Dopp v. HTP Corp.

• Decision Date: 08 January 1991
• Docket Number: Civ. No. 88-1420 (JP).
• Citation: 755 F. Supp. 491
• Parties: Paul DOPP, Plaintiff, v. HTP CORPORATION, Island Resorts Holding, S.A., Jay Pritzker, Richard L. Schulze, Defendants.
• Court: U.S. District Court — District of Puerto Rico

755 F. Supp. 491

Paul DOPP, Plaintiff, v. HTP CORPORATION, Island Resorts Holding, S.A., Jay Pritzker, Richard L. Schulze, Defendants.

Civ. No. 88-1420 (JP).

United States District Court, D. Puerto Rico.

January 8, 1991.

Rubén T. Nigaglioni, Ledesma, Palou & Miranda, Hato Rey, Puerto Rico, for plaintiff.

Héctor Reichard de Cardona, San Juan, Puerto Rico, Juan E. Rodríguez Díaz, Hato Rey, Puerto Rico, for defendants.

Héctor Meléndez Cano, Trías, Doval, Muñoz, Acevedo & Otero, San Juan, Puerto Rico, for Island Resorts.

OPINION AND ORDER

PIERAS, District Judge.

The Court has before it plaintiff's and defendant Island Resorts Holdings' Motions to Amend the Judgment and Plaintiff's Request for Costs and Attorney's Fees. Defendant Jay Pritzker has opposed these motions.

This case involves a series of financial transactions which transpired between plaintiff Dopp and codefendants. On May 9, 1984, plaintiff, acting through Code Hospitality Group ("Code"), his wholly owned corporation, executed an option contract with North Coast Investment Corporation (the "Purchase Agreement") for the purchase of the stock or all of the assets of the Dorado Beach Hotel Corporation, owner of Dorado and Cerromar Beach Hotels in Puerto Rico. After various negotiations and several amendments to the original contract, the purchase of the stock of Dorado Beach Hotel Corporation occurred on December 4, 1984.

During the evening of December 2, 1984, and into the early morning hours of December 3, 1984, plaintiff Dopp, codefendant Richard Schulze, Brian Fix on behalf of Island Resorts Holding, S.A. (plaintiff's partner in this transaction), and their respective advisors met to review, negotiate and finalize a Stock Subscription Agreement and an Agreement regarding the Dorado Beach Hotel Corporation. (Tr. 1352 — Pretrial stipulation.) On December 3, 1984, plaintiff executed the Stock Subscription Agreement ("SSA"). See Plaintiff's Exhibit 6. The SSA, entered into by HTP Corporation, New Horizons, Inc., Code, and Island Resorts Holding, S.A., provided for the subscription, issuance, and holding of the shares of stock in HTP Corporation, the entity which would purchase the stock of the Dorado Beach Hotel Corporation. The Stock Subscription Agreement contained several agreements among the parties, including clause 6(b), giving HTP Corporation an option to purchase the twenty percent minority interest (twelve percent held by Dopp, eight percent held by Island Resorts) for $1,000,000.00 within ten years.¹

Also, on December 3, 1984, the plaintiff, through Code, entered into the "Agreement Regarding Dorado Beach Hotel Corporation," in which Code assigned the rights to the Purchase Agreement to HTP Corporation, upon certain terms and conditions. See Plaintiff's Exhibit 7. This agreement basically provided that Code would transfer, assign and convey to HTP, and HTP would accept the assignment of the Purchase Agreement, provided Code would, upon closing, receive its deposit. HTP agreed to assume all of Code's liabilities and obligations as Purchaser under the Purchase Agreement and further agreed that it would cause Dorado Beach Hotel Corporation to pay Code and Island Resorts $200,000.00 in specified installments, as a fee for their services related to the transaction.

As previously stated, the purchase of all of the stock of the Dorado Beach Hotel Corporation occurred on December 4, 1984. In the Agreement of Purchase and Sale of the Dorado Beach Hotel Corp., HTP purchased all the shares of stock in the Dorado Beach Hotel Corp. from North Coast Investment, a company which was wholly owned by Teacher's Insurance and Annuity Association of America and Connecticut General Life Insurance Company.

The case went to trial on March 12, 1990, and during the trial, Dopp contended that he entered into the SSA under duress and deceit, and that the terms of the written SSA, specifically the imposition of the option clause, breached an oral contract he had previously entered into with Jay Pritzker on November 30, 1984. On March, 23, 1990, the jury returned a verdict in favor of plaintiff, finding that the plaintiff entered into the SSA due to deceit or duress. It further concluded that an oral agreement existed between Jay Pritzker and plaintiff on November 30, 1984, and that the oral contract had been breached. The jury found Jay Pritzker liable to the plaintiff in the amount of $2,000,000.00. The special verdict form with the jury's answers is set out in the margin below.² Plaintiff and Island Resorts now request that this Judgment be amended so that the Stock Subscription Agreement be annulled, the November 30, 1984, oral agreement be resolved, and the parties be restored to the positions they were in prior to the entering into any agreements with the defendants. Defendant Jay Pritzker has opposed this request.

