Arch Apartment Management L.L.C., Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A19-0421

Arch Apartment Management L.L.C.,
Respondent,

vs.

AMTAX Holdings 224, LLC, et al.,
Appellants.

Filed September 30, 2019
Affirmed
Jesson, Judge

Hennepin County District Court
File No. 27-CV-18-1581

David A. Davenport, Quin C. Seiler, Winthrop & Weinstine, P.A., Minneapolis, Minnesota
(for respondent)

Marc A. Al, Emily C. Atmore, Stoel Rives LLP, Minneapolis, Minnesota (for appellants)

Considered and decided by Jesson, Presiding Judge; Worke, Judg e; and Bratvold,
Judge.
U N P U B L I S H E D O P I N I O N
JESSON, Judge
Appellants challenge the district court’s grant of judgment on the pleadings,
asserting that the district court incorrectly interpreted a lim ited liability company’s
operating agreement to give accountants the authority to calculate the option price for the
Managing Member to buyout Invest or Members’ interests. Because the district court

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correctly interpreted the operating agreement and did not err b y declining to treat the
motion for judgment on the pleadings as one for summary judgment, we affirm.
FACTS
Minneapolis Stone Arch Partners , L.L.C. (the company) was form ed in 2000 to
develop a housing project (the project). Part of the project i ncludes low-income housing,
which qualifies for federal tax credits, subject to a 15-year compliance period mandated by
federal law. Appellants AMTAX Holdings 224, LLC and AMTX Fund XVII SLP, Inc.
are the investor members in the company (Investor Members), and respondent Arch
Apartment Management, L.L.C. is the managing member of the comp any (Managing
Member).
In 2002, the parties entered into an operating agreement, which all parties agree
governs their rights and obligations. Included in the operatin g agreement is a provision
dictating the process for Managing Member to purchase Investor Members’ interests in the
company. That provision provid es that Managing Member could bu yout Investor
Members’ interests in the company after the tax credits from the low-income housing units
were fully allocated and the 15-y ear compliance period expired. Additionally, the
operating agreement set out a formula for calculating the optio n price that Managing
Member must pay Investor Members for their interests in the company.
Over the 15-year period, Managing Member operated the company, and Investor
Members received tax credits exceeding $4 million and over $3.5 million in tax losses,
which provided an income tax benefit of about 35% of that amount. On December 5, 2017,
Managing Member informed Investor Members that it intended to e xercise the buyout

3
option under the operating agreement, effective January 1, because the 15-year compliance
period would end on December 31, 2017. Managing Member informed Investor Members
that it was in the process of selecting an appraiser to value t he project pursuant to the
operating agreement and requested that Investor Members select their appraiser within
three weeks. In response, Investor Members stated that they could not select an appraiser
until a variety of other assessments, including a forensic acco unting, were completed.
Managing Member selected an appraiser, but Investor Members sti ll had not selected an
appraiser by late January 2018. As a result, Managing Member filed a complaint with the
district court, alleging that In vestor Members breached the ope rating agreement and
seeking a declaratory judgment.
As litigation proceeded, Investor Members selected an appraise r, and the appraisers
eventually agreed that the valu e of the project was $34.1 milli on.1 The company’s
accountants used this valuation to calculate the option price. After performing the
calculations outlined in the operating agreement, the accountants determined that Investor
Members were not entitled to any proceeds from the project based on its value. But because
the minimum amount of the option price under the operating agre ement must be equal to
Investor Members’ tax liability, the accountants determined tha t the option price was
$44,911.
After the accountants calculated the option price, Managing Me mber sent Investor
Members $44,911 and requested the transfer of their interests i n the company. Investor

1 The parties agree that the $34. 1 million valua tion is binding and that this number was
provided to the company’s accountants.

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Members stated that they wanted to review the accountants’ calculations. To date, Investor
Members have not transferred their interests in the company to Managing Member.
Because Investor Members failed to transfer their interests, Managing Member filed
an amended complaint. Managing Member alleged that Investor Members breached their
duty of good faith and fair dealing and sought a declaratory ju dgment requiring Investor
Members to transfer their interests in the company to Managing Member for the option
price of $44,911. In response, Investor Members filed counterc laims, alleging that
Managing Member breached its du ties of loyalty and good faith a nd fair dealing and
seeking a declaratory judgment in their favor. According to In vestor Members, the
accountants erroneously applied the formula in the operating ag reement, resulting in an
option price that shorted Investor Members over a million dollars.
Managing Member moved for judgment on the pleadings, and Inves tor Members
sought to have the motion treated as one for summary judgment. The district court declined
to do so, reasoning that the pleadings and documents incorporat ed within the pleadings
were sufficient to rule on the motion for judgment on the plead ings. In ruling on the
motion, the district court interpreted the operating agreement, concluding that it gives the
accountants the sole responsibility to determine the option price. Accordingly, the district
court granted Managing Member’s request for a declaratory judgment that the option price

