United States District Court, D. Massachusetts
Rightstone, Inc., Plaintiff, represented by Stephen W. Rider,
Stephen W. Rider, PC.
RRH, LLC, Defendant, represented by Joseph E. Phelan, Phelan
Law Offices, P.C..
R.R.H., LTD., Defendant, represented by Joseph E. Phelan,
Phelan Law Offices, P.C..
INVESTMENT LIMITED PARTNERSHIP, Defendant, represented by
Matthew T. McLaughlin, Nixon & Peabody, LLP, Jonathan
Sablone, Nixon Peabody, LLP & Kacey Houston Walker, Nixon
Capital Partners, Inc., Defendant, represented by Matthew T.
McLaughlin, Nixon & Peabody, LLP, Jonathan Sablone, Nixon
Peabody, LLP & Kacey Houston Walker, Nixon Peabody LLP.
REPORT AND RECOMMENDATION ON PLAINTIFF'S MOTION
TO REMAND ACTION TO PLYMOUTH SUPERIOR COURT (#14).
PAGE KELLEY, District Judge.
original complaint in this action incorporated five claims:
Count One, Breach of Fiduciary Duty; Count Two, Breach of
Contract; Count Three, Declaratory Relief - Replacement of
General Partner; Count Four, Declaratory Relief -
Dissolution; and Count Five, Declaratory Relief - Replacement
of Managing Agent. Plaintiff, The Rightstone, Inc.
("Rightstone"), instituted this action in the
Plymouth County Superior Court on August 24, 2015; Defendants
Elfers R.R.H., Ltd. ("Elfers Partnership") and
Elfers RRH, LLC ("Elfers LLC") (collectively
"Elfers Defendants") removed the case to the
federal court on October 7, 2015. (#1.) Two weeks later on
October 21, 2015, Elfers filed a motion to dismiss or,
alternatively, to transfer action for forum non
amended the complaint on November 4, 2016 (##10-12) and two
days later filed a motion to remand. (#14.) Defendants C&M
Investment Limited Partnership ("C&M") and Boston
Capital Partners, Inc. ("Boston Capital") filed a
motion to dismiss (#19) the amended complaint on November 18,
2015. The Elfers Defendants followed suit a week later,
filing a motion to dismiss the amended complaint. (#26.)
the pending motions have been fully briefed. Presently before
the Court for resolution is Plaintiff's motion to remand.
to the allegations set out in the complaint,  Rightstone, a
Massachusetts corporation, is the Class A Limited Partner of
the Elfers Partnership, a Florida limited
partnership. (#7-2 Â¶Â¶ 1, 2.) Defendant Elfers LLC
is a Florida limited partnership and the General Partner of
the Elfers Partnership. (#7-2 Â¶ 3.) Elfers LLC was owned and
controlled by a developer named John M. Curtis until 2012
when the USDA Rural Development agency demanded his removal.
(#7-2 Â¶ 9.) Mr. Curtis was succeeded as the Managing Member
of Elfers LLC by his wife, Gail W. Curtis. (#7-2 Â¶ 9.)
Defendant C&M is a Massachusetts limited partnership and the
Class B Limited Partner of the Elfers Partnership. (#7-2 Â¶
4.) C&M is an affiliate of Boston Capital. (#7-2 Â¶ 11.)
Boston Capital is a Massachusetts corporation and the Special
Limited Partner of the Elfers Partnership. (#7-2 Â¶ 5.) The
Special Limited Partner served as the liaison between the
Elfers Partnership and the investor Limited Partners, and was
granted certain rights and powers under the Limited
Partnership Agreement for the Elfers Partnership
("Elfers LPA") to be exercised for the benefit and
protection of the Limited Partners. (#7-2 Â¶ 10.)
Elfers LPA was amended and restated on November 1, 1978 in
order to raise capital to enable the Elfers Partnership to
construct and operate a 74 unit low-income housing project
known as "Orangewood Lakes Apartments" (the
"Housing Project") in New Port Richey, Florida.
(#7-2 Â¶ 7.) Construction of the Housing Project was funded by
the capital contributed by investors admitted pursuant to the
1978 amended and restated Elfers LPA together with a loan
from the Farmers Home Administration ("FmHA") of
the United States Department of Agriculture. (#7-2 Â¶ 7.) The
FmHA, which is now known as the "Rural Development"
agency, continues to regulate the Housing
Project. (#7-2 Â¶ 7.)
forth in the Elfers LPA, a primary objective of the Elfers
Partnership was the generation of a regular yearly cash
distribution to its partners from the operations of the
Housing Project. (#7-2 Â¶ 13.) However, shortly after
Rightstone purchased the Class A Limited Partner interest,
the Housing Project started having financial problems. (#7-2
Â¶ 15.) As a consequence, the Elfers Partnership did not make
a cash flow distribution to Plaintiff for two or more
consecutive years. (#7-2 Â¶ 15.) The Elfers LPA provides, in
If... (ii) the Partnership shall not have distributed to the
Partners Cash Flow of at least $1, 500 during each of any two
consecutive years after the year in which the Initial Cash
Flow Distribution Date occurs, then the Special Limited
Partner, subject to FmHA approval if required, may forthwith
terminate the management agreement with the Management Agent
and appoint a new Management Agent.
