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LP Solutions LLC v. Duchossois

United States Court of Appeals, First Circuit

October 24, 2018

LP SOLUTIONS LLC, Plaintiff, Appellant,
v.
CRAIG J. DUCHOSSOIS, individually and as Co-Executor of the Estate of Richard Bruce Duchossois; RICHARD L. DUCHOSSOIS; KIMBERLY T. DUCHOSSOIS; DAYLE P. DUCHOSSOIS-FORTINO; THOMAS A. SMITH, as Co-Executor of the Estate of Richard Bruce Duchossois, Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE [Hon. D. Brock Hornby, U.S. District Judge]

          Daniel J. Murphy, with whom Bernstein Shur Sawyer & Nelson was on brief, for appellant.

          Nolan L. Reichl, with whom Kyle M. Noonan and Pierce Atwood LLP were on brief, for appellees.

          Before Lynch, Stahl, and Thompson, Circuit Judges.

          LYNCH, CIRCUIT JUDGE.

         This contract case raises the close question of whether the plaintiff has failed to carry its burden of showing that there is personal jurisdiction over the defendants in Maine, as the district court held in a thoughtful opinion dismissing the action. LP Sols., LLC v. Duchossois, No. 2:18-CV-25-DBH, 2018 WL 1768037, at *1 (D. Me. Apr. 11, 2018).

         The underlying dispute involves agreements about the defendants' interests in an Illinois limited partnership, Elm Street Plaza Venture, LLLP. LP Solutions LLC (LPS), a Maine company, offered to buy limited partnership interests owned by members of the Duchossois family, who are defendants here, and who mostly reside in Illinois. LPS said that the transaction would provide the family members with payments and tax benefits. The family members accepted a second offer made to them in Illinois. Under an agreement with LPS, the family made distribution payments to LPS in Maine only three times, once per year for three years.

         In March 2015, the Elm Street partnership's General Partners sued LPS in Illinois. The thrust of the lawsuit was that LPS could not legally obtain the limited partnership interests from partnership interest holders like the Duchossois family members. When the family members later refused to deliver partnership distributions made in 2016 that LPS said were assigned to it, LPS sued them in Maine, in a case removed to federal court.

         The federal district court, on the undisputed evidence, found there was no personal jurisdiction because the Duchossois family's contacts with Maine did not make the exercise of personal jurisdiction foreseeable. LP Sols., 2018 WL 1768037, at *1. Although it is a close call, the context of the family's Maine contacts, including their nature, number, origin, and duration, leads us to agree with the district court. We affirm.

         I.

         We take the facts from LPS's properly documented evidentiary proffers and from the Duchossois family's undisputed proffers. See Copia Commc'ns, LLC v. AM Resorts, L.P., 812 F.3d 1, 3 (1st Cir. 2016). A. The Parties

         The defendant Duchossois family had partnership interests in Elm Street Plaza Venture, LLLP (a limited liability limited partnership). The Elm Street LLLP built and owns a residential apartment building in Chicago, Illinois. That partnership is registered in Illinois, its partnership agreement is governed by Illinois law, its assets are in Illinois, and it is managed by a General Partner who resides in Illinois. The Duchossois family members, Richard L. Duchossois and his children Craig J. Duchossois, Kimberly T. Duchossois, and Dayle P. Duchossois-Fortino, all live in Illinois, except for Richard Bruce Duchossois who resided in Florida and spent time in South Carolina before his death in 2014.[1] Before interacting with LPS, the Duchossois family members collectively owned a 4.54 percent interest in the Elm Street partnership.

         LPS is a Portland, Maine-based investor in the affordable housing industry. It owns "thousands of limited partnership interests and related interests in various limited partnerships across the United States." Before its dealings with the Duchossois family, LPS already owned a 13.66 percent stake in the Elm Street partnership.

         B. The Contracts

         In September 2013, LPS sent letters to the Duchossois family members offering to buy their interests in the Elm Street partnership. William Gendron, an LPS agent, also called Jennifer Hager, a Duchossois agent in Illinois, to follow up on those letters. Hager rejected the offer without negotiation.

