PARKWOOD LTD DIVIDEND HOUSING ASSN V STATE HOUSING DEVELOP AUTH
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STATE OF MICHIGAN
COURT OF APPEALS
PARKWOOD LIMITED DIVIDEND HOUSING
ASSOCIATION,
FOR PUBLICATION
September 16, 2003
9:25 a.m.
Plaintiff-Appellant,
v
No. 218433
Wayne Circuit Court
LC No. 98-839763-CK
STATE HOUSING DEVELOPMENT
AUTHORITY,
Defendant-Appellee.
PARKWOOD LIMITED DIVIDEND HOUSING
ASSOCIATION,
Plaintiff-Appellant,
v
No. 229448
Court of Claims
LC No. 99-017226-CM
STATE HOUSING DEVELOPMENT
AUTHORITY,
ON REMAND
Defendant-Appellee.
Updated Copy
November 7, 2003
Before: Cooper, P.J., and Sawyer and Owens, JJ.
OWENS, J.
Our Supreme Court has remanded this case to our Court with instructions to consider the
substantive merits of plaintiff 's appeal. 468 Mich 763 (2003). Plaintiff had sought a declaratory
judgment regarding whether its potential prepayment of a mortgage issued by defendant would
entitle it to accounts funded in accordance with the loans. Defendant moved for summary
disposition, contending that prepaying the mortgage would dissolve plaintiff and that the
accounts in question would be "surplus," MCL 125.1493(b), thereby entitling defendant to own
those accounts. The Court of Claims agreed and granted defendant's motion for summary
disposition. Plaintiff challenges that ruling, as well as the Court of Claims ruling denying
plaintiff 's motion for summary disposition. We affirm.
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I. Factual Overview and Procedural History
As noted in our earlier opinion, plaintiff is a limited partnership owning and operating a
multiunit apartment complex. The apartment complex was financed by a mortgage between the
parties in 1973. To qualify for the mortgage, plaintiff was organized as a limited dividend
housing association pursuant to MCL 125.1491. The parties also executed a "regulatory
agreement" relating to the operation of the mortgaged property. The regulatory agreement
required plaintiff to deposit funds into several reserve accounts.
In 1998, plaintiff informed defendant that it intended to prepay its mortgage, and asked
whether the amounts in the reserve accounts would be credited toward the amount due under the
mortgage or paid to plaintiff after satisfaction of the mortgage. Defendant replied that it would,
instead, retain the money in three of the reserve accounts as "surplus" pursuant to MCL
125.1493(b) and the agreements between the parties. MCL 125.1493(b) provides that, upon
dissolution of a limited dividend housing association, "any surplus in excess of those amounts
shall be paid to the authority or to any other regulating government body as the authority
directs."
In light of defendant's response, plaintiff did not prepay the mortgage. Instead, plaintiff
sought a judicial declaration regarding which party would be entitled to the accounts if plaintiff
opted to prepay the mortgage. The parties filed cross-motions for summary disposition.
In granting defendant's motion for summary disposition, the Court of Claims opined that
allowing plaintiff to keep the money in the accounts would directly contravene the legislative
intent of placing a cap on the association members' investment return. The court ruled that
prepayment of the mortgage would be tantamount to dissolving the limited dividend housing
association because the unique statutory relationship between plaintiff and defendant would no
longer exist. The court further ruled that the money in the accounts was, in fact, surplus.
On appeal, plaintiff contends that it did not dissolve, as contemplated by MCL
125.1493(b). Plaintiff further contends that the money in the reserve accounts was not a
"surplus."
II. Standard of Review
We review de novo a trial court's ruling on a motion for summary disposition. Beaudrie
v Henderson, 465 Mich 124, 129; 631 NW2d 308 (2001). Here, the facts are largely undisputed;
instead, we are presented with legal questions involving statutory interpretation. We review de
novo issues of statutory construction. Ypsilanti Housing Comm v O'Day, 240 Mich App 621,
624; 618 NW2d 18 (2000). In regard to statutory construction, we have opined:
The principal goal of judicial interpretation of statutes is to ascertain and
give effect to the intent of the Legislature. In determining intent, this Court first
looks at the specific language of the statute. If the plain and ordinary meaning of
the language is clear, judicial construction is neither necessary nor permitted,
unless a literal construction of the statute would produce unreasonable and unjust
results inconsistent with the purpose of the statute. In construing statutes, the
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court should avoid any construction which would render a statute, or any part of
it, surplusage or nugatory. [Id. at 624-625 (citations omitted).]
Further, we review de novo conclusions of law. Walters v Snyder, 239 Mich App 453, 456; 608
NW2d 97 (2000). Finally, we also review de novo the interpretation of contract provisions.
Rednour v Hastings Mut Ins Co, 468 Mich 241, 243; 661 NW2d 562 (2003).
