Alexandria Associates, Ltd. v. Mitchell Co., Civ. A. No. J88-0647(B).

• Decision Date: 09 July 1992
• Docket Number: Civ. A. No. J88-0647(B).
• Citation: 800 F. Supp. 1412
• Parties: ALEXANDRIA ASSOCIATES, LTD., and Anthony J. LaSala, Plaintiffs, v. The MITCHELL COMPANY and Mitchell Equities, Defendants.
• Court: U.S. District Court — Southern District of Mississippi

800 F. Supp. 1412

ALEXANDRIA ASSOCIATES, LTD., and Anthony J. LaSala, Plaintiffs, v. The MITCHELL COMPANY and Mitchell Equities, Defendants.

Civ. A. No. J88-0647(B).

United States District Court, S.D. Mississippi, Jackson Division.

July 9, 1992.

E. Clifton Hodge, Jr., Phelps Dunbar Marks Claverie Sims and Jackson H. Ables, III and Jennifer L. Welsh, Daniel Coker Horton and Bell, Jackson, Miss., for plaintiffs.

Ronald G. Peresich^* and Lyle M. Page, Page Mannino Peresich, Biloxi, Miss., for defendants.

MEMORANDUM OPINION AND ORDER

BARBOUR, Chief Judge.

This cause is before the Court on Defendants' Motion for Summary Judgment. Plaintiffs have responded to the Motion. The Court, having considered the Motion and response, along with memoranda of authorities and attachments thereto, is of the opinion that Defendants' Motion is well taken and should be granted.

I. Facts and Procedural History

This action arises out of Plaintiffs' purchase of partnership interests from Defendants. Plaintiff Alexandria Associates, Ltd. ("Alexandria"), a limited partnership, and Plaintiff Anthony J. LaSala ("LaSala"), the individual general partner of Plaintiff Alexandria,¹ contend that their purchase of partnership interests from Defendants violated federal securities laws under the Securities Act of 1933 ("1933 Act") and the Securities Exchange Act of 1934 ("1934 Act"). Plaintiffs also allege numerous common law claims relating to their purchase of partnership interests.

Defendant Mitchell Company and Defendant Mitchell Equities are general partnerships engaged in real estate development. Defendant Mitchell Equities provides management services related to real estate, in addition to being a general partner in partnerships that own real estate. The stock of the partners of Defendant Mitchell Equities and Defendant Mitchell Company is owned by Altus Real Estate Services, Inc. ("Altus Real Estate"), and its stock, in turn, was owned by Altus Bank. On May 16, 1991, the Resolution Trust Corporation ("RTC") was appointed as receiver for Altus Bank, and the RTC subsequently established Altus Federal Savings Bank ("Altus Federal Savings") as the new entity that acquired certain assets and liabilities of Altus Bank, including Defendant Mitchell Company and Defendant Mitchell Equities.

In the fall of 1985, Defendant Mitchell Company and its affiliate, Southeastern Partners, Ltd. ("Southeastern"), formed two limited partnerships, Timber Ridge Apartments, Ltd. ("Timber Ridge") and Biloxi Associates, Ltd. ("Biloxi Associates"), for the purpose of building, owning and operating apartment complexes through the use of tax-exempt financing insured by the federal Department of Housing and Urban Development ("HUD"). Southeastern was the general partner in both partnerships and owned a one percent interest in each, and Defendant Mitchell Company was the limited partner in both partnerships and owned a 99 percent interest in each. See Affidavit of John B. Saint; Exhibit "A" and Exhibit "C" to Plaintiffs' Response to Defendants' Motion for Summary Judgment. The sole asset of the Timber Ridge partnership was the Timber Ridge apartment complex in Vicksburg, Mississippi, and the sole asset of the Biloxi Associates partnership was the Pass Pointe ("Biloxi") apartment complex in Biloxi, Mississippi. See Exhibit "A" to Defendants' Motion for Summary Judgment. Defendant Mitchell Company also owned AAA Self Storage Warehouse ("AAA Warehouse") in Biloxi, Mississippi and Beau Terre apartments ("Beau Terre") in Alexandria, Louisiana.

In 1986, Defendant Mitchell Company, through its representative John B. Saint, contacted Plaintiff LaSala in an attempt to facilitate a sale of the Timber Ridge and Biloxi Associates partnership interests, and the AAA Warehouse and Beau Terre apartments. Plaintiff LaSala and Defendant Mitchell Company had previously worked together in commercial real estate transactions. Although the parties disagree as to whether Plaintiff LaSala desired to purchase the properties for subsequent syndication to other investors, or whether Plaintiff LaSala merely intended to assist Defendants with syndication, on October 1, 1986, Plaintiff LaSala and Defendant Mitchell Company executed an Agreement of Sale ("October Agreement") in which Plaintiff LaSala agreed to purchase from Defendant Mitchell Company the Beau Terre apartments and the AAA Warehouse in fee, and the ownership interest in the Timber Ridge apartments and the Biloxi apartments.² See Defendants' Exhibit "A." The purchase price, as provided in the October Agreement, was approximately $16.24 million. Id. Plaintiff LaSala paid a $50,000 earnest money deposit to Defendant Mitchell Company as part of the October Agreement. Id.

