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Contract – Purchase Option – Condo Project – Fair Market Value

In this suit for specific performance filed by an LLC requesting that defendants convey their partnership interests in the Lee School Lofts Partnership to Lee School at the price purportedly dictated by the Limited Partnership Agreement, a Richmond U.S. District Court denies defendants’ motion for summary judgment, in part.

Lee School Lofts is a condominium complex located in Richmond, Va.. Lee School and two of the defendants, Amtax holdings and Protech, are partners in Lee School Lofts LP, a partnership that owns the condominium complex. Plaintiff is the sole general partner of the partnership and also serves as “managing general partner.” Amtax Holdings and Protech serve as the “Investor Limited Partner” and the “Special Limited Partner No. 1,” respectively.

Plaintiff Lee School asks the court to reform the LPA to reflect the parties’ actual agreement on a purchase option held by Lee School as general partner. Lee School argues the proposed reforming text was deleted from the executed LPA by a mutual mistake of fact as a consequence of a scrivener’s error. Lee School clearly has failed to satisfy the high evidentiary burden for reformation based on scrivener’s error, and the court grants summary judgment on this aspect of Lee School’s count I.

Defendants also challenge Lee School’s assertion that the proffered omission in the LPA was due to a “mutual mistake.” Defendants contend that Lee School’s request for reformation stems only from its “inattention to detail” and does not represent a “mutual mistake” between the parties. Defendants demonstrate that the pertinent provisions of the LPA went through a number of draft stages, where it was carefully reviewed and edited by counsel for the parties. The challenged language of the LPA remained intact. The parties amended the LPA in 2003 to correct various mistakes, including a mistake in the option provision, but they left intact the descprition of the interest in that provision. This evidence militates in favor of concluding that there was no mutual mistake during the drafting process. The court denies summary judgment on this issue.

The court also denies summary judgment to defendants on their claims that the option price must equal “100 percent of the fair market value” based on current market conditions. There is a genuine dispute of material fact respecting whether the meaning of “fair market value” was fixed at the time of the execution of the LPA.

There also is an issue of whether the option price is dependent on further agreement. There is a dispute of material fact as to whether the parties’ seemingly cooperative course of conduct indicated a mutual agreement on the “projected net operating income” of the project at the time that Lee School sought to exercise the purchase option. If there was such a mutual agreement, the terms of the option provision may be enforceable. Lee School, of course, will have to prove the existence of such agreement.

Finally, defendants have made a forceful case that inequitable conduct bars the relief sought by Lee School. However, there are genuine disputes of material fact on each of defendants’ points. Summary judgment is denied on the issue of inequitable conduct.

Lee School Lofts LLC v. Amtax Holdings 106 LLC (Payne, J.) No. 3:08cv427, May 5, 2009; USDC at Richmond, Va. VLW 009-3-254, 31 pp.

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