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Salvadore v. Laroche

Superior Court of Rhode Island, Washington

July 11, 2019

MAL A. SALVADORE, Plaintiff,

          Washington County Superior Court No. WC 2010-0437

          For Plaintiff: David P. DeStefano, Esq.

          For Defendant: Gerard Mcg. DeCelles, Esq.


          K. RODGERS, J.

         The gravamen of the instant action before the Court is the erstwhile attorney-client relationship between Plaintiff Mal A. Salvadore (Plaintiff or Salvadore) and the late David F. LaRoche (David F.[1]). David F. signed a promissory note (the Note) by which he agreed to pay off the outstanding legal fees owed to Plaintiff for services rendered on his behalf. However, before any payments were made on the Note, David F. passed away. Plaintiff now seeks to collect the fees previously owed by David F. by imposing a constructive upon the assets of certain corporations of which David F.'s three sons, defendants David C., Brian and Stephen, are the sole shareholders, or alternatively declaring that such corporations are the alter ego of the Plaintiff's now-deceased client.

         This case was tried without a jury. Jurisdiction is pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14(a). For the reasons set forth herein, judgment shall enter in favor of Defendants on all counts.


         Findings of Fact

         Upon assessing the credibility of the witnesses and weighing all evidence presented, including undisputed facts and exhibits submitted by the parties, this Court makes the following findings of fact.


         David F.'s Indebtedness to Plaintiff

         Plaintiff is a resident of South Kingstown and an attorney duly licensed to practice law within the State of Rhode Island. See Joint Statement of Undisputed Facts and Undisputed Exhibits at 1, ¶¶ 1-2. Plaintiff first became acquainted with David F. in January of 1991 and provided him with legal counsel for nearly a decade thereafter, which included at least two involuntary bankruptcy proceedings, the first lasting from 1991 through 1996, and the second from 1997 through 1999. Following this legal representation, David F. was indebted to Plaintiff in the sum of approximately $160, 000.00, which had not been paid through either bankruptcy estate or from David F. personally.

         In an effort to collect the outstanding legal fees, Plaintiff had periodic conversations with David F. to suggest a payment arrangement. During the mid- to late-summer of 2001, Plaintiff and David F. agreed that the remaining unpaid balance due would be reduced by $20, 000.00, from $160, 000.00 to $140, 000.00. In October of 2001, while David F. was incarcerated at the Adult Correctional Institutions (ACI), [2] Plaintiff presented David F. with a promissory note for the payment of the agreed upon $140, 000.00. Shortly thereafter, Plaintiff received the Note in the mail from David F., purporting to be David F.'s signature thereon and dated October 10, 2001.[3]See Joint Ex. 1. By its express terms, the Note reflects the principal sum of $140, 000.00; an annual interest rate of 7%; interest-only payments for five years beginning on October 10, 2002 and due annually thereafter; and the entire principal and all interest due to be paid in full on October 10, 2006. Id. The Note further provides for payment of the entire balance, including principal and interest, at the option of the holder of the Note without presentment, notice or demand upon any of the following events: default in the payment or performance of any obligation under the Note; death; or any manner of dissolution, liquidation, insolvency, or bankruptcy filed by or commenced against David F. See id.

         The maturity date of the Note, October 10, 2006, came and went with no payments thereon ever having been made. Every couple of months thereafter, Plaintiff would discuss payment on the Note with David F. to no avail. Plaintiff testified to a specific conversation with David F. in the late spring or summer of 2008 wherein they met at Plaintiff's residence in South Kingstown for nearly an hour and later traveled together to view a parcel of real estate in North Kingstown.[4]During that visit, David F. suggested that Plaintiff purchase the North Kingstown real estate for $800, 000.00 to $900, 000.00. Although Plaintiff indicated an interest in purchasing the real estate if the price were fair and the amount due on the Note was deducted from the purchase price, Plaintiff ultimately declined because he believed the price exceeded the property's fair market value. At no time did David F. make Plaintiff aware that he did not own that real estate.

         Sometime in 2008, Plaintiff learned that David F. was terminally ill. During David F.'s period of grave illness, Plaintiff made a personal decision not to take any action against David F. to collect on the matured Note. David F. passed away on February 26, 2009. See Joint Statement of Undisputed Facts and Undisputed Exhibits at 2, ¶ 9-A.

         Following the death of David F., Plaintiff contacted defendant David C., the oldest son of David F. and his ex-wife, defendant Randi, to resolve the debt owed by his father. After several informal exchanges of unfulfilled promises, which included real estate referrals over time from David C. to Plaintiff's law practice, Plaintiff sent a letter to Randi. Plaintiff did not receive a response from Randi, nor did he recoup any legal fees owed to him.


