#29129-a-DG

2020 S.D. 38

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

LP6 CLAIMANTS, LLC, Plaintiff and Appellant,

v.

SOUTH DAKOTA DEPARTMENT

OF TOURISM AND STATE

DEVELOPMENT, SOUTH DAKOTA

GOVERNOR’S OFFICE OF ECONOMIC

DEVELOPMENT, SOUTH DAKOTA

DEPARTMENT OF TOURISM, and THE STATE

OF SOUTH DAKOTA, Defendants and Appellees,

and

SDRC, INC., SD INVESTMENT FUND,

LLC 6, and JOOP BOLLEN, Defendants,

and

SDRC, INC., SD INVESTMENT FUND,

LLC 6, and JOOP BOLLEN, Third-Party Plaintiffs,

v.

HENRY GLOBAL CONSULTING GROUP

a/k/a HENRY GLOBAL a/k/a HENRY

GLOBAL GROUP a/k/a HENRY GLOBAL

CONSULTING USA, incorporated under the

laws of the People’s Republic of China, Third-Party Defendant.

* * * *

CONSIDERED ON BRIEFS

APRIL 21, 2020

OPINION FILED 06/24/20
APPEAL FROM THE CIRCUIT COURT OF

THE SIXTH JUDICIAL CIRCUIT

HUGHES COUNTY, SOUTH DAKOTA

* * * *

THE HONORABLE CHRISTINA L. KLINGER

Judge

* * * *

STEVEN D. SANDVEN

Beresford, South Dakota

EZIO SCALDAFERRI

BRUCE ROBINS of

Feder Kaszovitz, LLP

New York, New York Attorneys for plaintiff and 

appellant.

PAUL E. BACHAND

AARON P. SCHEIBE

Special Assistant Attorneys General

Pierre, South Dakota

ROBERT L. MORRIS

Special Assistant Attorney General

Belle Fourche, South Dakota Attorneys for defendants and 

appellees.
#29129

-1-

GILBERTSON, Chief Justice

[¶1.] A group of investors in the EB5 immigrant investment program sued 

various agencies that implemented the program in South Dakota, claiming fraud in 

procuring their investments, which were lost when the project went bankrupt. The 

circuit court granted a motion to dismiss by the state agencies involved based on 

sovereign immunity. The investors appeal the circuit court’s decision, and we 

affirm.

Facts and Procedural History

[¶2.] This case arises from implementation of the federal EB5 immigrant 

investment program in South Dakota. The EB5 Program offers preferred 

immigrant status to foreign nationals who invest in commercial projects with the 

purpose of creating a specified number of jobs through each project. Under 8 U.S.C. 

§ 1153(b)(5), the required investment per individual is at least $1,000,000, but for 

projects in economically disadvantaged or rural areas (regional centers), the 

threshold investment is reduced to a $500,000 minimum.

[¶3.] The South Dakota Department of Tourism and State Development 

(DTSD) entered into a consulting contract with SDRC, Inc.1 in 2009 to administer 

and promote EB5 Program projects in South Dakota. The contract was made “for 

the purpose of having SDRC administer the Regional Center and the EB5 Program 

and to market the EB5 Program for the benefit of South Dakota[.]” SDRC had 

administrative duties to work with United States Customs and Immigration 

(USCIS) and the “non-exclusive right and privilege to market projects for 

 

1. SDRC is wholly owned by Joop Bollen, a former State employee.
#29129

-2-

development within the Regional Center’s territory[.]” Promotion of projects 

required DTSD’s written consent first, and three funds were established to ensure 

indemnification to DTSD when necessary. At the end of the term of the agreement, 

all remaining funds were to return to DTSD.

[¶4.] The contract covered future projects as well as nine existing projects, 

including an initial equity investment in the Northern Beef Packers processing 

plant in Aberdeen. SDRC solicited further investments in the Northern Beef 

Packers project by sending a Confidential Offering Memorandum to the thirty-five 

Chinese nationals that form the LP6 Claimants.2 The Offering Memorandum 

detailed the requirements for a qualifying investment through the SDIF Limited 

Partnership 6 (Partnership).3 To comply with the regional center designation, each 

Limited Partnership Unit required a $530,000 investment (a $500,000 investment 

and $30,000 for issue expenses). The Offering Memorandum stated that the 

investments would be used to construct the packing plant facility and purchase 

machinery and equipment capable of processing 7,500 head of cattle each week and 

396,000 head annually. The project was meant to create 563 jobs by 2010. The 

Offering Memorandum stated that there was “no assurance that investors will 

obtain final immigration status,” and that the project was “suitable only for 

investors . . . who can afford the loss of their entire investment.” It also said there 

 

2. Two offering memos were sent, one in November 2009 and one in January 

2010, but they appear to contain the same provisions. One had a detailed 

plan attached for the Northern Beef Packers project.

