USCA1 Opinion
[Not For Publication]
United States Court of Appeals United States Court of Appeals
For the First Circuit For the First Circuit
____________________
No. 96-1698
GEORGE A. HIGGINS,
Plaintiff, Appellant,
v.
ERIC EICHLER AND PETER DILULLO,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge] ___________________
____________________
Before
Stahl and Lynch, Circuit Judges, ______________
and Woodlock,* District Judge. ______________
____________________
Douglas G. Moxham, with whom Anthony E. Kilbridge and Lane Altman _________________ _____________________ ___________
& Owens LLP were on brief, for appellant. ___________
Helen Mandel Braverman, with whom David L. Braverman, Fellheimer ______________________ __________________ __________
Eichen Braverman & Kaskey, Thomas C. O'Konski, and Cesari & McKenna __________________________ ___________________ ________________
were on brief, for appellant
____________________
DECEMBER 17, 1996
____________________
____________________
*Of the District of Massachusetts, sitting by designation.
LYNCH, Circuit Judge. The plaintiff, George LYNCH, Circuit Judge. ______________
Higgins, and the defendants, Eric Eichler and Peter DiLullo,
are general partners in a number of real estate partnerships.
Higgins, a "national" partner who had been involved in over
ninety partnerships, retired from active management of the
partnerships in 1988 but continues to own interests in
several of the partnerships. After his retirement, Higgins'
relationship with Eichler and DiLullo apparently soured. In
August of 1995, Higgins sued his partners in the United
States District Court for the District of Massachusetts on
the theory that they had breached their fiduciary duties to
him by implementing a scheme to prevent Higgins from
receiving his share of the partnerships' proceeds. Higgins
also sued Eichler and L.P. Corporation ("L.P."), a
Pennsylvania close corporation formed by the partners for the
purpose of performing accounting functions and cash flow
management for the various partnerships, in the United States
District Court for the Eastern District of Pennsylvania.
Defendants moved to dismiss the Massachusetts
action, and asked, in the alternative, for this action to be
transferred to the Pennsylvania court pursuant to 28 U.S.C.
1404(a). Defendants argued that the complaint should be
dismissed because, among other defects, it failed to state a
claim upon which relief could be granted. According to
defendants, the gravamen of plaintiff's complaint was that
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the value of his Individual Partnership Account ("IPA") was
less than it should be. However, defendants asserted, the
flow of funds to Higgins' IPA was regulated by a contract,
the Netting Out Agreement ("NOA"), to which Higgins and L.P.
were the only parties. Therefore, defendants argued,
Higgins' claim could not run against Eichler and DiLullo, as
they were not parties to Higgins' NOA.
The Massachusetts court dismissed the action for
failure to state a claim.1 See Fed. R. Civ. P. 12(b)(6). ___
The court found that the alleged injury was not "within the
scope of any particular real estate partnership," and instead
was caused by the corporation, L.P. The court opined that no
claim for breach of fiduciary duty owed to Higgins as a
partner was stated. The court indicated that plaintiff might
have a breach of contract action against L.P., which was a
necessary party to such a claim, but noted that plaintiff had
not offered any evidence that the Massachusetts federal court
would have jurisdiction over L.P., a Pennsylvania
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1. The district court declined to treat the motion as one
for summary judgment although the parties submitted
additional materials and affidavits. Plaintiff complains
that the district court selectively chose certain facts
submitted by defendants to support the dismissal, while
ignoring other facts in the supplemental submissions which
were favorable to his claim. Because we resolve the issues
presented on other grounds, we find it unnecessary to resolve
this claim of procedural error. Plaintiff does not object to
this court's consideration of the NOA, which is referenced in
the complaint and is central to it. See Fudge v. Penthouse ___ _____ _________
Int'l, Ltd., 840 F.2d 1012, 1015 (1st Cir.), cert. denied, ____________ ____________
488 U.S. 821 (1988).
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corporation. We reverse and remand to the district court
with instructions to transfer the case to the Eastern
District of Pennsylvania.
