County Superior Court
Plaintiff: Joseph V. Cavanagh, Jr., Esq.
Defendant: Rajaram Suryanarayan, Esq. Robert D. Wieck, Esq.
matter is before the Court for decision following a nonjury
trial between Plaintiff Management Capital, L.L.C.
(Management) and Defendants F.A.F., Inc. (F.A.F.) and Arthur
Fiorenzano (Fiorenzano). The crux of the dispute between the
parties hinges on three issues: (a) contract reformation; (b)
interpretation of the term "funded debt"; and (c)
anticipatory repudiation. This Court has jurisdiction
pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14.
Facts and Travel
spring of 2002, F.A.F.-a Rhode Island costume jewelry
manufacturing and distribution business-and its President,
Fiorenzano, engaged Management Solutions, LLC-an affiliate of
Management-to help resolve judgments rendered against
F.A.F. in two unrelated lawsuits. Trial Tr. 70:20-73:5,
75:24-76:8. In addition to receiving an hourly fee for its
services, Management's principals-Ernest Humphreys
(Humphreys), Robert Manchester (Manchester), and Jerry
Cerce-signaled to Fiorenzano and F.A.F.'s Chief Financial
Officer, Armand Almeida (Almeida), that they were interested
in a warrant for stock in F.A.F. as further compensation for
Management's services. Id. at 78:4-79:12,
548:15-17, 554:1-17. After Almeida initially advised
Fiorenzano against agreeing to a warrant, and although
Fiorenzano declined Management's first warrant proposal,
on October 10, 2002, Fiorenzano agreed in writing to grant
Management a warrant. See id. at 555:19-556:10;
Joint Exs. 4, 5.
October 10, 2002 agreement was based on a set of terms-known
as the Warrant Terms-that Management had provided in its
October 9, 2002 letter to Fiorenzano. See Joint Ex.
4, Ex. A. The Warrant Terms were brief. See id.
First, F.A.F. was to grant Management a right to acquire 10%
of F.A.F.'s stock for a price of $710, 000. Id.
According to the Warrant Terms, Management's right to
acquire that stock had to be exercised "at any time
prior to December 31, 2007." Id. at ¶ 2.
Second, Management was to be granted a put right that
allowed it to redeem whatever interest Management had in
F.A.F. or the Warrant itself, exercisable any time after
December 31, 2007. Id. at ¶ 4. Finally, F.A.F.
had a call right that allowed it to force Management
to sell whatever interest it had in F.A.F. or the Warrant
itself, again exercisable any time after December 31, 2007.
early 2003, after Management had successfully managed
resolutions to F.A.F.'s judgments, Management and F.A.F.
began a six-month process of circulating drafts of what would
eventually become the Warrant. Trial Tr. 102:2-25, 358:16-19;
see Pl.'s Ex. 47. During the drafting process,
Management was focused on ensuring its right to review
F.A.F.'s 2007 audited financial statements prior to
deciding how to exercise its rights under the Warrant. Trial
Tr. 114:19-115:17, 118:11-22, 119:10-20, 335:20-336:4.
Following a conversation with Humphreys, Almeida agreed to
Management's request regarding the 2007 audited financial
statements. Id. at 591:25-592:2. Based on that
agreement, on June 4, 2003, F.A.F.'s attorney inserted
language in Sections 3.1 and 13 of the Warrant to ensure that
Management could review F.A.F.'s audited financial
statements for the year ending December 31, 2007 before
deciding whether to buy shares or put the Warrant.
Id. at 331:18-23, 335:23-25, 597:8-22;
compare Joint Ex. 10 with Joint Ex. 9;
see also Pl.'s Ex. 47. After F.A.F.'s
attorney inserted that language into the Warrant, it remained
unedited throughout the rest of the drafting process.
See Pl.'s Ex. 47; compare Joint Ex. 16
with Joint Exs. 9, 10.
7, 2003, after six months of circulating drafts, Management
and F.A.F. executed the Warrant. See Pl.'s Ex.
47. Just as under the Warrant Terms, Management could
purchase 10% of F.A.F's stock shares at an exercise price
of $710, 000. Compare Joint Ex. 4 (Warrant Terms)
with Joint Ex. 16 (the Warrant). However, unlike the
Warrant Terms, the final version of the Warrant included
language regarding Management's review of F.A.F.'s
2007 audited financial statements. Compare Joint Ex.
4 with Joint Ex. 16. Section 3.1 of the Warrant,
entitled "Exercise, " provided the expiration date
for Management's right to exercise the Warrant and
purchase 10% of F.A.F.'s stock for $710, 000. Joint Ex.
16 at 2, § 3. Pursuant to Section 3.1,
"This Warrant may be exercised in whole or in part at
any time by the registered holder by the surrender of this
Warrant at any time after the date hereof and before 5:00
p.m. on: (a) the date which is seventy-five (75) days after
receipt by [Management], or any subsequent holder hereof, of
the audited financial statements of [F.A.F.] for the year
ending December 31, 2007; or (b) October 31, 2007, whichever
is the earlier to occur ("Expiration Time") . . .
