Material Detriment, Cure Periods, and Enforceability of Removal Clauses in Florida LIHTC Partnerships: Commentary on Creative Choice Homes XXX, LLC v. AMTAX Holdings 690, LLC

Material Detriment, Cure Periods, and Enforceability of Removal Clauses in Florida LIHTC Partnerships

Commentary on Creative Choice Homes XXX, LLC v. AMTAX Holdings 690, LLC
(U.S. Court of Appeals for the Eleventh Circuit, Dec. 16, 2025)

I. Introduction

This published Eleventh Circuit decision addresses a recurring but often litigated problem in tax credit real estate partnerships: when, and under what conditions, investor limited partners may remove the sponsor-controlled general partner for financial misconduct, and whether such removal constitutes an impermissible “forfeiture.”

The case arises from two Low-Income Housing Tax Credit (“LIHTC”) limited partnerships that developed and operated affordable housing projects in Tampa, Florida:

  • The Fountainview partnership, with Creative Choice Homes XXX, LLC (“Creative Choice XXX”) as general partner and AMTAX Holdings 690, LLC and Protech 2005-C, LLC as investor/special limited partners; and
  • The Park Terrace partnership, with Creative Choice Homes XXXI, LLC (“Creative Choice XXXI”) as general partner and MG GTC Middle Tier I, LLC and MG Affordable Master, LLC as investor/special limited partners.

Both partnerships were controlled operationally by the “general partners” (the Creative Choice entities) and financially by the “limited partners” (AMTAX, Protech, MG GTC, and MG Affordable). The agreements created:

  • a waterfall that required cash to be distributed to the limited partners first, and only thereafter to the general partners (e.g., incentive management fees), and
  • strict prohibitions against unauthorized loans, commingling, and advances to affiliates.

Over a period of years, the general partners caused partnership funds to be advanced to undisclosed affiliates, including an entity co-owned by the general partner’s principal and his wife. When the investor side—represented by Hunt Capital Partners—finally moved to enforce the removal provisions, litigation ensued.

The Eleventh Circuit’s opinion, authored by Judge Abudu and joined by Judge Rosenbaum, affirms the district court’s post-bench-trial judgment in favor of the limited partners. Judge Newsom concurs, offering a distinct textual reading of a key removal provision while agreeing with the outcome.

Substantively, the decision clarifies:

  • how “material detriment” and “material adverse effect” thresholds in Florida-governed limited partnership agreements are interpreted and applied,
  • what constitutes a valid cure of monetary breaches within contractual cure periods,
  • when removal and loss of economic rights is a permissible, bargained-for forfeiture remedy and not an improper “windfall,” and
  • why waiver and equitable estoppel did not protect the breaching general partners in this context.

II. Summary of the Opinion

A. Core Dispute

The general partners, Creative Choice XXX and Creative Choice XXXI, admitted that for years they diverted partnership funds to affiliates in violation of the partnership agreements’ distribution and anti-commingling provisions. After repeated auditor warnings and written complaints, the limited partners:

  1. served written default notices setting cure deadlines, and
  2. ultimately issued notices removing the general partners when the breaches were not timely cured.

The general partners sued, asserting:

  • their conduct was not “material” and did not cause a material detriment to the partnerships or limited partners,
  • they cured any breach by tendering checks after removal notices,
  • removal constituted an unlawful forfeiture and a windfall to the limited partners, and
  • waiver and estoppel barred the limited partners from exercising removal rights after years of acquiescence.

The district court rejected all of these arguments after a bench trial and held that:

  • the breaches were material and detrimental,
  • the attempts to cure were untimely and improperly funded,
  • removal was a bargained-for contractual remedy and not an impermissible forfeiture, and
  • no waiver or equitable estoppel applied.

B. The Eleventh Circuit’s Holding

On appeal, applying clear-error review to fact findings and de novo review to legal conclusions, the Eleventh Circuit:

  • Affirms the district court’s finding that the misappropriations and affiliate advances caused “material detriment” and “material adverse effect” within the meaning of the partnership agreements and Florida law.
  • Affirms that the general partners did not cure within the contractual cure periods:
    • they used prohibited loans from affiliates/management companies to fund the “cure” checks, and
    • they continued engaging in improper advances after receiving default notices and only attempted to fix them many months late, sometimes backdating entries.
  • Holds that enforcing the removal provisions did not constitute an improper forfeiture or windfall under Florida law, given the general partners’ willful and persistent violations of fiduciary and contractual duties.
  • Rejects waiver and equitable estoppel defenses, finding:
    • the limited partners repeatedly objected to the conduct over the years, and
    • their later decision to invoke the contractually specified remedy was timely once the full scope of the latest violations was understood.

Judge Newsom’s concurrence offers a narrower textual interpretation of the Fountainview agreement’s removal clause, concluding that the “material detriment” requirement applies only to negligent “failure to exercise reasonable care,” not to intentional misconduct or malfeasance. Even under this stricter reading, he agrees that removal was proper on the facts.

