United States District Court, W.D. Washington, Tacoma
HIDDEN HILLS MANAGEMENT, LLC, and 334th PLACE 2001, LLC Plaintiffs,
AMTAX HOLDINGS 114, LLC, et al., Defendants.
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
B. LEIGHTON UNITED STATES DISTRICT JUDGE.
MATTER is before the Court on the following dispositive
motions: Plaintiff 334thPlace 2001's Motion
for Summary Judgment [Dkt. #52]; Defendant Amtax
Holdings' Motion for Summary Judgment [Dkt. # 62] and
Plaintiff Hidden Hills Management's (HHM's) Cross
Motion for Summary Judgment [Dkt. # 71].
fact-intensive case involves two related limited partnerships
which own two low income housing projects: Hidden Hills (an
apartment complex in University Place, purchased in 2002) and
Parkway (an apartment complex in Federal Way, purchased in
2003). HHM is the general partner of the Hidden Hills Limited
Partnership. 334th Place is the general partner of
the Parkway Apartments Limited Partnership. Catherine Tamaro
owns and manages both general partners, and manages both
AMTAX is the limited partner in each
partnership. Alden Torch LLC owns and manages AMTAX. AMTAX
invested in the partnerships to harvest the Low-Income
Housing Tax Credits (LIHTIC) associated with operating such
projects. The two LPAs are functionally identical. Each
grants to the general partner an option to purchase the
limited partner's interest subject project at the end of
the IRS “compliance period”:
Subject to compliance with Section 42 of the Code and the
rules of the agency, upon completion of the Compliance
Period, the Managing General Partner shall have the
option (the "Option") to purchase the interest of
the Investor Limited Partner in the real estate, fixtures and
personal property of the Partnership (the
"Interest") for a period of twenty-four (24)
months. The Managing General Partner may exercise the
Option upon written notice to the Investor Limited Partner at
any time after the end of the Compliance Period (the
"Option Period"). In the event the Managing
General Partner exercises the Option, it must pay to the
Investor Limited Partner the Option Price (as defined herein)
[Paragraph 7.4.J (Parkway agreement), Pritchard Decl. Dkt. #
53, Ex. A at 11(emphasis added)].
the LPAs, Tamaro operated each complex for the full
compliance period, and AMTAX passively benefitted from the
tax credits and other tax benefits. Tamaro provided annual
audited financial statements to her limited partner. The
general partners' efforts to force a purchase of the
limited partners' interests (at a favorable, low price),
and the limited partners' resistance to selling (and
alternative effort to sell at a higher price) is the genesis
of these parallel disputes.
option to purchase Hidden Hills from AMTAX matured in January
2017, a year before 334th's option to purchase Parkway
matured. As those dates approached, the parties began
discussing a voluntary sale of each project to the general
partner. The Parkway negotiations began earlier, in 2013, but
ended (relatively amicably) without an agreement. The
partners cooperated on a successful re-finance of Parkway in
partners' informal negotiations for the voluntary sale of
AMTAX's interest in Hidden Hills began in 2015. Hidden
Hills was and is a more complicated project. It is in the
Tacoma Smelter Plume,  and its topsoil was confirmed to be
contaminated with “elevated” levels of arsenic
and lead from the Tacoma Asarco Smelter as early as
topsoil contamination at the heart of the Hidden Hills
dispute is not new news to the partners or anyone else. HHM
had engaged Environmental Partners (EPI) to perform Phase I
Environmental Site Assessment on Hidden Hills in connection
with the general partnership's initial purchase of Hidden
Hills in 1999-2000, and EPI estimated then that the cost to
clean up the contamination would be about $1 million. Because
of the contamination, the partnership had difficulty
obtaining financing for its purchase. Its lender ultimately
required it to place $1.05 million into an interest-bearing
environmental escrow account, under an agreement with the
“credit enhancer, ” Fannie Mae. [Environmental
Escrow Agreement, Pettit Decl. Dkt. # 64-1, Ex. 3 at p. 4].
The parties agreed to use these funds to remediate the
property once Ecology determined the required clean-up level.
The partnership purchased Hidden Hills for $8.9 million in
2002. HHM claims that price was discounted due to the
also agreed to broadly indemnify its limited partner for the
presence of hazardous substances on the property:
4. Indemnity, The Indemnitor agrees to indemnify,
hold harmless and defend the Company from and against any and
all claims, costs, litigation, proceedings, investigations,
loss, damage, liability, fine, penalty, assessment or
expense, and/or loss, or determent or delay of distributions
from Hidden Hills to the Company (collectively referred to as
"Environmental Liability") arising from, or as a
result of, or relating to, any Hazardous Substance, Hazardous
Substance Activity or violation of Environmental Laws or ADA
Laws, on the, or adversely affecting the, Property. Defense
of the Company by Indemnitor shall be provided by competent
counsel of Indemnitor's choice, and the Company shall
reasonably cooperate in such defense.
