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.
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).
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
(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
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
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
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
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
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
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
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) ...