Hidden Hills Management, LLC v. Amtax Holdings 114, LLC

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 24, 2021
• Docket: 19-35861
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION MAR 24 2021 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

HIDDEN HILLS MANAGEMENT, LLC, No. 19-35861 a Washington limited liability company; 334TH PLACE 2001, LLC, D.C. No. 3:17-cv-06048-RBL

Plaintiffs-Appellants, MEMORANDUM* v.

AMTAX HOLDINGS 114, LLC, an Ohio limited liability company; AMTAX HOLDINGS 169, LLC,

Defendants-Appellees.

HIDDEN HILLS MANAGEMENT, LLC, No. 19-35862 a Washington limited liability company; 334TH PLACE 2001, LLC, D.C. No. 3:17-cv-06048-RBL

Plaintiffs-Appellees,

v.

AMTAX HOLDINGS 114, LLC, an Ohio limited liability company; AMTAX HOLDINGS 169, LLC,

Defendants-Appellants.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appeal from the United States District Court for the Western District of Washington Ronald B. Leighton, District Judge, Presiding

Argued and Submitted March 4, 2021 Seattle, Washington

Before: RAWLINSON and BYBEE, Circuit Judges, and ENGLAND,** Senior District Judge.

These cross-appeals arise from disputes in two Washington partnerships: (1)

the Hidden Hills Partnership, with general partner Hidden Hills Management, LLC

(HHM) and limited partner AMTAX 114, LLC; and (2) the Parkway Partnership,

with general partner 334th Place, LLC and limited partner AMTAX 169, LLC.

The district court had original jurisdiction under 28 U.S.C. § 1332. We have

jurisdiction under 28 U.S.C. § 1291. We review the district court’s summary

judgment determination de novo. Jones v. Royal Admin. Servs., Inc., 887 F.3d 443,

447 (9th Cir. 2018). The district court’s legal conclusions following a bench trial

also receive de novo review, while its findings of fact are reviewed for clear error.

Bertelsen v. Harris, 537 F.3d 1047, 1056 (9th Cir. 2008). We affirm.

** The Honorable Morrison C. England, Jr., Senior United States District Judge for the Eastern District of California, sitting by designation. 2 1. The district court correctly determined that the Hidden Hills

environmental indemnity agreement applied to the option process set out in

§ 7.4(J) of the partnership agreement. Our goal in interpreting a contractual

provision is to ascertain the parties’ intent. Berg v. Hudesman, 801 P.2d 222, 226

(Wash. 1990) (en banc). We do so by examining the text and the parties’ objective

manifestations. Hearst Commc’ns, Inc. v. Seattle Times Co., 115 P.3d 262, 267

(Wash. 2005) (en banc). The text of the indemnity agreement is clear that the

parties intended to indemnify AMTAX 114 against “any and all . . . loss[es]”

related to the known soil contamination. That indemnity is not limited to

distributions between AMTAX 114 and the Hidden Hills Partnership itself. The

district court did not err in finding that the indemnity agreement prohibited

deducting contamination costs from the appraisal.1

2. We reject the AMTAX entities’ claim that the general partners’ delay

in providing the 2018 financial statements requires their removal. We need not

resolve the parties’ dispute over the applicable standard of review for these

removal proceedings because the result is the same under either standard. There is

no dispute that the 2018 statements were late. However, the delay is not grounds

1 Therefore, the district court’s prohibition on disclosing potential contamination expenses to a future appraiser and its fee award also stand. 3 for removal because the limited partners contributed to that delay. See

Refrigeration Eng’g Co. v. McKay, 486 P.2d 304, 309 (Wash. Ct. App. 1971)

(party “cannot take advantage” of a failure that it caused). The partnerships’ CPA

testified at trial that had AMTAX’s expert witness not accused her of materially

misstating prior audits, she would have issued the 2018 statements, despite not

formally withdrawing until after the audits were due. The district court found her

testimony credible, a determination that we uphold absent clear error. See Earp v.

Davis, 881 F.3d 1135, 1145 (9th Cir. 2018). The AMTAX entities should not

benefit from their obstruction of the audit process. The delayed 2018 statements

do not support removal.

3. HHM’s interference in the Hidden Hills appraisal process did not

warrant its removal because AMTAX 114 did not suffer economic detriment. The

text of the partnership agreement’s removal provision does not support AMTAX

114’s interpretation. Section 4.5(A)(iv)(2) allows the general partner’s removal for

a violation of § 7 of the agreement or any “material provision of [the] Agreement.”

But the limited partner must demonstrate a reasonable expectation of economic

detriment. AMTAX 114 did not present evidence that the alleged breaches caused

economic detriment. Thus, removal of HHM is unwarranted.

4 4. AMTAX 169’s derivative claims against 334th Place are barred by the

parties’ contractually imposed business judgment rule. Although the business

judgment rule generally does not apply to partnerships, see Scott v. Trans-Sys. Inc.,

64 P.3d 1, 5 (Wash. 2003) (en banc), the partnership agreement shielded 334th

Place from liability for good faith decisions that damaged the partnership. As the

district court found, 334th Place acted in good faith to manage the affairs of the

Parkway property. There is no evidence that 334th Place attempted to hide any of

the partnership’s expenses from AMTAX 169, and AMTAX 169 had several

opportunities to discover and challenge the now-disputed fees but did not.

AMTAX 169’s derivative claims fail.2

5. Finally, the district court correctly determined that 334th Place’s

breaches of the partnership agreement, if any, did not rise to the level of removal

because 334th Place managed the affairs of the partnership throughout the

compliance period in good faith.

AFFIRMED. The parties shall bear their own costs on appeal.

2 AMTAX 169’s alternative argument that the district court ignored various fees at trial is belied by the record. The district court “considered each of [the] fees in detail during the trial” but found that only two of the challenged fees were “even ‘debatable’ on the merits.” 5