SunAmerica Housing Fund 1050 v. Pathway of Pontiac, Inc.

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0100p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

┐
SUNAMERICA HOUSING FUND 1050,
│
Plaintiff-Appellee, │
> No. 21-1243
│
v. │
│
PATHWAY OF PONTIAC, INC.; PV NORTH LLC; │
PRESBYTERIAN VILLAGE NORTH, │
Defendants-Appellants. │
│
┘

Appeal from the United States District Court for the Eastern District of Michigan at Detroit.
No. 2:19-cv-11783—Arthur J. Tarnow, District Judge.

Argued: January 28, 2022

Decided and Filed: May 10, 2022

Before: CLAY, GRIFFIN, and STRANCH, Circuit Judges.

_________________

COUNSEL

ARGUED: David A. Davenport, BC DAVENPORT, LLC, Minneapolis, Minnesota, for
Appellants. Louis E. Dolan, Jr., NIXON PEABODY LLP, Washington, D.C., for Appellee. ON
BRIEF: David A. Davenport, Alexander M. Hagstrom, BC DAVENPORT, LLC, Minneapolis,
Minnesota, Kevin J. Roragen, LOOMIS EWERT PARSLEY DAVIS & GOTTING, P.C.,
Lansing, Michigan, for Appellants. Louis E. Dolan, Jr., NIXON PEABODY LLP, Washington,
D.C., Seth A. Horvath, Keith E. Edeus, Jr., NIXON PEABODY LLP, Chicago, Illinois, Larry J.
Obhof, Jr., Mark D. Wagoner, Jr., SHUMAKER, LOOP & KENDRICK LLP, Toledo, Ohio, for
Appellee.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 2
Pathway of Pontiac, Inc., et al.

_________________

OPINION
_________________

JANE B. STRANCH, Circuit Judge. This case arises from a contractual dispute among
partners of a limited partnership formed to operate a low-income housing complex pursuant to
the Low-Income Housing Tax Credit (LIHTC) program, 26 U.S.C. § 42. The dispute centers
around the “right of first refusal” (ROFR) provision of the Partnership Agreement, which,
pursuant to § 42(i)(7) of LIHTC, granted a nonprofit organization the ROFR to purchase the
property at a below-market rate following the conclusion of the LIHTC program’s compliance
period. At issue is whether the conditions precedent to trigger the ROFR have been met. The
district court concluded that they were not and granted summary judgment in favor of
SunAmerica Housing Fund 1050 (SunAmerica). For the reasons that follow, we REVERSE and
REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

A. The Low-Income Housing Tax Credit Program

Because the parties’ claims are intertwined with LIHTC—a highly complex, unique
federal program—some background into the mechanics of LIHTC is needed. The LIHTC
program was created as part of the Tax Reform Act of 1986. Pub. L. No. 99-514, § 252, 100
Stat. 2085, 2189–208 (codified as amended at 26 U.S.C. § 42). The program is premised on a
model of leveraging private-sector equity to facilitate cash flow into the development and
rehabilitation of low-income housing. See H.R. Rep. No. 101-247, 101st Cong., 1st Sess., at
1188 (1989) (giving “tax incentives to private investors . . . is the most appropriate way to
achieve th[e] aim” of increasing affordable housing). Through the program, the Internal
Revenue Service (IRS) allocates federal tax credits to state housing credit agencies, which then
distribute the credits to eligible low-income housing developers.

A typical arrangement under LIHTC proceeds as follows. See generally Off. of the
Comptroller of the Currency, Low-Income Housing Tax Credits: Affordable Housing Investment
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 3
Pathway of Pontiac, Inc., et al.

Opportunities for Banks 6–9 (Mar. 2014), https://www.occ.gov/publications-and-resources/
publications/community-affairs/community-developments-insights/pub-insights-mar-2014.pdf
(providing general overview of the mechanics of LIHTC). A low-income housing developer first
applies to a state housing credit agency for an award of federal tax credits. If the state agency
grants the application, the developer then enters into a limited partnership as a general partner
with a private investor as a limited partner. Often, the investor is a bank or another financial
entity that has ample annual tax liability of its own that makes acquiring the nonrefundable tax
credits a worthwhile investment. The limited partner investor then provides the capital needed to
build and develop the low-income housing development. In return, the partnership allocates the
vast majority (usually 99.99%) of tax credits and other tax benefits to the investor. These
benefits alone provide the investor with a significant return on investment that makes the
arrangement attractive and worthwhile to the investor. See, e.g., Ernst & Young, Low-Income
Housing Tax Credit Assessment Survey 6 (2009), https://www.nahma.org/wp-content/uploads/
files/member/Tax%20Credit/Legislative%20Study_FINAL%20092509.pdf (finding average
annual post-tax rate of return on investment to be approximately 10%).

