Dopp v. HTP Corp.

• Decision Date: 01 August 1991
• Docket Number: 91-1302,Nos. 91-1187,91-1191,91-1188,s. 91-1187
• Parties: Paul S. DOPP, Plaintiff, Appellee, v. HTP CORPORATION, et al., Defendants, Appellants. Paul S. DOPP, Plaintiff, Appellant, v. HTP CORPORATION, et al., Defendants, Appellees. Paul S. DOPP, Plaintiff, Appellee, v. HTP CORPORATION, et al., Defendants, Appellees, Island Resorts, S.A., Defendant, Appellant. to 91-1304, 91-1189, 91-1301, 91-1190 and 91-1293. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 506

947 F.2d 506

Paul S. DOPP, Plaintiff, Appellee, v. HTP CORPORATION, et al., Defendants, Appellants.

Paul S. DOPP, Plaintiff, Appellant, v. HTP CORPORATION, et al., Defendants, Appellees.

Paul S. DOPP, Plaintiff, Appellee, v. HTP CORPORATION, et al., Defendants, Appellees, Island Resorts, S.A., Defendant, Appellant.

Nos. 91-1187, 91-1188, 91-1191, 91-1302 to 91-1304, 91-1189,

91-1301, 91-1190 and 91-1293.

United States Court of Appeals,

First Circuit.

Heard Aug. 1, 1991.

Decided Oct. 4, 1991.

Gael Mahony, with whom Frances S. Cohen, Marc L. Goodheart, Hill & Barlow, Boston, Mass., Rafael Escalera Rodriguez, Rebeca F. Rojas, and Lasa, Escalera & Reichard, San Juan, P.R., were on brief for defendants HTP Corp. and Jay Pritzker.

Gael Mahony, with whom Frances S. Cohen, Marc L. Goodheart, and Hill & Barlow, Boston, Mass., were on brief for quondam defendant Dorado Rockwood Co.

Richard A. Hibey, with whom Gordon A. Coffee, Anderson, Hibey, Nauheim & Blair, Washington, D.C., Jose Trias-Monge, Hector Melendez Cano, and Trias, Acevedo & Otero, Hato Rey, P.R., were on brief for defendant Island Resorts, S.A.

Ruben T. Nigaglioni, with whom Diana Mendez-Ondina and Ledesma, Palou & Miranda, Hato Rey, P.R., were on brief for plaintiff Paul S. Dopp.

Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and WOLF, ^* District Judge.

SELYA, Circuit Judge.

This factually and legally complicated case casts a shadow over the ownership of two of the Caribbean's finest resort hotels. The plaintiff, Paul Dopp, alleging breach of contract, sought money damages and other forms of redress. The jury returned a $2,000,000 verdict in his favor against a single defendant, Jay Pritzker. Later, the district court annulled a stock subscription agreement (the SSA), see Dopp v. HTP Corp., 755 F.Supp. 491 (D.P.R.1991), but limited the annulment specifically to the plaintiff's shares. Id. at 501. The court denied the plaintiff's broader request, made pursuant to article 1077 of the Puerto Rico Civil Code, P.R.Laws Ann. tit. 31, § 3052 (1968), for resolution of the oral contract. See Dopp, 755 F.Supp. at 500.

The various parties mount a total of ten appeals. Notwithstanding the paperwork blizzard, no one takes exception to the jury verdict on liability. Rather, the several appellants focus exclusively upon supposed flaws concerning the relief awarded and denied. After considering the parties' plethoric briefs and reviewing the voluminous record with care, we vacate the award of damages and the order of annulment and remand for further proceedings.

I. BACKGROUND

On May 9, 1984, Dopp entered into an agreement (the Purchase Agreement) to acquire the stock or assets of Dorado Beach Hotel Corporation (DBHC). ¹ The Purchase Agreement was for $40,500,000, plus or minus adjustments, and was to be closed by December 3, 1984. ² When the Purchase Agreement was signed, DBHC owned approximately 1,000 acres of oceanfront property, including two hotels and four golf courses, on the north coast of Puerto Rico. The property had an appraised value of roughly $91,000,000.

To secure performance under the Purchase Agreement, Dopp pledged a $2,000,000 letter of credit. He later ceded an interest in the Purchase Agreement to Island Resorts, S.A., a Panamanian corporation, which then assumed joint liability on the letter of credit. Together, Dopp and Island Resorts expended more than $710,000 in anticipation of the closing.

In November 1984, after fruitless discussions with a host of financial institutions and prospective investors, Dopp approached Pritzker, the chairman of Hyatt Corporation. Their discussions led to a verbal agreement (the Oral Contract) whereby Pritzker would provide the funds needed to consummate the Purchase Agreement in exchange for an 80% interest in a corporation that would be formed to acquire DBHC's stock. Dopp was to control the remaining 20% of the new corporation. The Oral Contract also provided that the front money would be repaid and that a Hyatt affiliate would be awarded a long-term contract to manage the hotels.

