GOAT ISLAND SOUTH CONDOMINIUM ASSOCIATION, INC.; CAPELLA SOUTH CONDOMINIUM ASSOCIATION, INC., Appellees, Cross-Appellants,
IDC CLAMBAKES, INC., Appellant, Cross-Appellee.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
RHODE ISLAND, Hon. William E. Smith, Chief U.S. District
Judge, Hon. Melvin S. Hoffman, U.S. Bankruptcy Judge
Matthew J. McGowan, with whom Salter McGowan Sylvia &
Leonard, Inc., William P. Devereaux, Matthew C. Reeber, Joel
K. Goloskie, and Pannone Lopes Devereaux & West LLC were
on brief, for appellant/cross-appellee.
William R. Grimm, with whom Adam M. Ramos, Hinckley, Allen
& Snyder LLP, Charles D. Blackman, and Levy &
Blackman LLP were on brief, for appellees/cross-appellants.
Lynch, Baldock, [*] and Kayatta, Circuit Judges.
bankruptcy appeal is the latest in decades-long litigation
over a lucrative banquet facility, the Regatta Club in
Newport, Rhode Island, which was constructed on a parcel of
land at a time when the validity of the development rights to
that parcel was in dispute. In 2004 and 2005, the Rhode
Island Supreme Court found that the development rights had
expired at the time of construction. See Am. Condo.
Ass'n v. IDC, Inc.
("America I"), 844 A.2d 117, 134 (R.I.
2004); Am. Condo. Ass'n v. IDC,
Inc. ("America II"), 870 A.2d 434,
443 (R.I. 2005). As a result, it found that title to both the
land and the Regatta Club belonged to a group of condominium
associations, not to IDC, Inc. and IDC Properties, Inc.
("Properties"), the development entities that had
incurred the cost to build the Club. Two of the title-holding
associations, Capella South Condominium Association, Inc. and
Goat Island South Condominium Association, Inc. ("the
Associations"), are the appellees and cross-appellants
in this suit. IDC Clambakes, Inc. ("Clambakes"),
the debtor here, was not a party before the Rhode Island
the America decisions, Clambakes, which operated the
Regatta Club, voluntarily filed for bankruptcy under Chapter
11 of the Bankruptcy Code. The Associations then filed proofs
of claim seeking relief for Clambakes' alleged trespass
on their property between 1998 and April 8, 2005, the date of
the America II decision. In 2013, this court
rejected that trespass claim, affirming the bankruptcy
court's finding that the Associations had impliedly
consented to Clambakes' use and occupancy of the Regatta
Club. See In re IDC Clambakes, Inc., 727 F.3d 58, 69
(1st Cir. 2013). We also remanded on the issue of whether
there was a corresponding implied obligation that Clambakes
pay the Associations for its use and occupancy of the Club.
See id. at 72.
remand, the bankruptcy court first found that there was no
implied-in-fact contract between the parties such that
Clambakes was contractually obligated to make rent payments
to the Associations. The bankruptcy court then considered
whether the Associations were nonetheless entitled to relief
under a theory of unjust enrichment. The court answered that
question in the negative, finding that the benefit that the
Associations conferred on Clambakes was fully offset by the
value that the Associations themselves gained by being
awarded ownership over the Regatta Club facility. See In
re IDC Clambakes, Inc. ("Clambakes"),
510 B.R. 678, 695 (Bankr. D.R.I. 2014).
district court disagreed, finding clear error in the
bankruptcy court's characterization of the benefit
conferred on Clambakes as merely a ground lease, as well as
in the bankruptcy court's unjust enrichment analysis.
Central to the district court's reasoning was its reading
of the America opinions as to the ownership of the
Regatta Club. The district court held that the findings in
the America opinions must serve as "established
facts" and bind "[a]ny equitable analysis" in
this lawsuit. Goat Island S. Condo. Ass'n
v. IDC Clambakes, Inc. ("Goat
Island"), 533 B.R. 845, 848-49 (D.R.I. 2015).
