Court Opinion

ID: 995250
Source: CourtListenerOpinion
Date Created: 2013-07-04 00:34:32.487473+00
Date Added: 2024-06-11T12:36:48.640839
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ESSENTIAL HOUSING MANAGEMENT,
INCORPORATED,
Plaintiff-Appellee,
                                                                       No. 97-2150
v.

THOMAS F. WALKER,
Defendant-Appellant.

Appeal from the United States District Court
for the Middle District of North Carolina, at Winston-Salem.
N. Carlton Tilley, Jr., District Judge.
(CA-95-375-6)

Argued: January 29, 1998

Decided: June 9, 1998

Before HAMILTON, WILLIAMS, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed in part, vacated in part, and remanded for further proceed-
ings by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: James A. Merritt, Jr., BERRY, ADAMS, QUACKEN-
BUCH & STUART, P.A., Columbia, South Carolina, for Appellant.
B. Gordon Watkins, III, KILPATRICK STOCKTON, L.L.P.,
Winston-Salem, North Carolina, for Appellee. ON BRIEF: Daniel R.
Taylor, Jr., KILPATRICK STOCKTON, L.L.P., Winston-Salem,
North Carolina, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

In this diversity action for recovery on a contract, defendant
Thomas F. Walker appeals from the district court's grant of summary
judgement for plaintiff Essential Housing Management, Inc. (EHM).
Walker first argues that the district court was wrong to deny his
motion to amend his answer because EHM did not show it was preju-
diced by his delay in seeking to amend. Next, Walker argues that the
court incorrectly granted summary judgment for EHM because it mis-
interpreted the contract on which EHM sued. We reject Walker's first
argument because he failed to show good cause for revising the
court's scheduling order, which had set a deadline for amendments to
pleadings. However, his second argument has merit because the dis-
trict court's reading of the contract renders some of its language
superfluous. Therefore, we affirm part of the district court's order
granting summary judgment to EHM, but we vacate the order in part
and remand the case for further proceedings consistent with this opin-
ion.

I.

Walker was a general partner in several limited partnerships, each
of which owned a low or moderate income housing project in South
Carolina. Each partnership hired EHM to manage its project. Under
the management agreement that each partnership and EHM entered
into (all of the agreements were identical), EHM was obliged to col-
lect rent from the project's residents and deposit it into the project's
general operating account. The agreement also required that EHM pay
all of the project's operating costs out of this account. One such cost
was EHM's compensation, a monthly management fee calculated in
accordance with the agreement. The agreement gave EHM the right
to take its fees out of the operating account when they came due,
without regard to any of the project's other obligations or expenses.

                    2
Further, EHM was not required to pay for project operating costs
from its own funds.

EHM and the partnerships terminated their relationship in about
June 1995. EHM, which is a North Carolina corporation, then brought
suit in federal court against Walker, a resident of South Carolina, to
recover debts that the partnerships allegedly owed to it. According to
EHM, these debts totaled $56,466.02 in unpaid management fees and
unreimbursed operating costs, plus interest. EHM claimed that
Walker was liable for the full amount of these debts because he was
a general partner in each partnership.

Walker filed his answer on May 22, 1996. In a scheduling order of
July 18, 1996, the district court established August 15, 1996, as the
last date to amend pleadings and January 15, 1997, as the discovery
cutoff date. The order scheduled a trial for July 14, 1997.

On December 3, 1996, Walker moved to amend his answer to add
a counterclaim. The proposed counterclaim arose out of the same
transactions as EHM's claim and was therefore compulsory under
Federal Rule of Civil Procedure 13(a). The thrust of the proposed
counterclaim was that EHM was not entitled to the fees it sought
because it had mismanaged the projects. Judge Osteen denied Walk-
er's motion, noting that the motion came nearly four months after the
scheduling order's deadline for pleading amendments and only six
weeks before the end of discovery. The judge said that granting the
motion would extend discovery and would not allow the case to
remain on the July trial docket. However, the judge made no finding
that granting the motion would prejudice EHM.

Walker made a motion for reconsideration that Judge Osteen also
denied. This time the judge found that Walker "set forth no sufficient
reason to indicate that the basis for the amendment was not known in
sufficient time to comply with the original schedule." In fact, the
judge noted that Walker's counsel had left the case unattended for a
substantial period of time with no apparent excuse for doing so.
Finally, the judge found that allowing Walker to assert a counterclaim
at that late date would prejudice EHM because it"would not have suf-
ficient discovery and preparation time."

