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

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

July 19, 2018

NTD I, LLC, NORTH TOWER DEVELOPMENT, LLC, and PAUL WEISMANN, Plaintiffs,
v.
ALLIANT ASSET MANAGEMENT COMPANY, LLC, ALLIANT CAPITAL, LTD., ALLIANT CREDIT FACILITY ALP, LLC, ALLIANT TAX CREDIT FUND 36, LTD., and ALLIANT TAX CREDIT 36, LLC., Defendants. ALLIANT TAX CREDIT FUND 36, LTD., and ALLIANT TAX CREDIT 36, LLC, Counterclaim Plaintiffs,
v.
NTD I LLC, PAUL WEISMANN, and WC ORANGE LLC, Counterclaim Defendants.

          MEMORANDUM AND ORDER

          E. RICHARD WEBBER SENIOR UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Plaintiffs NTD I, LLC, Paul Weismann, and WC Orange, LLC's Motion for Summary Judgment on Counterclaim Counts III and IV [105] and Counterclaim Plaintiffs' Motion for Preliminary Injunction [116].

         I. BACKGROUND

         This lawsuit originated in the Eastern District of Missouri when NTD I, LLC (“NTD”), North Tower Development, LLC, and Paul Weismann (“Weismann”) filed a complaint on August 1, 2016, asserting various claims against Alliant Asset Management Company, LLC, Alliant Capital, Ltd., Alliant Credit Facility, Ltd., Alliant Credit Facility ALP, LLC, Alliant Tax Credit Fund 36, Ltd., and Alliant Tax Credit 36, LLC related to a limited partnership agreement between the parties [1].

         Following this Court's dismissal of some of the claims, Alliant Tax Credit Fund 36, Ltd. and Alliant Tax Credit 36, LLC (“Counterclaim Plaintiffs”) asserted the following counterclaims in their Third Amended Counterclaims: (1) declaratory relief against NTD and Weismann stating they failed to cause Rental Achievement as required under the Limited Partnership Agreement; (2) breach of contract and injunctive relief against NTD and Weismann for withdrawing funds from the operating deficit reserve account and the replacement reserve account without approval of the Administrative Limited Partner;[1] (3) breach of contract and injunctive relief against NTD, Weismann, and WC Orange (“WCO”) because WCO purchased the debts of the partnership without the consent of the Administrative Limited Partner and WCO is related to the General Partner; (4) breach of fiduciary duty and injunctive relief against NTD, Weismann, and WCO by allowing, participating in, and facilitating the purchase of the Partnership's debt by WCO; (5) breach of contract and declaratory relief against NTD and Weismann for failure to repair material deficiencies and/or non-conformities in the physical property of Water Tower Place; and (6) breach of contract and specific performance against NTD and Paul Weismann for failure to pay for any development deficits which are incurred by the partnership prior to rental achievement.

         NTD, Weismann, and WCO (“Counterclaim Defendants”) filed the instant motion for summary judgment on May 8, 2018, seeking an order: (i) granting summary judgment against Defendants on Counts III and IV of the Amended Counterclaims; and (ii) granting such other and further relief as the Court may deem proper and just [105]. In their Motion for Preliminary Injunction, Counterclaim Plaintiffs are seeking a declaration Weismann and NTD breached fiduciary duties to the Limited Partners and are requesting injunctive relief prohibiting WCO from exercising its mortgage rights against Water Tower Place, and imposing a constructive trust upon that mortgage interest [104].

         A. Uncontroverted Facts

         Water Tower Place, L.P. (the “Partnership”) is a Missouri limited liability partnership formed on January 9, 2006 [107 ¶1; 125, p. 1 ¶1]. NTD is a for-profit Missouri limited liability company formed as a partnership by and among its members on February 1, 2006 [107 ¶2; 125, p. 2 ¶2]. NTD was formed to be, and is the General Partner of the Partnership [107 ¶3; 125, p. 2 ¶3]. When NTD was formed, Weismann directly acquired and thereafter directly owned twenty percent (20%) of the outstanding NTD membership interest [107 ¶4; 125, p. 2 ¶4]. At the time of formation, four other natural persons, unrelated to Weismann by blood, marriage, or other familial relationship, separately and directly acquired and thereafter directly owned their respective NTD membership interests totaling the remaining eighty percent (80%) of the outstanding General Partner membership interest [107 ¶5; 125, p. 2 ¶5]. All profits and losses and all other tax attributes of NTD are allocated among the General Partner members on the basis of those members' respective percentage of interest in the General Partner [107 ¶6; 125, p. 3 ¶6]. Weismann testified he makes decisions for NTD [130 ¶2; 125, p. 8 ¶2, 4]. NTD's offices are in Weismann's offices in Connecticut [130 ¶3; 125, p. 8 ¶3].

