Yanlu Liu v. Great Ocean Capital Holding, Llc

ZUISE}CT l5 §ii 8:35
lN THE COURT OF APPEALS OF THE STATE OF \NASH|NGTON
D|ViSlON ONE
YAN¥.U t.lU and Al HUA PAN,
husband and wife, residing in King
County, Washington; PENG Zl-iANG
and ZHONG¥UAN PAN, husband and
wife, residing in Ontario, Canada,
No. 76576~1-|
Respondents,
GREAT OCEAN CAP|TAL HOLD|NG,
LLC, a Washington limited liabiiity
company; HU‘( Y|NG CHEN and
XUE P|NG WANG, husband and wife,
residing in Washington state;
UNPUB¥_|SHED OP|N|ON
l'-'|LED: October 15, 2018
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Appellants. )
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VERELLEN, J. - Great Ocean Capita| Holding, LLC cha|ienges the tfial
courts jurisdiction and authority to enterjucigment on Zt\ongyuan Pan’s claim
under the Washington State Securities Act, chapter 21.20 RCW (WSSA). Great
Ocean fai!s to establish the trial court lacked subject matter jurisdiction or either
field or conflict preemption applies.
Great Ocean aiso argues the triai court erred in granting summary judgment
in Pan's favor but fails to estabtish the existence of a genuine issue of material
fact. Great Ocean’s other challenges to the trial court’s orders striking Great
No. 76576-?-|/2
Ocean’s answer and determining Pan was entitled to rescission of her investment
are similarly without merit
Therefore, we atfirm.
E_A_QI§
Great Ocean is a United States Citizen and immigration Service designated
regionai center for purposes of the EB-S immigrant investor Prograrn. Appeliants
Huy Ying Chen and Xue Ping Wang, husband and wife, own a majority interest in
Great Ocean. Respondents Yanlu Liu and Ai Hua Pan, husband and wife, own a
minority interest. Yan|u Liu and Ai Hua pan are the parents of Zhongyuan Pan.
Pan invested $519,500 in Great Ocean for the purpose of obtaining a visa
through the EB-S Program. The EB-5 Program ai|ows foreign investors and their
families to obtain residency in the United States.
|n November 2015, Pan and her parents filed a lawsuit against Great
Ocean for breach ot contract, fraudulent and negligent n"iisrepresentation1 violation
of the WSSA, vioiation of the Consumer Protection Act, chapter 19.86 RCW,
breach of fiduciary duty, and accounting1
The trial court entered orders granting partial summary judgment on Pan’s
WSSA claim, striking Great Ocean's answer and affirmative defenses and
entering findings of fact, conclusions ot iaw, and judgment on Pan’s WSSA claim
The principal amount of judgment was $519,500 for Pan’s initiai investment
1 Respondents’ ciaims for breach of contract, fraud1 and viotation of the
Consumer Protection Act were submitted for arbitration Following partial
summaryjudgment on Pan’s WSSA ctaim, respondents voluntarily dismissed all
other claims
No. 76576-1-!/3
Great Ocean appeals
ANALYS|S
l. Jurisdiction
Great Ocean contends the trial court lacked subject matterjurisdiction to
render judgment in this case.
We review whether a court has subject matter jurisdiction de novo.2 “‘A
judgment entered by a court that lacks subject matter jurisdiction is void.”’3
"As courts of general jurisdiction, superior courts have long had the ‘power
to hear and determine ail matters, legal and equitabie, . . . except in so far as
these powers have been expressly denied,”’4 in light of this broad grant of subject
matter jurisdiction, “courts may only tind a lack of jurisdiction under compelling
circumstancesl such as when it is explicitly timited by the Legis|ature or
Congress.”5
Here, the triai court decided Pan’s WSSA claim Washington State superior
courts have subject matter jurisdiction to decide WSSA claims. And Great Ocean
fails to offer any compeiling authority that the trial court lacked subject matter
jurisdiction to renderjudgment on Pan’s WSSA ciaim. Oddly, Great Ocean cites to
2 pouqhertv v. Den’t of Labor & lndus., 150 Wash. 2d 310, 314, 76 P.3d 1183
(2003).
3 Cole v. Harvevland, LLC, 163 Wash. App. 199, 205, 258 P.3d 70 (20i1)
(quoting Mariev v. Dep’t of Lat)or & |ndus.. 125 Wash. 2d 533, 541, 886 P.2d 189
(1994)).
4 in re |Vlarriade of Maior. 71 Wash. App. 531, 533, 859 P.2d 1262 (1993)
(alteration in original) (quoting State ex rei. Martin v. Superior Court, 101 Wash.
