Opinion
Civil Action No. 3:08cv427.
October 29, 2008
MEMORANDUM OPINION
Plaintiff, Lee School Lofts, L.L.C., ("Lee School") filed this diversity action seeking specific performance and declaratory and other relief under Virginia law against four defendants: (1) Amtax Holdings 106, L.L.C. ("Amtax Holdings"); (2) Protech 2002-A, L.L.C. ("Protech"); (3) American Tax Credit Corporate Fund XVII L.P. ("Credit Corporate"); and (4) AMTX Fund XVII GP, Inc. ("AMTX Fund"). Lee School requests that the Defendants convey their partnership interests in the Lee School Lofts Partnership to Lee School at the price dictated by the Limited Partnership Agreement.
The Defendants have filed a MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION (Docket No. 11) and a MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION (Docket No. 13). The Plaintiff has responded to these motions by briefing and opposing the Defendants' Motion to Dismiss for Lack of Subject Matter jurisdiction, and by seeking an extension of time to respond to the Defendants' Motion to Dismiss for Lack of Personal Jurisdiction.
The Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction is filed on behalf of all four defendants. The Defendants' Motion to Dismiss for Lack of Personal Jurisdiction is filed only on behalf of Credit Corporate and AMTX Fund.
BACKGROUND
Lee School Lofts is a condominium complex located in Richmond, Virginia. Lee School and two of the Defendants, Amtax Holdings and Protech, are partners in Lee School Lofts, L.P., a partnership that owns the condominium complex. Compl. ¶ 11. The Plaintiff is the sole general partner of the partnership and also serves as "managing General Partner." Compl. ¶ 13. Amtax Holdings and Protech serve as the "Investor Limited Partner" and the "Special Limited Partner No. 1," respectively. Compl. ¶ 14.
The partnership exists under an Amended and Restated Agreement of Limited Partnership ("LPA"), dated as of January 30, 2002. The LPA, inter alia, provides that: (1) "the General Partner may purchase the partnership interest of the Investor Limited Partner and the Special Limited Partner No. 1" at a price dictated by Section 7.4(I) of the LPA; (2) Lee School must consent to the transfer of any Investment Limited Partnership interest prior to any such occurrence; and (3) the rights and obligations under the LPA shall be enforceable by "specific performance, injunction, or other equitable remedy." Compl. ¶ 12, 14, 29, 36.
On or about March 31, 2008, Lee School gave notice to Amtax Holdings and Protech of its intention to exercise its option to purchase their partnership interests under the LPA. Compl. ¶ 16. As determined by the accountant for the partnership under the formula set forth in Section 7.4(I) of the LPA, the amount required to be paid by Lee School to exercise the purchase option was $0.00. Compl. ¶ 19. Subsequent to the giving of this notice, all parties proceeded to employ counsel to draft the papers to complete the transaction. Compl. ¶¶ 19, 22, 23. By the middle of May 2008, however, Amtax Holdings and Protech had not closed on the sale of their partnership interests, allegedly in breach of their duty to do so. Compl. ¶ 25. There appears to be no material dispute respecting the foregoing facts.
Despite this "purchase price," the Plaintiff alleges that the partnership interests at issue have a market value of $1.7 million to $2 million. Compl. ¶¶ 30, 33.
However, from June 2008 forward, the parties view the factual predicate of the matter quite differently. Lee School contends that, on June 10, 2008, the partnership received a letter alerting it to "a change in the management structure [in] the investor limited partner" of the partnership, allegedly transferring the limited partnership interests of Amtax Holdings and Protech to Credit Corporate and AMTX Fund. Compl. ¶ 26, 30-33. Although it named Credit Corporate and AMTX Fund as defendants, Lee School admits that it is uncertain whether this transfer actually occurred, and thereby avers the following:
To the extent that [Credit Corporate] may have become the Investor Limited Partner in the Partnership as successor to [Amtax Holdings] (which [the Plaintiff] denies), [Credit Corporate] likewise is subject to these as well as all other terms of the LPA, as is [AMTX Fund] if and to the extent it is general partner for [Credit Corporate]. Accordingly, in the LPA, the parties agreed that [the Plaintiff] is entitled to specific performance against [Amtax Holdings], [Protech], and, to the extent applicable, against [Credit Corporate] and [AMTX Fund] (as putative general partner for [Credit Corporate]) for their breach of duty to close under the Purchase Option.
Compl. ¶ 36.
Credit Corporate and AMTX Fund assert that this letter "should not be read to suggest that Amtax Holdings had transferred its limited partnership interest to [Credit Corporate]. Because it has not transferred that interest to [Credit corporate]." Def's Mot. to Dismiss for Lack of P.J. at 3. Accordingly, Credit Corporate and AMTX Fund contend that these entities have played no role whatsoever in the circumstances of which Lee School complains. Id. at 2.
The Defendants have attached affidavits to their Motions to establish this point, thus creating a factual dispute.
DISCUSSION
I. The Motion to Dismiss for Lack of Subject Matter Jurisdiction
The Defendants contend that the Complaint fails to demonstrate that the amount in controversy exceeds the $75,000 jurisdictional threshold required by 28 U.S.C. § 1332(a). In support of this point, the Defendants contend that "the counts asserted by Lee School seek . . . an alleged right to acquire for $0 the interest in a limited partnership. Because the . . . counts value that asset at $0, Lee School cannot satisfy the amount in controversy requirement." Def's Mot. to Dismiss for Lack of S.M.J. at 1. Additionally, as to the claim for declaratory relief, the Defendants contend that "the Complaint attaches no value" to the claim and therefore "fails to meet the jurisdictional amount in controversy." Def's Mot. to Dismiss for Lack of S.M.J. at 2.
