007) (citation and quotation marks

omitted).

58. No defendant contends, at least for purposes of these motions, that Hui and

Jing are not third-party beneficiaries. Instead, the Conspiracy Defendants raise a

smattering of other arguments.

59. The Mittal Defendants contend that Hui and Jing cannot enforce rights

unrelated to their immigration status and that the allegations show that no alleged

breach has imperiled their applications for permanent residency. That is not readily

apparent, however. The second amended complaint alleges repeatedly that the

actions allegedly constituting the breaches of contract are also violations of EB-5

regulations. (See 2d Am. Compl. ¶¶ 103(g)(ii), 152, 155, 248, 267, 456, 457.) Taking

the allegations as true, these actions have jeopardized Hui’s and Jing’s immigration

applications, which remain pending. (See 2d Am. Compl. ¶¶ 101, 459.) 60. The Mittal Defendants also argue that the statute of limitations bars this

claim because Hui and Jing should have known of the facts giving rise to their claim

sometime in 2020. 2 Rarely do courts dismiss claims at the Rule 12(b)(6) stage as

untimely. A statute of limitations “may be the basis” for dismissal only “if on its face

the complaint reveals the claim is barred.” Forsyth Mem’l Hosp., Inc. v. Armstrong

World Indus., Inc., 336 N.C. 438, 442 (1994) (citations omitted). But what Hui and

Jing should have known is a fact-intensive question not suited to a Rule 12(b)(6)

motion. It is far from clear on the face of the second amended complaint that Hui and

Jing could have or should have discovered the alleged misconduct any earlier than

they did. See Jordan v. Bradsher, 2016 N.C. App. LEXIS 720, at *6–8 (N.C. Ct. App.

July 5, 2016); see also Hunter v. Guardian Life Ins. Co. of Am., 162 N.C. App. 477,

486 (2004) (noting that when a plaintiff should have discovered alleged wrongdoing

is usually a question of fact (citing Feibus & Co., Inc. v. Godley Constr. Co., 301 N.C.

294, 304–05 (1980))).

61. As best the Court can tell, Tony and CapitalNexus dispute whether Hui and

Jing have individual standing. Again, though, if Hui and Jing are third-party

beneficiaries of the operating agreements, they have standing to sue for breach. See

Raritan River Steel, 329 N.C. at 651 (recognizing “the right of a third-party

beneficiary to sue for breach” (emphasis added)).

2 Notably, Sterling offers no argument specifically directed to this claim. Sterling does appear

to rely generally on the statute of limitations for reasons similar to those given by the Mittal Defendants. 62. In addition, QC Vantage, Novus, and Athena appear to contend in passing

that they are not contracting parties and could not have breached the operating

agreements. Some factual development is needed on this point, however, given that

at least QC Vantage and Novus are alleged to have been members of one or more of

the subject LLCs. Sorting out each LLC’s membership is a task better left for

summary judgment.

63. Accordingly, the Court denies the motion to dismiss this claim.

C. Fraud & Related Claims

64. Next, the Court turns to a series of claims that sound in fraud. One group

of claims is based on allegations that Hui and Jing were fraudulently or negligently

induced to invest in Charlotte Harris. An additional, separate claim concerns

allegations of fraud in connection with Avivar’s bankruptcy proceeding.

65. Wrongful Inducement. Hui and Jing allege that Tony made a series of

misrepresentations designed to induce them to invest in Charlotte Harris: first, that

Tony’s Chinese translations of legal documents “were accurate, reliable, and binding”;

second, that “Charlotte Harris had the intent and ability to return” Hui’s and Jing’s

principal investments upon demand; third, that the Conspiracy Defendants “had an

unblemished record of successfully developing hotel properties”; fourth, that “the only

other member of Avivar was MJM Group Managers and that MJM Group Managers

had contributed $8 million (or its cash equivalent) to Avivar”; and fifth, that

Northlake Hotel would not be liquidated “prior to final I-829 adjudication of all the

EB-5 Investors.” (2d Am. Compl. ¶¶ 364–68.) According to Hui and Jing, these allegations support claims against all Conspiracy Defendants for fraudulent

misrepresentation, negligent misrepresentation, and securities violations under

N.C.G.S. § 78A-56. These claims appear as the fourth, fifth, and sixth claims for

relief.