         Wildflower Corporation

         In an effort to trace David F.'s money to the named defendants in the instant action, Plaintiff offered evidence on the funding and operations of three corporations, [5] defendant Wildflower Corporation (Wildflower Corp.), defendant Wildflower Stony Fort, LLC (Wildflower Stony Fort), and Wildflower Gilbert Stuart, LLC (Wildflower Gilbert Stuart).

         In 1993, defendants David C., Brian and Stephen each received monetary transfers from Rock Realty, Inc. (Rock Realty) at a time when they were all minors. No credible evidence was offered to demonstrate who served as an officer, director or agent of Rock Realty, or who directed or authorized the transfer of funds to David C., Brian and Stephen. In March of 1996, Wildflower Corp. was formed, of which defendant Randi, David F.'s then-wife, served as President. At or about that same time, Wildflower Corp. began to enter into a series of real estate transactions which, at times, required each of the LaRoche children to provide capital towards those transactions. Specifically, in 1996, Wildflower Corp. purchased a lot in North Kingstown designated as Assessor's Plat 22, Lot 23 from Andrea Davia and Susan Davia (collectively, the Davias) for approximately $110, 000.00. In order to purchase the lot from the Davias, David C., Brian and Stephen each contributed $17, 333.00 to Wildflower Corp.

         Shortly thereafter, in June of 1996, Wildflower Corp. acquired a condominium in Quechee, Vermont (Ridge 1C) for $112, 500.00. In order to make the purchase of Ridge 1C, Wildflower Corp. utilized capital that was transferred from the LaRoche sons in the amount of $32, 500.00 each. In addition to the funds contributed by the LaRoche sons, David F. loaned Wildflower Corp. $5, 500.00 for the purchase of Ridge 1C and was subsequently repaid by Wildflower Corp. In December of 1996, Wildflower Corp. sold the Ridge 1C condominium for $123, 386.00 and purchased another Quechee, Vermont condominium (Coach Road 5A) for approximately $150, 000.00. In order to purchase Coach Road 5A, Wildflower Corp. again utilized capital from the LaRoche children as well as funds received by Wildflower Corp. from the sale of Ridge 1C. Shortly thereafter, Coach Road 5A was sold, and the net proceeds were placed in escrow.

         By roughly 1997, when Randi and David F. were in the midst of divorcing, Randi voluntarily ceased serving as the President, Secretary, Treasurer and Director of Wildflower Corp. Before her tenure came to an end, the mortgage to the Davias was satisfied in full. Randi's involvement in Wildflower Corp. was minimal as there was little in the way of day-to-day activity of the corporation. Nonetheless, Randi acknowledged executing the 1997 annual report, signing the paperwork relative to the two Quechee condominiums, and ensuring that the mortgage was paid.

         From at least 1999[6] until 2006, David C., who was born in 1979, served as the President of Wildflower Corp. Annual reports for 2002 and 2003 reveal that David C. also served as Vice-President, Secretary and Treasurer of Wildflower Corp. See Exs. 32, 33. The annual reports state that the character of the business conducted by Wildflower Corp. is "the purchase, sale, and development of real estate and other investments." Id. The three LaRoche sons were the sole shareholders of Wildflower Corp., although neither Brian nor Stephen were active in its corporate affairs. The annual reports and tax returns of Wildflower Corp. were not routinely filed, thus leading, at various times, to the corporate charter being revoked and the corporation later being reinstated.

         In his capacity as President of Wildflower Corp. and as the only individual with signatory authority, David C. executed several mortgage deeds and security agreements, all of which were secured by the North Kingstown property purchased from the Davias. Among those transactions were the following: a Mortgage and Security Agreement dated January 13, 2003, for the payment of the principal sum of $110, 000.00 to Ned Stevens Advertising, Inc. (Ned Stevens Advertising), see Ex. 6; a Mortgage Deed dated July 9, 2004, securing the payment of the principal sum of $80, 000.00 to Andrew H. Berg (Berg), see Ex. 8; a Mortgage Deed dated November 4, 2004, securing the payment of the principal sum of $15, 000.00 to James P. Howe (Howe), see Ex. 10; a Mortgage Deed dated December 2, 2005, securing the payment of the principal sum of $85, 000.00 to Berg, see Ex. 9; and a Mortgage and Security Agreement dated May 2, 2006, for the payment of the principal sum of $32, 840.62 to David M. Ryan (Ryan), see Ex. 11. Although without details on how all the sums borrowed by Wildflower Corp. were used, David C. did acknowledge that at least some of the funds obtained through the aforementioned mortgages may have been used to secure David F.'s bail, to pay for David F.'s legal fees and/or sums needed to retain counsel, and to keep David F. from living on the streets.

