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SMM New England Corp. v. Innercity Recycling Service, LLC

Superior Court of Rhode Island

August 1, 2014


Providence County Superior Court

For Plaintiff: Stacey P. Nakasian, Esq.

For Defendant: Thomas W. Lyons, Esq., Diane M. Kildea, Esq.



SMM New England Corp. (Plaintiff) brings this suit against Innercity Recycling Service LLC (Innercity) and Kenneth A. Serapiglia (Serapiglia) for alleged breach of contract, or in the alternative, money had and received. Plaintiff asserts that Innercity and Serapiglia (collectively Defendants) have defaulted under the terms of an on demand promissory note. Currently before the Court is Plaintiff's Motion for Summary Judgment pursuant to Super. R. Civ. P. 56 as to both counts (Motion). Defendants oppose Plaintiff's Motion as to both counts.


Facts and Travel

Serapiglia is the President of Innercity, a Rhode Island corporation located in Cranston. In or about March 2012, Serapiglia was contacted by Plaintiff's then-president, Anthony Izzo (Izzo). Izzo and Serapiglia had previously known one another when Serapiglia worked for Izzo's family business. Izzo informed Serapiglia that Plaintiff would fund Serapiglia to start a new metal recycling business if Serapiglia would agree to an exclusive supplier contract with Plaintiff. Serapiglia's new business would act as a "feeder yard" to Plaintiff.

At Izzo's direction, Serapiglia began looking for a location for this new business. On or about April 26, 2012, Serapiglia caused Innercity to be incorporated.[1] Plaintiff assisted Defendants in securing the requisite permits from the City of Cranston to operate Innercity. Between March and August 2012, Defendants had multiple discussions with representatives of Plaintiff regarding the terms of any agreement between the two parties. Defendants claim that Plaintiff promised to loan whatever amounts were necessary to get Innercity up and running. Also during this time, discussions took place regarding the exclusive dealer contract and pricing to be paid by Plaintiff to Defendants for scrap metal.

Frequently, Plaintiff asked Defendants for a buyout number for Innercity.[2] Plaintiff claimed that a buyout number was necessary in order for Plaintiff to lend money. Defendants continuously told Plaintiff that they could not accurately calculate a buyout number because Defendants could not accurately value Innercity's worth. This continued to be the case even after Plaintiff suggested a $500, 000 buyout price. Defendants never agreed to any buyout number that was proposed nor did they ever supply such a number.

On or about August 14, 2012, Plaintiff advanced $50, 000 to Defendants. Plaintiff informed Defendants that the money was for the purpose of bringing the office location up to code and to get Innercity operational. Plaintiff also conditioned the money upon Defendants' promise to exclusively sell scrap to Plaintiff. Defendants inquired about the repayment terms, to which Plaintiff advised them that they would not have to pay until Innercity started making money. Defendants do not recall signing any documentation prior to receiving this $50, 000 installment.

Innercity began operating on or about August 23, 2012. In September 2012, Defendants met with representatives of Plaintiff. Plaintiff provided Defendants with a contract to review regarding money loaned by Plaintiff, as well as the exclusive supplier agreement. Defendants claim that the contract did not contain a buyout provision or a provision extending the exclusive relationship for ten years after repayment of the loan. Defendants informed Plaintiff that the contract looked fine but that Defendants wished to go over it with an attorney before signing. Plaintiff asked that Defendants return the signed contract as soon as possible. Defendants later signed the contract, after having it reviewed by an attorney, and returned it to Plaintiff, who also signed (September 2012 Contract). Despite asking for a copy of the contract, Defendants were never provided with one.

On or about September 10, 2012, Plaintiff advanced an additional $25, 000 installment to Defendants. Again, Defendants do not recall signing any documentation regarding this specific installment. The same can also be said of a $30, 000 installment advanced on or about October 3, 2012.