LIHTC allows investors to claim the tax credits through the arrangement annually over a
ten-year period. 26 U.S.C. § 42(b)(1)(B). Housing developments that receive LIHTC tax credits
must comply with income-eligibility requirements and rent limits for an initial 15-year
compliance period, and, for projects that began in 1990 or later, an additional 15-year extended
use period. See id. § 42(h)(6)(D), (i)(1). During the initial 15-year compliance period, the tax
credits can be recaptured by the IRS if the developer violates the LIHTC requirements for the
housing developments, such as certain rent or income restrictions, or if the development faces
serious physical damage or financial problems. See id. § 42(j). Beyond this initial period,
however, the IRS cannot recapture any tax credit and the program is then enforced primarily by
the state housing agencies. See id.

When Congress enacted LIHTC, it was especially concerned about the long-term
preservation of the low-income housing developments. Recognizing that nonprofits are
generally more likely than for-profit developers to maintain rents at below-market levels beyond
the initial compliance period, LIHTC requires that state agencies administering the program
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 4
Pathway of Pontiac, Inc., et al.

award at least 10% of their tax credits to projects that involve nonprofit developers. See id.
§ 42(h)(5).

In addition, Congress included a carve-out provision to facilitate the continued
participation of nonprofit developers by authorizing them to negotiate provisions in the
partnership agreements to “buy out” the limited partner investor after the initial 15-year
compliance period through a ROFR. See id. § 42(i)(7). Section 42(i)(7) is structured as a safe
harbor ensuring that none of the tax credits allocated to the investor will be disallowed by the
IRS (and thus subject to recapture) because a qualified, tax-exempt nonprofit holds a below-
market ROFR to purchase the property. See id. By crafting the safe harbor clause in this
manner, Congress was careful to distinguish the ROFR from an option that would allow a
nonprofit to unilaterally purchase the property for a below-market value. Indeed, if Congress
created a below-market option, the IRS could deem the nonprofit entity the “true owner” of the
property under the so-called “economic substance doctrine.” See Frank Lyon Co. v. United
States, 435 U.S. 561, 571–73 (1978). Thus, the safe harbor provision operates to protect the
incentives of for-profit entities to initially invest in affordable housing projects, while creating a
means for nonprofits to regain ownership and continue the mission of affordable housing once
those incentives expire.

Facilitation of the investor exit after the expiration of the fifteen-year compliance period
is, therefore, crucial to the efficacy of the LIHTC program. The mechanism creates an incentive,
as discussed, for nonprofits to participate in the program; nonprofits will be less likely to enter a
partnership that includes an investor, if doing so entails a serious risk of an ownership battle after
the fifteenth year. Unsurprisingly, industry participants in LIHTC programs have long acted in
accordance with that understanding. For example, a study commissioned by the United States
Department of Housing and Urban Development found that the vast majority of LIHTC
properties remain affordable at the end of the tax credit period, noting that “[b]y far the most
common pattern of ownership around Year 15 is for the investor partners to sell their interests in
the property to the general partner” or the affiliated nonprofit. Office of Pol’y Dev. & Research,
U.S. Dep’t of Hous. & Urban Dev., What Happens to Low Income Housing Tax Credit
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 5
Pathway of Pontiac, Inc., et al.

Properties at Year 15 and Beyond? (Aug. 2012), at 15, available at
https://www.huduser.gov/publications/pdf/what_happens_lihtc_v2.pdf.

B. Factual Background

In 2001, Presbyterian Village North (Presbyterian), a nonprofit provider of subsidized
housing, organized a partnership under the Michigan Revised Uniform Limited Partnership Act
(the Partnership) to rehabilitate and operate an affordable housing community, consisting of 150-
unit apartments, for the elderly (the Property).

