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NTD I LLC v. Alliant Asset Management Co., LLC

United States District Court, E.D. Missouri, Eastern Division

February 15, 2017




         This matter comes before the Court on Defendants' Motion to Dismiss and Motion to Strike Jury Demand [ECF No. 17].

         I. BACKGROUND

         This litigation arises out of a dispute between Plaintiffs NTD I, LLC, North Tower Development, LLC, and Paul Weismann and Defendants Alliant Asset Management Company, LLC ("Asset Management"), Alliant Capital, Ltd. ("Capital"), Alliant Credit Facility, Ltd. ("Credit Facility"), Alliant Credit Facility ALP, LLC ("Credit Facility ALP"), Alliant Tax Credit Fund 36, Ltd. ("Fund 36 Ltd."), and Alliant Tax Credit 36, LLC ("Fund 36 LLC, " and together with Fund 36 Ltd., the "Limited Partners").

         In 2006, Water Tower Place Limited Partnership (the “Partnership”) was formed, pursuant to an Amended and Restated Agreement of Limited Partnership (the “LPA”), for the general purpose of constructing, rehabilitating, and operating affordable housing apartment units to qualify for federal and state low-income housing tax credits. Water Tower Place is located in Saint Louis, Missouri, and comprised of 178 residential housing units in 34 buildings. The project was financed by a 2006 issuance of Multifamily Housing Revenue Bonds that provide the low-income housing tax credits and Water Tower Place must meet regulatory provisions through 2020 to remain housing tax credit qualified. Housing tax credits are contingent on Water Tower Place maintaining occupant eligibility, and/or unit gross rent compliance.

         A. The Parties

         Plaintiff NTD I, LLC, is the General Partner of the project Partnership. Defendant Fund 36 LLC is the Partnership's Administrative Limited Partner. Fund 36 LTD is the Partnership's State Limited Partner and Investor Limited Partner. Plaintiff North Tower Development, LLC (the “Developer”), managed the construction and rehabilitation of Water Tower Place, pursuant to a Development Services Agreement. Plaintiff Paul Weismann is the sole member and manager of both the General Partner and the Developer. Plaintiffs Weismann and the Developer guaranteed performance of the General Partner under the LPA, pursuant to a Guaranty Agreement. Alliant Asset Management, Alliant Capital, Alliant Credit Facility, Alliant Credit Facility ALP, along with the Limited Partners are affiliates that operate together under the corporate umbrella of the Alliant Company (collectively, “Alliant”).

         B. Duties and Obligations of the Parties

         Under the LPA, the General Partner is responsible for overall management and control of the Partnership business. The General Partner is entitled to one one-hundredth of a percent (0.01%) of the Federal housing tax credits. The General Partner is obligated to make operating loans to the Partnership as needed to fund operating deficits. The General Partner's obligation to fund operating deficits expires and is discharged on the “Sunset Date.” According to the LPA, the Sunset Date occurs thirty-six months after the date on which Water Tower Place attains a benchmark entitled “Rental Achievement.”[1] Weismann is responsible for the management and control of the General Partner and the Developer. Weismann's obligation to fund Operating Deficits, as surety of the General Partner or otherwise, expires and is discharged on the “Sunset Date.”

         Also pursuant to the LPA, the Administrative Limited Partner's duties include receiving and approving certain Partnership reporting, giving its consents and/or approvals on various Partnership decisions, and exercising discretion as to certain LPA matters. The Administrative Limited Partner is entitled to one one-hundredth of a percent (0.01%) of the housing tax credits. The State Limited Partner's role is to receive one hundred percent (100%) of the state housing tax credits. The Investor Limited Partners role is to receive ninety-nine and ninety-seven one hundredths percent (99.97%) of the federal housing tax credits, as well as ninety-nine and ninety-six one hundredths percent (99.96%) of all losses.

         In return, the State Limited Partner and the Investor Limited Partner are obligated under the LPA to make capital contributions to the Partnership upon the satisfaction of defined conditions. One such benchmark is the “Rental Achievement Test.” Under the LPA, the Rental Achievement Test is: "the satisfaction of a level of Occupancy sustained for a period of three (3) consecutive months with actual rent levels and operating expenses which produce a Debt Service Coverage Ratio of 1.15 to 1.00 with respect to all projected permanent financing for each of such three (3) consecutive months." As noted above, 36 months after the date on which Water Tower Place attains Rental Achievement, certain obligations of the General Partner and Weismann (as surety of the General Partner) are discharged.

         Section 4.2 of the LPA states the General Partner was to attain Rental Achievement by December 1, 2008. The General Partner was five years late in meeting this deadline. Under the LPA, failure to attain Rental Achievement by December 1, 2008, provides a basis for rescission of the agreement. Neither the Limited Partners nor Alliant have yet attempted to rescind the contract. The Limited Partners have not paid $1, 015, 765.00 in capital contributions set forth under the LPA.

