Title: Acevedo v. Musterfield Place, LLC

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

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SJC-12398 
 
JULIO ACEVEDO  vs.  MUSTERFIELD PLACE, LLC, & others.1 
 
 
 
Middlesex.     February 8, 2018. - June 8, 2018. 
 
Present:  Gants, C.J., Gaziano, Budd, Cypher, & Kafker, JJ. 
 
 
Housing Authority.  Massachusetts Tort Claims Act.  Words, 
"Controlled affiliate," "Public employer." 
 
 
 
 
Civil action commenced in the Superior Court Department on 
January 26, 2015. 
 
 
A motion for partial summary judgment was heard by Maynard 
M. Kirpalani, J., and the case was reported by him to the 
Appeals Court. 
 
 
The Supreme Judicial Court granted an application for 
direct appellate review. 
 
 
 
John Egan (Laura M. Kelly also present) for Musterfield 
Place, LLC, & another. 
 
Chester L. Tennyson, Jr., for the plaintiff. 
 
 
 
GANTS, C.J.  On February 22, 2013, the plaintiff, Julio 
Acevedo, allegedly slipped and fell while descending stairs at 
                                                          
 
 
1 FHA Musterfield Manager, LLC; and Framingham Housing 
Authority.  The Framingham Housing Authority is not a party to 
this appeal. 
2 
 
 
his apartment in a public housing development in Framingham 
known as Musterfield at Concord Place (property), and suffered 
serious injuries.  He filed a complaint in the Superior Court 
alleging various claims for damages against three defendants:  
the Framingham Housing Authority (authority); Musterfield Place, 
LLC, a "controlled affiliate" of the authority, which owns the 
property (owner);2 and FHA Musterfield Manager, LLC, the managing 
agent for the owner (manager).  The owner and manager moved for 
partial summary judgment, seeking a ruling that they should be 
deemed public employers under the Tort Claims Act (act), G. L. 
c. 258, § 2, and therefore may not be liable for damages in 
excess of $100,000.  The judge denied the motion, concluding 
that the act "clearly defines the scope of a public employer," 
and did not include controlled affiliates within that 
definition.  Recognizing that the issue whether controlled 
affiliates are deemed public employers under the act is a matter 
with "potentially broad impact throughout the Commonwealth" and 
that it has not been addressed by any other Massachusetts court, 
the judge reported his decision to the Appeals Court pursuant to 
Mass. R. Civ. P. 64 (a), as amended, 423 Mass. 1410 (1996), and 
                                                          
 
 
2 As explained later in the opinion, a "controlled 
affiliate" of a local housing authority is defined as "[a]n 
entity with the power to own and manage residential real 
property of which and over which actual and legal control shall 
be in [a local housing authority]."  See 760 Code Mass. Regs. 
§§ 4.01, 4.15 (2017). 
3 
 
 
stayed the action until the appeal is decided.  We conclude that 
neither a controlled affiliate nor the manager of a controlled 
affiliate is a "public employer" as defined in the act, and 
therefore, we affirm the denial of the defendants' motion for 
partial summary judgment. 
 
Background.  In 2009, the authority determined that the 
property, a 110-unit public housing development in Framingham 
then owned by the authority (and previously known as the Pearl 
Harbor Development), was in need of substantial rehabilitation.  
Because the estimated costs to rehabilitate the property 
exceeded the funding available to the authority from the 
Department of Housing and Community Development (department), 
the authority sought financing through five sources, one of 
which was an equity investment by investors seeking to take 
advantage of low income housing tax credits made available 
through the Federal Low Income Housing Tax Credit (LIHTC) 
program. 
 
The LIHTC program, created by the Tax Reform Act of 1986 
and incorporated in the Internal Revenue Code, see 26 U.S.C. 
§ 42 (2012), is a Federal tax subsidy program designed to 
promote the construction and rehabilitation of rental housing 
that is affordable to low and moderate income households.  Under 
the LIHTC program as administered in Massachusetts, the Internal 
Revenue Service allocates Federal tax credits to the department.  
4 
 
 
The department, in turn, allocates those tax credits to 
"qualified low-income housing projects" -- that is, residential 
rental properties that are rent-restricted and have a certain 
minimum share of rental units set aside for low and moderate 
income households.  See 26 U.S.C. § 42(g), (h)(3).  See also 760 
Code Mass. Regs. § 54.05(1) ("Any person or entity [of whatever 
type] with an ownership interest in a qualified Massachusetts 
project is eligible to receive an allocation of Massachusetts 
standard [tax credits under the LIHTC program] with respect to 
such project").  Private developers of these projects typically 
use the tax credits allocated to them through the LIHTC program 
as an incentive to attract capital from private investors to 
help pay for the construction, acquisition, and rehabilitation 
of affordable housing.  These developers "sell" the tax credits 
to private investors, usually through a syndicator, in exchange 
for an equity investment in the housing project.  See J. 
Khadduri, C. Climaco, & K. Burnett, United States Department of 
Housing and Urban Development, What Happens to Low-Income 
Housing Tax Credit Properties at Year 15 and Beyond?, at 2 
(2012). 
 