III. Factual and Procedural Context

A. Partnership Structure and Key Contractual Provisions

Both Fountainview and Park Terrace were typical LIHTC limited partnerships:

  • General partners (Creative Choice entities) controlled day-to-day operations, including hiring a management company (Impro Synergies, LLC) and managing accounts.
  • Investor and special limited partners contributed capital and expected:
    • federal tax credits over the compliance period, and
    • Cash distributions under a defined waterfall clause, which required:
      1. payment of operating expenses and reserves;
      2. priority distributions to limited partners; and only then
      3. payments such as the general partner’s incentive management fee.
  • Both agreements:
    • prohibited commingling of funds and unauthorized borrowing from partnership accounts,
    • forbade advances to undisclosed or unapproved affiliates that skipped the waterfall order, and
    • contained removal clauses allowing investor/special limited partners to remove the general partner for:
      • intentional misconduct, malfeasance, fraud, breach of fiduciary duty, or
      • violation of “material provisions” or “material defaults” having a “material detriment” or “material adverse effect” on the partnership, project, or limited partners.
    • provided that if the general partner remained through the LIHTC compliance period, it would receive valuable purchase or buyout rights—an important economic upside.

B. Misappropriations and “Due from Affiliate” Balances

Beginning around 2008, partnership audits conducted by Baker Tilly began flagging significant “due from affiliate” balances—amounts advanced from partnership accounts to undisclosed affiliates of the general partners. Over the years:

  • 2016 audits showed:
    • Fountainview: $140,577 loaned to an unspecified Creative Choice XXX affiliate, outstanding at year’s end, in violation of the waterfall.
    • Park Terrace: $81,198 loaned to a Creative Choice XXXI affiliate, also outstanding and in violation.
  • 2017 audit drafts caused particular concern:
    • Baker Tilly proposed to reclassify these large, undocumented, longstanding affiliate balances as “contra-equity”, a negative equity adjustment signaling that the equity position should be reduced.
    • The general partners resisted, pushing to keep the amounts as “due from affiliate” (suggesting an expected repayment rather than a permanent reduction of equity).

To avoid adverse classification, the general partners produced two promissory notes from Naimisha Construction, Inc. (an entity co-owned by the general partner’s principal and his wife), each promising to pay $100,000 to the general partners for “scope and repair cost” work. Baker Tilly accepted these notes and finalized the 2017 audits reflecting:

  • Naimisha still owed:
    • $87,883 to Fountainview; and
    • $100,000 to Park Terrace;
  • Park Terrace had also advanced an additional $3,261 in 2017 to undisclosed general-partner affiliates.

C. Hunt’s Involvement and Default Notices

In January 2019, the limited partners engaged Hunt Capital Partners to actively protect their interests. Hunt quickly:

  • sent a detailed March 25, 2019 letter flagging improper advances and unauthorized uses of partnership funds and seeking repayment;
  • sent a follow-up email on April 9 when there was no response; and
  • on April 15, threatened formal removal if the general partners did not:
    • reimburse all improper advances; and
    • provide complete and accurate financial records.

On May 3, 2019, the limited partners issued a formal default letter to each general partner:

  • identifying misappropriations and unauthorized affiliate advances (with specific references to 2017–2018 transactions),
  • noting that further violations might surface as full records became available, and
  • granting 30 days to cure (i.e., repay and correct) the defaults, warning that failure would lead to removal.

The general partners did not fully cure within the 30-day cure periods, though they requested more time. On June 18, 2019, after more than 30 days had elapsed since the May 3 notices, the limited partners sent removal notices removing the general partners from their roles.

D. Post-Removal “Cure” Payments

After removal notices:

  • On June 19, 2019, the general partners offered to wire funds to “cure” all defaults if the limited partners would rescind the removal.
  • On June 21, 2019, they issued:
    • a check for $141,235 to Park Terrace; and
    • a check for $105,994 to Fountainview.
  • The limited partners received these checks but did not treat them as cures because:
    • they did not identify what specific balances were being repaid,
    • they were partly funded by prohibited loans to the partnerships (e.g., short-term loans from the management company, Impro), and
    • they did not cover all unauthorized advances, particularly those continuing into 2019.

Later evidence showed:

  • Impro made a $54,500 “short-term loan” to Fountainview to cover distributions, and at least a $77,000 infusion described by the general partners’ manager as a “loan” used to fund the cure check.
  • For Park Terrace, the general partner:
    • continued improper advances to affiliates as late as July 2019, months after the May 3 default letter; and
    • did not attempt to repay those 2019 transactions until November 2019, even trying to have the repayment backdated to September.

E. Trial and District Court Judgment

The general partners sued in state court (removed to federal court on diversity grounds) seeking:

  • damages for alleged breach of the partnership agreements by the limited partners, and
  • a declaratory judgment that their removal was invalid.

The limited partners counterclaimed for:

  • breach of contract (misappropriation, violation of waterfall and affiliate provisions), and
  • a declaratory judgment affirming their right to remove the general partners.

