IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

A&J CAPITAL, INC.,

 Plaintiff,

 v.

LAW OFFICE OF KRUG,

 Defendant,

 and

LA METROPOLIS CONDO I, LLC,

a Delaware limited liability company,

 Nominal Defendant.

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 C.A. No. 2018-0240-JRS

MEMORANDUM OPINION

Date Submitted: October 30, 2018

Date Decided: January 29, 2019

Kurt M. Heyman, Esquire, Melissa N. Donimirski, Esquire and Elizabeth A. DeFelice, 

Esquire of Heyman Enerio Gattuso & Hirzel LLP, Wilmington, Delaware, Attorneys for 

Plaintiff. 

Stephen B. Brauerman, Esquire and Sara E. Bussiere, Esquire of Bayard, P.A., 

Wilmington, Delaware and Craig H. Marcus, Esquire of Glaser Weil Fink Howard Avchen 

& Shapiro LLP, Los Angeles, California, Attorneys for Defendant.

SLIGHTS, Vice Chancellor
1

A dispute over the management of a Delaware limited liability company has 

sparked allegations of conspiracy, forged documents and perjured testimony. The 

company, nominal defendant, LA Metropolis Condo I, LLC (“LAMC” or the 

“Company”), was formed to raise investment capital under a federal government 

program whereby the government offers favorable immigration treatment in 

exchange for qualified foreign investments in new commercial enterprises in the 

United States. The members of the Company are two hundred Chinese nationals 

who collectively contributed $100 million to be invested in a construction loan for 

the development of residential and commercial space in downtown Los Angeles. 

The loan was extended to Greenland LA Metropolis Development I, LLC (including 

its affiliates, collectively, “Greenland”). The plaintiff, A&J Capital, Inc. (“A&J” or 

“Plaintiff”), was engaged to serve as Class B Manager of the Company in exchange 

for a management fee. It is alleged that Greenland became displeased with A&J and 

then colluded with certain members of the Company to trump up reasons to have 

A&J removed as manager. That removal occurred in March 2018. 

The Company’s operating agreement and the management agreement by 

which A&J was engaged both provide that the Class B Manager may be removed 

only for “cause.” In its complaint, A&J alleges that no such cause existed, that 

certain members were cajoled by Greenland into voting to remove A&J so that 

Greenland could extract concessions from the Company, and that defendant, Law 
2

Office of Krug (“Krug” or “Defendant”), acted as the facilitator of the plot 

improperly to remove A&J and now occupies the role of Class B Manager without 

authority. 

At least as to the management agreement, the “for cause” removal provision

was a protection for which A&J bargained and gave consideration. “For cause”

removal provisions are not aspirational, nor do they allow the principal to remove 

the agent on a whimsy and then manufacture “cause” after-the-fact to justify the 

removal. Nevertheless, the majority of the members of LAMC, influenced by 

Greenland and guided by Krug, apparently viewed their removal rights differently. 

As explained in this post-trial Memorandum Opinion, I am satisfied from the 

preponderance of the evidence that these members removed A&J without cause and 

then formulated after-the-fact explanations for removal that are neither credible nor 

adequate under the operative agreements to justify their actions. Accordingly, as 

requested, A&J is entitled to declarations pursuant to 6 Del. C. §§ 18-110 and 18-

111 that it was improperly removed as Class B Manager and that it must be reinstated

to that position immediately with all of its rights and obligations under the operative 

agreements restored. 
3

I. BACKGROUND

The Court held a two-day trial during which it received over 400 trial exhibits 

and heard live testimony from six witnesses. I have drawn the facts from the 

stipulations of fact entered in advance of trial, the testimony and exhibits presented 

during trial and from reasonable inferences that flow from that evidence.1 To the 

extent I have relied upon evidence to which an objection was raised but not resolved 

at trial, I will explain the bases for my decision to admit that evidence before I 

discuss it. 

A. The Parties and Relevant Non-Parties

Plaintiff, A&J, is a financial services and advisory firm incorporated and 

based in California.

2

 It is the designated Class B Manager of LAMC and also 

manages ten other companies that operate under the EB-5 Immigrant Investor Visa 

Program (“EB-5”).

3 Qingfu “Frank” Xu is A&J’s founder and President.4

 Alex 

 

1 Citations will be in the following format: “PTO ¶ __” shall refer to stipulated facts in the 

pre-trial order; “Trial Tr. __ ([Name])” shall refer to witness testimony from the trial 

transcript; “JX__” shall refer to trial exhibits using the JX-based page numbers generated 

for trial; “[Name] Dep. __” shall refer to witness testimony from a deposition transcript 

lodged with the Court for trial. 

2 PTO ¶ 1; Trial. Tr. 13 (Verba). 

3 PTO ¶ 8; Trial. Tr. 19 (Verba). As explained below, EB-5 is the federal immigration 

program that prompted LAMC’s creation and defined its purpose. 

4 PTO ¶ 8.
4

Verba is A&J’s Senior Vice President and in charge of LAMC’s day-to-day 

operations.

5

Defendant, Krug, is a single-person, unincorporated law firm based in 

California that is operated by James Krug.6 Krug was appointed as the interim

Class B Manager following A&J’s purported removal.7 

Nominal Defendant, LAMC, is a Delaware LLC principally based in 

California that formed in April 2014 to raise immigrant investor capital under the 

EB-5 visa program.8 As noted, the investment capital was used to provide a 

$100 million construction loan to Greenland for the development of the first phase 

of a multi-phase real estate project.

9

 

Non-party, Greenland, is a Delaware LLC and an affiliate of one of the largest 

state-owned real estate developers in China.10 Greenland was in charge of 

developing a 38-story residential tower in downtown Los Angeles (the “Project”) 

 

5 Trial. Tr. 13, 90 (Verba), 236 (Xu). 

6 PTO ¶ 2.

7 PTO ¶ 25.

8 PTO ¶¶ 3, 4, 6.

9 PTO ¶ 7.

10 JX 12-0022.
5

and received the EB-5 construction loan from the Company to fund the 

development.

11

Non-party, Henry Global Consulting Group (“Henry Global”), is a Chinese 

company that solicits investments for EB-5 projects and was responsible for securing 

investments in the Company.12 Henry Global is a strategic partner of A&J and is 

involved with each of the EB-5 companies managed by A&J.13 Henry Global’s 

owner’s sister is married to Mr. Xu, A&J’s founder and President.14 

B. The Company and the Project

In 1990, Congress enacted EB-5 to permit foreign nationals to become lawful 

permanent residents of the United States (or “green card” holders) by making a 

threshold investment in a “new commercial enterprise” (“NCE”) that creates or 

preserves at least ten jobs for U.S. workers.15 In addition to meeting numerous 

requirements imposed by EB-5 regulations, the foreign national must serve as 

limited partner of the NCE or as an investor in an entity that makes a loan to a NCE.16 

 

11 PTO ¶ 7; JX 12-0048.

12 Trial Tr. 20 (Verba).

13 PTO ¶ 8.

14 Id.

15 PTO ¶ 4.

16 PTO ¶ 5.
6

The foreign national’s investment must be maintained in the NCE and must remain 

“at risk” while the United States Citizenship and Immigration Service (“USCIS”) 

processes the application for permanent residency, a process that can take as long as 

ten years.17 

In late 2013, Mr. Xu was introduced to Ifei Chang, then-CEO of Greenland 

USA, to discuss an EB-5 investment in the Project.18 When Ms. Chang expressed 

interest, Mr. Xu introduced her to A&J’s strategic partner, Henry Global.

19

 By late 

summer of 2014, Greenland, Henry Global and A&J had agreed to structure the EB5 investment as a Delaware LLC that would extend a $100 million construction loan 

to Greenland with a 2.2% rate of return to mature after five years.

20

 As Henry Global

prepared to market the investment to Chinese citizens, Greenland named Home 

Paradise Investment Center, LLC (“Home Paradise”) to be the “Regional Center”

 

17 PTO ¶ 4. To comply with EB-5 regulations, the investors’ capital must remain in a state 

where there is a risk of loss and potential for gain. See USCIS Policy Manual 0.2(A)(2), 

https://www.uscis.gov/policymanual/HTML/PolicyManual-Volume6-PartGChapter2.html.

18 Trial. Tr. 233 (Xu).

19 Id.

20 Trial Tr. 21–23 (Verba), 233 (Xu).
7

for the Project.

21

 It also named Urban Harmony, a wholly owned subsidiary of Home 

Paradise, as the Company’s Class A Manager.22 

C. The Disclosure Document and Agreements 

Four documents are particularly important in determining the validity of 

A&J’s removal: the Private Placement Memorandum (“PPM”) (a disclosure 

document from Greenland to potential investors),23 the Operating Agreement

(a contract between Urban Harmony and the investors),24 the Management 

Agreement (a contract between the Company, A&J and the investors)25 and the 

Distribution Services Agreement (“DSA”) (a contract between the Company and 

Henry Global).26

 

21 Trial Tr. 22 (Verba). The Regional Center is in charge of the investment offering and 

assists investors in providing information to USCIS regarding the NCE’s job creations and 

expenditures of funds so that USCIS can ensure compliance with EB-5 rules and 

regulations before processing the investors’ residency petitions. Trial Tr. 27 (Verba); 

JX12-0043.

22 Trial Tr. 21 (Verba). As explained below, the Class A Manager was to ensure 

compliance with immigration rules and regulations while the Class B Manager was to 

manage the day-to-day operations of the Company. 

