Fogarty v. Palumbo

• Decision Date: 23 June 2017
• Docket Number: No. 2015–273–Appeal,No. 2015–291–Appeal (KB 08–1073),No. 2015–292–Appeal (KB 08–1087),No. 2015–271–Appeal,2015–271–Appeal,2015–291–Appeal (KB 08–1073),2015–273–Appeal,2015–292–Appeal (KB 08–1087)
• Citation: 163 A.3d 526
• Parties: Charles E. FOGARTY v. Ralph PALUMBO et al. James Ottenbacher v. Ralph Palumbo et al.
• Court: Rhode Island Supreme Court

163 A.3d 526

Charles E. FOGARTY

v.Ralph PALUMBO et al.

James Ottenbacher

v.Ralph Palumbo et al.

No. 2015–271–Appeal

No. 2015–291–Appeal (KB 08–1073)

No. 2015–273–Appeal

No. 2015–292–Appeal (KB 08–1087)

Supreme Court of Rhode Island.

June 23, 2017

Michael T. Finan, Esq., Carol L. Ricker, Esq., Philip Laffey, Esq., for Plaintiffs.

Vincent A. Indeglia, Esq., Patricia A. Buckley, Esq., Ryan J. Lutrario, Esq., for Defendants.

Present: Suttell, C.J., Goldberg, and Flaherty, JJ.

OPINION

Chief Justice Suttell, for the Court.

The matter before us arises from the August 15, 2005, sale of an approximately 360–acre tract of undeveloped land located on Dye Hill Road in Hopkinton (the property). The plaintiffs, Charles E. Fogarty and James Ottenbacher, averred that the sale of the property to an entity of which the defendants, Ralph Palumbo and Jonathan Savage, were principals, without the plaintiffs' consent, was fraudulent; they each consequently filed an eight-count complaint in Superior Court. The plaintiffs also named Pilgrim Title Insurance Company (Pilgrim), which was the title insurance and escrow agent in connection with the sale of the property, as a defendant in this case. Following discovery, all three named defendants, Palumbo, Savage, and Pilgrim (jointly, the defendants), filed motions for summary judgment, all of which were granted by a justice of the Superior Court. For the reasons stated herein, we affirm the judgment of the Superior Court in part and we vacate the judgment in part.

IFacts¹

The property was originally purchased by Fogarty in the 1970s. In 1994, Fogarty formed a corporation known as Stone Ridge, Inc. (Stone Ridge), with three other shareholders: Grant Schmidt, M.D.; William McComb; and co-plaintiff, Ottenbacher; each shareholder owning 25 percent of the corporation. At or about the time Stone Ridge was formed, Fogarty transferred ownership of the property to Stone Ridge. At all times pertinent to this case, the sole asset of Stone Ridge was the property and the shareholders' objective was to develop it.² In or about 2003, Brushy Brook Development, LLC (Brushy Brook), was created as a holding company for Stone Ridge. Title to the property was transferred from Stone Ridge to Brushy Brook³ and Schmidt became the managing partner for Brushy Brook. After disagreement arose among the partners of Stone Ridge concerning the development plans for the property, in late 2004 and early 2005, Brushy Brook sought to sell the property either to a separate buyer or to one or more of its shareholders. As of November 2004, Ottenbacher became the president of Stone Ridge.

Ottenbacher claimed that he secured Palumbo, a certified public accountant, and Savage, a corporate attorney, to assist him in either purchasing the property, or securing another buyer. Palumbo and Savage "produced * * * a buy-out plan" whereby Ottenbacher and Fogarty, through financing, would buy out Schmidt and McComb. A buyout agreement was drafted by Adam Clavell, an associate at Savage's law firm at that time, at the direction of Savage. At deposition, Fogarty stated that he met with Ottenbacher, Palumbo, and Savage and discussed receivership as an option, but that they ultimately did not want to go that route. Fogarty testified that, at this time, Savage "was [their] attorney," and "was doing all of the paperwork," but that he had not signed a retainer agreement with, or ever paid, Savage or Savage's law firm. Fogarty averred that it was his understanding that "from November 17, [2004,] to probably towards the end of December" he was represented by Savage.⁴ He further indicated that "Palumbo was supposed to then be [their] accountant for the new project."

Palumbo and Savage were the principals of an entity named Boulder Brook Development, LLC (Boulder Brook), and plaintiffs claim this was unknown to them. On April 6, 2005, the four shareholders of Stone Ridge (plaintiffs, Schmidt, and McComb) executed an Asset Purchase Agreement (APA) for the sale of the property to Boulder Brook. By the terms of the APA, a closing date was set for thirty days thereafter. The APA closing date lapsed prior to a closing occurring.⁵