81, 94, 172 P. 257 (1918)).
5 § at 534.
No. 76576*1-|/4
a federal regulation addressing preemption of state laws in the area of chemical
facility ami-terrorism standards.6 Great Ocean makes the conclusory argument
that a state trial court does not have jurisdiction over matters touching on
immigration But this is not an immigration case, and Great Ocean cannot
establish lack of subject matter jurisdiction simply because ot Great Ocean’s
status as a United States Citizen and immigration Service designated regional
center or the nature of the EB~S program.
The trial court did not tack jurisdiction to renderjudgrnent against Great
Ocean on Pan’s VVSSA ciaim.
ll. Preem_r._)t§on
Great Ocean argues the trial court’s authority to enterludgment on Pan’s
WSSA ciairn is preempted by federai |aw.
A state law can be preempted in two ways: (1) field preemption (express or
impiied) or (2) conflict preemption7 “|f Congress indicates an intent to occupy a
given field (expiicitiy or impiiediy), any state law failing within that field is
preempted; even if Congress has not indicated an intent to occupy a field, state
law is still preempted to the extent it would actually conflict with federal law.”8
“Such a conflict occurs (1) When compliance with both taws is physically
6 _S_Y Br. of Appel|ant at 22~23 (citing 6 C.F.R. § 27.405).
7 lnlandboatmen’s Union of the P§c. v. Dep’t of Transg., 119 Wash. 2d 697,
701l 836 P.Zd 823 (1992).
eli
NO. 76576~1-|/5
impossible, or (2) when a state law stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress.”9
i'iere, Great Ocean fails to establish field preemption The federai statutes
cited by Great Ocean do not expressly or impliedly address a Washington State
superior court's authority to hear a WSSA ciaim.10
As to conflict preemption, Great Ocean argues the return ot Pan’s
investment stands as an obstacle to the purpose of the EB-5 program to foster
foreign investment and job creation. But Great Ocean faiis to cite any compe|iing
authority to support this argument
Additional|y, under 15 U.S.C. § 77r(c)(1)(A)(i), states retain the authority
“under the laws of such [s]tate to investigate and bring enforcement actions, in
connection with securities or securities transactions . . . with respect to_fraud or
deceit."
We conclude Pan’s WSSA claim is not preempted by federal law.
|ii. Partial Surnmarv Judqment-WSSA Ciaim
Great Ocean contends the trial court erred in granting partial summary
judgment on Pan’s WSSA ciaim.
We review an order granting summary judgment de novo.11 “t``he moving
party has the burden of showing that there is no genuine issue as to any material
9 |d_.at 702.
1° S_ee_ Br. of Appe|iant at 27 (citing 15 U.S,C. § 771 (a)(i) (Feclera| Energy
Administration Comptrolier General, powers and duties)).
li CR 56(c); Ranqer ins. Co. v. Pierce County, 164 Wash. 2d 545, 552, 192
P.3d 886 (2008).
NO. 76576-1-|/6
fact.”12 A response to a summary judgment motion ‘“must set forth specific facts
showing that there is a genuine issue for trial.”113
“To establish liability under the WSSA, the purchaser of a security must
prove that the seiler and/or others made material misrepresentations or omissions
about the security, and the purchaser relied on those misrepresentations or
omissions."l4
On iVlay 6, 2016, Pan filed a motion for partial summary judgment on her
WSSA claim. Specificaliy, Pan requested “an Order holding that: (1) The
statements in the Private Piacement Mernorandum (“PPM”) Were materially
misleading; (2) That Plaintlffs’ reiiance on the statements made in the PPM was
reasonab|e.”15
The court addressed the two issues separately On June 3, 2016, the trial
court granted Pan’s motion for partial summary judgment as to the first issue and
determined Great Ocean’s statements in the PPii/i that it “had secured an [ejighty
(80) year lease with the Port of Longview were materia|, faise, and misieading.”“"*
On September 27, 20t6, the court granted the motion as to the second issue and
iz indoor Billboard/Wash., inc. v. lnteqra Te|ecom of Wash., lnc.. 162
Wash. 2d 59, 70, 170 P.3d 10(2007).
13 State v. |Vlandatorv Poster Agencv. inc., 199 Wash. App. 506, 517, 398
P.3d 1271 (quoting CR 56(e)), review denied, 189 Wash. 2d 1021 (2017).
14 Stew. v. Estate of §teiner, 122 Wash. App. 258, 264, 93 P.3d 919 (2004)
(citing Rcw 21.20.010(2)).
