Dou v. TD Bank N.A.

Background

The plaintiffs, a group of Chinese investors suing for themselves and a proposed class of 88 investors, alleged that they each invested $550,000 in Carillon Tower/Chicago, L.P. They hoped to obtain an EB-5 immigrant investor visa. The investment materials divided each investment into a $500,000 partnership-unit purchase and a $50,000 administrative-fee contribution. The money was to be placed in separate escrow accounts at TD Bank.

The escrow agreement required TD Bank to hold and release or return the funds only after specified conditions were met. Among other things, the agreement required written direction from Carillon certifying that the relevant conditions had been satisfied, including approval of at least one investor’s immigration petition and evidence that the project plan had been submitted to the Chicago Commissioner of Planning and Development. The plaintiffs alleged that TD Bank released the funds during or soon after the months they were deposited, without the required written directions or evidence, and released funds to Forefront EB-5 Fund (ICT) LLC rather than directly to Carillon.

The plaintiffs asserted claims for breach of contract, breach of implied contract, promissory estoppel, breach of fiduciary duty, and negligence. Their first claim, a derivative breach-of-contract claim brought for Carillon, had already been dismissed with prejudice by stipulation before the ruling addressed here. TD Bank moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Court’s Analysis

The court rejected the plaintiffs’ theory that they had directly contracted with TD Bank. The escrow agreement identified Carillon and TD Bank as its parties, and the plaintiffs did not allege enough facts showing that TD Bank objectively agreed to enter a contract with them. The plaintiffs’ deposits into TD Bank accounts, without more, did not establish that agreement.

The court nevertheless concluded that the plaintiffs plausibly alleged they were intended third-party beneficiaries. A third-party beneficiary is someone who may enforce a contract made by others when the contract was intended to benefit that person. The escrow agreement expressly referred to benefits for each subscriber, required TD Bank to provide deposit confirmations to subscribers, and required the return of investors’ funds in specified circumstances. The court found those provisions sufficient at the pleading stage.

The plaintiffs alleged three possible breaches of the escrow agreement. The court rejected the allegation that TD Bank breached the agreement by releasing funds to Forefront, because the plaintiffs did not contest that Forefront was authorized to act for Carillon and could withdraw funds in Carillon’s name. The court found the other two theories adequately pleaded: that TD Bank released funds without evidence that the project plan had been submitted and without the required written directions. The court treated the agreement’s language about providing evidence as, at minimum, ambiguous and concluded that factual disputes about whether written certifications existed belonged at the later summary-judgment stage rather than on a motion to dismiss.

The court dismissed the implied-contract claims. Applying New Jersey law, it found that the plaintiffs alleged no direct dealings with TD Bank beyond depositing money and no industry custom or course of dealing showing that TD Bank intended to assume implied contractual obligations toward them.

The court allowed the promissory-estoppel claims to proceed. Promissory estoppel is a claim based on a clear promise that reasonably induces reliance and causes substantial harm when the promise is not kept. The court found that the escrow agreement supplied a clear promise to receive, hold, deliver, and handle the plaintiffs’ deposits under specified conditions. The plaintiffs plausibly alleged that they knew about and relied on the agreement when deciding to deposit their money and that they lost their funds after TD Bank released them. The court also permitted the promissory-estoppel theory to be pleaded alongside the contract theory because TD Bank disputed that the contract was enforceable by the plaintiffs.

The court dismissed the fiduciary-duty and negligence claims. It assumed without deciding that TD Bank might have owed the plaintiffs duties beyond the contract, but found that the plaintiffs did not adequately allege that TD Bank knew or should have known that Carillon was diverting or misappropriating funds. The alleged failures to obtain written confirmation and evidence of project-plan submission did not, by themselves, show suspicious circumstances requiring further investigation.

Disposition

The court granted in part and denied in part TD Bank’s motion to dismiss. The motion was granted as to the implied-contract, fiduciary-duty, and negligence claims. It was denied as to the contract claims based on third-party-beneficiary status and the promissory-estoppel claims. The court denied the plaintiffs’ request for leave to file a third amended complaint, stating that another amendment would likely be futile and that the request did not identify proposed changes. TD Bank was ordered to answer the remaining claims within 14 days after the opinion and order.