Urban 8 Fox Lake Corp. v. Nationwide Affordable Hous. Fund 4, LLC, No. 18 C 06109
| Decision Date | 06 January 2020 |
| Docket Number | No. 18 C 06109 |
| Citation | 431 F.Supp.3d 995 |
| Parties | URBAN 8 FOX LAKE CORPORATION , an Illinois corporation, and Urban 8 Zion Corporation, an Illinois corporation, Plaintiffs, v. NATIONWIDE AFFORDABLE HOUSING FUND 4, LLC , an Ohio limited liability company, SCDC, LLC, an Ohio limited liability company, and Wentwood Capital Advisors, L.P., a Texas limited partnership, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
David Allan Davenport, Pro Hac Vice, Christina Rieck Loukas, Pro Hac Vice, Winthrop & Weinstine, Minneapolis, MN, Caitlin Martini Mika, Arnold & Porter Kaye Scholer LLP, Chicago, IL, for Plaintiffs.
Marc Andre Al, Stoel Rives LLP, Minneapolis, MN, Stephen Donald Koslow, Koslow Law LLC, Rolling Meadows, IL, for Defendants.
Before the Court are cross motions for summary judgment by Plaintiffs, Urban 8 Fox Lake Corporation and Urban 8 Zion Corporation ("Urban 8"), and Defendants, Nationwide Affordable Housing Fund 4, LLC ("Nationwide") and SCDC, LLC ("SCDC"). [55; 66] For the reasons set forth below, the Court grants Plaintiffs' motion for partial summary judgment [55] and denies Defendants' motion for partial summary judgment [66].
Because these limited partnerships were formed for the purpose of participating in the Low Income Housing Tax Credit ("LIHTC") program, we begin by describing the program.
The LIHTC program is a federal subsidy program designed to promote the construction and rehabilitation of affordable rental housing for low and moderate income households. 26 U.S.C. § 42 (2012). The program allocates tax credits to each State based on population; the States then allocate the tax credits to "qualified low-income housing projects." 26 U.S.C. § 42(g), (h)(3). "Qualified low-income housing projects" are residential rental properties that are rent-restricted and have a certain minimum share of rental units set aside for low and moderate income households. Id.
"The owners of these properties can claim these tax credits annually over a period of ten years, thereby offsetting their tax liability, but must continue to comply with rent affordability restrictions for a period of fifteen years, known as the compliance period, to avoid recapture of those credits." Homeowner's Rehab, Inc. v. Related Corporate V SLP, L.P., 479 Mass. 741, 99 N.E.3d 744, 749 (Mass. 2018) ; 26 U.S.C. § 42(a), (c)(2), (f)(1), (i)(1), (j). For LIHTC projects allocated tax credits after 1989, the owner must agree to comply with the affordability restrictions for another fifteen years in addition to the first fifteen-year compliance period, so the affordability restrictions remain in place for a total of thirty years. U.S.C. § 42(h)(6).
Project developers frequently rely on the tax credits available under the LIHTC program as an incentive to attract capital from private investors. "Because these projects rarely generate enough tax liability for the developers to claim the full value of the credits themselves ... the tax credits are of little value to them." Homeowner's Rehab, 479 Mass. at 744, 99 N.E.3d 744. By syndicating the project, these developers can "sell" the tax credits to private investors—usually corporations with substantial and predictable tax liability—in exchange for an investment of equity in the project. See J. Khadduri, C. Climaco, & K. Burnett, United States Department of Housing and Urban Development, What happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond? , at 2 (2012).
In a typical LIHTC project, the property is owned by a limited partnership, formed solely for that purpose, in which the general partners hold only a nominal equity interest and the limited partners are private investors who hold almost all of the equity (ninety-nine percent or more). Homeowner's Rehab, 479 Mass. at 744, 99 N.E.3d 744 (citing Khadduri et al., supra at 11, 25). The general partner is responsible for the day-to-day management of the property. Id. "The investor limited partners contribute capital and, in return, are allocated the tax benefits flowing from the project, including the LIHTC tax credits, deductions for depreciation, and other tax losses." Id.
At the end of the first fifteen year compliance period, when all tax credits have been claimed and are no longer subject to recapture, most investor limited partners will seek to leave the project—usually by selling their interests to the general partner. See Khadduri et al., supra at 29-31.