Management had until the earlier of seventy-five days
post-receipt of F.A.F.'s 2007 audited financial
statements or October 31, 2007 to purchase 10% of F.A.F.'s
stock for $710, 000. Id.
Section 13 of the Warrant outlined when Management and
F.A.F.'s put and call rights would kick in. Id.
at 3, § 13. Under Section 13, entitled "Put and
Call Rights, "
"At any time after 5:00 p.m. on (a) the date which is
forty-five (45) days after receipt by [Management], or any
subsequent holder hereof, of the audited financial statements
of [F.A.F.] for the year ending December 31, 2007; or (b)
September 30, 2007, whichever is the earlier to occur,
[F.A.F.] shall have a call and [Management] or any subsequent
holder hereof shall have a put with respect to the Warrant,
or the shares issued pursuant to this Warrant, if
pursuant to Section 13, Management's right to put the
Warrant began on the earlier date of forty-five days
post-receipt of F.A.F.'s 2007 audited financial
statements or September 30, 2007. Id. In sum, under
the Warrant, Management had two options: it could buy shares
in F.A.F. or it could put the Warrant. See Trial Tr.
with respect to the put and call rights, "[t]he purchase
price for the Warrant, or the shares issued pursuant to the
Warrant, if applicable, shall be determined and paid as
provided in Section 14 . . . ." Joint Ex. 16 at
4, § 13. Under Section 14, entitled "Determination
and Payment of Purchase Price, "
"The purchase price for the Warrant, or the shares
issued pursuant to this Warrant, if applicable, shall be
equal to the percentage ownership of [F.A.F.] represented by
the shares, multiplied by the Value of [F.A.F.]. The Value of
[F.A.F.] shall be equal to: (a) the average EBITDA of
[F.A.F.] for the last 2 fiscal years of [F.A.F.] prior to the
exercise of the put or call; (b) multiplied by 5; (c)
less only funded debt, all as of the last day of the
most recently completed fiscal year of [F.A.F.]."
Id. at 4, § 14 (emphasis added).
years passed without any action on the Warrant. However, in
either August or September of 2007, when Management
considered how to proceed with its options under the Warrant,
Management noticed a conflict with the dates provided in
Sections 3 and 13. Trial Tr. 135:20-24, 137:24-138:2,
373:13-374:3. Manchester formally brought this issue to
F.A.F.'s attention in a September 28, 2007 correspondence
to Fiorenzano and F.A.F.'s attorney. See Joint
Ex. 17. In his letter, Manchester expressed concern that
there had been a typo, or scrivener's error, with respect
to Sections 3.1 and 13 of the Warrant. Id.
Specifically, Manchester and Humphreys were concerned that
under Section 3.1, Management's exercise right to
purchase stock in F.A.F. would expire on October 31, 2007, a
date prior to its ability to review F.A.F.'s 2007 audited
financial statements. Trial Tr. 335:15-21. In other words,
F.A.F.'s 2007 financial statements would not be available
until sometime in late March or early April of 2008-well
after the "drop dead date" of October 31, 2007. Tr.
114:8-24, 335:8-13, 369:5-24, 370:8-23, 591:13-20,
September 28, 2007 correspondence, Manchester expressed
similar concern with respect to the date "September 30,
2007" in Section 13 of the Warrant. See Joint
Ex. 17. Under Section 13's plain language,
Management's right to put the Warrant would begin on
September 30, 2007, again well before F.A.F.'s 2007
audited financial statements would be made available.
See Joint Ex. 16 at 3, § 13. This was also
important to Management because, as provided in Section 14 of
the Warrant, the purchase price with respect to
Management's put right was to include the last two fiscal
years prior to the exercise of that right. See id.
at 4, § 14. According to Management, to read Section 13
as triggering Management's put rights on September 30,
2007 would mean that F.A.F.'s value would be based on
fiscal years 2005 and 2006, not 2006 and 2007. To resolve what
he ostensibly believed were two drafting errors, Manchester
suggested two changes to the Warrant language: "1)
Section 3.1: the date of October 31, 2007 should
have been October 31, 2008[;] and 2) Section 13 (b):
the [date of] September 30, 2007 should have been September
30, 2008." Joint Ex. 17. Manchester continued:
"In order to preserve [Management's] rights under
the terms of the Warrant as presently written, we believe
that it is necessary for Management  to exercise its put
rights as set forth in the Warrant. Therefore, Management 
hereby provides notice of the exercise of its right to put
"While nothing in this letter should be interpreted to
affect the exercise by Management  of its rights under the
Warrant, we prefer to amend the Warrant to correct the dates
in Sections 3.1 and 13 (b) of the Warrant as described above
and then rescind this notice." Id.
disagreed with Manchester's understanding of the Warrant.