                    3
At the pretrial conference Walker again moved for reconsideration
of his motion to amend his answer to add a counterclaim. Judge Tilley
denied this motion. The judge held that Walker had not complied with
the deadline for amendments to pleadings set by the scheduling order
and that he had shown "no justification" for his failure to do so. The
judge reasoned that the court's overall schedule depended "on people
doing what they should do in a timely fashion."

On July 14, 1997, the day trial was to begin, EHM moved for sum-
mary judgment. It argued that the sole issue was the proper interpreta-
tion of the management agreements' provision for compensation and
indemnification to EHM. The crux of the parties' dispute, it said, was
the extent to which this provision constituted a guarantee by the part-
nerships that EHM would be repaid for costs it incurred in operating
the housing projects. According to EHM, each management contract
made the relevant partnership liable for all costs of operating the proj-
ects, including EHM's monthly management fees. As a result, EHM
argued, Walker was liable to EHM for all unreimbursed costs and all
unpaid management fees.

Accompanying EHM's motion for summary judgement was an
affidavit from EHM's chief operating officer. She attested to the exis-
tence of the management agreements between EHM and the partner-
ships, explained her understanding of how EHM's monthly
management fees were calculated, and claimed that the management
agreements' indemnification provision made the partnerships liable to
EHM for all costs EHM incurred in operating the housing projects,
including its management fees. Attached to this affidavit were busi-
ness records that purported to show that Walker's partnerships owed
EHM a total of $59,466.02 for uncollected management fees and
unreimbursed out-of-pocket expenses.1 However, the EHM official
_________________________________________________________________
1 In her affidavit the EHM official segregated these costs into three cat-
egories: (1) management fees owed to EHM, (2) "on-site employee
costs," that is, the cost of a "site manager" at each housing project, and
(3) other costs paid by EHM to third parties. However, under the man-
agement agreements the second category was clearly a subcategory of
the first, since the agreements included EHM's "fee" for providing a site
manager as part of EHM's total compensation. Thus, we consider EHM's
site manager costs to be management fees.

                     4
did not say whether or to what extent there were funds available in
the projects' general operating accounts to pay these costs and fees at
the time they came due.

Walker moved for judgment on the pleadings based on a different
reading of the agreements' compensation and indemnification
provision.2 Under that provision, Walker argued, if EHM did not pay
itself out of each project's general operating account when there were
funds in the account, it could not look to the partnership for payment
at a later time. According to Walker, only when a project generated
insufficient rent to pay its own operating costs and management fees
did the partnerships guarantee payment of those costs.

Finding that the language of the management agreement was
unambiguous, Judge Tilley determined that there were no factual
issues in dispute. The judge adopted EHM's reading of the agree-
ments' compensation and indemnification provision and rejected
Walker's reading. The judge held that the agreement required the
partnerships, and therefore Walker as general partner, to indemnify
EHM for all unpaid management fees and all unreimbursed costs
from operating the projects. As a result, the court granted summary
judgment for EHM in the amount of $60,318.60 (including interest)
and denied Walker's motion for judgment on the pleadings.

Walker appeals the district court's denial of his motion to amend
and its grant of summary judgment for EHM.3
_________________________________________________________________
2 Walker also moved to dismiss EHM's complaint for failure to set
forth sufficient facts to support its contract claim and for failure to allege
performance of conditions precedent to the management agreements. The
district court denied this motion.
3 Walker also appeals the denial of his motion to dismiss EHM's com-
plaint. We find no merit to this contention. EHM's complaint was spare
and inartfully drafted, but it met the liberal standard of the federal rules,
which simply require that the plaintiff set forth a"short and plain state-
ment" of the facts underlying his claim for relief. See Fed. R. Civ. P.
8(a). Further, by answering EHM's complaint with a general denial,
Walker waived his right to raise EHM's failure to plead the fulfillment
of conditions precedent to the management agreements. See Fed. R. Civ.
P. 9(c); Trinity Carton Co. v. Falstaff Brewing Corp., 767 F.2d 184, 192
(5th Cir. 1985).

                    5
II.

A.