66. Fraud has five “essential elements”: (a) a false representation or

concealment of a material fact, (b) calculated to deceive, (c) made with intent to

deceive, (d) that did in fact deceive, and (e) that resulted in damage to the injured

party. Rowan Cnty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 17 (1992). The

plaintiff must show not only that she actually relied on the misrepresentation but

also that her reliance was reasonable. See Forbis v. Neal, 361 N.C. 519, 527 (2007).

Ordinarily, “[r]eliance is not reasonable where the plaintiff could have discovered the

truth of the matter through reasonable diligence, but failed to investigate.” Cobb v.

Pa. Life Ins. Co., 215 N.C. App. 268, 277 (2011).

67. “The tort of negligent misrepresentation occurs when a party justifiably

relies to his detriment on information prepared without reasonable care by one who

owed the relying party a duty of care.” Hunter v. Guardian Life Ins. Co. of Am., 162

N.C. App. 477, 484 (2004) (citation and quotation marks omitted). Justifiable reliance

is analogous to the element of reasonable reliance in fraud cases. See Marcus Bros.

Textiles, Inc. v. Price Waterhouse, L.L.P., 350 N.C. 214, 224 (1999).

68. The North Carolina Securities Act “creates private rights of action that are

complementary to federal securities schemes.” Piazza v. Kirkbride, 246 N.C. App.

576, 595 (2016), aff’d in part and modified in part on other grounds, 372 N.C. 137 (2019). Hui and Jing rely on section 78A-56(a)(1), which addresses conduct akin to

common-law fraud. See Brown v. Secor, 2020 NCBC LEXIS 134, at *29 (N.C. Super.

Ct. Nov. 13, 2020). A person who materially aids another in committing securities

fraud may be secondarily liable under section 78A-56(c). See id. at *28–29.

69. Allegations of fraudulent and negligent misrepresentation must “be stated

with particularity.” N.C. R. Civ. P. 9(b); see also Value Health Sols., Inc. v. Pharm.

Rsch. Assocs., Inc., 385 N.C. 250, 265 (2023) (applying Rule 9(b) to claims for negligent

misrepresentation); NNN Durham Office Portfolio 1, LLC v. Highwoods Realty Ltd.

P’ship, 2013 NCBC LEXIS 11, at *35–36 (N.C. Super. Ct. Feb. 19, 2013) (applying

Rule 9(b) to claims under N.C.G.S. § 78A-56(a)(1)). This “requirement is met by

alleging the time, place, and content of the fraudulent representation, identity of the

person making the representation and what was obtained as a result of the

fraudulent act or representations.” Terry v. Terry, 302 N.C. 77, 85 (1981).

70. Defendants seek to dismiss these claims on a host of grounds. They argue,

among other things, that the allegations are not stated with particularity, that the

various contracts contradict certain allegations, that Hui and Jing did not reasonably

rely on any representations, and that the claims are time-barred.

71. Let’s take the alleged misrepresentations one at a time, beginning with the

allegation that the project brochure given to Hui and Jing represented that the

developers had an unblemished record of success. As the Mittal Defendants correctly

point out, the project brochure highlights examples of successful past projects but

does not say that the developers had an unblemished record. Hui and Jing contend that it was fraudulent to identify successes without also identifying failed projects,

including a failed hotel development on the site chosen for the Northlake Hotel.

