Direct Reliance and Corporate Veil-Piercing Standards in EB-5 Investor Fraud Claims

Introduction

Chunhong Jia et al. (“Appellants”), citizens of the People’s Republic of China, invested under the EB-5 Immigrant Investor Program in a planned expansion of Boardwalk Fresh Burgers & Fries franchises. They allege that their $3.5 million was misappropriated, leaving them without the permanent residency they sought. The Appellants sued Boardwalk Fresh Burgers & Fries, Inc. and its CEO, David DiFerdinando (“Boardwalk Defendants”), for a variety of claims—fraud, negligent misrepresentation, federal securities law violations, breach of contract and fiduciary duty, negligence, unjust enrichment, and more. The district court granted summary judgment to the Boardwalk Defendants on all counts, and the Eleventh Circuit affirmed.

Summary of the Judgment

After investing $500,000 each into a limited partnership called Boardwalk Fries Opportunities, L.P., the Appellants’ funds were held in escrow pending approval of their I-526 petitions. Once approvals issued, the funds were released and later diverted by third parties (the “Chans”). No evidence tied the Boardwalk Defendants to the misappropriation. The district court found:

Fraud & Negligent Misrepresentation: No proof Appellants ever saw or relied upon CEO DiFerdinando’s affidavit promising a $3 million capital contribution.
Securities Violations: Without reliance on any misrepresentation, §10(b) claims fail.
Breach of Contract: The Boardwalk Defendants were not parties to the partnership agreement, nor could the veil of intervening entities be pierced.
Breach of Fiduciary Duty & Constructive Fraud: No evidence of a formal or informal fiduciary relationship between Appellants and the Boardwalk Defendants.
Negligence & Gross Negligence: Absent any duty owed by the Boardwalk Defendants to Appellants, these tort claims collapse.
Unjust Enrichment/Quantum Meruit: No traceable benefit flowed from Appellants to the Boardwalk Defendants.

The Eleventh Circuit agreed that Appellants produced no evidence of direct reliance, no contractual privity or fiduciary relationship, and no entitlement to veil-piercing. Summary judgment for the Boardwalk Defendants was affirmed.

Analysis

1. Precedents Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) – Clarifies summary judgment burden-shifting.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) – Defines “genuine dispute” and “material fact.”
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) – Elements of a private §10(b) securities claim, including reliance.
Amgen Inc. v. Connecticut Retirement Plans, 568 U.S. 455 (2013) – Reliance as essential to §10(b) claims.
Belvedere Condominium Unit Owners’ Ass’n v. R.E. Roark Cos., Inc., 617 N.E.2d 1075 (Ohio 1993) – Tests for corporate veil piercing.
Dombroski v. WellPoint, Inc., 895 N.E.2d 538 (Ohio 2008) – Requires showing fraud or illegality plus injustice to pierce veil.
Gourdine v. Crews, 955 A.2d 769 (Md. 2008) – Elements of fraud under Maryland law require proof of reliance.
Martens Chevrolet, Inc. v. Seney, 439 A.2d 534 (Md. 1982) – Elements of negligent misrepresentation in Maryland.

These precedents underscore key points: summary judgment standards (Celotex/Anderson), the indispensability of reliance in fraud and securities claims (Matrixx/Amgen/Gourdine), and the demanding veil-piercing test (Belvedere/Dombroski).

2. Legal Reasoning

Reliance Requirement: Fraud, negligent misrepresentation, and §10(b) claims all require that the defendant’s misstatements were actually read and relied upon by the investor. Here, none of the Appellants ever met or corresponded with DiFerdinando or received the affidavit directly. Reliance on a purported agent’s translation (NCA) was speculative and unsupported.

Contractual Privity & Veil Piercing: The partnership agreement named BWF MGMT, LLC as general partner, and Boardwalk Fries, LLC as manager. The Boardwalk Defendants were not signatories. To hold them liable, Appellants would have to pierce two layers of entities. Ohio law demands (1) complete domination, (2) use of domination to commit a fraud or wrong, and (3) unjust loss to the plaintiﬀ. Appellants showed none of these – no commingling of assets, no ignoring of formalities, no evidence the Boardwalk Defendants exercised such control.

Fiduciary Duty & Tort Claims: Limited partners owe no fiduciary duties to one another or to the general partner absent an express agreement. The Boardwalk Defendants, never general partners, owed no duty of care to Appellants. Negligence and gross negligence thus fail for lack of duty and causation. Likewise, unjust enrichment collapses for want of any benefit passing to the Boardwalk Defendants traceable from the investors.

3. Impact

This decision reinforces stringent evidentiary thresholds in EB-5 and other investment cases:

Appellants must show direct receipt and reliance on alleged misstatements by defendants, not just via intermediaries.
Courtship through third-party consultants does not create agency or fiduciary duties to investors absent clear authority.
Corporate veil-piercing in multi-tier structures remains exceptional: investors cannot leapfrog to hold franchisors or CEOs liable without proof of domination, fraud, and injustice.
Routine summary judgment rigor applies to cross-border EB-5 disputes as in any other commercial litigation.

Future EB-5 claimants will need meticulously documented reliance and direct contractual or fiduciary relationships before naming franchisors or principals in their suits.

Complex Concepts Simplified

EB-5 Program: A U.S. immigration route granting green cards in exchange for a $500,000 investment in a qualifying new commercial enterprise that creates at least 10 U.S. jobs.
I-526 Petition: The first step in the EB-5 process, where an investor proves their investment is lawful and job-creating.
Escrow Account: A neutral bank account where investors’ funds are held until USCIS approves the I-526 petition, ensuring compliance with EB-5 rules.
Summary Judgment: A pre-trial ruling that no genuine dispute of material fact exists, letting the court decide the case as a matter of law.
Reliance in Fraud Claims: The investor must show they actually read or heard the false statement and acted upon it.
Veil Piercing: Disregarding a corporation or LLC’s separate legal status to hold its owners personally liable—but only in cases of extreme misconduct and injustice.

Conclusion

In Chunhong Jia v. Boardwalk Fresh Burgers & Fries, the Eleventh Circuit reaffirms that plaintiffs must demonstrate clear, direct reliance on alleged misrepresentations and satisfy high hurdles to pierce corporate veils. Absent contractual privity, formal fiduciary ties, or evidence of wrongdoing by franchisors/CEOs, EB-5 investors cannot recover from remote principals for third-party misappropriation. The decision underscores rigorous proof requirements in investment-fraud litigation and offers a roadmap for both plaintiffs and defendants in cross-border funding disputes.