[00:00:01] Speaker 03:
And we will hear first from Mr. Pettit, and you may proceed when you're ready.

[00:00:06] Speaker 02:
Thank you, and good morning, Your Honors. I hope to reserve five of my 20 minutes for rebuttal.

[00:00:13] Speaker 02:
May it please the Court, the District Court erred by failing to resolve this case on the party's cross motions for summary judgment because there were no disputed issues of material fact, and the relevant contract language was not reasonably susceptible to to the interpretations provided by the general partners. This court accordingly can and should exercise its de novo review to reverse the outcome below and enter judgment in appellant's favor. As the court may be aware, the threshold and ultimate issue in this case is whether the partnership desired to accept a bona fide offer from an unasked, because I was a little confused from the briefing, what is your position

[00:00:58] Speaker 03:
when it says that the owner shall desire to accept a bona fide offer, what's your view as to who exercises the owner's power with respect to that issue? Who has the power to execute a sale?

[00:01:15] Speaker 02:
So the owner obviously is the partnership, and there are four partners in the partnership, two limited partners and two general partners. And our position is that

[00:01:27] Speaker 03:
all of the partners have to agree to... I mean, well, the red brief seemed to say that you had conceded the opposite, and then the reply brief seemed to let that go without comment. Am I reading that wrong?

[00:01:40] Speaker 02:
Your Honor, I believe that the point that we wanted to make is because none of the partners desired to accept the offer, the partnership could not have accepted the offer, and we made a decision... Suppose the general managers wanted to

[00:01:56] Speaker 03:
accept an offer just, you know, hypothetically. And the limited partners did not. Would limited partners have the authority, in your view, to block the sale?

[00:02:09] Speaker 02:
Yes, Your Honor. If there's a distinction between the exercise of the option, which can be unilaterally exercised against the, even if the limited partners, you know, want to stay in the partnership, the right of first refusal is Our position is that the limited partners have to desire to sell the property. But as your honor is sort of thinking.

[00:02:34] Speaker 03:
And what is that based on? I mean, do we have to go look at the partnership document to figure out who exercises the owner's authority with respect to this issue?

[00:02:43] Speaker 02:
Your honor, yes, you look to the partnership agreement. The partnership agreement is clear that the partnership cannot sell the property to unless the limited partners agree.

[00:02:55] Speaker 03:
Now... Other than as provided in the option agreement, which lends us back to this question.

[00:03:01] Speaker 02:
That's right, Your Honor. And I think that the reason why that parenthetical was included in the partnership agreement was because in the absence of that parenthetical, theoretically, the limited partners could block the exercise of the option because the option involves the sale of the property, And if the partnership agreement says that the limited partners have to consent to a sale of the property, it could undermine the unilateral aspect of the option. However, I don't think that we need to win on that issue, which is why we didn't really focus on it in our briefing, because the reality is that none of the partners of the partnership desire to accept a third-party offer.

[00:03:49] Speaker 02:
And, you know, it's undisputed that the partnership did not desire to accept an offer. My clients repeatedly communicated that they have no interest in selling. And the general partners.

[00:04:01] Speaker 03:
How doesn't that view of this make this language essentially nugatory? It's nice words on a page, but it will never be operative in the real world.

[00:04:12] Speaker 02:
If the limited partners have the ability to block the consent or.

[00:04:17] Speaker 03:
No, you're reading about. what constitutes a desire to accept a bona fide offer.

[00:04:23] Speaker 02:
That it has to be a genuine desire to accept a purchase offer from a third party.

[00:04:29] Speaker 03:
Correct. That if that's what it means, then this provision is basically never going to be operative.

[00:04:35] Speaker 02:
I don't think that's right, Your Honor.

[00:04:37] Speaker 03:
I think that... It would mean that the general partner who has the right of first refusal would have to actually want to do the third party sale immediately even though that would then trigger the right of first refusal, which looks pretty good by comparison. And so it puts us in a situation that it could only be operative based on a factual impossibility, and therefore it sort of drops that off the page. I mean, that seems to be the biggest challenge to your argument.

[00:05:08] Speaker 02:
I think there are a couple of things. So one is there are two general partners, right? Only one of the general partners actually holds the below market right of first refusal. And so the other general partner presumably doesn't have that conflict of interest and could evaluate the terms of a third-party offer and assess whether that offer would be in the best interest of the partnership to accept. And even...

