Friedman v. Kelly & Picerne, Inc.

• Decision Date: 26 January 2012
• Docket Number: C.A. No. PB 05-1193
• Court: Rhode Island Superior Court
• Parties: DAVID FRIEDMAN; R. JEFFREY KNISLEY, in his capacity as Executor of the Estate of LEON H. CORNELL, JR.; EUSTACE T. PLIAKAS; PETER VICAN; THEONA PASCALIDES; WILLIAM P. VICAN, JR.; CONSTANTINE S. GEORAS; NICHOLAS GOLUSES, JR.; DENA PATEL; GLENN A. CAPALBO; DAVID BOLTON; and the AUDUBON SOCIETY OF RHODE ISLAND v. KELLY & PICERNE, INC.

DAVID FRIEDMAN; R. JEFFREY KNISLEY, in his capacity as Executor of the Estate of LEON H. CORNELL, JR.;EUSTACE T. PLIAKAS; PETER VICAN; THEONA PASCALIDES; WILLIAM P. VICAN, JR.;CONSTANTINE S. GEORAS; NICHOLAS GOLUSES, JR.; DENA PATEL; GLENN A. CAPALBO; DAVID BOLTON;and the AUDUBON SOCIETY OF RHODE ISLAND

v.KELLY & PICERNE, INC.

C.A. No. PB 05-1193

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS PROVIDENCE, SC. SUPERIOR COURT

FILED: JANUARY 26, 2012

DECISION

SILVERSTEIN, J. Before this Court is Defendant Kelly & Picerne, Inc.'s (K&P or General Partner) Motion to Vacate, in Part, the Court's December 6, 2010 and January 28, 2011 Decisions and this Court's Order Dated January 28, 2011 (collectively, Decisions), pursuant to Super. R. Civ. P. 60(b). K&P requests this Court vacate portions of its Decisions, which found K&P had breached its fiduciary duties and which awarded damages to the Plaintiffs¹ (Plaintiffs or Limited Partners), on the basis that this Court reserved ruling on a statute of limitations defense that may bar Plaintiffs' claims, in whole or in part.

IFacts and Travel

This case has been pending before the Court since the filing of the original Complaint on March 10, 2005. The Court's December 6, 2010 Decision sets forth in significant detail the facts underlying the Plaintiffs' claims. See Friedman v. Kelly & Picerne, Inc., No. PB 05-1193, 2010 WL 5042896 (R.I. Super. Dec. 6, 2010). In summary, this Court ruled in its Decisions that K&P, as general partner of Quaker Towers Associates (the Partnership), breached its fiduciary duty of loyalty to the Plaintiffs, the limited partners of the Partnership, in failing to fully disclose the sale of a mortgage note secured by Partnership property (the Recoll transaction), thus favoring Picerne Investment Corporation (PIC), K&P's corporate parent, and preventing the Partnership and Limited Partners from competing for the business opportunity. See id.; see also Friedman v. Kelly & Picerne, Inc., No. PB 05-1193, 2011 WL 343199 (R.I. Super. Jan. 28, 2011). Only the facts pertinent to the Court's decision on the instant Motion are presented below.

The Limited Partners filed their original Complaint March 10, 2005, asserting claims for equitable accounting and declaratory judgment and alleging breach of contract and breach of fiduciary duty. (Compl.) Particularly, with regard to Plaintiffs' allegations of breach of fiduciary duty, they allege in the original Complaint that:

"Defendant has breached its fiduciary duties to Plaintiffs by, inter alia, failing and refusing to pay the agreed distributions for available net income and failing and refusing to pay distributions for the net proceeds of mortgage refinancing transactions." (Compl. ¶ 47.)

Plaintiffs also set forth that:

"According to the Audited Statements, Defendant, as general partner, sold or refinanced the mortgage(s) on other occasions that are not reflected in the land evidence records. For example, according to the Audited Statements, there was at least one secondmortgage that was taken on the property that was then sold to 'an affiliate of the general partner' in September 1995." (Compl. ¶ 27.)

Plaintiffs aver that this was the extent of their knowledge regarding mortgage transactions at the time. (Pls.' Opp'n to Def.'s Mot. to Vacate (Pls.' Opp'n) 4.)

The original Complaint included only David Friedman, Leon H. Cornell, Jr., Peter Vican, Theona Pascalides, and William P. Vican, Jr. as Plaintiffs. On August 30, 2006, Plaintiffs filed their First Amended Complaint. The Amended Complaint added all of the current Plaintiffs, with the exception of Eustace T. Pliakas. (Am. Compl.) The Amended Complaint also added new facts and information, while maintaining allegations regarding the September 1995 transaction with the affiliate of the General Partner. (Am. Compl. ¶ 33.) Plaintiffs filed a Second Amended Complaint May 9, 2007. (Second Am. Compl.) It added claims for waste and mismanagement, and still included mention of the mortgage transactions and claims of breach of fiduciary duty. (Second Am. Compl. ¶¶ 37, 59.)