Nowhere, though, does the second amended complaint plead with particularity that

Tony—much less the other Conspiracy Defendants—had a duty to disclose failed

projects. See, e.g., Comput. Decisions, Inc. v. Rouse Office Mgmt. of N.C., Inc., 124

N.C. App. 383, 389 (1996) (observing that parties had “no duty of disclosure” when

negotiating a commercial transaction). Absent a false representation or concealment

of fact, this allegation cannot support the asserted claims.

72. Next, consider the alleged representation that Tony’s translations of legal

documents were accurate and binding. The subscription agreement expressly

contradicts this allegation. In that document, Hui and Jing affirm that each of them

“either reads and understands English, or has had” all contracts and related legal

documents “translated by a trusted advisor into a language that the investor does

understand.” (Compl. Ex. 3 at 87 (all caps omitted).) The subscription agreement

goes on to state that any translation provided by Charlotte Harris “has been provided

only for the convenience of the reader and shall not be enforceable by or against any

party for any purpose.” (Compl. Ex. 3 at 87.)

73. Hui and Jing are bound by these contractual acknowledgments. Although

they now contend that they do not understand English and therefore could not read

the legal documents given to them, “parties to a contract have an affirmative duty to

read and understand a written contract before they sign it.” Westmoreland v. High

Point Healthcare Inc., 218 N.C. App. 76, 83 (2012). Hui and Jing had the documents in hand; they could have obtained an independent translation. Indeed, the offering

memo urges each investor “to consult with his own counsel,” (Compl. Ex. 3 at 40), and

the contracts include an acknowledgment that each investor “has consulted with his

or her own legal, accounting, tax, investment and other advisers to the extent the

Investor has deemed necessary,” (Compl. Ex. 3 at 86). Their failure to investigate—

and instead to rely on Tony’s one-page Chinese summary of ninety-nine pages of

English legal documents—was not reasonable. See, e.g., Calloway v. Wyatt, 246 N.C.

129, 135 (1957) (“The policy of the courts is, on the one hand, to suppress fraud and,

on the other, not to encourage negligence and inattention to one’s own interest.”);

Weaver v. St. Joseph of the Pines, Inc., 187 N.C. App. 198, 213 (2007) (“The law will

not relieve one who can read and write from liability upon a written contract, upon

the ground that he did not understand the purport of the writing . . . when he could

inform himself and has not done so.” (cleaned up)).

74. A third alleged representation is that Charlotte Harris had the intent and

ability to return Hui’s and Jing’s principal investments upon demand. The

documents contradict this allegation as well. The offering memorandum expressly

warns that “[t]here is no guarantee that an Investor will receive either a return of his

or her investment, or a return on his or her investment.” (Compl. Ex. 3 at 11

(emphasis in original).) In addition, the partnership agreement restricts each limited

partner’s ability to withdraw and retrieve capital. (See Compl. Ex. 3 at 67.)

75. The remaining allegations fare better, however. As alleged, Hui and Jing

were told that Avivar would not liquidate Northlake Hotel before the EB-5 investors completed the regulatory process for permanent residency (that is, final adjudication

of what is known as an I-829 petition). (2d Am. Compl. ¶ 368.) Indeed, the offering

memo states that Charlotte Harris would “endeavor to ensure” that liquidation would

“not occur until after the adjudication of all Limited Partners’ I-829 petitions.”

(Compl. Ex. 3 at 11.) But Tony and the Mittals allegedly had plans to liquidate the

hotel as soon as construction ended and had promised as much to Sterling. (2d Am.

Compl. ¶¶ 153, 368.) It is well settled that “a promissory misrepresentation may

constitute actual fraud if the misrepresentation is made with intent to deceive and

with no intent to comply with the stated promise or representation.” Braun v. Glade

Valley School, Inc., 77 N.C. App. 83, 87 (1985).

76. Similarly, Tony allegedly represented that “the only other member of Avivar

was MJM Group Managers and that MJM Group Managers had contributed $8

million (or its cash equivalent) to Avivar.” (2d Am. Compl. ¶ 367.) Hui and Jing

allege that both statements were false: MJM Group Managers did not become a

member of Avivar, and the Mittals did not contribute $8 million. (See, e.g., 2d Am.