[00:05:39] Speaker 03:
other general partners seem to like the right of first refusal.

[00:05:43] Speaker 02:
That is, I think, a true statement in these factual circumstances. But the reality is under the contract, that general partner does not hold the right of first refusal. And even for Canopy, the party that does hold the right of first refusal, you know, it's not impossible for a general partner that owes fiduciary duties to the partnership to wear two different hats and to look at the actual third-party offer, make an independent assessment as to whether accepting that offer would be in the best interest of the partnership, even though it knows in the back of its mind with its other rofer-holding hat that it would allow it to, you know, to trigger the rofer.

[00:06:27] Speaker 02:
And the facts here are actually a very good example of that, where the offer, well, it was actually not an offer. It was a non-binding letter of intent, which I can get to next. But The letter of intent proposed a purchase of the property for I believe it was $45 million. And the broker's opinion of value that the general partners obtained prior to soliciting the letter of intent valued the property between $50 and $60 million.

[00:06:58] Speaker 02:
And the broker had suggested to the party that made the letter of intent, you know, why don't you offer $52 million?

[00:07:05] Speaker 02:
Now, they didn't. They offered $45 million. And we know that the general partners would not have desired to accept a $45 million offer for the purchase of the property. And how do we know that? We know that because the general partner's principal, David Nahas, I asked him this specifically at his deposition, would you have accepted, you know, putting aside the ROFR, would you have accepted this offer? And he said, no, I would not have accepted this third-party offer without further negotiations.

[00:07:39] Speaker 02:
And then I asked him, and you didn't engage in further negotiations, did you? And he said, that's right. And I said, and the reason why you didn't engage in further negotiations is because you had no interest in selling the property to a third party. Your interest was triggering the rofer. And he said, yes, that's right.

[00:07:56] Speaker 00:
And so there are – I mean, the question this raises is, was there anything – unambiguously in the contract that prevented them from doing that. And because that's your burden, right, to be able to prevail on summary judgment. And so I guess I come back to Judge Collins's question, which is, you know, under your view, what exactly did they need to do? Your position, I take it, is, you know, the right of first refusal is something they can use eventually. It's not completely nuggetory. But so what more did they have to do?

[00:08:26] Speaker 00:
They had to basically play along further with the positive offer. They had to engage with them a couple more rounds and get to that point. And then you would say, all right, at that point, that was enough process, if you will, that they could then exercise the right of first refusal.

[00:08:40] Speaker 02:
So I want to answer your question directly. And then I also want to address the nuggetory, the statement of it being nuggetory, because I think that even in the absence of it being exercised, it's not nuggetory. I think it has value independent of its exercise. But What would have to happen is, first of all, there would have to be an actual enforceable offer. And the case law is very clear on that. Even the cases that the general partners rely on, the Pathway case and the homeowners rehab case, all say that, you know, at a minimum, an offer needs to be an enforceable offer in order for it to trigger the right of first refusal.

[00:09:15] Speaker 02:
That's an independent requirement. On the desire to accept, what we're saying is that there actually has to be an evaluation of the merits of the offer that's being tendered by the third party to assess whether accepting that offer would be in the best interest of the partnership. And the fact that there could be a collateral consequence of that analysis and that – And all of the partners have to agree for this condition that –

[00:09:46] Speaker 03:
the owner desires to accept the bona fide, all of the partners have to agree to that?

[00:09:53] Speaker 02:
Our position is that all of the partners have to agree, but at a minimum, one of the partners has to have a genuine desire to accept. Which is it?

[00:10:02] Speaker 03:
What's the rule? Is it all of them, or is it sufficient if it's just one?

[00:10:13] Speaker 02:
I would say that it has to be all of them.

[00:10:17] Speaker 03:
Because if it's all of them, then the partner who has the right of first refusal is never going to, in fact, subjectively desire the third-party transaction.

[00:10:29] Speaker 03:
It creates a sort of factual impossibility.

[00:10:31] Speaker 02:
Well, I don't think that's right, Your Honor, because, again, I think that Canopy can evaluate the offer on its merits and say, if I didn't have this rofer, this would be in the best interest of the partnership. And I also want to point, and I want to talk to The way that Congress structured this and the way that the parties structured this was they gave the canopy two rights. One was an option that could be exercised unilaterally and that could be exercised without the limited partner's consent, without the other general partner's consent.