3. South Dakota Investment Fund LLC 6, an affiliate of SDRC, is the sole 

general partner of the SDIF Limited Partnership 6.
#29129

-3-

was no assurance “that the jobs required to be created and maintained . . . will be 

achieved.” Day-to-day management of the investments would be conducted by the 

Partnership, including supervising SDRC’s performance of its obligations under its 

consulting agreement.

[¶5.] Each Claimant invested $530,000 (over $18 million collectively)

through the Partnership. Their collective investment was lost when the Northern 

Beef Packers plant went bankrupt in 2013. The South Dakota Governor’s Office of 

Economic Development (GOED)4 terminated the contract with SDRC the same 

year, and the United States Department of Homeland Security sent the GOED a 

Notice of Intent to Terminate the Regional Center in September 2015 for failure to 

submit required information to the USCIS and failure to demonstrate the 

promotion of economic growth.

[¶6.] Claimants filed an amended complaint5 in December 2015 against 

DTSD, GOED, South Dakota Department of Tourism, the State of South Dakota, 

SDRC, SD Investment Fund LLC 6, and Joop Bollen. The amended complaint 

alleged fraud, breach of fiduciary duty, aiding and abetting breach, and included a 

request to pierce the corporate veil.

[¶7.] The state agencies (collectively the State) filed a motion to dismiss 

under SDCL 15-6-12(b)(5), on three grounds, arguing: (1) sovereign immunity bars 

 

4. In 2011, DTSD was abolished and the GOED and the South Dakota 

Department of Tourism took its place.

5. The initial complaint excluded the GOED, Department of Tourism, and the 

State of South Dakota.
#29129

-4-

suit against the State; (2) Claimants’ tort claims are barred by failure to give 

mandatory statutory notice under SDCL 3-21-2; and (3) the claims are barred by 

SDCL 21-32-2’s one-year statute of limitations for tort claims against the State. 

SDRC, SD Investment Fund LLC 6, and Bollen filed an answer and crossclaim 

against the State for indemnity or contribution, in addition to a third-party claim 

against Henry Zou and the Henry Global Consulting Group, which lined up the 

potential Chinese investors, for defamation and indemnity or contribution. The 

State moved to dismiss the crossclaim because sovereign immunity would bar the 

derivative claim. Bollen also joined in the State’s motion to dismiss against 

Claimants in so far as the claims related to any actions he took while a State 

employee.

[¶8.] Claimants’ opposition to the State’s motion to dismiss argued that 

sovereign immunity was not a shield because the State was operating a commercial 

enterprise. Claimants further argued that SDCL chapter 21-32A acts as a waiver of 

sovereign immunity because the consulting agreement created participation in a 

risk-sharing pool through the requirement that SDRC obtain liability insurance 

that covered the State. The State responded that an express waiver was required 

for sovereign immunity to be waived, and that there was no commercial enterprise 

by the State.

[¶9.] After a hearing on the State’s motion to dismiss, the circuit court held 

in its memorandum decision that Claimants’ suit against the State was barred by 
#29129

-5-

sovereign immunity.6 The court determined that there was no express waiver of 

immunity by the Legislature, and the commercial enterprise argument was 

unavailing. This Court denied Claimants’ petition for intermediate appeal.

[¶10.] Eventually all underlying claims against the other defendants, as well 

as the third-party claims, were dismissed by stipulation. The final stipulation, in 

August 2019, for dismissal of SDRC, SD Investment Fund LLC 6, and Bollen as 

defendants resolved with finality all underlying claims, and Claimants filed a notice 

of appeal on the issue of sovereign immunity in September 2019. Claimants raise 

the following claims:

1. Whether sovereign immunity applies to commercial 

activities conducted by the State.

2. Whether the Legislature expressly waived the State’s 

sovereign immunity for claims arising from the EB5 

projects.

Standard of Review

[¶11.] We review a circuit court’s grant of a motion to dismiss de novo. N. 

