This consolidated appeal involves two limited partnerships, Fountainview and Park Terrace, created to develop affordable housing complexes in Tampa, Florida. Creative Choice Homes XXX, LLC and Creative Choice Homes XXXI, LLC served as the general partners, while entities like Amtax Holdings and MG GTC served as limited partners. The partnership agreements established a strict 'waterfall' distribution structure where limited partners were paid first, and prohibited the general partners from commingling funds or borrowing from partnership accounts. Beginning in 2008, the general partners made unauthorized advances to their own undisclosed affiliates, which were recorded as 'due from affiliate' balances. Despite repeated objections from the limited partners and warnings from their auditing firm, Baker Tilly, the general partners continued these transactions. In 2019, after the limited partners hired new representation and demanded repayment, the general partners failed to cure the defaults within the contractual timeframe. The limited partners removed the general partners, leading to a lawsuit where the district court ruled in favor of the limited partners, finding material breaches and rejecting the general partners' claims of cure, waiver, and forfeiture.
The Eleventh Circuit, in an opinion by Circuit Judge Abudu, affirmed the district court's decision by addressing four primary arguments raised by the general partners. First, regarding materiality, the court applied Florida law to interpret the partnership agreements. It found that the term 'material' was used intentionally to denote significant harm, not minor deviations. The court agreed with the district court that the diversion of thousands of dollars, which comprised a significant portion of the partnerships' cash on hand and operating expenses, caused real and significant detriment. This conduct violated the core fiduciary duties and the cash distribution order, depriving limited partners of expected returns and financial security. Second, on the issue of cure, the court found the general partners failed to remedy the breaches within the 30-day window. The checks sent to cure the defaults were funded by loans from the partnership itself, which the agreements expressly prohibited. Furthermore, the general partners continued to make improper advances after receiving notice and attempted to backdate payments, demonstrating a failure to timely cure. Third, the court addressed the forfeiture argument, noting that while forfeitures are generally disfavored, they are enforceable when parties clearly intend them and the breach is willful. Because the general partners acted in blatant disregard of the agreements and failed to substantially comply, the removal was a valid contractual remedy, not an impermissible penalty. Finally, the court rejected the waiver and estoppel claims, finding that the limited partners had consistently objected to the improper transactions over the years and acted promptly once they gained full control of their interests. There was no evidence of unreasonable delay or deceptive conduct by the limited partners that would justify estoppel.
The decision reinforces the enforceability of removal provisions in limited partnership agreements when general partners engage in willful and persistent misappropriation of funds. It clarifies that using prohibited loans to fund remedial payments does not constitute a valid cure. The case is remanded to the district court to enforce the removal of the general partners in accordance with the partnership agreements, leaving the limited partners with full control of the partnerships.