[00:11:07] Speaker 02:
It had carte blanche if it wanted to exercise, if it wanted to purchase the property, it had a mechanism for doing that. Then it had This Section 6, which is kind of like a standalone section in the purchase option agreement, what that is is a blocking right. Rights of first refusal are by their nature defensive, preemptive rights that are only triggered in the event that there's a desire to sell and a desire to sell the property. Now, you may ask, well, then why would you have that in there?

[00:11:40] Speaker 02:
What value does it create for the nonprofit to have that right of first refusal in there. Well, the value that it has is that the limited partners have a forced sale right. That forced sale right begins to run on the same day that the right of first refusal begins to run. And in the absence of the right of first refusal, the limited partners could say, could order the general partners, you need to go and sell this property to a third party for fair market value.

[00:12:11] Speaker 02:
And then the canopy, the nonprofit, would have to say, oh, well, even though I have a four-year option period, I'm now stuck in a situation where I need to immediately.

[00:12:24] Speaker 01:
So, Counsel, if this were just a straight-up contractual relationship without the statutory backdrop, You know, there's a lot of merit to your argument about what a right of first refusal means. It feels like it has some kind of established meaning. Congress then uses it in the statute. But as the Sixth Circuit points out, you know, it doesn't really mean what it looks like.

[00:12:54] Speaker 01:
Congress had to structure this in a way to avoid certain kinds of tax consequences with the IRS. And it really means something different.

[00:13:03] Speaker 01:
because as Judge Collins has pointed out, it will never get exercised, and it will frustrate the program that Congress has set up. So what's wrong with that reasoning?

[00:13:14] Speaker 02:
So a couple of things. One is that Congress actually engaged in this analysis. They considered whether to grant a below-market option or a below-market right of first refusal, and that's in the Senate reports and the House reports that we cite to in our briefs. And what they said was if we give the nonprofit a – below market option, it will take away the ownership rights of the investor to such an extent that it will no longer be considered the owner of the property and therefore will not have the ability to the tax credits.

[00:13:46] Speaker 02:
You have to remember that this tax program was adopted in 1986 as a way of – as part of the larger Tax Reform Act where they were trying to get rid of these passive tax shelters. And so Congress decided – We want to make sure that the owner of the property, now remember, the limited partner is the 99.99% owner of the partnership, and that's how the program is structured. Now, they have to have some ability to ensure that they could have upside potential if the property appreciates in value over the life of their investment.

[00:14:21] Speaker 02:
And if we allowed the option to be exercised unilaterally, then they would take away their ability. So Congress specifically understood this. And so that's the reason why this agreement, this specific agreement, which affirmatively includes the bona fide offer and the desire to accept, can't be interpreted in the way that the general partners advocate. Because if they did, it would essentially, this is, they refer to it as, oh, the roper is just a mere technicality.

[00:14:54] Speaker 02:
It's just something that You know, you've got to sort of check the boxes of, you know, soliciting an offer. But at the end of the day, we get the property and we get it for the below market price. And Congress said, no, you don't get to, you know, this is the tax code. The tax code doesn't allow you to just say, oh, well, something's a technicality. There's substance that has to be associated with that.

[00:15:14] Speaker 03:
Do you want to save time for rebuttal?

[00:15:16] Speaker 02:
I would, Your Honor. Okay. Thank you. If there are no questions at this point, I'll save time. Thank you.

[00:15:21] Speaker 03:
Thank you.

[00:15:22] Speaker 03:
and so we will hear now from Mr. Davenport.

[00:15:28] Speaker 04:
Thank you, Your Honor. May it please the Court, it's a privilege to be here. We've been litigating these types of cases now for more than a decade, and it's a privilege to be here and hearing the questions that you're asking, because they are the questions that the courts that we've been before in the past have asked. What does this mean if it can't be

[00:15:48] Speaker 03:
But at the same time, under California law, it has to be a reasonable reading of the words. And the words that are in here is that the owner shall desire to accept a bona fide offer from an unrelated third party. So the noun phrase that is the object of the desire to accept is is not just an offer or not an offer to trigger right of first refusal. It's a desire to accept an offer from an unrelated third party.

