Bannett v. Hankin
| Decision Date | 16 August 2004 |
| Docket Number | No. Civ.A. 03-CV-5976.,Civ.A. 03-CV-5976. |
| Citation | 331 F.Supp.2d 354 |
| Parties | Aaron D. BANNETT, M.D., Plaintiff v. Mark HANKIN, Ind. and d/b/a Hankin Management Company and Hankin Management, Inc., Defendants |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Michael S. Bomstein, Pinnola & Bomstein, Philadelphia, PA, for plaintiff.
Craig Robert Lewis, Michelle S. Walker, Braverman Daniels Kaskey, Ltd, Philadelphia, PA, for defendants.
Via the motion now pending before this Court, Defendants move to dismiss the Plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(1) on the grounds that the dispute is subject to a mandatory arbitration provision. For the reasons outlined below, the motion shall be GRANTED.
This case arises out of two real estate partnerships in which Plaintiff Dr. Bannett ("Plaintiff") had purchased limited partnership interests in 1983. Those partnerships, HanMar Associates XV and XIX ("HanMar Partnerships"), were formed by the defendant Mark Hankin, who was first the vice president, and then the president and secretary of the general partner for each partnership, Industrial Real Estate Management, Inc. ("IREM") and the co-owner of the rental properties which were the subject of the real estate partnerships. (Complaint, ¶ s 6,7,8).
(Complaint, ¶ s 11, 12).
Plaintiff further avers that under § 5.3 of the limited partnership agreements, Mr. Hankin and IREM agreed that payment of the preferred distributions was to be made prior to nine other obligations and that Mr. Hankin was personally responsible for payment of a variety of HanMar obligations, regardless of whether there was sufficient cash flow. (Complaint, ¶ s 19-23).
The subscription agreement also provided for HanMar to (a) execute a First Note in order to purchase 50% of certain industrial real estate owned by Mark Hankin; (b) execute a Second Note that represented wrap financing of the existing institutional lender mortgage loans on the real estate and permitted Hankin an approximately 6% interest rate premium; (c) enter into a management and leasing ("M & L") agreement with Hankin Management Company ("HMC"); and (d) enter into a Maintenance Agreement with Mark Hankin to provide contracting services for the properties. (Complaint, ¶ 18).
In October, 1987, IREM and Hankin sent to Plaintiff and other limited partners a proposal to consolidate the two partnerships in which Plaintiff had ownership interests together with five other HanMar partnerships into a single HanMar Master Limited Partnership and to make various other changes in the operation of the limited partnerships. According to Plaintiff, while there were seven distinct purposes for the proposed exchange, not one of them included subordination of the preferred distributions, modification of § 11.7 of the partnership agreements (which until then required 100% of the investors to approve changes in the amendment process), vesting the General Partner with absolute discretion to alter the order and priority of disbursements or creating a definition of "cash receipts" that would permit Mark Hankin to collect interest accruals and other monies at real estate settlements prior to paying overdue preferred distributions. (Complaint, ¶ s 26, 27). Plaintiff and other limited partners voted in favor of the proposals and were advised that the HanMar limited partnership agreements were amended with at least 75% of the partners in favor. Plaintiff now alleges that all of the partners did not vote in favor of amending § 11.7 and, therefore, the proposal to permit future amendments to be made without approval of any of the limited partners was in fact defeated.
