
USCA1 Opinion

	




                                [Not For Publication]                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 96-1698                                  GEORGE A. HIGGINS,                                Plaintiff, Appellant,                                          v.                           ERIC EICHLER AND PETER DILULLO,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. Robert E. Keeton, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                           Stahl and Lynch, Circuit Judges,                                            ______________                            and Woodlock,* District Judge.                                           ______________                                 ____________________            Douglas G. Moxham, with whom Anthony  E. Kilbridge and Lane Altman            _________________            _____________________     ___________        & Owens LLP were on brief, for appellant.        ___________            Helen Mandel Braverman,  with whom David L. Braverman,  Fellheimer            ______________________             __________________   __________        Eichen  Braverman & Kaskey, Thomas  C. O'Konski, and  Cesari & McKenna        __________________________  ___________________       ________________        were on brief, for appellant                                 ____________________                                  DECEMBER 17, 1996                                 ____________________        ____________________        *Of the District of Massachusetts, sitting by designation.                       LYNCH,   Circuit  Judge.    The  plaintiff,  George                      LYNCH,   Circuit  Judge.                               ______________            Higgins, and the defendants,  Eric Eichler and Peter DiLullo,            are general partners in a number of real estate partnerships.            Higgins, a  "national" partner who had been  involved in over            ninety partnerships,  retired from  active management of  the            partnerships  in  1988  but  continues to  own  interests  in            several of the partnerships.   After his retirement, Higgins'            relationship with Eichler and  DiLullo apparently soured.  In            August  of 1995,  Higgins  sued his  partners  in the  United            States District  Court for  the District of  Massachusetts on            the theory that  they had breached their fiduciary  duties to            him  by  implementing  a   scheme  to  prevent  Higgins  from            receiving his  share of the partnerships'  proceeds.  Higgins            also   sued  Eichler   and  L.P.   Corporation  ("L.P."),   a            Pennsylvania close corporation formed by the partners for the            purpose of  performing  accounting functions  and  cash  flow            management for the various partnerships, in the United States            District Court for the Eastern District of Pennsylvania.                      Defendants  moved  to  dismiss   the  Massachusetts            action,  and asked, in the alternative, for this action to be            transferred to  the Pennsylvania court pursuant  to 28 U.S.C.              1404(a).   Defendants argued  that the complaint  should be            dismissed because, among other defects,  it failed to state a            claim  upon which  relief  could be  granted.   According  to            defendants,  the gravamen  of plaintiff's complaint  was that                                         -2-                                          2            the value  of his Individual Partnership  Account ("IPA") was            less  than it should  be.  However,  defendants asserted, the            flow  of funds to Higgins'  IPA was regulated  by a contract,            the Netting Out Agreement ("NOA"), to which Higgins and  L.P.            were  the   only  parties.    Therefore,  defendants  argued,            Higgins' claim could not run against Eichler and  DiLullo, as            they were not parties to Higgins' NOA.                      The  Massachusetts court  dismissed the  action for            failure  to state a  claim.1  See  Fed. R.  Civ. P. 12(b)(6).                                          ___            The court found that  the alleged injury was not  "within the            scope of any particular real estate partnership," and instead            was caused by the corporation, L.P.  The court opined that no            claim  for  breach of  fiduciary duty  owed  to Higgins  as a            partner was stated.  The court indicated that plaintiff might            have  a breach of contract  action against L.P.,  which was a            necessary party to such a claim, but noted that plaintiff had            not offered any evidence that the Massachusetts federal court            would   have   jurisdiction   over   L.P.,   a   Pennsylvania                                            ____________________            1.  The district court  declined to treat  the motion as  one            for   summary  judgment   although   the  parties   submitted            additional materials  and  affidavits.   Plaintiff  complains            that  the  district  court selectively  chose  certain  facts            submitted  by  defendants  to  support  the  dismissal, while            ignoring other  facts in  the supplemental  submissions which            were favorable to his  claim.  Because we resolve  the issues            presented on other grounds, we find it unnecessary to resolve            this claim of procedural error.  Plaintiff does not object to            this court's consideration of the NOA, which is referenced in            the complaint  and is central to it.   See Fudge v. Penthouse                                                   ___ _____    _________            Int'l,  Ltd., 840 F.2d  1012, 1015 (1st  Cir.), cert. denied,            ____________                                    ____________            488 U.S. 821 (1988).                                         -3-                                          3            corporation.  We  reverse and  remand to  the district  court            with  instructions  to  transfer  the  case  to  the  Eastern            District of Pennsylvania.                      Our review of the allowance of a motion to  dismiss            for  failure to  state  a claim  is  plenary.   