The first issue is whether the district court erred by denying Walk-
er's motion for leave to amend his answer to assert the omitted com-
pulsory counterclaim. We review the denial of such a motion for
abuse of discretion. Lone Star Steakhouse & Saloon, Inc. v. Alpha of
Virginia, Inc., 43 F.3d 922, 940 (4th Cir. 1995).

Walker argues that the Federal Rules of Civil Procedure require
that a party be allowed to amend his pleading to assert omitted claims
so long as the other party is not prejudiced. This is especially true, he
says, when a defendant wishes to assert a compulsory counterclaim
that must be raised in the pending action or be forever barred.

Here, Walker claims, Judge Osteen erred by denying his motion
because the judge did not find that EHM would be prejudiced by the
delay in allowing the amendment. Indeed, Walker argues, EHM could
not show prejudice since he (Walker) volunteered to waive his own
discovery and to allow EHM expedited discovery. Further, Walker
argues that Judge Osteen's later finding (on reconsideration) that
EHM would be prejudiced by Walker's delay in amending was
clearly erroneous. That finding, Walker argues, was premised solely
on his delay in moving to amend, not on any prejudice that EHM
might have suffered as a result of the delay.

The federal rules do set a liberal standard for allowing an amend-
ment to assert an omitted counterclaim. When a party"fails to set up
a counterclaim through oversight, inadvertence or excusable neglect,
or when justice requires, the pleader may by leave of court set up the
counterclaim by amendment." Fed. R. Civ. P. 13(f). It is well settled
that Rule 13(f) is applied along with Federal Rule of Civil Procedure
15(a), which provides that "leave [to amend] [the pleadings] shall be
freely given when justice so requires." Lone Star Steakhouse, 43 F.3d
at 940 (first alteration in original). Under these rules "a motion to
amend may be denied when . . . allowing the motion would prejudice
the nonmovant." Id. However, "delay alone is not [a] sufficient reason
to deny leave to amend . . . [absent] prejudice, bad faith, or futility."
Johnson v. Oroweat Foods Co., 785 F.2d 503, 509-10 (4th Cir. 1986);

                     6
see also Foman v. Davis, 371 U.S. 178, 182 (1962) (discussing Rule
15(a)); Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir.
1980) (same); Barnes Group, Inc. v. C & C Prods., Inc., 716 F.2d
1023, 1035 n.35 (4th Cir. 1983) (discussing Rule 13(f)). In addition,
a district court has the discretion to deny leave to amend "based upon
a balancing of the equities, including whether . . . additional discovery
[would] be required, and whether the court's docket [would] be
strained." Barnes Group, 716 F.2d at 1035 n.35.

The federal rules' generally permissive position on amendment of
pleadings has one important limit, however. When the district court
issues a scheduling order that sets a deadline for amendments to
pleadings, a party wishing to amend its pleading must comply with
that deadline or show good cause for failing to do so. See Fed. R. Civ.
P. 16(b). This standard primarily considers the diligence of the party
seeking to amend, rather than simply that party's lack of bad faith or
the lack of prejudice to the opposing party. See Johnson v. Mammoth
Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). As a result of
Rule 16(a), when a party moves to amend his pleading after the
scheduled time for amendments has passed, the party is effectively
asking the court both for an amendment to the scheduling order and
for leave to amend the pleading. Thus, when a court decides whether
to grant a defendant's motion to amend his answer to add a compul-
sory counterclaim after the scheduled time for amendments has
passed, the court must apply both the Rule 16(b) analysis and the
Rule 13(f) analysis before allowing the amendment. See Sosa v. Air-
print Sys., Inc., 133 F.3d 1417, 1418-19 (11th Cir. 1998); Johnson,
975 F.2d at 608-09; Riofrio Anda v. Ralston Purina Co., 959 F.2d
1149, 1155 (1st Cir. 1992); Forstmann v. Culp , 114 F.R.D. 83, 84-85
(M.D.N.C. 1987). Since Rule 16(b)'s "show good cause" standard is
tougher on the movant than Rule 13(f)'s "no prejudice to the opposing
party" standard, the effect of reading these two rules together is that
the liberal policy of Rule 13(f) only governs motions to amend made
before the deadline for amendments set by the district court's schedul-
ing order. Afterwards (so long as the scheduling order is in effect) the
movant must meet the more rigorous Rule 16(b) standard before even
reaching the Rule 13(f) prejudice issue.

