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Land v. Roche

Superior Court of Rhode Island

March 30, 2017

RICHARD J. LAND, in his capacity as Receiver of LINX, LTD.
v.
CHARLES W. ROCHE, LEONEL E. CHAMPAGNE, NAPAC, INC, DAVID P. MARTLAND (nominal stakeholder defendant), and LEICESTER ASSOCIATES, LLC

          For Plaintiff: Robert Fine, Esq., Andre S. Digou, Esq.

          For Defendant: Stephen F. DelSesto, Esq., Nicholas L. Nybo, Esq.

          DECISION

          STERN, JUDGE

         The instant matter comes before the Court on Napac, Inc.'s (Napac) Motion to Dismiss. Napac, Charles W. Roche (Roche) and Leonel E. Champagne (Champagne) (collectively, Defendants) move to dismiss Plaintiff's claim for deepening insolvency, as it is not currently a cognizable cause of action under the laws of the State of Rhode Island. In opposing Defendants' Motion to Dismiss, Linx, Ltd. (Linx)-through Richard J. Land, the Receiver for Linx (the Receiver)-urges this Court to recognize deepening insolvency as an independent cause of action. Jurisdiction is pursuant to Super. R. Civ. P. 12.

         I.

         Facts and Travel

         The instant action was brought by the Receiver of Linx, who was appointed by the Court on August 31, 2015. First Am. Ver. Compl. ¶ 1. Roche and Champagne were shareholders and, respectively, the president and vice president of Linx prior to it entering receivership. Id. at ¶¶ 2, 4.

          Prior to 2014, Linx operated either a division or product line known as United Water Products (UWP), for which David Belezarian, Maria Tscholl, Sharon Gray, Sharon Molleur, Madison Poulin, Ashley Potvin (collectively, UWP Employees), and David P. Martland, Esq. provided services. Id. at ¶¶ 23-25. UWP sold products to customers in the fire protection and waterworks industries. Id. at ¶ 24. In the course of its business, UWP inventory was stored in two facilities: one in Middletown, Rhode Island and the other in Jacksonville, Florida. See Roche Aff. ¶ 2. Napac, a Massachusetts corporation, was one of UWP's major customers. See First Am. Ver. Compl. ¶ 6; Roche Aff. ¶ 2. Roche is a minority shareholder of Napac and, prior to June 2014, was also a director for Napac. See First Am. Ver. Compl. ¶ 28.

         In June 2014, Linx caused the transfer of UWP to Napac for roughly $750, 000, "the cost-value of UWP's then-current inventory." First Am. Ver. Compl. ¶¶ 26-27; Roche Aff. ¶ 3. Through his affidavit, Roche claims that this transfer was in response to the institution of various product liability lawsuits against Linx and done so that Linx could use these funds to assist in the defense of this litigation. Roche Aff. ¶ 3. Before the transfer of UWP to Napac, Roche claims that Linx had generally sold UWP inventory to Napac at a 25% mark-up. Id. UWP was a profitable division/product line of Linx prior to the transfer; afterwards, however, Linx's annual net sales reduced from approximately $14 million to $5.5 million. First Am. Ver. Compl. ¶¶ 27, 31-32. Linx ultimately became insolvent. Id. at ¶ 42.

         Linx, via the Receiver, contends that after the completion of the transfer of UWP from Linx to Napac, the UWP Employees continued to provide services to UWP only to be compensated by Linx. Id. at ¶¶ 46-47. Further, "UWP maintained a phone line at the Linx office without paying Linx[, and] . . . received the benefit of using Linx's office facility, office equipment and office utilities" as well as "UWP's goodwill, customers and customer relationships" without paying Linx for such benefits. Id. at ¶¶ 50-54.

         In addition, Roche and Champagne are the sole members of Leicester Associates, LLC (Leicester), which is based out of Middletown, Rhode Island. Id. at ¶¶ 7, 22. Leicester was the record owner of real property located at 875 Aquidneck Avenue, Middletown, Rhode Island (the Property) via warranty deed, which served as Leicester's principal office. Id. at ¶¶ 7, 21.

         II.

         Standard of Review

         "'[T]he sole function of a motion to dismiss is to test the sufficiency of the complaint . . . .'" Goddard v. APG Sec.-RI, LLC, 134 A.3d 173, 175 (R.I. 2016) (quoting Ho-Rath v. R.I. Hosp., 115 A.3d 938, 942 (R.I. 2015)). The Court "will 'assume[] the allegations contained in the complaint to be true and view[] the facts in the light most favorable to the plaintiffs.'" Id. (quoting Ho-Rath, 115 A.3d at 942). Our Supreme Court has noted that there is a policy to interpret the pleading rules liberally so that "'cases in our system are not . . . disposed of summarily on arcane or technical grounds.'" Konar v. PFL Life Ins. Co., 840 A.2d 1115, 1118 (R.I. 2004) (quoting Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000)). While the pleading does not need to include the ultimate facts to be proven or the precise legal theory upon which the claims are based, the complaint is required to provide the opposing party with a fair and adequate notice of any claims being asserted. Barrette v. Yakavonis, 966 A.2d 1231, 1234 (R.I. 2009). The goal is to give defendants sufficient notice of the type of claim being asserted against them. See Barrette, 966 A.2d at 1234; Konar, 840 A.2d at 1119. Accordingly, "'[a] motion to dismiss ...


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