[Environmental Indemnity & ADA Compliance Agreement,
Pettit Decl. Dkt. # 64-1, Ex. 2 at p. 3].
attorney during the partnership's initial purchase of
Hidden Hills, Robert Sullivan, testifies that this provision
“had nothing to do with any diminution of the property
value, as that issue was addressed at the time of acquisition
by the seller's reduction of the price paid by the
partnership. The Indemnity Agreement applies if Ecology
requires Amtax to clean-up the property[.]”
[Sullivan Dec. Dkt. # 72].
Sullivan also concedes that the indemnity's purpose was
to shift the risk and cost of any future environmental
remediation from the limited to the general partner:
[T]he intent of the Indemnity Agreement was to allocate the
financial risk for environmental issues between the general
and limited partners. Of specific concern was whether Ecology
would require a cleanup, and that the cost of the cleanup
might exceed the amount of escrowed funds[.] By requiring the
general partner to “indemnify hold harmless and
defend” the limited partner against Environmental
Liabilities, the Indemnity Agreement shifted this financial
risk to the general partner for future clean-up.
2015, HHM engaged CBRE to appraise Hidden Hills, apparently
in preparation for exercising its option. CBRE's February
3, 2016 appraisal acknowledged the contamination but did not
it alter its valuation of the project based on it, because it
made the “extraordinary assumption” that the
Environmental Escrow Account (then about $1.5 million) would
cover the cost of any required remediation. [Feb. 3, 2016
CBRE Appraisal, Blake Decl. Dkt. # 63-1, Ex. 6 at p. vii].
CBRE's 2016 appraisal valued Hidden Hills at $13, 800,
claims it did not know HHM had commissioned the 2016 CBRE
appraisal, or that it had been completed, until Tamaro sent
it a copy in July 2016, five months before the end of the
compliance period. [Blake Decl. Dkt. # 63]. Prior to
exercising her option (but after receiving and sharing the
first CBRE appraisal), Tamaro also engaged EPI to perform an
updated Phase I ESA on Hidden Hills. It did so on November 3,
2016 [November 3, 2016 EPI Phase I ESA, Pettit Decl. Dkt. #
64-1, Ex. 8]. EPI's report reflected that it was done in
connection with “a re-finance” of the property,
acknowledged that the site was “in the plume, ”
and recited that it had “elevated” levels of lead
and arsenic. It did not quantify those levels and it did not
claim that a cleanup was or would be required.
the same time, Tamaro asked CBRE (Todd Henderson) to appraise
the property a second time.
compliance period ended, and HHM's option matured, on
January 1, 2017. Two days later, EPI sent HHM a
“Technical Memorandum” as a follow-on to its
November 3 Phase I ESA. EPI estimated the cost of a cleanup
of the Hidden Hills lead and arsenic contamination at $1.5
-$2.5 million-assuming that remediation was required or
desired. [January 3, 2017 EPI Technical Memorandum, Pettit
Decl. Dkt. # 64-2, Ex. 10]. HHM provided this document to
CBRE for consideration in its second appraisal.
same day, AMTAX exercised its own contractual right (subject
to the general partner's purchase option) to force the
partners to sell Hidden Hills on the open market. [Hidden
Hills Partnership Agreement section 7.4.K, Pettit Decl. Dkt.
# 64-1, Ex. 1 at 46]. HHM declined, pointing to its option.
AMTAX participated in the ensuing appraisal process, but
continued to push for such a sale even as the partnership
devolved into litigation. It argues that Tamaro falsely
claimed to be interested in such a sale.
second, January 30, 2017 appraisal valued the property at
$13.0 million. Its value included a reduction of $2.5 million
(the high end of the EPI cost estimate), and it did not
offset that hypothetical cost by the $1.5 million escrow
account balance, because it “understood” that the
account “was not transferrable in the event of a
sale.” [CBRE January 30, 2017 Appraisal, Pettit Decl.