The Partnership followed the same general structure discussed earlier. It originally
consisted of Presbyterian and Pathway Senior Living of Michigan (PSL) as General Partners that
managed the Property. They applied to the Michigan State Housing Development Authority for
housing credits under LIHTC. On June 1, 2002, the Housing Authority granted housing credits
to the Partnership. At that point, SunAmerica, a large institutional investor, joined the
Partnership as a Limited Partner, owning 99.99% of the Partnership. To facilitate SunAmerica’s
receipt of its expected tax-related benefits, Presbyterian and PSL withdrew from the Partnership,
and Pathway of Pontiac, Inc., and PV North—an affiliate of Presbyterian—entered as General
Partners, collectively owning 0.01% of the Partnership.

The General Partners were responsible for managing and overseeing the Property.
Consistent with the Limited Partnership Agreement (LPA), SunAmerica made $8,747,378 in
capital contributions in exchange for 99.99% of the $11,606,890 in housing credit that had been
secured as part of the LIHTC program. The LPA provided that the General Partners “shall make
all decisions affecting the business of the partnership.” Concerning potential sales of the
Property, the LPA stated that:

The General Partner shall not, without the Consent of [SunAmerica] which
Consent may be withheld in its sole and absolute discretion, have any authority
to[,] except as provided in Article 17 hereof, sell or otherwise dispose of, at any
time, all or any material portion of the assets of the Partnership.

(LPA, R. 1-1, § 8.02(b)(i), PageID 74). The LPA is to be read according to Michigan law.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 6
Pathway of Pontiac, Inc., et al.

Under the exception provided in Article 17, Presbyterian retained a ROFR to purchase
the Property for an amount less than the fair market value and a unilateral option to purchase the
Property for the fair market value (the Option). The ROFR provisions in the LPA are, in
relevant parts, as follows:

17.01. Grant of Right of First Refusal. Partnership hereby grants to Presbyterian a
right of first refusal to purchase the [Property] on the terms and conditions set
forth in Sections 17.02, 17.03, 17.04 and 17.05 hereof. Presbyterian’s right to
exercise the right of first refusal is subject to Presbyterian providing the
Partnership with an opinion of counsel reasonably acceptable to [the General
Partners] and [SunAmerica] that the exercise of the right of first refusal will not
cause any recapture of tax credits to any Partner of Partnership allowable under
[LIHTC], that there is no existing Event of Default of General Partner under this
Agreement, and that Presbyterian is a qualified nonprofit organization or
government agency as required by Section 42(i)(7)(A) of [LIHTC].
17.02. Term. The term of this right of first refusal shall commence one day after
the Compliance Period and shall terminate one year thereafter.
17.03. Manner of Exercising Right of First Refusal. Upon receipt of a bona fide
offer, Partnership shall notify Presbyterian in writing of the offer, and
Presbyterian shall thereupon exercise its right of first refusal within thirty (30)
days, or Partnership may sell the [Property] on the terms as it may determine.
17.04. Purchase Price.
(a) The purchase price shall be the sum of (i) the principal amount of outstanding
indebtedness secured by the [Property] (other than indebtedness incurred within
the five-year period ending on the date of the sale), (ii) the IP Loan, the unpaid
amount of any Tax Credit Shortfall, and all federal, state, and local taxes
projected to be attributable to the sale and the receipt of the above amounts by the
Limited Partner, and (iii) all GP Loans, Operating Deficit Loans, and Excess
Development Cost payments made by Pathway or Pathway Senior Living of
Michigan, LLC or their Affiliates. Notwithstanding any other provision of this
Agreement, the proceeds from the purchase described hereunder, shall be
distributed to Pathway with respect to proceeds received under clause (iii)
hereunder, and to the Investment Partnership with respect to proceeds received
under clause (ii) hereunder.

(LPA, R. 1-1, PageID 114) (emphasis added). Both the ROFR and the Option are available for
one year following the end of the Compliance period.

In late 2017—about a year before the end of the LIHTC Compliance period—
Presbyterian expressed its desire to acquire the Property. SunAmerica responded that it would
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 7
Pathway of Pontiac, Inc., et al.

prefer to hold off discussions concerning the sale of the Property until the Compliance period
lapsed. By early 2019, the General Partners and SunAmerica had discussed the conditions
necessary to trigger the ROFR. The Partners disagreed on the proper interpretation of the
conditions, and the General Partners expressed their intent to proceed “in accordance with
Article 17.”