III. Analysis
Defendant, the Michigan State Housing Development Authority (MSHDA), was created
by our Legislature in 1966. MCL 125.1401 et seq. Defendant lends money to various entities,
such as nonprofit housing corporations and limited dividend housing associations, to construct or
rehabilitate multifamily housing projects, MCL 125.1444. See OAG, 1989-1990, No 6590, p
157 (June 27, 1989). The Attorney General's opinion further observed:
Profit motivated developers usually choose to form a limited dividend
housing association (association) to function as the borrowing entity. The
association agrees to rent a certain portion of the total units in the housing project
to persons of low and moderate income. The association investors agree to limit
their return on their investment to a certain percentage as determined by the
Authority at the time the loan is made. In return, the association receives benefits
such as a below market interest rate on the loan, federal or state rent subsidies, or
interest rate subsidies and/or various other tax benefits. [Id. at 157-158.]
A limited dividend housing association "includes general or limited partnerships, limited liability
companies, joint ventures, or trusts, as any such entities shall be approved by resolution of the
authority." MCL 125.1491.
Here, plaintiff is a limited partnership that obtained its loan from defendant after being
approved by defendant as a limited dividend housing association.1 Plaintiff 's partnership
agreement was, therefore, required to provide that each member would "at no time . . . receive in
excess of the face value of the investment attributable to his or her respective interest plus
cumulative dividend payments at a rate which the authority determines to be reasonable and
proper, computed from the initial date on which money was paid . . . in consideration for the
interest . . . ." MCL 125.1493(b). The regulatory agreement between the parties limited
plaintiff 's members to receiving annual distributions of no more than 6% of the member's initial
investment. In addition, plaintiff 's partnership agreement was required to provide that "upon
dissolution of the limited dividend housing association, any surplus in excess of those amounts
shall be paid to the authority or to any other regulating body as the authority directs." MCL
125.1493(b). As noted above, we must determine whether the trial court erred in ruling that
1
Plaintiff 's limited dividend housing association agreement recognized that it took the form of a
limited partnership. The mortgage, mortgage note, and regulatory agreement signed by the
parties each referred to plaintiff as "Parkwood Limited Division Housing Association, a
Michigan limited partnership."
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plaintiff 's prepayment of its mortgage would be tantamount to a dissolution of the limited
dividend housing association.
Michigan appellate courts have not yet addressed whether dissolution occurs upon
satisfaction of the mortgage. Initially, we note that the term "dissolution" could fairly refer to
either dissolution of plaintiff as a limited dividend housing association or dissolution of plaintiff
as a limited partnership. Because the term "dissolution" is ambiguous, judicial construction is
required. Ypsilanti, supra at 624-625.
We note that, like MCL 125.1493(b), a Wisconsin statutory scheme provided that "upon
dissolution of the limited-profit entity any surplus in excess of the distributions allowed by this
section shall be paid to the authority [Wisconsin Housing and Economic Development
Authority]." Wisconsin Housing & Econ Dev Auth v Bay Shore Apartments, 546 NW2d 480,
482 (Wis App, 1996). In Bay Shore, two limited dividend entities, both of which were limited
partnerships, questioned whether satisfaction of the mortgage constituted a "dissolution." Id. at
482, 484. The entities contended that dissolution required something more than merely paying
off the mortgage, such as the entities dissolving as partnerships while indebted to the Wisconsin
Housing and Economic Development Authority (WHEDA). Id. at 484. The WHEDA, in turn,
contended that dissolution referred to the dissolution of the entities as limited-profit entities by
satisfying the respective mortgages, and not dissolution of the entities as limited partnerships.
Id. at 484.
The Bay Shore court noted that a partnership "can be dissolved wholly on the happening
of a fortuitous event," such as a partner's incapacity. Bay Shore, supra at 486. The court
considered it "absurd" that the phrase "dissolution" would mean dissolution of the type of
organization the limited-profit entity chose (rather than dissolution of the entity status as a
limited-profit entity). Id. at 485-486. The court further noted that the term "limited-profit entity"
only had meaning with reference to the WHEDA loan; therefore, the court concluded that the
Wisconsin legislature intended that a "dissolution" occurred when a limited-profit entity satisfied
the WHEDA loan. Id. at 486.
Although the Bay Shore decision is not binding, we find it instructive. Both the WHEDA
and the MSHDA were created to provide affordable housing for low- and moderate-income
families. See MCL 125.1401; MCL 125.1493(b); Bay Shore, supra at 487. The statutory
schemes that created the WHEDA and the MSHDA allow certain entities to receive a low
interest mortgage loan and various tax incentives in exchange for accepting a limited annual
return on the entity's members' initial investments. MCL 125.1493(b); Bay Shore, supra at 487488. The respective statutory schemes also provide for the WHEDA and the MSHDA to retain
any "surplus" upon the dissolution of these entities. MCL 125.1493(b); Bay Shore, supra at 487488.
