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January 14, 2004.

MARK HANKIN, Ind. and d/b/a Hankin Management Company and HANKIN MANAGEMENT, INC

The opinion of the court was delivered by: J. JOYNER, District Judge


Via the motion now pending before this Court, Defendants move to dismiss the plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6) and on the grounds that it is barred by the principles of res judicata and/or collateral estoppel. For the reasons outlined below, the motion shall be granted.

Factual Background

  This case arises out of three real estate partnerships in which the plaintiffs had purchased limited partnership interests in 1983. Those partnerships, Han Mar Associates XIV, XVIII and XXI, were formed by the defendant Mark Hankin, who was also the president, vice president and secretary of the general partner for each partnership, Industrial Real Estate Management, Inc. ("IREM") and the co-owner of the rental properties which were the subject of the real estate partnerships. (Complaint, ¶ 6, 7). Page 2

  In addition, pursuant to a management and leasing agreement between Mr. Hankin and the HanMar Partnerships, Mr. Hankin oversaw the management and leasing of the subject real estate. (Complaint, ¶ 18).

  Under the terms of the offering memorandum and subscription agreements for the partnerships, investors such as the plaintiffs were to pay for their ownership units by making a down payment and signing an investor note requiring annual payments to the HanMar partnership over a six-year period and in exchange, inter alia, the limited partners were to receive certain "preferred distributions," defined as
"an amount equal to an annualized 8% return on cash contributed to the Partnership by the Investors. This return is cumulative and shall be paid prior to the payment of all obligations except the principal payments due under the First Note and the minimum payments due under the Second Note."
(Complaint, ¶ 11, 12). Plaintiffs further aver that under § 5.3 of the limited partnership agreements, Mr. Hankin and IREM agreed that payment of the preferred distributions was to be made prior to nine other obligations and that Mr. Hankin personally guaranteed the 8% payments regardless of whether there was sufficient cash flow. (Complaint, ¶ 19-23).

  In October, 1987, IREM and Hankin sent to plaintiffs and other limited partners a proposal to consolidate the three partnerships in which the plaintiffs had ownership interests together with four other HanMar partnerships into a single HanMar Page 3 Master Limited Partnership and to make various other changes in the operation of the limited partnerships. According to the plaintiffs, while there were seven distinct purposes for the proposed exchange, not one of them included subordination of the preferred distributions, modification of § 11.7 of the partnership agreements (which until then required 100% of the investors to approve changes in the amendment process), vesting the General Partner with absolute discretion to alter the order and priority of disbursements or creating a definition of "cash receipts" that would permit Mark Hankin to collect interest accruals and other monies at real estate settlements prior to paying overdue preferred distributions. (Complaint, ¶ 26, 27). Despite the fact that plaintiffs and other limited partners did not consent to the proposed change, some 75% of the limited partners did and all seven HanMar entities were consolidated into a single HanMar Master Limited Partnership, the Manager was changed to Hankin Management Company, Inc. (of which Mark Hankin is the president and secretary), and various other changes were made affecting the priority of payment of the preferred distributions, the definition of "cash receipts" and altering the provisions of sections 5.3 and 11.7 of the previous limited partnership agreements. Complaint, ¶ 31-34).*fn1 Page 4

  In 1991, Hankin advised plaintiffs that there had been an economic downturn in the real estate market that was worsening and not expected to turn around anytime soon. From that point on, the 8% preferred distributions were not made, despite the fact that IREM sent a letter advising that the market had recently turned upward, the vacancy rate had diminished and that the partnership had received an infusion of cash from refinancings and sales of various properties. (Complaint, ¶ 38). By letter dated October 3, 2000, Mr. Hankin advised Martin Brody that the 8% preferred distribution would only be payable after all other obligations of the partnerships were paid. Plaintiffs later learned that under an amendment to the master limited partnership agreement dated January 2, 1991, executed by Mark Hankin alone in his capacity as president and secretary of IREM, the preferred distributions were subordinated to virtually all other payments. (Complaint, ¶ s44-47).

