Xue v. Jensen

Background

Hua Xue sued Peter T. Jensen, Min Lu, and the Jensen Law Firm, PLLC. She alleged that the defendants made fraudulent misrepresentations that induced her to invest $500,000 in an investment connected to the EB-5 Immigration Investor Program. That program allows qualifying foreign nationals to seek permanent residence by making a qualifying investment that meets specified requirements.

Xue alleged that Lu and Jensen promoted an investment vehicle called SMS Investment Group, LLC, which was used to purchase shares in ALTe, LLC, a company described as developing and manufacturing hybrid and electric vehicle powertrains. According to Xue, the defendants promoted ALTe using inaccurate information about its financial condition, products, and government support. She also alleged that Lu and Jensen acted as attorneys and broker-dealers without the required qualifications or registrations, and that the defendants received commissions or service fees.

Xue asserted seven causes of action: legal malpractice, breach of fiduciary duty, fraud, fraudulent concealment, negligent misrepresentation, civil conspiracy, and unjust enrichment. The defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12. Lu separately argued that the court lacked personal jurisdiction over her.

Personal Jurisdiction Over Lu

The court granted Lu’s motion to dismiss for lack of personal jurisdiction. Personal jurisdiction is a court’s authority over a particular defendant. The court explained that New York law permits general jurisdiction when a defendant’s contacts with New York are substantial and continuous, and specific jurisdiction when the claims arise from the defendant’s contacts with New York.

Lu lived in China, had lived there since 2010, and visited her children in New York two or three times a year. She also had partial interests in passive New York real-estate investments. The court found that these facts did not establish general jurisdiction. The court also rejected Xue’s reliance on approximately 15 meetings Lu allegedly attended in New York between 2010 and 2014, concluding that sporadic meetings were insufficient. The court further found that Lu’s alleged use of an email address connected to the predecessor of the Jensen Law Firm did not show continuous or substantial New York contacts.

The court also found that Lu was not domiciled in New York for constitutional due-process purposes. It emphasized that Lu had lived in China for ten years and that the record did not indicate that she intended to move back to New York. Her property interests and visits to her children did not make her “at home” in New York.

The court rejected specific-jurisdiction theories based on alleged conspiracy conduct and business transactions. It found no evidence that Jensen or the Jensen Law Firm acted at Lu’s direction or under her control. It also found no adequate evidence that Lu conducted the relevant business in New York while working with Xue. The subscription agreement was signed by Lu as a witness, not as a party, and was signed in China. Because the court found no sufficient New York contacts connected to Xue’s claims, it granted Lu’s motion. The court did not consider Lu’s separate argument that the complaint failed to state a claim.

Claims Against Jensen and the Jensen Law Firm

The court applied the Rule 12(b)(6) standard, which asks whether a complaint contains enough factual allegations to state a legally plausible claim. The court also considered whether claims were clearly barred by the statute of limitations.

Legal malpractice. The court ruled that the legal-malpractice claim was time barred under New York’s three-year limitations period. The alleged legal representation began in 2010 and continued with an immigration filing in 2014. Xue asserted, without identifying supporting allegations or evidence, that the representation continued through March 2016. The court found that her own allegations showed she had to obtain alternative counsel to respond to a January 2016 request for supplemental evidence. Because she filed suit on February 25, 2019, the court concluded that the malpractice claim was filed more than three years after the defendants’ alleged legal work.

Breach of fiduciary duty. The court likewise ruled that this claim was time barred. It found that Xue identified no specific actions by Jensen or the Jensen Law Firm within the three years before the lawsuit that would constitute a breach of a fiduciary relationship. The alleged failures to disclose qualifications, registration status, and conflicts occurred before Xue’s investment.

Fraud and fraudulent concealment. The court ruled that Xue did not plead these claims with the particularity required for fraud. She did not identify specific interactions, documents, or communications in which Jensen or the Jensen Law Firm represented that they were registered broker-dealers or were acting in that capacity. The court also found that the marketing materials containing alleged misrepresentations were created and distributed by the Green Detroit Regional Center, and Xue did not allege sufficient facts showing that Jensen or the Jensen Law Firm helped prepare them or knew they were false.

The court further found that Xue did not allege facts showing fraudulent intent. It also concluded that Jensen’s statement that SMS forecast “up to 2 percent return per year” was a forecast, not a guarantee, and that Xue did not plead facts showing Jensen did not reasonably believe the statement.

The court additionally ruled that the fraud claims were time barred. The alleged misrepresentations inducing the investment occurred in 2010, and Xue did not explain when later information was repeated or why the alleged fraud could not have been discovered earlier. The court noted that Xue had not shown that the alleged fraud could not have been discovered within the two years before the lawsuit. It stated that this was not a finding that Xue was actually placed on notice by a 2013 Securities and Exchange Commission alert, but found the alert relevant to her failure to explain why earlier discovery was impossible.

Negligent misrepresentation. The court ruled that this claim was inadequately pleaded because Xue relied on conclusory statements and did not identify specific negligent acts. The court also ruled that, to the extent the claim was based on the defendants’ legal representation, it duplicated the legal-malpractice claim and had to be dismissed.

Civil conspiracy. The court dismissed this claim because New York does not recognize civil conspiracy as an independent tort. It also found that the claim depended on the dismissed fraud claims and added no distinct allegations beyond those supporting the fraud claims.

Unjust enrichment. The court ruled that Xue did not adequately allege that Jensen or the Jensen Law Firm were enriched at her expense. Xue paid her investment and management fee to other entities and did not support her allegation that Jensen or the Jensen Law Firm received a commission. The court also found that an unjust-enrichment claim was unavailable because Xue had an adequate potential remedy through her fraud claims and alleged an existing agreement with Jensen and the Jensen Law Firm.

Disposition

Judge Vernon S. Broderick granted Lu’s motion to dismiss because the court lacked personal jurisdiction over her. He also granted Jensen and the Jensen Law Firm’s motion to dismiss the amended complaint. The court dismissed the malpractice and fiduciary-duty claims as time barred and dismissed the other claims because they were not sufficiently pleaded, duplicative, derivative of dismissed claims, or unavailable under the stated legal theories. The clerk was directed to terminate the motions and the case.