MINNEAPOLIS — November 4, 2020. Winthrop & Weinstine, P.A., along with co-counsel from the law firm of Byrd Campbell, P.A., has secured a substantial monetary judgment for a general partner in the Low Income Housing Tax Credit (LIHTC) industry, in another important victory over an Aggregator in a Year-15 Exit dispute.
In April 2020, the general partner of Berkshire Club Partners, Ltd., secured a sweeping summary judgment decision confirming that its option to purchase the limited partner interests in the LIHTC partnership could not be denied by Hunt Capital Partners (“Hunt”), who had used the limited partner to assert baseless allegations of default that were intended to remove the general partner from the partnership and deny its valuable option right secured more than 15 years prior. In that ruling, the Court found that a positive capital account balance was not part of the contractually mandated purchase price determination and held, among other things, that the option purchase price of approximately $1.6 million is determined “as if there were a hypothetical sale of the Project, not as if the Partnership were being dissolved or liquidated.” After finding the limited partner in breach of the partnership agreement and ordering the immediate transfer of the limited partner interests to the general partner, the Court reserved jurisdiction to enter a damages order and an award of attorney’s fees following a bench trial and subsequent proceedings. For more information on this decision, see https://www.winthrop.com/news/florida-circuit-court-issues-critical-ruling-in-year-15-lihtc-dispute-concerning-general-partners-purchase-option/.
The bench trial spanned four days, from October 12, 2020, to October 15, 2020. On November 3, 2020, the Court issued its judgment on damages, awarding the general partner more than $1.28 million and an additional amount of $1,874.75 daily, for as long as certain circumstances remain outstanding. The damages award, as well as the attorneys’ fees award to be determined, will serve to offset the $1.6 million option purchase price, which is being held by the Court while the case remains pending. Additionally, the Court made numerous, important findings and conclusions of law, including those related to how organizations (like Hunt)—commonly known as Aggregators throughout the LIHTC industry—employ an “Aggregators’ playbook” designed to extract monetary value, in violation of partnership agreements, out of limited partner interests that were not intended by the original parties to the LIHTC partnerships nor sought by the original tax credit investors. The Court went on to conclude, among other things, that this type of Aggregator activity has become more common in the LIHTC industry in recent years, citing eight cases where the general partner’s lead counsel from Winthrop & Weinstine—David A. Davenport—has secured similar results for clients facing Aggregators like Hunt, and two important industry publications on the subject. For a copy of the decision or to discuss its impacts, please reach out to David Davenport.
“I am deeply grateful for my client’s resolve in seeing this matter through to conclusion at this juncture. Hunt and its legal team employed countless harmful tactics throughout the dispute, which the Court readily recognized as baseless and motivated by bad faith, and has now addressed with a substantial damages award. We look forward to the next phase, where the general partner will seek attorneys’ fees for having to enforce its otherwise plain rights that should never have been challenged,” said Davenport. He added, “As we continue our representation of LIHTC developers and learn of more disputes like these, especially where our clients find themselves in LIHTC partnerships with Aggregators, we hope to continue doing our part for the preservation of affordable housing and the protection of general partner rights.”
Year-15 Exit disputes are hyper-specialized and often involve parties whose objectives have changed due to changes in ownership structures since inception of the LIHTC partnerships. Adding to these complex issues is the fact that, because it is still a relatively young industry, there is very little case law involving LIHTC partnerships to cite when resolving these disputes. Since 2013, Davenport has led litigation and other efforts for general and managing partners in disputes in nearly 20 states that have involved more than 100 LIHTC developments and thousands of units of affordable housing.
To learn more about Winthrop & Weinstine’s work with affordable housing and Year-15 issues, visit www.winthrop.com and access David Davenport’s experience through www.winthrop.com/attorneys/d-davenport.