Fraud and the Effort to Obtain an E-2 Visa

• Posted on: Mar 1 2021

“You can’t have fraud if you disclose it,” said the motion court in Ibarrondo v. Evans, 2020 N.Y. Slip Op 30051(U) (Sup. Ct., N.Y. County Jan. 6, 2020) (here), aff’d, 2021 N.Y. Slip Op. 01200 (1st Dept. Feb. 25, 2021) (here). Yet, without alleging any new facts detailing how the alleged fraud was not disclosed, the plaintiff in Ibarrondo sought to amend her complaint to reallege the cause of action. In today’s article, we examine Ibarrondo.

Ibarrondo involved a dispute over the ownership of a company formed by defendants and two other venturers, so that one of the defendants could obtain an E-2 Visa. An E-2 Visa, which is good for three months to five years, allows an individual to enter and work inside of the United States based on an investment that he or she controls inside the United States. 

Plaintiff Marta Ibarrondo initiated the action in 2015 against her alleged business partner, defendant Lise Evans (“Lise” or “defendant”) and her husband, defendant Michael Evans (“Michael”), alleging that they stole the business Philanthropic Bling (“Bling”), which was incorporated in October 2013 as a vehicle for Lise to obtain an E-2 visa. 

Lise and two friends (nonparties to the action) sought to create a business to support her immigration application. They invited plaintiff to join them.

In November 2013, the co-venturers agreed to be equal partners of a for-profit corporation. On November 26, 2014, they engaged an attorney to draft a shareholder agreement. Since Lise filed her visa application under Bling, which required her to own at least 50% of the company, the co-venturers decided to create a new entity, “CORDE,” so that they could each maintain their 25% equity. 

In December, however, Lise disclaimed equal ownership among the partners in all respects. Michael proposed that plaintiff and the other co-venturers would be employees (rather than owners) of the company and would receive the compensation that Lise and Michael, as owners, would give them.

Plaintiff filed suit, alleging a number of causes of action, including breach of contract and fraud. Defendants moved to dismiss (although, defendants did not move against the contract claim). The motion court dismissed the fraud claim without prejudice. 

Following discovery, Plaintiff moved to amend the complaint to replead, inter alia, the fraud claim.

Plaintiff’s proposed amended complaint consisted of her original allegations, plus additional details. According to plaintiff, Lise’s alleged fraud consisted of: (1) a representation about the structure and operation of Bling; and (2) a representation that she would formalize the equal equity partnership arrangement before product launch, while never actually intending to go through with that because she knew it would interfere with her visa application. 

The motion court held that the amendment did not cure the deficiencies of the original complaint. While more detail was set forth in the amended pleading, the new allegations, observed the motion court, were no different than the initial allegations of fraud. 

The motion court found that the “new fraud claim remain[ed] impermissibly duplicative of the contract claim.” The motion court explained that “[a]ll of plaintiff’s allegations flow[ed] from the same premise that [Lise] promised (1) that she would give the others equal shares once her visa was issued; (2) that there would be a second holding company; and (3) that the company on her visa did not need to be the same entity that actually sold the bracelets, but defendant knew those statements to be false because she did not intend to cooperate.” At best, concluded the motion court, the only fraud alleged was an insincere promise to perform under the contract. Citing Manas v. VMS Assoc., LLC, 53 A.D.3d 451, 453 (1st Dept. 2008).

Additionally, the motion court found that plaintiff failed to satisfy the elements of a fraud claim. First, plaintiff failed to allege any misrepresentations made by defendant. Apparently, said the motion court, it was not Lise who stated that the co-venturers would share equal ownership if the attorneys confirmed that the proposed structure would comport with the visa requirements. 

Second, plaintiff failed to satisfy the scienter requirement – the requirement that defendants act with an intent “to deceive, manipulate, or defraud” at the time of the alleged misrepresentation or omission. Zutty v. Rye Select Broad Mkt Prime Fund, L.P., 33 Misc. 3d 1226(A) at *11 (Sup. Ct., N.Y. County 2011). Plaintiff’s allegations of defendant’s then-present intent to defraud were generalized allegations with no specificity, noted the motion court. Moreover, two of the co-venturers submitted affidavits in which one said that she did not believe that Lise “started out trying to deceive us,” while the other denied being duped by Lise or anyone else.

Third, Plaintiff could not allege reasonable reliance on Lise as to the immigration law questions. Nothing prevented plaintiff from seeking the advice of an immigration lawyer, noted the motion court. In fact, observed the motion court, they had previously done so. “Nothing stopped them from returning to that attorney or another regarding the idea of a holding company,” concluded the motion court. Citing Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959).

On appeal, the Appellate Division, First Department affirmed.

The Court held that the motion court “did not abuse its discretion in denying leave to amend the complaint.” Slip Op. at *1 (citations omitted). The Court agreed with the motion court that the “proposed amended complaint ‘did not lay before the court any different or additional factual basis, but merely repeated what was in the original complaint.’” Id. (quoting Guthartz v. City of New York, 84 A.D.2d 707, 708 (1st Dept. 1981), appeal dismissed, 55 N.Y.2d 975 (1982)). 

Moreover, the Court held that plaintiff failed to plead fraud with particularity. Id. (citations omitted). “Among other things,” said the Court, “the proposed amended complaint fail[ed] to allege any misrepresentation by defendant Lise Evans. Rather, plaintiff and the other two co-venturers were aware of and tried to find a solution for Lise’s quandary of how to get a visa based on her 51% ownership of a company and their own desire to each own 25% of the company.” Id. The Court explained that “[d]ocuments showed that it was a nonparty co-venturer, not Lise, who initially sought attorney input on and proposed an ownership structure that might satisfy the immigration requirements and the co-venturer’s desire.” Id. 

Finally, the Court held that the motion “court correctly concluded that the complaint failed to allege scienter, or that plaintiff reasonably relied on Lise regarding the immigration question, as she could consult an immigration attorney in the same way one of the nonparty co-venturers did.” Id.

Takeaway

A fundamental aspect of a fraud claim is the plaintiff does not know that the statement or omission made by the defendant is false or misleading at the time it was made. In Ibarrondo, this concept was missing. As the Court (and the motion court) observed, “plaintiff and the other two co-venturers were aware of and tried to find a solution for Lise’s quandary of how to get a visa based on her 51% ownership of a company and their own desire to each own 25% of the company.” If everyone was aware of the facts (and no fact was omitted), then there cannot be a fraud. This is what the motion court said when it initially dismissed the fraud claim: “You can’t have fraud if you disclose it.”