         Counterclaim Plaintiffs, Alliant Tax Credit Fund 36, Ltd. and Alliant Tax Credit 36, LLC, also known as the Limited Partners, are the limited partners of the Partnership [107 ¶7; 125, p. 3 ¶7]. The General Partner and the Limited Partners are the parties to the Amended and Restated Agreement of Limited Partnership dated July 1, 2006 (“LPA”) [107 ¶9; 125, p. 3 ¶9]. The Limited Partners have never rescinded the LPA [107, ¶10, 125, p.3, ¶10]. The Partnership financed the acquisition[2] and rehabilitation of the property by a 2006 issuance of tax-exempt Multifamily Housing Revenue Bonds identified in Schedule A of the LPA to create state and federal low income tax credits (the “Bonds”) [107 ¶11; 125, p. 3 ¶11]. The Partnership Bond obligations are secured by, among other instruments, loan agreements and covenants (the “Bond Loan Agreement”), and mortgages granted by the Partnership to the Bond holder (the “Bond Mortgage”) [107 ¶12, 125, p. 4 ¶12]. At the time of the issuance of the Bonds, U.S. Bank National Association (“USB”) was the holder of the Bonds and the Bond Mortgage [107 ¶13, 125, p. 4 ¶13].

         On September 8, 2010, Richard Deters, Jr., Executor of the Estate of Richard Deters, Sr., an original General Partner member, assigned the decedent's seven percent (7%) NTD membership interest directly to Weismann [107 ¶14; 125, p. 4 ¶14]. On or about September 13, 2010, George Kruntchev, an original NTD member, assigned his thirty percent (30%) NTD membership interest directly to Weismann [107 ¶15; 125, p. 4 ¶15]. On and at all times after September 13, 2010, Weismann has directly owned fifty-seven percent (57%) of the NTD membership interests [107 ¶16; 125, p. 4 ¶16]. Before, on, and at all times after September 13, 2010, the other two remaining original NTD members, both of whom are natural persons unrelated to Weismann by blood, marriage, or other familial relationship, have owned thirty percent (30%) and thirteen percent (13%), respectively, of the NTD membership interests [107 ¶17; 125, p. 5 ¶17].

         WCO is a for-profit Delaware limited liability company (f/k/a/ WC Mapleton LLC) formed on January 19, 2016 [107 ¶19; 125, p. 5 ¶19]. At the time WCO was formed, PAW Associates Properties, LLC (“Properties”), a Delaware limited liability company, directly acquired and has thereafter directly owned one hundred percent (100%) of the outstanding membership interest in WCO [107 ¶21; 125, p. 6 ¶21]. PAW Associates, LLC (“Associates”), a Delaware limited liability company, has at all times directly owned one hundred percent (100%) of the outstanding membership interest in Properties [107 ¶22; 125, p. 6 ¶22]. Weismann and Sam Brill make the business decisions for Properties[3] and for WCO [130 ¶10, 11; 125, p. 9 ¶10, 11].[4] Brill was formerly the Chief Investment Officer of Weismann Capital, and Weismann is the owner and chief executive [130 ¶8, 9; 125, p. 8 ¶8, p. 9 ¶9].[5] Both Weismann and Brill are based in Weismann's Connecticut office [130 ¶11; 125 p. 9 ¶11].

         The Paul A. Weismann Descendants' Trust (the “Grantor Trust”), a Delaware grantor trust created by Weismann's father, the late Dietrich Weismann, for the benefit of Weismann and his descendants, has at all times directly owned one hundred percent (100%) of the outstanding membership interest in Associates [107 ¶23; 125, p. 6 ¶23]. Weismann and his wife are the co-trustees of the Grantor Trust [130 ¶6; 125, p. 8 ¶6]. The only beneficiaries of the Grantor Trust are Weismann and his three minor children [107 ¶24; 125, p. 6 ¶24].[6]

         On June 28, 2016, WCO purchased from USB all of its right, title, and interest in and to the Bonds and the Bond Mortgage, and all of the USB rights under the Bond Loan Agreement pursuant to a Purchase Agreement of the same date [107 ¶25; 125, p. 7 ¶25]. The WCO purchase of the Bonds, the Bond Mortgage, and the rights under the Bond loan Agreement is only one of the private real estate investments held by WCO [107 ¶21; 125, p. 7 ¶26]. Weismann does not, nor has he ever directly or indirectly owned any stock, membership, or other equity interest in either of the Limited Partners [107 ¶27; 125, p. 7 ¶29]. The General Partner, Properties, Associates, WCO, and Grantor Trust have not, nor have they ever directly or indirectly owned any stock, membership, or other equity interest in either of the Limited Partners [107 ¶¶27-32; 125, pp. 7-8 ¶¶27-32].