Documents evidencing the Partnership's refinancing and mortgage transactions, including the Recoll transaction in September 1995, were not available to the Limited Partners until they were provided during discovery in this litigation. (Pls.' Opp'n 5.) Prior to discovery, the only information available to the Limited Partners regarding the Recoll transaction came in the form of two notes contained in the Partnership's audited financial statements. Friedman, 2010 WL 5042896 at n.20, 21. Specifically, the audited statement dated February 26, 1995 noted that "an affiliate of the general partner is currently negotiating the purchase of the second mortgage note from the lender." (Financial Statement, Feb. 26, 1995, Note 3.) The NonRecourse Assignment Agreement for the Recoll transaction was recorded with the West Warwick Town Clerk on September 22, 1995. (Book 611, Pages 245-50.) A subsequent auditedstatement dated February 29, 2006 noted that "[a]n affiliate of the general partner purchased the second mortgage note from the lender in September, 1995." (Financial Statement, Feb. 29, 2006, Note 3.) K&P, the general partner of the Partnership, did not disclose any other information regarding the transaction to the Limited Partners. Friedman, 2010 WL 5042896 at n.20.

The Limited Partners did not learn the details of the Recoll transaction until K&P's February 5, 2008 answers to interrogatories. (Pl's Opp'n 6.) The following month, Plaintiffs moved to amend their Complaint for the third time. (Third Am. Compl.)

The Third Amended Complaint added Plaintiff Eustace T. Pliakas. Id. Further, it set forth much more precisely the Limited Partners' claims regarding breach of fiduciary duties surrounding the Recoll transaction. See id. at ¶¶ 38, 63. The Third Amended Complaint states, in pertinent part:

"Defendant never disclosed to Plaintiffs that this second mortgage in the amount of $1,070,000 was sold to [PIC], the affiliate, for the discounted price of $550,000. After the sale and assignment of the second mortgage, the Defendant continued to carry the second mortgage debt on [the Partnership's] books at the full value of $1,070,000. [The Partnership] continued paying interest on the full amount of the debt, accruing a part of the interest, until [the Partnership] paid the outstanding balance of $1,070,000 plus accrued interest to PIC out of the proceeds for a refinancing transaction in 2002. This self-dealing allowed the Defendant to gain for itself a secret profit at the expense of Plaintiffs, to artificially increase [the Partnership's] interest expenses, and to artificially depress or conceal refinancing proceeds and available net income that should have been distributed to the Plaintiffs." (Third Am. Compl. ¶ 38.)

Accordingly, Plaintiffs claimed:

"Defendant has breached its fiduciary duties of loyalty and good faith by, inter alia, engaging in self-dealing and obtaining a secret profit through PIC's purchase of the second mortgage for the discounted price of $550,000 and [the Partnership's] continued payment of interest to PIC and eventual payment of the principal based on the debt's full value of $1,070,000. Defendant did notdisclose the discounted price or other material details for the sale and assignment of the debt, nor did Defendant allow [the Partnership] or the limited partners the opportunity to participate or share in the opportunity." (Third Am. Compl. ¶ 63.)

This Court allowed Plaintiffs' amendment under Super. R. Civ. P. 15 on March 28, 2008, but reserved ruling on the statute of limitations defense raised in K&P's objection. Order, Mar. 28, 2008, ¶¶ 4-5 (providing order "without prejudice to any defense that defendant might raise" and stating "Court specifically reserves any ruling on the question of whether the claims of Eustice [sic] T. Pliakas or any of the new allegations relate back"). The Third Amended Complaint was filed April 4, 2008.

From April 2008 to November 2011, this matter proceeded without any mention by K&P of its statute of limitations defense. K&P moved for summary judgment in September 2008 without raising the statute of limitations argument. (Pls. Opp'n 7.) A four-week bench trial was held in February and March of 2009. K&P did not raise the statute of limitations defense in any of its pre-trial motions or during that trial. Id. at 8. K&P submitted a ninety-three page post-trial brief in July 2009 and a nineteen page reply in August 2009, neither of which mentioned any statute of limitations claim. Id. After this Court's Decision in December 2010, K&P moved for reconsideration, again without any discussion of a statute of limitations defense. Id.

After this Court's second Decision in January 2011, numerous briefs were submitted and multiple oral arguments were heard relating to the ordered accountings, and the Court held a two-day evidentiary hearing on the calculation of damages before issuing another Decision on September 15, 2011. During that eight-month period, K&P still did not argue any statute of limitations defense. Id. at 8-9. After that decision, an issue of prejudgment interest arose, and parties submitted memoranda in October 2011. Id. at 9. K&P still did not make a statute oflimitations argument. Id. K&P requested the opportunity to reply on the prejudgment interest issue, and reply and response briefs were submitted in November 2011.

Then, in November 2011, K&P resurrected its statute of limitations argument. Forty-three months after the Third Amended Complaint was filed, thirty-two months after the bench trial in this case, and nearly twelve months after the first Decision K&P seeks to vacate, K&P filed this Motion on November 15, 2011 to partially vacate the Decisions on statute of limitations grounds.

IIStandard of Review

"[A] motion to vacate a judgment is left to the sound discretion of the trial justice." Ryan v. Roman Catholic Bishop of Providence, 941 A.2d...