[00:16:22] Speaker 03:
That condition is just not met on the facts. No one desired to accept the offer from the third party.

[00:16:29] Speaker 04:
They desired to accept it for purposes of triggering the rofer, which was consistent with the reason it was there in the first place. And everybody knew going in, the original parties made it,

[00:16:40] Speaker 03:
very clear in our estimation under the limit it's a desire to have it for purposes attributed no one desired to actually accept it i mean it's weird why isn't it written as upon receipt of a bona fide office then that would work exactly as you said but it's just not written that way it doesn't say that and so this looks like a case where the words don't fit but for reasons of congressional purpose, we're supposed to distort the words to come up with something else.

[00:17:13] Speaker 03:
That's what this sounds like, because the words just are not met. And I can't stretch them so that they're met on the facts of this case. Help me out.

[00:17:23] Speaker 04:
Two things to that. One, I believe that may justify why Judge Carter ruled that it was ambiguity and we needed to have a trial and evaluate what was the intent, because this is unclear. Because as you say, We have to look behind that to figure out what it means. And so we had a trial on that. The second thing is it also does not say that there has to be a genuine desire to accept. It does not say there has to be a desire to sell. And that's really what they're getting at is they're getting at there has to be a genuine desire to sell.

[00:17:58] Speaker 04:
to that third party at a binding enforceable offer.

[00:18:01] Speaker 03:
Not desire to have, receive, consider. It's a desire to accept a bona fide offer from an unrelated third party. How can I read that that condition was met?

[00:18:16] Speaker 04:
Because that condition was met because you had a bona fide offer. It was from an unrelated third party. And the general partner, Canopy, was vested with full authority to express any desire of the partnership. Only Canopy can do that as a general partner. The limited partners cannot. They were excluded from any such right under the terms and conditions of the partnership agreement.

[00:18:40] Speaker 03:
You disagree with him. When it says owners shall desire to accept that that power is only the general partners and not the limited partners.

[00:18:50] Speaker 04:
I fully agree. disagree with his position. And the partnership agreement makes it manifestly clear that as the general partner, they have full and exclusive authority to manage the partnership for its purposes, which includes the charitable purposes for which the partnership was designed. And that's at Section 2.5A of the partnership agreement and Section 5.1A of the partnership agreement. Further, what they're really trying to do is create...

[00:19:19] Speaker 03:
5.5 says, notwithstanding any other provisions of this agreement, the general partners shall not have the authority to do any of the following. One is sell any or all or any portion of the apartment complex or modify or refinance the mortgage, et cetera, except as specifically provided in this agreement or in the option agreement, which seems to beg the question.

[00:19:45] Speaker 04:
I would say, Your Honor, that's the carve out that you identified earlier, which means they don't have a consent right and their ability to weigh in on whether or not there's a desire to accept.

[00:19:54] Speaker 03:
But his response was that when you get to the option agreement, then you you do have a derogation in that there's an absolute unconditional right to exercise the option without the limited partner's consent.

[00:20:09] Speaker 03:
But is it clear from this language in paragraph six of the. OF THE OPTION AGREEMENT THAT THIS CREATES AN EXCEPTION TO THE REQUIREMENT TO HAVE THE LIMITED PARTNER'S CONSENT TO A SALE?

[00:20:24] Speaker 04:
I BELIEVE SO, YOUR HONOR. I THINK WHEN HE RESPONDED TO YOUR QUESTION AND HE SUGGESTED, WELL, THE REASON THAT THE CARVEOUT IS THERE IS BECAUSE OF THE OPTION COMPONENT OF THE OPTION AGREEMENT AND NOT THE ROFER OR NOT THE TOTALITY OF THE OPTION AGREEMENT. That is not supported by the record, nor is it supported by the plain language of this agreement.

[00:20:42] Speaker 03:
Where's the language in the ROFR provision in paragraph six that makes equally clear as the option provision that it can be exercised without the consent of the limited partner? I'm sorry. Where's the language in paragraph six about the ROFR that makes as equally clear as the language about the option provision? that the ROFR can be exercised, or rather that the desire to accept the property can be exercised over limited partners' objection.

[00:21:12] Speaker 04:
I believe it's within the definition of owner, because only the owner can express that desire.