Sometime in July 2005, Ottenbacher made an offer to Brushy Brook to purchase the property with a partner, Steven Kaufman.⁶ According to Ottenbacher, Schmidt and McComb agreed on the sale of the property and a closing was set for August 15, 2005, with Attorney Mark Spangler engaged as the closing agent.⁷ In anticipation of the closing, $3,654,367.38 was transferred into Spangler's clients' trust account. On August 16, 2005, Spangler traveled to the Hopkinton Town Hall to review the Hopkinton Land Evidence Records and discovered a deed signed by Schmidt dated August 15, 2005, transferring the property to Boulder Brook (herein, the sale to Boulder Brook). As noted, Pilgrim was the title insurance agent and escrow agent in connection with the sale to Boulder Brook. According to plaintiffs, the deed was executed without their knowledge and, because the terms of the APA had since expired without a closing, their approval was required to convey the property.⁸

IITravel

Approximately three years later, on August 14 and 18, 2008, Fogarty and Ottenbacher, respectively, filed two pro se complaints against Palumbo. Thereafter, in 2010, both of their complaints were amended to include Savage and Pilgrim as defendants, they obtained legal representation, and their matters were consolidated. Fogarty's second-amended complaint filed in March 2010 and Ottenbacher's first-amended complaint filed in April 2010 are nearly identical and allege, against both Palumbo and Savage, negligence (counts 1 and 2⁹ ), breach of contract (counts 3), tortious interference with a contractual relationship (counts 4), interference with a prospective contractual relationship (counts 5), fraud (counts 6), and civil conspiracy (counts 8). The plaintiffs also each raise one negligence count against Pilgrim (counts 7).

Discovery ensued for approximately five years. In addition to the production of documents and interrogatories exchanged between the parties, Fogarty, Ottenbacher, Schmidt, McComb, Palumbo, Clavell, Spangler, Gerald Vande Werken, who was Brushy Brook's attorney, and James A. Houle, who was retained to appraise the property, were all deposed. Certain depositions and documents produced during discovery will be discussed in further detail as they become pertinent to this Court's analysis.

On March 6, 2014, Pilgrim filed a motion for summary judgment on the negligence counts against it, to which plaintiffs objected. A hearing was held on April 7, 2014, and, on June 9, 2014, the hearing justice issued a written decision granting Pilgrim's motion. The hearing justice reasoned that there was "no genuine issue of material fact that" any "potential liability" on Pilgrim's part "was discoverable as of August 16, 2005." Unable to satisfy the requirements of the discovery-rule exception to the three-year statute of limitations set forth in G.L. 1956 § 9–1–14.3¹⁰ for legal malpractice claims, plaintiffs' 2010 claims against Pilgrim were deemed untimely. Final judgment entered on August 12, 2014, and, on August 22, 2014, plaintiffs filed a notice of appeal.

As the appellate process proceeded on Pilgrim's summary disposition, defendants Palumbo and Savage filed a total of four motions for summary judgment; two of which were joint motions and two of which were Savage's individual filings.¹¹ A hearing was held on all four motions on November 10, 2014. In a written decision filed on December 1, 2014, the hearing justice granted all four motions for summary judgment. On April 17, 2015, the Superior Court granted final judgment pursuant to Rule 54(b) of the Superior Court Rules of Civil Procedure and plaintiffs filed a timely notice of appeal.¹²

IIIStandard of Review

"This Court will review the grant of a motion for summary judgment de novo , employing the same standards and rules used by the hearing justice." Newstone Development, LLC v. East Pacific, LLC , 140 A.3d 100, 103 (R.I. 2016) (quoting Daniels v. Fluette , 64 A.3d 302, 304 (R.I. 2013) ). "We will affirm a [trial] court's decision only if, after reviewing the admissible evidence in the light most favorable to the nonmoving party, we conclude that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Id. (quoting Daniels , 64 A.3d at 304 ). "Furthermore, ‘the nonmoving party bears the burden of proving by competent evidence the existence of a disputed issue of material fact and cannot rest upon mere allegations or denials in the pleadings, mere conclusions or mere legal opinions.’ " Id. (quoting Daniels , 64 A.3d at 304 ).

"[S]ummary judgment should enter against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case * * *." Newstone Development, LLC , 140 A.3d at 103 (quoting Lavoie v. North East Knitting, Inc. , 918 A.2d 225, 228 (R.I. 2007) ). "Furthermore, this Court can affirm the Superior Court's judgment on grounds other than those relied upon by the trial justice." Berman v. Sitrin , 991 A.2d 1038, 1043 (R.I. 2010).

IVAnalysis

ADefendant Pilgrim Title Insurance Company

1. Negligence (Counts 7)

The plaintiffs' claims against Pilgrim are negligence-based legal malpractice claims; they allege that Pilgrim "owed a duty to all those with a legal interest in the property, to perform professional services in a competent manner and in conformance with standards applicable to closing agents." According to plaintiffs, Pilgrim breached that duty and such breach caused them to suffer damages.

On August 16, 2005, Spangler went to the Hopkinton Town Hall after being informed by plaintiffs that "something had happened" regarding the property. Upon inspecting the recordings, Spangler located the warranty deed transferring the property to Boulder Brook. Although he could not recall the specifics, Spangler testified at...