The Oral Contract was made on November 30, 1984. Later that same day, Dopp entered into a written agreement with Island Resorts, whereby Island Resorts accepted the terms of the Oral Contract. Island Resorts was to receive an 8% interest in the new corporation (to be carved out of Dopp's 20% interest), together with reimbursement for funds previously expended. Dopp was to have charge of all further negotiations necessary to complete the transactions with the Pritzker interests.

Throughout the evening of December 2 and into the morning of December 3, Dopp, Pritzker (represented by Richard Schulze), and Island Resorts (represented by Brian Fix) met to draft the necessary agreements. On December 3, the parties executed two separate contracts. Through the first instrument, which we shall call the DBHC Agreement, Dopp assigned to a new entity, the defendant HTP Corporation, all his rights under the Purchase Agreement. In turn, HTP agreed to assume Dopp's obligations and to pay a consulting fee of $200,000, in specified installments, for Dopp's and Island Resorts' services in securing the deal. Through the second instrument, the SSA, HTP's stock was distributed for $1,000 per share as follows: 12 shares to Dopp, 8 shares to Island Resorts, and 80 shares to an entity designated by Pritzker (New Horizons Enterprises, Inc.). The SSA also contained a clause granting the majority shareholder an option to buy out the two minority shareholders for $50,000 per share at any time within the next ten years.

The Purchase Agreement was closed on December 4, 1984 (the seller having yielded to Pritzker's entreaty for a one-day extension). Net of adjustments, HTP paid $36,846,000 for DBHC's stock. Pritzker supplied the funds. Thereafter, the letter of credit was canceled; Dopp and Island Resorts were reimbursed $710,000 for expenses advanced; and, over the next two years, the $200,000 consulting fee was paid. On July 1, 1985, Dorado Rockwood Company, a newly minted Delaware corporation, succeeded to New Horizons' interest in HTP. The record makes clear that Dorado Rockwood was a Pritzker nominee.

II. THE LITIGATION

The honeymoon did not last long. In mid-1988, Dopp filed suit in the United States District Court for the District of Puerto Rico. Invoking diversity jurisdiction, 28 U.S.C. § 1332(a), he named HTP, New Horizons, Dorado Rockwood, Pritzker, and Schulze as defendants. Island Resorts was also joined as a defendant after it refused Dopp's request to enlist as a plaintiff. Dopp alleged that the buy-out option contained in the SSA was in derogation of the Oral Contract and that his consent to the SSA had been unfairly procured.

During pretrial skirmishing, the district court granted Dorado Rockwood's motion to dismiss for lack of personal jurisdiction. The court also dismissed as to New Horizons. The case against the remaining defendants went forward. The trial issues were framed by the second amended complaint, in which Dopp prayed for multifaceted redress: damages, annulment of the SSA and interrelated agreements, and a declaration that all the transactions between himself and the other defendants (save only Island Resorts) were null and void. After a ten-day trial, the jury returned a special verdict. It found that the Oral Contract was formed on November 30, 1984; that Pritzker breached it; and that Pritzker persuaded Dopp to enter into the SSA by the use of deceit or duress. While exonerating HTP and Schulze, the jury found Pritzker liable for damages in the amount of $2,000,000. The district court entered judgment on March 23, 1990.

On April 2, Dopp moved to amend the judgment pursuant to Fed.R.Civ.P. 59(e), claiming that, in addition to money damages, he should be granted annulment of the SSA and resolution of the Oral Contract. Island Resorts also moved to amend the judgment, seeking to annul the SSA in respect to its 8% interest in HTP. Based on the jury's finding of deceit/duress, the district court declared the SSA null and void as to Dopp's 12% interest in HTP. Dopp, 755 F.Supp. at 495. The court held, nonetheless, that resolution of the Oral Contract was unwarranted. Id. at 500. And, the court denied Island Resorts' Rule 59 motion. ³ Id. at 501.

The court's orders satisfied no one. Dopp, Island Resorts, HTP, Pritzker, and Dorado Rockwood have all appealed from the amended judgment.

III. THE ARCHITECTURE OF THE APPEALS

We begin our odyssey by setting out in some detail the applicable legal framework focusing first on the annulment of a contract by reason of duress or deceit and second on the resolution of a contract upon the nonfulfillment of a reciprocal obligation. We then attempt to distill the issues.

A. Annulment.

The parties acknowledge that the substantive law of Puerto Rico governs in this diversity action. According to article 1252 of the Civil Code, a contract may be annulled when it "contain[s] any of the defects which invalidate [it] according to law." P.R.Laws Ann. tit. 31, § 3511 (1968). Either duress or deceit, if present to a sufficient degree and if brought to bear on a material matter, may trigger section 3511.

Duress, known in the Civil Code as intimidation, "exists when one of the contracting parties is inspired with a reasonable and well-grounded fear of suffering an imminent and serious injury to his ... property." Id. § 3406. When extant, "intimidation shall annul the obligation [created by contract], even if ... employed by a third person who did not take part in the contract." Id. § 3407.

Deceit may be found "when by words or insidious machinations on the part of one of the contracting parties the other is induced to execute a contract which without them he would not have made." Id. § 3408. Not every small deception is fatal to a contract's existence. "In order that deceit may give rise to the nullity of a contract, it must be serious, and must not have been...