[00:21:17] Speaker 03:
But the owner is just defined as the partnership, which then sends you back to the partnership agreement, which then is back here, which is why I'm confused.

[00:21:23] Speaker 04:
But the partnership agreement tells us that the voice and decision-making authority for the owner is the general partner. And so... they work in concert with one another. And I just don't see anything in paragraph six or anywhere in the option agreement that would suggest that the carve-out that we see in 5.5B Romanette 4 is only in relation to the option component of the option agreement because the carve-out specifically says the option agreement. It doesn't say the whole agreement.

[00:21:55] Speaker 04:
And so what I think we see happening here is because When you look at 5.4b, Romanette 1, this says that notwithstanding any provision of the agreement to the contrary, but subject to the purchase option and consent rights required by the lender. This further subordinates any right that they may have to force a sale. So he brought up the concept of, well, the rofer could have some value because my client has the right to force a sale.

[00:22:27] Speaker 04:
But his client doesn't have a right to force a sale because it's subject to the purchase option agreement. Because at Section 5.4b2, it specifically says, subject to 5.1b1 hereof, they will have a right to force a sale. So their ability to force a sale is dependent upon whether or not my client exercises the option agreement and or the ROFR. So they can't just say force a sale and then that triggers this value.

[00:22:55] Speaker 03:
So under their – view of the agreements, how would this work out in practice? So you just sort of stuck with each other until you all agree to sell, and then at that point, it's inevitably going to be the rofer exercise, or how would it work in a practical way under their view?

[00:23:17] Speaker 04:
Under their view, they will have purchased J.P. Morgan's position for $2.5 million. They will defeat the rofer. They will make it entirely impractical, meaningless, illusory. It'll never be exercised. It will expire and be gone because it's only available for four years after the end of the rofer period. They will then force the sale of the property under that right because the option agreement's gone.

[00:23:42] Speaker 03:
It's the time-limited nature that creates, because then the deadlock would run the clock out and then the rofer would disappear.

[00:23:52] Speaker 04:
And that's their goal. because then the property can be sold at fair market value and pursuant to the capital transaction waterfall in the agreement, after all debts and obligations are paid, they get 99.99% of the equity. And the only reason they get 99.99% of the equity, as the parties testified below, is because of the ROFR. The expectation all along was that the publicly subsidized housing was going to appreciate in value and the nonprofit would be able to realize that value and then give them access to capital in order to rehabilitate the property after 20 years of operation and pour more money back into the community and into the property, rather than having to come back to public subsidies and ask for more money in order to do things that the public subsidies have already accomplished.

[00:24:36] Speaker 04:
So the ROFR is a beautiful tool that Congress created back in the 80s to establish this wonderful partnership between public and private institutions creating affordable housing. And when you have organizations like this who come in and say, this is our goal, this is what they want to do, They told J.P. Morgan, sell us your positions. And there's a serious risk of litigation. So the value you have is diminished. And the litigation is mixed. So they convinced J.P. Morgan, to whom they had a fiduciary duty, to sell their position for $2.5 million.

[00:25:07] Speaker 04:
Then they turned around and tried to defeat the rofer. And they want this court and every other court that they've been in front of to make it illusory. What steps does Canopy need to take in order to accomplish the rofer? Should we string along the third-party buyer? Get them close to the table. Get them close to the table. We're ready to sign. Oh, we're not going to sign. That wouldn't be enough for them. They say we have to have an enforceable offer that triggers the ROFR. That means the partnership has to breach the binding agreement that they want to be the bona fide offer.

[00:25:38] Speaker 04:
So when we think that through to its logical conclusion, they're creating another opportunity to remove the general partner to take away the ROFR. Because if the general partner had engaged with positive investments and entered into a binding and enforceable purchase and sale agreement, which is what they say is the only way you can have a binding offer, we will breach the agreement. The partnership will be sued. The general partner will be removed because they'll say you breached your duties to the partnership by entering into a binding agreement.

[00:26:04] Speaker 04:
That's what they want. Every road that they create is an end point with a roadblock at the end, and there's no way for us to get there. And I think the Sixth Circuit recognized this in the Sun America case, often referred to it as pathway because pathway upon the act was the roofer holder in that case.