         In 2016, WCO purchased the Mortgage Note on the Partnership with a face price of $3.7 million for $2.1 million [130 ¶12; 125, p. 9 ¶12]. On April 27, 2018, WCO sent a notice of loan acceleration to the General Partner, the Partnership, and the Limited Partners [130 ¶17; 125, p. 9 ¶17]. On May 7, 2018, Limited Partners made a demand pursuant to Weismann's Guaranty Agreement and the terms of the LPA that Weismann pay the full amount of the accelerated loan [130 ¶22; 125, p. 10 ¶22]. Weisman rejected this demand [130 ¶22; 125, p. 10 ¶22]. Weismann viewed the relationship with Counterclaim Plaintiffs, in particular, as an “adversarial relationship” [130 ¶21; 125, p. 10 ¶21].

         II. STANDARD

         A. Summary Judgment

         A court shall grant a motion for summary judgment only if the moving party shows “there is no genuine dispute as to any material fact and that the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). By definition, material facts “might affect the outcome of the suit under the governing law, ” and a genuine dispute of material fact is one “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the non-moving party has failed to “make a showing sufficient to establish the existence of an element essential to that party's case, . . . there can be ‘no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial.” Celotex, 477 U.S. at 322-23.

         The moving party bears the initial burden of proof in establishing “the non-existence of any genuine issue of fact that is material to a judgment in his favor.” City of Mt. Pleasant, Iowa v. Associated Elec. Co-op., Inc., 838 F.2d 268, 273 (8th Cir. 1988). If the moving party meets this initial burden, the non-moving party must then set forth affirmative evidence and specific facts demonstrating a genuine dispute on the specific issue. Anderson, 477 U.S. at 250. When the burden shifts, the non-moving party may not rest on the allegations in its pleadings, but, by affidavit and other evidence, must set forth specific facts showing a genuine dispute of material fact exists. Fed.R.Civ.P. 56(c)(1); Stone Motor Co. v. Gen. Motors Corp., 293 F.3d 456, 465 (8th Cir. 2002). The non-moving party must demonstrate sufficient favorable evidence that could enable a jury to return a verdict for it. Anderson, 477 U.S. at 249. “If the non-moving party fails to produce such evidence, summary judgment is proper.” Olson v. Pennzoil Co., 943 F.2d 881, 883 (8th Cir. 1991).

         In ruling on a motion for summary judgment, the Court may not “weigh the evidence in the summary judgment record, decide credibility questions, or determine the truth of any factual issue.” Kampouris v. St. Louis Symphony Soc., 210 F.3d 845, 847 (8th Cir. 2000). The Court instead “perform[s] only a gatekeeper function of determining whether there is evidence in the summary judgment record generating a genuine issue of material fact for trial on each essential element of a claim.” Id. The Court must view the facts and all reasonable inferences in the light most favorable to the nonmoving party. Reed v. City of St. Charles, 561 F.3d 788, 790 (8th Cir. 2009).

         B. Preliminary Injunction

         Federal Rule of Civil Procedure 65 gives courts the authority to grant preliminary injunctions. “A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008) (quoting Munaf v. Green, 553 U.S. 674, 689-90 (2008)). “Whether a preliminary injunction should issue involves consideration of (1) the threat of irreparable harm to the movant, (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant, (3) the probability that movant will succeed on the merits, and (4) the public interest.” Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). Although “‘no single factor is determinative,' the probability of success factor is the most significant.” Home Instead, Inc. v. Florance, 721 F.3d 494, 497 (8th Cir. 2013) (quoting Barrett v. Claycomb, 705 F.3d 315, 320 (8th Cir. 2013)) (internal citations omitted). “The burden of demonstrating that a preliminary injunction is warranted is a heavy one where, as here, granting the preliminary injunction will give plaintiff substantially the relief [she] would obtain after a trial on the merits.” Dakota Indus., Inc. v. Ever Best Ltd., 944 F.2d 438, 440 (8th Cir. 1991). See also Blankenship v. Chamberlain, 2008 WL 4862717, at *2 (E.D. Mo. Nov. 7, 2008) (quoting Kikumura v. Hurley, 242 F.3d 950, 955 (10th Cir. 2001)) (In seeking a mandatory injunction that disrupts the status quo, the plaintiff “must demonstrate not only that the four requirements for a preliminary injunction are met but also that they weigh heavily and compellingly in [her] favor.”).

         III. DISCUSSION

         A. Motion for Summary Judgment

         In their motion for summary judgment on Counts III and IV of the third amended counterclaims, Counterclaim Defendants assert two primary arguments. First, they argue the LPA does not prohibit WCO from acquiring the mortgage bonds. Second, they contend, they do not owe any duties to Counterclaim Plaintiffs, nor did they breach, any fiduciary duties to Counterclaim Plaintiffs.

         i. Acquisition of the Mortgage Bonds

         Counterclaim Defendants assert the Court should grant summary judgment in favor of them on Count III of Counterclaim Plaintiffs' Third Amended ...


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