On March 27, 2019, a third-party entity called The Michaels Organization sent the
General Partners a letter of intent (LOI), indicating its desire to purchase the Property and stating
the terms of its intended offer. On May 2, PV North reached out to another third-party entity
called Lockwood Development Company LLC (Lockwood). PV North sent an email to
Lockwood indicating that The Michaels Organization had offered to buy the Property. The e-
mail stated, among other things, that PV North intended to submit The Michaels Organization’s
offer to SunAmerica, let them know that another offer was forthcoming (presumably from
Lockwood), and that after presenting the offers to SunAmerica, the General Partners intended to
“put the ROFR to” SunAmerica.

A few days later, PV North reached out to Lockwood again. This time, PV North’s
counsel expressed concerns regarding whether the LOI from The Michaels Organization satisfied
the ROFR conditions. Specifically, there was concern that the LOI was not sufficiently binding
and would not trigger the ROFR. PV North then instructed Lockwood to “consider” this advice
when drafting its own LOI.

On May 21, Lockwood submitted its offer to purchase the Property. Among other things,
the Proposal contained a clause providing for a 60-day “Investigation Period,” during which
Lockwood could terminate the agreement “for any reason or no reason.” Ten days later, the
General Partners told SunAmerica that they had received a bona fide offer, and thus Presbyterian
could exercise its rights under the ROFR pursuant to Article 17.

On June 3, Presbyterian wrote to the General Partners, indicating that it was planned to
exercise its ROFR. In response, SunAmerica filed this lawsuit against the General Partners and
Presbyterian.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 8
Pathway of Pontiac, Inc., et al.

C. Procedural History

On June 14, SunAmerica filed its complaint, seeking declaratory relief as to its rights
under 26 U.S.C. § 42, and bringing claims for breach of contract, breach of the covenant of good
faith and fair dealing, and breach of fiduciary duty against the General Partners and Presbyterian.
The General Partners filed their answer and asserted counterclaims for breach of fiduciary duty
and breach of the partnership agreement. Presbyterian filed a counterclaim for breach of the
Partnership agreement as a third-party beneficiary. The district court later dismissed the General
Partners’ counterclaim for breach of fiduciary duty. SunAmerica timely moved for summary
judgment, and the General Partners and Presbyterian responded and filed a cross-motion for
summary judgment.1

The district court granted summary judgment to SunAmerica on February 4, 2021,
reasoning that to exercise the ROFR, two conditions had to be met: (1) the Partnership needed to
receive a bona fide offer, and (2) the General Partners needed to manifest a true intention to sell.
Based on the record before it, the district court held that the Lockwood offer did not constitute a
bona fide offer because it was undisputed that the offer was solicited for the purpose of
triggering the ROFR, and because the offer was not legally enforceable. It found that the
General Partners lacked any intention to sell the property and merely wanted Presbyterian to be
able to exercise the ROFR. It held that neither condition was met, the General Partners breached
the contract by exercising the ROFR, and, as a result, the General Partners also breached their
fiduciary duties to SunAmerica. The General Partners and Presbyterian timely appealed.

1
In their briefing, the General Partners assert that neither party had the opportunity to fully conduct
discovery and that they “intended to take several depositions, including to establish the original meaning and intent
of the LPA.” They suggest that, as a result, the district court prematurely decided the motion for summary
judgment. We disagree. SunAmerica filed its motion for summary judgment one day before the deadline for
discovery, and the district court did not issue its order and judgment until well after the deadline for dispositive
motions. The General Partners provide no explanation, moreover, as to why they failed to conduct the necessary
discovery, request extension of the discovery deadlines, or file a Rule 56(d) affidavit or motion to conduct additional
discovery in response to SunAmerica’s motion for summary judgment.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 9
Pathway of Pontiac, Inc., et al.

II. ANALYSIS

The main issues on appeal are whether the district court correctly granted summary
judgment to SunAmerica when it concluded that: (1) the Lockwood proposal did not constitute a
bona fide offer; and (2) the General Partners did not manifest an intent to sell the Property. The
parties do not dispute the existence of these two conditions—they disagree over how the
conditions should be interpreted under the provisions of the LPA and thus whether they triggered
the ROFR.