[00:26:24] Speaker 04:
And I think to Judge Bobby's question earlier, I mean, Congress called it a right of first refusal, but it's not a traditional common law right of first refusal because of the minimum purchase price and the nature of that. So you don't need to have these bells and whistles everywhere. that you have in a common law roofer because the protections are there to make sure you get an offer that will protect the roofer holder. Here, you have a partnership. If the offer was $100 million, would that have been enough for them?

[00:26:59] Speaker 04:
Probably not because the purchase price doesn't matter. And so we know from the First Circuit decision and the First Tenants Development Corporation, Congress created this special right They called it a right of first refusal. They wanted to avoid tax implications and problems by having it function like an option. So they said, look, we need to, if there's a manifest intent to sell, you're good. But they didn't define any triggering mechanisms whatsoever in the statute.

[00:27:25] Speaker 04:
So what did they do? Three things have to be present. You have to have a qualified nonprofit organization, a qualifying organization, which includes a nonprofit. You have to have it available at the end of the compliance period, not before and it has to be the minimum purchase price. It can be more, but it can't be less. And if you meet those three criteria, you have a right of first refusal. But it's not mandated. It's sui generis. It has to find its way into a contract. And so the parties are free to negotiate the terms and conditions of their contract. So as you'll see in this case, the guidepost that they created was a desire to accept a bona fide offer from an unrelated third party.

[00:28:04] Speaker 04:
Other partnership agreements that are in the record in the various other cases They don't necessarily include that language. Some just say an offer. Some just say a bona fide offer. Whatever they've done, they've tried to create an opportunity for the general partner to trigger the rofer. And they all know coming in, just like the original parties to this case knew, the original limited partners knew when this language was agreed to, Canopy was going to be the party making the decision on behalf of the partnership. We get to the end 15 years later and they accuse them of, self-dealing.

[00:28:37] Speaker 04:
They accused him of trying to self-trigger.

[00:28:40] Speaker 04:
I think the lower court below looked at the circumstances just like the Sixth Circuit said and said, well, bona fide is undefined in the agreement. Well, what does that mean? There's some ambiguity there. So we're going to have to have a trial. The Sixth Circuit kicked it back down to the lower court to have a trial. Didn't happen because the case settled. Here, Judge Carter said, we're going to have a trial on this issue. And when we have the trial, we're going to do it The same way the Sixth Circuit said within the context of the program, within the context of the original party's intent, we're going to look at the extrinsic evidence and we're going to try to accomplish what was the intent of the original parties.

[00:29:15] Speaker 04:
And the original parties were there.

[00:29:17] Speaker 04:
None of his clients were the original parties.

[00:29:20] Speaker 04:
Ronnie Thielen, she testified on behalf of Related. She was there. She was actually there at the Mitchell Danforth Commission when the program was put together and the roper was established and she went to work for Related. She negotiated the deal on behalf of the limited partner. She said this is what's supposed to happen. Mr. Nahas, he said this is what the LPs told me when they were negotiating. Ted Handel, who was the lawyer for the general partner at the time, said this is what we were told. This is what we were trying to accomplish. This is what we did. And so we get to the end, and they literally have no one who can testify from their client on what the original intent of the parties were because they weren't there.

[00:29:59] Speaker 04:
They were formed for the purpose of doing just this. trying to strip equity from affordable housing and require this property and many others like it to be sold at fair market value.

[00:30:09] Speaker 04:
And then it is going to be recapitalized through some other process rather than the equity that Congress intended to remain with the property so this would no longer need to be federally subsidized housing. They will have a balance sheet that has access to capital because all of the equity is supposed to remain with the property. And when the roofer holds as it should, The program works, and the policy of Congress is effective.

[00:30:37] Speaker 04:
Now, I think I put on my points. I'm sorry.

[00:30:43] Speaker 00:
Are there other cases that are pending in district courts in this circuit that raise some of these same issues? Do you know?

[00:30:52] Speaker 04:
I don't. There is one.

[00:30:56] Speaker 04:
Not in district courts. There's a state court case that we are litigating down in San Diego that implicates many of these same issues.

[00:31:05] Speaker 04:
Motions for summary judgment were teed up, and now they were not decided.

[00:31:08] Speaker 03:
Was the case before Judge Selma appealed to this court? Because they put a lot of weight on his ruling on that case. Was that appealed to us?

