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American Housing Preservation Corporation v. Nef Assignment Corporation

United States District Court, S.D. Georgia, Savannah Division

March 27, 2015

NEF ASSIGNMENT CORPORATION, as nominee for National Equity Fund, Inc., Defendant.


WILLIAM T. MOORE, Jr., District Judge.

Before the Court is Defendant's Motion for Joinder of Additional Parties (Doc. 9), to which Plaintiffs have filed a response (Doc. 14). In addition, Plaintiffs have filed a Motion to Dismiss Defendant's counterclaims. (Doc. 17.) Defendant has filed a reply in defense of its Motion for Joinder (Doc. 19) and a response to Plaintiffs' Motion to Dismiss (Doc. 22). For the reasons that follow, Defendant's Motion for Joinder (Doc. 9) is GRANTED and Plaintiffs' Motion to Dismiss (Doc. 17) is DENIED. SNAP Investment, LLC shall be joined in this action as a counterclaim-defendant. SNAP Housing Limited Partnerships I, II, and III shall be joined in this action as counterclaim-plaintiffs.


This declaratory judgment action has been brought by Plaintiffs American Housing Preservation Corporation ("American Housing") and Mainland Development Company ("Mainland") seeking a declaration of rights pursuant to partnership agreements between them and Defendant NEF Assignment Corporation ("NEFAC"). (Doc. 1.) In December of 2002, the parties created SNAP Housing Limited Partnership I, SNAP Housing Limited Partnership II, and SNAP Housing Limited Partnership III (the "Partnerships") in conjunction with various other entities for the purpose of purchasing and developing low-income housing projects in Savannah, Georgia. (Doc. 8 at 5-6.) Plaintiffs are general partners of the Partnerships, while Defendant NEFAC is a limited partner. (Doc. 1 ¶¶ 4-5.)

According to the partnership agreements, Defendant NEFAC may remove Plaintiffs as general partners in the event of certain specified defaults-provided that Plaintiffs fail to cure such defaults within a reasonable time. (Id. ¶ 11.) On or about October 29, 2013, Defendant NEFAC sent a series of letters to Plaintiffs indicating its belief that defaults existed with regard to each partnership agreement and stating its intent to remove Plaintiffs as general partners if the defaults were not timely cured. (Id. ¶¶ 12-14.) Specifically, Defendant NEFAC alleged that Plaintiffs had improperly commingled the Partnerships' funds with those of unrelated partnerships, lent partnership funds in violation of the partnership agreements, improperly distributed funds to themselves, failed to maintain sufficient reserve funds, failed to file the Partnerships' annual registrations with the state of Georgia, and violated other United States Department of Housing and Urban Development ("HUD") regulations. ( Id., Attach. D, Attach. E, Attach. F.) According to Plaintiffs, they have since cured or offered to cure each of the identified defaults. (Id. ¶ 15.) However, Defendant NEFAC was unsatisfied with the offered cures and did not withdraw its notice of intent to remove Plaintiffs as general partners of the Partnerships. (Id. ¶ 16.)

On January 8, 2014, Plaintiffs filed this action seeking a declaratory judgment that they have either timely cured each alleged default or that they have been excused from their obligation to cure the defaults by Defendant NEFAC's rejection of the offered cures. (Id. ¶¶ 17-18.) Defendant answered and filed derivative counterclaims for breach of fiduciary duty and conversion on behalf of the Partnerships, as well as individual counterclaims for breach of contract and declaratory judgment, and requesting a full and complete accounting of all funds belonging to each of the Partnerships. (Doc. 8.) The facts underlying each of Defendant NEFAC's counterclaims are the same as those which Plaintiffs dispute in their declaratory judgment complaint. Along with its answer, Defendant simultaneously filed its present Motion for Joinder seeking to add SNAP Investment, LLC-another general partner of the Partnerships-as a counterclaim-defendant and the Partnerships themselves as counterclaim-plaintiffs for the derivative actions. (Doc. 9.)

Plaintiffs subsequently filed both a response to Defendant NEFAC's Motion for Joinder (Doc. 14) as well as a Motion to Dismiss the counterclaims (Doc. 17). In both filings, Plaintiffs argue that Defendant NEFAC's counterclaims are improper and, as a result, joinder of the additional parties is unnecessary. Specifically, Plaintiffs contest that Defendant NEFAC failed to provide Plaintiffs with sufficient time to respond to its derivative demands, the derivative counterclaims are moot following Plaintiffs' resolution of the underlying claims, the derivative counterclaims constitute impermissible participation in the management of the Partnerships, and the provisions of the partnership agreements allowing Defendant NEFAC to remove the Plaintiffs are facially invalid.[1] (Doc. 14, Doc. 18.) Defendant NEFAC then filed a reply in defense of its Motion for Joinder (Doc. 19) and a response to Plaintiffs' Notion to Dismiss (Doc. 22)



As an initial matter, the Court addresses whether joinder of the named parties is appropriate assuming the counterclaims survive. The addition of parties to counterclaims is governed by Federal Rules of Civil Procedure 19 and 20. Fed.R.Civ.P. 13(h). Rule 19, which governs compulsory joinder, states that a party must be joined to an action if "in that person's absence, the court cannot accord complete relief among existing parties." In addition, under Rule 20, a Court may permit joinder of a party where "relief is asserted against [it] jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences and any question of law or fact common to all defendants will arise in the action."

Here, it appears that joinder of the Partnerships and SNAP Investment, LLC would be appropriate under either Rule 19 or 20. First, as to Defendant NEFAC's derivative counterclaims, it is clear that the Partnerships must be joined as counterclaim-plaintiffs. See Bivens Gardens Office Bldg., Inc. v. Barnett Banks of Fla., Inc., 140 F.3d 898, 909 (11th Cir. 1998) ("In a partnership derivative suit, the partnership is an indispensable party."). Further, all of Defendant NEFAC's counterclaims revolve around the same common issues of law and fact. Snap Investment, LLC is a co-general partner in the Partnerships along with Plaintiffs, was included in Defendant NEFAC's initial letters to the general partners outlining its complaints, and the counterclaims seek relief against it jointly and severally with Plaintiffs. Accordingly, the Court finds that if the counterclaims are to survive, joinder of SNAP Investment, LLC as counterclaim-defendant and the Partnerships as counterclaim-plaintiffs is appropriate.

The Court also notes that Plaintiffs make no argument concerning the parties standing under either Rule 19 or 20.[2] Rather, Plaintiffs simply oppose the counterclaims themselves, and thus argue that joinder is unnecessary. These arguments are addressed below.


Although the claims reviewed by the Court in this instance are counterclaims, the pleading standards are the same as if they were brought in a complaint. Federal Rule of Civil Procedure 8(a) (2) requires a pleading to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." "[T]he pleading standard Rule 8 announces does not require detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Aschroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).[3] "A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of ...

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