Lee Pac. Props., Inc. v. Century Pac. Equity Corp., 090202097
| Decision Date | 29 July 2015 |
| Docket Number | 090202097,A149351 |
| Citation | 356 P.3d 1137,272 Or.App. 607 |
| Parties | LEE PACIFIC PROPERTIES, INC.; Howard Liebreich, an individual; ND Manor, LLC; Greenwood Manor Oregon, LTD.; Surfwood Manor Oregon, LTD.; and Rockwood–Caldwell Oregon, LTD., Plaintiffs–Appellants Cross–Respondents, v. CENTURY PACIFIC EQUITY CORPORATION; Greenwood Housing Limited Partnership; Surfwood Limited Partnership, aka Surfwood Housing Limited Partnership; Firwood Housing Properties, LTD., aka Firwood Limited Partnership; Pinewood Investments, LTD. ; Clearwater Limited Partnership; Burnwood Housing Limited Partnership, aka Burnwood Limited Partnership; Ochoco Housing Limited Partnership; Indiana Housing, LTD., aka Indiana Manor Limited Partnership, Defendants–Respondents Cross–Appellants, and Irwin J. Deutch, an individual; Michaels Development Company; Oregon Housing Fund–I, LTD. ; Northwestern Housing Fund–I, LTD. ; Wilshire Investments Corporation; Western Housing Associates, LTD.; Louis A. Cicalese; Jasper Corporation; Rolling West Housing Partners; CP Investment Fund 85–I, LTD. ; AFC Corporation; American Pacific Housing Corporation, fka Century Pacific Housing Corporation; and Managements Assistance Group, Inc., Defendants–Respondents, and AFC Capital Fund and AFC Capital Corporation, Defendants. |
| Court | Oregon Court of Appeals |
Richard S. Yugler, Portland, argued the cause for appellants-cross-respondents. With him on the opening brief was Landye Bennett Blumstein LLP. With him on the cross-respondents' answering brief and appellants' reply brief were Christine N. Moore and Landye Bennett Blumstein LLP.
George W. Kelly, Eugene, argued the cause and filed the briefs for respondents-cross-appellants.
George W. Kelly waived appearance for defendants-respondents.
Before ORTEGA, Presiding Judge, and DeVORE, Judge, and GARRETT, Judge.
This appeal pertains to the interpretation of a settlement agreement. The subject of the agreement was the parties' interests and obligations in certain limited partnerships that owned low-income housing projects insured by the Department of Housing and Urban Development (HUD), as well as their interests and obligations in the housing projects themselves. Plaintiffs brought suit, claiming that defendants had breached certain terms of the settlement agreement; defendants counterclaimed that plaintiffs had also breached the settlement agreement. The main issue in both the claims and counterclaims is whether plaintiffs, who held security interests in the limited partnerships that owned the properties, were required under the settlement agreement to submit “Transfer of Physical Assets” (TPA) documents to HUD in order to manage and control the housing projects.
The trial court, after bifurcating the legal claims from the equitable claims and trying the equitable claims and counterclaims for declaratory relief and specific performance, declared that the settlement agreement did not unconditionally require plaintiffs to submit TPAs. The trial court further declared that defendants did not breach the settlement agreement when they revoked plaintiffs' management and control of the properties. Based on its conclusions, the trial court entered judgment granting two of plaintiffs' three claims, and denying all three of defendants' counterclaims. We affirm in part and reverse in part.
Because this is an equitable case, the Court of Appeals, “acting in its sole discretion, may try the cause anew upon the record or make one or more factual findings anew upon the record.” ORS 19.415(3)(b). No party has requested that we exercise our discretion to review de novo. Nevertheless, as explained below, 272 Or.App. at 635, 356 P.3d at 1152–53, the trial court's interpretation of the parties' settlement agreement was partially erroneous, and, as a result, the court did not expressly resolve a necessary factual dispute. That dispute concerns the position that HUD took regarding the requirement (or not) that TPAs be submitted. As explained below, 272 Or.App. at 635, 356 P.3d at 1152–53, because that factual dispute can be resolved only one way on the existing record, rather than remand, we exercise our discretion to engage in de novo review and make the necessary finding. Except for the finding that we have made de novo, see 272 Or.App. at 635, 356 P.3d at 1152–53, we state the remaining facts—which are supported by evidence in the record—consistently with the trial court's explicit and implicit findings and review the court's legal conclusions for legal error. Neff v. Sandtrax, Inc., 243 Or.App. 485, 487, 259 P.3d 985, rev. den., 350 Or. 716, 260 P.3d 493 (2011).