See  Barrios-                                                            ___  ________            Velasquez  v. Asociacion  de Empleados,  84 F.3d  487, 489-90            _________     ________________________            (1st  Cir. 1996).  The allegations of the complaint are taken            as true and all  reasonable inferences are drawn in  favor of            Higgins.   See id.  We  will affirm the dismissal  only if it                       ___ ___            appears, to a certainty,  that there is no set  of facts upon            which plaintiff may recover.  See Roma Constr. Co. v. aRusso,                                          ___ ________________    ______            96 F.3d 566, 569 (1st Cir. 1996).                         The  parties have largely argued Massachusetts law,            without  a  full  briefing  as to  whether  Massachusetts  or            Pennsylvania law  applies.  Because the parties  have pointed            to no  material differences between the  law of Massachusetts            and  the  law  of  Pennsylvania  as  to  partners'  fiduciary            obligations, we look primarily to Massachusetts law.                        It is abundantly clear that partners owe each other            a fiduciary duty.  See Wartski v. Bedford, 926 F.2d 11, 13-14                               ___ _______    _______            (1st Cir. 1991) (surveying  Massachusetts law).  The question            here goes to  the extent of that duty.   "[P]artners owe each            other  a  fiduciary  duty  of  'the  utmost  good  faith  and            loyalty.'"   Id. at 13  (quoting Meehan  v. Shaughnessy,  535                         __                  ______     ___________            N.E.2d 1255, 1263 (Mass. 1989)).  "'As a fiduciary, a partner                                         -4-                                          4            must consider his or her partners'  welfare, and refrain from            acting  for purely  private gain.'"    Id. at  13-14 (quoting                                                   ___            Meehan, 535 N.E.2d at 1263).            ______                      Provisions of the Uniform Partnership Act have been            adopted by Massachusetts, notably that:                      Every   partner   must  account   to  the                      partnership for any benefit, and  hold as                      trustee for it any profits derived by him                      without the consent of the other partners                      from any transaction  connected with  the                      formation, conduct or liquidation  of the                      partnership or from any use by him of its                      property.            Mass. Gen. L. ch. 108A,   21(1).2                      Against   these  standards,  we  review  the  facts            alleged, drawing all reasonable inferences for the plaintiff.            We discuss only those facts alleged necessary to test whether            a claim  has  been stated.     From  the allegations  of  the            complaint, it would be reasonable to infer that the myriad of            various  real  estate  partnerships   in  which  the  parties            invested were treated, for some purposes, as a single  entity            and that  the participants  regarded each other  as partners.            Higgins alleges  that Eichler,  as chairman of  the partners'            "Executive Committee," and assisted by DiLullo, exercised  de            facto  control  over   the  partnerships.     The  accounting            functions of  the partnerships in toto were performed by L.P,                                           __ ____            a corporation created for  that purpose under the NOA.   Each                                            ____________________            2.  Pennsylvania law contains an identical provision.  See 15                                                                   ___            Pa. Cons. Stat. Ann.   8334(a).                                         -5-                                          5            partner  entered into a separate  NOA with L.P.   Pursuant to            the NOA, partnership proceeds  were paid into partners' IPAs.                      In  1993, Eichler  and DiLullo,  as members  of the            Executive Committee,  implemented a  program called the  "IPA            Cleanup Program."  The Cleanup Program generally operated for            the benefit of active  -- as opposed to retired  -- partners.            Under  the  program, uncollectible  debts  owed  by insolvent            partners to the partnerships were forgiven, and the resulting            losses were allocated to  the IPAs of solvent  partners, thus            allowing the active solvent  partners to take tax deductions.            Additional  debt  forgiveness  adjustments were  made  to the            partners' IPAs in 1994.                      Higgins  did not  consent  to these  changes.   The            Cleanup Program  was implemented  anyway and $1.8  million in            losses  was  allocated to  Higgins'  account.   As  a result,            Higgins, rather than having a positive balance in his IPA and            receiving  income  from  his  investments, was  left  with  a            negative balance and did not receive any partnership draws.                      Higgins' complaint  alleges  that the  IPA  Cleanup            Program was a self-dealing scheme  by Eichler and DiLullo and            constitutes  a breach  of their  fiduciary duty  as partners.            Defendants contend that their fiduciary duties ended when the            partnership income  was transferred  to L.P. and  that, while            plaintiff may have a cause of  action against L.P., he has no                                         -6-                                          6            claim of breach of fiduciary duty against them.  The district            court  agreed   with   the  defendants,   holding  that   the            defendants' actions were outside the scope of the partnership            because  the  relevant  acts,  even if  attributable  to  the            defendants, were performed in their role as officers of L.P.,            an entity  separate, in the  district court's view,  from the            partnerships.                      This  is, in our  estimation, too narrow  a view of            the  allegations,  as the  record  now  stands unfocussed  by            factual  development, and the law.  