A. Standard of Review

We review de novo the court’s grant of summary judgment. Wilson v. Gregory, 3 F.4th
844, 855 (6th Cir. 2021). In reviewing the district court’s grant of summary judgment, we draw
reasonable inferences in favor of the nonmoving party. See id. The moving party is entitled to
summary judgment if it “show[s] the absence of a genuine dispute of material fact as to at least
one essential element” of each claim for which it seeks judgment, Troutman v. Louisville Metro
Dep’t of Corr., 979 F.3d 472, 481 (6th Cir. 2020) (quoting Romans v. Mich. Dep’t of Hum.
Servs, 668 F.3d 826, 835 (6th Cir. 2012)), with a “genuine dispute” existing when the
nonmoving party presents “sufficient evidence from which a jury can reasonably find” in its
favor, id. (quoting Romans, 668 F.3d at 835). In our review, we are careful not “to weigh the
evidence and determine the truth of the matter,” but only “determine whether there is a genuine
issue for trial.” Jackson v. VHS Detroit Receiving Hosp., Inc., 814 F.3d 769, 775 (6th Cir. 2016)
(quoting Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1978)). Review of summary judgment
is, therefore, “limited to ascertaining whether any factual issue pertinent to the controversy
exists; it does not extend to resolution of any such issue.” Tygrett v. Washington, 543 F.2d 840,
844 n.17 (D.C. Cir. 1974) (quoting Nyhus v. Travel Mgmt. Corp., 466 F.2d 440, 442 (1972)). As
a result, any findings of fact in relation to a motion for summary judgment “are not truly findings
of fact,” id., and “are entitled to no deference.” Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d
975, 983 (9th Cir. 1980) (Wallace, J., concurring).
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 10
Pathway of Pontiac, Inc., et al.

B. Bona Fide Offer

The LPA explicitly states that the ROFR is triggered upon receipt of a “bona fide offer,”
but, as the district court correctly noted, the LPA does not define the term. The district court did
not clearly state whether it found the term “bona fide offer” to be unambiguous in the context of
the LPA. The court, nonetheless, attempted to craft its own interpretation of the plain and
ordinary meaning of the terms by determining how Michigan state courts would define “bona
fide” and “offer,” and employing that interpretation to decide the meaning of the contractual
language. The General Partners and Presbyterian contend that the district court erred in
interpreting the term “bona fide offer” in the LPA and in the context of LIHTC.

To begin, the term “bona fide offer” has a very specific meaning in the typical ROFR
context—i.e., the general “common law” interpretation. In Imperial Refineries Corp. v.
Morrissey, 119 N.W.2d 872, 874 (Iowa 1963), for example, a lessee was granted a right of first
refusal to purchase “at the same price and terms as any bona fide offer for [the] property.” At
some point, the defendant sought to sell the property, and she initially received a bona fide offer
of $45,000 from a third-party. Id. at 874, 877. Once the plaintiff indicated that he would
exercise his ROFR and match the offer, the defendant received an offer to buy the property from
her son for $60,000. Id. The Iowa Supreme Court concluded that the son’s offer to buy the
property was not bona fide because the evidence showed that the son could not meet the onerous
payments, and because an “impartial and unbiased purchaser would be unlikely to increase the
highest bid by $15,000 or 1/3rd of the amount bid.” Id. at 878. The court concluded that
“[h]olding this to be a bona fide offer would provide a device by which an optioner could render
ineffective any first refusal option that he might wish to escape.” Id. Accordingly:

For an offer to be considered a bona fide offer, it must be shown with reasonable
certainty that [the] offeror possessed the financial ability to comply with the terms
of the contract. Proof which indicates that the offeror is operating on a shoestring
speculation or attractive probabilities falls short of reasonable certainty.

Id. Other courts have assessed whether an offer constituted a bona fide offer to trigger a ROFR
on similar grounds. See Brownies Creek Collieries, Inc. v. Asher Coal Min. Co., 417 S.W.2d
249, 252 (Ky. 1967); David A. Bramble, Inc. v. Thomas, 914 A.2d 136, 146–49 (Md. 2007).
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 11
Pathway of Pontiac, Inc., et al.

The “bona fide offer” requirement in the ROFR context, thus, operates to protect the
holder from being forced to match an outlandish offer, effectively forfeiting the ability to
exercise the contractual ROFR. Serious offerors—those willing to put forth an honest offer that
the ROFR-holder cannot match—however, can acquire the property despite the rights of the
ROFR holder. Under this general “common law” definition of ROFR, the focus of the analysis
is on the offeror, and whether its intentions and capabilities establish a serious intention to make
an offer to purchase the property.

This understanding of the ROFR varies materially from the one employed by the district
court. Both the district court and the “common law” definitions require that a third-party put
forth an enforceable offer. The district court, however, focused mainly on whether the offer was
solicited (assuming that such action automatically defeated the bona fide element), whereas
under the “common law” definition, courts focus on whether the offeror actually intended to
comply and was, in fact, capable of following through with a purchase.

