Kings Lane GP, Inc. v. Kings Lane Dividend Hous. Ass'n

KINGS LANE GP, INC, SJS INVESTMENTS, INC, and EESAM ARABBO, Plaintiffs/Counterdefendants-Appellants, v. KINGS LANE LIMITED DIVIDEND HOUSING ASSOCIATION LIMITED PARTNERSHIP, PNC MULTIFAMILY CAPITAL INSTITUTIONAL FUND XXXI LIMITED PARTNERSHIP, PNC BANK, NA, and COLUMBIA HOUSING SLP CORPORATION, Defendants/Counterplaintiffs-Appellees.

No. 352447

Court of Appeals of Michigan

October 7, 2021

UNPUBLISHED

Genesee Circuit Court LC No. 15-105009-CB

Before: Cameron, P.J., and Jansen and Gleicher, JJ.

Per Curiam.

Plaintiffs Kings Lane GP, Inc. (Kings Lane GP), SJS Investments, Inc. (SJS Investments), and Eesam Arabbo appeal as of right challenging the trial court's order granting summary disposition in favor of defendants Kings Lane Limited Dividend Housing Association Limited Partnership (the Limited Partnership), PNC Multifamily Capital Institutional Fund XXXI Limited Partnership (PNC Multifamily Capital Fund), Columbia Housing SLP Corporation (Columbia Housing) (collectively "the Partnership parties"), and PNC Bank, NA (PNC Bank). For the reasons set forth in this opinion, we reverse and remand for further proceedings.

I. BACKGROUND

This case arises from the removal of Kings Lane GP as the general partner of the Limited Partnership, in which Arabbo ^[1] PNC Multifamily Capital Fund, and Columbia Housing were limited partners. The purpose of the Limited Partnership was to "rehabilitate, acquire, own, operate, maintain, manage lease, sell, mortgage, or otherwise dispose of the Project," which consisted of the Kings Lane Apartment Complex (the property). The improvement of the property was a rehabilitation project under a United States Department of Housing and Urban Development (HUD) program. SJS Investments was the developer.

In June 2006, the parties entered into an Amended and Restated Agreement of Limited Partnership (LPA). Section 7.7(a)(i) of the LPA provided the limited partners with the right to remove the general partner and to elect a new general partner under certain enumerated circumstances. Additionally, Article XIV of the LPA provided, in pertinent part:

(a) So long as the Secretary of the [HUD] or the Secretary's successors or assigns is the insurer or holder of the mortgage note secured by the mortgage on Kings Lane Apartments, . . . no amendment to the Certificate of Limited Partnership, as amended, or this Agreement, that results in any of the following will have any force or effect without the prior written consent of the Secretary:

(v) A change in the General Partner of the Partnership[.] [Emphasis added.]

In 2010, the Limited Partnership defaulted on a mortgage that had been assigned to defendant PNC Bank. An action was initiated in the trial court, but was later removed to federal court because HUD was named as a party. In 2013, the United States District Court for the Eastern District of Michigan authorized the judicial foreclosure and sale of the property. While that matter was pending, Kings Lane GP was informed that it was being removed as the general partner because of a variety of breaches of the LPA. Thereafter, the property was purchased by PNC Bank, and the sale was confirmed by the district court. Under the terms of the LPA, the Limited Partnership dissolved.

In June 2015, plaintiffs commenced the instant action. Their first-amended complaint asserted several claims, including a request for declaratory relief. With respect to the claim for declaratory relief, plaintiffs requested in relevant part that the trial court "[e]nter a declaratory judgment that . . . Kings Lane GP [had] not been removed as General Partner of Kings Lane LP." This claim was based on allegations that "the attempted removal of . . . Kings Lane GP . . . was without proper authority, contrary to the partnership agreement, and/or otherwise not in accordance with Michigan law."

In 2017, the trial court granted defendants' motions for summary disposition and dismissed all of plaintiffs' claims. Plaintiffs appealed, and this Court affirmed the dismissal of the claims for tortious interference with a contract or business relationship, fraud and misrepresentation, conspiracy and concert of action, breach of fiduciary duty, and breach of contract. Kings Lane GP, Inc v Kings Lane Ltd Dividend Housing Ass'n Ltd Partnership, unpublished per curiam opinion of the Court of Appeals, issued December 4, 2018 (Docket No. 338967). However, this Court reversed the trial court's dismissal of the claim for declaratory relief. Id. at 14-16. In relevant part, this Court concluded that an actual controversy existed because defendants had not presented "any evidence that they had permission from the Secretary of HUD before removing Kings Lane GP as general partner." Id. at 15. Consequently, "[w]hether the removal took effect remain[ed] in question," and the matter was remanded to the trial court. Id. at 15-16.^[2]

On remand, the Partnership parties and PNC Bank filed motions for summary disposition under MCR 2.116(C)(4) (lack of subject-matter jurisdiction) and (C)(10) (no genuine issue of material fact). In relevant part, defendants argued that there was no actual controversy regarding the status of the Limited Partnership because the property had been sold and the Limited Partnership had been dissolved. The Partnership parties also argued that plaintiffs' request for declaratory relief was barred by the doctrine of laches.