23 JX 12.

24 JX 10.

25 JX 8.

26 JX 16.
8

1. The PPM

On July 11, 2014, Henry Global and Home Paradise issued a PPM to 

prospective EB-5 investors that described the Project and the terms of the investment 

offering.

27

 The PPM explains that upon payment of a $500,000 “Subscription Price” 

and a $45,000 “Administration Fee,” each EB-5 investor will receive a “Class B 

Unit” and will become a “Class B Member of the Company” (a “Member”).28 By 

the terms of the offering, Class B Members together own 100% of the Class B 

membership interests in the Company.29

The $100 million loan funded by the Members’ Subscription Price bears an 

interest rate of 2.2% with 1.8% payable in cash and 0.4% accrued annually.30 The 

PPM discloses that Members can expect to receive 1.0% total interest on the loan 

(or 0.2% per year payable in five years at the loan’s maturity date).

31 Given the low 

interest return, the PPM makes clear that the primary benefit of the Members’ 

investment is participation in the EB-5 program and resulting reward of permanent 

 

27 JX 12.

28 JX 12-0003–04. The Class A Manager, Urban Harmony, is the only Class A Member 

and holds one Class A Unit of the Company, which “entitles the Class A Member to no 

rights except for the right to vote on replacement of Managers.” JX 10-0003. 

29 JX 12-0004.

30 JX 12-0027.

31 Id. 
9

residency in the United States.

32

 In this regard, the PPM states that “the Loan may 

not be prepaid prior to the Maturity Date unless (i) all Class B Members receive final 

adjudication of their respective Form I-829 Petition . . . and (ii) no rights or economic 

interests of any Class B Member will otherwise be adversely affected.”33

The PPM contemplates that a Class A Manager and Class B Manager will 

administer the Company.

34

 Although the PPM states that the Class B Manager will 

be elected by majority vote of the Class B Members, it presupposes that A&J will 

be appointed as Class B Manager and lists A&J’s contact information.35 The PPM 

also advises investors that the Class A and Class B Managers may be removed only 

 

32 JX 12-0005 (“The Offering has been structured with the intent that each Class B Member, 

by subscribing for a Class B Unit and becoming a member of the Company, will have made 

an investment that qualifies as the investment component required for an I-526 Immigrant 

Petition by Alien Entrepreneur (“I-526 Petition”) that entitles the Class B Member to seek 

permanent United States residency and, ultimately, to apply for U.S. citizenship . . . .”) 

(emphasis in original); JX 12-0026 (“Subscriber Investment Objective: To provide 

financing for the Project in the form of a loan (i.e., the Loan) to Developer in the form and 

manner allowing for an investment in the Company to be a “qualifying investment” under 

the EB-5 Program.”) (emphasis in original).

33 JX 12-0027. The I-829 application shows that the NCE has created qualified jobs. Trial 

Tr. 85 (Verba).

34 JX 12-0002, 31. In addition to Class A and Class B Managers, the PPM provides for the 

services of “oversea/offshore finders and agents to seek potential investors in the Company 

(each a “Program Locator”) and document processors to process immigration paperwork 

and assist[] with their immigration paperwork for those investors (each, a 

“Processor”) . . . .” JX 12-0035 (emphasis in original).

35 JX 12-0032–33.
10

“by majority vote of the Class B Members for gross negligence, intentional 

misconduct, fraud or deceit.”36 

As disclosed in the PPM, each person or entity that performs a role described 

in the PPM—Class A Manager, Class B Manager, Program Locator and Processor—

is to be paid a fee for their services. The Class A Manger is to receive a management 

fee of $4,000 per Class B Member plus 0.1% per year of the outstanding loan 

balance.37 The Class B Manger is to receive 0.4% per year of the outstanding loan 

amount.38 There is no explicit fee disclosed for the Program Locator and Processor, 

but the PPM states “that the Company may pay a fee to compensate firms and 

individuals for those [Program Locator and Processor] services.”39 

The PPM also discloses the permitted and prohibited sources of payment for 

so-called Manager Fees:

All of the Administration Fees are paid to Program Locators and 

Processors for capital raising and document processing and to the 

Class A Manager and Regional Center as payment for their fees . . . .

None of such fees shall be paid out of the Subscription Price or 

investment in the Membership Interests of the Company.40 

 

36 JX 12-0032, 35.

37 JX 12-0032.

38 JX 12-0034.

39 JX 12-0035.

40 Id.
11

. . . .

The Company will pay out of the Administration Fee and interest 

income all ordinary administrative and operating expenses . . . as well 

as payments to Managers and other third party service providers for 

servicing the Loan, assisting with the Offering, and providing 

immigration services to the Company, Subscribers, and Class B 

Members.41

2. The Operating Agreement

As previewed in the PPM, the duties of the Class A and Class B Mangers are 

set forth in an Operating Agreement that became effective on the same day the PPM 

was issued.42 Under Section 5.3(d)(i) of the Operating Agreement, the Class A 

Manager is responsible for maintaining the Company’s compliance with USCIS 

rules and regulations and communicating with USCIS about those matters.43 Under 

Section 5.3(d)(ii), the Class B Manager is responsible for the day-to-day 

administration of the Company, which includes, among other responsibilities,

managing investment of Company funds, negotiating, amending and/or 

 

41 JX 12-0042. The PPM also explicitly prohibits the Class A Manager’s fee from being 

paid out of the Subscription Price (JX 12-0032 (“None of such fees will be paid from the 

Subscription Price, but may be paid from the Administration Fee paid by a Class B 

Member.”)), and provides that the Class B Manager’s fee will be “paid directly by the 

Company via interest proceeds” (JX 12-0034).

42 PTO ¶ 13; Trial Tr. 28, 60–61 (Verba).

43 JX 10-0014.
12

supplementing the terms of any loans made by the Company and entering into any 

agreement deemed appropriate for any beneficial purpose of the Company.44 

The appointment and removal of the Class B Manager is governed by 

Section 4.8 of the Operating Agreement, which provides:

The Class B Members, by Majority Vote,45 shall have the sole and 

exclusive right to approve or disapprove of the following . . . f) Subject 

to 5.3, appointment, reappointment and removal as applicable of any 

Manager.46

Section 5.3, in turn, permits the Class B Members to remove the Class A and Class B 

Managers only for “gross negligence, intentional misconduct, fraud or deceit, as 

more fully set forth in the Management Agreement.”47

3. The Management Agreement

On or about the same day the Operating Agreement became effective, the 

Company, A&J and the Class B Members entered a Management Agreement that 

states more specifically the terms by which A&J would serve as the Class B Manager 

 

44 JX 10-0015.

45 The Operating Agreement defines “Majority Vote” as “Class B Members who, at the 

time in question, have Percentage Interests aggregating more than fifty percent (50%) of 

all Percentage Interests held by all Class B Members.” JX 10-0004.

46 JX 10-0010–11.

47 JX 10-0014.
13

of the Company.48 The Management Agreement reiterates previous disclosures that 

A&J would receive an annual management fee equal to 0.4% of the outstanding loan. 

Section 6(a) of the Management Agreement, however, provides that the Members 

and A&J may agree to modify A&J’s compensation: “The Management Fee shall 

from time to time be reviewed and modified as may be mutually agreed upon by the 

Company and the Class B Manager, subject to any approval rights of the Members 

pursuant to Section 4.8 and 5.11 of the Operating Agreement.”49 

Section 12(b) of the Management Agreement repeats the removal standard 

stated in the PPM and Operating Agreement: 

The Class B Manager may be removed by Majority Vote (as defined in 

the Operating Agreement) of the Class B Members for gross 

negligence, intentional misconduct, fraud or deceit; provided that in 

any of such events as specified in this Section 12(b), without limiting 

any of their respective rights and remedies, the Members shall be 

 

48 PTO ¶ 15; Trial Tr. 28, 60–61 (Verba). The Class B Members joined the Management 

Agreement by entering a Joinder Agreement executed on the same day they made their 

investment in the Company. Trial Tr. 60–61 (Verba). The Management Agreement 

defines “Joined Members” to be “[t]hose persons . . . who have joined as a party to this 

Agreement . . . by entering into a Joinder Agreement . . . and whose details are contained 

in each respective Joinder Agreement,” and “Joinder Agreement” is defined as “the Joinder 

Agreement to this [Management] Agreement in the form as attached hereto.” JX 8-0002–

03.

