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Melissa's Trust v. Seton

United States District Court, N.D. Illinois, Eastern Division

July 31, 2014

Melissa's Trust, Michelle Precin Trustee, individually and derivatively on behalf of UMIC-Upstate Associates-78 L.P., Plaintiffs,
v.
Gil Seton Jr., individually, UMIC GP LLC, a California Limited Liability Co., SP Investment Fund, LLC, a California Limited Liability Co., UMIC Merger LLC, a Delaware limited liability Co., and UMIC-Upstate Associates-78, L.P., a Delaware Limited Partnership, Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS M. DURKIN, District Judge.

Melissa's Trust, Michelle Precin Trustee, individually and derivatively on behalf of UMIC-Upstate Associates-78, L.P. ("Plaintiff") filed a seven-count complaint against Gil Seton, Jr. ("Seton") individually, UMIC GP LLC ("UMIC GP"), a California limited liability Company, SP Investment Fund LLC ("SPIF"), a California limited liability Company, UMIC Merger LLC, a Delaware limited liability Company, and UMIC-Upstate Associates-78, L.P. (the "Partnership"), a Delaware limited partnership (collectively, "Defendants") for a declaratory judgment, rescission of a December 9, 2013 merger, a full accounting of amounts owed to the Partnership, common law fraud, breach of fiduciary duty, violation of consumer fraud and deceptive practices acts, and breach of contract and the covenants of good faith and fair dealing. R. 1. Before the Court is Defendants' motion to transfer this case to the United States District Court for the District of Delaware. See 28 U.S.C. § 1404(a). For the following reasons, the motion is granted.

Background[1]

The Original Partnership Agreement corresponding to the formation of the Partnership[2] was executed on September 15, 1978 (the "Original Partnership Agreement"). R. 1-1 at 1, Exh. A. The Original Partnership Agreement was formed under the laws of the state of Tennessee and was to be "construed and enforced in accordance with the laws of the State of Tennessee." R. 1-3 at 9 § 14.02; R. 1-1 at 3 § 1.01. The Original Partnership Agreement set out the terms of the relationships among the general and limited partners and the procedures to amend the Original Partnership Agreement. The Original Partnership Agreement was made between UMIC Properties, Inc. (Administrative General Partner and initial limited partner) and Kevin Kelly (Individual General Partner), and all other "persons, partnerships, corporations, trusts or other entities who or which shall execute a Subscription Agreement and thereby agree to contribute to the capital of the Partnership and agree to be bound by the provisions of this Agreement, ..." R. 1-1 at 2.

The Partnership was formed to invest in three limited partnerships: SNS Development Company, SNL Development Company, and United Housing Partners-Bowling Green (the "Local Partnerships"). R. 1-1 at 2. These local partnerships were organized to own and operate multi-family residential housing projects for elderly persons of low and moderate income in Saratoga Springs and Ilion, New York; and Bowling Green, Kentucky. Id . Soon after the formation of the Partnership, the General Partners sold thirty-two (32) limited partnership interests for cash and promissory notes:

R. 1 at 3-4 ¶¶ 4-5.

By August 2010, SPIF acquired nineteen (19) limited partners interests, more than 59% of the limited partnership interests, making SPIF a majority holder of the limited partnership interests:

R. 1 at 10 ¶ 10.

On March 24, 2011, UMIC GP was added as a co-Administrative General Partner of the Partnership. R. 19-2 at 2, Exh. A:

R. 19-2 at 8, Exh. B. TESCO Properties, Inc. (formerly UMIC Properties, Inc.) the sole general partner and Administrative General Partner in the Partnership prior to UMIC GP's admission, consented in writing to the amendment as did SPIF, the holder of the majority of limited partnership interests of the Partnership.[3]

Plaintiff is an Illinois Trust (the "Trust") formed on or about July 26, 2011 on the death of Margaret A. Paluch. Paluch's daughter, Michelle Precin, is trustee of Melissa's Trust. Precin is Melissa's mother. When the Trust was formed, two of the 32 limited partnership interests in the Partnership were assigned to Plaintiff, which Plaintiff held during the transactions at issue in the complaint. R. 1 at 21-22 ¶¶ 47-49.

On March 26, 2012, the Original Partnership Agreement was amended to include, among other provisions, an exclusive jurisdiction clause for the state or federal court of New York "for... any judicial proceeding... in connection with... th[e] Agreement." R 19-3 at 1-13, Exhs. D-E. The amendments were filed with the Tennessee Secretary of State on April 27, 2012. Id.

On or about October 19, 2012, TESCO sold its interest as a general partner to UMIC GP, making UMIC GP the sole administrative general partner of the Partnership.

R. 19-3 at 14, Exh. F; R. 1 at 10 ¶ 14. On July 18, 2013, UMIC GP, the sole administrative general partner, and SPIF, owner of over 50% of the limited partnership units, approved an agreement and Plan of Merger permitting transfer of domicile of the Partnership from Tennessee to Delaware (the "Merger"). R. 1 at 12 ¶ 21; R. 19-5 at 59, Exh. C. The Merger was accompanied by the written consent and approval of UMIC GP and SPIF. R. 19-5 at 5, Exh. B. Certificates of the Merger were filed with the states of Delaware and Tennessee, and notice of it was mailed to each of the limited partners, which included Plaintiff. R. 19-6 at 1-7, Exh. D; id. at 69-71, Exh. G; R. 19-3 at 20, Exh. G. The Plaintiff was not asked to vote on the Merger nor did it give its consent. R. 22 at 1, 7.

Section 211 of the Tennessee Revised Uniform Limited Partnership Act ("TRULPA") sets forth the requirements for the approval of a merger concerning a Tennessee limited partnership. See Tenn. Code Ann. § 61-2-211. A merger under the TRULPA requires approval by only a majority of the limited partners:

Unless otherwise provided in the partnership agreement, a merger shall be approved by each domestic limited partnership which is to merge: (A) By all general partners; and (B)... by limited partners who own more than fifty percent (50%) of the then current percentage or other interest in the profits of the domestic limited partnership.

Tenn. Code Ann. § 61-2-211.

A revised partnership agreement came into force on July 23, 2013 as a result of the Merger (the "Revised Partnership Agreement"). R. 19-6 at 37, Exh. B. The Revised Partnership Agreement contained the following revised forum selection clause:

The Partnership and each Partner irrevocably (1) submits to the exclusive jurisdiction of the courts of the State of Delaware (and the Federal courts located in the State of Delaware) for purposes of any judicial proceeding that may be instituted in connection with any matter arising under or relating to this Agreement, (2) waives any objection that such party may have at any time to the laying of venue of any action or proceeding brought in any such court, (3) waives any claim that such action or proceeding has been brought in an inconvenient forum, (4) agrees that service of process or of any other papers upon such party by registered mail at the address to which notices are to be sent to such party pursuant to this Agreement shall be deemed good, proper and effective service upon such party, provided that this clause (4) shall not affect the right to effect service of process in any other manner permitted by the laws of the State of New York, and (5) agrees not to bring action with respect to the Partnership or this Partnership Agreement except in the courts of the State of Delaware (and the Federal courts located in the State of Delaware).

R. 19-6 at 66 (emphasis added).

After receipt of the notice of the Merger, Plaintiff's representative, John Marshall, requested and received a copy of the Revised Partnership Agreement which included the revised ...


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