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Page v. ADS Investments, LLC

Superior Court of Rhode Island

August 5, 2014

DONALD PAGE, Individually and Derivatively on behalf of ADS INVESTMENTS, LLC, Plaintiff,

Newport County Superior Court

For Plaintiff Donald D. Page, pro se

For Defendant David F. Fox, Esq.



This matter is before the Court following a non-jury trial on Plaintiff Donald Page's (Plaintiff or Page) Verified Complaint, alleging that Aaron, Duane, and Scott Polselli (together, the Polselli Brothers or Defendants) breached their fiduciary duties to ADS Investments, LLC (ADS). The Verified Complaint, asserted by Page individually and derivatively on behalf of ADS, also sets forth counts requesting an inspection of books and records, an accounting, an appointment of a receiver, and various other injunctive remedies.

Also before the Court for decision is the Defendants' counterclaim which requests two declaratory judgments: the first, defining what interest, if any, Page has in ADS; and, the second, declaring any interest identified void. Defendants also request, in the event that the Court finds Page has an interest in ADS and said interest is not void, that the Court allow the Defendants the opportunity to purchase Page's interest at fair market value pursuant to G.L. 1956 §§ 7-1.2-1315 and 7-16-73. Defendants' counterclaim also alleges negligence, breach of fiduciary duty, and breach of contract against Page. Jurisdiction is pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14.

I Facts and Travel

The parties to this litigation have known each other for many years. They grew up together in Portsmouth, Rhode Island and have a long history as friends and co-venturers in various business endeavors. The admitted allegations of the claim and counterclaim also show that the parties enjoyed a long standing attorney-client relationship: Page advised the Polselli Brothers on the formation of a company in the 1980s; Page represented one of the brothers in a criminal matter that same decade; Page represented Foodworks Restaurant, a Polselli Brothers business, during a tax audit in 1991; Page represented the Polselli Brothers before the Portsmouth Town Council in their attempt to secure a liquor license, also in 1991; Page represented the Polselli Brothers in their purchase of commercial real property located at 2461 East Main Road, Portsmouth, Rhode Island from 1993 through 1995; Page assisted in the paperwork for the purchase of another piece of commercial property, located at 2451 East Main Road, Portsmouth, Rhode Island; Page was ADS's company attorney until 1999 or 2001; and, Page was ADS's registered agent from 1994 until 1996.

Page's Verified Complaint asserts, and Defendants admit, that ADS, a Rhode Island limited liability company, was formed in 1994 under the name ADS Realty, LLC. In 2002, ADS Realty changed its name to ADS Investments, LLC. In 1994, Page prepared and filed the company's Articles of Organization and was named therein as ADS's registered agent. At that time, Page was an active, licensed attorney in Rhode Island and was working for a firm, practicing land use and general litigation. Page conceded at trial that, as the attorney for ADS, it would have been his duty to prepare an operating agreement. The purpose of such an agreement, as testified to by Page, is to define the business operations of ADS and to identify the interests of the members. There is no dispute that Page failed to prepare such an agreement. Even in the absence of an operating agreement, all the parties agree, and so testified, that at ADS's inception the plan was that Page and all three brothers would be equal owners of ADS, each with a twenty-five percent interest in the company. In addition to capital contributions, each owner was to contribute his own expertise to the venture: Page was to provide legal services to the company, Duane was to handle the accounting, and Scott and Aaron would be responsible for renovations and maintenance of ADS's properties.

The parties are in agreement that in 1995, ADS purchased commercial real property located at 2461 East Main Road, Portsmouth, Rhode Island. Because Foodworks Restaurant, along with other commercial entities, operates out of this location, it has come to be known in this litigation as the "Foodworks Property." Insofar as the Foodworks Property is relevant, the Plaintiff bases his contention that the Defendants breached their fiduciary duties on the following allegations: that the Foodworks Restaurant—operated by the Polselli Brothers and located within the Foodworks Property—paid below-market rent to ADS from 1996 until 2003; that the Foodworks Restaurant has not paid any rent to ADS since May 2003; and, that ADS has never distributed any income or made any other payments to Page.[1]

The Defendants admit that they never made any distributions to Page, alleging that he has no interest in the Foodworks Property. At trial, the Polselli Brothers presented a copy of the purchase and sales agreement for the purchase of the Foodworks Property; Page admitted at trial that he had a hand in preparing the first draft of that agreement. (Defs.' Ex. A.) The agreement lists the three Polselli Brothers as the purchasers of the Foodworks Property. Page's name, however, does not appear on that agreement. The Polselli Brothers' counterclaim asserts that although Page initially did want to invest in the Foodworks Property, he failed to contribute the necessary funds by the closing date. Instead, the Polselli Brothers argue, Page merely loaned Duane $30, 000 to help purchase the Foodworks Property. The checks totaling $30, 000—which Page claims was a contribution and the Polselli Brothers claim was a loan—all identify themselves, on the memo line, as a "loan."

