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[Not For Publication]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 Alt

_________________
_____________________
________
& Owens LLP were on brief, for appellant.
___________

Helen Mandel Braverman,

with whom David L. Braverman,

Fellhei

______________________

__________________

Eichen Braverman & Kaskey, Thomas C. O'Konski, and

__________________________ ___________________

_______

Cesari & McKe

_____________

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

ninety partnerships,

partnerships

in

retired from

1988

but

involved in over

active management of

continues to

own

interests

the

in

several of the partnerships.

After his retirement, Higgins'

relationship with Eichler and

DiLullo apparently soured.

August

of 1995,

Higgins

sued his

partners

States District

Court for

the theory that

they had breached their fiduciary

him

by

implementing

receiving his

also

sued

the District of

in the

scheme

to

Eichler

and

L.P.

United

Massachusetts on

prevent

share of the partnerships'

In

Higgins

proceeds.

Corporation

duties to

from

Higgins

("L.P."),

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

action,

moved

to

dismiss

Massachusetts

and asked, in the alternative, for this action to be

transferred to

1404(a).

the Pennsylvania court pursuant

Defendants argued

upon which

defendants,

relief

the gravamen

to 28 U.S.C.

that the complaint

dismissed because, among other defects,

claim

the

could be

it failed to state a

granted.

According

of plaintiff's complaint

-22

should be

to

was that

the value

of his Individual Partnership

less

than it should

be.

flow

of funds to Higgins'

However,

Account ("IPA") was

defendants asserted, the

IPA was regulated

by a contract,

the Netting Out Agreement ("NOA"), to which Higgins and

were

the

only

parties.

Therefore,

defendants

Higgins' claim could not run against Eichler and

they were not parties to Higgins' NOA.

L.P.

argued,

DiLullo, as

The

failure

Massachusetts court

to state a

claim.1

The court found that

See
___

dismissed the

Fed. R.

action for

Civ. P. 12(b)(6).

the alleged injury was not

"within the

scope of any particular real estate partnership," and instead

was caused by the corporation, L.P.

claim

for

breach of

partner was stated.

have

fiduciary duty

The court opined that no

owed

to Higgins

as a

The court indicated that plaintiff might

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.,

Pennsylvania

____________________

1.

The district court

declined to treat

the motion as

one

for

summary

judgment

additional materials
that

the

submitted

district
by

ignoring other

although

and

the

affidavits.

court selectively

defendants
facts in

were favorable to his

to

support

parties

submitted

Plaintiff

complains

chose
the

the supplemental

claim.

certain

facts

dismissal, while
submissions which

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.

Int'l, Ltd., 840 F.2d

____________

1012, 1015 (1st

488 U.S. 821 (1988).

-33

See Fudge v. Penthouse

___ _____
_________
Cir.), cert. denied,
____________

corporation.

with

We

reverse and

instructions

to

remand to

transfer

the

the district

case

to

court

the

Eastern

Our review of the allowance of a motion to

dismiss

District of Pennsylvania.

for

failure to

Velasquez
_________

(1st

state

is

plenary.

v. Asociacion de Empleados,
________________________

Cir. 1996).

as true and all

Higgins.

a claim

See
___

84 F.3d

Barrios________

487, 489-90

The allegations of the complaint are taken

reasonable inferences are drawn in

See id.
___ ___

We

appears, to a certainty,

will affirm the dismissal

that there is no set

which plaintiff may recover.

favor of

only if it

of facts upon

See Roma Constr. Co. v. aRusso,

___ ________________
______

96 F.3d 566, 569 (1st Cir. 1996).

The

without

full

briefing

as to

Pennsylvania law

applies.

Because the parties

to no

and

parties have largely argued Massachusetts law,

whether

material differences between the

the

law

of

Pennsylvania

as

to

Massachusetts

or

have pointed

law of Massachusetts

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

here goes to

other

loyalty.'"

Massachusetts law).

the extent of that duty.

fiduciary

duty

Id. at 13
__

of

'the

N.E.2d 1255, 1263 (Mass. 1989)).

"[P]artners owe each

utmost

(quoting Meehan
______

The question

good

faith

and

v. Shaughnessy,
___________

535

"'As a fiduciary, a partner

-44

must consider his or her partners'

acting

for purely

private gain.'"

welfare, and refrain from

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

partnership for any benefit, and

the

hold as

trustee for it any profits derived by him

without the consent of the other partners
from any transaction

connected with

formation, conduct or liquidation

the

of the

partnership or from any use by him of its

property.

Mass. Gen. L. ch. 108A,

Against

21(1).2

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

invested were treated, for some purposes, as a single

parties

entity

and that

the participants

Higgins alleges

regarded each other

that Eichler,

as chairman of

as partners.

the partners'

"Executive Committee," and assisted by DiLullo, exercised

facto

control

functions of

over

the

partnerships.

The

de

accounting

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.

Pa. Cons. Stat. Ann.

8334(a).

