Full Circle Villagebrook GP, LLC v. PROTECH 2004-D, LLC et al
Filing
42
MEMORANDUM Opinion and Order: Defendants' Motion to Dismiss 30 is denied. Signed by the Honorable Mary M. Rowland on 9/7/2021. (See attached Order for further detail.)Mailed notice. (dm, )
Case: 1:20-cv-07713 Document #: 42 Filed: 09/07/21 Page 1 of 10 PageID #:501
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FULL CIRCLE VILLAGEBROOK GP,
LLC,
Plaintiff,
Case No. 20-cv-07713
v.
Judge Mary M. Rowland
PROTECH 2004-D, LLC, AMTAX
HOLDINGS 436, LLC, ALDEN
TORCH FINANCIAL LLC,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Full Circle Villagebrook GP, LLC brings this breach of contract and
tortious interference action against Defendants AMTAX Holdings 436, LLC, Protech
2004-D, LLC and Alden Torch Financial LLC. Defendants move to dismiss pursuant
to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons given below,
the Motion to Dismiss [30] is denied.
I.
Background
The following factual allegations are taken from the Complaint (Dkt. 1) and are
accepted as true for the purposes of the motion to dismiss. See W. Bend Mut. Ins. Co.
v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016).
In 2004, Villagebrook Apartments Limited Partnership (the “Partnership”) was
formed for the purpose of acquiring, constructing, rehabilitating, developing,
repairing, improving, maintaining, and operating a 189-unit affordable housing
development known as Villagebrook Apartments (the “Property”). Compl. at ¶ 1. The
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Property provides housing for low-income households pursuant to the Low-Income
Housing Tax Credit (“LIHTC”) program (26 U.S.C. § 42 et seq. (“Section 42”)), a
federal Housing Assistance Payment contract and a Regulatory Agreement with the
Illinois Finance Authority. Id. at ¶ 2. The General Partner (Full Circle Villagebrook
GP, LLC “FCV”), Full Circle Holding, LLC (“Full Circle LP” and, together with the
General Partner, “Full Circle”), Protech (the Special Limited Partner, “SLP”), and
AMTAX (the Investor Limited Partner, “ILP”) executed a Second Amended and
Restated Agreement of Limited Partnership, dated effective as of May 1, 2005 (the
“LPA”), providing for the operation of the Partnership. Id. at ¶ 3. The Property was
to be acquired, developed, and operated in such a manner as to qualify for Tax
Credits. Id. at ¶ 63. Alden Torch manages the ILP’s interests in the Partnership. Id.
at ¶ 9. FCV claims that Alden Torch is known in the LIHTC industry as an
“Aggregator” – it acquires interests in LIHTC affordable housing partnerships and
upon the conclusion of the 15-year compliance period required by Section 42 (the
“Compliance Period”), challenges the contractual transfer rights associated with
those partnerships. Id. at ¶ 12.
Full Circle and the Limited Partners (the ILP and SLP) operated pursuant to an
agreement memorialized under the LPA that the ILP would receive the vast majority
of tax credits allocated to the Partnership under the LIHTC program, as well as other
tax benefits, over the course of the Compliance Period, and that the General Partner
(FCV), or its assigns, have the right to purchase the Limited Partners’ interests in
the Partnership (the “LP Interests”) following the conclusion of the Compliance
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Period (the “Option”). Id. at ¶ 15. 1 Section 7.4.J of the LPA defines the terms of the
Option, providing in part:
Subject to compliance with Section 42 of the Code, or any successor
provision, if then applicable, at any time following the end of the
Compliance Period, the General Partner shall have the right to purchase
(or cause an Affiliate to purchase) the [LP] Interests and, in the General
Partner’s discretion, the interests of the other limited partners in the
Partnership (the “Non-Paramount Interests”) for cash, based on the
amount they would receive if the property were sold at the fair market
value (as of the date of the purchase and as determined below with a 4%
brokerage fee and as otherwise determined herein), and the proceeds of
such sale were applied in accordance with this Agreement.