Local housing authorities seeking to rehabilitate public 
housing cannot make direct use of these Federal tax credits 
because they are exempt from Federal tax liability and, 
therefore, have no Federal tax liability that they can diminish 
5 
 
 
by receiving Federal tax credits under the LIHTC program.  To 
enable local housing authorities to make use of Federal funding 
that would otherwise be unavailable to them, the department 
promulgated regulations permitting them to transfer ownership of 
a housing project in need of substantial rehabilitation to a 
"controlled affiliate" of the local housing authority, defined 
as "[a]n entity with the power to own and manage residential 
real property of which and over which actual and legal control 
shall be in [a local housing authority]."  See 760 Code Mass. 
Regs. §§ 4.01, 4.15 (2017).  The controlled affiliate that owns 
the property may claim these tax credits annually over a period 
of ten years, thereby offsetting the Federal tax liability of 
its investors, see 26 U.S.C. § 42(a), (f)(1), but must continue 
to comply with affordability requirements for the low and 
moderate income renters of the property units for a period of 
fifteen years to preserve those tax credits.  See 26 U.S.C. 
§ 42(c)(2),(i)(1),(j).  For any LIHTC project allocated tax 
credits after 1989, the owner must also agree to comply with the 
affordability restrictions for an additional fifteen years, 
known as the extended use period.  See 26 U.S.C. § 42(h)(6). 
 
Here, in order to obtain Federal tax credits pursuant to 
the LIHTC program, the authority submitted an application to the 
department to transfer ownership of the property to a controlled 
affiliate.  In the fall of 2009, after the department approved 
6 
 
 
the authority's application, the authority sold the property, 
pursuant to 760 Code Mass. Regs. § 4.15, to its controlled 
affiliate, the owner, for $6.5 million.  The owner has three 
members:  RSEP Holding, LLC, the "investor," with a 99.99 per 
cent ownership interest; the manager, the "managing member," 
with a 0.009 per cent ownership interest; and Red Stone Equity 
Manager, LLC, the "special member," with a 0.001 per cent 
ownership interest.3  The manager is comprised of only one member 
-- the authority.  Therefore, although the authority no longer 
owns the property, the authority (through the manager) continues 
to manage it. 
 
Discussion.  Under G. L. c. 258, § 2, of the act, "[p]ublic 
employers shall be liable for injury or loss of property or 
personal injury or death caused by the negligent or wrongful act 
or omission of any public employee while acting within the scope 
of his office or employment, in the same manner and to the same 
extent as a private individual under like circumstances, except 
that public employers shall not be liable to levy of execution 
on any real and personal property to satisfy judgment, and shall 
not be liable for interest prior to judgment or for punitive 
damages or for any amount in excess of $100,000."  The 
                                                          
 
 
3 In keeping with its ownership interests, RSEP Holding, 
LLC, is entitled to receive 99.99 per cent of the tax credits, 
while Red Stone Equity Manager, LLC, is entitled to receive 
0.001 per cent. 
7 
 
 
provisions of the act apply only to a "public employer," which 
is defined in G. L. c. 258, § 1, as 
"the [C]ommonwealth and any county, city, town, educational 
collaborative, or district, including the Massachusetts 
Department of Transportation, the Massachusetts Bay 
Transportation Authority, any duly constituted regional 
transit authority and the Massachusetts Turnpike Authority 
and any public health district or joint district or 
regional health district or regional health board 
established pursuant to the provisions of [G. L. c. 111, 
§ 27A or 27B], and any department, office, commission, 
committee, council, board, division, bureau, institution, 
agency or authority thereof including a local water and 
sewer commission including a municipal gas or electric 
plant, a municipal lighting plant or cooperative which 
operates a telecommunications system pursuant to [G. L. 
c. 164, § 47E], department, board and commission, which 
exercises direction and control over the public employee, 
but not a private contractor with any such public employer, 
the Massachusetts Port Authority, or any other independent 
body politic and corporate." 
 