15 Clerk’s Papers (CP) at 414-15.
16 CP at 2062.
NO. 76576-1-|/7
determined “Pan [r]easonab|y relied on materially false and misleading statements
set forth in the PPl\/l."l"'
“A ‘rnateriai fact' is one ‘to which a reasonable [person] would attach
importance in determining his [or her] choice of action in the transaction in
question."116 A “misrepresentation" is a false statement regarding an existing
fact19
Here1 the PPM provides information about Great Ocean's investor-funded
projects At issue are the statements contained in the PPM concerning a lease
With the Port of Longview and Great Ocean’s plans to build a cold storage facility:
The Project currently consists of approximately 65 acres of land for
long term 80 years lease (40 years plus 40 years right’s extension)
from Port of t_ongview with 500,000 Sq. Ft. warehouse for further
project re~deve|opment, that is entitled and ready for the construction
01500,000 Sq. Ft packinghouse and CA (Cold Atmospheres) cold-
storage warehouse at Port of Longview, Washington.lml
i'he PPNi also describes the packinghouse as “shovel ready."21 But in response to
interrogatories, Great Ocean admitted that “Great Ocean and Huy Ying Chen did
not enter into a contractually binding lease agreement With the Port of Longview."22
Despite this response, Great Ocean argues the statements in the PPM were not
17 CP at 1162.
13 Guarino v. lnteractive Objects. inc., 122 Wash. App. 95, 114, 86 P.3d 1175
(2004) (a|terations in origina|) (quoting Aspelund v. Olerich, 56 Wash. App. 477, 481~
82, 784 P.2d 179 (1990)).
19 Havens v. C & D Plastics. inc., 124 Wash. 2d 158, 182, 876 P.2d 435 (1994)
(negligent misrepresentation claim).
20 CP at 57.
21 CP at 52.
22 CP at 435.
NO. 76576-1 -|18
false because they had in fact entered into a “pre-contract” with the Port of
Longview.
Great Ocean’s briefing rests on semantics rather than meaningful authority
or argument Great Ocean cites minutes from a February 26, 2013 meeting
between Great Ocean and representatives from the Port ot Longview and argues
the meeting minutes constitute a “pre*contract.”23 ``i“he meeting minutes
memorialize that “[Port of Longview] agree iease maximum years for 80 years."24
But the minutes also state “[Port of Longview] will provide a fair lease price," clear
evidence that Great Ocean had not yet secured an enforceable lease. At the
February 26, 2013 meeting, the lease was discussed, not finalized
As to materiality, Pan submitted a declaration stating, “|f my father and l
knew the statement from PPM and Chen were not true, we would not invest
money into the project.”25
Great Ocean fails to establish the existence of a genuine issue of material
fact as to whether the statements in the PPM were materiaily misleading
As to the second issue, Whether Pan reasonably relied on the statements,
under the WSSA, the investor must also show the reiiance was reasonable “‘under
the surrounding circumstances.’”26 in general1 whether reliance is reasonable is a
23 CP at 1208.
24 CP at 1212.
25 CP at 2078.
23 Federal Horne i_oan Bank v. __Barclavs Canita|, inc., 1 Wash. App. 2d 551,
565, 406 P.3d 686 (2017) (quoting @tureSeiect Portfolio lqumt.. lnc. v. Tremont
Grp_. l-iol<:iingsl inc., 175 Wash. App. 840, 868, 309 P.3d 555 (2013), gf_f'c_i, 180 Wash. 2d
954 (2014)), review granted, 190 Wash. 2d 1018 (2018).
No. 76576-1-|/9
factual incjuiry.27 But "if reasonable minds could reach only one conciusion,
summary judgment on this element is proper.”23
To determine whether reliance is reasonable, we apply the factors from
Stewa_rt v. Estate of Steiner.29 No individual factor is necessarily dispositive.30
“``i'he factors are:
‘('l) the sophistication and expertise of the plaintiff in financial and
securities matters, (2) the existence of longstanding business or
personal relationships; (3) access to the relevant information, (4) the
existence of a fiduciary relationship, (5) concealment of the fraud,
(6) the opportunity to detect the fraud, (7) whether the plaintiff
initiated the stock transaction or sought to expedite the transaction,
and (8) the generality or specificity of the misrepresentations.*”[313
in opposition to Great Ocean’s motion for summaryjudgrnent, Pan
submitted a declaration that she “viewed Captain Chen as my uncie.”32 She also
stated, “Captain Chen was a family friend and at that time t did not have any
reason to believe what he told us was not the truth."33 Pan acknowledged that she
did some translating work for Great Ocean, but she stated she “did not create the
content of the documents.”34 “Liltimately, while i may have had access to some of
Great Ocean’s records1 l did not have complete access to all of its records.”35
27 |d.