After a three-day bench trial, the district court held:

  • the general partners’ conduct constituted material breaches causing material detriment and adverse effect,
  • they failed to cure within applicable cure periods (and in some respects could not cure because their “cure” itself breached the agreements),
  • the removal provisions were valid and enforceable and did not result in an impermissible forfeiture, and
  • no waiver or equitable estoppel barred enforcement.

The Eleventh Circuit affirmed in all respects.

IV. Analysis of the Opinion

A. Standards of Review

The court begins by emphasizing the constraints of appellate review after a bench trial:

  • Findings of fact are reviewed for clear error. A finding is clearly erroneous only when, on the entire evidence, the appellate court is left with the “definite and firm conviction” that a mistake has been committed (In re Wagner, quoting Anderson v. Bessemer City).
  • Conclusions of law are reviewed de novo.
  • Equitable relief decisions (e.g., whether to apply waiver or estoppel) are reviewed for abuse of discretion, with factual underpinnings again reviewed for clear error (Preferred Sites).

This deference to the district court’s fact-finding is crucial. Many of the appellants’ arguments attacked the district court’s evaluation of the evidence (e.g., whether the breaches were “material” in effect) rather than purely legal principles. The panel thus asks not whether it would have found differently, but whether the lower court’s view was a permissible one in light of the record.

B. Interpreting “Material Detriment” and “Material Adverse Effect”

1. Contractual Text and the Role of Context

The key removal provisions at issue used “materiality” thresholds:

  • Fountainview Agreement:
    • Removal allowed for intentional misconduct, malfeasance, fraud, breach of fiduciary duty, or failure to exercise reasonable care in material matters provided that such violation results in, or is likely to result in, a “material detriment” to the partnership, project, assets, or limited partners; and
    • removal allowed if the general partner violated any “material provision” or material law resulting in a “material detriment”.
  • Park Terrace Agreement:
    • Removal allowed upon “Material Default,” defined to include:
      • a breach by the general partner or its affiliates that “has, or may reasonably be expected to have, a material adverse effect” on the partnership, complex, or investor; and
      • gross negligence, fraud, willful misconduct, misappropriation of partnership funds, or breach of fiduciary duty.

The agreements did not define “material,” “material detriment,” or “material adverse effect.” Under the choice-of-law clauses, Florida law governs interpretation.

The majority follows a contextual textualist approach drawn from Florida contract law:

  • Look to the parties’ intent as reflected in the four corners of the agreement (Massey Services).
  • Apply the presumption of consistent usage—a word is presumed to have the same meaning throughout a contract (R.J. Reynolds; Scalia & Garner’s Reading Law).
  • Give effect to every word; avoid rendering terms redundant or surplusage (surplusage canon; Royal American Realty).
  • Where a term is unambiguous, apply its plain meaning, informed but not dictated by dictionaries (Parrish v. State Farm).

By examining how “material” and “material adverse” are deployed across each agreement, the court concludes that “material” is used deliberately to distinguish significant or substantial matters from lesser ones.

2. Contextual Clues Within the Agreements

The opinion highlights several internal contrasts:

  • In the Fountainview agreement, removal can be triggered by violating a “material provision” causing “material detriment,” whereas limited partners’ duty is simply to comply with the “provisions” applicable to them—without the “material” qualifier. This signals that “material provision” denotes a subset of especially significant terms, linked to harsh remedies like removal.
  • The agreement sometimes refers to “materially adversely affect[ing] the tax benefits” of the limited partners (allowing minor impacts) but elsewhere says the limited partners need not consent to amendments that would merely “adversely affect” their timing or amount of credits or income (protecting them against even minor adverse changes). The choice to insert or omit “material” in different contexts suggests a calibrated use of the term.
  • In Park Terrace, the general partner cannot “materially” amend or modify mortgage loans or project documents without consent—implying minor technical adjustments may be permitted—but the agreement absolutely bars any party from altering any partnership term, regardless of materiality. Again, “material” operates as a threshold for significant changes.

Taken together, the court finds that, in context, “material detriment” and “material adverse effect” require real, significant, non-trivial harm, especially given the severe remedy (removal of the general partner and loss of associated economic rights).

3. Dictionary Definitions and Contract-Law Materiality

The court buttresses the contextual reading with dictionary definitions:

  • Merriam–Webster: “having real importance or great consequences.”
  • Black’s Law Dictionary: “of such a nature that knowledge of the item would affect a person’s decision-making; significant; essential.”

It then cross-references the contract-law concept of a “material breach” under Florida law, relied upon by the general partners:

  • A material breach is one that goes “to the essence of the contract” (JF & LN, LLC), such that the contract likely would not have been made without the covenant that was breached (Seawatch).
  • Considerations include:
    • the extent to which the injured party received the substantial benefit of the bargain,
    • the ability to compensate the injured party,
    • the degree of forfeiture suffered by the breaching party, and
    • whether the breaching party acted with good faith.
  • The general partners cited cases such as Ron Matusalem & Matusa to argue that their breaches were not material because the limited partners still received the core benefit—tax credits.