14 (quoting Elfers LPA Article XI at 33-4). Plaintiff's
President, Neal M. Brown, questioned the General Partner, Mr.
Curtis, about the default and suggested that he might request
that the Limited Partner take action to replace the
Management Agent. (#7-2 Â¶Â¶ 1, 15.) Mr. Curtis dissuaded Mr.
Brown from taking that proposed action, and the two began to
discuss alternatives for Rightstone either to receive
distributions or to sell its interest in the Elfers
Partnership to a third party. (#7-2 Â¶Â¶16, 17.) In 2011, Mr.
Curtis was exploring the option of refinancing the FmHA
mortgage loan at a higher amount,  with the plan being to
distribute the anticipated additional mortgage proceeds to
the partners. (#7-2 Â¶ 19.) Based on representations made by
Mr. Curtis, Rightstone agreed not to take any action either
to sell its interest in the Elfers Partnership or to attempt
removing Mr. Curtis or the Management Agent. (#7-2 Â¶ 20.)
2012, Mr. Curtis, through Elfers LLC on behalf of the Elfers
Partnership, applied to Rural Development for permission to
refinance the Housing Project. (#7-2 Â¶ 21.) Upon inquiry,
Rightstone was informed later in 2012 that the application to
refinance had been tied up by a local Rural Development
administrator and legal action had to be taken to force Rural
Development to act on the application. (#7-2 Â¶ 22.) Mr. Brown
learned in late 2012 that Rural Development objected to Mr.
Curtis continuing as a Managing Member of Elfers LLC and
wanted him removed due to an outstanding judgment against him
for breach of fiduciary duty with respect to a different
housing project. (#7-2 Â¶ 23.) Mr. Brown had grave concerns
about removing Mr. Curtis, as Mr. Curtis was the only Elfers
Partnership representative with whom Rightstone had had any
substantial dealings. (#7-2 Â¶ 24.) Before Rightstone would
agree to the replacement of Mr. Curtis by his wife, Gail
Curtis, Mr. Brown sought assurances through Boston Capital
regarding the refinancing and the continuation of cash
distributions. (#7-2 Â¶ 25.) Upon receiving these assurances,
Mr. Brown, on behalf of Rightstone, agreed that Gail Curtis
could replace her husband as the Managing Member of Elfers
LLC, and signed consent forms and documents to that effect as
requested by Gail Curtis and Rural Development. (#7-2 Â¶ 26.)
Curtis then took actions, and committed omissions, that
delayed the refinancing and withheld cash distributions to
Rightstone. (#7-2 Â¶ 27.) These actions and omissions
included: dismissing the Management Agent designated in the
Elfers LPA without notice and replacing that entity with a
Florida corporation controlled by Gail Curtis' daughter
and son-in-law and, in addition, refusing to take steps to
force Rural Development to take action on the Elfers
Partnership refinancing in order to benefit another of Gail
Curtis' projects. (#7-2 Â¶Â¶ 28-29.) The refinancing of the
Housing Project was ultimately approved and processed in
December 2013. (#7-2 Â¶ 32.)
did not receive the $16, 000 cash distribution to which it
was entitled for the year 2014 due to the failure of Elfers
LLC, its agents Gail Curtis as Managing Member and her
daughter and son-in-law as Management Agent, to use best
efforts timely to submit the necessary paperwork to Rural
Development for approval. (#7-2 Â¶Â¶ 35-37.) After these
actions and omissions, Rightstone lost confidence in Elfers
LLC and Gail Curtis, determined to remove Elfers LLC as
General Partner in accordance with the provisions of the
Elfers LPA, and seeks to dissolve the Elfers Partnership.
According to the Elfers LPA, however, before Rightstone can
act to remove the General Partner or dissolve the Elfers
Partnership, it is incumbent on Plaintiff to obtain:
a prior determination of a court of competent jurisdiction in
any action brought by or on behalf of the Limited Partners
that neither the grant nor exercise of the rights afforded by
the provisions sought to be exercised under the circumstances
then in question will be deemed taking part in the control of
the business so as to result in the loss of any Limited
Partner's limited liability.
39 (quoting Elfers LPA Section 4.6(A)). By means of the
instant litigation, Plaintiff is requesting "that this
Court make such prior determination so that Rightstone, as
holder of the 94% interest of the Limited Partners, may
remove Elfers LLC as General Partner and replace Elfers LLC
with a competent and trustworthy general partner, may
dissolve the Partnership and may proceed to the sale of its
assets." (#7-2 Â¶ 40.)
Elfers Defendants effected removal of this case on the
grounds of both federal question jurisdiction and diversity
jurisdiction. (#1.) It is axiomatic that "the removing
party bears the burden of persuasion vis-a-vis the existence
of federal jurisdiction.'" Lopez-Munoz v.
Triple-S Salud, Inc.,754 F.3d 1, 9 (1st Cir. 2014)
(quoting BIW Deceived v. Local S6, Indus. Union of Marine
& Shipbldg. Workers,132 F.3d 824, 831 (1st Cir.1997)).
Further, "removal statutes are strictly construed."
Danca v. Private Health Care Sys., Inc.,185 F.3d 1,
4 (1st Cir. 1999) (citing Shamrock Oil & Gas Corp. v.