25 _jg__"
29 122 Wash. App. 258, 93 P.3d 919 (2004).
39 Barciays, 1 Wn. App, 2d at 568 (citing Stewart1 122 Wash. App. at 274).
Sl _ig_i_. (quoting Stewart, 122 Wash. App. at 274).
32 CP at 2079.
33 §
34 CP at 2081.
35 CP at 2082.
NO. 76576-1-l/10
On appeal, Great Ocean does not address the §t§wa_rt factors and does not
specifically contend Pan failed to establish reasonable reliance Rather, Great
Ocean attempts to address reasonable reliance by arguing that Pan is barred from
recovery under WSSA due to her various misrepresentations But the individual
arguments concerning Pan’s alleged misrepresentations are conclusory and
speculative36
First, Great Ocean argues Pan misrepresented her date of entry into the
tJnited States. Great Ocean speculates Pan had actual knowledge of the
preliminary nature of the lease agreement because she happened to be in the
Linited States at the time of the February 2013 meeting between Great Ocean and
the Port of Longview. Great Ocean accurately cites garino v. interactive Obiects,
j_r_j_c_:_. for the proposition that actual knowledge would defeat a WSSA claim37 but
fails to present specific evidence to support the contention that Pan was present at
the meeting
Second, Great Ocean argues Pan misrepresented herself as a
“sophisticated" and “accredited” investor in the subscription agreement she signed.
in her declaration, Pan stated, “i did not have any reason to believe what [Chen]
told us was not the truth” and “| assumed that Great Ocean had a lease.”38 Great
Ocean contends these statements reveal Pan was not a sophisticated or
36 See B_oguch v. Mover Corp,. 153 Wash. App. 595, 610, 224 P.3d 795
(2009)) (“a party resisting summaryjudgment cannot satisfy his or her burden of
production merely by relying on conclusory ailegations, speculative statements, or
argumentative assertions”).
37 122 wn. App. 95, 143, 86 P.3d 1175 (2004).
38 oP at 2079.
10
No. 76576-1-|/1 1
accredited investor because she “biindiy invested $500,000.00 without conducting
any due diligence.”39 But Great Ocean provides insufficient citation to the record
to establish a misrepresentation and insufficient citation to authority to establish
that Pan’s alleged misrepresentation bars recovery. This conclusory argument is
not persuasive
Great Ocean fails to establish the existence of a genuine issue of material
fact whether Pan’s reliance on the statements in the PPM was reasonable. As a
resuit, we conclude the trial court did not err in granting Pan’s motion for partial
summary judgment on the WSSA ciaim.
lV. Striking Answer
Great Ocean argues the trial court erred in striking its answer and
affirmative defenses based on the failure to supplement its answers to discovery
We review a motion to strike made in conjunction with a motion for
summary judgment de novo.“0
Before imposing a harsh discovery sanction, a trial court is required to
consider the factors from Burnet v. Spokane Ambulance:
A trial court may impose only the most severe discovery sanctions
upon a showing that (1) the discovery violation Was willful or
deliberate, (2) the violation substantially prejudiced the opponents
ability 10 Plepafe lOl' iflai, and (3) the court explicitly considered less
severe sanctions.Wl
39 Br. of Appeiiant at 37.
4° §__Qgthwick v. Seattie Policg Officer John Doe, 145 Wash. App. 292, 297l
186 P.3d 1089 (2008).
41 Teter v. Deck, 174 Wash. 2d 207, 216-17, 274 P.3d 336 (2012) (citing
Burnet v. Sbokane Ambulance, 131 Wash. 2d 484, 496-97, 933 P.2d 1036 (1997)).
11
No. 76576-1~|/12
“Findings regarding the Burnet factors must be made on the rc-)cord."42
Here, the court sufficiently addressed the Burnet factors in its order striking
defendants answer and afnrmative defenses entered on November 28, 2016.43
We conclude the trial court did not err in granting the motion to strike.
V. dudgment
Great Ocean challenges the trial court's award of damages, arguing that
Pan’s failure to make a demand under RCW 21 .20.430 precludes any award of
damages
Under RCW 21 .20.430(2):
Any person who buys a security in violation of the provisions of RCW
21 .20.010 is liable to the person selling the security to him or her,
who may sue either at law or in equity to recover the security,
together with any income received on the security, upon tender of
the consideration received, costs, and reasonable attorneys’ feesl or
if the security cannot be recovered, for damages Damages are the
value of the security when the buyer disposed of it, and any income
received on the security, less the consideration received for the
security, plus interest at eight percent per annum from the date of
disposition, costs, and reasonable attorneys’ fees.