The court accepts that materiality in this context encompasses both the contractual language (“material detriment/adverse effect”) and the general breach-of-contract doctrine. Applying both, it concludes that the general partners’ misconduct clearly met the materiality threshold.

4. Application: Why the Harm Was “Material”

The district court had made several key factual findings:

  • The general partners “repeatedly, intentionally, and willfully diverted thousands of dollars” to non-partnership uses over the limited partners’ objections.
  • The misappropriated funds:
    • represented a substantial portion of the cash on hand in some years (as much as a month’s operating expenses),
    • were considered “material” by the general partners’ own owner, by Hunt’s CFO, and by Baker Tilly, and
    • reduced the cash available for emergency needs (repairs, capital improvements, contingencies).
  • The improper withdrawals:
    • reduced the funds available for year-end waterfall distributions to the limited partners,
    • breached closely watched fiduciary and contractual duties governing use of partnership funds, and
    • destroyed the working relationship and trust between general and limited partners.

The Eleventh Circuit, deferring to these findings, holds they amply support a conclusion of material detriment and material adverse effect. In particular:

  • The magnitude of harm is assessed relative to cash flows and operational needs, not merely relative to the total tax-credit value of the project.
  • The loss of trust and fiduciary reliability in a long-term LIHTC partnership is a significant, bargained-for intangible benefit—its destruction is itself a material detriment.
  • The general partners acted with bad faith and persistent disregard for the agreements, which aggravates rather than mitigates materiality.

Thus, even under the general partners’ own contract-law materiality test, the court finds the breaches material.

C. The Cure Provisions and Why the Breaches Were Not Cured

1. Contractual Cure Mechanisms

Under Florida law, whether a breach is properly “cured” is controlled by the contract’s cure provision and the surrounding facts (Jones v. Warmack; Sun Bank of Miami):

  • Fountainview:
    • 30-day cure period after notice of default.
    • Extendable to 60 days if the general partner began diligently and consistently to cure within the first 30 days.
  • Park Terrace:
    • 30-day cure period for “monetary defaults” after notice.
    • Separate removal authority for egregious misconduct (fraud, misappropriation, etc.) that could become effective upon notice (no cure right for those particular grounds).

The May 3, 2019 default letters served as the operative formal notices, expressly:

  • identifying the unauthorized affiliate advances (especially 2017–2018), and
  • reserving the right to challenge additional violations once complete financial records were reviewed.

The Eleventh Circuit upholds the district court’s finding that these letters placed the general partners on notice that all affiliate-advance conduct of the same type, including those in early 2019 before May 3, was in default and subject to cure within 30 days.

2. Use of Prohibited Loans to “Cure” the Default

A core problem with the June 21 “cure” checks was their funding source:

  • The general partners told the limited partners on June 3 they intended to make “loan(s) to the respective partnership” to correct underpayments.
  • Evidence showed:
    • $77,000 transferred and internally described as a “loan” to cover part of the Fountainview cure check,
    • a $54,500 “short-term loan” from Impro to Fountainview recorded by Baker Tilly, and
    • Creative Choice XXX’s sworn interrogatory responses confirming the funding came from the management company Impro.

The agreements expressly forbade borrowing from affiliates (or lending to the partnerships) except under specified conditions. More fundamentally, a “cure” requires making the partnership whole, not replacing an unauthorized withdrawal with a new, unauthorized liability:

  • A “loan” to the partnership leaves it still indebted to the affiliate; the economic harm is not extinguished, merely reshaped.
  • As a result, the “cure” transactions themselves breached the agreements.

Relying on Florida authorities (Sun Bank; Hufcor; KRG Oldsmar Project), the court emphasizes that where the contract demands a full cure by a date certain, a late or partial payment—or a payment that itself violates the contract—does not satisfy the cure requirement.

3. Continuing Breaches and Late “Cure”

For Park Terrace, there were ongoing violations:

  • The general partner continued making improper advances to affiliates into July 2019, well after the May 3 notice.
  • By its own admission, it did not repay the 2019 unauthorized advances that occurred between January 2019 and May 3, 2019 until November 2019—months after both:
    • the contractual cure period expired, and
    • the general partner had been removed.
  • It then sought to have that repayment backdated to September 2019 to obscure its tardiness.

The Eleventh Circuit agrees with the district court that:

  • a cure offered months late is no cure at all (Florida law does not require acceptance of belated cures, see Tim Hortons USA v. Singh, Hufcor), and
  • ongoing misconduct post-notice undermines any claim of diligent and consistent efforts to cure within the cure window.

