Homeowner's Rehab, Inc. et al.
Related Corporate V SLP, LP et al No. 135216
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFFS'
MOTION FOR SUMMARY JUDGMENT
L. Sanders, Justice
case arises from competing interpretations of agreements
executed in connection with the rehabilitation of an
affordable housing complex in Cambridge. Plaintiff
Homeowner's Rehab Inc., (HRI) was the nonprofit sponsor
of the development. Plaintiff Memorial Drive Housing Inc.
(Memorial Drive) is the General Partner under a Limited
Partnership Agreement entered into among the parties.
Plaintiffs instituted this action this action against the
Limited Partners, contending that the defendants'
interpretation of that agreement together with a related
Option Agreement effectively prevents HRI from exercising a
right of first refusal conferred upon it when the partnership
was formed. The defendants have asserted counterclaims
alleging among other things that, in an effort to trigger
that right of first refusal in favor of HRI, plaintiffs
breached their fiduciary duties to defendants.
2015 this Court (Roach, J.) denied plaintiffs' Motion for
Judgment on the Pleadings (the July 2015 Decision). Although
the Court noted that the plaintiffs appeared to be on strong
ground in their interpretation of the relevant documents and
that " much of what will ultimately be required to
construe the Agreement is already available, " Judge
Roach agreed with the defendants that there were factual
issues remaining as to whether plaintiffs had put their own
interests first in the manner by which they had gone about
invoking their rights and obtaining an offer on the Property,
particularly since she was bound at that stage in the
proceedings to take as true all the factual allegations
contained in defendants' counterclaims. Judge Roach also
pointed out that Memorial Drive apparently had not given
defendants access to the partnership's books and records,
which might be relevant to the issues before the Court.
Discovery was conducted, and the plaintiffs, essentially
renewing the arguments they made before Judge Roach but on a
more complete factual record, now move for summary judgment
in their favor. This Court concludes that the plaintiffs'
Motion must be Allowed .
summary judgment record contains the following undisputed
facts. In July 1997, the parties entered into an extensively
negotiated and documented deal for the redevelopment,
rehabilitation and financing of land and buildings located at
808-812 Memorial Drive in Cambridge as affordable housing
(the Property). In furtherance of that project, the parties
established a Limited Partnership, with their rights and
obligations set forth in a Limited Partnership Agreement.
Memorial Drive is the General Partner of the partnership.
Defendant Centerline Corporate Partners V L.P. (Centerline)
is the Limited Partner, and the defendant Related Corporate V
SLP L.P. (Related) is the Special Limited Partner or SLP. HRI
was the nonprofit sponsor of the redevelopment of the
Property and a majority owner of Memorial Drive. The
partnership acquired a 99-year lease for the Property. The
Property is owned by a charitable trust created by HRI, with
HRI designated as the trust's sole beneficiary.
Property consists of 211 affordable apartment units, 89
market rate units, commercial space and a 262-space parking
garage. As a " qualified low-income housing project,
" it was eligible for financing under the Low Income
Housing Tax Credit (LIHTC) provision of the Internal Revenue
Code., 26 U.S.C. § 42 (Section 42). LIHTC projects
generate tax credits for equity investors over a ten-year
period and are subject to a 15-year " compliance"
period in which they must be maintained as affordable housing
if investors are to avoid recapture of the tax benefits. The
compliance period for the Property here ended December 31,
to the Partnership Agreement, the defendants as Limited
Partners acquired a 99.98 percent interest in the partnership
and made capital contributions of $6.9 million--an amount
directly tied to the amount of tax credits that the Limited
Partners anticipated receiving. As General Partner, Memorial
Drive made a small capital contribution but was to have
" full and complete charge of the management of the
business of the partnership in accordance with its purpose,
" Section 5.1A. That purpose is defined in Section 2.5A
of the Partnership Agreement as " investment in real
property and the provision of low income housing through the
construction, renovation, rehabilitation, operation and
leasing" of the Property.
of the deal and in accordance with Section 42, the
Partnership executed a Right of First Refusal and Option
Agreement (the Option Agreement). The Option Agreement was
between the Limited Partnership and HRI (described as the
" Holder"). The Option Agreement provided HRI with
two potential mechanisms by which it could acquire the
Partnership's interest in the Property. The
first mechanism was set forth in Section 2 and 3 and
gave HRI a Right of First Refusal (ROFR), described as "
absolute, exclusive, and continuing." Section 2
described how and when this right could be exercised:
Notice of Disposition : At any time commencing on
the date hereof and ending on the date which is four years
after the last day of the 15-year compliance period with
respect to the Property pursuant to Section 42 of the Code,
the Partnership shall not directly or indirectly grant, sell,
transfer, exchange, assign, give or otherwise dispose of its
interest in the Property without it first being offered in
writing to the Holder in accordance with the terms and
conditions of this Agreement and until at least ninety (90)
days after the Partnership shall have delivered to the Holder
notice of an offer to purchase the Property from such
purchaser (hereinafter the " Disposition Notice").