Am. Truck & Trailer, Inc. v. M.C.I. Commc’n Servs., Inc., 2008 S.D. 45, ¶ 6, 751 

N.W.2d 710, 712. “A motion to dismiss under SDCL 15-6-12(b) tests the legal 

sufficiency of the pleading, not the facts which support it. For purposes of the 

pleading, the court must treat as true all facts properly pled in the complaint and 

resolve all doubts in favor of the pleader.” Guthmiller v. Deloitte & Touche, LLP, 

2005 S.D. 77, ¶ 4, 699 N.W.2d 493, 496.

 

6. At the hearing, the State conceded that the statute of limitations and notice 

claims were secondary to the sovereign immunity claim, so the circuit court 

only considered sovereign immunity.
#29129

-6-

[¶12.] “A complaint should not be dismissed for failure to state a claim unless 

it appears beyond doubt that the plaintiff can prove no set of facts in support of his 

claim which would entitle him to relief.” N. Am. Truck & Trailer, 2008 S.D. 45, ¶ 6, 

751 N.W.2d at 712 (quoting Thompson v. Summers, 1997 S.D. 103, ¶ 5, 567 N.W.2d 

387, 390). “[W]hile the court must accept allegations of fact as true when 

considering a motion to dismiss, the court is free to ignore legal conclusions, 

unsupported conclusions, unwarranted inferences and sweeping legal conclusions 

cast in the form of factual allegations.” Nygaard v. Sioux Valley Hosps. & Health 

Sys., 2007 S.D. 34, ¶ 9, 731 N.W.2d 184, 190 (quoting Wiles v. Capitol Indem. Corp., 

280 F.3d 868, 870 (8th Cir. 2002)).

Analysis and Decision

[¶13.] Under the South Dakota Constitution, “[t]he Legislature shall direct 

by law in what manner and in what courts suits may be brought against the state.” 

S.D. Const. art. III, § 27. “Sovereign immunity is the right of public entities to be 

free from liability for tort claims unless waived by legislative enactment.” Bickner 

v. Raymond Twp., 2008 S.D. 27, ¶ 10, 747 N.W.2d 668, 671. Any waiver of the 

State’s sovereign immunity must be expressly identified by the Legislature. See 

High-Grade Oil Co., Inc. v. Sommer, 295 N.W.2d 736, 739 (S.D. 1980).

[¶14.] Three cases set up the applicable framework for sovereign immunity 

analysis here. The first is High-Grade Oil, where a car accident led the plaintiff to 

sue the State Highway engineer responsible for designing or approving the design of 

state highways, claiming the curve the accident occurred on did not comply with the 

applicable safety standards. 295 N.W.2d at 737. The engineer moved to dismiss in 
#29129

-7-

part on the basis of sovereign immunity as a State employee, which was treated as 

a motion for summary judgment by the trial court and granted. Id.

[¶15.] On appeal, this Court determined that the action was against the 

State, so sovereign immunity would apply, and affirmed the trial court because the 

Legislature had not waived sovereign immunity for the type of action brought by 

the plaintiff. Id. at 738-39. In reaching its decision, this Court reaffirmed 

precedent that “if there is to be a departure from the rule of governmental 

immunity it should result from legislative action.” Id. at 738 (quoting Conway v. 

Humbert, 82 S.D. 317, 325, 145 N.W.2d 524, 529 (1966)).

[¶16.] Two cases involving the South Dakota Cement Plant followed HighGrade Oil. Arcon Construction Company, Inc. v. South Dakota Cement Plant

involved a breach of contract action for the sale of cement to the plaintiff, and the 

cement plant asserted sovereign immunity. 349 N.W.2d 407 (S.D. 1984). This 

Court decided that “[t]he cement plant is clearly an arm of the state” based on the 

declaration in the South Dakota Constitution that the plant’s activities were a 

function of state government used for a public purpose. Id. at 410. See also S.D. 

Const. art. XIII, § 10. The determination was further bolstered by SDCL 5-17-2.1, 

which “provided: ‘The state cement commission and the state cement plant under 

its control shall comprise a principal department of state government.’” Id. (quoting 

SDCL 5-17-2.1). However, the Court determined that by enacting the Uniform 

Commercial Code (U.C.C.), which covered the cement plant’s sales contracts, the 

Legislature “expressly waived sovereign immunity for the cement plant whenever 

the cement plant enters into contracts for the sale of goods.” Id.
#29129

-8-

[¶17.] L.R. Foy Construction Company, Inc. v. South Dakota State Cement 

Plant Commission expanded Arcon’s holding by applying the waiver of immunity to 

commercial torts arising from the cement plant’s operations. 399 N.W.2d 340, 347

(S.D. 1987). In that case, the cement plant breached its contract with the plaintiff 

by overselling its production capacity for the year, and in addition to the contract 

claim, the plaintiffs alleged multiple tort claims, including fraud and deceit, 

negligent misrepresentation, and tortious interference with contract, related to the 

plant’s commercial operations. The cement plant asserted sovereign immunity as a 

defense against the tort claims. Id. at 344. The Court identified that Arcon “never 

reached the question of tort immunity for Cement Plant.” Id. at 346. However, we 

reasoned that “[i]nasmuch as we have already waived sovereign immunity for 

claims sounding in contract, we find that holding Cement Plant responsible for its 

commercial torts is a logical extension of Arcon in conjunction with the intent and 

meaning of the U.C.C.” Id. at 347. This is because “when authorization for Cement 

Plant operations appeared in our constitution, it created an agency of state 

government with independent proprietary powers or functions, and sufficiently 

independent from the State to be sued.” Id. at 346.