4. Rejection of the “Hindrance” Theory (Blackhawk and PL Lake Worth)

The general partners argued that the limited partners hindered their ability to cure, relying primarily on:

  • Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp.: an option holder could not compute a contractually defined purchase price because the optionor refused to provide access to its books, making performance impossible.
  • PL Lake Worth Corp. v. 99¢ Stuff–Palm Springs, LLC: a tenant could not exercise a renewal option requiring payment of an amount computed based on landlord-provided data because the landlord withheld the data.

In both cases, the party obligated to provide information (the optionor/landlord) effectively blocked performance by refusing access to information only it possessed. The Eleventh Circuit distinguishes these precedents sharply:

  • Nature of obligation: those cases involved options to enter into or extend contracts, where the exercise price could only be computed with information held by the other side. Here, the duty was to cure one’s own default—to repay funds the general partners themselves had withdrawn.
  • Knowledge: in the options cases, the optionee lacked the required information. Here, the general partners knew:
    • how much they had taken, when, and to whose benefit, and
    • that the overarching default was unauthorized advances to affiliates and misappropriation of partnership funds.
  • Conduct of non-breaching party: the limited partners here:
    • gave express notice of default and a concrete time to cure,
    • did not withhold data necessary to repay the balances, and
    • had no contractual obligation to cooperate in any particular way in the cure process beyond providing notice.

Accordingly, the court holds that any inability to timely cure arose from the general partners’ own choices (including their decision to rely on prohibited loans and to continue violating the agreements), not from hindrance by the limited partners.

D. Forfeiture, “Windfall,” and the Enforceability of Removal Rights

1. Forfeiture under Florida Law

Florida acknowledges that forfeiture—loss of property or contractual rights as a penalty for breach—is disfavored but permissible when clearly contracted for:

  • Forfeiture becomes impermissible when it is equitable to relieve the breaching party, such as where the party has substantially complied or the breach is minor (Stoltz v. Truitt).
  • But “a forfeiture will be enforced where it is clear that the parties intended such a result” (Stoltz, citing Nelson v. Hansard and Howard Cole & Co. v. Williams).
  • Courts should not relieve a party where forfeiture stems from that party’s own negligence or willful, persistent breach.

The partnership agreements here did precisely what Florida law permits: they explicitly gave limited partners the right to remove the general partner for specified breaches, including misappropriation and breaches producing material detriment/adverse effect. That removal, in turn, had well-understood economic consequences: the general partner could lose future rights to purchase the property or profit from residual interests.

2. Application: No Impermissible Forfeiture

The general partners argued that:

  • removal caused them to lose significant economic expectations (e.g., purchase options at the end of the tax credit compliance period),
  • this amounted to a harsh forfeiture of valuable property rights, and
  • the limited partners were using minor accounting issues as a pretext to obtain a “windfall.”

The Eleventh Circuit firmly rejects this narrative:

  • The forfeiture (loss of future economic rights) arose from the general partners’ “willful and persistent” breaches of fiduciary and contractual obligations.
  • They did not “substantially comply” with the agreements; instead they:
    • repeatedly violated explicit prohibitions,
    • ignored multiple warnings from the auditor and investor representatives, and
    • even attempted to disguise late payments through backdating.
  • Florida law “does not relieve a party when the forfeiture is due to its own negligence or willful and persistent violations of the contract” (Stoltz, Jenkins v. Eckerd Corp.).
  • Because actual financial and relational harm occurred, enforcing the removal right does not produce a true “windfall” to the limited partners, but simply implements the parties’ agreed allocation of risk and remedy.

The court distinguishes Fowler v. Resash Corp., where forfeiture would have yielded a windfall in the absence of any actual damages and where the breaching party had fully cured. Here, by contrast, the limited partners showed actual harm and undisputed, uncured (or incurably cured) misconduct.

E. Waiver: Did the Limited Partners Lose Their Removal Rights by Delay?

The general partners contended that:

  • the limited partners had known for years about “due from affiliate” and similar transactions,
  • they continued accepting the general partners’ conduct and financial reporting without exercising removal powers, and
  • this course of conduct amounted to a waiver of their right to remove based on those breaches.

Under Florida law:

  • Waiver is “the voluntary and intentional relinquishment of a known right or conduct which implies such a relinquishment” (Raymond James v. Saldukas).
  • It can be express or implied by conduct, but must be supported by evidence of knowledge and intent to give up the right (Palacios; Rader).
  • Whether waiver exists is usually a question of fact (Echo v. MGA Insurance).
  • Mere forbearance for a “reasonable time” does not by itself establish waiver (MDS (Canada) Inc. v. Rad Source, quoting American Somax).
  • In delay-based waiver, there must be proof that the party had notice sufficient to trigger its duty to act (Puckett Oil).

The Eleventh Circuit agrees with the district court that there was no waiver:

  • The general partners’ breaches were ongoing, not isolated events. They continued to make improper advances even after explicit default notices.
  • The limited partners’ representative testified that he objected to improper withdrawals year after year from at least 2011 onward.
  • The full scope and seriousness of the 2017–2018 transactions became clear in the 2017 audits, which were finalized only in September 2018.
  • Hunt, which took over representation of the investor interests in January 2019, raised the issue with the general partners by March 2019—within a few months of both acquiring authority and fully understanding the latest violations.

