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Fogarty v. Palumbo

Superior Court of Rhode Island

December 1, 2014


For Plaintiff: Michael T. Finan, Esq.; Philip J. Laffey, Esq.

For Defendant: Vincent A. Indeglia, Esq.; Patricia A. Buckley, Esq.



Before this Court are Defendants'—Ralph Palumbo (Palumbo) and Jonathan Savage (Savage) (collectively, Defendants)—motions for summary judgment pursuant to Super. R. Civ. P. Rule 56(c). The Defendants have moved for summary judgment through four separate motions. This Decision will address all four of the Defendants' motions. In the first motion, the Defendants jointly move for summary judgment on all counts. Also, the Defendants jointly seek summary judgment on the tortious interference with contract claim and the tortious interference with prospective business advantage claim. Further, through two separate motions, Savage moves for summary judgment on the breach of contract claim, fraud claim, and civil conspiracy claim. Plaintiffs Charles Fogarty (Fogarty) and James Ottenbacher (Ottenbacher) (collectively, Plaintiffs) object to these motions. Jurisdiction is pursuant to G.L. 1956 § 8-2-14.


Facts and Travel

The current dispute between the parties involves a 360-acre tract of land located in Hopkinton, Rhode Island. The land, known as the Reserve at Brushy Brook (the Property), was owned originally by Fogarty in the 1970s. In 1994, Fogarty sold the Property from his Chapter 11 Bankruptcy estate. An entity called Stone Ridge, Inc. (Stone Ridge) purchased the Property from Fogarty's bankruptcy estate. Stone Ridge is comprised of four shareholders: Plaintiffs Fogarty and Ottenbacher; Grant Schmidt, M.D. (Schmidt); and William McComb (McComb) (collectively, Shareholders). In 2002, the Property was transferred from Stone Ridge to Brushy Brook Development, LLC (Brushy Brook). Brushy Brook's sole member was the Stone Ridge entity. Through Brushy Brook, the Shareholders intended to develop the Property and sought financing through Pioneer Bank.

In furtherance of its attempt to develop the Property, Brushy Brook began to obtain the necessary development approvals and financing. However, by late 2004, after losing the necessary development approvals and facing a potential foreclosure on the Property, the Shareholders agreed to try to sell the Property or to entertain shareholder buyouts. According to Ottenbacher and Fogarty, they planned to either purchase the Property from Brushy Brook or buy out the shares of McComb and Schmidt. To accomplish either of these objectives, the Plaintiffs allegedly sought the assistance of Palumbo as a tax and financial advisor and Savage to act as their attorney during the transaction. Savage denies having been the Plaintiffs' attorney during this time period.

Plaintiffs allege that an entity called CFJO, Inc. (Charles Fogarty James Ottenbacher) was originally going to purchase the Property from Brushy Brook.[1] Adam Clavell (Clavell), an attorney allegedly representing Savage, originally drafted an agreement indicating CFJO as the purchaser of the Property. However, this agreement was never executed, and the plan was eventually abandoned. Thereafter, a new plan emerged wherein Savage, acting in his capacity as a buyer, would purchase the Property.

According to the Plaintiffs, the transaction was structured as follows: Savage—acting through an entity called Boulder Brook, LLC (Boulder Brook)—would purchase the Property from Brushy Brook for $5.5 million. After purchasing the Property, Boulder Brook would simultaneously enter into an Option Agreement with Stark Properties, Inc. (Stark), giving Stark the option to buy certain residential lots on the Property. Stark is an incorporated entity formed by the Plaintiffs. The Option Agreement was drafted by Mark Spangler, Esq. (Spangler) in his capacity as the attorney for the Plaintiffs.

To effectuate this transaction, Brushy Brook was required to obtain the approval of Stone Ridge's Shareholders. Therefore, in March of 2005, the Shareholders entered into what was known as the 2005 Stone Ridge Agreement, authorizing Brushy Brook to sell the Property. On April 6, 2005, Brushy Brook and Stone Ridge executed an asset purchase agreement (the April 2005 APA), agreeing to sell the Property to Boulder Brook. The April 2005 APA stated the closing would occur within thirty days. The Shareholders admit to knowing by March of 2005, at the latest, that Savage was a principal of Boulder Brook. Clavell was also involved in the drafting of the April 2005 APA.