[¶18.] The Court observed the statement from High-Grade Oil that “as to the 

state there is no distinction between governmental and proprietary functions.” Id.

at 348 (quoting High-Grade Oil, 295 N.W.2d at 738). However, the Court 

distinguished High-Grade Oil because that case involved claims against the State 

related to personal injury and not claims involving “obligations and remedies within 

the intent and meaning of the U.C.C.” Id. at 348. The Court also relied on Kunkel 
#29129

-9-

v. United Sec. Ins. Co. of New Jersey, 84 S.D. 116, 168 N.W.2d 723 (1969), “which 

recognized that independent obligations may accrue as a matter of law even though 

the parties operate in a contractual setting.” L.R. Foy, 399 N.W.2d at 349. Finally, 

the Court held that the cement plant “should be held fully accountable for both its 

contract and commercial tort claims” based on Arcon, the constitutional provisions 

related to the cement plant, and the way the cement plant operates, along with the 

express U.C.C. waiver. Id.

[¶19.] Claimants assert that this situation is similar to L.R. Foy, Arcon, and 

Aune v. B-Y Water District, 464 N.W.2d 1 (S.D. 1990) (denying state sovereign 

immunity to a water district), because waiver here is based on similar legislative 

schemes and a distinction between governmental and commercial activity. But 

Arcon involved the U.C.C., see 349 N.W.2d at 410, and L.R. Foy’s holding was 

“expressly limited to the operations of [the] Cement Plant, and [did] not affect the 

general rule set forth in High-Grade [Oil].” L.R. Foy, 399 N.W.2d at 349. Finally, 

Aune did not concern the State’s sovereign immunity, but rather a business 

enterprise with a commercial purpose. 464 N.W.2d at 4.

[¶20.] Nevertheless, Claimants maintain that High-Grade Oil does not apply, 

because that case did not involve a commercial enterprise and L.R. Foy

distinguished High-Grade Oil. In Claimants’ view, High-Grade Oil, Arcon, L.R. 

Foy, and Aune are all good law, but can only be reconciled through a commercial 

enterprise and governmental activity distinction. Further, according to Claimants 

even in the absence of an express waiver by the Legislature, this Court has followed

a general nation-wide rule that sovereign immunity does not apply to claims arising 
#29129

-10-

from the State’s operation of a commercial enterprise. Claimants rely primarily on 

L.R. Foy and Aune for that assertion, but also cite federal cases to support the idea 

that soliciting investments in securities is a commercial activity.7

[¶21.] Claimants argue that while there were express waivers in L.R. Foy

and Arcon, the cases were actually decided based on the activities being a state 

commercial enterprise. It is clear in those cases, though, that the Legislature’s 

express waiver is what made the cases consistent with High-Grade Oil.

[¶22.] Although in L.R. Foy this Court noted the distinction between 

commercial and government functions, Arcon and L.R. Foy concerned the U.C.C. 

and the Cement Plant and are thus not controlling here. Rather, the rule in HighGrade Oil controls and an express waiver by the Legislature is required to waive 

sovereign immunity. See High-Grade Oil, 295 N.W.2d at 738. See also State v. Bd. 

of Comm’rs of Beadle Cty., 53 S.D. 609, 222 N.W. 583, 593 (1928) (“[T]here cannot 

be successfully maintained, as a matter of law, in this state, under the 

circumstances here involved, a distinction between what has been frequently 

denominated as a ‘sovereign’ and ‘nonsovereign’ capacity of the state[.]”). That an 

express waiver is required was reaffirmed in L.R. Foy. 399 N.W.2d 340 at 348. 

United States Supreme Court cases also lend support to the rule. See Kelo v. City of 

 

7. See EIG Energy Fund XIV, L.P. v. Petroleo Brasileiro, S.A., 894 F.3d 339 

(D.C. Cir. 2018); Atlantica Holdings v. Sovereign Wealth Fund SamrukKazyna JSC, 813 F.3d 98 (2d Cir. 2016); Wolf v. Banco Nacional de Mexico, 

S.A., 739 F.2d 1458 (9th Cir. 1984); Wasserstein Perella Emerging Mkts. Fin., 

LP v. Province of Formosa, No. 97 Civ. 793(BSJ), 2000 WL 573231 (S.D. N.Y. 

