Am. Hous. Pres., LLC v. Hudson SLP LLC
| Decision Date | 20 December 2016 |
| Docket Number | No. 2240,No. 1241,No. 2384,1241,2240,2384 |
| Parties | AMERICAN HOUSING PRESERVATION, LLC, et al. v. HUDSON SLP LLC, et al. |
| Court | Court of Special Appeals of Maryland |
UNREPORTED
Meredith, Leahy, Albright, Anne K. (Specially Assigned), JJ.
Opinion by Leahy, J.
*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.
This case concerns a financial dispute among the partners in a limited partnership formed to operate an affordable housing complex in Baltimore City that rapidly became plagued by cost-overruns and insufficient cash flow. Defendants below, American Housing Preservation, LLC ("AHP"), and its guarantors, Michael A. Liberty, David R. Burton, and James G. Stanley (collectively "Appellants"), appeal from a jury verdict in the Circuit Court for Baltimore City in favor of Hudson SLP, LLC and Hudson Lanvale, LLC, (collectively "Appellees" or "Hudson"), for breach of contract and breach of fiduciary duty. The jury found that AHP and its guarantors failed to fund Excess Development Costs incurred by the apartment complex in breach of an agreement between the parties, and awarded $1,958,409.00 in damages. After the verdict, Appellants filed a motion for judgment notwithstanding the verdict ("JNOV"), which the circuit court denied.
We have rephrased the first and second of the following four questions that Appellants present on appeal:1
For the reasons that follow, we conclude that (1) the trial court did not err in denying Appellants' motions for judgment on statute of limitations grounds because the Limited Partnership Agreement was a continuing performance contract and each time Appellants failed to pay the Excess Development Costs constituted a separate breach and started the statute of limitations anew; (2) the trial court did not err in denying Appellants' motion for JNOV because the jury's verdict was supported by evidence that either Hudson's breach was not so material to end the contract, or Appellants waived the prior material breach defense by acting inconsistently with the right to excuse its performance under the contract, or both; (3) the trial court correctly refused to dismiss Appellees' claims because the record demonstrates that Lanvale Housing had extensive Excess Development Costs that were the obligation of Appellants; and (4) the trial court did not err in declining to apply the voluntary payment rule because Hudson acted to protect its own interests and was not acting voluntarily or officiously. We affirm.
The parties to this appeal were participants in Lanvale Housing LP ("Lanvale Housing"), a Maine limited partnership formed to acquire, rehabilitate, own, and managean affordable housing apartment and townhome complex in Baltimore City known as Lanvale Towers and Canal Court Apartments ("Lanvale Towers").
Prior to Lanvale Housing's acquisition of Lanvale Towers, Lanvale Towers participated in the U.S. Department of Housing and Urban Development's ("HUD") Section 8 housing subsidy program. Under the program, HUD provided rental subsidies for 164 of the 321 units at Lanvale Towers pursuant to a Housing Assistance Payment Contract (the "HAP Contract"). The HAP Contract was assigned to Lanvale Housing in the acquisition of Lanvale Towers in 2005, and Lanvale Housing continued participation in this program.
As an existing affordable housing property, Lanvale Towers qualified for HUD's Low-Income Housing Tax Credit Program ("LIHTC"). 26 U.S.C. § 42.2 Lanvale Housing leveraged the tax credits received through participating in the LIHTC Program to finance the rehabilitation of Lanvale Towers. Under the Limited Partnership Agreement, AHP would receive $6,880,220.00 in tax credits to give to Hudson and its investor over a ten-year period in exchange for Hudson's $6,535,555.00 investment in Lanvale Towers.
The parties' obligations were governed by the Lanvale Housing LP Amended and Restated Agreement of Limited Partnership dated December 1, 20053 (the "Limited Partnership Agreement"), and related agreements. The Limited Partnership Agreement is governed by the law of the State of Maine.
