Allright Missouri, Inc. v. Billeter

829 F.2d 631, 56 U.S.L.W. 2177, 9 Fed. R. Serv. 3d 27, 1987 U.S. App. LEXIS 12358
CourtCourt of Appeals for the Eighth Circuit
DecidedSeptember 16, 1987
DocketNos. 86-1476, 86-1537
StatusPublished
Cited by22 cases

This text of 829 F.2d 631 (Allright Missouri, Inc. v. Billeter) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Allright Missouri, Inc. v. Billeter, 829 F.2d 631, 56 U.S.L.W. 2177, 9 Fed. R. Serv. 3d 27, 1987 U.S. App. LEXIS 12358 (8th Cir. 1987).

Opinion

WOLLMAN, Circuit Judge.

Allright Missouri, Inc. (Allright), a Missouri corporation, appeals from a final judgment entered by the district court dismissing its claims against the defendants, 631 F.Supp. 1328. In addition, Allright also appeals several interlocutory orders decided adversely to it below. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

Allright is a limited partner in Downtown Development Associates, Ltd. (Downtown), a Missouri limited partnership formed by defendants Joseph Burkhardt and Richard Senturia in 1980 for the purpose of acquiring two city blocks of land located in an area known as Lacledes Landing in downtown St. Louis, Missouri. After the property was acquired, the general partners of Downtown1 sold units of limited partnership interests in Downtown over the next three years to several individuals and entities.2 Allright contends that material misrepresentations and omissions of fact were made in the sale of these interests.

In 1984, the general partners proposed a conveyance of approximately 1.3 acres of Downtown’s real property to another Missouri limited partnership, Riverside Hotel Investments, Ltd. (Riverside), in exchange for a twenty percent interest in that partnership. Riverside planned to construct a three-hundred room, eight story hotel on [634]*634the site. Pursuant to the Downtown limited partnership agreement, consent of the majority-in-interest of the limited partners was needed to convey the property to Riverside inasmuch as Burkhardt and Sentaría, both general partners of Downtown, initially owned, controlled, and were general partners of Riverside. At or prior to the time that Burkhardt and Sentaría solicited the consent of the limited partners, they allegedly told certain limited partners, including Allright, that an additional six million dollars would be invested in Riverside and that Riverside would borrow approximately eighteen million dollars (or roughly seventy-five percent of the construction cost) for the construction of the hotel on the property. The majority-in-interest of the limited partners approved the transaction, and the transfer of the interest in the property to Riverside was completed on or about March 30, 1984. A $23,298,000 loan, secured by a mortgage on the property and by the personal guarantees of the four general partners of Riverside, was obtained from Savings Investment Service Corporation (SISCorp) for the construction of the hotel on the property. Apparently it was only after the transfer of the property to Riverside that the limited partners became aware of the fact that Burkhardt and Sentaría never did seek the promised additional capitalization of Riverside and that instead of borrowing only seventy-five percent of the cost of the hotel, nearly one hundred percent of its cost had been borrowed from SISCorp. It is also alleged that only after the conveyance did the limited partners fully learn that Burkhardt and Sentaría had paid the sum of $981,000 out of the initial construction loan draw as a permanent loan commitment fee for a permanent loan commitment that was nonexistent and that Burkhardt and Sentaría had assessed Riverside several substantial fees payable to themselves or their affiliates, a significant portion of which was paid out of the initial construction loan draw.

After conveyance of the property, the general partners of Downtown, acting through Burkhardt and Sentaría, solicited ratification of the conveyance by the limited partners but were unsuccessful. Between March 29, 1984, and July 5, 1984, Allright allegedly demanded that Downtown’s general partners take whatever action necessary to recover the real property conveyed to Riverside or else to recover reasonable compensation from Burkhardt, Sentaría, and/or Riverside. The general partners, though, apparently rejected All-right’s demands for action.

On June 26, 1984, after construction on the hotel had already begun, Allright filed suit in federal district court, naming all the general partners and the other limited partners of Downtown as defendants. Allright later filed a First Amended Complaint on July 5, 1984, joining the mortgagee, SIS-Corp. Defendants subsequently moved to dismiss the complaint. Allright responded by filing a ninety-one page, sixteen count Second Amended Complaint. Count I alleged a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968 (1982), and sought treble damages against Burkhardt and Sentaría; Counts II through VIII alleged a series of violations of federal securities laws and sought rescission of the transfer to Riverside; Counts IX through XI alleged violations of the Missouri securities laws and sought rescission of the conveyance to Riverside. The remaining counts were for breach of fiduciary duty, breach of the partnership agreement, dissolution and accounting, and removal of Sentaría as a general partner of Downtown. Afterwards, twelve of the twenty limited partners filed a cross-claim against the general partners, adopting Allright’s claims and adding additional parties and claims.3 The district court granted defendants’ motion to dismiss the federal and Missouri securities law claims on the ground that neither Allright nor the other limited partners had capacity to bring a derivative suit. The court also dismissed the other pendent [635]*635state law claims without prejudice. Upon defendants’ subsequent motion, the district court entered an order dismissing the RICO claim — the only count remaining— finding that Allright had failed to allege sufficient acts for there to be a pattern of racketeering activity under the statute. These appeals followed.

I.

Allright’s major contention is that the district court erred in ruling that All-right and the other limited partners lacked the capacity to bring their federal and Missouri securities law claims derivatively. We agree.

The starting point for our analysis is Fed.R.Civ.P. 17(b), which states:

The capacity of an individual, other than one acting in a representative capacity, to sue or be sued shall be determined by the law of the individual’s domicile. The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized. In all other cases capacity to sue or be sued shall be determined by the law of the state in which the district court is held, except (1) that a partnership or other unincorporated association, which has no such capacity by the law of such state, may sue or be sued in its common name for the purpose of enforcing for or against it a substantive right existing under the Constitution or laws of the United States * * *

Under the plain wording of the rule, we are required to apply state law (Missouri law in this instance) to determine whether the limited partners have the capacity to bring a derivative suit. See Klebanow v. New York Produce Exch., 344 F.2d 294, 296-97 (2d Cir.1965); Engl v. Berg, 511 F.Supp. 1146, 1152-53 (E.D.Pa.1981); Smith v. Bader, 458 F.Supp. 1184, 1186-87 (S.D.N. Y.1978). While Missouri courts have not directly spoken on the question, several courts in other jurisdictions have recognized the right of a limited partner to bring a derivative suit. See, e.g., Klebanow, 344 F.2d at 295-99; Engl, 511 F.Supp. at 1152-53; McCully v.

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Allright Missouri, Inc. v. Billeter
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Bluebook (online)
829 F.2d 631, 56 U.S.L.W. 2177, 9 Fed. R. Serv. 3d 27, 1987 U.S. App. LEXIS 12358, Counsel Stack Legal Research, https://law.counselstack.com/opinion/allright-missouri-inc-v-billeter-ca8-1987.