Plaintiffs opposed defendants' motions, arguing that an actual controversy existed because Kings Lane GP had been removed as the general partner of the Limited Partnership without the consent of the Secretary of HUD. Plaintiffs alleged that there were monetary distributions to be made according to the LPA and that they were entitled to monetary damages. Plaintiffs also argued that the doctrine of laches was inapplicable and that this Court had already decided the question of subject-matter jurisdiction and whether an "actual controversy" existed in the prior appeal. Plaintiffs moved for summary disposition in their favor under MCR 2.116(I)(2) because defendants had failed to establish that they had obtained approval from the Secretary of HUD before removing Kings Lane GP as the general partner.

After hearing oral argument, the trial court concluded that there was no actual controversy given that plaintiffs' claims for monetary damages had been dismissed and given that the Limited Partnership had been dissolved. In so holding, the trial court rejected plaintiffs' argument that this Court had previously decided this issue to the contrary. The trial court also concluded that plaintiffs' claim for declaratory relief was barred by the doctrine of laches. Thereafter, the trial court severed the counterclaims and entered an order of dismissal. This appeal followed.

III. ANALYSIS

Plaintiffs argue that the trial court erred by granting defendants' motions for summary disposition and by denying plaintiffs' motion for summary disposition. We agree in part.

A. GRANT OF DEFENDANTS' MOTION FOR SUMMARY DISPOSITION

1. LACK OF ACTUAL CONTROVERSY

Plaintiffs argue that the trial court erred by concluding that the undisputed evidence established that an actual controversy did not exist. We agree.

This Court reviews de novo a trial court's decision regarding a motion for summary disposition. Buhl v City of Oak Park, __ Mich. __, __; __ N.W.2d __ (2021) (Docket No 160355); slip op at 3. MCR 2.116(C)(4) provides that summary disposition may be granted if a court "lacks jurisdiction of the subject matter." In Meisner Law Group, PC v Weston Downs Condo Ass'n, 321 Mich.App. 702, 714; 909 N.W.2d 890 (2017), this Court explained:

A motion under Subrule (C)(4) may be supported or opposed by affidavits, depositions, admissions, or other documentary evidence. MCR 2.116(G)(2). When affidavits, depositions, admissions, or other documentary evidence are submitted with a motion under MCR 2.116(C)(4), they "must be considered by the court." MCR 2.116(G)(5). So, when reviewing a motion for summary disposition brought under MCR 2.116(C)(4) that asserts the court lacks subject-matter jurisdiction, the court must determine whether the pleadings demonstrate that the defendant is entitled to judgment as a matter of law, or whether the affidavits and other proofs show that there was no genuine issue of material fact.

The court rule governing a trial court's authority to enter a declaratory judgment, MCR 2.605, provides, in pertinent part:

(A) Power to Enter Declaratory Judgment.

(1) In a case of actual controversy within its jurisdiction, a Michigan court of record may declare the rights and other legal relations of an interested party seeking a declaratory judgment, whether or not other relief is or could be sought or granted. [Emphasis added.]

As stated in Burton-Harris v Wayne Co Clerk, __ Mich.App. __, __; __ N.W.2d __ (2021) (Docket No. 353999); slip op at 11 (citation omitted), "[t]he purpose of a declaratory judgment is to definitively declare the parties' rights and duties, to guide their future conduct and relations, and to preserve their legal rights." "[A]n 'actual controversy' exists for the purposes of a declaratory judgment where a plaintiff pleads and proves facts demonstrating an adverse interest necessitating a judgment to preserve the plaintiff's legal rights." Mich Ass'n of Home Builders v City of Troy, 504 Mich. 204, 225; 934 N.W.2d 713 (2019). "In the absence of an actual controversy, the trial court lacks subject-matter jurisdiction to enter a declaratory judgment." Leemreis v Sherman Twp, 273 Mich.App. 691, 703; 731 N.W.2d 787 (2007).

In the prior appeal, this Court held that "an actual controversy" existed under MCR 2.605(A)(1) because a genuine issue of material fact existed as to whether Kings Lane GP was properly...