In any case, neither definition controls the meaning of the language of the LPA provision
at issue here. For that, we must begin with the language of the LPA. The LPA, and specifically
its provisions regarding the ROFR, is replete with references to the LIHTC program, 26 U.S.C.
§ 42. SunAmerica concedes that § 42(i)(7) is “expressly” incorporated into the ROFR provision
of the LPA. The LPA and its relevant provisions, therefore, must be understood in the context of
the LIHTC program. See Shay v. Aldrich, 790 N.W.2d 629, 639 (Mich. 2010) (reading the
contract in light of the statute on which it relied to discern the meaning of the language).

As discussed earlier, Congress enacted § 42(i)(7) to create a mechanism through which
properties could be transferred to nonprofit organizations to ensure that the housing remains
affordable over the long term. It chose to do so by allowing nonprofits to retain a ROFR at a
below-market price. See 26 U.S.C. § 42(i)(7). During Congress’s early discussions of LIHTC,
the initial thought was to grant nonprofit organizations an option to purchase the property at a
below-market price. S. 980, 101st Cong., § 2(y) (1989) (proposed bill). Lawmakers raised
concerns, however, that nonprofit organizations would then be deemed the true owners of the
property and the IRS could reclaim the tax credits that were needed to attract private investor
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 12
Pathway of Pontiac, Inc., et al.

limited partners. See Frank Lyon Co., 435 U.S. at 571–73. Congress chose to avoid that
problem by enacting a safe harbor for the ROFR, recognizing that a nonprofit could not
unilaterally exercise the ROFR in the same way that an option could be exercised.

As the Massachusetts Supreme Court explained,

Section 42(i)(7) therefore represents a compromise, facilitating the inexpensive
transfer of property to nonprofit organizations, but in a way that does the least
violence to the traditional rules of tax law. The right of first refusal described in
§ 42(i)(7) is not a typical right of first refusal, for the obvious reason that it favors
the nonprofit organization with a statutorily prescribed, often below-market price.
At common law, a right of first refusal allows the holder to purchase the property
only by matching the price offered by a third party. In contrast, a right of first
refusal under § 42(i)(7) allows the holder to purchase the property at the § 42
price, even if it is far below the third-party offer. Yet, a right of first refusal under
§ 42(i)(7) is not completely unanchored from its common-law meaning. In
enacting § 42(i)(7), Congress relied on the common-law distinction between an
option to purchase, which can be unilaterally exercised, and a right of first refusal,
which cannot. Congress specifically chose to allow one but not the other,
recognizing that a right of first refusal—which cannot be exercised until the
owner decides to sell—is for that very reason a less serious curtailment on
ownership rights.

Homeowner’s Rehab, Inc. v. Related Corporate V SLP, LP, 99 N.E.3d 744, 757–58 (Mass. 2018)
(internal citations omitted).

The ROFR contemplated by § 42 varies markedly from a ROFR in a “typical” real estate
transaction, where the holder of the ROFR can purchase the property if he or she is willing to
match the price of a third-party offer. In that context, as explained earlier, the bona fide offer
requirement functions to allow the third-party bidder to prevail by offering a high price that
cannot be matched, if that offer is, in fact, genuine and made in good faith. The “bona fide”
offer requirement, therefore, operates to protect the ROFR holder from an unreasonable offer it
cannot beat that would preclude it from exercising its contractual right of first refusal.
By contrast, the ROFR in the LPA and under § 42(i)(7) eliminates that possibility because the
holder need not match the price. The § 42-established ROFR defines ex ante the price at which
the nonprofit will purchase the project: the outstanding debt on the property plus any “exit
taxes” that result from the sale (sometimes referred to as “debt plus taxes”). See 26 U.S.C.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 13
Pathway of Pontiac, Inc., et al.

§ 42(i)(7)(B); AMTAC Holdings 227, LLC v. Tenants’ Dev. II Corp., 15 F.4th 551, 557 (1st Cir.
2021). In this respect, § 42(i)(7) clearly deviates from the general “common law” definition of
ROFRs. To implement the LIHTC, Congress therefore chose to employ a statutorily-specified
ROFR that differs from that contemplated under general common law. See Homeowner’s
Rehab, Inc., 99 N.E.3d at 757–58 (holding that importing common law bona fide offer
requirements into a § 42(i)(7) ROFR would “contravene the purpose of § 42(i)(7)”); Opa-Locka
Cmty. Dev. Corp. v. HK Aswan, LLC, No. 2019-16912-CA-01, 2020 WL 4381624, at *9 (Fla.
Cir. Ct. July 7, 2020) (declining to read a bona fide offer requirement into § 42(i)(7) because
doing so was not consistent with § 42).