I. THE WRITTEN STOCK SUBSCRIPTION AGREEMENT

Under the Civil Code of Puerto Rico, "... intimidation shall annul the obligation, even if it should have been employed by a third person who did not take part in the contract." 31 L.P.R.A. § 3407 (emphasis supplied). In addition, "in order that deceit may give rise to the nullity of a contract, it must be serious, and must not have been employed by both of the contracting parties. Incidental deceit render the party who employed it liable to indemnify for losses and damages only." 31 L.P.R.A. § 3409 (emphasis supplied). Chapter 263 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3511, et seq., sets forth the framework for actions for nullity. A contract may be annulled when it "contains any of the defects which invalidate it ... according to law." Article 1252, 31 L.P.R.A. § 3511. When an obligation has been declared null, the contracting parties shall "restore to each other the things which have been the object of the contract with their fruits, and the value with its interest...." 31 L.P.R.A. § 3514.

In the charge to the jury, the Court instructed the jury that in order for deceit to give rise to the annulment of the contract, "it must be serious and must not have been employed by both of the contracting parties ... Serious deceit is deceit without the existence of which the parties would not have entered into a contract." (Tr. 1357.) The jury's instruction on intimidation ("intimidación")³ stated that "intimidation or duress exists when one of the contracting parties is instilled with a reasonable and well-grounded fear of suffering an imminent and serious injury to his person or property ... In order for intimidation to be a cause to annul the contract, the fear or threat has to be of great and imminent damages, be the direct cause of the consent, and be of an illegal nature." Id. (Tr. 1359.)

The jury found that the December 3, 1984, SSA was entered into because of "deceit or duress." See Special Verdict Form Question 1. Although defendant Pritzker claims it is unclear whether the jury found incidental deceit, which entitles plaintiff to damages only, or serious deceit, which has the effect of annulling the contract, we conclude that the jury's finding of "deceit or duress" could not include a finding of incidental deceit. After the jury began to deliberate, it presented the following question to the Court: "Can there be damages and liability if we find deceit or duress but not breach of contract? Special Verdict Form precludes such a possibility." (Tr. 1372.) The Court responded to the jury's question by restating its instruction on serious and incidental deceit, and adding that if the jury found damages from incidental deceit without breach of the oral contract, these damages could be written in longhand on the verdict form.⁴ When the jury returned its verdict, it did not write in any damages and therefore found no incidental deceit.

Because the jury concluded that plaintiff entered into the SSA due to serious deceit or duress, the SSA contract must be declared null as to the plaintiff, since the Code provides that "intimidation shall annul the obligation ... ," 31 L.P.R.A. § 3407, and deceit giving rise to the nullity of a contract "must be serious...." 31 L.P.R.A. § 3409.

Codefendant Pritzker argues that because he was not a contracting party to the SSA, and he was the only party found liable by the jury, see Special Verdict Form Question 8, the plaintiff is not entitled to have the SSA annulled. We disagree. As explained above, the jury found that the plaintiff entered into the contract due to duress (intimidation) or serious deceit. According to the Civil Code, violence or intimidation "shall annul the obligation, even if it should have been employed by a third person who did not take part in the contract." 31 L.P.R.A. § 3408 (1968). See also J. Vélez Torres, Los Contratos 74 (1986) (hereinafter Vélez Torres). Thus, even if Pritzker were considered a third party unrelated to the SSA, the jury's finding of duress is sufficient to annul the SSA.

Under the law of deceit, deceit is present when "by words or insidious machinations on the part of one of the contracting parties the other is induced to execute a contract...." 31 L.P.R.A. § 3408 (emphasis supplied). The Supreme Court of Puerto Rico and the commentators have interpreted this article to mean that if deceit is exercised by a person who is not a party to or not acting in complicity with or with the consent of the party benefited from the contract, the deceit cannot annul the contract. Rivera v. Heirs of Díaz, 70 P.R.R. 168, 173 (1949); Vélez Torres at 77 ("dolo" exercised by a third party does not have the effect of annulling the contract unless the beneficiary of the contract knows that the third party has exercised the dolo and has not objected to the fact; the same would occur if the contracting party benefiting from the dolo and the third party employing it are acting in common accord) (paraphrasing ours).⁵ In comparing the common law concept of undue influence with the Civil Code concept of serious deceit ("insidious...