         C. Procedural Background

         On August 1, 2016, Plaintiffs filed their complaint. The claims asserted by Plaintiffs are: Count I, for declaratory judgment reducing the Limited Partners' interests to zero; Count II, for declaratory judgment excusing Weismann from surety obligations; Count III, for breach of contract to recover the Limited Partners' Capital Contributions; Count IV, excusing Weismann from surety obligations due to the Limited Partners' contract breach; Count V, for damages for the Limited Partners' breach of the implied covenant of good faith and fair dealing; Count VI, for damages for Defendants' tortious interference with, and their inducement of a contract breach; Count VII, for equitable contribution and restitution to Weismann; and Count VIII, for punitive damages. Defendants moved for an Order pursuant to Fed.R.Civ.P. 12(b)(6) dismissing those claims, and striking Plaintiffs' jury demand. [ECF No. 17 and 18]. Both parties requested oral argument related to Defendants' Motion to Dismiss. A hearing was held on December 14, 2016.

         D. Well-Pleaded Facts

         The Court accepts as true the following well-pleaded facts alleged in Plaintiffs' complaint. By December 31, 2015 the General Partner had made operating loans totaling $2, 439, 283.00 to keep Water Tower Place in compliance and generate housing tax credits. Pursuant to the Guaranty, Weismann funded these operating deficits through the General Partner, in performance of his surety obligation. Weismann's obligation to fund operating deficits as surety of the General Partner is limited to $500, 000.00. The Limited Partners, and by extension, Alliant, have received more than twelve million in benefits from Water Tower Place--over $8 million in housing tax credits, and over $4.4 million of losses.

         Upon the satisfaction of certain conditions and the Rental Achievement Test, the Limited Partners were obligated to pay capital contributions to the Partnership. Even though Rental Achievement was delayed for five years, the General Partner cured its failure and Rental Achievement was attained on December 31, 2013. The Limited Partners never declared any breach of the LPA for delayed Rental Achievement. Although all conditions were satisfied on December 31, 2013, to trigger the Limited Partners' capital contributions, and the Partnership gave notice to the Limited Partners and Alliant, the Limited Partners did not make the required contribution. The Limited Partners' decision was in actuality made by Alliant management. As an excuse for the Limited Partners' failure to contribute, Alliant disputed that Water Tower Place had attained Rental Achievement. Alliant's challenge was unsupported and designed to delay or avoid payment of the capital contributions.

         Because the Limited Partners funded only $5 million of their $6.2 million in capital contributions, they now owe at least $1, 015, 765.00 in capital contributions. Since October 1, 2007, the Developer has been entitled to a $1, 250, 000 development fee, pursuant to the Development Services Agreement.

         II. STANDARD

         Under FRCP 12(b)(6), a party may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” The notice pleading standard of FRCP 8(a)(2) requires a plaintiff to give “a short and plain statement showing that the pleader is entitled to relief.” To meet this standard and to survive a FRCP 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotations and citation omitted). This requirement of facial plausibility means the factual content of the plaintiff's allegations must “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Cole v. Homier Distrib. Co., 599 F.3d 856, 861 (8th Cir. 2010) (quoting Iqbal, 556 U.S. at 678). Courts must assess the plausibility of a given claim with reference to the plaintiff's allegations as a whole, not in terms of the plausibility of each individual allegation. Zoltek Corp. v. Structural Polymer Group, 592 F.3d 893, 896 n.4 (8th Cir. 2010) (internal citation omitted). This inquiry is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. The Court must grant all reasonable inferences in favor of the nonmoving party. Lustgraaf v. Behrens, 619 F.3d 867, 872-73 (8th Cir. 2010).

         “While a complaint attacked by a [FRCP] 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal alterations and citations omitted); see also Iqbal, 556 U.S. at 679 (“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘shown' - ‘that the pleader is entitled to relief.'”) (quoting Fed.R.Civ.P. 8(a)(2)). Nevertheless, although the “plausibility standard requires a plaintiff to show at the pleading stage that success on the merits is more than a sheer possibility, ” it is not a “probability requirement.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (citing Iqbal, 556 U.S. 678). As such, “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable, and that a recovery is very remote and unlikely, ” Id. (quoting Twombly, 550 U.S. at 556) (internal quotations omitted), provided that the complaint contains sufficient facts to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 555) (internal quotations omitted).


         Defendants contend Plaintiffs have failed to state a claim upon which relief can be granted and the case should be dismissed. Defendants set forth several arguments in support of their Motion; they will be addressed individually below.

         A. Claims III and V are precluded because the General Partner was the first to breach the LPA.

         In their complaint, Plaintiffs allege Defendants failed to make over $1, 000, 000 in capital contributions to the Partnership in breach of the LPA. Plaintiffs seek to recover the Limited Partners' capital contributions in Count III. Plaintiffs also seek damages for the Limited ...

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