Ultimately, the district court concluded that Clambakes owed
the Associations $2.6 million for its use and occupancy of
the Regatta Club during the claim period. Id. at
affirm the bankruptcy court's decision to award no
equitable relief to the Associations. No implied-in-fact
contract existed between the parties. As to unjust
enrichment, we see nothing in the America opinions
to suggest that their holding regarding the Regatta
Club's ownership should bear on, much less control, the
question of whether principles of equity entitle the
Associations to even more relief than the Rhode Island
Supreme Court already afforded them. Having concluded that
the America opinions did not bind the bankruptcy
court's equitable authority, we find no abuse of
discretion in the bankruptcy court's ultimate decision
that the Associations failed to meet their burden of showing
that inequity would result if Clambakes did not pay them for
the use and occupancy of the Regatta Club during the claim
period. Equity does not bestow additional relief on the
Associations, which continue to benefit from the Regatta Club
facility that they inherited without any investment of their
saga of this litigation has been exhaustively documented by
various state and federal courts. We recite only those facts
relevant to this appeal. We rely principally on the
bankruptcy court's recounting of the facts, which the
district court also adopted in full. See Clambakes,
510 B.R. at 682-85; Goat Island, 533 B.R. at 847.
January 1988, Globe Manufacturing Co. ("Globe")
recorded a declaration of condominium in the Land Evidence
Records of the City of Newport. Clambakes, 510 B.R.
at 682. That declaration, as amended and restated in March
1988, reserved Globe's right to develop a parcel of land
known as the Reserved Area, but the development rights would
expire if not exercised by December 31, 1994. Id.
Globe assigned its development rights to IDC, Inc. and then
to Properties. Id. From April to December 1994,
Properties introduced multiple amendments to the declaration
seeking to extend the expiration date for the development
rights and to exercise those rights. Id. The
Associations questioned the validity of these amendments, and
negotiations over the amendments carried on for years.
1997 and early 1998, while negotiations over Properties'
development rights were ongoing, Properties spent
approximately $3 million to construct the Regatta Club in the
Reserved Area. Id. Despite the ongoing dispute over
the development rights, the record reveals no evidence that
the Associations sought to halt the construction.
Id. As the bankruptcy court noted:
In an oft-cited letter during this conflict, a representative
of the America Condominium Association wrote to the Newport
building inspector on February 9, 1998: "It's our
understanding that a permit application has been filed with
your Office for the purpose of constructing [the Regatta
Club] . . . . While we don't have a particular
objection as to the land use with respect to the building
itself, we do have a substantial problem with the
parking requirements for that [building] . . . ."
Id. (alterations in original).
came into existence on April 18, 1996 as a corporate entity
separate from the other IDC entities. Id. at 683. On
March 1, 1998, Clambakes and Properties entered into a
twenty-year lease, under which Clambakes would "use the
Regatta Club and surrounding land making up the Reserved Area
to provide event hosting and catering services."
Id. Clambakes would pay Properties an annual rent
equal to the higher of $180, 000 or six percent of
Clambakes' annual gross revenues. Id. Clambakes
began operating the Club in late 1998 and began paying rent
to Properties in 1999. Id. Until Clambakes filed for
bankruptcy on June 16, 2005, "it ran a profitable
business during the approximately seven years it operated the
Regatta Club." Id.
The America Litigation
29, 1999, the Associations sued Roos, IDC, Inc., and
Properties in state court. Id. Clambakes was not a
party to that suit. The Associations alleged that Properties
had failed to exercise its development rights with respect to
the Reserved Area before the December 31, 1994 expiration
date; that the 1994 declaration amendments that had sought to
extend the expiration date were invalid; and that "as a
result, fee simple title to the Reserved Area had vested in
the condominium unit owners on whose behalf the Associations
America I, the Rhode Island Supreme Court ruled in
favor of the Associations. See 844 A.2d at 133. It
found that the amendments were invalid because they did not
conform to the requirements of the Rhode Island Condominium
Act. See R.I. Gen. Laws §§ 34-36.1-1.01 to
-4.20; America I, 844 A.2d at 127-30. Accordingly,
Properties had failed to exercise its development rights
before their expiration, and title to the disputed property
had vested in the Associations. Id. at 133. In
reaching this conclusion, the Supreme Court rejected the
defendants' argument that they had invested $3 million in
developing the Regatta Club and that this investment should
weigh against the Associations' winning title to the
Club: "Considering that [the defendants] developed the
Reserved Area at a time when they were on notice that their
right to do so was in dispute, we conclude that they
constructed the parcel at their peril and cannot now contend
that equity should prevent plaintiffs from prevailing because
of their expenditures." Id. at 135.
the Rhode Island Supreme Court remanded for an accounting of
the common expenses that Properties had continued to pay for
the Reserved Area after December 31, 1994, the date on which
its development rights expired. Id. "[T]o
permit the plaintiffs to enjoy the benefits of such
expenditures would constitute an inequitable windfall."
Id. In remanding for this purpose, the court
expressly stated that the accounting should "not include