May 11, 2000); Tucker v. Whitaker Travel, Ltd., 620 F. Supp. 578 (E.D. Pa. 

1985).
#29129

-11-

New London, Conn., 545 U.S. 469, 484, 125 S. Ct. 2655, 2665, 162 L. Ed. 2d 439 

(2005) (“Promoting economic development is a traditional and long-accepted 

function of government.”); Berman v. Parker, 348 U.S. 26, 33-34, 75 S. Ct. 98, 103, 

99 L. Ed. 27 (1954) (considering a development project governmental despite a 

private entity being partially involved in the implementation). The State’s 

sovereign immunity applies to all of its functions unless waived, including 

commercial activities. We return then to the basic High-Grade Oil rule to

determine whether the Legislature waived sovereign immunity for claims arising 

from the EB5 Program.8

[¶23.] From our review there is no express waiver here, and no statutory or 

constitutional provision has been identified that would provide such a waiver. 

Claimants, however, argue that SDCL 21-32A-1 created a waiver based on the 

consulting agreement requiring SDRC to purchase liability insurance covering the 

State. High-Grade Oil also dealt with the argument that purchasing liability 

insurance constitutes a waiver of immunity, and determined that the agencies 

purchasing coverage did not have the authority to waive the State’s immunity by 

doing so. 295 N.W.2d at 739. Only the Legislature can waive the State’s sovereign 

immunity. And under SDCL 21-32A-1 the Legislature specifically exempted the 

State from its waiver provisions for public entities purchasing liability insurance. 

See SDCL 21-32A-1 (providing that a public entity “other than the state” waives 

 

8. The High-Grade Oil standard for waiver of sovereign immunity has been 

consistently followed by this Court in subsequent cases. See, e.g., Truman v. 

Griese, 2009 S.D. 8, 762 N.W.2d 75; Hanson v. S.D. Dep’t of Transp., 1998 

S.D. 109, 584 N.W.2d 881.
#29129

-12-

sovereign immunity to the extent that entity purchases liability insurance or 

participates in a risk sharing pool).

[¶24.] Claimants also argue, for the first time on appeal, that the Uniform 

Securities Act, SDCL 47-31B-101, et seq., provides an express waiver. The claim 

cannot survive because it was not asserted below. See A-G-E Corp. v. State, 2006 

S.D. 66, ¶ 19, 719 N.W.2d 780, 786. When an issue is raised for the first time on 

appeal this Court need not consider it. Cain v. Fortis Ins. Co., 2005 S.D. 39, ¶ 22, 

694 N.W.2d 709, 714. Additionally, although Claimants assert that this argument 

responds to the State’s reply brief below, which it had no opportunity to respond to 

in writing, the Act was not brought up at the motions hearing either.

[¶25.] Claimants maintain that this Court should nevertheless address the 

issue because we can do so in certain circumstances. When this Court has 

considered issues not raised below, we were “faced with a compelling case.” In re 

J.D.M.C., 2007 S.D. 97, ¶ 27, 739 N.W.2d 796, 805. There is no compelling reason 

to analyze the issue on appeal even if the activities do fall under the Act, because 

Claimants would at most identify an implied waiver of immunity. Implied waiver 

does not satisfy our standard under High-Grade Oil.9

 

9. No claim is advanced herein that as to express waiver Arcon and L.R. Foy

were improperly decided. As such, we do not address that issue today. We 

note that those cases were decided in 1984 and 1987 and have not been 

followed for their holdings that adoption of the U.C.C. is an express waiver. 

Thus, we leave for another day the issue of whether when the Legislature 

passes a comprehensive uniform code, it complies with the constitutional

standard that a waiver must be expressly stated by the Legislature and 

cannot be implied by this Court.
#29129

-13-

[¶26.] It is also telling that when the EB5 Program was created, no express 

waiver of sovereign immunity was included in that legislation. Without an express 

waiver, Claimants cannot maintain their action against the State.

Conclusion

[¶27.] Claimants have made no showing that an express waiver of sovereign 

immunity applies to the State’s activities with the EB5 Program. Their suit cannot 

be maintained, and the circuit court properly granted the State’s motion to dismiss. 

The circuit court’s decision is affirmed.

[¶28.] KERN, JENSEN, and SALTER, Justices, and WILBUR, Retired 

Justice, concur.

[¶29.] WILBUR, Retired Justice, sitting for DEVANEY, Justice, disqualified.