“The unambiguous language of RCW 21 .20.430(2) provides that a
defrauded seller may sue for rescission to recover the security."44
42 gat217.
43 The court determined the violation was willfu|, the refusal to provide
discovery frustrated the ability to prosecute plaintiffs’ ciaims, the court’s use of
monetary sanctions Was ineffective, and striking portions of the answer was the
least harsh effective remedy available
44 Heieriius v. cheiius, 131 wn. App. 421, 432, rzo P.3d 954 (2005).
12
l\lo. 76576-1-|/13
liere, the trial court concluded, “The purpose and intent of the remedies set
forth in RCW § 21 .20.430 is rescission of the investment," and Pan was entitled to
a return of her initial investment of $519,500.45
Great Ocean contends the trial court erred in determining Pan was entitled
to rescission of her investment because she failed to demand a return of her
investment prior to initiating her lawsuit46
RCW 21 .20,430(4)(b) provides:
No person may sue under this section if the buyer or seller receives
a written rescission offer, which has been passed upon by the
director before suit and at a time when he or she owned the security,
to refund the consideration paid together with interest at eight
percent per annum from the date of payment, less the amount of any
income received on the security in the case of a buyerl or plus the
amount of income received on the security in the case of a seller.47
Great Ocean fails to point to any evidence it issued a written rescission
offer to Pan. Rather, Great Ocean argues Pan was not entitled to judgment
because she never demanded return of her capital contribution Great Ocean
does not cite any authority to support the argument that Pan must make a demand
before filing a lawsuit under the WSSA.
We conclude the trial court did not err in determining Pan was entitled to
rescission and awarding a principal judgment amount of $519,500.
45 CP at 1338.
46 Although Great Ocean frames the issue in terms of the adequacy of the
court’s findings of fact, it is not a true sufficiency challenge but rather a
restatement of Great Ocean’s theory that Pan is not entitled to rescission
17 (Emphasls added.)
13
ND. 76576-1-|/14
Vl. lVlotion to Strike
in Great Ocean’s reply brief, Great Ocean renews its motion to strike
respondents brief.
On Niarch 15, 2018, Great Ocean moved to strike respondents brief and to
remand to the trial court for RAP 9.11 proceedings On Aprii 5, 2018,
Commissioner l\ieel denied the motion and directed Great Ocean to include such a
motion in its briefing to the panell
in the original motion, Great Ocean argued respondents improperly
supplemented the record on appeal without complying With RAP 9.11. Great
Ocean claimed the respondents improperly supplemented the record with
evidence that Pan withdrew her EB~5 application and evidence that she demanded
return of her investment prior to filing the lawsuit
Because respondents have not complied with RAP 9.11, we decline to
consider this evidence because it is not part of the record on appeal.‘18 The
absence of this evidence has no impact on the outcome of the merits of Great
Ocean’s appeal.
43 Harbison v. Garden Val|ev Outtitters. inc., 69 Wash. App. 590, 593-94, 849
P.2d 669 (1993) ("RAP 9,11 is a limited remedy under which this court may direct
that additional evidence may be taken if all of the following six criteria are metz
(1) additional proof of facts is needed to fairly resolve the issues on review, (2) the
additional evidence would probably change the decision being reviewed, (3) it is
equitable to excuse a party’s failure to present the evidence to the trial court,
(4) the remedy available to a party through postjudgment motions in the trial court
is inadequate or unnecessarily expensivel (5) the appellate court remedy of
granting a new trial is inadequate or unnecessarily expensive, and (6) it would be
inequitable to decide the case solely on the evidence already taken in the trial
court.”) (quoting RAP 9.1l(a)).
14
NO. 76576-1-|/'¥5
V|l. Fees on Appea|
Pan seeks fees on appeal under the subscription agreement and RAP t8.1.
“RAP 18.1(b) requires more than a bald request for attorney fees on
appea|."49 The request must be accompanied by citation to authority, argument
and citation to the record.50
Here, Pan claims the subscription agreement contains a fee clause but
provides no citation to the record identifying such a provision51
intl
6£“") Q' Ma.q., !@C~'-'r'
\Ne deny Pan’s request for fees on appeal.
Therefore, we aflin'n.
WE CONCUR:
49 Thweatt v. i'|omnte|, 67 Wash. App. 135, 148, 834 P.2d 1058 (1992).
50 Gardner v. First i-leritage Bank, 175 Wash. App. 650, 677, 303 P.3d 1065
(2013).
51 See in re Estate of Lint. 135 Wash. 2d 518, 532, 957 P.2d 755 (1998)
(courts are not obligated “to cornb the recor ” where counsel has failed to support
arguments with citations to the record).
15