Beaudoin ex rel. New England Expedition Ltd. v. Barry E. Feldman, the New England Expedition-Colchester, LLC

• Citation: 2018 VT 83
• Decision Date: 17 August 2018
• Docket Number: No. 2017-099,2017-099
• Court: Vermont Supreme Court
• Parties: Eugene W. Beaudoin, Derivatively on Behalf of The New England Expedition Limited Partnership II and The New England Expedition Limited Partnership IV v. Barry E. Feldman, The New England Expedition-Colchester, LLC and Colchester Managing Member, Inc.

2018 VT 83

Eugene W. Beaudoin, Derivatively on Behalf ofThe New England Expedition Limited Partnership IIand The New England Expedition Limited Partnership IV v. Barry E. Feldman, The New England Expedition-Colchester, LLCand Colchester Managing Member, Inc.

No. 2017-099

Supreme Court of Vermont

December Term, 2017

August 17, 2018

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Superior Court, Chittenden Unit, Civil Division

Robert A. Mello, J.

Catherine A. Shaghalian and Theodore Orson of Providence, Rhode Island, and John T. Sartore, Burlington, for Plaintiffs-Appellees.

Erin Miller Heins of Langrock Sperry & Wool, LLP, Burlington, and Richard Boren of Shechtman Halperin Savage LLP, Pawtucket, Rhode Island, for Defendants-Appellants.

PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.

¶ 1. SKOGLUND, J. In this commercial dispute involving the sale of a grocery store, defendants Barry Feldman, the New England Expedition-Colchester, LCC (NEE-Colchester), and Colchester Managing Member, LLC (CMM), ask this Court to strike jury-awarded punitive damages and to find that the trial court erred in numerous evidentiary rulings, in denying defendants' motion for judgment as a matter of law, and in denying defendants' motion for a new trial. For the below-stated reasons, we strike the punitive damages, but affirm the remainder of the trial court's rulings and orders.

¶ 2. This appeal concerns a commercial dispute over the proceeds from a 2012 sale of a grocery store between plaintiffs—Eugene Beaudoin, the New England Expedition Limited Partnership II (NEELP-II), and the New England Expedition Limited Partnership IV (NEELP-IV)—and defendants. Prior to the transaction at issue, Feldman and Beaudoin had a sixteen-year business relationship during which they developed commercial properties throughout New England. In 1993, the parties met and orally agreed to develop supermarkets together. Based on this oral agreement, the general business agreement and division of responsibility and equity was as follows. Beaudoin would be responsible for the pre-development elements of each project, including scouting out projects and obtaining the necessary permits and zoning approvals. Feldman would be responsible for securing financing for each project and then managing the projects after they were completed. Under this agreement, Beaudoin would receive one-third equity and Feldman would receive two-thirds equity in completed projects.

¶ 3. Beaudoin and Feldman developed a grocery store in Colchester (the Colchester store) in 1997 or 1998. The Colchester store was owned by NEE-Colchester, which consisted of three members: NEELP-II with a 49.75% member interest, NEELP-IV with a 49.75% member interest, and CMM with a 0.5% managing-partner interest. NEELP-II and NEELP-IV each consisted of three partners. Feldman's wife was a 66% limited partner and Beaudoin was a 33% limited partner in both NEELP-II and NEELP-IV. Kalfeld Realty II and Kalfeld Realty IV had a 1% general-partnership interest in NEELP-II and NEELP-IV, respectively. Feldman was the sole shareholder of Kalfeld Realty II, Kalfeld Realty IV, and CMM.

¶ 4. On December 24, 2012, the Colchester store sold to a third party for $14,500,000. The net proceeds before distribution were $1,300,000. Pursuant to the corporate structure explained above, Feldman would have been entitled to two-thirds and Beaudoin to one-third of the proceeds. However, Feldman distributed 100% of the net proceeds to himself as reimbursement for monthly payments made by Feldman to Beaudoin from 2005 through 2010. Consequently,Beaudoin filed suit against Feldman for claims of conversion, breach of fiduciary duty, and unjust enrichment and sought both compensatory and punitive damages.

¶ 5. At trial, the parties did not dispute that Beaudoin received monthly payments between 2005 and 2010. Rather, the core disputed issues at trial were the characterization of these payments as either personal loans or salary for work done, and the events leading up to the sale of the Colchester store, with each party presenting a different explanation to the jury.