  In February, 2001, Martin and Florence Brody filed a Demand for Arbitration with the American Arbitration Association against HanMar Associates, XIV, XVIII and XXI, IREM and Mark Hankin pursuant to § 11.5 of the Limited Partnership articles. Specifically, the Brodys contended that the HanMar partnerships, IREM and Hankin breached the partnership agreements and violated their fiduciary duties by failing to make any of the cumulative preferred 8% distributions to them since 1991 and instead making Page 5 payments to other, subordinate claimants in this same time frame. The Brodys also claimed that the amendments to the partnership agreements permitting the general partner to unilaterally make future amendments to the master limited partnership agreement was null and void. Following pre-arbitration discovery, the arbitrator held four days of hearings on June 3 and 4, 2002, October 18, 2002 and May 1, 2003 and issued an Award on June 13, 2003. A Petition to Confirm the Award was filed with the Court of Common Pleas of Philadelphia County on September 25, 2003 and remains pending. It is on the basis of this arbitration award that the defendants here base their claims of res judicata and/or collateral estoppel. Alternatively, Defendants assert that the plaintiffs' claims are barred by the statute of limitations and that the complaint fails to plead any cause of action upon which relief may be granted.

  Applicable Standards to Rule 12(b)(6) Motions

  It has long been the rule that in considering motions to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the district courts must "accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom." Allah v. Seiverling, 229 F.3d 220, 223 (3d Cir. 2000)(internal quotations omitted). See Also: Ford v. Schering-Plough Corp., 145 F.3d 601, 604 (3d Cir. 1998). A motion to dismiss may only be granted where the allegations fail to state any claim upon which relief Page 6 may be granted. See, Morse v. Lower Merion School District, 132 F.3d 902, 906 (3d Cir. 1997). In considering a Rule 12(b)(6) motion, the court primarily considers the allegations of the complaint but may also consider matters of public record, items appearing in the record of the case and exhibits to the complaint. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). Dismissal is warranted "if it is certain that no relief can be granted under any set of facts which could be proved." Klein v. General Nutrition Companies, Inc., 186 F.3d 338, 342 (3d Cir. 1999)(internal quotations omitted). Although it is an affirmative defense, res judicata may be raised in a Rule 12(b)(6) motion and such a motion is particularly appropriate if the defense is apparent on the face of the complaint. Rycoline Products v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997); Small v. Potter, Civ. A. No. 01-3108, 2002 U.S. Dist. LEXIS 241 at *4 (E.D.Pa. Jan. 10, 2002).


  Application of the doctrine of res judicata is central to the purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdiction. Montana v. U.S., 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979). Res judicata thus avoids the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility Page 7 of inconsistent decisions. Id.; Mohammed v. May Department Stores, Co., 273 F. Supp.2d 531, 534 (D.Del. 2003). Res judicata applies to all claims actually brought or which could have been brought in a prior action regardless of whether they were asserted or determined in the prior proceeding. Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979); Small v. Potter, 2002 U.S. Dist. LEXIS 241 at *5.

  The doctrine of res judicata is often analyzed to consist of two preclusion concepts: issue preclusion and claim preclusion. E.E.O.C. v. U.S. Steel Corp., 921 F.2d 489, 493 (3d Cir. 1990), quoting Miqra v. Warren City School District Board of Education, 465 U.S. 75, n.l, 104 S.Ct. 892, n.l, 79 L.Ed.2d 56 (1984). Issue preclusion has also been referred to as collateral estoppel. Venuto v. Witco Corp., 117 F.3d 754, 758 (3d Cir. 1997). Under collateral estoppel or issue preclusion, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior cause of action. Tyler v. O'Neill, 52 F. Supp.2d 471, 474 (E.D.Pa. 1999), aff'd, 225 F.3d 650 (3d Cir. 2000). Claim preclusion or res judicata provides that when a court has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received Page 8 to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Id. quoting, inter alia Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 92 L.Ed.2d 898 (1948). A party may not split a cause of action into separate grounds of recovery and raise the separate grounds in successive lawsuits; a party must raise in a single suit all the grounds of recovery arising from a single transaction or series of transactions that can be brought together. Inofast Manufacturing, Inc. v. Bardsley, 103 F. Supp.2d 847, 849 (E.D.Pa. 2000), aff'd, 265 F.3d 1055 (3d Cir. 2001), citing Mars, Inc. v. Nippon Conlux Kabushiki-Kaisha, 58 F.3d 616, 619-620 (Fed. Cir. 1995) ...

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