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McKenna v. Federal Properties of R.I., Inc.

Superior Court of Rhode Island, Providence

May 16, 2018

SHEILA A. B. McKENNA, Plaintiff,

          For Plaintiff: Harris Weiner, Esq.

          For Defendant: Stephen J. MacGillivray, Esq. Katharine Kohm, Esq.


          STERN, J.

         Following a four-day non-jury trial in December 2017, this matter is before the Court on Sheila A. B. McKenna's (Plaintiff) complaint against Federal Properties of R.I., Inc. (Federal Properties) for constructive trust, breach of contract, specific performance, and unjust enrichment. Federal Properties asserts the statute of limitations; laches; waiver and/or abandonment; impossibility, impracticability and/or frustration of purpose; and mutual mistake as affirmative defenses against Plaintiff's claims. Federal Properties also counterclaims for slander of title, trespass, use and occupancy, unjust enrichment, and declaratory relief. At the conclusion of Plaintiff's and its own case, Federal Properties moved for judgment as a matter of law pursuant to Super. R. Civ. P. 52(a). This Court reserved its decision and at the conclusion of testimony instructed the parties to file post-trial memoranda. Jurisdiction is pursuant to G.L. 1956 § 8-2-14 and Super. R. Civ. P. 52(a).

         I Facts and Travel

         The parties have agreed to the following facts. On October 21, 1980, Raymond DeLeo (DeLeo), the president of Federal Properties, obtained an option to purchase a 4.2 acre parcel, located at Lot 10, Plat 33 in Lincoln, Rhode Island (the Lincoln Property) in exchange for the payment of $1000 to Emile H. Palardy (Palardy). DeLeo later assigned the option to Federal Properties. The Lincoln Property contained a multi-family residential building, a two-family house, and a six-bay garage building. On October 21, 1981, the option to purchase the Lincoln Property with Palardy was renewed, and on March 16, 1983, Federal Properties closed on the Lincoln Property.[1]

         In 1992, Federal Properties obtained relief from the Lincoln Zoning Board to divide the Lincoln Property into three separate lots: 172 School Street (Lot 96 or Parcel A), 178 School Street (Lot 95 or Parcel B), and the remaining undeveloped 3.61 acres under the original name as Lot 10, Plat 33 (Parcel C or 182 School Street). Parcel A consists of the multi-family residential building, and Parcel B includes the two-family house. Since 1983, Federal Properties has rented units in the multi-family residential building and the two-family house to tenants.

         On April 15, 1992, Plaintiff and DeLeo-on behalf of Federal Properties-signed a document called the "Real Estate Agreement" (the 1992 Agreement). The 1992 Agreement recognized a portion of Parcel C (Parcel C(1)) on which a house was to be built by Federal Properties for Plaintiff. Def.'s Trial Ex. DD. It also stated that Federal Properties was to "continue paying all assessments for real estate taxes as may be imposed by the Town of Lincoln from time to time excepting for the pro-ration [sic] of real estate taxes and such water services charges as they may apply to the residential structure upon completion." Id. According to the 1992 Agreement, upon its execution, Plaintiff was to pay the sum of $75, 000 as the full purchase price. Id. Plaintiff and Federal Properties further agreed to the following:

"1. Within 90 days, the Seller shall convey title to Parcel C to a corporation to be incorporated by the Seller to be known as the Golfside Estates [(the corporation)] . . . . The ownership of the corporation shall be held in escrow, pursuant to the attached escrow agreement . . . pending subdivision. The articles of incorporation shall require shareholder approval of all mortgages or sales of any real property owned by the corporation. Until such transfer, no sales or encumbrances of the land shall be allowed. Upon subdivision the corporation shall transfer by warranty deed all Right, Title, and Interest in Parcel C-1 to Buyer. Until said corporation is formed Seller, at its expense, shall maintain the grounds and provide access. Thereafter the Corporation shall do so free of charge to Buyer.
"2. The Seller shall expedite the recordation of the division of land discussed hereinabove and proceed to install the necessary utilities to the building area designated as the site of the residence for the Buyer.
"3. The Seller shall assist the Buyer with the completion of working drawings and necessary engineering services to permit the construction of the residence at the area designated as C(1) on Exhibit A.
"4. House to be built by Seller according to the attached specifications for under $100, 000, $25, 000 of which is deposited concurrent with the signing of this agreement with the balance payable as provided in a Standard AIA construction contract to be agreed to by the parties. In no case shall any further payments be due from buyer until she sells her home.
"5. If house is not started within one (1) year or completed within 18 months of the date of this contract, then Buyer will receive all monies paid plus 10% penalty.
. . . .
"8. If subdivision is not completed within two (2) years then the seller shall cause the corporation to transfer by warranty deed all right, title and interest free and clear in Parcel C and the ownership of the corporation to Buyer, free of additional charge, in consideration for Buyer executing the agreement and making the payments hereunder. If buyer takes property under this clause the note provided for below will be deemed satisfied.
"9. To secure compliance with this agreement the seller has this day executed a note payable to Buyer in the amount of $100, 000 plus any future advances under this agreement. Said note shall be guaranteed by Mr. Raymond DeLeo personally and shall be collateralized by the shares of the corporation." Id.