Here, the district court clearly found that Walker did not show
good cause for amending the scheduling order. Although neither

                    7
Judge Osteen nor Judge Tilley couched his conclusion in terms of
whether Walker's excuse for the delay constituted"good cause" under
Rule 16(b), each judge in effect applied the "good cause" test in deny-
ing Walker's motion to amend. Both judges referred to the lack of dil-
igence on the part of Walker's lawyer in attending to the case, and
both judges explained that counsel's proffered excuse was insufficient
justification to warrant allowing Walker leave to amend. We cannot
say that these findings are clearly erroneous. In fact, Walker's lawyer
admitted at oral argument that he could not show good cause for his
delay in seeking to add the counterclaim, since the delay was attribut-
able merely to his heavy workload and personnel changes at his law
firm. Therefore, the district court did not abuse its discretion in deny-
ing Walker's (implicit) motion to amend the scheduling order.

Since we hold that the district court was correct in refusing any
adjustment to the scheduling order under Rule 16(b), we need not
decide whether the court correctly denied Walker's motion to amend
his answer under the more liberal standard of Rules 13(f) and 15(a).
We note, however, that while it would have been improper for the dis-
trict court to deny Walker's motion to amend solely due to his delay,
the court did not base its decision on delay alone. In denying Walk-
er's motion for reconsideration, Judge Osteen found that granting
Walker leave to amend would prejudice EHM because it would leave
EHM with insufficient time for discovery and trial preparation. Thus,
contrary to Walker's claims, Judge Osteen did not find that EHM was
prejudiced simply because it had complied with the scheduling order.
Further, although Judge Tilley did not mention prejudice to EHM, his
reference to the Civil Justice Reform Act and the court's docket pres-
sures showed that he was exercising his discretion under Rule 13(f)
to deny Walker's motion to amend in order to avoid unacceptable dis-
ruption to the court's docket. Thus, the court clearly relied on proper
considerations, not merely delay alone, in deciding to deny Walker's
motion to amend.

In the circumstances, the district court did not abuse its discretion
in adhering to the scheduling order, which meant that Walker could
not amend his answer to assert a counterclaim.

B.

The second issue on appeal is whether the district court should
have granted summary judgment for EHM. Summary judgment is

                     8
proper only when there is no genuine issue as to any material fact, and
the moving party is entitled to judgment as a matter of law. See Fed.
R. Civ. P. 56(e); Allstate Fin. v. Financorp, Inc., 934 F.2d 55, 58 (4th
Cir. 1991). We review a district court's grant of summary judgment
de novo. See Denzler v. Questech, Inc., 80 F.3d 97, 101 (4th Cir.
1996).

Here, the dispositive question is whether the district court correctly
interpreted the management agreements between Walker's partner-
ships and EHM. The relevant paragraph is as follows:

          VII. [EHM]'s Compensation . . . and Indemnification.

           A. [EHM]'s Compensation. [EHM] will be compen-
          sated for its services . . . by monthly fees, to be paid from
          the [general operating account] and treated as a project oper-
          ation and maintenance expense. . . . Such fees will be pay-
          able . . . each month . . . .

           ....

           C. [EHM]'s Indemnification . . . .[The partnership]
          agrees that [EHM] shall have the right at all times to secure
          payment of its compensation, as provided for under Para-
          graph VII A of this Agreement, from the [general operating
          account], immediately when such compensation is due and
          without regard to other project obligations or expenses . . . .
          Moreover, [the partnership] hereby indemnifies [EHM] and
          agrees to hold it harmless with respect to project costs,
          expenses, accounts, liabilities and obligations . . . and fur-
          ther agrees to guarantee to [EHM] the payment of its com-
          pensation under Paragraph VII A of this Agreement . . . to
          the extent that the Project's [general operating account] is
          insufficiently funded for that purpose . . . .

(Emphasis added). On appeal neither party challenges the district
court's conclusion that paragraph VII is unambiguous. Thus, we inter-
pret the provision as a matter of law. See Goodman v. Resolution
Trust Corp., 7 F.3d 1123, 1126 (4th Cir. 1993).

