Follo v. Florindo

• Citation: 2009 VT 11,970 A.2d 1230
• Decision Date: 23 January 2009
• Docket Number: No. 07-322.,07-322.
• Parties: Carl FOLLO, Follo Hospitality, Inc. and Capra Real Estate, LLC v. Paul FLORINDO, Susan Morency, Cranberry Farm, LLC, PFSM, Inc. and Brookside Leasing.
• Court: United States State Supreme Court of Vermont

970 A.2d 1230

2009 VT 11

Carl FOLLO, Follo Hospitality, Inc. and Capra Real Estate, LLC v. Paul FLORINDO, Susan Morency, Cranberry Farm, LLC, PFSM, Inc. and Brookside Leasing.

No. 07-322.

Supreme Court of Vermont.

January 23, 2009.

Motion for Reargument Denied February 25, 2009.

Stephen S. Ankuda of Parker & Ankuda, P.C., Springfield, for Plaintiffs-Appellees/Cross-Appellants.

Alison J. Bell of Langrock Sperry & Wool, LLP, Burlington, for Defendant-Appellant/Cross-Appellee Florindo.

R. Jeffrey Behm of Sheehey Furlong & Behm P.C., Burlington, for Defendant-Appellant/Cross-Appellee Morency.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. BURGESS, J.

Defendants Paul Florindo and Susan Morency appeal from a jury verdict and judgment against them for common-law fraud and violations of Vermont's Consumer Fraud Act in connection with their sale of a bed and breakfast business. Both defendants claim that the evidence did not support the verdict, that the jury instructions regarding common law and consumer fraud were plainly erroneous, and that the trial court's decision to preclude their expert witnesses from testifying was error. Defendant Florindo also contends that it was error for the trial court to allow plaintiff's expert witness and the jury to value the two parcels of property at issue as one parcel for purposes of the damages calculation. Defendant Morency claims further that plaintiff's closing argument at trial was prejudicial and improper. We affirm on all counts.

¶ 2. Plaintiff, Carl Follo,¹ the purchaser and current operator of the bed and breakfast, cross-appeals on two issues. First, he claims error in the trial court's exclusion of punitive damages as a matter of law. Second, plaintiff argues that it was improper for the trial court to order remittitur of a portion of the jury award. We reverse the trial court's punitive-damages decision and affirm the remittitur order.

I. Background

A. History of the Real Estate Transactions

¶ 3. In 2000, defendants formed a Vermont limited liability company, Cranberry Farm, LLC. Defendant Morency owned 51% of the LLC and was president and treasurer while defendant Florindo owned 49% and was vice-president, secretary, and assistant treasurer of the company. Defendants created Cranberry Farm, LLC to acquire an inn in Vermont, and soon after it was formed, the company purchased an inn on twenty-seven acres of land in Rockingham, Vermont (the Inn) for $825,000. Defendants' lenders required an appraisal of the parcel, and the appraised value was the same as the purchase price. During this period, defendants also formed a second company, PFSM, Inc., to acquire personal property for the Inn and to operate it. In the same year, 2000, but acting as individuals instead of through either of their companies, defendants purchased a single-family house (the Cottage) on twenty acres of land adjacent to the Inn for $175,000.

¶ 4. Over the next two years, defendants redecorated and operated the Inn while also separately renting out the Cottage. Defendants split their duties in running the Inn. Even though Ms. Morency was Cranberry Farm LLC's President and Treasurer, Mr. Florindo handled most of the finances for the Inn, including the bookkeeping and filing tax returns. Ms. Morency's responsibilities included decorating, operating the front desk, planning private parties, and managing housekeeping and guest relations. Defendants operated the Inn for close to two years, and in the summer of 2002, defendants decided to sell the Inn and the Cottage. Defendants listed the properties with a real estate company, Hospitality Consultants. Hospitality Consultants marketed the Inn and the Cottage together in one brochure, listing the Inn for $1,195,000 and the Cottage for $225,000.

¶ 5. Around the time that defendants decided to get out of the innkeeping business, plaintiff decided to enter it. When plaintiff decided he wanted to buy a bed and breakfast, he began researching methods for evaluating inns listed for sale. During his research, plaintiff learned about a "gross revenue multiplier" approach to calculating sales prices for inns. Under this approach, a prospective buyer multiplies the inn's gross earnings by a number between three and seven to determine an appropriate sales price. Plaintiff decided he would buy only an inn that showed it was profitable, that he could acquire for a maximum of five times the inn's gross sales, and that would cost less than $1 million.