In this context:

  • There was no unreasonable delay in acting once the full nature of the latest misconduct was clear.
  • There is no evidence that the limited partners intended to relinquish their removal rights; rather, they repeatedly complained and eventually enforced the contractual remedy.

Thus, no waiver occurred.

F. Equitable Estoppel: Did the Limited Partners Mislead the General Partners?

Equitable estoppel in Florida requires:

  1. a representation as to a material fact that is contrary to a later-asserted position;
  2. reasonable reliance on that representation by the party invoking estoppel; and
  3. a detrimental change in position based on that reliance (Progressive Exp. Ins. Co. v. Camillo, citing Morsani).

The general partners argued that the limited partners’ years-long failure to remove them constituted an implied representation that breaches of this sort would not be treated as grounds for removal.

The Eleventh Circuit finds that none of the elements of estoppel are met:

  • No inconsistent representation: The limited partners consistently objected to the misuse of funds and never represented that they would never exercise removal rights.
  • No reasonable reliance: The general partners could not reasonably infer from the absence of immediate removal that they had a permanent license to continue breaching, especially after repeated written objections and auditor warnings.
  • No detrimental change in position: The general partners did not show that, because of any representation, they took on new obligations or investments they otherwise would have avoided. Their “position” changed only because of their own ongoing misconduct.

Consequently, equitable estoppel does not bar enforcement of the removal provisions.

G. The Concurring Opinion: Textual Nuance in the Fountainview Removal Clause

Judge Newsom’s concurrence does not challenge the result, but refines the textual analysis of the Fountainview removal provision, § 8.15(a)(i). The majority assumes that to remove a general partner for intentional misconduct, malfeasance, fraud, breach of fiduciary duty, or failure to exercise reasonable care, the limited partners must also show that “such violation results in, or is likely to result in, a material detriment.” Judge Newsom disagrees on how broadly that proviso applies.

1. The Text at Issue

Section 8.15(a)(i) permits removal:

for any intentional misconduct, malfeasance, fraud, act outside the scope of its authority, breach of its fiduciary duty, or any failure to exercise reasonable care with respect to any material matter in the discharge of its duties and obligations as General Partner (provided that such violation results in, or is likely to result in, a material detriment to or an impairment of the Partnership, the Limited Partners, the Project, or the assets of the Partnership).

2. Rule of the Last Antecedent vs. Series Qualifier

Judge Newsom invokes two canons:

  • Rule of the last antecedent: a limiting clause or phrase ordinarily modifies only the noun or phrase that it immediately follows (Barnhart v. Thomas; Lockhart v. United States).
  • Series-qualifier canon: when there is a straightforward, parallel series of nouns or verbs, a trailing modifier is normally read to apply to the entire series (Scalia & Garner, Reading Law).

He concludes that the “material detriment” proviso should apply only to the second “any” clause—“any failure to exercise reasonable care with respect to any material matter”—and not to the first clause listing intentional misconduct, malfeasance, fraud, acts outside authority, or breach of fiduciary duty.

3. Reasons for the Narrower Reading

  • Structural bifurcation: The provision contains two separate “any” phrases:
    1. “any intentional misconduct, malfeasance, fraud, act outside the scope of its authority, breach of its fiduciary duty,” and
    2. “any failure to exercise reasonable care with respect to any material matter in the discharge of its duties…”
    The second “any,” in his view, marks a distinct category, suggesting that the trailing parenthetical (“provided that such violation results in…a material detriment”) more naturally links only to the closer, second category.
  • Severity distinction: The first clause captures intentional wrongdoing; the second captures negligent failure to exercise reasonable care. It makes sense, he reasons, to require the “extra” element of material detriment only for the less culpable, negligent category—not for intentional misdeeds such as fraud and malfeasance.

Under this reading:

  • no showing of “material detriment” is required to remove a general partner for fraud, malfeasance, or breach of fiduciary duty; and
  • the “material detriment” threshold applies only when removal is based on negligent failures of reasonable care in “material matters.”

Judge Newsom stresses that, whichever interpretation one adopts, the limited partners had ample grounds to remove the general partners in this case because:

  • there was intentional misconduct and misappropriation of funds, and
  • even under the majority’s broader reading, the required material detriment was amply shown.

V. Complex Concepts Simplified

A. LIHTC Partnership Basics

Low-Income Housing Tax Credit projects are commonly structured as limited partnerships:

  • Investor limited partners contribute cash equity in exchange for:
    • federal tax credits over 10 years, and
    • allocations of tax losses and, sometimes, residual cash flows.
  • General partners (often developer-affiliated) manage:
    • construction, leasing, maintenance, and
    • day-to-day financial operations via management companies.

Because the investor’s return is highly sensitive to compliance and financial integrity, LIHTC agreements heavily regulate:

  • cash use and distribution (via a waterfall),
  • affiliate transactions, and
  • removal of the general partner for misconduct.