                     9
EHM argues that the meaning of paragraph VII is clear: each part-
nership "indemnifie[d] [EHM] and agree[d] to hold it harmless" for
all "project costs." This broad language, EHM says, indicates that
each partnership guaranteed EHM reimbursement of all of EHM's
costs in operating the housing project. Included in such costs, EHM
argues, were its monthly management fees, which were deemed "proj-
ect operation" expenses under paragraph VII.A. According to EHM,
the indemnification obligation was the same regardless of whether
EHM took advantage of its right (under paragraph VII.C.) to take its
management fees from the partnership's general operating account
before paying other project costs. If EHM did not take its fees from
a project's operating account, the partnerships were still liable for 100
percent of its fees.

Walker disagrees. Walker contends that under the plain language
of paragraph VII.C., the partnerships "guarantee[d]" EHM "the pay-
ment of its compensation" only "to the extent that" each project's gen-
eral operating account "was insufficiently funded for that purpose" at
any time after EHM's fees came due. The gist of this limited indemni-
fication provision is clear, Walker argues: each partnership guaran-
teed EHM its monthly management fees and other costs for operating
its housing project only when the rent from the project (which EHM
deposited into the project's operating account) was insufficient to
cover these fees and costs. According to Walker, EHM could choose
not to take its compensation when there were sufficient funds in the
account to pay it, but EHM did so at its own risk, since there might
not be sufficient funds in the account at a later time to pay the fees.
Walker also argues that this limited guarantee applied to all operating
costs, including amounts due to third parties. EHM had no obligation
to use its own funds to pay operating costs, and if EHM did so,
Walker argues, it could seek reimbursement from the partnerships
only if it exhausted the funds in the project's general operating
account.

If we adopted Walker's interpretation of the management agree-
ments, we would have to vacate the district court's order granting
summary judgment to EHM for both management fees and expenses
paid to third parties. Under his interpretation of paragraph VII.C., cal-
culating the amount of fees each partnership owed to EHM required
knowing whether the funds in the operating account covered EHM's

                     10
management fees at any point after they came due. Thus, the appro-
priate calculation involved subtracting from each monthly manage-
ment fee that EHM was authorized to pay itself all monies that were
later available in the project's operating account to pay that fee. In
other words, in order to prove how much (if anything) Walker owed
EHM in management fees, EHM would have to prove both the
amount of monthly fees it was entitled to at each project and the
amount of funds available in each project's operating account at all
times after these fees came due. EHM did not attempt to offer proof
under Walker's theory, as it offered no evidence of the amount of
funds available in the projects' operating accounts.

EHM responds that Walker's reading of paragraph VII.C. is
counter-intuitive because it creates an incentive for the project man-
ager to place its own interest in getting paid ahead of the owner's
interest in preserving the project's financial health. Under Walker's
interpretation, when the funds in the operating account were insuffi-
cient to pay both EHM's fees and project costs (such as the mortgage
or maintenance), EHM would be forced to pay the former and neglect
the latter or risk losing its shirt.

Another reason to reject Walker's reading of paragraph VII.C. is
that it essentially renders the indemnification clause a nullity. If (as
Walker argues) paragraph VII.C. allowed EHM to collect its fees
from the partnership only if the money in the project's operating
account was insufficient to cover these fees at any time after the fees
came due, then EHM was forced to collect its fees bit by bit, as rent
money trickled in each month. Under Walker's interpretation, the
partnership was not even liable for past due fees so long as the project
continued to generate money as rent. If the rent received one month
was not enough to cover that month's fees, in Walker's view, EHM
was forced to wait for payment of its past due fees from the next
month's rent (and the next month's rent, etc.). Under this view, EHM
could never turn to the partnerships for payment of its past due fees,
unless the project had no income for the foreseeable future. This
absurd result could not have been intended by the parties.

Yet, EHM's reading of paragraph VII.C. is also flawed. First,
EHM's interpretation renders an entire clause superfluous. In EHM's
view, both the management fees and expenses paid to third parties are

