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Rhode Island Resource Recovery Corporation v. Restivo Monacelli LLP

Supreme Court of Rhode Island

July 3, 2018

Rhode Island Resource Recovery Corporation
v.
Restivo Monacelli LLP

          Providence County Superior Court (PB 10-4502) Associate Justice Michael A. Silverstein

          For Plaintiff: Steven P. Wright, Pro Hac Vice Thomas F. Holt, Jr., Esq. Joseph J. Rodio, Esq. Christopher J. Valente, Esq.

          For Defendant: Lauren E. Jones, Esq. Robert C. Shindell, Esq. Robert S. Thurston, Esq.

          Present: Suttell, C.J., Flaherty, Robinson, and Indeglia, JJ.

          OPINION

          WILLIAM P. ROBINSON, III ASSOCIATE JUSTICE

         The defendant, Restivo Monacelli LLP (Restivo), appeals from a February 1, 2016 judgment in Providence County Superior Court in favor of the plaintiff, Rhode Island Resource Recovery Corporation (Resource Recovery), in the amount of $5, 733, 648.18, inclusive of interest. That judgment was entered following a jury trial and a verdict in Resource Recovery's favor. On appeal, Restivo contends that the trial justice erred in denying its motion for judgment as a matter of law for the following reasons: (1) Resource Recovery was required to, but did not, present expert testimony with respect to proximate cause; and (2) Resource Recovery did not have standing to assert a claim for "investment losses." Restivo further claims that "the trial justice committed prejudicial error in his instructions to the jury * * *." Restivo posits, additionally, that the trial justice erred as a matter of law by holding that Resource Recovery was "'immune' from the in pari delicto defense and that the 'adverse interest' exception to the defense applied to [Resource Recovery]." Lastly, Restivo contends on appeal that the trial justice erred in denying Restivo's motion "to set off settlement amounts that [Resource Recovery] received from other parties from the jury's awarded damages * * *."

         For the reasons set forth in this opinion, we vacate the judgment of the Superior Court.

         I Facts and Travel [1]

         Resource Recovery is a quasi-governmental corporation established for the purpose of operating and managing the Central Landfill in Johnston. As will become clear from the discussion of the trial testimony infra, in 2007, when a new Executive Director of Resource Recovery (Michael OConnell)[2] was appointed, he uncovered a multitude of problems at said corporation. These included very large charitable donations to organizations which had no relationship to Resource Recovery's mission, overpaying for a purchase of real estate, and the fact that the funds in several of Resource Recovery's trust funds were not invested in accordance with Resource Recovery's policies. After the new Executive Director reported those problems to the Governor, a full forensic audit was undertaken, which confirmed many of the matters of concern that had been discovered by the new Executive Director. As a result, necessary reforms were implemented within Resource Recovery. This case arises out of a quest to determine the relative fault of various entities and persons with respect to the problems which plagued Resource Recovery and the time span during which those problems persisted.

         Of importance to the instant case is the fact that an audit of Resource Recovery was undertaken in each fiscal year. For fiscal years 1995 to 2005, the firm of Lefkowitz, Garfinkel, Champi & DeRienzo, P.C. (LGCD) served as Resource Recovery's auditor. However, for fiscal years 2006 and 2007, Restivo was hired to audit Resource Recovery. From 1996 to 2008, Van Liew Trust Company (Van Liew) was the trustee of the two trusts at issue in this case.[3]Subsequent to the above-referenced chain of events, Resource Recovery filed suit against LGCD, Van Liew, and Restivo. LGCD and Van Liew entered into separate settlement agreements with Resource Recovery. As such, we are confronted with only the suit by Resource Recovery against Restivo.

         That suit was commenced on July 30, 2010, when Resource Recovery filed a Complaint containing five counts against Restivo arising from "the failures of Restivo * * * in its provision of auditing and accounting services to the Rhode Island Resource Recovery Corporation * * * during the time period between the summer of 2006 and the termination of its engagement on June 30, 2008." The five counts were as follows: professional malpractice (Count One); breach of contract (Count Two); aiding and abetting a breach of fiduciary duty (Count Three); civil liability for giving a false document to an agent, employee, or public official, in violation of G.L. 1956 § 11-18-1 (Count Four); and civil conspiracy (Count Five). On June 30, 2011, after Restivo's motion for a more definite statement as to Counts Three, Four, and Five was allowed by the trial justice, Resource Recovery filed a document entitled "Plaintiff's More Definite Statement."

         The Plaintiff's More Definite Statement contained the same five counts as had been set forth in the original Complaint. It went on to specifically allege that Restivo "negligently failed to identify - or actively participated in concealing - the true status of [Resource Recovery's] financial statements * * *." According to Resource Recovery, Restivo's "actions and/or omission postponed the detection of the mismanagement, wrongdoing, and corruption occurring at [Resource Recovery] and delayed [Resource Recovery] and other authorities from addressing the issues and avoiding subsequent losses."

         Thereafter, on December 11, 2013, Counts Three, Four, and Five of the Plaintiff's More Definite Statement were dismissed with prejudice by stipulation, in accordance with Rule 41(a)(1)(B) of the Superior Court Rules of Civil Procedure. The only remaining counts were those alleging professional malpractice and breach of contract (Counts One and Two). The case ultimately progressed to a jury trial on those counts, which trial took place over eleven days in October and November of 2015. We relate below the salient aspects of what transpired at that trial.

         A The Testimony at Trial

         1. The Testimony of Michael OConnell

         Michael OConnell testified for Resource Recovery. It was his testimony that, at the time of trial, he was the Executive Director of Resource Recovery and had held that post since January of 2007. He testified that he was "responsible for the day-to-day activities" at the Central Landfill in Johnston and that he reported to the "board of commissioners." He explained that, when he started at Resource Recovery, the Chairman of the Board functioned as Resource Recovery's Chief Executive Officer, whereas Mr. OConnell, despite having the title of Executive Director, was "just an administrator * * *." It was further his testimony that, in his first few months working at Resource Recovery, he identified "specific large issues" within the entity with respect to "charitable contributions; * * * consolidation of [Resource Recovery's] investments with one financial corporation; and * * * excessive prices that the corporation had paid for land that [it] bought for [an] industrial park."

         With respect to the charitable contributions, Mr. OConnell testified that, although charitable contributions had been made by Resource Recovery, when he "looked at the mission of the corporation, it wasn't what we were supposed to do * * *." He stated that it was his "goal to limit or restrict it or tie it to [Resource Recovery's] mission." He further testified that, from fiscal year 2003 until fiscal year 2007, Resource Recovery had made charitable contributions in the amount of $2, 092, 163.95. He confirmed in his testimony that Restivo had conducted the audits of Resource Recovery for two of the years in that time period-viz., fiscal years 2006 and 2007. He then detailed in his testimony certain charitable contributions which were made during the years that Restivo had conducted its audits but were not related to the mission of Resource Recovery. He further testified that funds were also spent on the involvement of board commissioners and/or employees as participants in charity golf events-"[a]pproximately $1, 000 for each golf outing" and "approximately ten [outings] a year."

         It was further Mr. OConnell's testimony that, at the start of fiscal year 2006, Resource Recovery had approximately one hundred million dollars in investments in the "employee pension investments" (the pension trust) and the two "landfill trust funds" (the two trusts at issue). He explained that the money in the "landfill trust funds" was set aside for the point in the future when the landfill would be filled to capacity and would no longer be taking in trash and, accordingly, no longer producing any revenue; he added that the money in the "landfill trust funds" was used "to make sure that the landfill is properly maintained, it's properly fixed, it's properly secure."[4] It was further his testimony that Van Liew managed all of the trust investments. He stated that he had been concerned with having all of Resource Recovery's investments under the management of one small firm-viz., Van Liew. He also testified that, after assuming the position of Executive Director, he learned that a commissioner on the Resource Recovery Board of Commissioners was also a paid board member of Van Liew. Furthermore, he answered in the affirmative when asked if, "at some point," he became "concerned with whether Van Liew had been making investments in accordance with the * * * rules and policies governing investments in the trust?" He testified that he "came to find" that the investments in the trust funds were "in opposition to the investment strategy that the corporation had."

         It was Mr. OConnell's testimony that he expressed to the Rhode Island Auditor General his "concern that [Resource Recovery] had excessive charitable contributions, [and] had concentration of assets [issues] to be resolved." According to Mr. OConnell's testimony, he further expressed his concern to the Auditor General that Resource Recovery had "paid * * * inflated prices for real estate property" and had "failed to properly record them * * * on [its] financial statements." He then testified that he also conveyed his concerns to the Governor at a meeting on November 12, 2007. It was his testimony that the Governor ordered "a 45-day preliminary examination * * * to be done by the bureau of audits * * *."[5] He further testified that the Governor instructed two of the commissioners on the Resource Recovery Board of Commissioners not to attend any further board meetings, thereby precluding the existence of a quorum.[6] According to Mr. OConnell's testimony, the Bureau of Audits issued a document entitled "Preliminary 45-day Examination of Rhode Island Resource Recovery Corporation, Summary of Findings, March 2008." Mr. OConnell testified that, as a result of the conclusions made in that document, the Governor "ordered a full forensic audit." The full forensic audit resulted in a very lengthy report dated September 22, 2009. In the Executive Summary of that report, it is noted that "the Bureau found numerous instances in which employees, vendors, and various current and former Commissioners, appear to have acted in ways that compromised their fiduciary and ethical obligations to [Resource Recovery] and to the public."

         Mr. OConnell further testified that he believed that Restivo had "failed to do its job for Resource Recovery[.]" He bluntly stated:

"[Restivo was] a professional accounting and auditing firm who in the course of two years found no issues with Resource Recovery. I came in in six months and I was tripping over issues, I couldn't help it, they were everywhere. And they found nothing."

         He testified that he terminated Restivo's services in June of 2008. He went on to detail the damages that Resource Recovery contended were incurred as a result of ...


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