Bai v. Tegs Management, LLC
- Denise Cote
- 1:20-cv-04942
- U.S. District Court · Southern District of New York
- 27
In Bai v. Tegs Management, LLC, Judge Cote granted defendants’ motion to dismiss, ruling Bai’s securities and fraud claims were untimely.
Shixu Bai’s federal securities-fraud and New York common-law fraud claims were dismissed as untimely. The court entered judgment for the defendants and closed the action; it denied the separate challenge that the complaint violated the requirement for a short and plain statement.
What happened
In Bai v. Tegs Management, LLC, Shixu Bai alleged that his attorney and others defrauded him in connection with his $1 million investment in a New York grocery-store business intended to support an investor visa. He brought federal securities-fraud claims and a New York fraud claim.
The court ruled that the federal claims were filed too late because the relevant investment and alleged misconduct occurred in 2013, more than five years before Bai filed the case. It also ruled that the New York fraud claim was untimely because Bai’s claim accrued in 2013 and, at the latest, he had reason to investigate after an immigration notice in 2015.
Judge Cote denied one defendant’s challenge that Bai’s complaint was too long and unclear, but granted the defendants’ motion to dismiss the case. The court directed the clerk to enter judgment for the defendants and close the action.
The detailed version
- Bai v. Tegs Management, LLC · No. 1:20-cv-04942
- Denise Cote
- Mar. 1, 2022
Background
Shixu Bai invested $1 million in 2013 in Tegs Management, LLC, which was formed to own and operate a specialty grocery store called Gourmanoff. Bai sought to use the investment to qualify for an EB-5 immigrant investor visa. The investment agreements gave Bai a 7% interest and included a clause stating that the company intended to refund the investment if Bai’s visa petitions were denied in specified circumstances.
Bai alleged that his attorney, Serge Bauer, the law firm Serge Bauer, P.C., Tegs, Grand Market International Corp., and other defendants defrauded him. Among other things, Bai alleged that the defendants included the redemption clause knowing it would undermine his visa eligibility, misused his investment, and encouraged him to continue pursuing visa applications. USCIS first issued a notice of intent to deny Bai’s visa petition in 2015, identifying the redemption clause, questions about job creation, and concerns about the lawful source of the investment funds. USCIS denied a later petition in 2019 for the same general reasons. Bai filed this action on June 28, 2020.
Claims and motions
Bai’s third amended complaint asserted three claims: securities fraud under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5; control-person liability under Section 20(a) of the Exchange Act; and common-law fraud under New York law. He had withdrawn additional Exchange Act claims.
Bauer moved to dismiss under Federal Rule of Civil Procedure 8(a), arguing that the 90-page complaint was too long, repetitive, and argumentative. The court agreed that the complaint was overly long and disorganized but denied that motion because the claims were still understandable enough to give the defendants fair notice of the allegations and their legal basis.
The defendants also moved to dismiss the federal securities claims as untimely and for failure to state a claim. They moved to dismiss the New York fraud claim as untimely and for failure to state a claim. After dismissing the federal claims, the court retained authority to decide the state-law fraud claim because judicial economy and convenience favored resolving it in the same action.
Rulings
The court dismissed Bai’s Section 10(b) and Rule 10b-5 claims as barred by the five-year statute of repose. A statute of repose sets an outside deadline measured from the alleged violation, regardless of when the plaintiff discovers the claim. The court found that the only alleged fraudulent statements or omissions connected to Bai’s purchase of a security occurred no later than August 1, 2013, when he signed the investment agreements and purchased his interest in Tegs. Because Bai filed suit on June 28, 2020, the alleged violations were outside the five-year period.
The court rejected Bai’s argument that an alleged fraudulent scheme continued through 2019 and therefore delayed the deadline. It ruled that the later use of his investment and the defendants’ later efforts concerning his visa applications did not extend the 2013 date on which the securities claims accrued. The Section 20(a) claim was derivative of the Section 10(b) claim and was therefore also dismissed as untimely.
The court also dismissed Bai’s New York common-law fraud claim as untimely. Under the applicable New York rule, the claim had to be filed within six years of accrual or within two years after discovery, or when discovery reasonably should have occurred, whichever period provided more time. The court concluded that the claim accrued in August 2013, when the defendants allegedly obtained Bai’s money through fraud, and that the six-year period expired in August 2019. The court further held that the 2015 immigration notice at the latest gave Bai enough information to require a reasonable investigation, so the discovery rule did not extend the filing deadline.
Disposition
The court granted the defendants’ July 22, 2021 motion to dismiss the third amended complaint. It directed the clerk to enter judgment for the defendants and close the action.
Read the full 27-page opinion on CourtListener, the free public archive maintained by the Free Law Project.