Motions to dismiss for lack of subject matter jurisdiction are decided under Fed.R.Civ.P. 12(b)(1). In considering such a motion, "[t]he plaintiff bears the burden of proving that subject matter jurisdiction properly exists in the federal court."Biktasheva v. Red Square Sports, Inc., 366 F. Supp. 2d 289, 294 (D. Md. 2005). "When a defendant challenges subject matter jurisdiction by way of a motion to dismiss filed under Rule 12(b)(1), the district court may regard the pleadings as evidence on the issue and also may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Velasco v. Gov't of Indon., 370 F.3d 392, 398 (4th Cir. 2004). Nevertheless, "[t]he court should grant the 12(b)(1) motion only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Biktasheva, 366 F. Supp. 2d at 294 (citation omitted). When a plaintiff's claim is challenged on the ground that there is not a sufficient amount in controversy, "it must appear to a legal certainty that the claim is really for less than the jurisdictional amount" in order to justify dismissal of the claim. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289 (1938) (emphasis added).
When the complaint does not seek monetary damages, "the amount in controversy is measured by the value of the object of the litigation." Hunt v. Washington State Apple Advertising Comm., 432 U.S. 333, 347 (1977). Under this "value" test, the jurisdictional amount in controversy requirement is met if either the "direct pecuniary value" of the right the plaintiff seeks to enforce, Work v. U.S. Trade, Inc., 747 F. Supp. 1184, 1186 n. 2 (E.D. Va. 1990) (addressing a declaratory judgment action), or the cost to the defendant of complying with any prospective equitable relief exceeds $75,000. See Griffin v. Red Run Lodge, Inc., 610 F.2d 1198, 1204 (4th Cir. 1979) (considering the cost to the defendant of complying with an order for specific performance in determining that the requisite amount in controversy was satisfied).
With these principles in mind, it appears that Lee School has satisfied the amount in controversy threshold under 28 U.S.C. § 1332(a) in relation to both the request for specific performance and the request for declaratory relief. It is not genuinely disputed that the "value of the object of the litigation" is significant, and Lee School has averred in good faith that the partnership interests at issue have been valued between $1.7 million and $2 million by third parties. Compl. ¶¶ 30, 33. Accordingly, notwithstanding the fact that the "purchase price" for the partnership interests is $0.00 under a provision of the LPA, the "direct pecuniary value" of the partnership interest to Lee School has been alleged to be well-above the $75,000 threshold, and the cost to the Defendants to comply with an order of specific performance would be similarly significant.
Neither side has identified decisions directly discussing the amount in controversy requirement in the context of disputed partnership interests. Nor has the Court identified any such decisions. However, there appears to be a viable argument that, at least in this action, the court-ordered transfer of partnership interests is akin to litigation involving the transfer of real estate.
It is well-established that in a suit over title to land, "it is the value of the property rather than the claim of the contending parties which fixes the amount in controversy for purposes of jurisdiction." Peterson v. Sucro, 93 F.2d 878, 882 (4th Cir. 1938); see also Occidental Chemical Corp. V. Bullard, 995 F.2d 1046, 1047 (11th Cir. 1993) ("When the value of property sought to be obtained by specific performance exceeds the sum which might have been awarded in damages, the amount in controversy is established by the value of the property."). Moreover, similar to litigation involving the sale of real estate, courts have noted that the transfer of partnership interests presents "unique business opportunit[ies]" for owners.In re Ben Franklin Hotel Assocs., 186 F.3d 301, 305 (3d Cir. 1999) (discussing the loss of the plaintiff's partnership interest in a real estate venture).
These analogous principles are applicable to the partnership interest here, which itself involves the transfer of real estate. Consequently, Lee School has asserted an amount in controversy well above the $75,000 jurisdictional threshold on its claims for both specific performance and declaratory relief, and the MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION (Docket No. 13) will be denied.
II. The Motion To Dismiss For Lack Of Personal Jurisdiction
Corporate Credit and AMTX Fund have moved to dismiss the Complaint because "the exercise of personal jurisdiction over [them] would contravene due process because neither Defendant has purposefully availed itself of the privilege of conducting activities in Virginia and undertaken activities in Virginia." Def's Mot. to Dismiss for Lack of P.J. at 1. In response, Lee School has requested that the Court allow immediate discovery into matters limited to the determination of whether the Court has personal jurisdiction. Lee School's request is an appropriate one.
Accordingly, the MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION (Docket No. 11) will be denied. By November 3, 2008, the parties shall agree upon a plan for such discovery and, by then, shall submit a sketch order to make their agreement a matter of record. The jurisdictional discovery shall be completed by December 31, 2008, and the Plaintiff shall file its response to the motion respecting personal jurisdiction by January 17, 2009. The Defendants' reply shall be filed by January 31, 2009.
Counsel are urged carefully to reflect on the possible withdrawal of the personal jurisdiction motion because the record, as it now exists, strongly suggests the existence of personal jurisdiction. It, therefore, would be advisable for counsel to reassess the need to commit further resources to the litigation of this issue.
CONCLUSION
For the foregoing reasons, the MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION (Docket No. 13) is denied and the MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION (Docket No. 11) is denied. Discovery and briefing will proceed as outlined above.
It is so ORDERED.