Fraud: Investors waited too long to sue alleged fraudster

Where investors should have known in 2012 or 2013 about alleged misstatements in offering documents, but they didn’t file their fraud claims until 2019, the claims were dismissed as time-barred.

Background

In July 2019, Wei Zeng, Dong Yang, Ying Chen and Rui Wang sued Charles Wang for fraud and constructive fraud. The complaint alleged that appellants were Chinese nationals who each invested $500,000, plus $60,000 in associated fees, into the Greentech Automotive Project, or GTA, project that was “owned and controlled” by Wang. Appellants allegedly discovered the fraud at an August 2017 meeting in China. The trial court sustained Wang’s plea in bar that the suit was barred by the statute of limitations.

Appeal

Wang moves to dismiss this appeal on the ground that the trial court did not have jurisdiction to enter the Feb. 22, 2023. He argues that the Aug. 19, 2022, “Memorandum Opinion and Order” was a final order that disposed of “every cause of action” before the court and left nothing to be done save the ministerial execution of judgment.

The trial court’s Aug. 19, 2022, “Memorandum Opinion and Order” stated it would hold a future hearing “before entry of a final order.” It found facts sufficient to sustain the plea in bar, stated that the plea “will be sustained” and it directed Wang’s counsel to “draft and circulate an [o]rder for entry reflecting the decision.” The trial court also set a hearing for entry of the future order, noting that appellants would then be able to “list such objections as are necessary” at that time.

On Sept. 8, 2022, the trial court held such a hearing and entered an order establishing a briefing schedule for “post-hearing pleadings.” Under these circumstances, the Feb. 2023 order is the final order in this case and Wang’s motion to dismiss this appeal is denied.

Statute of limitations

The statute of limitations for appellants’ fraud and constructive fraud claims is two years. It is uncontested that appellants did not have actual knowledge of the fraud when they signed the offering documents and invested in 2012 and 2013. Instead, this case turns on whether they reasonably should have discovered the fraud through the exercise of due diligence.

Appellants argue that the “Offering Documents,” including the subscription agreements and private placement memorandum, or PPM, “cannot be used … to show notice of Wang’s fraud” because the immigration firms that produced the marketing materials were dual-agents, representing appellants and Wang. However appellants did not make this argument in the trial court. Because the trial court did not have the opportunity to rule on the argument appellants now raise, so this court will not consider that argument for the first time on appeal.

Turning to the documents, the marketing materials contained several representations that the GTA project was stable, with substantial expected income based on “order-based” production. The PPM, however, should have disabused appellants of that illusion. It “contained a host of prior warnings making it plain that [appellants were] purchasing, to put it mildly, a highly speculative investment.”

Although appellants’ understanding of English was limited, that cannot relieve them from acting under the PPM notice. The trial court properly determined that appellants’ claims accrued in 2012 and 2013. This renders their 2019 complaint time-barred.

Tolling

Appellants argue that the interest payments and frequent communications with them following their investments justified tolling the statute of limitations because those actions “were designed to prevent” them from suspecting fraud. However this conduct is consistent with the project attempting to fulfill its contractual obligations with investors. Appellants point to no evidence justifying the leap that those circumstances necessarily arose from Wang’s subjective intent to actively obstruct them from filing suit.

Appellants next argue that the statute of limitations does not extinguish the claim because “there [was] no evidence that additional diligence would have uncovered evidence of fraud.” That argument, however, erroneously calls for Wang to meet a burden of evidence that is properly borne by appellants. In addition, the record simply contains no evidence that any plaintiff conducted due diligence, or that there was some obstacle that would have prevented appellants from discovering that the marketing materials contained false representations.

Affirmed.

Zeng v. Wang, Record No. 0523-23-4, Oct. 8, 2024. CAV (Friedman). From the Circuit Court of Fairfax County (Tran). Mike Margolis (Victoria Ortega; Blank Rome, LLP, on briefs), for appellants. James T. Bacon (George R.A. Doumar; David R. Mahdavi; Raj H. Patel; Mahdavi, Bacon, Halfhill & Young, PLLC, on brief), for appellee. VLW 024-7-310. 18 pp.