In an October 1, 2007 correspondence, F.A.F.'s attorney
concurred with Humphreys' assessment that there was a
drafting error with respect to the dates in Sections 3.1 and
13; however, F.A.F.'s attorney disagreed as to which
dates were in error. See Joint Ex. 18. As
F.A.F.'s attorney wrote, "F.A.F. agreed to the
'window' which is reflected in § 3.1 and §
13. In drafting the 'window' provisions, however we
mistakenly referred to the December 31, 2007 financial
statements vis-à-vis the December 31, 2006 financial
statements." Id. at 1. According to
F.A.F.'s attorney, it was F.A.F.'s position that
"the Warrant had to be exercised prior to
12/31/07." Id. at 2; see also Trial
Tr. 946:8-12, 947:6-8. This was a position contrary to
Management's understanding of the Warrant. See
Joint Ex. 17.
2007, Louis Rotella (Rotella) had replaced Almeida as
F.A.F.'s new CFO. Trial Tr. 136:16-137:3. Rotella's
position on the purported error with respect to the dates in
Sections 3.1 and 13 of the Warrant was consistent with
F.A.F.'s attorney's October 1, 2007 correspondence.
In conversations with Manchester in the summer of 2007,
Rotella stated that it was F.A.F.'s position that the
Warrant had to be exercised before October 31, 2007 and that
the Warrant's value was based on the audited financial
statements for the year ending December 31, 2006, not
December 31, 2007 as provided under Section 3.1. Id.
at 373:18-21, 375:16-376:6, 514:19-23. Throughout the fall of
2007, through conversations and correspondence involving
Manchester and Humphreys, Rotella maintained F.A.F.'s
position that Management's exercise right expired on
October 31, 2007, and Management's put right would be
based on fiscal years 2005 and 2006. Id. at 138:3-9,
331:24-332:113, 375:16-376:10. During this time, Fiorenzano
concurred with Rotella's reading of Sections 3.1 and 13
and also rejected Management's assertion that it could
review F.A.F.'s 2007 audited financial statements prior
to deciding how to proceed under the Warrant. Id. at
136:13-137:3, 138:3-9, 140:25-141:9. In early 2008, Rotella
again rejected Management's position. Id. at
March 21, 2008, Management brought the present lawsuit
against F.A.F. and Fiorenzano. Following the nonjury trial
held before this Court, the parties submitted post-trial
memoranda. Thereafter, the Court allowed the parties to file
further supplemental memoranda to clarify the factual and
legal issues at stake in this case. In its case against
F.A.F. and Fiorenzano, Management primarily seeks three
outcomes: (1) reformation of the Warrant to amend the dates
in Sections 3.1 and 13; (2) a declaratory judgment that
"funded debt" clearly and unambiguously means
long-term debt; and (3) a finding that F.A.F., through a
series of communications and actions, repudiated the Warrant
and is therefore in breach of contract.
Standard of Review
a trial justice presides over a nonjury trial, Rule 52(a) of
the Superior Court Rules of Civil Procedure requires that he
or she 'find the facts specially and state separately
[his or her] conclusions of law thereon.'" S.
Cnty. Post & Beam, Inc. v. McMahon, 116 A.3d 204,
210 (R.I. 2015). "The trial justice, however, 'need
not engage in extensive analysis to comply with this
requirement.'" Id. (quoting JPL Livery
Servs., Inc. v. R.I. Dep't of Admin., 88 A.3d 1134,
1141 (R.I. 2014)). Along those lines, the Rhode Island
Supreme Court "'has recognized that [a] trial
justice's analysis of the evidence and findings in the
bench trial context need not be exhaustive.'"
Id. (alteration in original) (quoting
Notarantonio v. Notarantonio, 941 A.2d 138, 144
nearly seven-year-long dispute between Management and F.A.F.
boils down to three discrete issues: (a) contract
reformation; (b) the meaning of the term "funded
debt"; and (c) whether F.A.F. repudiated the Warrant.
The Court will address each issue in turn.
respect to the first issue, Management contends that the
dates listed in Sections 3.1 and 13 of the Warrant-October
31, 2007 and September 30, 2007, respectively-are the result
of a mutual mistake in the form of a typo, or scrivener's
error. Management argues that it has put forth clear and
convincing evidence establishing that a mutual mistake
occurred after F.A.F.'s attorney introduced the language
regarding Humphreys and Almeida's agreement to allow
Management to review the audited financial statements for the
year ending December 31, 2007. According to Management, when
F.A.F.'s attorney introduced that language, which
accurately reflected the parties' intent, neither party
noticed that the dates "October 31, 2007" and
"September 30, 2007" needed to be changed to
"October 31, 2008" and "September 30,
2008." In support of its argument, Management points to
testimony from F.A.F.'s former CFO, Almeida, as well as
from one of Management's principals, Humphreys.
Management avers that its evidence of a mutual mistake is
sufficiently clear and convincing for the Court to reform the
other hand, while F.A.F. agrees that there is a typo in
Sections 3.1 and 13, it disputes which date is mistaken.
F.A.F. counters that the typographical error occurred when
its attorney inserted the date "December 31, 2007"
instead of "December 31, 2006" with respect to the
audited financial statements. To support this contention,