AHP, a Delaware limited liability company, served as the general partner under the Limited Partnership Agreement. By separate agreement between Lanvale Housing and AHP signed on the same day as the Limited Partnership Agreement, Lanvale Housing appointed AHP as developer to oversee and coordinate the rehabilitation of the Lanvale Towers for a fee of $2,464,502.00. Hudson SLP, LLC ("Hudson SLP"), and Hudson Lanvale, LLC ("Hudson Lanvale")—both Delaware limited liability companies—were limited partners under the Limited Partnership Agreement. Hudson Lanvale was the primary capital investor in Lanvale Housing, and Hudson SLP was the Special Limited Partner whose role included finding an institutional investor (J.P. Morgan in this case) to invest in Lanvale Housing.
As general partner, AHP had "full, complete and exclusive discretion to manage and control the business of the Partnership [Lanvale Housing.]" Lanvale Housing contracted with Property Management Consultants, LLC ("CT Group"),4 a property management company, to manage the maintenance and day to day operations at Lanvale Towers in 2007. Hudson, as limited partner, was expressly prohibited from taking part in the management and control of Lanvale Housing pursuant to Article X of the Limited Partnership Agreement.
AHP was also obligated to pay for all "Excess Development Costs" under Section 8.08(a)(ii) of the Limited Partnership Agreement, including "Operating Deficits" incurred by the Lanvale Towers prior to Breakeven Operations.5 "Excess Development Costs" are defined under Article II of the Limited Partnership Agreement as:
all funds in excess of the proceeds of the Mortgage Loan and Capital Contributions (as adjusted pursuant to this Agreement) which are required to (i) complete rehabilitation of the Apartment Complex, including paying all amounts due under and pursuant to the Construction Contract, all costs relating to the Relocation including any legal fees incurred by the Special Limited Partner, and any rehabilitation cost overruns and the cost of any change orders which have been approved by the Lender and the Special Limited Partner, if required, and which are not funded from proceeds of the Mortgage Loan, (ii) achieve Substantial Completion; . . . and (vi) pay any Operating Deficits incurred by the Partnership prior to BreakevenOperations. Payment of all or a portion of the Development Fee may be deferred and paid pursuant to Section 7.03(a) so as to minimize Excess Development Costs so long as it can be demonstrated to the reasonable satisfaction of the Special Limited Partner at Final Closing that such deferred portion of the Development Fee can be fully paid within thirteen (13) years of the date of the Second Capital Contribution.
(Emphasis added). Article II of the Limited Partnership Agreement defines Operating Deficits as:
the amount by which the revenues of the Partnership [Lanvale Housing] from rental payments made by tenants of the Apartment Complex [Lanvale Towers] (excluding security deposits until forfeited), and all other revenues of the Partnership [Lanvale Housing] (other than Capital Contributions, the proceeds of any loans to the Partnership and investment earnings on funds on deposit in the Reserve Fund for Replacements, and other such reserve or escrow funds or accounts) for a particular period of time, is exceeded by the sum of all the operating expenses, including all required debt service, operating and maintenance expenses, any fees to the Lender and/or any applicable mortgage insurance premium payments and all other Partnership obligations or expenditures, excluding payments for rehabilitation of the Apartment Complex and fees and other expenses and obligations of the Partnership to be paid from the Capital Contributions of the Limited Partners to the Partnership and disbursements from the Construction Loan pursuant to this Agreement, during the same period of time.
(Emphasis added.) AHP's payment obligations under the Limited Partnership Agreement were guaranteed by Michael A. Liberty, David R. Burton, and James G. Stanley pursuant to an Unconditional Guaranty they signed on December 1, 2005.6
Hudson provided up-front capital to finance the mortgage and rehabilitation costs of Lanvale Towers. Hudson Lanvale agreed to make two capital contributions totaling$6,535,555.00 to Lanvale Housing pursuant to Section 5.01(c)(i) of the Limited Partnership Agreement. These capital contributions were funded through an outside investor, J.P. Morgan.7
The project began incurring Operating Deficits shortly after its inception. AHP completed the rehabilitation of Lanvale Towers at the end of 2006. Upon inspection, however, Hudson learned that the main lobby had not been renovated. AHP and Hudson agreed that the lobby renovation was not within the scope of rehabilitation project. Nevertheless, Hudson decided the lobby required renovation and agreed to pay for it in...
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