Here, there is no question that plaintiff, as a limited partnership, could continue to exist
after satisfying the mortgage. Conversely, the limited partnership could cease to exist before
satisfying the mortgage. For example, if plaintiff were to be restructured (presumably with
defendant's permission) into a general partnership or another approved entity, defendant would
be authorized by MCL 125.1493(b) to retain any surplus—simply because the limited
partnership was dissolved as part of the restructuring. Alternatively, as the Bay Shore court
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noted, plaintiff could dissolve as a limited partnership on the basis of a fortuitous event. Like the
Bay Shore court, we find such a result to be absurd.
The better interpretation of the statutory language is to interpret "dissolution" in its
statutory context. Indeed, while a limited partnership can exist in many contexts, a limiteddivided housing association exists only in the context of receiving a loan from defendant. In
fact, the regulatory agreement indicates that defendant's restrictions on plaintiff only apply as (i)
preconditions to the loan being made and (ii) continuing obligations during the loan repayment
period.2 Thus, once the loan is repaid, plaintiff 's obligation to restrict its members' annual
dividends would be lifted. At that point, although plaintiff would still be a limited partnership, it
would certainly not be an entity receiving limited investment dividends. Accordingly, plaintiff
would no longer be a limited dividend entity, such as a limited dividend housing association.
Because the parties' relationship is so intertwined with the status of loan, we conclude
that the term "dissolution" refers to this relationship, and not to plaintiff 's status as an entity
outside the loan. Thus, we resolve the aforementioned statutory ambiguity by concluding that a
limited dividend housing association dissolves when it satisfies its mortgage obligation to
defendant. Therefore, we reject plaintiff 's contention of error.
Plaintiff also contends that, even if the Court of Claims did not err in its construction of
the word "dissolution," it nevertheless erred in granting defendant's motion for summary
disposition because the accounts in question are not "surplus," as used in MCL 125.1493(b). The
Court of Claims did not directly address this issue.
We note that MCL 125.1493(b) mandates that members of a limited divided partnership
association agree to receive only a limited return on investment. In fact, the statute states that "at
no time" shall a member receive anything beyond the member's initial investment and the limited
dividend. By stating in the next phrase that defendant would receive any surplus, the statutory
language certainly suggests that the members of a limited dividend partnership would never
receive anything beyond their initial investments and the allowable annual dividends. If so, read
in its statutory context, everything else, regardless of when received, would be "surplus."
It should be noted that, unlike the term "dissolution," our Legislature eventually defined
the term "surplus" as follows:
As used in this chapter, the term "surplus" shall not be deemed to include
any increase in assets of any limited dividend housing association organized in
accordance with the provisions of this chapter, by reason of reduction of
mortgage, by amortization or similar payments or realized from the sale or
disposition of any assets of a limited dividend housing association to the extent
such surplus can be attributed to any increase in market value of any real property
or tangible personal property accruing during the period the assets were owned
and held by the limited dividend housing association. [MCL 125.1494.]
2
Whether defendant does, in fact, retain any control over plaintiff after the mortgage is satisfied
is beyond the scope of this appeal.
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Thus, surplus does not include an increase in assets due to making mortgage payments,
appreciation, and selling assets. By adding this statutory language, our Legislature allowed the
members of a limited dividend housing association to receive, in addition to their annual
dividend, the long-term benefits of owning the property.
Our Legislature's definition of surplus did not, however, exclude any of the accounts at
issue in this appeal. The well-established rule of the statutory construction, expressio unius est
exclusio alterius, recognizes that the expression of one thing suggests the exclusion of all others.
See Pittsfield Charter Twp v Washtenaw Co, 468 Mich 702, 712; 664 NW2d 193 (2003).
Accordingly, we are not persuaded that the accounts at issue in the instant matter fall outside the
statutory definition of "surplus," MCL 125.1494. We note that our ruling is consistent with the
Attorney General's opinion referenced above. See OAG, 1989-1990, No 6590, p 157-162 (June
27, 1989) (opining that the MSHDA owns the residual receipts remaining after the dissolution of
a limited dividend housing association and the payment of certain project expenses); see also Bay
Shore, supra at 488 (allowing the WHEDA to retain the limited dividend entities' replacement
reserves as part of the surplus). Consequently, we reject plaintiff 's contention of error.3
In summary, we conclude that the Court of Claims did not err in granting defendant's
motion for summary disposition because (i) a limited dividend housing association dissolves
upon satisfaction of an MSHDA mortgage and (ii) the MSHDA was statutorily authorized to
retain the accounts at issue as "surplus," MCL 125.1493(b); MCL 125.1494.
Affirmed.
/s/ Donald S. Owens
/s/ Jessica R. Cooper
/s/ David H. Sawyer
3
In light of our ruling, we decline to consider plaintiff 's issue challenging whether the Court of
Claims should have made rulings beyond the questions presented to it.
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