The parties are partners in two limited partnerships created in 2000 to rehabilitate and operate an affordable housing development for elderly low-income residents in accordance with the LIHTC program and Section 42 of the Internal Revenue Code. 26 U.S.C. § 42 (2012) ; (Dkt. 59 ¶ 5-6, 14) These two limited partnerships are the Urban Zion Limited Partnership (the "Zion Partnership") and the Urban Fox Lake Limited Partnership (the "Fox Lake Partnership"; collectively referred to as the "Partnerships"). Plaintiff Urban 8 Zion Corporation is the General Partner of the Zion Partnership, and Plaintiff Urban 8 Fox Lake Corporation is the General Partner of the Fox Lake Partnership. ( Id. ¶ 1-2) Nationwide and SCDC are Limited Partners in both Partnerships. ( Id. at ¶ 7-8)
Plaintiffs, as the General Partners, have exercised their rights under the Partnership Agreements to purchase the Limited Partners' interests in the Partnership. (Dkt. 59 ¶ 25) The Partnership Agreements provide for such a sale and set forth the process to calculate the Purchase Price to be paid by the General Partners. (Dkt. 56 at 4) (citing Section 6.16 of the Partnership Agreements) At issue in this case is the calculation of the Purchase Price and the application of the Sale Preparation Fee under the Partnership Agreements. Plaintiffs contend that the Sale Preparation Fee should be credited towards the Purchase Price, while Defendants contend that it should not. Both Plaintiffs and Defendants seek partial summary judgment and a declaration confirming their interpretation of the Partnership Agreements.
Summary judgment should be granted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine dispute as to any material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering cross-motions for summary judgment, the Court must construe all inferences in favor of the party against whom the motion under consideration is made. Allen v. City of Chi. , 351 F.3d 306, 311 (7th Cir. 2003).
Summary judgment is a particularly appropriate mechanism for resolving cases involving the interpretation of written contracts. International Union of United Auto., Aerosapce and Agric. Implement Workers of Am. v. Rockford Powertrain, Inc. , 350 F.3d 698, 703 (7th Cir. 2003). "Because contracts are interpreted as a matter of law, claims that turn on the interpretation and construction of a contract, rather than on disputed material facts, are suitable for resolution on a motion for summary judgment." W. Bend Mut. Ins. Co. v. Procaccio Painting & Drywall Co., Inc. , 928 F. Supp. 2d. 976, 981 (N.D. Ill. 2013), aff'd on other grounds, 794 F.3d 666 (7th Cir. 2015) (citing Kmart Corp. v. Footstar, Inc. , No. 09 CV 3607, 2012 WL 1080262, at *12 (N.D. Ill. Mar. 30, 2012) ).
The parties agree on the material facts, but each party offers a different interpretation of the Partnership Agreements.
The Court applies Illinois law because that is where the suit was filed and because both parties have applied Illinois law. See Ryerson Inc. v. Federal Ins. Co. , 676 F.3d 610, 611-12 (7th Cir. 2012). In Illinois, courts interpret the meaning of unambiguous terms of a contract as a matter of law. See Air Safety Inc. v. Teachers Realty Corp. , 185 Ill.2d 457, 236 Ill.Dec. 8, 706 N.E.2d 882, 884 (1999) ; InsureOne Indep. Ins. Agency, LLC v. Hallberg , 2012 IL App (1st) 092385, 976 N.E.2d 1014, 1037, 364 Ill. Dec. 451 (Ill. App. Ct. 2012). "Traditional principles of contract interpretation require a court, when construing a contract, to ascertain and give effect to the intent of the parties." W.W. Vincent & Co. v. First Colony Life Ins. Co. , 351 Ill.App.3d 752, 286 Ill.Dec. 734, 814 N.E.2d 960, 966 (2004) (citing Eichengreen v. Rollins, Inc. , 325 Ill.App.3d 517, 259 Ill.Dec. 89, 757 N.E.2d 952 (2001) ). The starting point for the Court's analysis is "the language of the contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent." Gallagher v. Lenart , 226 Ill. 2d 208, 874 N.E.2d 43, 50, 314 Ill. Dec. 133 (Ill. 2007) ; see also Kallman v. Radioshack Corp. , 315 F.3d 731, 735 (7th Cir. 2002) ().
"When a dispute exists between the parties as to the meaning of a contract provision, the threshold issue is whether the contract is ambiguous." Bright Horizons Children's Centers, LLC v. Riverway Midwest II, LLC , 403 Ill.App.3d 234, 341 Ill.Dec. 883, 931 N.E.2d 780, 791 (2010). Traditionally, Illinois courts have adhered to the "four corners rule," looking only to the language of the contract to determine whether an ambiguity exists. Air Safety , 236 Ill.Dec. 8, 706 N.E.2d...
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