         After that initial rejection, Gendron sent a new offer to Janet Czosek, another Duchossois agent also in Illinois. Gendron represented that the offer -- LPS's "Option Program" -- would have tax benefits for the Duchossois family members. It would let them "lock [in]" the value of their partnership interests "at today's market value, receive a significant portion of the purchase price on a tax-deferred basis and avoid tax recapture." LPS marketed its program to individuals whose limited partnership interests had "significant tax recapture." As we understand it, individuals in that circumstance had the choice to either sell their interests in their lifetime, with attendant negative tax consequences, or to "wait until their estate receives the interest" at death. LPS's program gave limited partnership holders a third option: LPS would make an "Option Fee payment[]," which is not taxable "until the final transfer of the limited partnership interest," in return for "partnership cash flow." Simply put, LPS gave the limited partnership holder money up front on a tax-deferred basis in return for a portion of the partnership's distributions.

         In September 2013, LPS sent agreements embodying the advertised proposal to each member of the Duchossois family. Those agreements had two main parts: an Option agreement and an Assignment. Both parts were fully drafted and signed by LPS and had the sales price filled in. They both defined LPS as "a Maine limited liability company with a principal place of business" in Portland, Maine.

         The Option agreement gave LPS a twenty-year option to purchase the Duchossois family member's partnership interest for a specified amount (the purchase price). There was, apart from the twenty years over which LPS could exercise the option, no term of years to the agreement. LPS said it would spread payment of the purchase price over a series of payments: First, LPS would pay half the purchase price to the family in Illinois on execution of the agreement. Next, LPS would make payments in two installments, each of about ten percent of the purchase price, in November 2014 and November 2015, respectively. LPS would not, however, pay the balance of the purchase price unless it exercised the option, a choice left to its discretion. If LPS exercised the option before the death of a family member, it would pay to that family member, "as additional sales proceeds, the cost of the tax recapture of the limited partner's negative capital account."

         In return, under the Option agreement, if the partnership made a "cash flow distribution," the Duchossois family members would then give LPS part of that distribution, equal to the proportion LPS had paid to that date of the agreement's purchase price. Put more simply, if LPS had paid fifty percent of the purchase price to a particular family member, LPS would be entitled to fifty percent of the partnership's cash flow distributions to that family member. The record contains no evidence that any Duchossois family member had authority to cause the Elm Street LLLP or its General Partners to make or not to make distributions on behalf of the partnership.

         The Duchossois family members also agreed not to alienate or encumber their Elm Street partnership interests and to vote their interests as directed by LPS. They would send "[a]ll notices, demands, and other communications" to LPS in Maine. The agreements do not say where distribution payments to LPS were to be made.

         The Assignment required the Duchossois family members to "irrevocably and unconditionally sell[], assign[] and transfer[]" their partnership interests to LPS if LPS exercised its option, as LPS later sought to do. LPS, importantly, "assume[d] all risk" for "any transfer restrictions contained in the Partnership's partnership agreement." The family members assumed no such obligations. (Later, in the lead-up to litigation Elm Street brought against LPS in Illinois, the Elm Street General Partners did object to any such transfer to LPS by any limited partners, including the Duchossois family members.)

         The Option agreement states that it is "governed exclusively by the laws of the State of Maine" under a choice-of-law provision. The Assignment, however, is governed by "the laws of the state where the Partnership is domiciled," that is, Illinois. Neither agreement contains a forum-selection clause.

         We return to the chronology of events. In September 2013, having received and reviewed LPS's proposal, Hager and Czosek emailed LPS to say that the proposed agreements were acceptable to the family. They did not negotiate price or any other terms with LPS. The two agents collected signatures from the Duchossois family members in Illinois and South Carolina. In early October 2013, Hager and Czosek sent the executed agreements to LPS in Maine. An LPS employee responded that the agreements lacked witness signatures, so Hager and Czosek sent new, witnessed signature pages to LPS in Maine.

         C. Performance, Exercise of ...


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