                    11
covered by the partnerships' promise to "indemnif[y] [EHM] . . . with
respect to project costs." However, that sentence does not end there.
It also provides that the partnerships "further agree[ ] to guarantee to
[EHM] the payment of its compensation to the extent that the Proj-
ect's [general operating account] is insufficiently funded for that pur-
pose." EHM's interpretation gives this second clause (which Walker
relies on so heavily) essentially no meaning. When asked at oral argu-
ment about the meaning of this clause, EHM's lawyer said it was
merely a "further guarantee" by the partnerships. But if the first part
of the sentence guaranteed EHM full payment of both management
fees and expenses EHM paid to third parties, then this more limited
guarantee was completely superfluous. Under North Carolina law we
must favor an interpretation of a contract that gives meaning to every
clause over an interpretation that does not. See Maddox v. Colonial
Life and Accident Ins. Co., 280 S.E.2d 907, 908 (N.C. 1981);
Marcoin, Inc. v. McDaniel, 320 S.E.2d 892, 897 (N.C. App. 1984).
Thus, we must reject EHM's interpretation if another reasonable read-
ing of paragraph VII.C. gives effect to both clauses.4

The second flaw with EHM's reading of paragraph VII is that it
requires us to adopt a reading of the word "indemnify" that is at odds
with its common meaning. The verb "to indemnify" is usually used
to mean "to reimburse" for a cost or a loss. See, e.g., Black's Law
Dictionary 769 (6th ed. 1990). But here, EHM urges that the partner-
ships in paragraph VII.C. "indemnified" EHM for its management
fees, which EHM never had in the first place. This is not reimburse-
ment. In fact, it makes more sense in this situation to say that the part-
nerships "guaranteed" EHM its fees. That is, they promised to answer
for the fees if the general operating account could not pay them, see
id. at 705 (defining guarantee). Under North Carolina law we must
give words in a contract their common meaning unless the agreement
or its surrounding circumstances tells us otherwise. See American
Cas. Co. v. Gerald, 369 F.2d 829, 834 (4th Cir. 1966); Baker v.
Whitley, 361 S.E.2d 766, 767 (N.C. App. 1987). Here, there is no
indication that the parties intended for a meaning other than the com-
mon meaning to control. Therefore, we should look to the word
"guarantee" rather than the word "indemnify" to describe the partner-
ships' promise regarding payment of fees.
_________________________________________________________________
4 The parties agree that North Carolina law governs here.

                    12
Since EHM would make the "indemnifies" clause do all the work
and leave the "guarantee" clause with no purpose, its interpretation of
paragraph VII fails. We reject Walker's interpretation for the con-
verse reason: he asks the "guarantee" clause to do all the work and
renders useless the "indemnifies" clause. Instead, we adopt a third
interpretation of paragraph VII. We read the "indemnifies" clause to
cover EHM's expenses to third parties (for which it requests reim-
bursement) and the "guarantee" clause to cover EHM's management
fees (for which it seeks payment in the first instance). Thus, we hold
that, although Walker's partnerships did not require that EHM meet
the housing projects' costs and expenses out of its own pocket, the
partnerships agreed to repay EHM for any of its own funds it spent
to operate the projects. In addition, we reject Walker's contention that
the "guarantee" clause required EHM to receive its management fees
bit by bit. Instead, the more natural reading of that clause is that each
partnership guaranteed EHM any part of its fee that the project's gen-
eral operating account did not cover at the time the fee came due. If
the operating account was insufficient to pay the fee on the date the
fee was due, paragraph VII.C. allowed EHM to turn to the partnership
for payment without waiting for the next month's rent to make up the
rest of its fee.

Our reading is not, as EHM would contend, absurd. It is a sensible
way for a general partner to limit his liability to his management com-
pany. Further, our reading does not, as EHM would argue, turn
EHM's right to take its compensation out of the operating account
into a duty to do so. Rather, this arrangement simply gives EHM the
incentive to exercise its right. In fact, we believe that our reading is
the only plausible reading of the contract, since it gives effect to both
key clauses in paragraph VII.C. and gives the word"indemnify" its
common meaning.

III.

Since we hold that paragraph VII.C. rendered the partnerships lia-
ble for all of EHM's unreimbursed out-of-pocket expenses, we affirm
the district court's award of a sum to cover those expenses (plus inter-
est) to EHM. However, since we hold that the partnerships guaranteed
EHM its management fees only "to the extent that" each project's
operations account was insufficient to pay those fees when they came

                     13
due, we vacate the district court's award of management fees to EHM
and remand for further proceedings on that portion of EHM's claim.

The district court's orders are therefore

AFFIRMED IN PART, VACATED IN PART, AND
THE CASE IS REMANDED FOR FURTHER PROCEEDINGS.

                     14