49 JX 8-0006. Section 4.8 of the Operating Agreement states that “each Class B Member 

may take part in the management of the Company by (a) exercising that Class B Member’s 

voting rights as set forth in this Agreement . . . .” JX 10-0010. Section 5.11 of the 

Operating Agreement states that “Each Manager shall be entitled to remuneration for 

services provided to the Company and other benefits in accordance with the terms hereof 

and the Management Agreement, provided such agreement shall have been approved by 

the Members in accordance with Section 4.8 hereof . . . .” JX 10-0019. 
14

entitled to exercise their respective powers under the Operating 

Agreement to appoint a new Class B Manager and to cause the 

Company to issue written notice of termination to the Class B Manager 

hereunder.50

4. The DSA

In August 2014, the Company executed a Distributor Services Agreement that 

names Henry Global as a “Distributor” responsible for recruiting EB-5 investors 

from China.51 Under the DSA, Henry Global agrees to 

(i) comply with and/or assist EB-5 Investors with the compliance of 

information requests of all competent authorities regarding Distributor 

and/or EB-5 investors, (ii) liaise with and/or procure consents from EB5 Investors in relation to the Project, and (iii) provide other reasonable 

incidental assistance to the Lender, Borrower or EB-5 Investors.52 

In exchange for these services, the Company agrees to pay Henry Global $41,000 

from the proceeds of each investor’s Administration Fee, 1.3% of the outstanding 

loan amount on a calendar quarter basis and 1% of the outstanding loan amount at 

maturity.53

 

50 JX 8-0010.

51 JX 16.

52 JX 16-0002. 

53 Id. On November 9, 2015, the DSA was terminated (JX 23) and a new, substantially 

identical, DSA was executed with a different Henry Global entity (JX 24).
15

In sum, the agreements allocate the entities’ and investors’ shares of the 2.2% 

interest on the loan as follows: 0.2% per year to the Class B Members;54 0.4% per 

year to the Class B Manager;55 0.1% per year to the Class A Manager;56 and 1.5% 

per year to Henry Global.57 Under the same agreements, of the $45,000 

Administration Fee, $4,000 is allocated to the Class A Manager58 and $41,000 is 

allocated to Henry Global.59 

D. The Company’s Financial Statements and the Resignation of the Class A 

Manager

The loan to Greenland was executed on August 28, 2014.60 For each fiscal 

year of the loan, A&J directed an accounting firm to review the Company’s 

unaudited financial statements.61 From 2014 through 2016, A&J sent the written 

product of the accounting firm’s reviews and the firm’s notes to Henry Global for 

 

54 JX 12-0027.

55 JX 12-0034, JX 8-0006.

56 JX 12-0032.

57 JX 16-0002.

58 JX 12-0032.

59 JX 16-0002.

60 JX 14. 

61 Trial Tr. 43–44, 46 (Verba); JX 20, JX 32, JX 36.
16

dissemination to the Members.

62

 The balance sheet and statement of cash flows 

always included line item payments to Henry Global and a “related party.”63 In 

addition to explaining that the “related party” is Urban Harmony, which receives a 

portion of the Administration Fee, the notes state that the Company is required to 

pay Henry Global “1.3% of the outstanding Note amount on a calendar quarter basis 

upon receipt of payment from the Developer and 1% of the outstanding Note amount 

during the term of the Note upon receipt of payment from the Developer at the 

Maturity . . . of the Note.”

64

 Although Henry Global distributed copies of the 

financial statements to the Members per A&J’s direction, it apparently did not 

distribute the pages of notes that referenced the payments to Henry Global.65 

In September 2017, the U.S. Securities and Exchange Commission brought 

an enforcement action against the principal of Home Paradise, his wife and several 

 

62 Trial Tr. 46–47 (Verba).

63 See, e.g., JX 32-004, JX 32-0007.

64 See, e.g., JX 32-0011.

65 Trial Tr. 297–303 (Wang). Zhu Wang, one of two Members to appear at trial, testified 

that she did not receive the 2015 financial statements from Henry Global until 2017, but 

she did not suggest that statements for the remaining years were untimely. Trial Tr. 297 

(Wang). She also testified that she did not receive pages eight and nine of the 2015 

statements or page nine of the 2016 statements. Trial Tr. 298–303 (Wang); see also JX 30, 

JX 38 (financial statements that Ms. Wang received from Henry Global). Kangni Sun, the 

other Member to appear, similarly testified that she did not receive the last pages of the 

2015 and 2016 financial statements. Trial Tr. 337–38 (Sun); see also JX 31, JX 39 

(financial statements that Ms. Sun received from Henry Global).
17

of the principal’s companies, including Home Paradise.66 A&J notified the Class B 

Members of the suit and, soon after, Urban Harmony (a subsidiary of Home 

Paradise) resigned from its role as Class A Manager.67 A&J was concerned that the 

suit may also lead to Home Paradise’s termination as the Regional Center.

68

 Fearing 

the potential negative impact of Home Paradise’s separation from LAMC on the 

Members’ pending immigration petitions, A&J sought to engage more directly with 

investors and provide assurances of their EB-5 status.

69

 As part of this effort, A&J

sent the 2017 financial reviews with the attached notes directly to the Members

instead of relying on Henry Global to distribute them.

70

 A&J did not receive any 

inquiries from the Members regarding the financial statements or the payments to 

Henry Global.71 

 

66 PTO ¶ 19. The suit alleged that the couple had defrauded EB-5 investors in two projects 

unrelated to the Company or the Project. Id. 

67 Id. The Company did not name a replacement Class A Manager. Id.

68 Trial Tr. 47 (Verba).

69 Id. 

70 Trial Tr. 46–47 (Verba); JX 224.

71 Trial Tr. 50 (Verba), 315–316 (Wang), 357 (Sun).
18

E. The Events Leading to A&J’s Removal as Manager

Once the Project was substantially completed, funds from the sale of 

individual condominium units were released to an account in Greenland’s name for 

the benefit of the Company (the “Pledge Account”).72 Greenland and the Company 

entered a pledge agreement to ensure that Greenland would not use the money in the 

Pledge Account without A&J’s approval or for purposes other than those permitted 

by the loan agreement.73 Greenland, however, considered the proceeds from the 

condominium sales to belong to it as borrower since it had not yet paid those funds 

to the Company.

74

 It became frustrated over time that the sales proceeds were 

essentially locked up in escrow within the Pledge Account and that the funds could 

not be deployed either to pay down the loan or to advance other Greenland interests. 

To make matters worse from its perspective, Greenland had to pay interest to the 

Company on those funds since they were not being committed to pay down the 

loan.75 

 

72 Trial Tr. 64–65 (Verba).

73 Trial Tr. 64 (Verba).

74 Wu Dep. 34. Chao Wu is an Executive Vice President of Greenland U.S.A. and the 

General Manager of Greenland’s Los Angeles and San Francisco Offices. Id. 12. 

75 Trial Tr. 65–66 (Verba).
19

Around May or June 2017, Greenland’s CFO, Jian Zhang, approached Mr. Xu

with an offer to repay the loan before its maturity date, with the implicit 

understanding that freed capital could be redeployed as a loan to fund another 

Greenland project.

76 Mr. Xu pointed out that the money in the Pledge Account, then

$55 million, was growing quickly and could exceed the principal of the loan by the 

end of the year, meaning the Members’ investment would no longer be “at risk” as 

required by EB-5 regulations.77 Although the loan agreement explicitly prohibited

prepayment, A&J and Greenland developed a prepayment plan to avoid the potential 

overflow of the Pledge Account.

78

 

In September 2017, A&J provided the first drafts of amendments to the loan 

agreement, which noted that “Borrower has requested the right to prepay the Loan 

in accordance with certain conditions, as more fully set forth in the Note.”79 On 

October 19, 2017, Greenland provided counter-drafts that made certain changes but 

 

76 Trial Tr. 67 (Verba), 235 (Xu); Zhang Dep. 26, 40–41. 

77 Trial Tr. 67, 106 (Verba), 235 (Xu). The concern was that once Greenland had reserved 

enough funds to meet or exceed the principal amount of the loan, the loan could be deemed 

paid in full and the Members’ investments could be deemed no longer “at risk.”

78 Trial Tr. 69 (Verba).

79 JX 50-0003.
20

did not modify the “Borrower has requested . . .” language.80 The Fourth 

Amendment to the Loan Agreement memorialized the final prepayment proposal.

81

 

As part of the prepayment plan, A&J and Greenland negotiated a $1 million 

prepayment fee to A&J.

82

 A&J believed it had engaged in substantial additional 

work prior to the negotiations for prepayment as a result of Greenland’s repeated 

changes to the Project’s budget and the process for draw requests.83 A&J also 

maintained that additional compensation was warranted for its participation in 

prepayment negotiations and the pending redeployment process.

84

 It estimated that 

redeployment could take up to two years and that, if prepayment occurred, it would 

forego $1.6 million in management fees that it would otherwise receive by the 

maturity of the loan.

85

 Given that prepayment of the loan would allow Greenland to 

 

80 JX 53.

81 JX 50.

82 Trial Tr. 87 (Verba).

83 Id.

84 Id. 

85 Trial Tr. 69–73, 76–77, 86–87 (Verba). If the loan were prepaid four years before its 

maturity date, A&J would lose out on annual compensation of $400,000 per year or 0.4% 

multiplied by the outstanding loan amount. Trial Tr. 72–73 (Verba). A&J expected that it 

would take two to three months after the prepayment to identify a new investment 

opportunity, three to four months to negotiate the terms of the new loan, and 18 to 24 

months to reach full deployment in the case of another construction loan. Trial Tr. 76–77

(Verba). A&J would not receive full compensation on the new loan until the full amount 
21

keep $8 to $9 million in unpaid interest, Greenland agreed to pay A&J directly so 

that Members would be unaffected by the prepayment fee.