5
of $44,911 as determined by the accountants was binding and that Investor Members must
transfer their interests to Managing Member for that price.2 Investor Members appeal.
D E C I S I O N
Investor Members challenge the district court’s grant of judgment on the pleadings
in favor of Managing Member on two grounds. First, Investor Me mbers argue that the
district court erred in its interpretation of the operating agreement, alleging that the district
court’s conclusions regarding the accountants’ scope of authority and the deference given
to the accountants’ calculations were erroneous, and that the a ccountants improperly
calculated the option price based on the operating agreement. Second, Investor Members
contend that the district court should have treated the motion for judgment on the pleadings
as a motion for summary judgment under rule 12.03 of the Minnes ota Rules of Civil
Procedure. Treating the motion as one for summary judgment, Investor Members contend,
would have allowed the district court to consider an affidavit from Investor Members’
expert detailing alleged errors in the accountants’ calculations.
When considering an appeal from a district court’s grant of a motion for judgment
on the pleadings under Minnesota Rule of Civil Procedure 12.03, we evaluate a district
court’s decision de novo “to determine whether the complaint sets forth a legally sufficient
claim for relief.” Burt v. Rackner, Inc. , 902 N.W.2d 448, 451 (Minn. 2017) (quotation
omitted). In doing so, we revie w “the allegations contained in the pleadings and any

2 The district court denied Managing Member’s request for judgment on the pleadings with
respect to the other claims against Investor Members and denied Investor Members’
requests for judgment in their favor.

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documents or statements incorporated by reference into the plea dings.” Greer v. Prof’l
Fiduciary, Inc., 792 N.W.2d 120, 131 (Minn. App . 2011). And all reasonable in ferences
are drawn in favor of the nonmoving party. Zutz v. Nelson , 788 N.W.2d 58, 61
(Minn. 2010).
I. The district court correctly interpreted the operating agree ment.
Investor Members argue that the district court erred in its int erpretation of the
operating agreement. Specifically , they take issue with the di strict court’s conclusions
regarding the scope of the accountants’ role and the amount of deference to be given to the
accountants’ calculations.
All parties agree that the language of the operating agreement is unambiguous.
When there is no ambiguity in a contract, we “construe contract terms consistent with their
plain, ordinary, and popular sense, so as to give effect to the intention of the parties as it
appears from the entire contract.” Quade v. Secura Ins. , 814 N.W.2d 703,
705 (Minn. 2012). And when a contract provision is clear and u nambiguous, “courts
should not rewrite, modify, or limit its effect by a strained construction.” Savela v. City of
Duluth, 806 N.W.2d 793, 797 (Minn. 2011).
To determine whether the district court correctly interpreted t he operating
agreement, we examine the language of the operating agreement itself. Two provisions are
relevant here. First, section 7.4J of the operating agreement discusses calculation of the
option price. It states:
The Option Price shall equal the amount necessary to place the
Investor Member in the same after-tax cash position as would
result if the Company sold the Project for an amount equal to

7
100% of the fair market value of the Project, appraised as
partial low-income housing to the extent continuation of such
use is required under the Use Restrictions . . . . In no event
shall the Option Price be less than the amount determined by
the Company Accountants sufficient to enable the Investor
Member to pay, on an after tax basis, any taxes projected to be
imposed on the Investor Member as a result of the sale pursuant
to the Option.

(Emphasis added.) Under this provision, the option price resul ts from comparing two
calculations: (1) the amount of the distribution Investor Membe rs would receive if the
project was sold for its fair-market value and (2) Investor Members’ tax liability. And it is
clear that the language of this provision expressly gives the a ccountants authority to
determine Investor Members’ tax liability.
But section 7.4J does not disc uss the accountants’ authority with respect to the first
calculation: the amount Investor Members would receive if the project was sold. In order
to evaluate whether the operating agreement gives the accountants that authority, we turn
to section 6.2B of the operating agreement. Section 6.2B gover ns the distribution of any
cash proceeds Investor Members w ould receive in the event of a sale. In doing so, it
provides what the parties refer to as a “waterfall”: a series of eight tiered calculations to be
performed in order to determine how proceeds are to be distribu ted in the event of a sale.
Distributions to Investor Members occur at the fourth and eight h levels of the waterfall.
3
The eighth level of the waterfall calculation provides:
Eighth, the balance of such proceeds shall be distributed (i) to
the Investor Member, 20% of the amount of such proceeds

3 It is undisputed that the accountants have the authority to determine the calculation at the
fourth level, which involves the Investor Members’ tax liability.

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determined by the Accountants to be attributable to the Low
Income Units, and (ii) the remainder 1% to the Managing
Member and 99% to the Special Limited Members as a class,
to be shared in accordance with the pro rata percentages shown
on Schedule A.