Id. at ¶ 66. Section 7.4.J provides the process by which the property value and
Option Price should be determined, and states that the appraiser determines the fair
market value and such “value shall be final and binding on the parties [].” Id. at ¶ 72.
On November 4, 2020, FCV exercised its Option, giving notice in an Exercise Letter.
Id. at ¶¶ 19, 82. In relation to this exercise, FCV procured and provided Defendants
with an appraisal of the LP Interests performed by Newmark Knight Frank (NKF)
(the Property was valued at $14,100,000; the Option Price being $494,594). Id. at ¶¶
20, 88, 91. However the Limited Partners, under Alden Torch’s control, rejected FCV’s
exercise of its Option. Id. at ¶¶ 22, 92. Alden Torch demanded payment instead of
nearly $3 million. Id. at ¶ 93.
FCV states that it brought this action seeking to protect and enforce its rights and
obtain, among other things, specific performance and damages because (i) FCV
validly and effectively exercised its Option to purchase the LP Interests under the
A purchase option for the LIHTC property or the limited partner interests in the LIHTC
partnership is often one of the primary economic incentives for the managing general partner
in a low-income housing project. Id. at ¶ 47.
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express terms of the LPA, (ii) the Limited Partners are required to comply with the
terms of the LPA, and (iii) the Limited Partners have refused to cooperate, because
of Alden Torch’s interference, with FCV’s exercise and completion of its Option and
associated rights. Id. at ¶ 25.
II.
Standard
A motion to dismiss tests the sufficiency of a complaint, not the merits of the case.
Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). “To survive a motion to
dismiss under Rule 12(b)(6), the complaint must provide enough factual information
to state a claim to relief that is plausible on its face and raise a right to relief above
the speculative level.” Haywood v. Massage Envy Franchising, LLC, 887 F.3d 329,
333 (7th Cir. 2018) (quotations and citation omitted). See also Fed. R. Civ. P. 8(a)(2)
(requiring a complaint to contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.”). A court deciding a Rule 12(b)(6) motion accepts
plaintiff’s well-pleaded factual allegations as true and draws all permissible
inferences in plaintiff’s favor. Fortres Grand Corp. v. Warner Bros. Entm't Inc., 763
F.3d 696, 700 (7th Cir. 2014). A plaintiff need not plead “detailed factual allegations”,
but “still must provide more than mere labels and conclusions or a formulaic
recitation of the elements of a cause of action for her complaint to be considered
adequate under Federal Rule of Civil Procedure 8.” Bell v. City of Chi., 835 F.3d 736,
738 (7th Cir. 2016) (citation and internal quotation marks omitted).
Dismissal for failure to state a claim is proper “when the allegations in a
complaint, however true, could not raise a claim of entitlement to relief.” Bell Atl.
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Corp. v. Twombly, 550 U.S. 544, 558, 127 S. Ct. 1955, 1966 (2007). Deciding the
plausibility of the claim is “‘a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.’” McCauley v. City of Chi., 671
F.3d 611, 616 (7th Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S. Ct.
1937, 1950 (2009)).
III.
Analysis
FCV’s complaint contains three counts: (I) breach of contract against the ILP and
SLP; (II) declaratory judgment against the ILP and SLP; and (III) tortious
interference with the LPA against Alden Torch. Defendants seek dismissal with
prejudice of the Complaint. They argue that FCV failed to exercise the Option and
materially breached the LPA.
A. Breach of Contract
FCV alleges that the LPA is a valid and binding contract and FCV unconditionally
exercised its Option, creating a binding contract for the sale of the LP Interests to
FCV at the Option Price determined by the NKF Appraisal. FCV claims, however,
that the Limited Partners, controlled by Alden Torch, failed to facilitate the sale of
the LP Interests, thus breaching the LPA. Defendants respond that FCV breached by
failing to comply with an important contractual provision in Section 7.4.J related to
selecting an appraiser. According to Defendants, FCV did not tell AMTAX about the
appraiser FCV wished to use and deprived AMTAX of its approval right. Defendants
contend that this was a failure by FCV to satisfy a condition precedent to exercising
the Option and a material breach by FCV, excusing Defendants from performing.