Competing Deals

According to the Plaintiffs, the deal to sell the Property to Boulder Brook was never consummated, and that the agreement had lapsed by the end of May of 2005—the time set under the agreement for Boulder Brook to close on the Property. As a result, in late July or early August of 2005, according to the Plaintiffs, Ottenbacher with a partner, Stephen Kaufman, made an offer to buy out Schmidt and McComb's shareholder interests in Stone Ridge for $4.1 million.[2] The terms of Ottenbacher's proposal included $3.6 million in cash at the time of closing, with the balance secured by a $500, 000 mortgage payable within six months of the closing. Plaintiffs allege this deal was accepted by Schmidt, in his capacity as managing member of Brushy Brook. Realizing Schmidt may have been considering reviving the original deal with Boulder Brook, Ottenbacher instructed both Schmidt and Savage not to proceed with the Boulder Brook deal.[3]

The Plaintiffs claim that Schmidt and McComb had agreed to sell the Property to Ottenbacher and Fogarty, and a closing was set for August 15, 2005. In anticipation of the closing, $3.6 million was wired into the trust account of Spangler. However, on August 16, 2005, when Spangler searched the Land Evidence Records for the Town of Hopkinton, it was discovered that the Property had been transferred to Boulder Brook on August 15, 2005.[4] The salient terms of the Boulder Brook transaction consisted of cash considerations sufficient to pay all secured creditors, and a promissory note executed by Boulder Brook payable to Brushy Brook.

After the Property was transferred to Boulder Brook, Brushy Brook was placed into involuntary bankruptcy. Stone Ridge was also later petitioned into bankruptcy by Brushy Brook's Chapter 7 Bankruptcy Trustee, Charles Pisaturo, Esq. (Pisaturo). During the bankruptcy proceeding, Pisaturo brought adversary proceedings on behalf of Stone Ridge and Brushy Brook against Schmidt and his attorney, Gerald Vande Werken (Vande Werken), for breach of fiduciary duties. These cases were eventually settled.

The Plaintiffs allege to have suffered damages as a result of the Property's transfer to Boulder Brook, and not to the Ottenbacher purchasing group. Plaintiffs contend their losses consist of losing their respective share of the land, as well as the profits which could have been made by developing the Property. Specifically, the Plaintiffs point to lost profits from condominium sales, house lots, and revenues generated by a golf course, exercise facility, and restaurant. Real estate appraiser James Houle (Houle) was retained to testify as to the amount of damages sustained by the Plaintiffs. In response, the Defendants move for summary judgment on the grounds that the Plaintiffs have failed to provide proof, to a reasonable degree of certainty, as to the amount of lost profits actually incurred as a result of their offer not being accepted. By failing to introduce sufficient evidence regarding their damages, the Defendants claim this controversy is ripe for summary judgment.


Standard of Review

"Summary judgment is a proceeding in which the proponent must demonstrate by affidavits, depositions, pleadings and other documentary matter . . . that he or she is entitled to judgment as a matter of law and that there are no genuine issues of material fact." Palmisciano v. Burrillville Racing Ass'n, 603 A.2d 317, 320 (R.I. 1992) (citing Steinberg v. State, 427 A.2d 338 (R.I. 1981)). The court, during a summary judgment proceeding, "does not pass upon the weight or the credibility of the evidence but must consider the affidavits and other pleadings in a light most favorable to the party opposing the motion." Id. (citing Lennon v. MacGregor, 423 A.2d 820 (R.I. 1980)). Moreover, "the justice's only function is to determine whether there are any issues involving material facts." Steinberg, 427 A.2d at 340. The court's purpose during the summary judgment procedure is issue finding, not issue determination. O'Connor v. McKanna, 116 R.I. 627, 633, 359 A.2d 350, 353 (1976). Therefore, the only task for the judge in ruling on a summary judgment motion is to determine whether there is a genuine issue concerning any material fact. Id.

"When an examination of the pleadings, affidavits, admissions, answers to interrogatories and other similar matters, viewed in the light most favorable to the party opposing the motion, reveals no such issue, the suit is ripe for summary judgment." Industrial Nat'l Bank v. Peloso, 121 R.I. 305, 306, 397 A.2d 1312, 1313 (1979). "[T]he opposing parties will not be allowed to rely upon mere allegations or denials in their pleadings. Rather, by affidavits or otherwise, they have an affirmative duty to set forth specific facts showing that there is a genuine issue of material fact." Bourg v. Bristol Boat Co., 705 A.2d 969, 971 (R.I. 1998). However, it is not an absolute requirement that the nonmoving party file an affidavit in opposition to the motion. Steinberg, 427 A.2d at 338. If the affidavit of the moving party does not establish the absence of a material factual issue, the trial justice should deny the motion despite the failure of the nonmoving party to file a counter-affidavit. Id.




Damages Claimed

The Defendants contend that summary judgment should be granted since the Plaintiffs have failed to provide adequate evidence pertaining to their claim for damages. The Defendants argue that summary judgment is appropriate because the evidence offered by the Plaintiffs makes it impossible for a trier of fact to determine the extent of the Plaintiffs' lost profits with reasonable certainty. In opposing the Defendants' motion for summary judgment, the Plaintiffs claim to have sustained damages in two ways. The Plaintiffs first claim that if Brushy Brook sold the Property to them, the Shareholders of Stone Ridge would have received "some return" of their initial investment.[5] The Plaintiffs argue that the superiority of their offer, as outlined in the Bankruptcy Trustee's Motion for Approval of Compromise, supports their initial claim for damages. See Pls.' Ex. BB to Mem. in Obj. to ...

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