Compl. ¶¶ 131, 132.) The capital shortfall, according to Hui and Jing, was material

and led to Avivar’s eventual insolvency.

77. Taken as true, the allegations concerning these latter two

misrepresentations are sufficiently particular to support a claim for fraud against

Tony and CapitalNexus. 3 But Hui and Jing cannot stretch the claim through group

3 Although Tony and CapitalNexus (and the other Defendants) again contend that the claim

is barred by the statute of limitations, the Court disagrees. When Hui and Jing should have become aware of the facts supporting their claim is a fact-intensive question. The claim is not untimely on the face of the complaint. pleading to include each and every one of the so-called Conspiracy Defendants. There

are no particularized allegations tending to show that anyone other than Tony and

CapitalNexus made misrepresentations to Hui and Jing. Whether the rest of the

Conspiracy Defendants may be held liable as conspirators is a different question,

addressed below.

78. Accordingly, the Court denies the motions to dismiss the fourth, fifth, and

sixth claims for relief, albeit limited to Tony and CapitalNexus and to the alleged

misrepresentations concerning the liquidation of Northlake Hotel and the

membership and capital contribution of MJM Group Managers.

79. Post-investment Fraud. An additional fraud claim—separate and

distinct from the claim for fraudulent inducement—appears as the thirteenth claim

for relief. In this claim, Hui and Jing allege that Tony told Charlotte Harris’s limited

partners that Northlake Hotel was operating normally when, in fact, it had defaulted

on its secured debt and entered Chapter 11 bankruptcy. At the same time, Tony

allegedly concealed Charlotte Harris’s status as an interested party from the

bankruptcy court. Unaware of the bankruptcy proceeding, Hui and Jing say, the

EB-5 investors were unable to intervene and prevent Northlake Hotel’s liquidation.

(See 2d Am. Compl. ¶¶ 85, 88, 214–17.)

80. Our Supreme Court has “equated the status of limited partners in a

partnership to the relationship that exists between corporate shareholders and the

corporation.” Energy Invs. Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 335

(2000). Just as a shareholder may not sue individually for a cause of action belonging to the corporation, “one partner may not sue in his own name, and for his benefit,

upon a cause of action in favor of a partnership.” Id. (citation and quotation marks

omitted). An exception exists when a limited plaintiff alleges either that she has

suffered a separate and distinct injury or that the alleged wrongdoer owes her a

special duty. See id.; see also Jackson v. Marshall, 140 N.C. App. 504, 508 (2000).

81. Here, Hui and Jing allege that Charlotte Harris was kept on the sidelines

during Avivar’s bankruptcy, unable to protect its interests. Any injury that Hui and

Jing suffered is derivative of the injury to the partnership as a whole. They have not

alleged a separate, distinct injury that might support an individual claim. See

Jackson, 140 N.C. App. at 509 (“The question is not whether the plaintiff is in a less

favorable position than the general partner, but whether the plaintiff is in a less

favorable position when compared to all other limited partners.”). Nor have they

alleged that any defendant owed them a special duty. See Gaskin v. J.S. Procter Co.,

LLC, 196 N.C. App. 447, 456 (2009) (concluding that partnership agreement did not

create a special duty). Accordingly, Hui and Jing do not have standing to pursue an

individual claim for harm stemming from Charlotte Harris’s exclusion from the

bankruptcy proceeding.