[00:31:15] Speaker 04:
It was going to be appealed. Mr. Pettit and I were on that case. We've known each other for years. And Judge Selma made his decision. And the cornerstone of his decision was the Sun America case decided at the district court level.

[00:31:30] Speaker 03:
Which got reversed.

[00:31:31] Speaker 04:
And that was reversed. And so after Judge Selma issued his decision, a new case started where they were trying to now kick my client out of the partnership based on Judge Selma's rulings.

[00:31:45] Speaker 03:
The case before, was that just abandoned or was it appealed?

[00:31:48] Speaker 04:
It was appealed.

[00:31:51] Speaker 04:
It was basically abandoned. There was a settlement between the parties. It was a second action. And so no appeal came because of the settlement.

[00:31:58] Speaker 01:
Would you just remind me of the circuit scorecard? So the Sixth Circuit decision favors your position. Are there other circuits that have taken the same position?

[00:32:09] Speaker 04:
I'm only interested in the circuits. The First Circuit did not have to ultimately reach the question, but it made a very significant, it issued a very significant determination on how the roofer works and how the program works and what the intent of the party is.

[00:32:22] Speaker 01:
And you find that, you find that favorable? Highly. Okay. So you've got, you've got dicta. All right. Is there anybody else besides the sixth? First, second. How about, how about the other going the other way?

[00:32:33] Speaker 01:
I'm sorry. How about going the other way? How about, how about opposed to you?

[00:32:36] Speaker 04:
I am not aware of a circuit case that goes against us. Okay. The seventh circuit just recently affirmed last week, a district court decision that, in a case involving a general partner's option. It wasn't a ROFR case, but the lower court talked about how the program works and the significance of it. But in fairness, that was not a ROFR case.

[00:32:58] Speaker 03:
And has this gone up to any state Supreme Courts as well?

[00:33:02] Speaker 04:
The Massachusetts Supreme Judicial Court and Homeowners Rehab, we call it the HRI case, that was very favorable for the nonprofit in that case. It then went back a separate case called Tenants Development Corporation, TDC. That went to the Massachusetts Supreme Judicial Court.

[00:33:22] Speaker 03:
Has any state Supreme Court gone against your position and in favor of the other side's position?

[00:33:29] Speaker 04:
Not that I'm aware of, Your Honor.

[00:33:32] Speaker 04:
The cases that I typically, that I believe they kind of hang their hat on, if you will, is the Senior Housing Assistance Group shag case out of Washington State. And I think when you read the first two pages of that decision, it will inform the court as to why the case landed where it did, because the court came out immediately and found credibility findings and unclean hands on behalf of the general partner and whatnot, and everything went against them after that.

[00:34:00] Speaker 00:
Are there other rule for cases that are pending in other circuits?

[00:34:05] Speaker 04:
I'm going through them in my head, John. I'm sorry.

[00:34:10] Speaker 04:
I don't believe that any are pending in other circuits, at least not that I'm aware of.

[00:34:18] Speaker 04:
But as I talked about, that case did not go up on an appeal. The Washington case that I just mentioned that they cite, that ultimately did not go up on an appeal, as I recall it.

[00:34:34] Speaker 04:
Eastern District of Virginia in the Wesley housing case, was decided favorably on behalf of our client. It was not appealed.

[00:34:43] Speaker 04:
The Delaware Chancery Court and J.E.R. Hudson issued really an enormously detailed decision on how rights of first refusal work and what's happening in our industry and how things are being disrupted in a very negative way. I think they had over 350-some-odd footnote citations. The Chancery Court judge conducted a trial. The procedural posture of that case was a little different You had two investors fighting with one another in an investment fund because my client down in Virginia had exercised the right of first refusal and acquired the property.

[00:35:17] Speaker 04:
And one of the investors in the fund went to the manager of the fund and said, go sue those people or we're going to kick you out of the investment fund. And the manager of the fund said, you're not kicking us out. They did what they were supposed to do. They followed the rofer and they duped it out up there. And the Chancery Court unpacked it all. And I think I'm out of time. Thank you.

[00:35:35] Speaker 03:
And you are. All right. Thank you, counsel. We will hear rebuttal now.