(Emphasis added.) Under this pr ovision, Investor Members are e ntitled to 20% of the
amount determined by accountants to be attributable to the low- income housing units in
the case of the project’s sale. And again, the language of thi s provision allows the
accountants to calculate what this amount is.
Reading these two provisions, the district court concluded tha t the operating
agreement gives the accountants the “sole responsibility” to de termine the option price
under section 7.4J of the operating agreement. Further, the di strict court found that there
was no language in the operating agreement that would permit th e district court to either
independently calculate the op tion price or to “second-guess” t he work done by the
accountants. In reaching this conclusion, the district court determined that a reading of the
operating agreement allowing the district court discretion to d etermine the amount of the
distributable proceeds would nega te the language in the operati ng agreement stating that
the amounts were to be “determined by the Accountants.” We agr e e w i t h t h e s o l i d
reasoning of the district court.
The language of the operating ag reement provides that the optio n price is
d e t e r m i n e d a f t e r t w o s p e c i f i c c a l c u l a t i o n s a r e m a d e . A n d t h e operating agreement
expressly delegates authority to make each of the calculations to the accountants. No
provision in the operating agreement provides for judicial revi ew of the accountants’
calculations. Accordingly, the d istrict court’s interpretation that the operating agreement

9
gives the accountants sole authority to calculate the option price, which a court cannot later
recalculate, is consistent with t he plain language of the opera ting agreement.4 See Telex
Corp. v. Data Prod. Corp. , 135 N.W.2d 681, 687 (Minn. 1965) (stating that “it is not for
this court to create or add exceptions to the contract or to remake it [on] behalf of either of
the contracting parties”); see also Equitable Holding Co. v. Equitable Bldg. & Loan Ass’n,
279 N.W. 736, 740 (Minn. 1938) (noting that “[c]ourts should no t, nor do they, look for
excuses or loopholes to avoid co ntracts fairly and deliberately made whether such be by
individuals or corporations”). As such, we conclude that the district court did not err in its
interpretation of the operating agreement.
II. The district court did not err by failing to treat Managing Member’s motion
for judgment on the pleadings as a summary judgment motion.

Investor Members contend that the district court improperly fai led to covert
Managing Member’s motion for judgment on the pleadings to a mot ion for summary
judgment. Treating the motion as one for summary judgment, Inv estor Members allege,
would have allowed the district court to consider an affidavit from Investor Members’
expert explaining how the accountants allegedly incorrectly calculated the option price.

4 Investor Members argued that unde r section 6.2B(1) of the oper ating agreement,
Managing Member must determine the amount of capital proceeds available to be applied
to the subsequent waterfall calculations, shifting some respons ibility for calculating the
option price to the Managing Member rather than the accountants . But section 6.2B(1)
states only that Managing Member is responsible for calculating the capital proceeds from
an actual capital transaction to be applied to the waterfall ca lculations. And contrary to
language vesting express author ity with the accountants for mak ing calculations to
determine the option price, section 6.2B(1) does not vest that same authority with the
Managing Member.

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Rule 12.03 of the Minnesota Rules of Civil Procedure provides that any party may
move for judgment on the pleadings after pleadings are closed but within a reasonable time
so as to not delay a trial. When considering such a motion, if “matters outside the pleadings
are presented to and not excluded by the court, the motion shal l be treated as one for
summary judgment and disposed of as provided for in Rule 56.” Minn. R. Civ. P. 12.03.
But in cases where facts are not disputed, the pleadings clearl y set out the issues, and the
language of a disputed contract is unambiguous, a district cour t may properly grant
judgment on the pleadings. See McReavy v. Zeimes, 9 N.W.2d 924, 927 (Minn. 1943); see
also Roemhildt v. Kristall Dev., Inc., 798 N.W.2d 371, 373 (Minn. App. 2011) (noting that
the interpretation of an unambiguous contract is a question of law), review denied
(Minn. July 19, 2011).
Here, all parties agreed on the facts of the case and that the unambiguous operating
agreement governed the case. And the pleadings incorporated the operating agreement for
the district court’s review. Because the dispute focused on interpreting the agreement and
because there were no factual disputes, the district court did not err by failing to convert
the motion for judgment on the p leadings to a motion for summar y judgment. 5 See
McReavy, 9 N.W.2d at 927 (affirming a district court’s grant of judgment on the pleadings
where the interpretation of an unambiguous contract provision was at issue).

5 Investor Members argue that the motion should have been treate d as one for summary
judgment to allow the district c ourt to consider an expert decl aration that “show[ed] how
wrong the [a]ccountants’ calculation is.” But Investor Members’ expert’s declaration was
unnecessary to resolve the threshold dispute: the authority of the accountants under the
operating agreement.

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Finally, we observe that Investor Members argue, in detail, abo ut how t h e
accountants’ calculations are erroneous. But because we conclu de that the district court
correctly interpreted the opera ting agreement as giving the acc ountants the authority to
determine the option price, we do not address Investor Members’ argument related to
alleged incorrect calculations. Accordingly, because the district court correctly interpreted
the operating agreement and did not err by declining to treat t he motion for judgment on
the pleadings as one for summary judgment, we affirm.
Affirmed.