82. More fundamentally, the claim bears all the hallmarks of an impermissible

collateral attack on the bankruptcy proceeding. Hui and Jing go so far as to allege

that the bankruptcy court was “defrauded”—effectively, asking this Court to conclude

that the bankruptcy court erred or at least that it would have decided not to liquidate

Northlake Hotel had it known all the facts. (See 2d Am. Compl. ¶ 466.) But this is the wrong forum for such a challenge. See, e.g., Reusser v. Wachovia Bank, N.A., 525

F.3d 855, 861 (9th Cir. 2008) (“Thus, a final order lifting an automatic stay is binding

as to the property or interest in question—the res—and its scope is not limited to the

particular parties before the court.”); Regions Bank v. J.R. Oil Co., 387 F.3d 721, 732

(8th Cir. 2004) (“A bankruptcy sale under 11 U.S.C. § 363, free and clear of all liens,

is a judgment that is good as against the world, not merely as against parties to the

proceedings.”).

83. Having concluded that Hui and Jing lack standing to pursue this claim, the

Court dismisses it without prejudice. See, e.g., Button v. Level Four Orthotics &

Prosthetics, Inc., 2020 NCBC LEXIS 30, at *21 n.6 (N.C. Super. Ct. Mar. 13, 2020)

(“A dismissal for lack of subject matter jurisdiction is generally a dismissal without

prejudice.” (cleaned up)).

D. Fiduciary Claims

84. Hui and Jing assert related claims for breach of fiduciary duty and

constructive fraud against all Conspiracy Defendants. These claims, enumerated as

the ninth and tenth claims for relief, rest on two separate sets of allegations.

85. First, Hui and Jing allege that Tony, as general partner, had a fiduciary

responsibility to Charlotte Harris. Tony allegedly breached his fiduciary duties by,

among other things, engaging in self-dealing, giving preferential treatment to the

Mittals and others at the expense of Charlotte Harris, and forfeiting control over

Avivar and Iris. (See, e.g., 2d Am. Compl. ¶¶ 432–34, 438, 439, 441–43, 447.) 86. Second, Hui and Jing allege that the Mittals, as managers of Avivar and

Iris, owed fiduciary duties to Charlotte Harris. The Mittals allegedly breached their

fiduciary duties by engaging in self-dealing, removing Charlotte Harris as a member

of Avivar, and more. (See, e.g., 2d Am. Compl. ¶¶ 432–34, 438, 439, 441–43, 447.)

87. Constructive fraud and breach of fiduciary duty are distinct claims with

overlapping elements. To state a claim for breach of fiduciary duty, the plaintiff must

plead the existence of a fiduciary duty, a breach of that duty, and injury proximately

caused by the breach. See Green v. Freeman, 367 N.C. 136, 141 (2013). Constructive

fraud requires, as an additional element, that the defendant sought to benefit himself

through the breach. See White v. Consol. Planning, Inc., 166 N.C. App. 283, 294

(2004).

88. For reasons similar to those discussed above, the Court concludes that Hui

and Jing lack standing. The thrust of the allegations is that Tony and the Mittals

breached duties owed to Charlotte Harris, not to Hui and Jing personally. Any injury

that Hui and Jing suffered is derivative of the injury to the partnership. See, e.g.,

Chi v. N. Riverfront Marina & Hotel LLLP, 2023 NCBC LEXIS 89, at *45 (N.C. Super.

Ct. July 27, 2023) (dismissing individual claim for breach of fiduciary duty when

based on an allegation that defendant “breached its fiduciary duties to the

partnership as a whole”). Absent allegations sufficient to establish a separate,

distinct injury or a special duty, they lack standing to pursue an individual claim.

See Jackson, 140 N.C. App. at 509; Gaskin, 196 N.C. App. at 456. 89. The Court therefore dismisses these claims without prejudice for lack of

standing.

E. Tortious Interference with Contract

90. Hui and Jing assert their eleventh claim—for tortious interference with

contract—against Sterling and the Mittal Defendants. As alleged, Sterling and the

Mittal Defendants improperly interfered with the Investment Memo, Investment

Summary, and Partnership Agreement. (See 2d Am. Compl. ¶¶ 450, 451.)

