Over in Maryland, the State Center controversy continues. What's more, some new legal developments may have created even more problems for the project's government supporters.
When we reported on the Maryland State Center litigation a little over a month ago, it came to our attention that some legislators were trying to pass a bill that would prevent so-called "nuisance" lawsuits from stalling state-supported development projects. That legislation is now making its way through the state's House and Senate, but not without a few raised eyebrows.
That's because part of the bill ? a particular amendment ? appears to have been added for the sole purpose of ending the lawsuit against State Center. In a suit that project supporters call groundless, a small cadre of commercial property owners allege that the state of Maryland awarded a contract to a developer without a competitive bidding process.
If passed with its controversial amendment, many believe there is a good chance that the pending legislation would end the State Center litigation as we know it.
Ongoing promotion despite litigation
Before we look at the recent bill, let's consider why the State Center project was problematic from an EB-5 perspective.
On February 22, we took a screenshot from the MICON International Website which suggested that State Center was an open project. MICON International is the foreign broker promoting the State Center project to prospective EB-5 investors.
This observation was significant since State Center was in the midst of a lawsuit and being promoted at the same time. There was also a video promoting the project (still live as of today) that went online back in July of last year, well after the project was already in litigation. However, neither the MICON listing nor the promotional video disclosed that State Center was involved in an ongoing lawsuit that had put the project on an indefinite hold.
We, on the other hand, feel that the litigation is a significant fact that should be brought to the attention of both the public and EB-5 investors. We even reached out to immigration attorneys specializing in EB-5 visa law to check on the promotion-related implications for EB-5 projects in litigation.
According to attorney Jor Law of Homeier & Law, P.C., it's perfectly fine to promote a project in litigation as long as that fact is disclosed somewhere in the offering documents or in some manner to the investor. After all, he notes, there are plenty of good companies out there that have, at some point or another, been involved in litigation.
However, Law adds, if the litigation concerns ?the very essence of the project or offering itself,? it may not be wise to continue promoting the project.
Does that mean that the State Center project should be going out of its way to disclose the litigation? Not necessarily. Does it mean that they must in some way disclose it to each investor who signs on? Yes. As long as investors are informed that the project can't create any jobs while it's in the midst of a lawsuit, there's no problem ? at least from a legal perspective.
Presumably, the State Center promoters were disclosing this fact to investors. According to MICON's Website, the State Center project is still "current" but, at least for the moment, "closed."
The bill and its accompanying amendment
But new legislation means State Center could be back on track sooner than expected. As long as public opposition doesn't stop the bill and all of its amendments from reaching the governor's desk, that is.
To be sure, the general spirit of the legislation is not controversial. Backed by Governor Martin O'Malley and his administration, the bill seeks to create a better process for the state and private developers to work together on public-private partnerships.
Nothing too outlandish about that, right? But it's a particular amendment to the bill that has many observers concerned. Under the proposed amendment, which was a part of the bill when the House approved it, the losers in public-private partnership lawsuits would be able to appeal directly to the Maryland Court of Special Appeals, the state's second-highest court.
According to the Baltimore Sun:
At issue is a provision that allows a party in such a suit to appeal a circuit court judge's denial of a motion to dismiss before the two sides are forced to exchange documents through the discovery process, and before they are allowed to present evidence at trial.
Such a move could retroactively affect the State Center litigation, a reality that many say is why legislators added the amendment to the bill.
Needless to say, it wasn't long after the House passed the bill with the accompanying amendment that scathing criticism erupted. With cries of "crony capitalism" and the suggestion by some lawmakers that the amendment creates "shadow government" and stinks of corruption, it suddenly looked like everyone was against the new legislation.
The Senate approved a version that omitted the questionable amendment, but the administration apparently supports both the law itself and the amendment that has so many lawmakers up in arms. Observers expect the issue to be decided over the next 30 days during a special legislative session.
Is the criticism fair? The Baltimore Sun's editorial staff sure doesn't think so:
There is no doubt that it is unusual, but it is neither unprecedented nor unconstitutional. In fact, relevant case law shows that such a procedural change by the legislature is presumed to affect current cases unless the General Assembly specifies otherwise. The bill does not, as has been widely and incorrectly reported, send cases like this one straight to the Court of Special Appeals. Circuit courts would still have original jurisdiction. Nor does it tilt the scales in favor of the State Center project. The legislature is not changing any of the standards by which the State Center lawsuit will be judged but is instead adding another step to the legal process. If the case that the state broke its procurement law in approving the State Center deal is as strong as the litigants say it is, then the only effect of the General Assembly's action will be to drag out the legal process even more, which only benefits the project's opponents.
That said, the same editorial goes on to affirm its general support for the State Center project.
If anything is certain, it's that the state must not think the plaintiff's suit against the project holds merit. Observers have identified the remaining plaintiff in the suit as a "serial" plaintiff, so it may very well be that he or she is only pursuing the lawsuit to delay the development.
But from the EB-5 investor's perspective...
It seems to us that investors in this project should know that all of this is going on.
From what we have seen, both the regional center and its foreign broker have promoted this project as nothing other than a sound, job-creating EB-5 investment. And were the project in a position to break ground, it may very well be a fantastic opportunity for immigrant investors seeking a US green card.
But for the time being, the State Center project can't get going because it's in the midst of a lawsuit ? a lawsuit that seems now to have involved, at least in an indirect way, the Maryland state legislature.
If State Center's promoters are still selling the project to immigrant investors ? and it could be that they have stopped ? we feel it's imperative for all the information about these legal proceedings to be disclosed. And while the issues surrounding State Center are unique, they should serve as a cautionary tale for investors and their counsel investigating the panoply of EB-5 opportunities now on the market.