We cannot impress the general common law meaning of bona fide offer on the term as it
is used in the LPA that was created to accord with the LIHTC program. To do so would, in
essence, contravene the purpose of § 42(i)(7). A practical example reveals why: based on the
common law, no reasonable buyer, much less a serious buyer, would offer to buy a property
knowing full well that a third-party (here, Presbyterian) would win the deal no matter how good
the offer was. In these circumstances, soliciting an offer from a serious buyer that knew the
ROFR-holder would exercise its right, as the General Partners did, may well be the only way to
trigger the ROFR. Wholesale importation of the common law understanding of bona fide offer
into the plain language of the LPA, therefore, would make the ROFR provision, as specified in
the LIHTC, meaningless. See Klapp v. United Ins. Grp. Agency, Inc., 663 N.W.2d 447, 468
(Mich. 2003) (declining to construe provision of contract in a way that would render the
provision meaningless).

Not only would it contravene Congress’s intentions, but it also would contravene the
Partners’ bargained-for exchange under the LIHTC arrangement. The purpose of the Partnership
arrangement was for SunAmerica to reap the benefits from the housing tax credits, not from the
Property’s long-term appreciation gains. See, e.g., LPA §§ 4.02(a)–(c), (j), 8.02(a) (requiring
“best efforts” to produce for SunAmerica’s benefit “maximum allowable” Housing Credits).
That purpose is further evinced by the fact that SunAmerica’s role in the Partnership was meant
to be entirely passive. Id. at § 10.01 (stating that “No Limited Partner shall take part in the
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 14
Pathway of Pontiac, Inc., et al.

management or control of the business of the Partnership nor transact any business in the name
of the Partnership.”). By gaining the tax credit, SunAmerica received its benefit of the bargain.

SunAmerica argues that because the LIHTC program does not mandate that the Property
be conveyed to a nonprofit or even require that a ROFR be granted in LIHTC transactions,
Congress had no intention to “transfer” the property back to a nonprofit. In addition,
SunAmerica contends that the General Partners and Presbyterian’s understanding treats the
ROFR as a transfer provision, which would also render the Option provision meaningless. Thus,
they argue, the common law understanding is appropriate here. But the fact that Congress did
not require the LIHTC program to transfer the property makes no difference here because
§ 42(i)(7) specified a certain ROFR—one that allows the parties to negotiate a below-market
price for the property— and the parties agreed to incorporate that statutory provision into the
LPA. When interpreting such an ROFR provision, we must account for Congress’s goals
expressed in LIHTC, including its intention to make it easier for nonprofits to regain ownership
of the property and continue the availability of low-income housing. Thus, those Congressional
intentions confirm that the general common law understanding of bona fide offer cannot be
substituted for the ROFR mechanism created by Congress in LIHTC.

To SunAmerica’s second point, the bona fide offer requirement operates as a condition
precedent that works to distinguish it from the Option in the LPA. The Option could become
relevant if none of the General Partners, manifested an intent to sell the Property and if they
never received a bona fide offer to satisfy that condition precedent. In that circumstance,
Presbyterian could still acquire the property via the Option mechanism in the LPA. Recognizing
the nature of the statutory ROFR does not transform the ROFR provision into an Option; unlike
the Option, the ROFR has additional condition precedents, including the “bona fide offer”
requirement.

In light of the foregoing, this court cannot impress the general common law meaning of
“bona fide offer” on an ROFR and LPA that expressly incorporated the LIHTC program and thus
was created to accord with the LIHTC program. Nevertheless, the undisputed facts in the record
do not clearly resolve the meaning of the term—“bona fide offer”—as it is to be construed under
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 15
Pathway of Pontiac, Inc., et al.

the LIHTC. We, therefore, find that the term as it is used in the LPA is ambiguous.
Accordingly, there are disputed issues of material fact concerning the meaning of the term in the
LPA—specifically, how the term “bona fide offer” in the LPA is to be formulated to accord with
the Congressional expressions of intent in the LIHTC-promulgated ROFR—and whether that
condition has been satisfied. These are matters that are better developed at trial and decided by a
jury. See Klapp, 663 N.W.2d at 454–55 (“[T]he meaning of an ambiguous contract is a question
of fact that must be decided by the jury.”).