         As a licensed real estate agent with Gammons Realty, David C. marketed the North Kingstown property that Wildflower Corp. had acquired from the Davias. David C. negotiated the sale and entered into a purchase and sales agreement with Jeffrey H. Parker and Margaret E. Petruny-Parker (the Parkers) for $400, 000.00. See Ex. 23. By Warranty Deed dated May 17, 2006, Wildflower Corp. sold its interest in that property to the Parkers. See Ex. 12. From the proceeds of that sale, all the outstanding debts and mortgages were paid in full. See Ex. 23. Additionally, $56, 238.38 was due to Wildflower Corp. from the proceeds of the sale. Id. Those funds were placed into escrow with Russell R. Sicard, Esq., in order to satisfy any amounts due upon the filing of the required tax returns and annual reports. See Ex. 24. Upon confirmation from the Division of Taxation and the Office of the Secretary of State that all taxes had been satisfied and that Wildflower Corp. was in good standing, see Exs. 25-26, the escrow agent disbursed funds to Wildflower Corp. on June 5, 2006, in the amount of $65, 914.55.[7] See Ex. 27.

         Wildflower Corp. did not acquire or have an interest in any other assets after the deposit of the escrow funds in June of 2006 from the sale of the real estate to the Parkers, nor did it have any further business activity thereafter.


         Wildflower Stony Fort, LLC & Wildflower Gilbert Stuart, LLC

         On or about December 30, 2001, David F. negotiated and entered into a Purchase and Sales Agreement to purchase approximately 222 acres of land in North Kingstown for a total purchase price of $220, 000.00. Ex. 13. The 222 acres were comprised of four parcels, one parcel being owned by one group[8] and three parcels being owned by an offshoot of that group[9] (collectively, the Sellers). Id. at Exs. A-B. The proposed closing date for the 222 acres was April 15, 2002. Id. The Purchase and Sales Agreement required a deposit of $11, 000.00 to be paid within seventy-two hours from the Sellers' acceptance.

         On April 22, 2002, David F. and the Sellers executed an Amendment to Purchase and Sales Agreement, which extended the closing date by two months. See Ex. 14. The Amendment to Purchase and Sales Agreement required an additional deposit of $10, 000.00, plus interest of $2, 170.00 and pro-rata taxes in the amount of $711.60, for a total additional amount due of $12, 881.60. Id.

         David C. did not participate in the negotiations for the Purchase and Sales Agreement or the Amendment thereto, nor did he or Wildflower Corp. pay the deposits or other expenses due under the terms of either agreement. David F., on the other hand, not only orchestrated the purchase of the 222 acres, but also negotiated the immediate sale of one parcel, Assessor's Plat 5, Lot 1, to Walter Barnes. There was no credible evidence offered to demonstrate that David F. himself paid the deposits and other expenses due under the terms of the Purchase and Sales Agreement and the Amendment thereto, or whether another person or entity paid those amounts on behalf of David F.

         On June 21, 2002, David C., Brian and Stephen formed two limited liability companies, Wildflower Gilbert Stuart and Wildflower Stony Fort. See Exs. 50-51. The principal place of business of each of the limited liability companies is listed in the respective Operating Agreements as the Newport residence of David F. Id. The purpose of forming those entities was to separately purchase the real estate comprising the 222 acres that was owned by the two groups of Sellers. Wildflower Gilbert Stuart purchased Assessor's Plat 5, Lot 1 and, on the same day, sold that real estate to Walter Barnes. Wildflower Stony Fort purchased Assessor's Plat 6, Lots 1 and 3 and Assessor's Plat 11, Lot 1 (collectively, the Stony Fort property). The funds used by Wildflower Gilbert Stuart and Wildflower Stony Fort to purchase those parcels was largely provided by the proceeds from the immediate sale of Assessor's Plat 5, Lot 1 to Walter Barnes.

         Ultimately, the Stony Fort property that Wildflower Stony Fort had purchased was conveyed to David C. individually sometime prior to the filing of this suit in 2010. No credible evidence was offered concerning the fair market value or the development potential of the Stony Fort property.


         Presentation of Witnesses

         At trial, Plaintiff presented five witnesses in their case-in-chief: two non-party witnesses, Andrew Berg and Nathaniel Baker; and three parties, David C., Randi, and Plaintiff. Defendants did not offer any additional witnesses.


         Andrew Berg

         Berg testified concerning business transactions he had with Wildflower Corp. Specifically, Berg was the grantee of two mortgages to the Wildflower Corp. Berg first loaned funds to Wildflower Corp. on July 9, 2004 in the amount of $80, 000.00; the second loan was made on December 2, 2005, in the amount of $85, 000.00. Each of the Berg ...

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