Charles E. Fogarty v. Ralph Palumbo James Ottenbacher v. Ralph Palumbo
163 A.3d 526
| R.I. | 2017Background
- In 2005 an approximately 360-acre tract owned by Stone Ridge, Inc. (later held through Brushy Brook) was conveyed to Boulder Brook; plaintiffs Fogarty and Ottenbacher (Stone Ridge shareholders) allege the conveyance was fraudulent and done without their consent.
- Pilgrim Title was the title/escrow agent for the August 15, 2005 closing; plaintiffs only learned some closing documents years later.
- Plaintiffs sued Palumbo and Savage (principals of Boulder Brook) and Pilgrim asserting negligence, breach of contract, tortious interference, fraud, civil conspiracy, and related claims; discovery lasted several years.
- Superior Court granted summary judgment for Pilgrim (statute-of-limitations/discovery rule) and for Palumbo and Savage on multiple grounds; plaintiffs appealed.
- The Supreme Court affirmed summary judgment for Pilgrim and on several legal theories against Palumbo and Savage (no contract, no attorney-client relationship, derivative fraud), but vacated the grant to the extent the dismissal rested on plaintiffs’ alleged inability to prove lost-profit damages in their individual capacities and remanded on certain negligence/contract claims against Palumbo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pilgrim's negligence claims are time-barred under § 9-1-14.3 or saved by the discovery rule | Plaintiffs: they only discovered Pilgrim’s actionable conduct in 2009; discovery-rule tolling applies | Pilgrim: its involvement was discoverable in Aug. 2005 (name on municipal lien certificates); plaintiffs were not reasonably diligent | Held: Claims against Pilgrim are time-barred; discovery rule does not save them because Pilgrim’s role was objectively discoverable in Aug. 2005 |
| Whether plaintiffs produced evidence of damages (lost profits) with reasonable certainty to survive summary judgment | Plaintiffs: expert Houle and exhibits establish existence of lost-profit damages and a computable formula; certainty of amount not required at summary judgment | Palumbo/Savage: plaintiffs failed to show damages to a reasonable degree of certainty; any recovery for shareholders is derivative (for the entity) | Held: Existence of lost-profit damages survives summary judgment (factfinder issue); however recovery as shareholders for return of contributions is derivative and not permitted individually |
| Whether a binding contract existed between plaintiffs and Brushy Brook (for tortious interference with contract) | Plaintiffs: email and negotiation history show offer/acceptance or at least a binding agreement in principle | Defendants: the communications show no meeting of the minds on material terms; material contingency (creditor payoff) remained | Held: No enforceable contract; summary judgment affirmed on tortious-interference-with-contract counts |
| Whether an attorney-client relationship existed with Savage (breach of contract/legal malpractice) and whether malpractice claims are timely | Plaintiffs: Savage acted as their counsel and drafted transactional documents | Savage: contemporaneous evidence shows he acted as buyer; no retainer or corroborating facts showing an attorney-client relationship; malpractice claims time-barred | Held: No competent evidence of an attorney-client relationship; summary judgment for Savage on breach/malpractice counts affirmed |
| Whether fraud and civil-conspiracy claims can be pursued individually or are derivative | Plaintiffs: allege defendants concealed and schemed to acquire property; assert individual harm | Defendants: alleged wrongs injured Brushy Brook/Stone Ridge (the owner), so claims are derivative and standing lies with the bankruptcy trustee | Held: Fraud and conspiracy claims are derivative and plaintiffs lack standing; summary judgment affirmed on those counts |
Key Cases Cited
- Behroozi v. Kirshenbaum, 128 A.3d 869 (R.I. 2016) (discusses three-year malpractice statute and discovery-rule standard)
- Newstone Development, LLC v. East Pacific, LLC, 140 A.3d 100 (R.I. 2016) (standard of appellate review for summary judgment)
- Mills v. Toselli, 819 A.2d 202 (R.I. 2003) (objective reasonable-diligence standard for discovery-rule accrual)
- Troutbrook Farm, Inc. v. DeWitt, 611 A.2d 820 (R.I. 1992) (lost profits must be proven with reasonable certainty)
- Abbey Medical/Abbey Rents, Inc. v. Mignacca, 471 A.2d 189 (R.I. 1984) (jury must be provided a rational model to compute lost profits)
- Avilla v. Newport Grand Jai Alai LLC, 935 A.2d 91 (R.I. 2007) (elements for interference with prospective contractual relations)
- Belliveau Building Corp. v. O’Coin, 763 A.2d 622 (R.I. 2000) (elements of tortious interference with contractual relations)
- Richmond Square Capital Corp. v. Mittleman, 773 A.2d 882 (R.I. 2001) (elements of legal malpractice)
- Read & Lundy, Inc. v. Washington Trust Co. of Westerly, 840 A.2d 1099 (R.I. 2004) (civil conspiracy requires an underlying intentional tort)