¶ 6. Feldman testified that, in 1995, he was approached by Beaudoin who claimed he was in need of financial help to meet his monthly living expenses. Feldman testified that he orally agreed to help Beaudoin as a personal favor and that he paid Beaudoin $7,000 to $30,000 per month from 1995 to 2010. Between 1995 and 2010, Feldman's payments to Beaudoin totaled approximately $2,300,000, with approximately $1,310,000 of those payments made between 2005 and 2010. Feldman testified that, for the years between 2005 and 2010, most of the payments made either by Feldman or by Feldman's wife were recorded on NEELP-II and NEELP-IV tax returns as capital contributions. Feldman told Beaudoin in 2010 that the payments would stop due to the downturn in the economy.

¶ 7. While Beaudoin does not contest receiving these payments, he testified that that he always thought of the payments, which were made by either Feldman or Feldco, Feldman's real estate development company, as compensation for services he rendered to the partnership. He testified that he was unaware of Feldman's characterization of the payments as capital contributions because, notwithstanding Feldman's obligations under the NEELP-II and NEELP-IV partnership agreements to provide copies of the partnership tax returns to Beaudoin, Feldman never did.

¶ 8. After the payments stopped in 2010, Beaudoin sought a buyout of his ownership interest in various projects that he had developed with Feldman, including the Colchester store. Feldman prepared a chart of stabilized values of all the jointly owned real estate which showed atotal outstanding debt on the Colchester store of $13,960,000 as of October 2010. At this point in time, Beaudoin described his relationship with Feldman as amicable. However, after October 2010, the parties' relationship deteriorated to the point that both parties obtained legal counsel. In December 2011, Feldman gave Beaudoin a second revised chart reflecting the values of the same real estate referenced in the October 2010 chart. The chart reflected a new debt of $1,790,000 on the Colchester store, with a footnote explaining that the debt was owed to Feldman and accounted "for only those payments made by [Feldman] to [Beaudoin] over the last 10 years, ending in May 2010, which [Beaudoin] took as monthly self-employment earnings." Beaudoin testified that, because he was concerned about this new debt, he requested, through his counsel, to be kept abreast of the details of the Colchester store sale but was not informed until after the closing that the sale had been completed.

¶ 9. Both prior to trial and during trial, the court made various evidentiary rulings that Feldman challenges here. First, Beaudoin proffered evidence demonstrating that Feldman sold another property that the parties jointly owned in Rhode Island (Rhode Island store) in May 2016 without notice to Beaudoin. The evidence showed that the sale was in violation of a Rhode Island court order requiring Feldman to provide Beaudoin with advance notice of the sale and that Feldman was ultimately held in contempt as a result of the failure to notify. The Rhode Island court found that Feldman should have informed Beaudoin of the sale but made no determination that Feldman converted, misappropriated, or did anything else inappropriate with the proceeds of the Rhode Island sale. Beaudoin offered the evidence of the "incredibly similar" situation to help the jury infer that Feldman's actions around the Colchester store were deliberate, malicious, and in bad faith. Feldman objected to the admission of the Rhode Island store sale and contempt order evidence both through a motion in limine and at trial and, in the alternative, sought a limiting instruction. The trial court admitted the evidence and instructed the jury to consider the evidence only to determine whether "Feldman acted intentionally, in bad faith, or with malice byfraudulently converting proceeds from the [Colchester store] sale that rightfully belong to [Beaudoin] and whether punitive damages are, therefore, appropriate."

¶ 10. Second, prior to trial, Beaudoin filed a motion in limine to exclude evidence of his federal tax returns from the years 1995 to 2004 (pre-2005 tax returns). He argued that they were inadmissible character evidence under Vermont Rule of Evidence 404(b). Feldman suggested that he sought to offer the pre-2005 tax returns to show that Beaudoin either failed to report income or underreported income to the Internal Revenue Service. He argued that the pre-2005 tax returns were relevant and admissible for impeachment purposes and for the substantive purpose of showing how the payments to Beaudoin were characterized by Beaudoin during those years and how much he was paid. After a hearing on the motion, the trial court granted Beaudoin's motion and excluded the pre-2005 tax returns because they were not relevant to the issues at trial: "whether the 2005-2010 payments from Feldman to Beaudoin were properly construed as loans or as salary." The trial court also agreed with Beaudoin that the tax returns, if used for impeachment purposes, were impermissible extrinsic evidence. The court reaffirmed its decision to exclude the evidence at trial upon Feldman's renewed objection.

¶ 11. Third, Beaudoin introduced evidence of Feldman's other real estate development projects in Boston and New York through Feldman's testimony as an adverse witness. Feldman objected, arguing that the evidence was...