The eight housing projects that are at the core of the disputed settlement agreement were developed in the 1970s by Jack Miller. For each project, Miller created a limited partnership to hold title in the project. HUD either financed or insured the financing of each project. Consequently, each project was subject to a promissory note (HUD note), each was subject to a mortgage (HUD mortgage), and each was subject to a regulatory agreement between HUD and the property-owning partnership.
The regulatory agreement gave HUD extensive regulatory authority over the operation and maintenance of the project. Significant to the issues in this action was the following provision in the regulatory agreement:
(Emphasis added.)
In 1984, the original property-owning partnerships sold each of the properties to other limited partnerships, each of which was controlled by Century Pacific Equity Corporation (Century Pacific).1 Each buying partnership financed part of the purchase of its housing project through a loan from the selling partnership. Because the properties were subject to existing HUD notes, HUD mortgages, and HUD regulatory agreements, each selling partnership (seller/creditor) was prohibited from securing its loan to the buying partnership (buyer/debtor) with a lien on the property. Instead, each buyer/debtor executed an “All–Inclusive Residual Note and Agreement” (wrap note), in which each agreed to grant the seller/creditor “collateral” that the wrap note defined as “all the right, title and interest of the [buyers/debtors] as either general or limited partners of [the buying partnership].” Each sale also included an agreement of sale and a security agreement that granted the seller/creditor a security interest “in and of the collateral,” and allowed the seller/creditor to foreclose on the partnership interests upon failure of the buyer/debtor to pay its loan debt to the seller/creditor.2 Thus, the seller/creditor partnership secured its loan not in the property, but in the respective partners' interests in the buyer/debtor partnership that owned the property.
The wrap note also contained a unique provision, in that it reserved, in each seller/creditor, “the sole and exclusive right to select, from time to time, the managing agent or agents for the Project subject only to the prior approval of [HUD] of such agent or agents, if required. ” (Emphasis added.) The evidence does not indicate whether HUD was aware of this provision in the wrap note, let alone whether it approved of its effect. Nevertheless, this provision would become a key provision in the wrap note, would eventually affect HUD's dealings with the property-owning partnerships and wrap note-holding partnerships, and would lead to the current dispute.
Plaintiff Lee Pacific Properties, Inc. (Lee Pacific) acquired its interests in the properties a few years after the sale of the housing projects, when Jack Miller, the general partner for the selling partnerships, filed for bankruptcy. Howard Liebreich, the managing partner of Lee Pacific, purchased Miller's general and limited partner rights from the 1984 sale of the eight projects, including all of the partner rights in the agreements of sale, the wrap notes, and the security agreements. Lee Pacific thus became the general managing partner of all of the limited partnerships holding notes on the property-owning partnerships that were and are controlled by Century Pacific. Consequently, we hereafter refer to the note-holding and property-owning partnerships, respectively, as Lee Pacific and Century Pacific.
Initially, the relationship between Lee Pacific and Century Pacific appeared to run smoothly. Lee Pacific, acting through Liebreich and exercising its right under the wrap note provision, directed the management of the properties. Among other things, Liebreich contracted with a company called Guardian Management to be the property manager for all eight properties.
In 1992, Irwin Deutch, the managing partner and director of Century Pacific, contacted Liebreich about the possibility of extending the wrap notes, which were to mature in 1994. The trial court found that for the next few years, Deutch and Liebreich discussed extending the maturity dates on the wrap notes, although no formal agreement extending the notes was ever executed. The parties knew that any extension past 1999 would lead to unfavorable tax consequences to Lee Pacific. Consequently, in 2000, Lee Pacific notified Century Pacific that the notes were in default, and when payment on the notes was not forthcoming, Lee Pacific brought suit against Century Pacific.
In the amended complaint filed in the 2000 litigation, Lee Pacific alleged that it had notified Century Pacific that, as to each property, “in exercise of the authority provided in the Security Agreement, and based on default in the...
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