B. “Waterfall” Distribution Provisions

A waterfall is a ranked list of who gets paid from cash flow and in what order. Typical tiers:

  1. Operating expenses and required reserves.
  2. Debt service.
  3. Priority distributions to limited partners.
  4. Residual amounts (if any) to the general partner—e.g., incentive management fees or promote interests.

Paying the general partner or its affiliates before the limited partners receive their priority share is a classic waterfall violation, which is what occurred here.

C. “Due from Affiliate” vs. “Contra-Equity”

  • “Due from affiliate”: an accounting line showing that an affiliate owes money back to the entity. It anticipates eventual repayment.
  • “Contra-equity”: an accounting adjustment that reduces equity—essentially treating the amounts as permanently impairing the entity’s equity position, rather than as an ordinary receivable expected to be paid.

Reclassifying large, long-outstanding, undocumented advances as contra-equity signals that those funds may never return, thereby lowering the entity’s book value and raising real concerns for investors.

D. Fiduciary Duty in the Partnership Context

A general partner typically owes a fiduciary duty to:

  • act in the best interests of the partnership and its partners,
  • avoid self-dealing absent proper disclosure and approval, and
  • refrain from misappropriating partnership assets for personal or affiliate gain.

Using partnership funds to pay affiliates without authorization and out of order in the waterfall is a textbook breach of these fiduciary duties.

E. Waiver and Equitable Estoppel (Practical Distinction)

  • Waiver:
    • focuses on the right-holder’s intent,
    • can be explicit (“we waive our right to remove you for this breach”) or implicit through conduct that clearly shows an intention to abandon the right.
  • Equitable estoppel:
    • focuses on the effect on the relying party,
    • requires a representation, reasonable reliance, and detrimental change in position.

In this case:

  • The limited partners did not intentionally relinquish removal rights (no waiver).
  • The general partners did not reasonably rely on any promise or assurance that removal would never be used, nor did they change position based on such a belief (no estoppel).

F. Forfeiture vs. Bargained-For Remedies

From a practical standpoint:

  • If a contract clearly says, “If X happens, Party B may terminate or remove Party A,” enforcing that provision is generally seen as enforcing a bargained-for remedy, not imposing a punitive forfeiture.
  • Florida courts are more reluctant to enforce forfeitures where:
    • the breach is trivial or technical and fully cured,
    • the injured party suffered no real harm, and
    • the result would be disproportionate and inequitable.

Here, the Eleventh Circuit underscores that the removal remedy was:

  • explicitly negotiated,
  • triggered by serious, uncured misconduct, and
  • proportionate in light of the long-term nature of the relationship and the general partners’ pattern of behavior.

VI. Precedents and Their Influence

The opinion synthesizes and applies a wide array of precedents. Key themes include:

A. Contract Interpretation and Materiality

  • Massey Services, Inc. v. Sanders and Hand v. Grow Construction:
    • Support the approach of determining parties’ intent from the four corners of the document.
  • R.J. Reynolds Tobacco Co. v. State and Scalia & Garner’s Reading Law:
    • Provide the presumption of consistent usage and the surplusage canon, which guide the meaning of “material” and “material adverse effect.”
  • Parrish v. State Farm:
    • Reinforces that dictionary definitions are useful but must be read in context.
  • Ron Matusalem & Matusa, JF & LN, LLC, Seawatch at Marathon:
    • Frame the concept of material breach in Florida—breach going to the essence, depriving substantial benefit of the bargain—which the court uses to supplement its interpretation of “material detriment/adverse effect.”

B. Cure and Late Performance

  • Jones v. Warmack, Sun Bank of Miami v. Lester:
    • Show that whether a breach is cured depends on the entire contract, not just the cure clause in isolation.
  • Tim Hortons USA, Inc. v. Singh, Hufcor/Gulfstream, Inc. v. Homestead Concrete:
    • Confirm that belated offers to cure do not satisfy contractual cure requirements if not timely.
  • KRG Oldsmar Project Co. v. CWI, Inc.:
    • Reiterates that clear contracts must be enforced as written, not rewritten to be more lenient to one side.

C. Forfeiture and Contractual Remedies

  • Nelson v. Hansard, Howard Cole & Co. v. Williams, Stoltz v. Truitt, Jenkins v. Eckerd Corp.:
    • Establish that while forfeitures are not favored, Florida courts will enforce them if clearly intended by the parties, especially where the breaching party has not substantially complied and the breaches are willful or persistent.
  • Fowler v. Resash Corp.:
    • Provides a contrast where forfeiture would have granted a pure windfall in the absence of harm and where all violations were cured—a situation unlike this case.