91. To state a claim for tortious interference with contract, the plaintiff must

allege that a valid contract exists between it and a third person and that the

defendant knew of the contract, intentionally induced the third person not to perform

the contract, did so without justification, and caused actual damage. See Embree

Constr. Grp., Inc. v. Rafcor, Inc., 330 N.C. 487, 498 (1992). Inducement requires

purposeful conduct by the defendant. See, e.g., Truist Fin. Corp. v. Rocco, 2024 NCBC

LEXIS 62, at *38 (N.C. Super. Ct. Apr. 25, 2024); Gallaher v. Ciszek, 2020 NCBC

LEXIS 124, at *16 (N.C. Super. Ct. Oct. 16, 2020).

92. Sterling and the Mittal Defendants argue that the allegations of inducement

are conclusory and therefore insufficient to state a claim. The Court agrees. The only

paragraph in the second amended complaint on this point alleges in conclusory

fashion that “[t]he Mittals and, upon information and belief, Sterling . . . intentionally

induced Tony not to perform under the contracts.” (2d Am. Compl. ¶ 451.) As

numerous decisions have held, however, “[c]onclusory allegations that merely state

that a defendant has ‘induced’ or ‘caused’ a third party to breach a contract with a plaintiff . . . are insufficient to satisfy the inducement element.” Truist, 2024 NCBC

LEXIS 62, at *38–39; see also, e.g., Barings LLC v. Fowler, 2025 NCBC LEXIS 18, at

*16–17 (N.C. Super. Ct. Feb. 13, 2025) (dismissing claim because allegations of

inducement were conclusory); Prometheus Grp. Enters., LLC v. Gibson, 2023 NCBC

LEXIS 42, at *28 (N.C. Super. Ct. Mar. 21, 2023) (same); Morris Int’l, Inc. v. Packer,

2020 NCBC LEXIS 122, at *18 (N.C. Super. Ct. Oct. 15, 2020) (same); Se.

Anesthesiology Consultants, PLLC v. Rose, 2019 NCBC LEXIS 52, at *29 (N.C. Super.

Ct. Aug. 20, 2019) (same).

93. The Court therefore grants the motion to dismiss this claim. Because Hui

and Jing have already amended their complaint twice, the Court dismisses this claim

with prejudice.

F. Section 75-1.1

94. The fourteenth claim for relief is a catchall claim, again asserted against all

Conspiracy Defendants. In short, Hui and Jing claim that the alleged fraudulent

acts, breaches of fiduciary duty, and other misconduct are also unfair or deceptive

trade practices under section 75-1.1. But all the alleged misconduct involves

investment solicitations, acquisition of capital, and mismanagement and self-dealing

internal to the partnership and related businesses. Our appellate courts have

repeatedly held that this sort of conduct is not “in or affecting commerce” within the

meaning of section 75-1.1. See Nobel v. Foxmoor Group, LLC, 380 N.C. 116, 121–22

(2022) (affirming dismissal of claim based on misuse of capital contribution); White v. Thompson, 364 N.C. 47, 51–52 (2010) (affirming dismissal of claim based on conduct

“solely related to the internal operations” of business).

95. Accordingly, the Court dismisses the section 75-1.1 claim with prejudice.

G. Conspiracy

96. The third claim for relief is for civil conspiracy and facilitation of fraud. It

is—no surprise—asserted against the Conspiracy Defendants.

97. Civil conspiracy comprises three elements: (1) a conspiracy; (2) wrongful

actions taken by at least one of the conspirators in furtherance of that conspiracy;

and (3) injury to the plaintiff as a result. See Krawiec v. Manly, 370 N.C. 602, 614

(2018). A conspiracy requires an agreement between at least two persons to take an

unlawful action or to take a lawful action in an unlawful manner. See id. at 613;

Evans v. Star GMC Sales & Serv., Inc., 268 N.C. 544, 546 (1966). Because these

elements “are broadly stated,” the burden in seeking to dismiss a conspiracy claim “is

difficult” to meet. Safety Test & Equip Co. v. Am. Safety Util. Corp., 2015 NCBC

LEXIS 40, at *48 (N.C. Super. Ct. Apr. 23, 2015).