Nevertheless, Plaintiff was informed that all of the amendments had passed, and as a result, all seven HanMar entities were consolidated into a single HanMar Master Limited Partnership ("MLP") and the Manager was changed to Hankin Management Company, Inc. (of which Mark Hankin is the president and secretary). In addition, the amendments did the following: (a) altered the priorities for disbursements as set out in the partnership agreements, subordinating preferred distributions further than allowed in the 1983 documents; (b) approved a revised M & L agreement that set out priorities for cash disbursements that subordinated preferred distributions further than in the concurrent partnership agreement; (c) changed § 11.7(b) of the partnership agreement, thereby vesting the General Partner with absolute discretion to alter the order and priority of disbursements; and (d) defined "cash receipts" to permit Mark Hankin to collect interest accruals and other monies at real estate settlements prior to paying preferred distributions. (Complaint, ¶ s 31-34).1
In 1991, Hankin advised Plaintiff that there had been an economic downturn in the real estate market that was worsening and not expected to turn around anytime soon. From that point on, the 8% preferred distributions were not made, despite the fact that in 2000, IREM sent a letter advising that the market had recently turned upward, the vacancy rate had diminished and that the partnership had received an infusion of cash from refinancings and sales of various properties. (Complaint ¶ s 37-38). Unbeknownst to Plaintiff, by letter dated October 3, 2000, Mr. Hankin advised HanMar investor Martin Brody that the 8% preferred distribution would only be payable after all other obligations of the partnerships were paid. (Complaint ¶ 39). Plaintiff later learned that under an amendment to the MLP agreement dated January 2, 1991, the preferred distributions were subordinated to virtually all other payments. (Complaint ¶ s 42-44). Plaintiff believes that the 1991 amendments were all executed by Mark Hankin only, in his capacity as president and secretary of IREM or as co-owner of the real estate, or as manager under the M & L agreements. (Complaint ¶ 45).
Plaintiff filed a complaint in this matter against Mark Hankin, both in his individual capacity and as sole proprietor of Hankin Management Company ("HMC"), and Hankin Management Company, Inc. ("HMI") seeking recovery of his pro rata share of preferred distributions, $15,760 per year from mid-1991 to the present. Specifically, Plaintiff brings claims for conversion, breach of contract, and unjust enrichment against Mark Hankin and HMI, as well as breach of fiduciary duty and civil RICO violations against Mark Hankin. Plaintiff contends that the Defendants unlawfully converted the partnerships' cash receipts through Hankin's collection of interest accruals and the reimbursement of expenses paid by HMI prior to the payment of the preferred distributions. The collection of the interest accruals was not only a breach of Hankin's fiduciary duties, alleges Plaintiff, but also constituted a breach of the 1983 and 1988 M & L agreements,2 the 1983 and 1988 maintenance agreements,3 and the First and Second Notes.4
Defendants move to dismiss all claims brought against them on the basis that they are subject to the mandatory arbitration provision of the HanMar partnership agreements and/or the HanMar MLP agreement.
Under the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 1, et seq., agreements to arbitrate are enforceable to the same extent as other contracts. Alexander v. Anthony Intern., L.P., 341 F.3d 256, 263 (3d Cir.2003); Seus v. John Nuveen & Co., Inc., 146 F.3d 175, 179 (3d Cir.1998). Section 2 of the Act provides, in relevant part: "A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA reflects a strong federal policy in favor of the resolution of disputes through arbitration. Alexander, 341 F.3d at 263. If a party to a binding arbitration agreement is sued in federal court on a claim that the plaintiff has agreed to arbitrate, he is entitled under the FAA to a stay of the court proceeding pending arbitration and an order compelling arbitration. 9 U.S.C. §§ 3-4; Alexander, 341 F.3d at 263. If all of the claims are arbitrable, a court may dismiss the entire action. See Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir.2002).
As a matter of contract, no party can be forced to arbitrate unless that party has entered into an agreement to do so. See PaineWebber Inc. v. Hartmann, 921 F.2d 507 (3d Cir.1990). Therefore, before a court can dismiss a suit and compel an unwilling party to arbitrate, it must conduct a limited review to ensure that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the scope of that agreement. Id. at 511.
It is Plaintiff's position that Defendants, as non-signatories to the limited partnership agreements and the MLP agreement, lack standing to enforce the arbitration provisions contained therein. Section 11.5 of the Amendment and Restatement of Articles of Limited Partnership of HanMar Associates XV and XIX ("1983 limited partnership agreement") reads as...
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