209 A.3d 1162
R.I.2019Background
- Management Capital negotiated and received a 2003 common-stock Warrant from F.A.F., giving Management the right to buy 10% of FAF for $710,000 and put/call rights tied to FAF financials and a valuation formula referencing “funded debt.”
- Drafting errors produced internal date inconsistencies: Sections tying exercise and put/call windows to receipt of FAF’s audited 2007 financials nonetheless listed 2007 calendar dates (Sept. 30 and Oct. 31, 2007) that would always precede availability of those statements.
- Management discovered the discrepancies in fall 2007; FAF’s CFO and attorney took the position the Warrant was valueless and asserted a different interpretation of the dates and of “funded debt.”
- Management sent communications in Sept. and Dec. 2007 and filed suit on March 21, 2008 seeking reformation, a declaratory judgment that “funded debt” meant long‑term debt, and relief for repudiation; trial was bench-tried in 2015.
- The Superior Court reformed the Warrant to reflect the parties’ mutual intent (correcting the dates), ruled “funded debt” meant long-term debt, found FAF anticipatorily repudiated the Warrant, awarded $1,234,055 damages, and prejudgment interest from October 13, 2008; judgment was affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reformation for mutual mistake | Warrant’s dates contradict parties’ prior agreement to allow Management to review 2007 audited statements; reformation restores intent | No clear mutual understanding; testimony (esp. Almeida) unreliable; cannot prove mutual mistake | Court affirmed reformation: clear and convincing evidence showed parties intended review of 2007 audited statements before exercising rights |
| Meaning of “funded debt” | Plain and ordinary meaning is long-term debt; Warrant Terms not integrated into final Warrant | Term should include FAF’s revolving (bank) debt; Warrant Terms incorporated by reference via exercise price | Court held “funded debt” unambiguous: means long-term debt; Warrant Terms not incorporated by mere exercise-price recital |
| Anticipatory repudiation by FAF | FAF’s attorney letter plus statements by FAF officers amounted to a positive, unconditional refusal to perform; Management promptly sued | FAF objectively interpreted Warrant in good faith; Management’s communications in 2007 show it treated the Warrant as valid, so no repudiation preserved | Court found repudiation: combined statements/actions were unequivocal; Management preserved post-repudiation rights by promptly filing suit and by amendment |
| Damages and prejudgment interest | Damages calculated from Section 14 using long-term debt; prejudgment interest accrues from date cause of action accrued (Oct. 13, 2008) | Damages uncertain and improperly proven; interest start date speculative | Court held damages proven with reasonable certainty; prejudgment interest properly awarded from Oct. 13, 2008 |
Key Cases Cited
- Gregoire v. Baird Properties, LLC, 138 A.3d 182 (R.I. 2016) (deferential review to trial justice findings)
- Merrimack Mutual Fire Ins. Co. v. Dufault, 958 A.2d 620 (R.I. 2008) (reformation corrects writing to reflect parties’ intent for mutual mistake)
- Hopkins v. Equitable Life Assurance Soc. of U.S., 270 A.2d 915 (R.I. 1970) (mutual mistake definition and reformation standard)
- Griffin v. Zapata, 570 A.2d 659 (R.I. 1990) (actions and attorney statements can establish anticipatory repudiation)
- Thompson v. Thompson, 495 A.2d 678 (R.I. 1985) (repudiation must be positive and unconditional)
- Bank of America, N.A. v. P.T.A. Realty, LLC, 132 A.3d 689 (R.I. 2016) (questions of law reviewed de novo)
- Fogarty v. Palumbo, 163 A.3d 526 (R.I. 2017) (damages and factual determinations are for the factfinder)