86

 Of the $1 million fee,

$200,000 would go to the Company.87 The remaining $800,000 would go to A&J

for:

time and expense incurred to date in amending the Loan Documents, 

underwriting and negotiating closing documents in connection with the 

Senior Loan, research and analysis into matters including EB-5 

Program Laws compliance and securities compliance for Lender 

investors in connection with prepayment of the Loan, and processing, 

underwriting, closing and administration of any replacement 

investment using prepaid amounts of Loan principal required by EB-5 

Program Laws[.]88 

A&J advised the Members of the prepayment proposal in a memorandum 

dated October 26, 2017, which explained that prepayment was necessary to “cure 

[a] potential immigration violation” and “salvage the immigration status of most if 

not all of the Class B Members.”89 The following day, A&J presented the proposed 

plan for the Members’ approval with a Notice to Class B Members and Request for 

 

of the loan was disbursed. Trial Tr. 78 (Verba). Thus, A&J concluded that repayment of 

the loan would likely set back its compensation for at least two years. 

86 Trial Tr. 65–66 (Verba), 235 (Xu); Zhang Dep. 56.

87 JX 50-0023–24.

88 Id.

89 JX 54.
22

Consent to Prepayment (the “Prepayment Notice”).

90

 The Prepayment Notice 

explained that A&J requested $800,000 from Greenland (not the Members) “for 

services rendered in connection with the Prepayment, including, without limitation: 

 Negotiating with the Borrower the terms of the Fourth Loan 

Amendment; 

 Negotiating prior amendments to the Loan Agreement and other 

ancillary documentation related thereto; 

 Negotiating inter-creditor terms with the secured lender;

 Preparing documentation and conducting research with respect 

to preserving the collateral securing the Loan for the benefit of 

the Class B Members;

 Assisting developer to organize the construction supporting 

documents and related costs categories to comply with the 

regulation requirements of USCIS and US security laws;

 Coordinating execution of legal documents related to the 

Company;

 Continued oversight of the Company and investment 

management during the interim period between repayment of the 

loan; and 

 Identifying opportunities for redeployment of capital.”

91

The Prepayment Notice does not address the anticipated length of time required for 

redeployment of the Company’s capital or the $1.6 million in lost management fees 

as a basis to justify the prepayment fee. In addition to explaining the terms of the 

prepayment plan, the Prepayment Notice solicited the Members’ approval and 

disclosed that A&J would consider a Member’s abstention from voting as a vote in 

 

90 JX 56.

91 JX 56-0002.
23

favor of the prepayment plan.92 A&J hoped that this structure would expedite the 

implementation of the prepayment plan given the concern that the Pledge Account 

would soon exceed the Members’ investments.

93

Before the voting deadline of November 30, 2017, Greenland became 

concerned that A&J would not commit the redeployed investment funds to 

Greenland on favorable terms once the original loan was repaid.

94 With these 

concerns in mind, Greenland’s support for the prepayment plan evaporated. Without 

A&J’s knowledge, Greenland contacted certain Members of the Company directly 

and advised them that A&J was pushing for prepayment of the loan while Greenland 

opposed it.95 Ultimately, 135 Members returned votes rejecting the proposed 

prepayment.

96

 Of those 135 Members, ten are employees of Greenland or have 

family members who are employees of Greenland.

97

 And, as among the 135 no 

 

92 JX 56-0004.

93 Trial Tr. 106 (Verba). 

94 Wu Dep. 85. Mr. Wu testified that he believed A&J sought repayment to then negotiate 

an increased interest rate on subsequent projects financed by the reinvested money. Id. 

95 Wu Dep. 44–45, 85; JX 106, JX 107, JX 116–17; Trial Tr. 109 (Verba).

96 JX 280.

97 Pl.’s Post-Trial Opening Br. (“POB”) (D.I. 169), Ex. 1 (D.I. 170) (Revised 

Demonstrative 2).
24

votes, emails transmitting 102 of those votes were copied to Liming Wang, the 

husband of Member Zhu Wang.

98

 

On November 20, 2017, Krug, who had previously been retained by certain 

Members to perform an analysis of the at-risk nature of the Pledge Account funds,

99

sent two demand letters to A&J opposing the prepayment plan and requesting a list 

of Members.

100

 Neither letter mentioned the prepayment fee. The Company rejected 

Krug’s demand for the Member list and neither Krug nor any Member elected to 

pursue an action to enforce inspection rights.

101

 

 

98 Trial Tr. 469 (Krug); JX 278–80. Zhu Wang testified that the email address 

ldgytwh@qq.com does not belong to her husband, but she could not recall his email 

address. Trial Tr. 319, 324 (Wang). Ms. Sun, whose husband is the director of technology

for Greenland, testified during deposition that the email did belong to Liming Wang but 

recanted that testimony during trial. Trial Tr. 351–52 (Sun); Sun Dep. 37–38. Neither Zhu 

Wang nor Ms. Sun proved to be credible trial witnesses, as revealed in their demeanor and 

the substance of their testimony, and this is but one illustration of testimony that simply 

was not believable. A&J has moved to strike the Zhu Wang and Sun trial testimony as 

patently false and the product of improper witness coaching. POB 29 n.16. That motion 

is denied. As for the substantive question of whether Liming Wang was copied on the 

transmittal emails at issue, the credible evidence reveals that he was. From that evidence, 

I am satisfied that Liming Wang facilitated if not encouraged the vast majority of the no 

votes from Members on the prepayment proposal. 

99 Trial Tr. 435 (Krug). 

100 JX 74, JX 75.

101 JX 93; Krug Dep. 63.
25

F. Krug Purports to Remove and Replace A&J on Behalf of the Members

On December 8, 2017, after the prepayment plan had been rejected, A&J and 

Henry Global held a meeting in Beijing with the Members.102 The attendees did not 

discuss the prepayment fee, but they did discuss concerns regarding the resignation 

of Urban Harmony as well as prepayment of the loan and redeployment of the 

Members’ investment.

103

 Notwithstanding the evidence that Greenland had initiated 

the prepayment discussions, one attendee—Liming Wang—complained that A&J 

had requested prepayment of the loan (apparently to advance its own interests) and 

criticized the structure of the vote on the prepayment plan.104 After the meeting, 

Greenland contacted A&J and the two agreed to recommend a new proposal that 

would allow Greenland to cash out $55 million of its equity, thereby reducing the 

collateral of the loan and providing funds that Greenland could freely use for other 

projects.105 The new proposal did not include a prepayment fee.106 

 

102 Trial Tr. 110 (Verba). Greenland did not attend the meeting. Id. 

103 Trial Tr. 110–11 (Verba).

104 Trial Tr. 113–14 (Verba).

105 Trial Tr. 116 (Verba).

106 Trial Tr. 117 (Verba).
26

A&J notified the Members of the new proposal and structured the vote so that 

only votes in favor of the plan counted as affirmative votes.107 Roughly a dozen 

Members delivered votes opposing the new proposal, but during the voting period,

91 Members emailed the Company asking A&J to cancel the vote and release 

$15.08 million to Greenland unconditionally.108 Of these emails, 75 were copied to 

Liming Wang.

109

 

On or about February 26, 2018, Krug drafted a Notice to Class B Members 

and Request for Vote and a Notice of Election (the “Removal Ballot”).

110 The 

Members were asked to vote on the following proposals: “Remove A&J Capital 

Investment, Inc. as the Class B Manger? Yes. No.” and “Elect Law Office of Krug 

as the interim Class B Manager? Yes. No.”111 The Removal Ballot did not identify 

a basis for removal, either in any prefatory statement or in the solicitation, but it did 

note the Members’ rights to remove the Class B Manager under Sections 5.3(c)(ii) 

and 12 of the Operating and Management Agreements, respectively.

112

 The 

 

107 Trial Tr. 116–17 (Verba).

108 Trial Tr. 117–18 (Verba).

109 JX 278–80. 

110 Trial Tr. 467–68 (Krug); Krug Dep. 126–27.

111 See, e.g., JX 321. 

112 Id. 
27

Removal Ballot also instructed Members to return their votes via email to Krug and 

to copy Liming Wang.113 Krug sent the Removal Ballot to Liming Wang, who, as

liaison between the Members and Krug, forwarded the ballots to Members.

114

 Krug 

received 105 emails with votes to remove A&J and appoint the Law Office of Krug 

as interim manager.

115 Of the 105 Members who voted to remove A&J, 11 are

employees of Greenland or have family members who are employed by 

Greenland.116 

On March 14, 2018, A&J received written notice that it had been removed as 

Class B Manager and replaced by Krug (the “Removal Notice”).

117

 The Removal 

Notice specifically states that “[a] majority of the Class B members have, in writing, 

voted to remove A & J [] as the Class B Manager,” but it does not identify a basis 

 

113 Id.

114 Trial Tr. 455, 471, 474 (Krug). Liming Wang did not appear for trial and it is not clear 

from other evidence the extent to which he had direct communications with Members 

regarding the Removal Ballot. It is unfortunate that Mr. Wang’s testimony was not 

presented to the Court given his critical role in transmitting Removal Ballots to and from 

Members and his apparently close association with Krug, a party to the case. 

115 Trial Tr. 471–72 (Krug). As explained below, A&J presented the testimony of a 

document authentication expert to raise questions regarding the authenticity of several of 

the Removal Ballots, some of which, on their face, appeared either to be altered or to 

contain signatures copied and pasted from other documents. 

116 POB, Ex. 1. 

117 JX 141. 
28

for removal or the details of the Class B Member vote effectuating the removal.118 

Two weeks after sending the Removal Notice to A&J, and again on April 2 and April 

3, 2018, Krug sent notices confirming the results of the removal vote to the email 

addresses from which Krug had received votes in favor of removing A&J.119 He did 

not receive any replies questioning the results or his notices.120 

G. Procedural History 

On April 3, 2018, A&J filed its Verified Complaint for Injunctive Relief 

pursuant to Sections 18-110 and 18-111 of the Delaware Limited Liability Company 

Act seeking a declaration that A&J was improperly removed as Class B Manager of 

the Company.

