(CN) — Investors hoodwinked in a Chinese Ponzi scheme argued Tuesday at the Fourth Circuit Court of Appeals that their case against the company's founder should be granted class certification.
Xunhui Cheng and Kelin Cai filed suit in 2020 against businessman Dan Liu and his U.S. companies after the sudden collapse of the Chinese investment firm Easy Richness.
Chinese authorities raided the firm’s offices in April 2016 after determining the billion-dollar company and its founders, including Liu, had misappropriated investor funds.
The plaintiffs sought to represent the roughly 92,000 victims who lost money through Easy Richness, but U.S. District Court Judge Joseph Dawson III nixed that plan in a decision last year.
A three-judge panel for the Fourth Circuit Court of Appeals heard arguments Tuesday on whether that ruling was a mistake.
Attorney Gene Connell Jr. of Kelaher, Connell & Connor in South Carolina and New Jersey attorney Anthony Scordo III represented the plaintiffs at the hearing. The defendants were represented by Rush Smith III of Nelson Mullins in South Carolina.
Dawson, a Donald Trump appointee, raised issues with managing the class action. Almost all the proposed members were Chinese citizens, the judge wrote, and they signed the investment deals in China, where evidence was largely inaccessible by the U.S. courts.
“This court is not inclined to seek the permission of the People’s Republic of China as a tool for the
manageability of a class action,” Dawson wrote.
U.S. Circuit Judge Julius Richardson asked Connell whether Dawson was correct to consider the international scope of the case when deciding whether a class action was manageable.
Connell said the international nature of the case was a factor in manageability, but it was not the only factor. The crime may have originated in China, but it continued in the United States when Liu used the ill-gotten money to buy real estate in South Carolina, he said.
Cheng and Cai accuse Liu in the suit of siphoning millions of dollars from Easy Richness to buy nearly two dozen golf courses and other properties in South Carolina, mostly in the Myrtle Beach area, where Liu lives, despite an arrest warrant in China.
“The United States should not be a haven for criminal activity,” Connell said.
He said most investors lost $10,000 to $14,000 in the scheme. It represented their life savings, but it was still not enough money for each investor to fly to the United States and sue Liu individually. Without a class action, he said, most of the victims would be unable to pursue justice.
“It seems to me manageability has to be considered with a sense of justice,” he said.
Richardson, an appointee of Donald Trump, raised similar concerns with Smith.
He questioned whether Dawson’s concerns were related to the nature of the case rather than the class designation. If each investor individually filed suit against Liu, the court would still need to obtain evidence from China and hire translators. So why would it be more difficult if the claims were handled as a class?
Rush said the judge’s order did address class-specific issues, including determining the losses of each investor and what compensation they may have already received in China.
Richardson appeared unconvinced, however.
“Much of the analysis here — you’re right, not all of it — but much of the analysis here wasn’t about the difficulty with a class remedy, but is instead a difficulty with the underlying claim,” the judge said.
Richardson was joined on the panel by Senior U.S. Circuit Judge Barbara Milano Keenan and U.S. District Judge Elizabeth Dillon from the Western District of Virginia. They were both appointed by Barack Obama.
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