¶ 6. Plaintiff entered into negotiations to purchase defendants' Inn late in 2002. He specifically pursued the Inn, even though the listed sales price was above his $1 million limit, because the profit-and-loss statement included in the marketing brochure for the Inn showed that it was a solid business. During negotiations, plaintiff asked for and received reports, including tax returns, from defendants (via the real estate agent) on the revenues, sales, expenses, and net income of the Inn during 2001 and 2002. Relying on these reports, plaintiff used the "gross revenue multiplier" approach to calculate that the property was worth $1,130,000 by multiplying the Inn's reported 2001 sales of $226,000 by five. Plaintiff then offered $1,080,000 for the Inn. However, in order to succeed with his bid for the Inn, plaintiff felt it was necessary to bid simultaneously on the Cottage because another bidder was prepared to make a bid on both properties at the same time. Plaintiff discussed with the real estate agent and defendant Florindo whether they thought he could raise sufficient revenue from the Cottage to cover its purchase price if he remodeled the Cottage to contain three suites, then rented those as part of the Inn business. According to plaintiff, both the real estate agent and Florindo expressed the opinion that he would "absolutely" get his money back using that plan, at least in part due to the occupancy rates and demand during certain times of the year as represented by defendants when they operated the Inn. Plaintiff purchased both the Inn and the Cottage for $1,245,000 in March 2003.²

¶ 7. As he began to operate the Inn during the spring of 2003, plaintiff realized that the Inn's sales for the first few months of his ownership were less than one-quarter of the sales figures he expected based on the information defendants provided prior to sale. To boost sales, plaintiff decided to try a mailing directed at the Inn's former customers and requested guest registration information from defendant Florindo. Subsequent communications between the parties led plaintiff to suspect that defendants had not truthfully represented the Inn's actual revenues and occupancy rates in the realtor's marketing brochure and the various reports and tax returns defendants provided plaintiff during sale negotiations. His exchanges with defendants eventually led plaintiff to file this lawsuit in early 2004.

B. Procedural History

¶ 8. During discovery in this case, in late December 2006 and early January 2007, several of the parties (defendant Morency, the real estate agents, and plaintiff) agreed to an amended discovery schedule. Although defendants were already over five months late in disclosing their expert witnesses, and over two months late in deposing the experts, the stipulation would have enlarged the time for defendants to take those actions. Before defendant Florindo signed the new discovery schedule, however, and before the trial court adopted it, plaintiff withdrew his stipulation and requested the trial court set a mediation and trial date. In response, defendants asked the court to allow them extra time for "discovery or disclosure of experts and the filing of dispositive pretrial motions." After the trial court held a status conference on the matter, it decided to enforce the original scheduling order, thereby denying defendants' requests to enlarge the time for them to disclose and depose their experts. The court held that defendants were prohibited from presenting any expert witnesses at trial because of their violation of the discovery schedule.

¶ 9. Plaintiff's amended complaint of August 24, 2006, stated a variety of claims against defendants as individuals and their companies, as well as against the real estate agents and their real estate corporation. After trial, but before the case went to the jury, plaintiff dropped all claims except for common law and consumer fraud claims. At the close of plaintiff's case, the parties made several motions that are relevant on this appeal. First, defendant Florindo moved unsuccessfully for judgment as a matter of law on fraud and on the benefit-of-the-bargain damages claimed by plaintiff. Second, defendant Morency moved unsuccessfully for judgment as a matter of law on the Consumer Fraud Act charges, the common-law-fraud charges, and the benefit-of-the-bargain damages. Third, the court granted defendants' motions to exclude punitive damages as a matter of law. At the close of all the evidence, defendants renewed their motions, and plaintiff objected to the trial court's decision not to allow punitive damages as a matter of law. The trial court did not change any of its rulings in response to those motions.

¶ 10. During closing arguments, plaintiff's counsel stated that the date on a certain tax return provided to plaintiff by defendants had been whited out and suggested to the jury that the whiting out was to cover up that the tax returns had not been prepared at the time defendants claimed. Defendant Morency objected to these statements, but the trial court overruled that objection and proceeded to charge the jury. After deliberating, the jury returned a verdict against defendants Florindo and Morency for common-law fraud and consumer fraud, but found in favor of the realtor and its agents. The jury awarded damages for plaintiff in the amount of $645,000.

¶ 11. Following the verdict, defendant Morency moved for judgment notwithstanding...