D. Waiver and Estoppel

  • Raymond James v. Saldukas, Palacios v. Lawson, Rader v. Prather:
    • Define waiver and emphasize the need for intent and knowledge.
  • Echo v. MGA Ins. Co.:
    • Emphasizes that waiver is generally a question of fact.
  • Florida Dep’t of Environmental Regulation v. Puckett Oil, MDS (Canada) Inc. v. Rad Source:
    • Clarify that mere delay does not automatically create waiver; notice and unreasonable delay are critical.
  • Major League Baseball v. Morsani, Progressive Exp. Ins. Co. v. Camillo:
    • Set out the elements of equitable estoppel (representation, reliance, detriment) and stress that it applies where deception leads to an unfavorable legal position.

E. Hindrance of Performance and Good Faith

  • Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp., PL Lake Worth Corp. v. 99¢ Stuff–Palm Springs, LLC:
    • Articulate the principle that a party must not hinder the other side’s ability to perform or exercise an option, especially when the first party controls necessary information.
    • The Eleventh Circuit carefully distinguishes these cases, limiting their reach to option/pricing contexts where one side holds unique information.

VII. Impact and Broader Significance

A. For LIHTC and Real Estate Partnerships

This decision will likely be cited frequently in disputes between investor limited partners and sponsor-controlled general partners in LIHTC and similar real estate partnerships:

  • It confirms that improper affiliate advances and waterfall violations, even when small compared to total project value, can be deemed material if they:
    • represent significant portions of available cash,
    • jeopardize reserves and operational stability, or
    • undermine the trust necessary for long-term collaboration.
  • It reinforces that strict enforcement of:
    • anti-commingling provisions,
    • waterfall structures, and
    • removal rights
      • is consistent with Florida law when the contract is clear.
    • General partners can no longer credibly argue that tax credits alone are the “essential benefit” of the bargain; cash-flow integrity and fiduciary compliance are also core.

    B. On Cure Provisions and “Self-Cure by New Breach”

    The opinion also gives practical guidance on what does—and does not—constitute a cure:

    • Using prohibited loans or other contract-violating mechanisms to fund repayment will not be treated as a valid cure.
    • Continuing the same misconduct during the cure period or attempting to backdate repayment is a red flag; it supports a finding that the breach was not diligently or consistently being cured.
    • Parties cannot shift blame to the non-breaching party for failing to specify every dollar amount when the breaching party itself controls the relevant information.

    C. Forfeiture Jurisprudence in Florida

    On forfeiture, the decision:

    • cements the principle that removal and loss of future economic rights can be an enforceable, bargained-for remedy in partnership agreements;
    • clarifies that where the breaching party:
      • acts willfully and persistently, and
      • fails to timely cure,
      courts should be reluctant to relieve that party from the agreed consequence; and
    • underscores that claims of “windfall” are unpersuasive when actual material harm has been proven.

    D. Contract Drafting and Interpretation

    The majority and concurring opinions together offer drafting lessons:

    • Use of “material” and phrases like “material detriment” or “material adverse effect” should be deliberately calibrated, and their placement carefully considered.
    • Where parties intend that certain remedies (like removal) apply regardless of materiality for egregious misconduct (fraud, theft, misappropriation), they should clearly separate those categories from negligence-based defaults—exactly the reading Judge Newsom favors.
    • Drafting cure provisions should anticipate and guard against “cures” that themselves violate the contract—e.g., by precluding the use of forbidden financing sources or backdating.

    VIII. Conclusion

    Creative Choice Homes XXX, LLC v. AMTAX Holdings 690, LLC is a significant Eleventh Circuit decision for Florida contract and partnership law, particularly in the sophisticated world of LIHTC and real estate finance. It confirms that:

    • Material detriment/adverse effect in removal clauses is a meaningful threshold but can be satisfied by recurring misuse of partnership funds, even where the dollar amounts are modest relative to total project value, if those misuses:
      • substantially affect cash flow, reserves, or the parties’ working relationship, and
      • breach core fiduciary obligations.
    • General partners must strictly honor waterfall provisions and prohibitions on affiliate transactions; long-running, intentional violations supported by creative accounting will justify removal.
    • Cure provisions will be enforced as written:
      • they require timely, full, and contract-compliant cure,
      • they do not obligate the non-breaching party to assist beyond what the contract requires, and
      • they cannot be satisfied by new, independent breaches.
    • Contractual forfeiture—here, removal and loss of future economic interests—is permissible where clearly agreed and where the breaching party’s own willful and persistent misconduct justifies that result.
    • Waiver and estoppel will not shield a party whose ongoing misconduct persists in the face of repeated objections and clear contractual remedies.

    For sponsors and investors alike, the case underscores the importance of:

    • transparent and contract-compliant handling of partnership funds,
    • timely response to auditor and investor concerns, and
    • careful drafting and enforcement of removal and cure provisions.

    As a published Eleventh Circuit decision applying Florida law, the opinion will likely serve as a key reference point for future partnership disputes involving material breaches, cure rights, and enforcement of removal and forfeiture remedies in complex real estate and investment structures.

Case Details

Year: 2025
Court: Court of Appeals for the Eleventh Circuit

Comments