53 A.3d 964
R.I.2012Background
- In 1986, Charles and Marguerite Takian and Ralph and Lucia Rafaelian purchased property in South Kingstown with a hotel, a restaurant, and a trailer park, forming Lumar Realty Corp. to manage the business.
- The partners funded the purchase with loans, and stock was not issued until 2005; the charter was revoked in 2000 and reinstated in 2003.
- Relations deteriorated by 2002; the Rafaelians sold their interest to Randolph Takian for a stated price and signed a mutual release releasing all claims tied to ownership and operation of the property.
- After sale, disputes continued; the Rafaelians alleged further misdeeds, while plaintiffs sought declaratory relief that the release foreclosed further claims.
- A Superior Court judge granted summary judgment finding the release valid against both individuals and the corporation, and dismissed several derivative and direct claims; the matter then appealed.
- The Rhode Island Supreme Court granted de novo review on appeal and affirmed in part, vacated in part, and remanded for further proceedings consistent with its analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Derivative standing under Rule 23.1 | Takian challenge to Rafaelians’ derivative claims | Rafaelians had standing as shareholders at time of alleged wrongs | Derivatives dismissed: no contemporaneous shareholding; Lumar lacked standing |
| Validity and enforceability of the release | Release bars claims arising from ownership and operation of the property | Release may be voidable due to fraud or misrepresentation; triable facts exist | Release upheld on face; but issues of fraud/misrepresentation and setting aside require further fact-finding on remand |
| Fraudulent inducement to enter the release | No fraud; signing parties knew misconduct and potential wrongs | Fraudulent inducement warrants voiding the release | De novo review required; facts disputed; not resolved on summary judgment |
| Direct claims against the Takian defendants | Release bars these claims as part of a single covenant | Some direct claims survive independent of the corporation | Counts 2,3,4,5,6,8 remanded for trial; some counts against Randolph resolved in favor of plaintiffs |
| RICO and conspiracy claims | RICO claims not dependent on post-sale conduct should survive | RICO claims require valid enterprise; affected by release | Counts 10 and 11 remanded; underlying theory unsettled due to corporate status of enterprise |
Key Cases Cited
- Guglielmi v. Rhode Island Hospital Trust Financial Corp., 573 A.2d 687 (R.I. 1990) (three-factor test for release enforceability: consideration, experience, counsel)
- Young v. Warwick Rollermagic Skating Center, Inc., 973 A.2d 553 (R.I. 2009) (release validity; parol evidence limitations)
- Griffin v. Bendick, 463 A.2d 1340 (R.I. 1983) (strict grounds to set aside a released claim; fraud/misrepresentation)
- Lapre v. Flanders, 465 A.2d 214 (R.I. 1983) (finality and limited grounds to rescind releases)
- Manchester v. Pereira, 926 A.2d 1005 (R.I. 2007) (reading contract terms; assent by signing instrument)
- Zanni v. Voccola, 13 A.3d 1068 (R.I. 2011) (de novo review standards for summary judgment)
- Estate of Giuliano v. Giuliano, 949 A.2d 386 (R.I. 2008) (summary judgment standard and deference to trial court findings)
- Classic Entertainment & Sports, Inc. v. Pemberton, 988 A.2d 847 (R.I. 2010) (summary judgment standard; burden on nonmovant)