121

 A&J simultaneously filed a Motion for Order to Maintain Status 

Quo and a Motion for Expedited Proceedings. After two hearings, the Court entered 

a status quo order on May 9, 2018, providing that A&J would remain as Manager 

pending resolution of the action.122 On May 2, 2018, Krug filed its Answer and 

Counterclaims. The following day, A&J moved for summary judgment on the 

grounds that the Members were required as a matter of law to provide A&J with 

 

118 Id. 

119 Trial Tr. 475–79 (Krug); JX 174, JX 200, JX 206.

120 Trial Tr. 475–79 (Krug).

121 6 Del. C. §§ 18-110 and 18-111.

122 D.I. 29.
29

notice of their intent to remove the Class B Manager prior to the Member vote, an 

explanation of the grounds for removal and an opportunity to respond to the notice. 

On July 18, 2018, after oral argument, the Court denied summary judgment upon 

holding that neither Delaware law nor the Company’s agreements require preremoval notice.123

 Expedited discovery followed. Trial proceedings concluded on 

October 30, 2018, and the matter was submitted for decision that day. 

II. ANALYSIS 

A&J initiated this action under 6 Del. C. § 18-110, which provides, in part:

Upon application of any member or manager, the Court of Chancery 

may hear and determine the validity of any . . . election, appointment, 

removal . . . of a manager of a limited liability company, and the right 

of any person to become or continue to be a manager of a limited 

liability company, and, in case the right to serve as a manager is claimed 

by more than 1 person, may determine the person or persons entitled to 

serve as managers; and to that end make such order or decree in any 

such case as may be just and proper.

A&J seeks a declaration that its removal by an improper and unsubstantiated vote 

and its replacement as Class B Manager by Krug are invalid. In response, Krug asks 

the Court to declare that Krug was properly and effectively appointed Class B 

Manager and that A&J has no authority to continue to act in that capacity. Krug

 

123 D.I. 110.
30

further requests that A&J immediately tender possession and control of all the 

Company’s assets, property, documents, books, records and accounts to Krug.

124

A. The Authenticity of the Ballots 

The parties devoted significant briefing and oral argument to A&J’s challenge 

regarding the authenticity of the Removal Ballots (and, by extension, the legitimacy 

of the underlying votes). To be sure, the process by which removal purportedly 

occurred leaves much to the imagination. The Removal Ballot does not provide any 

basis for removal, or even state that removal is for cause as defined in the operative 

agreements. Nor does it provide for Members to indicate their physical address or 

any other means of identification beyond a signature line. Since Krug relied on 

Liming Wang to transmit the Removal Ballot to the Members, and Liming Wang 

did not testify at trial, the Court has no basis to discern how the Removal Ballots 

were distributed, what, if anything, the Members were told about the bases for 

removal or even whether the Members were asked to remove A&J for cause. The 

testimony of Zhu Wang and Ms. Sun fell far short of filling these information 

gaps.125

 

124 In its Answer and Counterclaim, Krug cited Sections 18-100 and 18-111, but I assume 

this was a scrivener’s error. Def.’s Answer and Countercl. ¶ 1. 

125 Ms. Sun testified that Liming Wang did not tell her anything about the reasons for 

removing A&J and that she did not receive any documents explaining the reasons. Trial 

Tr. 356 (Sun). Neither Zhu Wang nor Ms. Sun recalled whether they forwarded the 
31

The parties debate whether the signatures on several of the Removal Ballots 

are real and to whom they belong.126 A&J alleges that at least 25 email addresses 

used to send Ballots to Krug and 22 signatures on the Removal Ballots do not match 

addresses and signatures in Company records. Other Removal Ballots contain exact 

copies of signatures from other known documents, suggesting that someone copied 

and pasted the signatures onto the Removal Ballots.

127

 Casting a shadow over all of

this is A&J’s allegation that Greenland, supported by a block of Members who are 

Greenland employees or related to Greenland employees, improperly influenced the 

removal vote. 

Although much ink has been spilled and much breath has been expelled to 

proffer and debunk A&J’s forgery and conspiracy evidence, I need not go down that 

craggy path to resolve this dispute. If Krug cannot establish that cause for removal 

existed, including whether Members knew the cause for removal at the time they 

cast their votes, then the process by which removal occurred, and the question of

 

Removal Ballot to other Members or discussed the reasons for removal with other 

Members. Trial Tr. 322–23 (Wang), 356 (Sun). 

126 As explained below, the validity of A&J’s removal turns on facts other than the 

authenticity of the Removal Ballots. Accordingly, I do not rely on the testimony of 

Plaintiff’s handwriting expert, Ruth Brayer, and I deny Plaintiff’s Motion in Limine to 

Exclude Challenged Ballots and Defendant’s Motion in Limine to Preclude Testimony of 

Brayer as moot. See D.I. 112 and D.I. 115.

127 See JX 321, JX 322. 
32

whether the Ballots are authentic and valid, are irrelevant.128 For reasons explained 

below, I find by a preponderance of evidence that Krug’s supposed bases to remove 

A&J do not rise to the standards for removal set by the Operating and Management 

Agreements. Accordingly, I decline to address the claims of forgery or collusion 

between certain Members and Greenland, and also decline to decide whether the 

 

128 At the conclusion of oral argument on A&J’s motion for summary judgment, I explained 

that while Krug could supplement his for-cause basis for removal with additional evidence 

or causes for termination discovered after removal, he still was obliged to demonstrate that 

A&J had engaged in conduct, or failed to engage in conduct, at the time of removal that 

would satisfy the standards for removal as laid out in the operative agreements. See A&J 

Capital, Inc. v. Law Office of Krug, C.A. No. 2018-0240-JRS, at 44 (Del. Ch. July 18, 

2018) (TRANSCRIPT). Stated differently, Krug cannot justify removal by searching for 

grounds after-the-fact. In Davenport Group MG, L.P. v. Strategic Investment Partners, 

Inc., then-Vice Chancellor Steele held that post-termination evidence of cause for removal 

is not per se irrelevant in an action challenging the removal of a general partner. 

Davenport, 685 A.2d 715, 723 (Del. Ch. Jan. 23, 1996). Drawing from principles that have 

emerged in our employment law in the context of wrongful termination, the court noted 

that an employer is not barred from introducing evidence it discovers post-termination 

when defending a claim of wrongful termination. Id. These cases do not hold, however,

that the employer may escape liability for wrongful termination (in a for cause termination 

case) even though it did not possess cause at the time of termination and instead relies only 

upon after-acquired evidence to justify its actions. See, e.g., McKennon v. Nashville 

Banner Pub. Co., 513 U.S. 352, 358 (1995) (“It would not accord with this scheme [of the 

ADEA] if after-acquired evidence of wrongdoing that would have resulted in termination 

operates, in every instance, to bar all relief for an earlier violation of the Act.”). When 

taken out of context, the wording in Davenport that “‘After-acquired’ but factually 

undisputed information alone may support the removal of the General Partner” could be 

construed to support Defendant’s effort to defend A&J’s removal only with grounds that 

were discovered after removal. Davenport, 685 A.2d at 723. But a holding that would 

allow removal for any reason unearthed after the fact of removal would circumvent the forcause contractual predicate for which A&J bargained. And it would deny the Members of 

the opportunity meaningfully to participate in the removal process because, by definition, 

their removal votes would not have been informed by the after-acquired evidence. 
33

haphazard means by which Krug solicited the removal votes nullifies the results of 

the vote.

129

 

B. The Standards for Removal

Under the unambiguous terms of the Operating and Management Agreements, 

A&J can be removed only for cause, which the agreements define as “gross 

negligence, intentional misconduct, fraud or deceit.”130 Proving any one of these 

predicates for removal is no easy task. 

“In the civil context, the Delaware Supreme Court has defined gross

negligence as ‘a higher level of negligence representing an extreme departure from 

the ordinary standard of care.’”131 “It refers to a decision ‘so grossly off-the-mark 

as to amount to reckless indifference or a gross abuse of discretion.’”132 Stated 

 

129 Although I have elected not to tackle these issues, I note that much of the dust that has 

been kicked up in this dispute would have remained settled had only Krug designed a 

system to solicit votes that allowed for more transparency and accountability. Going 

forward, the parties would be wise to learn from this unfortunate experience and to 

incorporate more formality and precision in their dealings with one another and with 

Members. 

130 JX 10-0014, JX 8-0010. See Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. 

Co., 616 A.2d 1192, 1195–96 (Del. 1992) (“When the language of a . . . contract is clear 

and unequivocal, a party will be bound by its plain meaning . . . .”).

131 In re Synutra Int’l, Inc., 2018 WL 705702, at *5 (Del. Ch. Feb. 2, 2018) (ORDER) 

(quoting Browne v. Robb, 583 A.2d 949, 953 (Del. 1999)). 