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A plaintiff claiming breach of contract in Illinois 2 must allege: (1) the existence of
a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) a
breach by the defendant; and (4) resultant damages. W.W. Vincent & Co. v. First
Colony Life Ins. Co., 351 Ill. App. 3d 752, 759, 814 N.E.2d 960, 967 (1st Dist. 2004).
Taking FCV’s factual allegations as true, the reasonable inference is that FCV
performed its end of the bargain and complied with Section 7.4.J of the LPA, and
Defendants wrongfully rejected FCV’s exercise of its option.
Defendants’ arguments require the Court to disregard the complaint’s factual
allegations or to resolve of factual disputes, both inappropriate at this stage. First
Defendants contend that FCV “admits” that it did not comply with Section 7.4.J
because NKF indisputably is not on an “approved list” of appraisers. This is a
mischaracterization of the complaint. FCV alleges that it did fully comply with
Section 7.4.J and satisfied all conditions precedent to exercise its Option. FCV
specifies that NKF was on the approved appraiser lists for LaSalle Bank and
Deutsche Bank (the banks specifically named in Section 7.4.J) and NKF remains on
the approved lists for the successor entities of those banks (since they are no longer
“LaSalle Bank” and “Deutsche Bank”). Compl. at ¶¶ 86-87. The Court will not
disregard the complaint’s factual allegations on a motion to dismiss. See Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008) (courts “construe the complaint in
the light most favorable to the plaintiff, accepting as true all well-pleaded facts
alleged, and drawing all possible inferences in her favor”); Firestone Fin. Corp. v.
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The parties do not dispute that Illinois law applies.
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Meyer, 796 F.3d 822, 827 (7th Cir. 2015) (the “relevant question…is not whether a
complaint’s factual allegations are true, but rather whether the complaint contains
sufficient factual matter, accepted as true, to state a claim to relief that is plausible
on its face.”) (cleaned up). 3
Defendants urge the Court to reject FCV’s factual allegations that it selected NKF
as a pre-approved appraiser as set out in Section 7.4.J, and instead rule that FCV
violated the contract by not complying the alternative provision that its selection of
an appraiser required the ILP’s approval. Accepting Defendants’ version of the facts
over the complaint’s allegations is not appropriate at this pleading stage. It may be
that FCV failed to obtain the ILP’s approval but that is a factual dispute to be
resolved later. See Griffin v. U.S. Bank Nat'l Ass'n, 2018 WL 1621024, at *2 (N.D. Ill.
Apr. 4, 2018) (finding it too early at the motion to dismiss stage to determine if
plaintiff materially breached thus precluding him from alleging a breach of contract
claim); Pardo v. Mecum Auction Inc., 77 F. Supp. 3d 703, 710 (N.D. Ill. 2014)
(declining to resolve factual questions on motion to dismiss breach of contract claim).
Defendants cite Glob. Fire Prot. Co. v. Fed. Ins. Co., 648 F. Supp. 591 (N.D. Ill.
1986) but that case is distinguishable. It was a lawsuit to recover on a claim made
The parties dispute what FCV was required to do as a condition precedent to exercising its
Option. Defendants are correct that under Illinois law strict compliance with express
conditions precedent is required, but that does not address the initial determination of
whether a condition precedent exists and its requirements. See e.g. Mosholu, Inc. v. Galvin,
2020 WL 1888923, at *3 (N.D. Ill. Apr. 16, 2020) (denying summary judgment based on an
alleged condition precedent and noting “in resolving doubts about whether a contract
contains a condition precedent, interpretations that reduce the risk of forfeiture are favored”)
(quoting Navarro v. F.D.I.C., 371 F.3d 979, 981 (7th Cir. 2004)). This dispute cannot be
resolved on Defendants’ motion to dismiss.