Our review of the allowance of a motion to dismiss
for failure to state a claim is plenary. See Barrios- ___ ________
Velasquez v. Asociacion de Empleados, 84 F.3d 487, 489-90 _________ ________________________
(1st Cir. 1996). The allegations of the complaint are taken
as true and all reasonable inferences are drawn in favor of
Higgins. See id. We will affirm the dismissal only if it ___ ___
appears, to a certainty, that there is no set of facts upon
which plaintiff may recover. See Roma Constr. Co. v. aRusso, ___ ________________ ______
96 F.3d 566, 569 (1st Cir. 1996).
The parties have largely argued Massachusetts law,
without a full briefing as to whether Massachusetts or
Pennsylvania law applies. Because the parties have pointed
to no material differences between the law of Massachusetts
and the law of Pennsylvania as to partners' fiduciary
obligations, we look primarily to Massachusetts law.
It is abundantly clear that partners owe each other
a fiduciary duty. See Wartski v. Bedford, 926 F.2d 11, 13-14 ___ _______ _______
(1st Cir. 1991) (surveying Massachusetts law). The question
here goes to the extent of that duty. "[P]artners owe each
other a fiduciary duty of 'the utmost good faith and
loyalty.'" Id. at 13 (quoting Meehan v. Shaughnessy, 535 __ ______ ___________
N.E.2d 1255, 1263 (Mass. 1989)). "'As a fiduciary, a partner
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must consider his or her partners' welfare, and refrain from
acting for purely private gain.'" Id. at 13-14 (quoting ___
Meehan, 535 N.E.2d at 1263). ______
Provisions of the Uniform Partnership Act have been
adopted by Massachusetts, notably that:
Every partner must account to the
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct or liquidation of the
partnership or from any use by him of its
property.
Mass. Gen. L. ch. 108A, 21(1).2
Against these standards, we review the facts
alleged, drawing all reasonable inferences for the plaintiff.
We discuss only those facts alleged necessary to test whether
a claim has been stated. From the allegations of the
complaint, it would be reasonable to infer that the myriad of
various real estate partnerships in which the parties
invested were treated, for some purposes, as a single entity
and that the participants regarded each other as partners.
Higgins alleges that Eichler, as chairman of the partners'
"Executive Committee," and assisted by DiLullo, exercised de
facto control over the partnerships. The accounting
functions of the partnerships in toto were performed by L.P, __ ____
a corporation created for that purpose under the NOA. Each
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2. Pennsylvania law contains an identical provision. See 15 ___
Pa. Cons. Stat. Ann. 8334(a).
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partner entered into a separate NOA with L.P. Pursuant to
the NOA, partnership proceeds were paid into partners' IPAs.
In 1993, Eichler and DiLullo, as members of the
Executive Committee, implemented a program called the "IPA
Cleanup Program." The Cleanup Program generally operated for
the benefit of active -- as opposed to retired -- partners.
Under the program, uncollectible debts owed by insolvent
partners to the partnerships were forgiven, and the resulting
losses were allocated to the IPAs of solvent partners, thus
allowing the active solvent partners to take tax deductions.
Additional debt forgiveness adjustments were made to the
partners' IPAs in 1994.
Higgins did not consent to these changes. The
Cleanup Program was implemented anyway and $1.8 million in
losses was allocated to Higgins' account. As a result,
Higgins, rather than having a positive balance in his IPA and
receiving income from his investments, was left with a
negative balance and did not receive any partnership draws.
Higgins' complaint alleges that the IPA Cleanup
Program was a self-dealing scheme by Eichler and DiLullo and
constitutes a breach of their fiduciary duty as partners.
Defendants contend that their fiduciary duties ended when the
partnership income was transferred to L.P. and that, while
plaintiff may have a cause of action against L.P., he has no
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claim of breach of fiduciary duty against them. The district
court agreed with the defendants, holding that the
defendants' actions were outside the scope of the partnership
because the relevant acts, even if attributable to the
defendants, were performed in their role as officers of L.P.,
an entity separate, in the district court's view, from the
partnerships.