The Disposition Notice shall specify the portion of the
Property proposed to be disposed, the names and addresses of
each person or entity to whom the Partnership proposes to
make such disposition, the consideration payable therefore
(" the Third-Party Price"), and all other terms of
the proposed disposition, together with a copy of any
executed or proposed agreement(s) setting forth the terms of
the proposed disposition and all other instruments related
thereto, a statement indicating whether the Partnership is
willing to accept the offer and the Partnership's
estimate of the Restricted Market Price as hereinafter
the price that HRI would pay if it were to exercise its ROFR,
that was described in Section 3 of the Option Agreement: HRI
could acquire the Partnership's interest for the
lesser of three prices: a) the " Section 42
Price" (a term defined by 26 U.S.C. 42(i)(7); b) the
" Third-Party Price as specified in the Disposition
Notice"; or c) the " Restricted Market Price."
The Restricted Market Price is fair market value, subject to
certain restrictions encumbering the Property.
second mechanism by which HRI could acquire the
interest of the Partnership was set forth in Section 6 of the
Option Agreement. That provision stated that HRI could, at
the end of the 15-year compliance period, make its own offer
to acquire the Property. As to what the purchase price would
be, only one option was given: HRI had to pay the Restricted
Market Price. Under this provision, the Partnership could
dispute the price proposed by HRI and the matter would then
be submitted to an appraiser.
Partnership Agreement specifically references the Option
Agreement (defined under the Partnership Agreement to include
the RFOR), and gives some indication as to the parties'
intentions in executing it. For example, Section 5.4.C(iii)
of the Partnership Agreement states: " The partnership
and HRI agree that, with respect to the Option Agreement, it
is their intention that the purchase price under the Option
Agreement be the minimum price consistent with the
requirements of Section 42(i)(7)." The Partnership
Agreement makes another reference to the Options Agreement
which is important to resolution of the issues before the
Court: Section 5.4A states:
The General Partners . . . are hereby authorized to sell . .
. all or substantially all of the assets of Partnership;
provided, however, that, except for a sale pursuant
to the Option Agreement, the terms of any such sale must
receive the consent of the Special Limited Partners before
such transaction shall be binding on the partnership.
other words, if the proposed sale was pursuant to the Option
Agreement, the SLP's consent was not required.
connection with the negotiation of these agreements, HRI
requested that the defendants provide it with financial
projections as to the anticipated return on their investment.
The defendants provided a memorandum from the firm of
Reznick, Feder & Silverman dated May 21, 1997 (the Reznick
Memo). See Exhibit S of Joint Appendix. The Reznick Memo was
part of the closing documents. That memo projected that the
Limited Partners would receive $6.9 million tax credits
between 1997 and 2012--an amount which coincided with their
capital contribution. The Reznick Memo also projected what
return the Limited Partners would receive in the event the
Partnership interests were sold December 31, 2012 for $1 over
the mortgage balance. Taking into account the tax benefits
they would receive and even after payment of any exit taxes
resulting from the sale, the Limited Partners could be
expected to net $3.3 million over their capital contribution
of $6.9 million. In other words (as described by the Memo),
the benefit to the Limited Partners in providing equity for
the project was not in a later sale but in the tax credits
and benefit of tax losses that they would receive. They did
in fact reap such benefits: from 1997 when these agreements
were executed up to the end of the compliance period in 2012,
the Limited Partners received approximately $7.5 million in
tax credits and took advantage of over $24 million in tax
the compliance period had run, Peter Daly contacted
Centerline in October 2013 about HRI's acquiring the
Limited Partners' interest in the Property. Daly is
Executive Director of both HRI and of Memorial Drive, the
General Partner. As to what HRI would pay, Daly proposed
using the " Minimum Price Methodology" that was
attached to the Partnership Agreement as Schedule C. The
title to that document is: " Projection of General
Partner Purchase Price upon Sale or Disposition of the
Project on 12/31/2012" and is further described as the
" Section 42 Price pursuant to the Right of First
Refusal." As noted above, the " Section 42
Price" was one of the options for calculating purchase
price if HRI was exercising its ROFR under Sections 2 and 3
of the Option Agreement; it was not an option under
Section 6 where HRI made an offer independent of exercising
its ROFR in the face of a third party offer. As Daly
explained in his affidavit, " HRI was attempting not to
invoke the ROFR but rather to buy out the Limited Partners
interest using the Minimum Methodology rather than going
through the lengthy ROFR process of soliciting and responding
to an offer." It was his belief that the agreements
entitled him to insist on the buyout price ...