Finger Lake LLC v. Tu

Background

Finger Lake LLC sued Qiang Tu, alleging immigration fraud. The dispute arose from agreements under which Tu agreed to invest $500,000 in exchange for 7.15% of Finger Lake’s membership interests and assistance with an EB-5 visa application. Tu later sought the return of his investment after deciding to abandon his visa petition. He then sued Finger Lake, Li Shen, and Suwei Yang in New York state court, where a default judgment was entered against them. Finger Lake subsequently filed this federal action.

Tu moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction, Rule 12(b)(3) for improper venue, and Rule 12(b)(6) for failure to state a claim. Because the court found that jurisdiction was lacking, it did not address the venue or failure-to-state-a-claim arguments.

Diversity jurisdiction

Finger Lake argued that diversity jurisdiction existed because it was a New York citizen and Tu was either a citizen of Delaware or China. For an LLC, however, citizenship is based on the citizenship of each member. The court reviewed materials outside the complaint because Tu’s Rule 12(b)(1) motion presented a factual challenge to jurisdiction.

The court found that Tu was a member of Finger Lake. It relied on the Membership Agreement, which provided for Tu’s purchase of a 7.15% membership interest, sharing in the company’s profits and losses, and a management position. The court also relied on Finger Lake’s statements in state-court filings and in its federal complaint describing Tu as a member. Because Tu’s citizenship therefore formed part of Finger Lake’s citizenship, the parties were not completely diverse. The court held that diversity jurisdiction was unavailable under 28 U.S.C. § 1332.

Federal-question jurisdiction

Finger Lake also argued that the case presented a federal question. The court found that the complaint did not clearly identify the legal basis for the alleged immigration-fraud claim. The complaint did not cite a federal statute or constitutional provision creating the claim. Finger Lake’s opposition papers suggested for the first time that 8 U.S.C. § 1324c, a statute concerning document fraud, supplied the federal basis.

The court rejected that argument. It explained that § 1324c is a criminal statute assigning enforcement authority to immigration officials, administrative law judges, and, in some circumstances, the Attorney General. Finger Lake did not provide support for a private right to sue under that statute, and the court stated that it could not create one. The court further concluded that, even read generously, Finger Lake’s allegations sounded more like state common-law fraud than a federal claim. Finger Lake therefore failed to show that federal-question jurisdiction existed.

Attorney’s fees

Tu requested attorney’s fees and costs, arguing that Finger Lake’s complaint and jurisdictional arguments were frivolous and made in bad faith. Judge Ronnie Abrams did not grant that request at that time. The court stated that it could not conclude with certainty that Finger Lake acted in bad faith or sought to defraud the court. It noted that, if Finger Lake amended its complaint, the court would review the amended pleading and could reconsider the fee request.

Disposition

The court granted Tu’s motion to dismiss without prejudice because subject-matter jurisdiction was lacking. It did not rule on Tu’s alternative venue and failure-to-state-a-claim grounds. The court allowed Finger Lake to file an amended complaint by June 20, 2020, if it chose to do so.