This is, in our estimation, too narrow a view of
the allegations, as the record now stands unfocussed by
factual development, and the law. It is reasonable to infer
that the functions performed by L.P. were accounting
functions previously performed by the partnerships
themselves; that L.P. was established for the sole purpose of
administering those functions; that L.P. simply received in
partnership income and then distributed it out; and that L.P.
was merely an agent of the partnerships. These inferences
are supported by the NOA itself, which states that "Partner
and Participants have selected [L.P.] as the business entity
to conduct day to day operations, perform accounting
functions and to assist in cash planning and cash flow
management for the Enterprises." Higgins' NOA, although
executed only by Higgins and L.P., is also expressly
conditioned on all of the participants in the various
partnerships signing identical agreements, and states that
these agreements "shall be for the mutual benefit of such
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executing Participants, Agent, Partner and the other parties
to such agreements." Plaintiff also alleges that L.P. was
under the control of the defendants and did what they wanted.
The NOA itself can be read to suggest that L.P. on its own
had no authority to execute a scheme such as the IPA Cleanup
Program. It was pursuant to that scheme that plaintiff was,
he alleges, deprived of partnership income owed to him. It
thus may be inferred that L.P., rather than acting as a
separate entity with regard to the alleged scheme, was merely
an arm or instrumentality of the partnerships.
The Supreme Judicial Court of Massachusetts
recently upheld a jury verdict in a case involving a claim
that two law partners had deprived the plaintiff partner of
his fair share of partnership proceeds by choosing unfair
methods of accounting for partnership profits. Starr v. _____
Fordham, 648 N.E.2d 1261 (Mass. 1995). The court recognized _______
the potential for self-dealing where certain partners in
essence control the distributions to another partner:
The founding partners were responsible
for dividing the partnership's profits
and assigning to each partner his
respective share of the profits. Thus,
the founding partners had some self-
interest in designating each partner's
respective share of the profits because
the percentage of profits which they were
assigning to the other partners had a
direct effect on their own percentage of
the profits.
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Id. at 1265. Accordingly, the court placed the burden of ___
proving that the distribution of profits was fair on the
defendants. Id. ___
We are unprepared to say, in the context of a
motion to dismiss, that Massachusetts law would never
recognize a claim for breach of fiduciary duty where, as
described above, the instrument used to deprive a partner of
his partnership income was simply an arm of the partnership,
and was under the control of the defendant partners.
We think it better that the questions in this case
be resolved in the context of further factual development.
As Justice Frankfurter stated in SEC v. Chenery Corp., 318 ___ _____________
U.S. 80 (1943):
[To] say that a man is a fiduciary only
begins the analysis; it gives direction
to further inquiry. To whom is he a
fiduciary? What obligations does he owe
as a fiduciary? In what respect has he
failed to discharge these obligations?
And what are the consequences of his
deviation from duty?
Id. at 85-86. Therefore, we reverse the district court's __
grant of defendants' motion to dismiss.
Plaintiff now joins defendants in asking that this
case be transferred to the Pennsylvania district court. The
action filed by Higgins in that court against Eichler and
L.P. is substantially related to the present action. "The
pendency of related litigation in another forum is a proper
factor to be considered in resolving choice of venue
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questions," Codex Corp. v. Milgo Electronic Corp., 553 F.2d ____________ _______________________
735, 739 (1st Cir.), cert. denied, 434 U.S. 860 (1977), and ____________
may be decisive where, as here, neither party raises
convenience objections. See id. Additionally, transfer will ___ ___
resolve the various jurisdictional issues raised by
defendants in their motion to dismiss.
Accordingly, on remand, the district court should
transfer this action to the United States District Court for
the Eastern District of Pennsylvania as a companion case to
the suit Higgins has already filed there.
Reversed and remanded with instructions. ________________________________________
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