98. Facilitation of fraud requires: “(1) that the defendants agreed to defraud the

plaintiff; (2) that defendants committed an overt tortious act in furtherance of the

agreement; and (3) that plaintiff suffered damages from that act.” Weaver v. Villmer,

2023 NCBC LEXIS 92, at *24 (N.C. Super. Ct. July 31, 2023) (citation and quotation

marks omitted). “Thus, where, as here, the object of the parties’ alleged agreement

is to defraud another, a claim for civil conspiracy to commit fraud and a claim for facilitating fraud are essentially the same claim.” TaiDoc Tech. Corp v. OK Biotech

Co., 2016 NCBC LEXIS 26, at *30 (N.C. Super. Ct. Mar. 28, 2016).

99. There is no standalone claim for civil conspiracy or facilitation of fraud.

“Only where there is an underlying claim for unlawful conduct can a plaintiff state a

claim for civil conspiracy by also alleging the agreement of two or more parties to

carry out the conduct and injury resulting from that agreement.” Toomer v. Garrett,

155 N.C. App. 462, 483 (2002). “The charge of conspiracy itself does nothing more

than associate the defendants together and perhaps liberalize the rules of evidence

to the extent that under proper circumstances the acts and conduct of one might be

admissible against all.” Dove v. Harvey, 168 N.C. App. 687, 690 (2005) (citation and

quotation marks omitted).

100. The Mittal Defendants argue only that this claim cannot survive because

there are no valid underlying claims. But the Court has not dismissed the claims

based on allegations of breach of the partnership agreement, breach of the operating

agreements, and fraudulent inducement.

101. The CapitalNexus Defendants argue that the allegations of the second

amended complaint are not believable. This is so, they say, because the alleged

conspirators eventually turned on one another and fought a protracted legal battle,

including multiple lawsuits and arbitrations. At this stage, however, the Court must

take the allegations as true. And the fact that the alleged conspirators had a falling

out does not negate the possibility that they conspired in the first place to the

detriment of Hui and Jing. Cf. United States v. Khan, 2008 U.S. Dist. LEXIS 43329, at *8–9 (E.D.N.Y. June 2, 2008) (“[T]he existence of hostility between allege

co-conspirators does not necessarily vitiate the possibility of a conspiracy between

them.”).

102. The CapitalNexus Defendants also rely on intracorporate immunity. This

doctrine holds that “there can be no conspiracy” between a corporation and its agents.

Chrysler Credit Corp. v. Rebhan, 66 N.C. App. 255, 259 (1984); Estate of Tipton v.

High Point Univ., 2015 N.C. App. LEXIS 479, at *7 (N.C. Ct. App. June 16, 2015)

(unpublished) (stating that “a corporation cannot conspire with itself”). According to

the CapitalNexus Defendants, the allegation that Tony acted as the Mittals’ agent

destroys any claim for conspiracy. Not so. A conspiracy may exist “if independent

third parties are alleged to have joined the conspiracy.” Potts v. KEL, LLC, 2019

NCBC LEXIS 30, at *23 (May 9, 2019) (citation and quotation marks omitted). The

alleged conspiracy includes Sterling, an independent party, even if Tony and the

Mittals are assumed not to be independent of one another. The Court therefore

cannot conclude that Hui and Jing have pleaded their claim in such a way as to be

self-defeating.

103. It appears that Defendants also rely on arguments made in connection with

other claims, such as a lack of individual standing and untimeliness under the statute

of limitations. Because the Court has addressed these arguments, there is no need

to repeat that discussion.

104. Accordingly, the Court denies the motion to dismiss the claim for conspiracy

and facilitation of fraud. H. Inspection Rights

105. Hui and Jing seek to enforce their statutory and contractual inspection

rights—specifically, the rights to inspect partnership records granted by N.C.G.S.

§ 59-305 and sections 11.02 and 12.04 of Charlotte Harris’s partnership agreement.