132 Id. (quoting Solash v. Telex Corp., 1988 WL 3587 at *9 (Del. Ch. Jan. 19, 1988)). 
34

differently, “[t]o establish gross negligence, a plaintiff must plead and prove that the 

defendant was ‘recklessly uninformed’ or acted ‘outside the bounds of reason.’”133

Our law sets the mark to prove intentional misconduct so that it is similarly 

difficult to strike. “The duty to refrain from intentional misconduct is . . . essentially 

a subset of or another name for, the duty to act in good faith, where the focus is on 

whether the defendant (1) acted intentionally to harm those to whom he owes the 

duty or (2) intentionally or consciously ignored his duties, thereby causing harm to 

those to whom he owes the duty to refrain from intentional misconduct.”134

Lastly, “‘fraud’ is defined as ‘an intentional perversion of truth for the purpose 

of inducing another in reliance upon it to part with some valuable thing belonging to 

him or to surrender a legal right.’”135 To prove fraud, a plaintiff must demonstrate

five elements: (1) a false representation, usually one of fact, made by the defendant; 

(2) the defendant’s knowledge or belief that the representation was false, or was 

made with reckless indifference to the truth; (3) an intent to induce the plaintiff to 

act or refrain from acting; (4) the plaintiff’s action or inaction taken in justifiable 

 

133 Id. (quoting Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *4 (Del. 

Ch. Aug. 26, 2005)). 

134 Dawson v. Pittco Capital P’rs, L.P., 2012 WL 1564805, at *28 n.303 (Del. Ch. Apr. 30, 

2012).

135 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 

1208 n.16 (Del. 1993) (quoting Black’s Law Dictionary 337 (5th ed. 1983)).
35

reliance upon the representation; and (5) damage as a result of such reliance.136 

At common law, “fraud” and “deceit” are interchangeable.137

Krug argues that the for cause standards set forth in the operative agreements 

define standards of conduct only and, therefore, if A&J engaged in conduct that 

violated any of the standards, then it may be removed as Class B Manager even if 

that conduct was not undertaken for a purpose of causing, or did not cause, harm to 

the Company or its Members. I disagree. First, the operative agreements do not 

state that the Class B Manager may be removed for grossly negligent or fraudulent 

conduct; they state, instead, that removal will be justified, among other reasons, for 

“gross negligence” or “fraud.” Second, and more to the point, the contractually 

imposed standards of conduct necessarily incorporate an appreciation that the 

proscribed conduct must either be harmful or cause harm to justify removal. If there 

is no risk of harm to the Company as a result of the Manager’s actions, then there 

can be no deviation from the standards of care or conduct contemplated by the 

definitions of gross negligence, intentional misconduct, fraud or deceit.138 Third,

 

136 Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983). 

137 Id.; see also Nye Odorless Incinerator Corp. v. Felton, 162 A. 504, 510 (Del. Super. 

1931). 

138 Accord, Ramsey v. Georgia S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018)

(holding that Delaware negligence law incorporates the notion of a foreseeable risk of harm 

directly into the determination of whether a defendant owed a duty (as a matter of law) to 
36

Krug has not cited any case in support of his construction of the contractual removal 

standards that would justify divorcing the proscribed conduct from anticipated or 

actual harm caused by the conduct and he does not appear to disagree that the parties 

likely incorporated the elements of the standards as commonly known in our law.139 

And finally, even if harm (foreseeable or actual) were divorced from the contractual 

standards as Krug would have it, as explained below, the preponderance of evidence 

does not support the contention that A&J violated any of the standards of conduct in 

connection with any of the alleged grounds for removal. 

C. The Preponderance of Evidence Does Not Support Removal for Cause

Krug points to two series of actions undertaken by A&J that justified its 

removal for cause: (i) A&J’s request for the prepayment fee as part of the 

prepayment of the loan coupled with the manner by which A&J structured the vote 

for approval of the prepayment plan (by stating that abstention would be deemed as 

approval); and (ii) the payments authorized by A&J and made to Henry Global. 

Krug does not clearly tie these events to any one or more of the particular standards 

 

the plaintiff as opposed to reserving the foreseeability inquiry for the proximate causation 

determination). 

139 See, e.g., Def.’s Opening Post-Trial Br. (“DOB”) 10 (D.I. 168) (“None of these 

standards [for gross negligence, intentional misconduct, fraud or deceit] are explicitly 

defined in the applicable agreements, but they are well-known under Delaware law.”); 

A&J Capital, Inc. v. Law Office of Krug, C.A. No. 2018-0240-JRS, at 94 (Del. Ch. Oct. 30, 

2018) (TRANSCRIPT) (“[G]ross negligence is what case law defines as gross negligence. 

It’s the common understanding of it.”).
37

for removal as stated in the operative agreements but rather contends in general terms 

that the identified conduct violates all of the standards.

140

 He does suggest, however, 

that if each act standing alone is not enough to establish cause, then together they 

represent misconduct that more than justifies removal.

141

 For reasons explained 

below, here again, I disagree. 

1. A&J’s Request for the Prepayment Fee and Structure of the 

Prepayment Approval Vote Did Not Provide Cause for Removal

Krug characterizes A&J’s request for a prepayment fee as an “attempt to steal 

a substantial amount of money from the Members, under false pretenses . . . .”142 

I reject that claim summarily as nothing more than litigation hyperbole.

143 In 

 

140 See, e.g., DOB 11 (asserting generally that A&J’s attempt to steal from the Members 

under false pretenses and paying funds to Henry Global while concealing them from

Members exceeds the gross negligence standard); DOB 24 (offering A&J’s failure to 

include additional reasons for prepayment in the Prepayment Notice as “another example 

of A&J’s deceit”); DOB 29 (“Purposefully misleading the Members to obtain additional, 

unearned compensation constitutes gross negligence, intentional misconduct, fraud, and 

deceit.”); DOB 30 (“A&J’s wrongful manipulation of the voting process constitutes 

independent ‘gross negligence’ and ‘intentional misconduct’ . . . and demonstrates A&J’s 

ill intent . . . .”); DOB 43 (offering the conclusion, without analysis, that payments to Henry 

Global constituted gross negligence and intentional misconduct).

141 A&J Capital, C.A. No. 2018-0240-JRS, at 88–89, 103; DOB 53, 65 (“The totality of 

A&J’s wrongdoing mandates removal.”).

142 Def.’s Opening Pre-Trial Br. 11 (D.I. 133). 

143 At the risk of engaging in a superfluous exercise in semantics, the evidence came 

nowhere close to proving (by any evidentiary standard) the crime of theft. See Parker v. 

State, 2019 WL 180172, at *2 (Del. Jan. 14, 2019) (quoting 11 Del. C. § 841 and explaining 

that theft is the taking of the property of another without consent and with the intent to 

deprive that person of it or to appropriate it). Not only was the prepayment fee to come 

directly from Greenland (who had consented to the fee), the solicitation of approval for the 
38

addition to his allegation of attempted theft, Krug claims that three aspects of the 

prepayment fee reveal A&J’s fraudulent intent and, together, establish cause for 

removal. These arguments merit further consideration. 

First, Krug argues that A&J knowingly lied when it advised Members that the 

prepayment fee was for “services rendered in connection with the Prepayment.”

144

 

Krug asserts that each service listed as justification for the fee is unrelated to the 

prepayment proposal or already required of A&J under the operative agreements in 

exchange for its management fee. For example, Krug alleges that the first service 

(“Negotiating with the Borrower the terms of the Fourth Loan Amendment”) is 

already required under Section 5.3(d)(ii)(7) of the Operating Agreement, which 

mandates that A&J “Negotiate, amend and/or supplement the terms of any loans 

made or to be made by the Company to the Developer.” Similarly, Section 5.14 of 

the Operating Agreement requires the Class B Manager to “operate the Company in 

a manner that is designed to comply with legal and policy requirements of the EB-5 

Program, as advised by the Regional Center.” Krug argues that this section 

 

prepayment proposal and accompanying ballot explicitly gave Members “the right to 

consent or not consent to the Prepayment [including the fee], as more fully set forth in the 

Notice of Election . . . .” JX 56-0004. See also JX 56 (noting that the purpose of the Notice 

is to, in part, “request that the Class B Members consent to and authorize the Company to 

agree to the Prepayment and enter into the Fourth Loan Amendment . . . .”). 

144 JX 56-0002.
39

encompasses the eighth service (“Identifying opportunities for redeployment of 

capital”) identified in the Prepayment Notice as a basis for the prepayment fee.

145

Second, Krug asserts that A&J’s structuring of the vote so that a Member’s 

silence counted as a vote in favor of prepayment reveals an intent to deceive 

Members into approving the prepayment fee.146 This is so, according to Krug, even 

though the Prepayment Notice clearly disclosed how A&J intended to count the 

votes. 

Lastly, in his post-trial answering brief, Krug argued for the first time that

fraudulent intent could be inferred from A&J’s decision to tie approval of the 

prepayment fee to approval of the prepayment plan. Specifically, Krug argues that

if prepayment of the loan was necessary or at least beneficial to the Company given

the potential harm from the overflowing Pledge Account, then A&J breached its 

 

145 Krug further argues that A&J completed the second service (“Negotiating prior 

amendments to the Loan Agreement”) and the third service (“Negotiating inter-creditor 

terms with the secured lender”) prior to discussion of the prepayment plan. Additionally, 

the fourth service (“Preparing documentation and conducting research with respect to 

preserving the collateral securing the Loan”) was not necessary to the prepayment since 

collateral does not need to be preserved if the loan is being repaid. Lastly, the fifth service 

(“Assisting developer to organize the construction supporting documents . . .”) and seventh 

service (“Continued oversight of the Company and investment management during the 

interim period between repayment of the Loan”) must be performed regardless of the 

prepayment. 