A local housing authority is an "authority" within the meaning 
of § 1, and, therefore, is a "public employer" within the ambit 
of the act.  See Commesso v. Hingham Hous. Auth., 399 Mass. 805, 
807 (1987) ("The definition of 'public employer,' has clearly 
included a town 'authority' since the statute was amended in 
1981.  See St. 1981, c. 179"). 
 
The defendants here contend that because the authority, as 
the sole member of the manager of the controlled affiliate, 
retains actual and legal control over the property, and because 
the controlled affiliate must comply with the statutes governing 
local housing authorities in G. L. c. 121B, and with various 
department regulations "in the same manner and to the same 
8 
 
 
effect as if it were [a local housing authority]," see 760 Code 
Mass. Regs. § 4.15(1)(a), the controlled affiliate and its 
managing member should be treated as a local housing authority 
under the act and, accordingly, be deemed public employers.  We 
disagree.  To characterize either a limited liability company 
that is a controlled affiliate or a limited liability company 
that is the managing member of that controlled affiliate as a 
"public employer" would be inconsistent with the language of the 
definition of a public employer in § 1 and with the purpose and 
history of the act. 
 
The language of the definition of a public employer in § 1 
does not include a controlled affiliate among the various 
entities that are deemed public employers.  In fact, it 
specifically excludes "a private contractor with any such public 
employer."  See G. L. c. 258, § 1.  Consequently, if a housing 
authority that owned a housing development were to retain a 
private contractor to manage the development (including 
delegating to that private contractor the responsibility for 
maintenance and repairs in the housing development), a suit 
brought by a tenant of the housing development against the 
private contractor for injuries arising from the negligent 
failure to maintain or repair the premises could not be brought 
under the act and, accordingly, would not be subject to the 
limitations on liability in the act.  In that scenario, the 
9 
 
 
private contractor would not become a public employer even if 
the housing authority contractually required the private 
contractor to comply with the statutes and regulations governing 
local housing authorities in the same manner and to the same 
effect as if it were a housing authority.  A contract that 
requires a private contractor to perform the maintenance and 
repair responsibilities of a local housing authority as if it 
were a local housing authority does not transform that private 
contractor into a public employer. 
 
Accordingly, if a private contractor that manages property 
owned by a housing authority is not a public employer (even if 
it were contractually obligated to manage the property as if it 
were a housing authority), then a controlled affiliate that 
purchased the property from the housing authority, but is 
required by regulation to manage the property "in the same 
manner and to the same effect as if it were" a housing 
authority, see 760 Code Mass. Regs. § 4.15(1)(a), is also not a 
public employer.  It would be strange indeed if the sale of the 
public property by the housing authority to a private entity 
could enable that private entity to become a public employer. 
 
Nor would it be consistent with the purpose and history of 
the act to characterize a limited liability company that is a 
controlled affiliate or its managing member as a public 
employer.  "One of the major purposes of [the act] clearly is to 
10 
 
 
allow plaintiffs with valid causes of action to recover in 
negligence against governmental entities in Massachusetts.  A 
second, and equally important, purpose is to preserve the 
stability and effectiveness of government by providing a 
mechanism which will result in payment of only those claims 
against governmental entities which are valid, in amounts which 
are reasonable and not inflated."  Vasys v. Metropolitan Dist. 
Comm'n, 387 Mass. 51, 57 (1982).  See Hallett v. Wrentham, 398 
Mass. 550, 558 (1986), quoting Irwin v. Ware, 392 Mass. 745, 772 
(1984) (act reflects "a legislative intent to be protective of 
. . . public funds" while also "ensur[ing] that a meaningful 
recovery will be available to victims of public employee 
negligence").  The controlled affiliate and its managing member 
in this case are not governmental entities; they are private 
limited liability companies that have never been thought to be 
entitled to sovereign immunity.  See Estate of Gavin v. 
Tewksbury State Hosp., 468 Mass. 123, 131 (2014), quoting 
Shapiro v. Worcester, 464 Mass. 261, 266 (2013) ("The act was 
passed in 1978 in response to 'the Legislature's desire to 
abolish "sovereign immunity and the crazy quilt of exceptions to 
sovereign immunity . . . which courts [had] stitched 
together"'").  And because the owner and the manager are not 
governmental entities, limiting the scope and amount of their 
liability would not protect public funds. 
11 
 
 
 
Conclusion.  For the reasons stated, we affirm the denial 
of the defendants' motion for partial summary judgment, and 
remand the case to the Superior Court for further proceedings 
consistent with this opinion. 
So ordered.