This claim, enumerated as the first claim for relief, is asserted against only

CapitalNexus.

106. CapitalNexus argues that it has produced thousands of pages of documents

during this litigation, thereby fulfilling its obligations under section 59-305 and the

partnership agreements. Even if that is true, the Court must stay within the four

corners of the second amended complaint to determine whether Hui and Jing have

stated a claim. Hui and Jing allege that they made an inspection demand and that

their demand was refused (or, at least, met with a response so laden with unjustified

conditions as to have been refused). (See 2d Am. Compl. ¶¶ 333, 334.) This is

sufficient for pleading purposes. It may be the case that CapitalNexus’s production

of documents has rendered the claim moot, but that is a different question, and the

limited record precludes a finding of mootness at this stage. See, e.g., Gvest Real

Estate, LLC v. JS Real Estate Invs., LLC, 2017 NCBC LEXIS 32, at *7–9 (N.C. Super.

Ct. Apr. 6, 2017) (denying motion to dismiss inspection claim as moot).

107. Accordingly, the Court declines to dismiss this claim.

I. Declaratory Judgment

108. In their direct claim for declaratory judgment, Hui and Jing allege that there

are disputes about the composition of Charlotte Harris’s ownership and management. They ask the Court to declare that CapitalNexus has engaged in misconduct that

disqualifies it from serving as Charlotte Harris’s general partner. They also ask the

Court to issue a declaration that establishes their capital accounts and confirms their

ongoing right to any profits from Charlotte Harris.

109. A complaint sufficiently states a claim for declaratory judgment if it “alleges

the existence of a real controversy arising out of the parties’ opposing contentions and

respective legal rights under a . . . contract.” Morris v. Plyler Paper Stock Co., 89 N.C.

App. 555, 557 (1988). Dismissal is appropriate only “when the complaint does not

allege an actual, genuine existing controversy.” N.C. Consumers Power, Inc. v. Duke

Power Co., 285 N.C. 434, 439 (1974).

110. Whether CapitalNexus engaged in acts that permit its removal as general

partner is a genuine controversy. Indeed, CapitalNexus’s brief does not directly

address this portion of the claim and provides no basis for dismissal.

111. There are also genuine controversies concerning the status of Hui’s and

Jing’s capital accounts and partnership rights. Although CapitalNexus insists that

Hui and Jing are wrong, the test is not whether they will “be able to prevail” on their

claim. Id. Because the parties have a bona fide dispute on these matters, they “are

entitled to a declaration of their rights and liabilities and the action should be

disposed of only by a judgment declaring them.” Nationwide Mut. Ins. Co. v. Roberts,

261 N.C. 285, 288 (1964).

112. Accordingly, the Court denies the motion to dismiss the direct claim for

declaratory judgment. IV. CONCLUSION

113. For these reasons, the Court GRANTS in part and DENIES in part the

motions to dismiss as stated above. For clarity, these are the direct claims that will

proceed to discovery:

a. Demand for inspection of books and records (first claim for relief),

against CapitalNexus;

b. Declaratory judgment (second claim for relief), against CapitalNexus;

c. Civil conspiracy and facilitation of fraud (third claim for relief), against

the Conspiracy Defendants;

d. Fraud in the inducement, negligent misrepresentation, and violations of

the North Carolina Securities Act (fourth, fifth, and sixth claims for

relief), against Tony and CapitalNexus and limited to the alleged

misrepresentations concerning the liquidation of Northlake Hotel and

the membership and capital contribution of MJM Group Managers;

e. Breach of partnership agreement (eighth claim for relief), against Tony

and CapitalNexus; and

f. Breach of the operating agreements (twelfth claim for relief), against the

Conspiracy Defendants.

114. In addition, the Court ORDERS the parties to file a revised case

management report and proposed case management order no later than 16 July 2026. SO ORDERED, this the 25th day of June, 2026.

/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases