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### STATE OF MICHIGAN

COURT OF APPEALS

PATRICK J. McCOURT,

Plaintiff-Appellant, UNPUBLISHED May 12, 2015

v Nos. 319772, 319926
Gratiot Circuit Court KENNETH C. FOWLER, PATRICK J. BERARDO, RICHARD W. BARCH, CULLEN DuBOSE, CRHC, INC, & PINE VILLA LIMITED
DIVIDEND HOUSING A SSOCIATION, a Michigan limited partnership, LC No. 13-011825-CZ

Defendants-Appellees.

Before: B OONSTRA , P.J., and S AAD and M URRAY , JJ.

P ER C URIAM

.

In docket number 319772, plainti ff appeals by right the trial court’s November 4, 2013 order granting summary disposition to defendants pursuant to MC R 2.116(C)(8), subject to plaintiff’s motion to amend his complaint. In docket number 31 9926, plaintiff appeals by right the trial court’s December 13, 2013 order denying plaintiff’s m otion to amend. 1 We reverse and remand for further proceedi ngs in docket number 319772. We aff irm in docket number 319926.

I. PERTINENT FACTS AND PROCEDURAL HISTORY

Defendant Pine Villa Limited Di vidend Housing Association (“Pi ne Villa”) is a limited partnership formed under the laws of the state of Michigan. Th e remaining individual defendants and defendant CRHC, I nc. (“CRHC”) are present or for mer general partners in Pine Villa. According to the complaint, plaintiff was a limited par tner of Capital Housing PartnersXCVIII (“CHP-98”) “at all times pertinent to these proceedings. ” CHP-98 was formed as a District of Columbia limited partnership. The complaint further alleged that CHP-98 was a

1 The trial court entered a nunc pro tunc order on January 10, 2 014, reflecting the final disposition of the case and indicating that the period of appea l for the November 4, 2013 order was extended to January 3, 2014.-2- limited partner of Pine Villa “[a]t all times pertinent to thes e proceedings.” Thus, plaintiff was a limited partner of a limited partner of Pine Villa.

Plaintiff alleged in his complaint that Pine Villa owned and m anaged real property in the form of apartment buildings in Alma, Michigan in Gratiot County . Plaintiff also alleged that defendant Kenneth C. Fowler was the managing general partner of Pine Villa. Plaintiff alleged
that Pine Villa reinvested exce ss revenues in the partnership a nd accumulated a repair and maintenance reserve of approximately three million dollars. Pl aintiff alleged that, once the mortgage debt was paid and the pr operty was not encumbered, the general partners failed to offer the project for sale or refinan ce the project so as to return t o the limited partners their investment. Further, plaintiff alleged that F owler and the other individual defendants, in their capacity as general partners of Pine Villa, caused the entirety of the rese rve fund to be expended on improvements to the property. The general partners then inform ed CHP-98 that it and its limited partners would suffer adverse tax consequences as the result of the expenditure of the reserve fund and offered to purchase CHP-98’s interest in Pine Villa; t he majority of CHP-98’s partners approved the sale of CHP-98’s interest in the fall of 2011, alt hough plaintiff voted against it.

Plaintiff filed suit on August 12, 2013. Plaintiff brought th e action in his derivative capacity as a limited partner of CHP-98, pursuant to MCL 449.20 01. Plaintiff alleged that defendants’ conduct in “vastly undervaluing the value of the pr oject” and raising the specter of adverse tax consequences enabled them to obtain CHP-98’s intere st at an unfair price, contrary to their fiduciary obligations. Plaintiff also alleged that de fendants had breached the partnership agreement and breached their statutory duties to CHP-98 under M ichigan’s Revised Uniform Limited Partnership Act (RULPA), MCL 449.1101 et seq

. CHP-98’s interest, and therefore plaintiff’s indirect i nterest, in Pine Villa was eliminated as the result of the sale.

In lieu of filing an answer, def endants moved the trial court f or summary disposition pursuant to MCR 2.116(C)(8) (failure to state a claim for which relief could be granted). Defendants argued that RULPA pro hibited plaintiff’s suit, becau se MCL 449.2002 prohibits a party from bringing a derivativ e action on behalf of a limited partnership if the party is not a partner at both the time of the alleged wrongdoing and the time of the filing of the lawsuit. Plaintiff argued in res ponse that the comm on law allowed such a suit to brought a nd that RULPA did not abrogate the common law; further plaintiff argued that an exception existed for claims that a limited partner was deprived of its interest by fraud an d that, if the trial court granted defendants’ motion, he should be permitted to amend his complai nt to allege fraud. The trial court granted defendants’ moti on, finding that RULPA unequivoca lly barred plaintiff’s suit because “the statute supersedes the common law.” The trial cou rt granted plaintiff 21 days to file a written motion to amend his complaint.

Plaintiff filed such a motion, moving the trial court to amendhis complaint to seek recovery for his claims directly (rather than derivatively on b ehalf of CHP-98) under the theory that he was a third-party beneficiary of the partnership agreem ent among defendants as general partners of Pine Villa and CHP-98. The trial court denied the motion, finding that the amendment was legally insufficient and futile because plaintiff was not an intended third-party beneficiary of the partnership a greement. The dismissal of pla intiff’s claims thus became final.

This appeal followed.-3- II. STANDARD OF REVIEW

A grant or denial of summar y disposition based upon a failure to state a claim is reviewed de novo on appeal. Bailey v Schaaf , 494 Mich 595, 603; 835 NW2d 413 (2013). A trial court may grant summary disposition to a party on the ground that the opposing party has failed to state a claim on which relief can be granted. MCR 2.116(C)(8); Henry v Dow Chem Co , 473 Mich 63, 71; 701 NW2d 684 (2005). A motion made under MCR 2.11 6(C)(8) tests the legal sufficiency of a claim and is decided by reference to the plead ings alone. Bailey v Schaaf , 494 Mich 595, 603; 835 NW2d 413 (2013). The reviewing court must a ccept all pleaded factual allegations in support of a claim as true, as well as any reaso nable inferences and conclusions that can be drawn from the facts; such allegations, inferences, and conclusions are to be construed in the light most fa vorable to the nonmoving party. Johnson v Pastoriza , 491 Mich 417, 435; 818 NW2d 279 (2012); Gorman v American Honda Motor Co , 302 Mich App 113, 131; 839 NW2d 223 (2013). A moti on under MCR 2.116(C)(8) shoul d be granted only when the claim is so clearly unenforceable as a matter of law that no fa ctual development could possibly justify recovery. Johnson , 491 Mich at 435. When an action is based on a written contra ct, a copy of the contract must be attached to the complaint, and it becomes part of the pleadings and may be considered in deciding a motion for summary disposition based on the failure to state a claim. MCR 2.113(F); Laurel Woods Apartments v Roumayah , 274 Mich App 631, 635; 734 NW2d 217 (2007).

The grant of summary disposition based on the failure to state a claim should always be with prejudice. ABB Paint Finishing v Nat'l Union Fire Ins , 223 Mich App 559, 563; 567 NW2d 456 (1997). However, leave to amend the pleadings should be fr eely given to the nonprevailing party unless the amendment would be futile or otherwise unjusti fied. Ormsby v Capital Welding

, Inc

, 471 Mich 45, 52-53; 684 NW2d 320 (2004).

III. GRANT OF SUMMARY DISPOSITION

In docket number 319772, plainti ff argues that the trial court erred in granting summary disposition to defendants, pur suant to MCR 2.116(C)(8), based o n its determination that RULPA barred plaintiff’s claims. We agree.

MCL 449.2001 provides that

A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor i f general partners with author ity to do so have refused to bring the action or if an effort to cause those gene ral partners to bring the action is not likely to succeed.

However, MCL 449.2002 states that

In a derivative action, the plain tiff must be a partner at the time of bringing the action and (1) at the time of the transaction of which the plai ntiff complains or (2) his or her status as a partner had devolved upon him or her by operation of law or pursuant to the terms of the partnership agreement from a perso n who was a partner at the time of the transaction.-4- In this case, plaintiff stated i n his original complaint that “ [t]his action is brought by Plaintiff in his derivative capacity as a lim ited partner of CHP-98, pursuan t to MCL 449.2001.” Defendants argued before the trial court, and on appeal, that because CHP- 98, and through it, plaintiff, possessed no interest in Pine Villa at the time the lawsuit was filed, MCL 449.2002 barred plaintiff’s lawsuit. The trial court agreed with defendants th at it did. However, we conclude that all parties were laboring under a misinterpretation of MCL 449. 2002.

This Court, in interpreting statutes, attempts to ascertain th e intent of the Legislature through the specific language of the statute. United States Fidelity In s & Guaranty Co v Mich Catastrophic Claims Ass'n ( On Rehearing ), 484 Mich 1, 13; 795 NW2d 101 (2009). We interpret words and phrases in a statute in context. Bush v Shabahang , 484 Mich 156, 167; 772 NW2d 272 (2009). An apparently ambiguous statute can be clarif ied by the remainder of the statutory scheme. SMK

, LLC v Dep't of Treasury , 298 Mich App 302, 305; 826 NW2d 186 (2012). Statutes that relate to the same subject are in pari materia and should be read together.

State Treasurer v Schuster , 456 Mich 408, 417; 572 NW2d 628 (1998).

Here, the relevant language of MCL 449.2002 is: “In a derivati ve action, the plaintiff must be a partner at the time of bringing the action.” Defenda nts principally argued below (and the trial court appeared to agree) that this language required CHP-98 to be a partner of Pine Villa at the time the suit was filed in order for plaintiff to bring a suit on its behalf. However, read in context, it is clear that MCL 449.2002 requires a plaintiff in a derivative action to be a partner in the partnership on whose behalf the action is brought at the time of filing suit. MCL 449.2001 authorizes a limited partner to bring an action on behalf of a limited partnership if the general partners refuse to do so. Read in pari materia , the “derivative action” referred to in MCL 449.2002 refers to an action brought under MCL 449.2001. N othing in MCL 449.2001 states that the limited partnership itself must be a limited pa rtner of the party against whom the suit was brought. 2 Rather, it is clear from the two statutes that the dispositiv e question is whether a plaintiff is a limited partner of the limited partner ship on whose behalf he brings the action. To hold otherwise would be illogical. By way of examp le, if a limited partner in limited partnership A brought a derivativ e action on behalf of A to rec over funds owed to the partnership by a client corporation B, would MCL 449.2002 bar the suit beca use A was not (and could never be) a “partner” of B at the time the suit was filed? We declin e to adopt such a construction. See

Livonia Hotel

, LLC v Livonia , 259 Mich App 116, 131; 673 NW2d 763 (2003).

Thus, the issue becomes whether plaintiff was a limited partne r of CHP-98 at the time of filing suit, as required by MCL 449.2002. 3 Under the standards of MCR 2.116(C)(8), we conclude that plaintiff has stated a claim that is not barred b y MCL 449.2002. Plaintiff alleged

2 In this case, plaintiff named both Pine Villa and its general partners as defendants.

3 MCL 449.2002 also requires that a p laintiff have been a partne r “at the time of the transaction of which the plaintiff complain s.” Defendants acknowledge that plaintiff alleged in his complaint that he had an interest in CHP-98 at the time of the alleged wrongful conduct. There is no dispute, therefore, that that prong of MCL 449.2002 is sa tisfied for purposes of analysis under MCR 2.116(C)(8).-5- that “at all times pertinent to these proceedings” he was a lim ited partner of CHP-98. The exhibits to plaintiff’s complaint 4 also indicate that CHP-98 conti nued to exist, and that plainti ff continued to be a limited partne r in CHP-98, at least past the 2011 date on which the sale of the Pine Villa interest occurred. Defendants argue, to the contrar y, that plaintiff has admitted that he did not have an interest in CHP-98 at the time of filing suit. However, defendants’ sole support for that assertion is plaintiff’s statement that “[i]ndisputabl y, CHP 98 was no longer a limited partner of Pine Villa at the time this action was brought.” Ag ain, however, defendants confuse
the issue. 5 Whether CHP-98 was a limited partner in Pine Villa at the tim e of filing suit is entirely immaterial to the pertinent question of whether plaint iff was a limited partner in CHP-98 (on behalf of which plaintiff br ings his derivative action) at that time. At the summary disposition motion hearing, plai ntiff’s counsel stated, “I do n ot know that it is necessarily settled
that CHP-98 itself has been di ssolved or that Mr. McCourt is no longer a limited partner of CHP98.” This statement is not only equivocal, and says nothing ab out plaintiff’s status with CHP-98 at the time of filing suit , but in further stating that “I don’t think that’s essential t o the Court’s decision today because it is the relationship between CHP-98 an d Pine Villa which is important,” plaintiff’s counsel also focused on the wrong question. It is indeed plaintiff’s status with CHP98 at the time of filing suit that is essential to determining plaintiff’s right to bring this derivative action. Taking all factual alle gations as true and construing them and reasonable inferences therefrom in the light most favorable to the plaintiff, Johnson , 491 Mich at 435, we conclude that plaintiff has adequately pleaded a derivative action that is no t barred by MCR 2.116(C)(8). Should it be determined through a dditional evidence that in fac t CHP-98 did not exist at the time suit was filed, or that plaintiff was not a member of CHP-98 at that time, it may become appropriate to consider that evidence on a motion for summary d isposition pursuant to MCR 2.116(C)(10). At this point i n the proceedings, however, w e cannot conclude on the pleadings before us that plainti ff’s claim is so clearly unenfo rceable as a matter of law that no factual development could possibly justify recovery. Johnson , 491 Mich at 435.

We therefore reverse the trial court’s grant of summary dispos ition pursuant to

4 Among the items appended to plaintiff’s complaint is a Decembe r 12, 2012 letter from counsel for C.R.I., Inc. (as managing ge neral partner of CHP-98), decli ning plaintiff’s request (as a precondition to filing his derivative action on behalf of CHP-9 8) to bring suit against the general partners of Pine Villa. That letter appears similarly confused , in that it suggests that plaintiff had requested that CHP-98 file a “derivative” action on behalf of P ine Villa, and declined that request in part because CHP-98 no longer held an interest in Pi ne Villa and therefore lacked standing to bring a derivative suit on behalf of Pine Villa aga inst its general partners. The letter from plaintiff’s counsel to which CRI was responding (which als o was appended to plaintiff’s complaint) did not, however, request CHP-98 to bring a derivative suit on behalf of Pine Villa

, but instead simply requested that CHP-98 bring suit, on behalf of the limited partners of Pine
Villa , against its general partners, for alleged breaches of duty ow ed to the limited partners directly.

5 Defendants also omit mention of plaintiff’s immediately preced ing statement that “it appears
from the letter attached to Defendants’ Brief as Exhibit B in s upport of their motion that CHP 98
continued to exist and Plainti ff continued as a limited partner .”-6- MCR 2.116(C)(8).

IV. DENIAL OF MOTION TO AMEND

In docket number 319926, plainti ff argues that the trial courterred in denying plaintiff’s motion to amend his complaint. Because, notwithstanding the tr ial court’s error regarding MCL 449.2002, the trial court articulated a proper independent reason to deny the requested amendment to plaintiff’s complaint, we affirm the trial court’s denial of plaintiff’s motion to
amend.

Plaintiff sought to amend his complaint to alter his claim fro m a derivative action on behalf of CHP-98 to a claim based on his status as a third-part y beneficiary of the partnership agreement between CHP-98 and Pine Villa. 6 Plaintiff argued that the agreement made frequent reference to “Investors,” a clas s that includes plaintiff, and that without the “Investors” there would have been no real estate pr oject. Plaintiff further argu ed that the agreement’s indemnity clause made reference to “affiliates” of CHP-98, which includes persons who control CHP-98. Finally, plaintiff argued that t he agreement provides that, in the event that CHP-98 failed to make its agreed-upon capital contribution, defendants had the r ight to seek colle ction directly from individual investors. In sum, plaintiff argued that the a greement contemplated that the limited partners of CHP-98 were in tended third-party beneficiar ies of the agreement.

The trial court disagreed, stating:

It is agreed that plaintiff was not a named party to the Pine Villa partnership agreement. That contract was not made for the bene fit of plaintiff as an investor because it does not contain a promise made to direc tly to [sic] or for plaintiff, MCL 600.1405. Although performance by the contracti ng parties of the promises contained in the partner ship would incidentally have b enefitted plaintiff, that indirect benefit is inadequa te to confer upon him the stat us of a third-party beneficiary. Rieth-Riley Const Co Inc v Dept of Transp , 136 Mich App 425, 430- 431. Applying the appropriate obj ective standard in analyzing the contract, plaintiff’s proposed amended complaint fails to state a claim a nd would therefore
be futile.

MCL 600.1405 provides in relevant part:

Any person for whose benefit a promise is made by way of contra ct, as hereinafter defined, has the same right to enforce said promise that he would have had if the said promise had been m ade directly to him as the pr omisee.

6 Plaintiff argued at the summary disposition motion hearing tha t he should be allowed to amend his complaint to allege fraud. However, the proposed amended c omplaint contained no allegations of fraud.-7- (1) A promise shall be construed to have been made for the bene fit of a person whenever the promisor of said promise had undertaken to give or to do or refrain from doing something directl y to or for said person.

“Only intended, rather than inci dental, beneficiaries may sue when a contractual promise
in their favor has been breached.” Kisiel v Holz , 272 Mich App 168, 169; 725 NW2d 67 (2006), citing MCL 600.1405. A third party cannot maintain an action s imply because he or she would receive a benefit from the performance of the contract or would be injured by the breach. Id

. Rather, intended third-party bene ficiary status “requires an ex press promise to act to the benefit of the third party.” Id ., quoting Dynamic Constr Co v Barton Marlow Co , 214 Mich App 425, 428; 543 NW2d 31 (1995). “[A] dete rmination that a contract es tablishes an intended third-party beneficiary through a direct promi se to the third party must be based on an objective review of the form and meaning of the contract itself.” Id

.

Our review of the partnership agreement reveals no direct prom ises on the part of defendants to plaintiff. Plaintiff also presents no evidence t hat he is an “affiliate” of CHP-98; plaintiff’s complaint alleges that he was to receive approximat ely 4% of the 1.5 million dollars garnered in the purchase of CHP-9 8’s interest in Pine Villa, an d plaintiff makes no allegations that he had any sort of control over CHP-98’s actions. The rec ord before us does not support the conclusion that plaintiff was an intended beneficiary of any co ntract of indemnity between CHP98 and Pine Villa. See Paul v Bogle , 193 Mich App 479, 491-492; 484 NW2d 728 (1992). Regarding plaintiff’s other argum ents, the fact that the agreem ent makes reference to “Investors” or that CHP-98 agreed to cede to defendants a right to collecti on against investors if CHP-98 failed to make its Pine Villa capital contributions does not eq uate to “an express promise to act to the benefit of the third party.” Kisiel

, 272 Mich App at 169. We conclude that the trial court did not err in denying plaintiff’s motion to amend on the grounds t hat the proposed amendment
would be futile. Ormsby

, 471 Mich at 52-53.

We reverse the trial court’s grant of summary disposition in d ocket number 319772,
affirm the trial court’s denial of plaintiff’s motion to amend in docket number 319926,, and remand for further proceedings. We do not retain jurisdiction. No party having prevailed in full, no costs may be taxed. MCR 7.219(A).

/s/ Mark T. Boonstra /s/ Henry William Saad /s/ Christopher M. Murray