The parties subsequently amended the October Agreement by executing an Amended and Restated Agreement of Sale on December 9, 1986 ("December Agreement"). See Defendants' Exhibit "B." The December Agreement substituted Plaintiff Alexandria, in which Plaintiff LaSala was a general partner, as the buyer, and retained Defendant Mitchell Company as the seller, along with its affiliates. Id. The December Agreement also lowered the purchase price to $15.685 million. Id. Under the December Agreement, Plaintiff Alexandria purchased the "entire beneficial ownership interest" in the Timber Ridge and Biloxi Associates limited partnerships from Defendant Mitchell Company and its affiliates.³Id. This sale of partnership interests in Timber Ridge and Biloxi Associates forms the basis of Plaintiffs' federal securities law claims, although the parties dispute the meaning of "entire beneficial ownership interest." Plaintiff Alexandria also purchased, in fee, the Beau Terre apartments and the AAA Warehouse. Mortgages and promissory notes were executed in favor of Defendant Mitchell Company.

As a condition precedent to the obligations of Defendant Mitchell Company as seller, the December Agreement provided that Mitchell Homes, an affiliate of Defendant Mitchell Company, would continue as manager of the properties, including the Timber Ridge and Biloxi apartments owned by the Timber Ridge and Biloxi Associates partnerships. See Defendants' Exhibit "B." Furthermore, Defendant Mitchell Company agreed to provide marketing services for all the properties pursuant to a Marketing Services Agreement executed on December 1, 1986, and Defendant Mitchell Equities agreed to perform asset management services pursuant to an Asset Management Agreement. See Plaintiffs' Exhibit "D" to Exhibit "I;" Plaintiffs' Exhibit "C" to Exhibit "I."

Contemporaneous with the December Agreement, the parties executed an Amendment to Agreement and Certificate of Limited Partnership of Biloxi Associates and an Amendment to Agreement and Certificate of Limited Partnership of Timber Ridge ("Amended Partnership Agreements"), that amended the limited partnership agreements of Timber Ridge and Biloxi Associates. See Defendants' Exhibit "E" and Exhibit "P;" Plaintiffs' Exhibit "B" and Exhibit "D." Under the Amended Partnership Agreements, Plaintiff Alexandria became a limited partner with a 99 percent share of profits in both partnerships, and Southeastern remained general partner in both partnerships with a one percent profit share. Id. A proposed Second Amendment to the Amended Partnership Agreement for Timber Ridge, dated March 15, 1987, would have substituted Plaintiff LaSala and LaSala Management, Inc. for Southeastern as general partners with a one-half percent interest each, but Southeastern, as withdrawing general partner, did not sign the agreement.

In sum, Plaintiff Alexandria, pursuant to the December Agreement and Amended Partnership Agreements, agreed to become a limited partner with at least a 99 percent ownership interest in both Timber Ridge and Biloxi Associates,⁴ and agreed to purchase in fee the Beau Terre apartments and AAA Warehouse.

Plaintiffs then attempted to syndicate partnership interests in Plaintiff Alexandria. See Plaintiffs' Exhibit "I;" Defendants' Exhibit "C." In furtherance of the syndication, the Clarion Securities Group Incorporated ("Clarion") prepared a Private Offering Memorandum ("Offering Memorandum") that described the properties owned in fee and the partnership interests held by Plaintiff Alexandria. Id. The syndication of Plaintiff Alexandria essentially funded the purchase of Timber Ridge and Biloxi. Moreover, successful syndication of Plaintiff Alexandria was crucial because Plaintiffs needed to raise $400,000 to give to Defendant Mitchell Company for the Timber Ridge and Biloxi partnership interest sale, which was scheduled to close by December 31, 1986. By December 31, 1986, only $160,000 had been raised from investors in Plaintiff Alexandria. Plaintiff LaSala, however, invested a total of $90,000 of his own money in an effort to facilitate closure by the end of 1986, and Defendant Mitchell Company transferred $150,000 to Plaintiff Alexandria to cover a check written from Plaintiff Alexandria to Defendant Mitchell Company for $400,000. Investment in Plaintiff Alexandria was therefore able to continue during 1987. At some point in 1987, Plaintiff LaSala became concerned about the value of the properties, and demanded a return of the entire $400,000. Plaintiff LaSala and representatives of Defendant Mitchell Company subsequently attempted to restructure or postpone the debt incurred by Plaintiffs.

Throughout this sequence of events, Plaintiffs contend that Defendants and their representatives orally misrepresented the original purchase and value of the Timber Ridge and Biloxi Associates partnership interests, orally misrepresented the nature of Plaintiffs' duties, and orally misrepresented syndication details. These and other alleged oral misrepresentations, as set forth in Plaintiffs' Amended Complaint, form the basis of Plaintiffs' claims. In the end, syndication efforts were unsuccessful. In February 1988, Defendant Mitchell Company filed a foreclosure action in...