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R. Bird and Associates, Inc. v. Fernando L. Sumaza & Co., Inc.

Superior Court of Massachusetts, Suffolk

April 29, 2016

R. BIRD AND ASSOCIATES, INC. AND ALVAREZ BRACERO LP, LLC
v.
FERNANDO L. SUMAZA & CO., INC., JUNCOS LIMITED DIVIDEND PARTNERSHIP AND WILLIAM FRANCIS GALVIN, SECRETARY OF THE COMMONWEALTH OF MASSACHUSETTS [1]

          MEMORANDUM OF DECISION AND ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT

          Robert B. Gordon, Justice

         This case arises out of a dispute over the identity of the general partner of the Juncos Limited Dividend Partnership (" Juncos Ltd."). R. Bird and Associates, Inc. (" R. Bird") and its intended successor, Alvarez Bracero LP. LLC (" Bracero LP" or " Bracero") (collectively " the plaintiffs"), assert that R. Bird is the original and rightful general partner. Fernando L. Sumaza & Co., Inc. (" Sumaza"), however, claims that R. Bird withdrew as general partner when its certificate of incorporation was cancelled and, as a result, Sumaza became the general partner of Juncos Ltd. Under this belief, Sumaza attempted to engage in business as the general partner of Juncos Ltd., and submitted to the federal government an application to be recognized as its general partner. The plaintiffs have brought claims for declaratory judgment and injunctive relief to declare that R. Bird is the lawful general partner of Juncos Ltd,, and to prevent Sumaza from acting as general partner of this entity. Sumaza has filed mirror-image counterclaims against the plaintiffs for declarator judgment and injunctive relief, seeking the diametrically opposite result.

         The plaintiffs and Sumaza have now cross-moved for summary judgment. For the reasons which follow, the plaintiff's motion for summary judgment shall be ALLOWED, and Sumaza's motion for summary judgment shall be DENIED.

         BACKGROUND

         Juncos Ltd. was formed on April 9, 1985, pursuant to a certificate of limited partnership filed with the Massachusetts Secretary of State. R. Bird, a corporation organized under the laws of Puerto Rico, became the sole General Partner of Juncos Ltd. as of the date of its formation. Juncos Ltd.'s declared purpose is to provide housing in Juncos, Puerto Rico for low- and moderate-income families and displaced families, under the authority of the Farmers Home Administration pursuant to Section 515 Program of the National Housing Act, 12 U.S.C. § § 1701, et seq. The U.S. Department of Housing and Urban Development (" HUD") also assists Juncos Ltd. with subsidy payments under the Section 8 Program. The Office of Rural Development of the U.S. Department of Agriculture (" USDA/RD") now administers the Section 515 Program.

         On July 31, 1985, Juncos Ltd. executed a Restated Certificate and Agreement of Limited Partnership of Juncos Limited Dividend Partnership (the " Restated Agreement" '). Under the Restated Agreement, Summit Company (" Summit") became a Class B Limited Partner, and ten other organizations became Class A Limited Partners of the Juncos Ltd. limited partnership. R. Bird remained the partnership's sole General Partner.

         The Restated Agreement provides that the General Partner " shall not sell, assign, encumber or otherwise dispose of all or any part of its interest in the Partnership, ... except with the written consent of a Majority in Interest of the Limited Partners and the written consent of HUD and the Lender, if required." As concerns a corporate General Partner, Section 14.1.1(b) of the Restated Agreement provides that a disposal of its interest in Juncos Ltd. occurs in the event of, inter alia, " the dissolution, liquidation or combination, by merger or otherwise, of the corporation ...."

         The Restated Agreement also grants Limited Partners the right to appoint one or more persons as General Partner by unanimous vote upon the disposal of a General Partner's interest. Prior to the appointment of a successor, the Class B Limited Partner " automatically and immediately upon the [dissolution of a corporate General Partner] ... shall be vested with all of the power, duties, authority and obligations hereunder ... to act as General Partner ... until a successor General Partner has been admitted to the Partnership ...."

         Finally, the Restated Agreement prescribes the process for the giving of notice to all partners. Notice is effective " if given in writing and ... deemed to have been given only when delivered by personal service or deposited in the United States mail and sent by certified or registered mail, return receipt requested" and addressed to the partners' given addresses in Annex A or the Restated Agreement.

         In 1983, 1984, 1988 and 1989, Juncos Ltd. executed loan agreements with the Farmers Home Administration and the USDA/RD, which contracts were subject to present and future regulations that might be administratively adopted from time to time. In audition to complying with the regulations, Juncos Ltd. was required to obtain the U.S. government's consent prior to changing the membership of Juncos Ltd. by either admitting or permitting the withdrawal of any partner, or by permitting any General Partner to maintain a less than five percent (5%) financial interest in the partnership. R. Bird signed each of the loan agreements as the General Partner for Juncos Ltd.

         Juncos Ltd. filed three amendments to the Restated Agreement. Each amendment added Class A Limited Partner. None of these amendment added Bracero LP, which had no interest in Juncos Ltd. as a Limited Partner. At all relevant times, Felix Alvarez Bracero was the owner and president of Proper Management, the managing agent of Juncos Ltd.'s property. Mr. A.lvarez Bracero is also the owner and president of plaintiff Bracero LP.