C. Intent to Sell

To trigger the ROFR, the General Partners must manifest an intent to sell the property, in
addition to the existence of a bona fide offer. The parties do not challenge the district court’s
conclusion that only the General Partners, and not SunAmerica, needed to manifest such intent.
They contest whether that intent to sell must be directed toward a third-party offer.

The General Partners and Presbyterian contend that the district court erred in requiring
that the intent to sell be directed at a “third party.” Pointing to the legislative history of § 42,
they argue that Congress intended the General Partner to manifest only a general “willingness to
sell” for the ROFR to be triggered. Further, requiring intent to sell to a third-party offering a fair
market value, they contend, would make little sense because the Partnership knows that a bona
fide offer would trigger the ROFR—and so, “the § 42 ROFR would paradoxically never be
triggered.” SunAmerica argues that “a right of first refusal cannot be exercised unless the
property owner possesses an actual genuine intent to sell to a third party.” It relies on a
distinction between an “option” and a true ROFR—the latter of which requires a third-party
offer.

The arguments of both parties are correct, in some respects. Based on Congress’s intent
for the LIHTC program, § 42(i)(7) only requires an intent to sell generally and does not, in and
of itself, require the existence of a bona fide offer. See Homeowner’s Rehab, Inc., 99 N.E.3d at
757–58 (rejecting the argument that Congress intended to import a bona fide offer requirement
into a § 42(i)(7) ROFR); H.R. Rep. No. 101-247, 101st Cong., 1st Sess., at 1195 (1989)
(describing § 42(i)(7) as a right to “purchase the building, for a minimum price, should the owner
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 16
Pathway of Pontiac, Inc., et al.

decide to sell (at the end of the compliance period).”). But here the language of the LPA
implementing the LIHTC program explicitly requires that a bona fide offer be on the table to
trigger the ROFR. Under any definition of bona fide offer, the offer must come from a third
party, and it therefore follows that SunAmerica’s argument is correct in some sense: there must
be an intent to sell to a third party.

But the General Partners and Presbyterian are also correct. It cannot be the case that
knowledge of the ROFR holder’s intention to exercise that right if a third party makes an offer
would defeat the willingness to sell. That conclusion would render the ROFR provision
meaningless because the General Partners’ knowledge that the ROFR holder wants to exercise
the provision would mean that the General Partners could never manifest a true intention of
selling to a third party.

Based on the record and the plain language of the provision, then, the General Partners
must have a general intent to sell the property; indeed, they need an offer on the table from a
third-party. But the intent to sell to the nonprofit if the ROFR procedure is invoked—the
willingness to comply with the ROFR provision—does not defeat the LPA-required intent to sell
the property.

Applying that definition here, the district court erred in concluding that the evidence
“overwhelming[ly]” showed that the General Partners did not intend to sell. The district court
relied on e-mails indicating the General Partners “intend[ed] to proceed in accordance with
Article 17,” but pointed to no evidence showing that the General Partners never had an intent to
sell or entertain third-party offers. In some sense, the two offers that they did receive—and the
fact that they solicited at least one of those—would seem to suggest the opposite: they did
intend to sell or entertain third-party offers. In any case, summary judgment is generally not
appropriate when resolving a dispositive issue requires a determination of intent or state of mind.
See Mahcronic v. Walker, 800 F.2d 613, 617 (6th Cir. 1986). The record contains a genuine
dispute of material fact—whether the General Partners had the requisite intent to trigger the
ROFR. Accordingly, we reverse the district court’s grant of summary judgment on the issue and
remand for resolution of this factual issue at trial.
 No. 21-1243 SunAmerica Housing Fund 1050 v. Page 17
Pathway of Pontiac, Inc., et al.

D. Breach of Fiduciary Duty

The district court also concluded that because the General Partner Defendants breached
the LPA, they also breached their fiduciary duty to SunAmerica. Because this claim is
intertwined with the breach of contract claim—as to which we reverse the district court—we also
reverse and remand the breach of fiduciary duty claim.

III. CONCLUSION

For the foregoing reasons, we REVERSE the district court’s grant of summary judgment
to SunAmerica and REMAND the case to the district court for further proceedings consistent
with this opinion.