146 A&J Capital, C.A. No. 2018-0240-JRS, at 87–88, 91–92.
40

obligation to act in the Members’ best interests when it conditioned the avoidance 

of the harm on the approval of its prepayment fee. 

After considering the evidence, I find that none of these actions, whether 

considered independently or in total, provided cause for removal. In each instance, 

Krug’s arguments center on A&J’s alleged deceit or intentional misconduct—A&J

misled Members about the “true justifications” for the prepayment fee, attempted to 

sneak in approval of the fee with a counterintuitive voting structure and tied the 

prepayment and fee proposals together to force the Members’ to approve its fee. Of 

course, an intent to deceive or harm cannot be drawn directly from the trial record

because there is no evidence of either (despite extensive discovery). And the 

inference of deceit or intent to harm cannot be drawn circumstantially when it is 

clear that A&J unabashedly disclosed the reasons for the prepayment, the fact that it 

was seeking a prepayment fee and the reasons why it believed the fee was justified,

and then made clear that it was up to the Members to decide whether to approve the 

prepayment proposal. The fact that the prepayment was Greenland’s idea, not 

A&J’s, and the fact that the Members ultimately voted to reject the prepayment 

proposal, further undermines the contention that A&J acted to deceive or harm the 

Members. 
41

A&J’s listed justifications provided Members with the opportunity and 

information necessary to determine whether A&J deserved a prepayment fee.

147

 

Even if A&J peppered its stated justifications for the fee with services that the 

Operating and Management agreements already required it to perform, a premise not 

well-supported in the evidence, there is no evidence that it did so to dupe or 

otherwise harm the Members.

148

 In fact, the Members may have been more likely 

to approve the prepayment had A&J included the “true justifications” that Krug 

argues A&J intentionally concealed. For example, it is likely that Members would 

have found A&J’s request for an $800,000 prepayment fee to be justified had they 

known that A&J would forego $1.6 million in expected management fees, with no 

source of recouping that compensation during the years required to redeploy the 

capital, if the prepayment proposal were approved. Additionally, A&J did not hide 

 

147 Although Verba did not “realize [A&J] needed authority . . . to ask members to approve 

a prepayment fee that’s not coming from the members themselves,” (Trial Tr. 105 (Verba)), 

he testified that “[A&J] certainly felt that . . . approval for such a fundamental change as 

this [prepayment plan] required a member vote.” (Trial Tr. 102 (Verba)). See also Trial 

Tr. 249–50 (Xu) (“Q: A&J decided to keep $800,000 of that prepayment fee for itself? 

A: Well . . . it’s our proposal, but have to be approved (sic) by the investors.”). 

148 The record suggests that A&J believed the justifications clearly referred to previous, 

current and expected work related to the prepayment. Trial Tr. 103 (Verba) (“Q: What was 

the intent of this section? A: The intent was to . . . have Class B members approve 

additional compensation for the Class B manager in connection with the work that was 

done before the prepayment, the work that was done in connection with prepayment, and 

the work to be done in connection with prepayment and redeployment.” Q: . . . Are all of 

the bullet points actually services rendered in connection with the prepayment? A: They’re 

obviously not . . . .”). 
42

the ball when it included justifications like “Continued oversight of the Company 

and investment management during the interim period between repayment of the 

Loan; and Identifying opportunities for redeployment of capital.” These services 

would be provided only if the Members approved the prepayment plan. 

Ultimately, there is no evidence that A&J’s justifications misled any of the 

Members. Even Krug acknowledged that it was “obvious” that most of the services 

A&J listed to support the prepayment fee were not associated with prepayment.

149

Ms. Wang testified that she determined not to support the prepayment plan in part 

because of the disclosures A&J provided in the prepayment proposal.150 It seems 

that a majority of the Members did not disagree with Krug and Ms. Wang’s 

assessments as they voted to reject all aspects of the prepayment plan including, of 

course, the prepayment fee. Given this evidence, I cannot find that A&J engaged in 

conduct that implicated any of the contractual bases for removal when it provided 

its justifications for the requested prepayment fee. It merely provided its reasons 

and then put the matter to the Members to either accept or reject. 

The prepayment proposal also discloses the allegedly deceitful voting 

structure and that the prepayment plan is tied to the fee. The proposal explicitly 

 

149 Trial Tr. 443, 444, 448 (Krug). 

150 Trial Tr. 326–27 (Wang).
43

states, “If a Class B Member does not return his or her completed Notice of Election 

on or prior to the Deadline, the Class B Member will be deemed to have consented 

to the Prepayment.”151 It also clearly links the prepayment plan and the fee request:

“Separate and apart from the Prepayment Amount, Borrower shall be required to pay 

a prepayment fee equal to $1,000,000, payable as follows . . . .”152 In hindsight, 

perhaps A&J should have structured the vote differently or separated the prepayment 

proposal from the fee, but neither of these choices rises to gross negligence, bad 

faith, fraud or deceit when A&J informed the Members of the exact terms of the plan

and the structure of the vote. If the Members disagreed with the structure of the 

plan, they had the right under the Prepayment Notice and the operative agreements 

to reject the plan and to solicit approval for their own initiates. Indeed, Members 

could have resolved to separate the prepayment plan and the prepayment fee if that 

was the course they wished to take.153 That did not occur. In any event, given the 

origin and purpose of the prepayment plan, and A&J’s full disclosure of the structure 

 

151 JX 56-0004.

152 JX 56. 

153 While no Members sought to separate the prepayment fee from the prepayment plan, a 

group of Members, apparently urged on by Greenland, unsuccessfully sought Member 

approval of a plan that would have authorized Greenland to take a portion ($15.08 million) 

of the Pledge Account directly. Trial Tr. 118 (Verba) (estimating that A&J received about 

90 votes requesting the release of $15.08 million to Greenland), 353 (Sun) (“Q: . . . And 

you sent an email to the company, or to A&J, requesting the release of $15.08 million to 

Greenland; correct? A: Yes.”).
44

of the vote and the linkage between the prepayment plan and the prepayment fee, I 

do not find that either of these aspects of the prepayment plan implicated any of the 

contractual bases for removal.

2. The Payments to Henry Global Did Not Provide Cause for Removal

Krug’s second proffered basis to remove A&J is that A&J caused the 

Company to make improper payments to Henry Global. Specifically, Krug claims 

that A&J wrongfully made payments in excess of Henry Global’s allotted share of 

the Administration Fee under the PPM and concealed those payments from 

Members. 

The PPM prohibits fees “paid out of the Subscription Price or investment in 

the Membership Interests of the Company.”154 The parties agree that the 

Subscription Price is the initial $500,000 investment made by each Member and that 

these investments cannot be used to pay third parties like Henry Global. It is the 

second prohibited source of fees—the “investment in the Membership Interests of 

the Company”—that forms the basis of Krug’s allegation here. According to Krug, 

this phrase means that fees paid to Henry Global cannot come from the “investment 

income” generated by the Members’ Subscription Price. For its part, A&J interprets 

“investments in the Membership Interests” to mean “a bundle of rights constituting 

 

154 JX 12-0040.
45

a Member’s interest in the Company” made up of the Subscription Price plus any 

additional “Capital Contribution” made by the Members.155 A&J reads the PPM as 

prohibiting the Class B Manager from paying fees out of the Subscription Price or 

any additional Capital Contributions, but allowing it to pay fees out of the interest 

income generated by the Members’ investments in the loan.

Krug also argues that the payments to Henry Global are excessive. He points 

out that both the DSA and the PPM already require Henry Global to recruit EB-5 

investors for the Company and to assist Members with immigration documentation 

and information requests.156 Additionally, Krug maintains that Henry Global had 

previously entered into individual agreements with the Members that required Henry 

Global to provide the same immigration services as required by the PPM and DSA. 

Finally, Krug argues that A&J intentionally prevented the Members from 

learning of the payments to Henry Global by concealing the DSA from the Members 

and distributing, through Henry Global, financial statements in English and without 

 

155 Section 3.2 of the Operating Agreement states that “[t]he Members may be 

permitted . . . to make additional Capital Contributions if the Mangers determine that such 

additional contributions are necessary or appropriate . . . [and] if such additional Capital 

Contributions are not to be made by all of the Members pro rata, the additional Capital 

Contributions and corresponding changes in the Membership Interests shall require the 

approval of the Members . . . .” JX 10-007.

156 DOB 45 (citing JX 22 and JX 13).
46

the accounting firm’s notes. According to Krug, this misconduct alone justified 

removal.

There can be no question that A&J was authorized to pay Henry Global for its 

services. Section 5.3(d)(ii)(10) of the Operating Agreement authorizes the Class B 

Manager to “[e]nter into any agreement which the Managers may reasonably deem 

appropriate for any purpose beneficial to the Company . . . .”157 Krug has not pointed 

to any evidence suggesting that A&J considered the payments to Henry Global to be 

unreasonable and yet continued to make them. To the contrary, the credible evidence 

reveals that the payments to Henry Global are reasonable and that A&J believed 

them to be so. 

Henry Global provides significant services in its role as Program Locator and 

Distributor. At the outset of its engagement, Henry Global was required to learn 

about the Project, organize conferences with potential investors to inform them of 

the Project, translate loan documents and raise capital.