         On July 7, 2010, the owner and president of R. Bird, Ricardo Bird, died and left his ownership interest in R. Bird to his wife, Maria Bird, and their sons. Mrs. Bird acted as president of R. Bird as of the date of her husband's death, until she appointed Mr. Alvarez Bracero as president in 2014.

         In December 2010, January 2011 and August 2013, Bracero LP acquired the interests of three Class A limited partners, including that of Paul Mantos (" Mantos").[2]

         On November 1, 2011, Mrs. Bird (as president of R. Bird) and Mr. Alvarez Bracero (as president of Alvarez Bracero GP, LLP) (" Bracero GP")[3] executed a document which they intended to serve as the Fourth Amendment of the Restated Agreement (" the Fourth Amendment"). The Fourth Amendment provided that R. Bird withdrew as General Partner, and transferred its general partnership interest to Bracero GP. Excepting only this change in General Partner, the Fourth Amendment ratified and confirmed the Restated Agreement, including its approval requirements for the transfer of a General Partner's partnership interest. The USDA/RD. however, never approved the Fourth Amendment's change.

         On June 11, 2013, the Puerto Rico Secretary of State cancelled R. Bird's certificate of incorporation on account of the entity's failure to file annual reports. Following R. Bird's corporate cancellation, Sumaza contacted Summit, believing that it could become Juncos Ltd.'s General Partner by purchasing Summit's Class B Limited Partner interest. Sumaza's plan proceeded on the assumption that R. Bird's corporate cancellation triggered the dissolution clause of the Restated Agreement, see supra, and thereby resulted in Summit becoming the successor General Partner. In September 2013, Sumaza contracted with Summit to acquire its interest in Juncos Ltd.

         Neither Summit nor Sumaza sought R. Bird's approval for this transfer. Sumaza did, however, transmit letters to the Limited Partners to provide them with notice of and an opportunity to oppose Sumaza's appointment as General Partner. Sumaza complied with all of the notice requirements under the Restated Agreement, including using certified mail, return receipt requested, and addressing the letters to the addresses referenced in the Restated Agreement. Two of the limited partners, Joseph Keefe and Michael Kelly, failed to return their notices of receipt, and the letters addressed to them were returned " unclaimed."

         Sumaza alleges that Bracero LP received notice of Sumaza's request for approval to become General Partner via e-mail. Sumaza points to an October 17, 2013 e-mail between itself and former Class A Limited Partner Mantos, discussing the attached request for approval of Sumaza's appointment. Mantos was confused by Sumaza's request, however, because he believed that his interest had already been transferred to Bracero LP, and accordingly forwarded the e-mail to Bracero.

         On November 1, 2013, R. Bird was corporately reinstated pursuant to Puerto Rico law. That same day, the Secretary of State of the Commonwealth of Puerto Rico issued a certificate of good standing for P. Bird.

         On December 5, 2013, counsel for Juncos Ltd. and Sumaza, James Owen Casey (" Attorney Casey"), notified the USDA/RD by letter that Sumaza had assumed General Partner status in Juncos Ltd. by purchasing Summit's successor interest therein and by filing an Amendment to the Restated Agreement that named Sumaza the General Partner. In that letter, Attorney Casey was " requesting" that the USDA/RD recognize Sumaza as Juncos Ltd.'s General Partner. On April 10, 2014, however, the Housing Program Director of the USDA/RD informed Sumaza that USDA/RD was suspending its processing of Sumaza's request for approval as General Partner pending resolution of the instant litigation.

         The documentation of the identity of Juncos Ltd.'s General Partner is conflicting, to say the least. The Internal Revenue Service Tax Forms 1065 and their corresponding Schedule K-1s from 2011 through 2014 identify R. Bird as Juncos Ltd.'s General Partner. Additionally, on November 28, 2014, R. Bird filed a USDA/RD Form 3560 bearing Felix Alvarez's signature as the " president" of R. Bird, In contrast, the Juncos Ltd. annual reports from 2009 through 2011, filed with the Massachusetts Secretary of State, identify Sumaza as the entity's General Partner.[4] Sumaza's holding itself out as General Partner by filing annual reports that name itself as such represents the source of the present dispute.

         As a result of the confusion over Summit's transfer of its interest to Sumaza, the USDA/RD contacted R. Bird and Bracero by letter dated February 18, 2014. In that letter, the government asserted that Juncos Ltd. was in violation of USDA regulations, as well as its 1983 and 1989 loan agreements, for failure to obtain the USDA/RD's consent to Summit's purported transfer of its interest to Sumaza. The USDA/RD also noted that it was unable to locate records with the Massachusetts Secretary of State to support such transfer.

         Presently before the Court are the plaintiffs' motion for summary judgment and Sumaza's cross-motion for summary judgment, each addressed to the single and dispositive issue of which entity is Juncos Ltd.'s true General Partner. Having heard oral argument on April ...


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