It is reasonable to infer            that  the  functions   performed  by  L.P.   were  accounting            functions   previously   performed   by    the   partnerships            themselves; that L.P. was established for the sole purpose of            administering those  functions; that L.P. simply  received in            partnership income and then distributed it out; and that L.P.            was merely an  agent of the  partnerships.  These  inferences            are supported by the NOA  itself, which states that  "Partner            and Participants have selected  [L.P.] as the business entity            to  conduct  day  to   day  operations,  perform   accounting            functions  and  to assist  in  cash  planning  and cash  flow            management  for  the  Enterprises."  Higgins'  NOA,  although            executed  only  by  Higgins   and  L.P.,  is  also  expressly            conditioned  on  all  of  the  participants  in  the  various            partnerships  signing identical  agreements, and  states that            these agreements  "shall be  for the  mutual benefit of  such                                         -7-                                          7            executing Participants, Agent, Partner and  the other parties            to  such agreements."   Plaintiff also alleges  that L.P. was            under the control of the defendants and did what they wanted.            The NOA  itself can be read  to suggest that L.P.  on its own            had no authority  to execute a scheme such as the IPA Cleanup            Program.   It was pursuant to that scheme that plaintiff was,            he alleges, deprived of  partnership income owed to him.   It            thus  may  be inferred  that L.P.,  rather  than acting  as a            separate entity with regard to the alleged scheme, was merely            an arm or instrumentality of the partnerships.                      The   Supreme   Judicial  Court   of  Massachusetts            recently  upheld a jury verdict  in a case  involving a claim            that two  law partners had deprived the  plaintiff partner of            his  fair share  of partnership  proceeds by  choosing unfair            methods  of accounting  for  partnership profits.   Starr  v.                                                                _____            Fordham, 648 N.E.2d  1261 (Mass. 1995).  The court recognized            _______            the  potential for  self-dealing  where certain  partners  in            essence control the distributions to another partner:                      The  founding  partners were  responsible                      for  dividing  the partnership's  profits                      and   assigning   to  each   partner  his                      respective share of  the profits.   Thus,                      the  founding  partners  had  some  self-                      interest  in  designating each  partner's                      respective share of  the profits  because                      the percentage of profits which they were                      assigning to  the  other partners  had  a                      direct  effect on their own percentage of                      the profits.                                         -8-                                          8            Id. at 1265.   Accordingly,  the court placed  the burden  of            ___            proving  that the  distribution of  profits  was fair  on the            defendants.  Id.                         ___                      We  are  unprepared to  say,  in the  context  of a            motion  to   dismiss,  that  Massachusetts  law  would  never            recognize  a claim  for  breach of  fiduciary duty  where, as            described above, the  instrument used to deprive a partner of            his partnership income was simply an arm  of the partnership,            and was under the control of the defendant partners.                      We think it better that the  questions in this case            be resolved  in the  context of further  factual development.            As Justice  Frankfurter stated in  SEC v. Chenery  Corp., 318                                               ___    _____________            U.S. 80 (1943):                           [To] say  that a man is  a fiduciary only                           begins the analysis;  it gives  direction                           to  further inquiry.    To whom  is he  a                           fiduciary?  What obligations does  he owe                           as a  fiduciary?  In what  respect has he                           failed  to  discharge these  obligations?                           And  what  are  the  consequences  of his                           deviation from duty?            Id. at  85-86.   Therefore, we  reverse the  district court's            __            grant of defendants' motion to dismiss.                      Plaintiff now joins defendants in asking that  this            case be transferred to the Pennsylvania district  court.  The            action  filed by  Higgins in  that court against  Eichler and            L.P. is substantially  related to the  present action.   "The            pendency of related  litigation in another forum is  a proper            factor  to  be  considered   in  resolving  choice  of  venue                                         -9-                                          9            questions," Codex  Corp. v. Milgo Electronic  Corp., 553 F.2d                        ____________    _______________________            735, 739 (1st Cir.),  cert. denied, 434 U.S. 860  (1977), and                                  ____________            may  be  decisive  where,   as  here,  neither  party  raises            convenience objections.  See id.  Additionally, transfer will                                     ___ ___            resolve  the   various   jurisdictional  issues   raised   by            defendants in their motion to dismiss.                      Accordingly, on remand,  the district court  should            transfer this action to the United States  District Court for            the Eastern District of  Pennsylvania as a companion case  to            the suit Higgins has already filed there.                      Reversed and remanded with instructions.                       ________________________________________                                         -10-                                          10
