Arbitration – Securities claims sent to arbitration

Where 18 foreign investors asserted securities claims under federal and Virginia law, a clause in the limited partnership agreement required arbitration of these claims.

Background

Eighteen foreign investors bring claims under the Securities Exchange Act, Virginia state law and the common law against Robert Lubin, Paul Ruby and associated business entities, along with Atlantic Union Bank, for engaging in an alleged fraudulent scheme to solicit and misappropriate millions of dollars of investments under the U.S. Immigrant Investor Program. The business defendants have filed motions to dismiss or, alternatively, to compel arbitration, while AUB has filed a motion to dismiss.

Arbitration

Plaintiffs contend, based on the definition of a dispute, that arbitrable claims are limited to “a breach of contract claim or claim of breach of fiduciary duty regarding the affairs of DMPT.” As an initial matter, among plaintiffs’ claims are claims against Red Leaf, DMPT’s general partner and Lubin, Lead’s managing partner, both signatories to the limited partnership agreement, who appear to be proper party defendants for “a breach of contract claim or claim of breach of fiduciary duty regarding the affairs of DMPT.”

In any event, plaintiffs’ limiting gloss on the scope of the arbitration clause is directly at odds with any reasonable reading of the limited partnership agreement’s expansive definition of a dispute. And the factual allegations in the complaint clearly allege that all the business defendants (including DMPT LP, the limited partnership itself), as well as plaintiffs’ claims against the business defendants, are so intertwined with one another that enforcement of the arbitration agreement with respect to claims against all of them is appropriate.

Plaintiffs next argue that the business defendants’ alleged deceit or other wrongdoing that induced their entering into the limited partnership agreement voids the arbitration clause. But the factual allegations in the complaint or elsewhere do not allege, as required to avoid an arbitration clause, that fraudulent misrepresentations or other alleged wrongful conduct induced plaintiffs to enter into the arbitration provision specifically. Consequently, any claim that the limited partnership agreement was fraudulently or improperly induced falls within the scope of the arbitration agreement for the arbitrator to decide.

Lastly, plaintiffs contend that the Lubin defendants waived or forfeited any right to arbitrate by failing to raise the issue in a related case. But “[s]imply failing to assert arbitration as an affirmative defense does not constitute default of a right to arbitration.”

AUB

To plead a violation of § 10(b) and its implementing Rule 10b-5, a securities fraud plaintiff must allege, inter alia, “a material misrepresentation or omission by the defendant; [and] scienter.” Unlike the numerous allegations about specific misrepresentations made by Lubin, Ruby and their associated organizations, there is nothing in the complaint that can reasonably be construed as alleging a misrepresentation or scienter on the part of AUB or the predecessor entity, Washington First.

The only conduct attributed to Washington First before the plaintiffs’ execution of the limited partnership agreement is the conclusory allegation that it “contributed to the content or ultimately approved of the contents of the [escrow agreement] . . . based upon [its] own investigation of the bona-fides of the Project and undertakings by the Lubin/Ruby Defendants to comply with its terms,” and that Washington First knew that “Lubin and Ruby were irreconcilably conflicted from serving the multiple roles they represented as theirs.”

But as reflected in the escrow agreement’s liability limitations themselves, Washington First told the plaintiffs that it made no representation as to Lubin and Ruby’s abilities or the validity of any of the securities being sold. Nor do plaintiffs allege facts plausibly showing a conspiracy between the bank(s) and any of the business defendants.

Plaintiffs fail to plead facts plausibly alleging that AUB or Washington First owed them a duty of care to “review the documentation and transaction context reflected in the PPM and related agreements, ensure that releases matched the escrow’s purpose and conditions, and then manage related operating accounts consistent with the plan.” Rather, the escrow agreement reflects that the escrow services were narrow in scope.

In sum, plaintiffs’ gross negligence theory appears to be based primarily on a purported extra-contractual duty of care that the bank(s) owed to the plaintiffs, but plaintiffs fail to adequately square that claim with the contractual nature of its relationship with plaintiffs as an escrow agent. As such, the claims against AUB must be dismissed.

Business defendants’ motions to compel arbitration granted. AUB’s motion to dismiss granted.

Trang v. DMPT, LP, Case No. 1:25-cv-02248, April 13, 2026. EDVA at Alexandria (Trenga). VLW 026-3-178. 16 pp.

Full-Text Opinion

VLW 026-3-178.
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