158

 As part of raising capital, 

Henry Global assisted investors with their application packages, traveled with the 

investors outside of China to open escrow accounts and assisted with currency 

transfers.159 Once the investments were secured, Henry Global acted as a liaison to 

 

157 JX 10-0015.

158 Trial Tr. 39 (Verba), 291 (Wang).

159 Trial Tr. 39–40 (Verba).
47

the Company by communicating questions from the investors to the Company, 

coordinating votes and distributing documents.160 Even now, Henry Global 

continues to assist Members with their citizenship application packages, including 

their Visa applications, and prepares them for their interviews with immigration 

officials.

161

 In the event of redeployment, Henry Global will perform many if not 

most of these services again as it orients investors to the new project.162

The PPM recognizes that the Program Locator and Distributor are entitled to 

fees for their services, but it does not restrict the payments to a specific amount. 

Rather, the PPM restricts the sources of Henry Global’s fees to the Administration 

Fees and interest income. Krug does not challenge that the fees paid to Henry Global 

come from those two sources. Nor does he challenge A&J’s argument that the fees 

fit squarely within the interest income allocation scheme established in the PPM.

As noted, two provisions of the PPM disclosed that payments to Henry Global 

would be made from the interest income: 

All of the Administration Fees are paid to Program Locators and 

Processors for capital raising and document processing and to the 

Class A Manager and Regional Center as payment for their fees . . . .

163

 

 

160 Trial Tr. 40 (Verba), 290 (Wang).

161 Trial Tr. 41 (Verba), 290 (Wang).

162 Id. 

163 JX 12-0035.
48

. . . .

The Company will pay out of the Administration Fee and interest 

income all ordinary administrative and operating expenses . . . as well 

as payments to Managers and other third party service providers for 

servicing the Loan, assisting with the Offering, and providing 

immigration services to the Company, Subscribers, and Class B 

Members.164

These provisions explain that “interest income” and the Members’ $45,000 

Administration Fee will be used to pay “ordinary administrative and operating 

expenses” as well as fees to third-party Program Locators, Processors, the Class A 

Manager and the Regional Center. The PPM also makes clear that none of the fees 

to these entities may be paid from the $500,000 Subscription Price or “investment 

in the Membership Interests of the Company.”165“Membership Interest” is defined 

in the Operating Agreement to encompass the Class B Members’ right to receive 

distributions from the Company, the right to vote or participate in management, the 

right to receive information and all other rights and obligations under the LLC Act.166 

“Investment in the Membership Interests,” though not defined, appears to reference 

the Members’ financial contributions to the Company in exchange for the bundle of 

rights captured within their Membership Interests. The only Member contributions 

 

164 JX 12-0042. 

165 JX 12-0035.

166 JX 10-0005.
49

specified in the operative agreements are the Administration Fee, Subscription Price 

and any Capital Contributions. Indeed, the PPM states that “the Subscriber will have 

all the rights of a Class B Member” once the Subscriber has delivered the 

Subscription Price (also called a “Capital Contribution”) and Administration Fee.167 

What these provisions make clear is that Henry Global’s fee cannot be paid

from the Members’ financial contributions to the Company, but the fees can be paid

from “interest income,” i.e., the interest on the loan comprised of the Members’ 

investment in the Company. In arguing that the PPM prohibits fees to Henry Global 

paid from the Members’ “investment income,” Krug conflates “interest income” 

with the Members’ investment. But, in accordance with the PPM, the Company 

pays Henry Global from the Administration Fee and interest income on the loan.168 

Nothing in the suite of agreements at issue here precludes A&J from paying Henry 

Global’s fees from these sources. 

Henry Global’s share of the interest income fits with the PPM’s allocation of

the interest income to other parties. Under the PPM, the Class B Members can

expect 0.2% of the interest,169 the Class A Manager is entitled to 0.1% and the 

 

167 JX 12-0004.

168 Trial Tr. 36, 38–39 (Verba).

169 JX 12-0027. The PPM states that 1.8% of the 2.2% interest income will be payable in 

cash on a quarterly basis to the Company. Id. The remaining 0.4% will accrue annually 

and be payable at the maturity date. Id. “[F]rom the two percent (2.0%) so accrued and 
50

Class B Manager is entitled to 0.4%.170 This allocation leaves 1.5% of the interest 

remaining and the DSA provides for Henry Global to receive 1.5%.171 And, of 

course, nothing in the operative agreements indicates that the Members are entitled

to the remaining 1.5% interest income. This makes sense given that the PPM 

emphasizes that the prevailing purpose of the EB-5 investment is to secure 

permanent residency in the United States.

172

 With the significant restrictions of the

EB-5 regulations and the long horizon required to obtain citizenship under the 

program, it is clear that profit is not what motivated Members to invest.

173

 

The evidence that Henry Global was compensated by each Member 

individually in addition to receiving payments from the Members’ Administration 

Fees and interest income suggests that Henry Global was perhaps double dipping.174 

 

payable at the Maturity Date [0.4% x five years], 1.0% [0.2% x five years] is expected to 

be payable by the Company to the Class B Members.” Id. 

170 JX 12-0032, 12-0034.

171 The DSA entitles Henry Global to 1.3% of the outstanding loan amount on a quarterly 

basis and 1% of the outstanding loan amount during the term of the loan (that is, the 

remaining 0.2% of the deferred 0.4% accrued annually over five years). JX 16-0002; Trial 

Tr. 23 (Verba). 

172 JX 12-0005, 12-0026.

173 See Sun Dep. 18 (testifying that she invested in the Company for immigration purposes 

and understood that her expected rate of return was “very little.”); Wang Dep. 13–14 

(testifying that she invested in the Company because it was part of the EB-5 requirements 

and would allow her to apply for citizenship status). 

174 Trial Tr. 292–94 (Wang) (“Q: And in addition to those documents [to make the 

$500,000 investment], you also entered into a personal agreement with Henry Global for 
51

Even if true, Henry Global’s excessive gain does not reveal wrongdoing on the part 

of A&J. Krug presented no evidence that A&J knew of the alleged agreements 

between individual Members and Henry Global.175 Even assuming A&J’s 

knowledge, and crediting Ms. Wang and Ms. Sun’s testimony regarding the terms

of their separate agreements with Henry Global, there is no contractual prohibition 

against Henry Global receiving revenue from multiple sources. 

I am also not persuaded that A&J intentionally concealed the payments to 

Henry Global from the Members. The record suggests that A&J ordered an 

independent accounting firm to review the Company’s financial statements

including the Company’s payments to Henry Global. A&J then provided those 

 

Henry Global to provide services to you; correct? A: Yes, yes. That’s the agreement, for 

them to provide any related immigration services. Q: Separate and apart from the $545,000 

you paid for the investment, how much money did you pay to Henry Global for its 

immigration services? A: . . . it’s somewhere between 50 and 60,000 [RMB] . . . 

Q: In exchange for the money that you paid Henry Global, did Henry Global agree to help 

you prepare immigration documents in relationship to the company? A: Correct. Q: Did 

Henry Global agree to assist you in processing those immigration documents with the 

government agencies in the United States? . . . A: Correct.”).

175 Krug submitted a copy of an individual agreement between Henry Global and a nontestifying Member but did not address it at trial or in briefing and did not suggest that the 

Company or A&J possessed or knew of the agreement. Trial Tr. 283–85. See also Trial 

Tr. 35 (Verba) (“Q: Do you know whether Henry Global has separate fee arrangements of 

their own with any of the investors for services? A: . . . All I know is the documents that 

we’ve signed with Henry Global as the agent . . . and I’m not really familiar with [the 

agreement between the investor and Henry Global], which is also in Chinese. And my 

Chinese is not too good. Q: So were you aware of any separate fee agreements prior to 

seeing that document? A: No.”).
52

financial statements with the accounting firm’s notes to Henry Global for 

distribution to the Members. Whether by accident or intentionally, Henry Global 

excluded the last page of the notes from the documents supplied to the Members. 

But I have found no credible evidence in the trial record that would suggest A&J had 

any part in concealing the payments to Henry Global, if they were, in fact,

concealed.176 A&J requested an independent review and provided the complete 

versions of the statements for distribution to Members. And when A&J determined 

that it was best for it to distribute the statements directly, it distributed them in their 

entirety. 

After carefully reviewing the evidence, I am satisfied that Krug did not prove 

that the payments to Henry Global were unauthorized, prohibitively excessive or

improperly hidden from the Members. Nor did he prove that the payments

diminished the Members’ expected investment returns. Accordingly, I cannot find 

that A&J engaged in gross negligence, intentional misconduct, fraud or deceit when 

it made payments to Henry Global under the DSA.

 

176 Ms. Wang testified at trial that her vote to remove A&J was motivated in part by A&J’s 

payments to Henry Global. Trial Tr. 316 (Wang). Thus, at least one Member saw enough 

in what was provided to her to prompt questions about the payments to Henry Global, even 

without the missing notes. At bottom, it does not matter whether the Members could 

determine whether and why Henry Global was overpaid. A&J provided them with the 

exact amounts owed to the third party each year and this evidence runs contrary to the 

notion that A&J acted with an intent to deceive. 
53

III. CONCLUSION

For the reasons stated above, I find for Plaintiff and will enter final declaratory 

judgment in its favor as requested in the Complaint. Plaintiff shall submit a 

conforming final judgment, upon notice as to form, within twenty days.