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against an insurance policy. The parties had not engaged in an appraisal process and
the Court noted the parties were “willing to resolve this conflict through the appraisal
process as set forth in their contract.” Id. at 592. Given the parties’ willingness to do
so the Court granted without prejudice the dismissal motion, “assuming, without
deciding, that the appraisal process is a condition precedent to bringing an action on
this insurance contract,” and declining to resolve the parties’ dispute about the
selection of appraiser. Id. 4
B. Declaratory Judgment
FCV alleges that the Limited Partners, as managed and controlled by Alden
Torch, breached their contractual obligation to facilitate the sale of the LP Interests
to the General Partner upon the General Partner’s exercise of the Option. FCV seeks
a declaration under 735 ILCS § 5/2-701 that, among other things, the Limited
Partners must promptly transfer the LP Interests to FCV pursuant to the Option for
the appraised value of the LP Interests under the NKF Appraisal. Defendants
respond that FCV cannot seek a declaratory judgment because it cannot enforce the
LPA when it did not perform under that agreement. For the reasons stated above the
Court does not agree with this argument.
Defendants also rely on cases decided on summary judgment or after trial which are not
persuasive at this pleading stage. E.g. Costello v. Grundon, 651 F.3d 614 (7th Cir. 2011);
Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 383 Ill. App. 3d 645, 891 N.E.2d 1 (2007);
Assocs. Asset Mgmt., LLC v. Cruz, 2019 IL App (1st) 182678, 144 N.E.3d 169. Kilianek v. Kim,
192 Ill. App. 3d 139, 548 N.E.2d 598 (1989), for example, was an appeal from a judgment
affirming an arbitrator’s award. Some of Defendants’ other cases, while relevant on the
substantive law, do not override the federal notice pleading standard. See Maxtech Consumer
Prod., Ltd. v. Chervon N. Am. Inc., 2019 WL 2743463, at *3 (N.D. Ill. July 1, 2019) (rejecting
defendant’s reliance on the higher fact-pleading standard under Illinois law).
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Defendants also argue that the Court should in its discretion decline to provide
declaratory relief because this claim is duplicative of FCV’s breach of contract claim.
“The purposes of declaratory judgments are to clarify and settle the legal relations at
issue and to terminate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.” Tempco Elec. Heater Corp. v. Omega Eng'g,
Inc., 819 F.2d 746, 749 (7th Cir. 1987) (cleaned up). “The decision to entertain a
declaratory judgment action lies within the discretion of the district court, and is not
precluded by the availability of another form of relief.” In re JPMorgan Chase Bank
Home Equity Line of Credit Litig., 794 F. Supp. 2d 859, 877 (N.D. Ill. 2011) (citations
omitted). Here the declaratory judgment count does not appear purely duplicative of
the breach of contract claim. It requests declarations, among other things, that FCV
validly exercised its Option and that the NKF Appraisal properly determined the
Property’s fair market value and is binding on the parties under the LPA. The Court
does not comment on the merits of Defendants’ argument at a later stage in this case
but will not strike FCV’s request for declaratory relief at this time.
C. Tortious Interference
The elements of a tortious interference with contract claim are: “(1) the existence
of a valid and enforceable contract between the plaintiff and another; (2) the
defendant's awareness of this contractual relation; (3) the defendant’s intentional and
unjustified inducement of a breach of the contract; (4) a subsequent breach by the
other, caused by the defendant's wrongful conduct; and (5) damages.’” HPI Health
Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill. 2d 145, 154–55, 545 N.E.2d 672,
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676 (1989). FCV alleges that the LPA is a valid and binding contract between the
General Partner, Full Circle LP, and the Limited Partners. FCV further asserts that
Alden Torch intentionally and unjustifiably caused the Limited Partners to breach
their contractual obligations under the LPA by, among other things, refusing to
accept the binding Option Price determined by the NKF Appraisal, thus preventing
the Limited Partners from facilitating FCV’s exercise of the Option, subsequently
causing breach of the LPA and damage to FCV.
Defendants’ only argument is that because FCV fails to state a claim for breach of
contract, FCV also fails to state a claim against Alden Torch for tortious interference
with the LPA. The Court has found that FCV stated a claim for breach of contract.
FCV’s tortious interference claim therefore survives as well.
IV.
Conclusion
For the stated reasons, Defendants’ Motion to Dismiss [30] is denied.
E N T E R:
Dated: September 7, 2021
MARY M. ROWLAND
United States District Judge
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