-55

See 15
___

partner

entered into a separate

the NOA, partnership proceeds

In

1993, Eichler

Executive Committee,

Cleanup Program."

the

Pursuant to

were paid into partners' IPAs.

and DiLullo,

implemented a

as members

program called the

of the

"IPA

The Cleanup Program generally operated for

the benefit of active

Under

NOA with L.P.

-- as opposed to retired

program, uncollectible

debts

owed

-- partners.

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

Additional

debt

partners to take tax deductions.

forgiveness

adjustments were

made

to the

partners' IPAs in 1994.

Higgins

Cleanup Program

losses

was

did not

consent

was implemented

allocated to

to these

changes.

anyway and $1.8

Higgins'

account.

The

million in

As

a result,

Higgins, rather than having a positive balance in his IPA and

receiving

income

from

his

investments, was

left

with

negative balance and did not receive any partnership draws.

Higgins' complaint

alleges

Program was a self-dealing scheme

constitutes

a breach

of their

that the

IPA

Cleanup

by Eichler and DiLullo and

fiduciary duty

as partners.

Defendants contend that their fiduciary duties ended when the

partnership income

was transferred

plaintiff may have a cause of

to L.P. and

that, while

action against L.P., he has no

-66

claim of breach of fiduciary duty against them.

court

agreed

with

the

defendants,

holding

The district

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

the

allegations,

factual

that

is, in our

the

functions

estimation, too narrow

as the

record

now

development, and the law.

functions

performed

previously

performed

a view of

stands unfocussed

by

It is reasonable to infer

by

L.P.

by

were

the

accounting

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

are supported by the NOA

partnerships.

These

itself, which states that

inferences

"Partner

and Participants have selected

to

conduct

functions

day

and

management

executed

only

partnerships

day

operations,

to assist

for

conditioned

to

the

by

on

in

accounting

planning

and cash

Enterprises."

Higgins'

NOA,

of

and

the

"shall be

L.P.,

is

participants

signing identical

these agreements

perform

cash

Higgins

all

[L.P.] as the business entity

in

agreements, and

for the

-77

also

flow

although

expressly

the

various

states that

mutual benefit of

such

executing Participants, Agent, Partner and

to

such agreements."

the other parties

Plaintiff also alleges

that L.P. was

under the control of the defendants and did what they wanted.

The NOA

itself can be read

had no authority

Program.

may

on its own

to execute a scheme such as the IPA Cleanup

It was pursuant to that scheme that plaintiff was,

he alleges, deprived of

thus

to suggest that L.P.

be inferred

partnership income owed to him.

that L.P.,

rather

than acting

It

as a

separate entity with regard to the alleged scheme, was merely

an arm or instrumentality of the partnerships.

The

Supreme

Judicial

Court

recently

upheld a jury verdict

that two

law partners had deprived the

his

fair share

methods

Fordham, 648 N.E.2d

_______

the

in a case

of partnership

of accounting

potential for

for

of

Massachusetts

involving a claim

plaintiff partner of

proceeds by

choosing unfair

partnership profits.

1261 (Mass. 1995).

self-dealing

Starr
_____

The court recognized

where certain

partners

essence control the distributions to another partner:

The

founding

partners were

for

dividing

the partnership's

and

assigning

to

respective share of
the

founding

interest

in

each

responsible

partner

had

some

designating each

respective share of

profits

the profits.

partners

his
Thus,
self-

partner's

the profits

because

the percentage of profits which they were

assigning to

the

v.

other partners

had

in

direct

effect on their own percentage of

the profits.

-88

Id. at 1265.
___

proving

Accordingly,

that the

the court placed

distribution of

profits

the burden

was fair

of

on the

defendants.

Id.
___

We

motion

to

are

unprepared to

dismiss,

recognize

a claim

that

for

described above, the

say,

in the

Massachusetts

breach of

law

context

of a

would

never

fiduciary duty

where, as

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

be resolved

As Justice

in the

questions in this case

context of further

Frankfurter stated in

factual development.

SEC v. Chenery Corp., 318

___
_____________

U.S. 80 (1943):

[To] say

that a man is

begins the analysis;

to

further inquiry.

fiduciary?

a fiduciary only

it gives

direction

To whom

What obligations does

is he

he owe

as a

fiduciary?

failed
And

to

what

In what

respect has he

discharge these
are

the

obligations?

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.

action

Eichler and

filed by

Higgins in

L.P. is substantially

pendency of related

factor

to

be

that court against

related to the

present action.

litigation in another forum is

considered

in

-99

resolving

choice

The

"The

a proper

of

venue

questions," Codex Corp. v. Milgo Electronic Corp., 553 F.2d

____________
_______________________

735, 739 (1st Cir.),

may

be

decisive

cert. denied, 434 U.S. 860

____________

where,

as

here,

convenience objections.

See id.
___ ___

resolve

jurisdictional

the

various

neither

(1977), and

party

raises

Additionally, transfer will

issues

raised

by

defendants in their motion to dismiss.

Accordingly, on remand,

the district court

transfer this action to the United States

should

District Court for

the Eastern District of

Pennsylvania as a companion case

the suit Higgins has already filed there.

Reversed and remanded with instructions.

________________________________________

to

-1010