Dkt. # 64-1, Ex. 12 at p. 1-2]. AMTAX claims the Escrow
Agreement expressly contemplates a sale.
formally exercised its option in March 2017. Consistent with
the partnership agreement's provisions for determining
the Hidden Hills option price, each party chose an appraiser.
selected Andy Noble of Cushman and Wakefield. C&W's
April 2017 appraisal of Hidden Hills acknowledged that the
property was in the plume, and that it had reviewed EPI's
initial Phase I ESA (2001), but it concluded that “the
sales of multifamily properties in the subject's general
vicinity are not being adversely impacted by the Tacoma
Smelter Plume.” Its valuation therefore did not include
any deduction for potential environmental remediation costs.
C&W appraised the Hidden Hills project at $19.7 million.
[April 27, 2017 C&W Appraisal, Blake Decl. Dkt. # 63-1,
nominated CBRE's Todd Henderson, who was obviously
familiar with the property. Tamaro again provided Henderson
EPI's recent Phase I ESA, and its Technical Memorandum.
CBRE's June 7, 2017 appraisal valued the property at
$14.05 million. [June 7, 2017 CBRE Appraisal, Blake Decl.
Dkt. # 63-1, Ex. 19]. Like its January appraisal, CBRE's
appraisal reduced the bottom line value by the assumed cost
of the hypothetically-required remediation of the property.
Tamaro had also asked a different CBRE Broker, Tim Flint, to
provide a “Broker's Opinion of Value (BOV), ”
in connection with her contemplated sale (as opposed
to, and presumably after, her forced purchase) of Hidden
Hills. [See Pettit Decl. Dkt. # 64-2 at Ex. 18].
One day after CBRE provided HHM its $14.05 million
appraisal of Hidden Hills, CBRE provided HHM a BOV opining
that Hidden Hills was worth $20.8 - 21.8 million [CBRE's
June 8, 2017 BOV, Pettit Decl. Dkt. # 65 at Ex. 21]. The BOV
did not address any environmental contamination or
19, Tamaro sent AMTAX CBRE's June 7 appraisal, but not
CBRE's June 8 BOV, CBRE's January 30, 2017 appraisal,
or EPI's January 3, 2017 Technical Memorandum. She
explained she was attempting to obtain a new loan for her
purchase, and that her “lender will require the owner
to implement a remediation plan under Ecology's Voluntary
Cleanup Program as a condition of obtaining a new
loan.” [Blake Dec. Dkt. # 63 at Ex. 20]. Tamaro also
claimed that the C&W appraisal was flawed because it did
not factor in the cost of the remediation she claimed her
lender would require.
partnership agreement provided that if the two appraisers
could not agree on the value, they together would nominate a
third appraiser to perform a third, independent, final and
Fair Market Value shall be determined by two independent MAI
appraisers: one selected by the Managing General Partner and
on by the Investor Limited Partner. If such
appraiser are unable to agree on the value, they shall
jointly appoint a third independent MAI appraiser whose
determination shall be final and binding[.]
[Hidden Hills Partnership Agreement, Pettit Decl. Dkt. #
64-1, Ex. 1 at para. 7.4.J (emphasis added)].
first two appraisers did not agree on a value, and they jointly
nominated two potential third appraisers, John
Campbell of Colliers, and Jeremy Streufert of Kidder Mathews.
For reasons that remain unclear, these names were provided to
HHM, but not to AMTAX. Tamaro then selected
Colliers/Campbell (“first on the list”) to be the
claims Colliers was not aware that its role was to be the
third, independent, final appraiser. It is undisputed that
Tamaro was Colliers' “point person” on the
appraisal- Colliers referred to her as “the
client”-and she alone had contact with Colliers. HHM
claims AMTAX was free to similarly contact Colliers but did
not do so.
summer of 2017, Tamaro again contacted EPI, this time to
provide a “more detailed remediation cost
estimate” for Hidden Hills. EPI's August 8, 2017
Technical Memorandum estimated the cost to remediate Hidden
Hills at roughly $3.75 million, which was apparently
calculated by adding a $1.2 million (50%)
“contingency” for “unknown or changed
conditions” on top of the high end of its prior
estimate of $1.5 - 2.5 million. [EPI's August 8, 2017
Technical Memorandum, Pettit Decl. Dkt. # 64-4, Ex. 35, at p.
6]. As with EPI's prior estimates, this new estimate
implicitly assumed that the remediation was required, or
desired. Tamaro provided this Technical Memorandum to
Colliers, but not to AMTAX.
claims it did not know Colliers/Campbell had been selected,
or that Tamaro “secretly” appointed the
“independent” third appraiser. It claims
Tamaro's conduct violated the LPA, which required the two
appointed appraisers (not HHM) to select the third, and that
she improperly interfered with the appraisal process,
particularly by providing EPI's August Technical
Memorandum. AMTAX claims and demonstrates ...