         The parties agree to the following facts with respect to the 1992 Agreement: (1) Federal Properties did not incorporate a corporation called "Golfside Estates" within ninety days of April 15, 1992, or ever; (2) Federal Properties did not convey Parcel C to a new corporation called "Golfside Estates" within ninety days of April 15, 1992, or ever; (3) Federal Properties did not convey the ownership of a new corporation called "Golfside Estates" into escrow within ninety days of April 15, 1992, or ever; (4) Federal Properties did not grant Plaintiff a warranty deed conveying any right, title or interest in Parcel C, C(1) or any part thereof; (5) no specifications were attached to the 1992 Agreement for a house to be built by Federal Properties on Parcel C(1); (6) no "Standard AIA construction contract" for the construction of a house was executed; (7) Federal Properties executed a promissory note, guaranteed by DeLeo, in the amount of $100, 000 payable to Plaintiff which "secured, pursuant to the escrow agreement, by stock in Golfside Estates, a corporation to be incorporated" (the Promissory Note) (see Def.'s Trial Ex. EE); (8) the house, as actually built, cost more than $100, 000 to build; (9) the house took more than eighteen months from April 15, 1992 to complete; and (10) Parcel C was not further subdivided within two years of April 15, 1992.

         Plaintiff has lived in the house on Parcel C(1) since its completion in November 1994. After signing the 1992 Agreement, Plaintiff paid Federal Properties $169, 800, which is broken down into the following transactions: on April 24, 1992, Plaintiff paid Federal Properties $100, 000 less $5200 in legal fees paid to Plaintiff's attorney; on November 19, 1993, Plaintiff paid Federal Properties $30, 000; on December 16, 1993, Plaintiff paid Federal Properties $30, 000; and in August 1994, Plaintiff paid Federal Properties $15, 000.

         On July 16, 2006, Plaintiff, through her then-attorney Keven A. McKenna, demanded in writing that Federal Properties convey Parcel C to her. Nearly four months later, on November 9, 2006, Plaintiff recorded a "Notice of Adverse Possession and Notice of Equitable Interest" in the Lincoln Land Evidence Records. See Def.'s Trial Ex. MM. Federal Properties contends that it did not receive notice of the same from Plaintiff until 2013. DeLeo then passed away on February 5, 2013, and in September of that year, Plaintiff filed this lawsuit and a notice of lis pendens on the Lincoln Property. See Def.'s Trial Ex. VV. On July 31, 2014, Plaintiff recorded a Quitclaim Deed in the Lincoln Land Evidence Records; she subsequently recorded a Corrective Quitclaim Deed in the Lincoln Land Evidence Records on August 7, 2014 (collectively, the Quitclaim Deeds).

         From 1993 through October 2014, Federal Properties has paid electricity bills, water bills, sewer use, natural gas, real estate taxes, sewer taxes, and fire taxes for the house. Additionally, it has paid to mow the lawn and plow the driveway of snow at the house on Parcel C and has performed other maintenance and site improvements on Parcel C. Federal Properties has also exclusively managed and maintained the properties at 172 and 178 School Street. On July 17, 2014, Federal Properties sent a notice to quit to Plaintiff, which stated that Plaintiff was "to vacate and remove [her] property and personal possessions from the premises[.]" Def.'s Trial Ex. YY.

         On October 23, 2014, this Court ordered that the Quitclaim Deeds had no legal effect at the time and would not be used as indicia of ownership; their legal status would be held in abeyance until a final resolution of this case. See Def.'s Trial Ex. AAA. This Court also ruled that Plaintiff was permitted to live in the house located on Parcel C and would be responsible for taxes and utilities for Parcel C pending this matter's resolution. See id. The Order was recorded in the Lincoln Land Evidence Records on October 27, 2014. Additionally, on September 9, 2015, this Court (1) denied Plaintiff's motion for partial summary judgment seeking to quiet Parcel C's title under G.L. 1956 § 34-7-1; (2) granted Federal Properties' motion to dismiss as to Plaintiff's request for quieting the Lincoln Property's title under § 34-11-1; (3) denied Federal Properties' motion to dismiss as to Plaintiff's claims for (a) quieting the Lincoln Property's title under § 34-7-1, (b) specific performance, (c) breach of contract, (d) constructive trust, and (e) unjust enrichment; (4) denied Plaintiff's motion for partial summary judgment on the Promissory Note; and (5) denied Federal Properties' cross-motion for partial summary judgment on the Promissory Note. See Def.'s Trial Ex. DDD. On April 5, 2016, after Federal Properties filed a motion for summary judgment, this Court (1) granted summary judgment on Plaintiff's request for quieting Parcel C's title under § 34-7-1; (2) dismissed the same request for Parcels A and B after acknowledging Plaintiff's consent to such dismissal; and (3) denied summary judgment with respect to Plaintiff's claims for specific performance, breach of contract, constructive trust, and unjust enrichment. See Def.'s Trial Ex. EEE.

         A non-jury trial was held on this case from December 11, 2017 to December 14, 2017. After reviewing all of the evidence presented, this Court now renders its Decision.

         II Standard of Review

         "When 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.Cty. Post & Beam, Inc. v. McMahon, 116 A.3d 204, 210 (R.I. 2015) (quoting JPL Livery Servs., Inc. v. R.I. Dep't of Admin., 88 A.3d 1134, 1141 (R.I. 2014)). "It is well established that 'a trial justice sitting without a jury must often make credibility determinations in order to arrive at the necessary findings of fact.'" Gregoire v. Baird Props., LLC, 138 A.3d 182, 193 (R.I. 2016) (quoting D'Ellena v. Town of E. Greenwich, 21 A.3d 389, 391-92 (R.I. 2011)). Therefore, in a non-jury trial, this Court sits as the trier of fact as well as of law and "'weighs and considers the evidence, passes upon the credibility of the witnesses, and draws proper inferences.'" Parella v. Montalbano, 899 A.2d 1226, 1239 (R.I. 2006) (quoting Hood v. Hawkins, 478 A.2d 181, 184 (R.I. 1984)). "Yet, this requirement does not mandate an expansive analysis by the trial justice." A. Salvati Masonry Inc. v. Andreozzi, 151 A.3d 745, 748 (R.I. 2017) (citing S.Cty. Post & Beam, Inc., 116 A.3d at 210). "'Even brief findings and conclusions are sufficient if they address and resolve the controlling and essential factual issues in the case.'" Hilley v. Lawrence, 972 A.2d 643, 651 (R.I. 2009) (quoting Donnelly v. Cowsill, 716 A.2d 742, 747 (R.I. 1998)). "'[I]f the decision reasonably indicates that [the trial justice] exercised [his or her] independent judgment in passing on the weight of the testimony and the credibility of the witnesses it will not be disturbed on appeal unless it is clearly wrong or otherwise incorrect as a matter of law.'" A. Salvati Masonry Inc., 151 A.3d at 748 (quoting JPL Livery Servs., Inc., 88 A.3d at 1141).

         III Analysis

         At trial, Plaintiff presented five witnesses and forty-seven exhibits in support of her action and in defense of Federal Properties' counterclaims. Federal Properties presented six witnesses and 128 exhibits in support of its counterclaims and in defense of Plaintiff's claims. Each claim by both parties will be addressed in seriatim below.[2]

         A. Plaintiff's Claims

         1. Constructive Trust

         Plaintiff seeks a constructive trust against Federal Properties with respect to her ownership in Parcel C and/or the Lincoln Property. Plaintiff argues that she paid Federal Properties for the land and to construct and maintain the home. She also argues that DeLeo and Federal Properties were so intertwined that he and his businesses were the same. Specifically, Plaintiff alleges that on or before March 15, 1983, she transferred to DeLeo approximately $74, 000, roughly $40, 000 of which to purchase the Lincoln Property. According to Plaintiff, she paid for the property in cash because she wanted to keep the transaction a secret from her allegedly abusive ex-husband, Vincent Cianci. She alleges that during the time of her former marriage, she was having an affair with DeLeo and remained good friends with him until his death in 2013; this relationship, Plaintiff contends, imposed a fiduciary duty on DeLeo and Federal Properties to ensure that she received ownership of the Lincoln Property.

         Plaintiff further claims that the 1992 Agreement reinforces the existence of a constructive trust. Specifically, Plaintiff argues that she supplied $100, 000 for construction, and that this transaction would indicate to this Court that the land had therefore already been purchased for her in 1983. Furthermore, Plaintiff claims she paid an additional $75, 000 to Federal Properties after 1992, but this payment was strictly for increased construction costs of the house, not for land acquisition.[3] Plaintiff also argues that excluding personal items, she spent over $400, 000 in expenditures on the house, and Federal Properties, although aware of these upgrades, never objected to such renovations. See Pl.'s Trial Ex. 25. For these reasons, Plaintiff seeks a constructive trust with respect to ownership of the Lincoln Property imputed against Federal Properties which, according to her, spent her money to purchase the Lincoln Property. Plaintiff also requests that she is entitled "to half the rental income on 172 and 178 School Street and the garages on Parcel C"; all together averaging approximately $21, 000 per month in rent. Def.'s Trial Ex. GGG.

         "'The underlying principle of a constructive trust is the equitable prevention of unjust enrichment of one party at the expense of another in situations in which legal title to property was obtained by fraud or in violation of a fiduciary or confidential relationship.'" Connor v. Schlemmer, 996 A.2d 98, 109 (R.I. 2010) (quoting Dellagrotta v. Dellagrotta, 873 A.2d 101, 111 (R.I. 2005)). "To demonstrate that the imposition of a constructive trust is appropriate, 'a plaintiff is required to show by clear and convincing evidence (1) that a fiduciary duty existed between the parties and (2) that either a breach of a promise or an act involving fraud occurred as a result of that relationship.'" Id. (quoting Manchester v. Pereira, 926 A.2d 1005, 1013 (R.I. 2007)).

         Based on the facts that were presented to this Court at trial, this Court finds that Plaintiff failed to prove, by clear and convincing evidence, her constructive trust claim. First, Plaintiff has failed to present clear and convincing evidence that Federal Properties owed her a fiduciary duty. Plaintiff has asserted a close and personal relationship that she had with DeLeo over the years, but has not presented evidence of such a relationship with Federal Properties. "The criteria for piercing the corporate veil to impose liability on non-corporate defendants vary with the particular circumstances of each case." Nat'l Hotel Assocs. ex rel. M.E. Venture Mgmt., Inc. v. O. Ahlborg & Sons, Inc., 827 A.2d 646, 652 (R.I. 2003) (citing Doe v. Gelineau, 732 A.2d 43, 48 (R.I. 1999)). "However, 'when the facts of a particular case render it unjust and inequitable to consider the subject corporation a separate entity' [this Court] will not hesitate to disregard the corporate form and treat the defendant as an individual who is personally liable for the debts of the disregarded corporation." Id. (quoting R & B Elec. Co. v. Amco Constr. Co., 471 A.2d 1351, 1354 (R.I. 1984)). "Thus, in circumstances in which there is such a unity of interest and ownership between the corporation and its owner . . . such that their separate identities and personalities no longer exist [the Court has] held that '[a]dherence to the principle of their separate existence would, under the circumstances, result in injustice.'" Id. (quoting Muirhead v. Fairlawn Enter., Inc., 72 R.I. 163, 172-73, 48 A.2d 414, 419 (1946)).

         Here, no evidence has been presented indicating that it would be "unjust and inequitable" to consider DeLeo and Federal Properties as a separate individual and separate entity, respectively. Id. Stephen DeLeo (DeLeo's son), Berta Raposo (Federal Properties' bookkeeper), and Steven Gorriaran (Plaintiff's son) all testified that DeLeo would never commit any type of fraud. See Trial Tr. 381-82, 487-89, Dec. 13, 2017 (Vol. III); Trial Tr. 267, Dec. 12, 2017 (Vol. II). Furthermore, DeLeo and other employees of Federal Properties obeyed its corporate structure by consistently reporting financial statements created by a third-party accounting firm. S ...

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