In October 2012, Plaintiff called Defendants to inform them that Plaintiff required a new contract to be signed to represent the additional money loaned subsequent to the signing of the September 2012 Contract. Plaintiff did not inform Defendants that the contract language would change in any way from the September 2012 Contract, previously reviewed and signed. On or about October 5, 2012, Defendants met with Plaintiff at Plaintiff's office. Plaintiff presented Defendants with a contract that had "sign-here" stickers on certain pages. The agreement executed was a "Supplier and Loan Agreement, " signed by Plaintiff's Director of Operations and by Serapiglia, both individually and on behalf of Innercity. Exhibit A of the Supplier and Loan Agreement was a Term Promissory Note (Note) in favor of Plaintiff as "Lender" with a principal balance of $80, 000.[3] The Note was similarly signed by Serapiglia, both individually and on behalf of Innercity.

As Plaintiff flipped through the Supplier and Loan Agreement to the "sign-here" stickers, Defendants either signed or initialed where told to do so, without reviewing the terms of the document. In fact, it was never suggested by Plaintiff that Defendants read the contract, and Defendants presumed that there was no need to review the contract as they understood the only change from the September 2012 Contract was the amount of money loaned. Plaintiff did not advise Defendants that the loan was subject to repayment terms of the Note, or that the Note was payable on demand.[4] When Defendants informed Plaintiff that they would not be able to make the monthly payments as provided in the contract, Defendants claim that Plaintiff told Defendants that as long as Defendants continued to exclusively sell scrap to Plaintiff, Defendants would not have to worry about the payments until Defendants could afford to make the payments. Plaintiff did point out to Defendants handwritten changes respecting the date, the amount of the loan and a notation as to the amount of the monthly payment due to repay the loan. Additionally, when Defendants inquired about some of the additional documents in the Supplier and Loan Agreement, Plaintiff told them that the documents were required by Plaintiff's offices in New York or New Jersey in order to loan money, and that Defendants should not worry about it. Defendants were informed that the contract would be retyped with the handwritten changes.

After Defendants reviewed a corrected copy of the October 5, 2012 contract, Defendants noticed several provisions which they claim they never agreed to, such as a buyout provision. Defendants contacted Plaintiff the next day to inform Plaintiff of their concern. Plaintiff informed Defendants that the language was necessary for Plaintiff's office in New York or New Jersey, and that Defendants should not worry as long as Defendants continued to exclusively sell to Plaintiff. Besides the funds mentioned previously, additional funds were disbursed as follows: $20, 000 on October 16, 2012; $20, 000 on November 1, 2012; and $5000 on December 24, 2012. Again, Defendants do not recall any separate documentation upon receipt of these funds.

Defendants continued to sell to Plaintiff through early 2013. Defendants consistently failed to turn a profit. In or about March 2013, Defendants requested additional funds from Plaintiff in order to help with cash flow issues. Plaintiff provided Defendants with advances of $6000 and $10, 000. Defendants were to repay these advances with scrap as opposed to monthly payments. After Defendants made a payment with scrap, Defendants would occasionally request another advance. Defendants signed an "Advance Agreement" as to every advance received from Plaintiff for the purpose of purchasing scrap.

Later in March 2013, Defendants and Plaintiff agreed to consolidate the amounts that had been loaned after the October 5, 2012 agreement, thereby increasing the amount of monthly payments Defendants were obligated to make. This agreement amended the Note by increasing the principal balance to $150, 000.[5] Defendants signed documentation reflecting this consolidation. Again, Defendants were told to not worry about payments until they could afford to start making the payments.

In June 2013, Defendants discovered a discrepancy between the amounts of scrap metal that they had purchased from customers versus the amount they had sold to Plaintiff.[6]Defendants calculated the discrepancy to be approximately 95, 000 pounds for the period between January and May 2013. The dollar amount for this discrepancy was calculated to be approximately $117, 000. After investigating the matter, Defendants concluded that Plaintiff was manually changing the weights recorded for the scrap to adjust for either gross or net weight of the load, adjust the tare weight, [7] or adjust for nonconforming metal. This practice always resulted in a reduced payment made to Defendants. Defendants attempted to resolve these issues with Plaintiff but were never able to do so.

On or about June 27, 2013, Defendants received a letter from Plaintiff stating that Defendants were behind on the loan repayments and requested that Defendants remit payment to Plaintiff. Defendants contacted Plaintiff, who told Defendants not to worry about the letter but that sending in one payment would help the situation. Defendants decided to remit the amount requested in the letter and has since made all monthly payments as set forth in the Note. Defendants have made payments totaling $19, 742.84 on the Note. Also during this time, ...

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