[00:35:42] Speaker 02:
Thank you, Your Honor. And I'd like to start by sort of correcting the scorecard, if I might, because I disagree with the proposition that the Sixth Circuit found in favor of the position that's being advocated here. What the Sixth Circuit found was that there was a disputed issue of material fact as to whether the fact that the general partners solicited an offer undercut the bona fides of the offer.

[00:36:12] Speaker 02:
and said because under Michigan law ambiguous contracts have to be resolved, have to go to a jury, we're going to send this down and go to a jury, and then that case ultimately settled.

[00:36:24] Speaker 01:
Okay, you've tried to distinguish it. Have you got any circuit cases that go in your favor?

[00:36:28] Speaker 02:
Yes, so the Sixth Circuit case, for example.

[00:36:30] Speaker 01:
Let's suppose I disagreed with you on that. Do you have any circuit that squarely holds in your favor, anything other than the Sixth Circuit?

[00:36:38] Speaker 02:
The Massachusetts – well, the Massachusetts Supreme Judicial Court, which I understand is not a federal court, but it's the highest court in Massachusetts, also ruled that – and in both of those cases, there was no affirmative bona fide – no affirmative desire to accept in the contract itself. But in the Massachusetts case, they said by the nature of Section 42.I.7 and what Congress was trying to do, it has to be an enforceable offer that to trigger the ROFR because otherwise it would have faced the distinction that Congress made between a right of first refusal and an option.

[00:37:13] Speaker 02:
And I want to go back to the plain language of this contract because opposing counsel said, you know, the Congress didn't define right of first refusal and left the parties with the freedom to negotiate what requirements would need to be had in order to trigger the ROFR. Here, the parties did negotiate it. They decided to affirmatively include in the contract that the partnership has to desire to accept a bona fide offer from an unrelated third party.

[00:37:45] Speaker 02:
Those words have to mean something, and under the opposing counsel's interpretation, they say, oh, well, that's just a guidepost, and it's a technicality, and you don't really need to honor those requirements. There doesn't have to be a genuine desire to accept. There doesn't have to be an actual offer And Judge Collins, you asked that question right off the bat, and that's what Judge Selma said in his decision. He said if it's not a genuine desire to accept, then the desire to accept requirement is meaningless.

[00:38:17] Speaker 02:
So, Counsel, I understand.

[00:38:19] Speaker 01:
And the basis of your argument is that's plain language, and we can just stop there by looking at the language. The district court thought it's ambiguous, and now he's going to admit extrinsic evidence.

[00:38:32] Speaker 02:
I don't think the district court made a decision about ambiguity, but even if there was a determination that the contract is ambiguous, that still doesn't go to a jury. It only goes to a jury if there are disputed issues of material fact that are relevant to how the contract is interpreted.

[00:38:49] Speaker 01:
My question is aimed at something a little bit different, which is the admissibility, whether it's at summary judgment or before a jury, of extrinsic evidence of intent. That is, people coming in and saying, This is what we negotiated, and therefore that's how you should interpret this language. Okay. Did you have any extrinsic evidence that you admitted?

[00:39:11] Speaker 02:
No, we did not. And that's why there is no disputed issue of material fact.

[00:39:16] Speaker 02:
They had their witnesses come in and say, well, we always understood that this – well, first of all, they didn't have any recollection of negotiating this agreement, but they did have testimony that said our general understanding was – The ROFR could be exercised freely. And the way that under California law it works is you provisionally accept extrinsic evidence to determine whether there's an existence of an ambiguity. In order to find that there is an ambiguity, you have to find that the plain language of the contract is reasonably susceptible to the interpretation that's being offered or that the extrinsic evidence purports to support.

[00:39:57] Speaker 02:
And here What they're saying is the extrinsic evidence is that these requirements did not have to be followed. They were just technicalities, and you could essentially just ignore them because everyone understood. And that cannot be reconciled with the plain language of the contract. And so under contract law in California, in that first step, you say, well, if the plain language is not reasonably susceptible to this interpretation, That's the end of the inquiry.

[00:40:30] Speaker 02:
You can't use extrinsic evidence to contradict the plain terms of the contract.

[00:40:35] Speaker 03:
All right. Thank you, counsel. The case just argued will be submitted. We thank counsel for their helpful arguments in this case. And with that, we will stand in recess for 10 minutes.

[00:40:49] Speaker 01:
All rise. This court stands in recess for 10 minutes.