Breach of contract and fiduciary duty.
A. The duties owed
EB-5 new commercial enterprises are typically Delaware limited partnerships or LLCs, and Delaware treats them as creatures of contract. The default fiduciary duties of loyalty and care apply to the general partner or manager — but the operative agreement may expand, restrict, or even eliminate them, subject to a single floor: the implied contractual covenant of good faith and fair dealing, which no drafter can waive.10 So the first question in any breach case is not what duties the law imposes in the abstract, but how far the drafters have already cut them back.
B. Recurring breaches
Self-dealing and conflicts. These are pervasive in EB-5 because the same manager so often sits on both sides — or several sides — of the deal at once. When one person controls both the NCE and the JCE, the temptation to favor one over the other, at the investors' expense, is built into the structure.
Undisclosed or excessive fees. Management, administrative, and loan-servicing fees, along with spreads between what the JCE pays and what investors receive, quietly consume capital.
Failure to enforce the NCE's rights. The manager declines to declare a default or to pursue the JCE — usually for the unsurprising reason that the manager also controls the JCE.
C. Whose claim is it: direct or derivative
A recurring threshold problem shapes these cases. Much of the harm — diverted funds, diminished enterprise value — is an injury to the NCE, not to the investor individually, which makes the claim derivative: it belongs to the enterprise, and any recovery runs to the enterprise first.11 That doctrine cuts both ways. It can sink an investor who sues in his own name for what is, in fact, a harm to the entity. Still, it is the very same principle that allows a receiver or trustee, standing in the enterprise's shoes, to bring the claim for everyone at once.
D. Remedies
Depending on the claim, relief can include damages, disgorgement of improper fees or self-dealing profits, an accounting, removal or replacement of the manager, and — where the agreement's exculpation clauses leave room — rescission or reformation. Because so many offering documents cap or eliminate liability for anything short of bad faith, the practical battleground is usually the same: whether the manager's conduct crossed the one duty that could not be drafted away.
10 EB-5 new commercial enterprises are frequently organized as Delaware limited partnerships or LLCs. Delaware alternative entities are creatures of contract: default fiduciary duties apply, but the operative agreement may expand, restrict, or eliminate them — except the implied contractual covenant of good faith and fair dealing. 6 Del. C. §§ 17-1101(d), 18-1101(c).
11 Whether an investor's claim is direct or derivative turns on who suffered the harm and who would recover, under Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004). Derivative standing in an LLC requires membership under 6 Del. C. § 18-1002. This is the same principle that gives a receiver the power to sue.