Page's claim that Foodworks Restaurant paid less than market-value rent is based on the uncontroverted evidence that Foodworks Restaurant paid a monthly rent of $2500 to ADS. The second page of the commercial lease agreement fixes the monthly rent to be paid by Foodworks Restaurant to ADS at $6000 per month.[2] The last page of the lease was a point of contention at trial, however. The last page—which is the only page of the lease agreement seen and signed by the Polselli Brothers prior to the closing—does not state the amount of rent to be paid. Page conceded at trial that the last page is of a "different quality" than the rest of the document: the lettering is darker, and the last page does not look the same as the rest of the document. When shown the document at trial, Duane Polselli testified that he recognized the last page. Duane further testified that the last page of the lease agreement had been faxed to Foodworks Restaurant from Page, signed by the Polselli Brothers, and then faxed back to Page. Duane stated that the first time he saw the $6000 figure, which is located on the second page of the lease, was at the closing. He claimed that as he understood the plan, there needed to be a certain amount of rent identified for financing purposes, but maintained that Foodworks Restaurant had paid $2500 per month since its inception.

Duane also testified that Page knew of, and approved, the $2500 rent arrangement. In support of this assertion, the Defendants submitted at trial a piece of paper covered in two different styles of handwriting. (Defs.' Ex. H.) Defendants assert that this document memorialized discussions all three brothers and Page had concerning the numbers for mortgages, taxes, and insurance in 1995. Duane stated that Page's handwriting is on the right side of the page, but that Page agreed to the numbers written on the left side of the page: the left hand side of the page shows "$2500 (FW rent)."

Another piece of commercial property, located at 2451 East Main Road, Portsmouth, Rhode Island, was also central to Page's Complaint. This property came to be known in this litigation as the "Fitness House." Though Page's Complaint did contain allegations pertaining to this property, this Court, Thunberg, J., determined in 2006 that Kristen Polselli and David Comfort owned the Fitness House property in fee simple and dismissed those parties from the litigation. In that decision, this Court examined the pertinent land records and found that the Fitness House property transferred directly from the previous owners to Kristen Polselli and David Comfort. The Court further found that Page had proffered no evidence that indicates that ADS ever owned the Fitness House property. See Decision Nov. 17, 2006, Thunberg, J., granting Kristen Polselli and David Comfort's Motion to Dismiss. The only allegation in the Plaintiff's Verified Complaint that pertains to the Defendants' alleged breach of their fiduciary duties as they involve the Fitness House property is that the Polselli Brothers "have each breached these duties by . . . usurping the corporate business opportunity of purchasing the Fitness House property." Because this Court's prior decision determined that the Defendant Brothers did not, in fact, purchase the Fitness House property, Page cannot successfully state a claim for loss of corporate opportunity. See Takian v. Rafaelian, 53 A.3d 964, 973 (R.I. 2012) ("To successfully state a claim [for loss of corporate opportunity] a plaintiff must demonstrate that the defendant was a corporate fiduciary and that he or she diverted a corporate opportunity.")

Page maintains that he is an equal member of ADS and claims capital contributions totaling $44, 600. Page further claims he performed $75, 000 worth of legal services for ADS, for which he was never paid. The Polselli Brothers, however, deny that Page is now a member of ADS. Duane and Aaron Polselli testified that early on, ADS would have frequent meetings, of which Page was a part, to discuss finances and numbers. Both brothers testified that on some occasions, Page would make cash contributions, but on others he would not.

In support of his claim that he performed $75, 000 worth of legal services for ADS, Page presented attorney Thomas DiPrete as a witness at trial. Mr. DiPrete was admitted to practice law in Rhode Island in 1993. The focus of his practice has been real estate. He testified that— based on his experience and a two-page document prepared by Page that itemizes the work Page claims to have performed—$17, 193.75 was a reasonable fee for the legal work performed by Page for the Foodworks Property.[3] On cross-examination, however, Mr. DiPrete admitted that he was not given any time slips. He maintained, though, that it is clear that Page was "substantially involved" with ADS, despite the lack of documentation that Page actually did the work alleged.

The Defendants contend that Page, to Defendants' detriment, violated Rule 1.8 of the Rhode Island Supreme Court Rules of Professional Conduct.[4] More specifically, they allege that Page failed to advise the Polselli Brothers of any potential conflicts of interest that may arise from Page's serving simultaneously as ADS's attorney and a part owner of ADS. Defendants also claim that Page failed to advise the ...

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