Friedman v. Kelly & Picerne, Inc.

• Decision Date: 28 January 2011
• Docket Number: C.A. PB 05-1193
• 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.
• Court: Rhode Island Superior Court

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

Superior Court of Rhode Island

January 28, 2011

DECISION

SILVERSTEIN, J.

Defendant Kelly & Picerne, Inc. (K&P) filed a motion for reconsideration of this Court's December 6, 2010 Decision which held, among other things, that K&P had breached its fiduciary duty to Plaintiffs, the limited partners (Limited Partners) of Quaker Towers Associates (QTA or Partnership) and awarded Plaintiffs (1) the difference between the price paid by PIC for the Recoll Note and the amount paid by QTA to extinguish it; and (2) a full accounting of the partnership distributions and reserve account. See Friedman v. Kelly & Picerne, Inc., No. PB 05-1193, 2010 WL 5042896 (R.I. Super. Ct. Dec. 6, 2010). Defendant seeks a reconsideration of the Court's determinations as to liability and damages in connection with the breach of fiduciary duty claim.

I Facts and Travel

The facts and travel of this case have been well-documented in a prior written decision (Decision) of this Court. See Friedman v. Kelly & Picerne, Inc., No. PB 05-1193 2010 WL 5042896 (R.I. Super. Ct. Dec. 6, 2010). Therefore the Court will not repeat the facts and travel of this case.^1[]

II Standard of Review

The Rhode Island Superior Court Rules of Civil Procedure, similar to the Federal Rules of Civil Procedure, do not specifically provide for motions to reconsider. School Comm. of City of Cranston v. Bergin-Andrews, 984 A.2d 629, 649 (R.I. 2009). However, our Supreme Court applies a liberal interpretation of the rules, and "look[s] to substance, not labels." Sarni v. Melocarro, 113 R.I. 630, 636, 324 A.2d 648, 651 (1974). It is well settled that a motion to reconsider should be treated as a motion to vacate under Super. R. Civ. P. 60(b). Bergin-Andrews, 984 A.2d at 649 (citing Keystone Elevator Co. v. Johnson & Wales Univ., 850 A.2d 912, 916 (R.I. 2004)). Rule 60(b) provides that under certain circumstances "[o]n motion and upon such terms as are just, the court may relieve a party or a party's legal representative from final judgment, order, or proceeding. . . ." Super. R. Civ. P. 60(b). A motion to vacate under Rule 60(b) "is addressed to the trial justice's sound judicial discretion and 'will not be disturbed on appeal, absent a showing of abuse of discretion.'" Keystone Elevator Co., 850 A.2d at 916 (quoting Crystal Rest. Mgmt. Corp. v. Calcagni, 732 A.2d 706, 710 (R.I. 1999)).

However, Rule 60(b) is not "a vehicle for the motion judge to reconsider the previous judgments in light of later-discovered legal authority that could have and should have been presented to the court before the original judgment entered." Jackson v. Medical Coaches, 734 A.2d 502, 505 (R.I. 1999) (citations omitted). It does not authorize "'a motion merely for reconsideration of a legal issue . . . where the motion is nothing more than a request that the [trial] court change its mind.'" Jackson, 734 A.2d at 508 n.8 (citing United States v. Williams, 674 F.2d 310, 312-13 (4th Cir. 1982)); see also Cashner v. Freedom Stores, Inc., 98 F.3d 572, 577 (10th Cir. 1996) (noting that Rule 60(b) is not intended "to allow a party merely to reargue an issue previously addressed by the court when the reargument merely advances new arguments or supporting facts which were available for presentation at the time of the original argument").

III Discussion

A Breach of Fiduciary Duty

In support of its motion for reconsideration, K&P asserts that it seeks reconsideration of the Court's Decision to prevent a manifest injustice. K&P contends that absent evidence in the record as to what Plaintiffs would have done if K&P had fully disclosed PIC's negotiations with the FDIC, Plaintiffs failed to establish a breach of fiduciary duty claim. See Griffin v. Fowler, 260 Ga.App. 443, 445, 579 S.E.2d 848, 850 (Ga.Ct.App. 2003) (establishing that "a claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by the breach"). In particular K&P challenges the Court's finding that K&P's non-disclosure was the proximate cause of Plaintiffs' damages.

It is well settled that a corporate general partner and the directors of that general partner owe a fiduciary duty of loyalty to a limited partnership and its limited partners.^2[] See Zoren v. Genesis Energy, L.P., 836 A.2d 521, 528 (Del. Ch. 2003). As a fiduciary, the general partner owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect. Meinhard v. Salmon, 249 N.Y. 458, 467-68 164 N.E. 545, 548 (1928). This duty of loyalty-particularly with a general partner of a limited partnership, managing partner of a general partnership or controlling shareholder of a close corporation-is one of the highest duties recognized in law. See Huffington, 532 S.W.2d 576 579 (Tex. 1976); see also Triple Five of Minnesota v. Simon, 404 F.3d 1088, 1097 (8th Cir. 2005) (citing Welder v. Green, 985 S.W.2d 170, 175 (Tex. Ct. App. 1998) (stating that a managing partner owes "the highest fiduciary duty to his partners"); see also IV Alan R. Bromberg & Larry E. Ribstein, On Partnership § 16.07(b) (2008). Indeed, because the general partner of a limited partnership typically has the exclusive power and authority to control and manage the partnership, it owes the limited partners an even greater fiduciary duty than is imposed on general partners in a typical general partnership. Palmer v. Fuqua, 641 F.2d 1146, 1155 (5th Cir. 1981).

It follows, therefore, that the scope of recovery for a breach of the duty of loyalty is not to be determined narrowly. Thorpe v. CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996). An action for the breach of fiduciary duty "'is a prophylactic rule intended to remove all incentive to breach-not simply to compensate for damages in the event of a breach.'" Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537, 542-43 (2d Cir. 1994) (quoting ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995-96 (2d Cir. 1983). When dealing with a controlling or managing fiduciary,

"'[t]he rule, inveterate and uncompromising in its rigidity, does not rest upon the narrow ground of injury or damage to the corporation resulting from a betrayal of confidence, but upon a broader foundation of a wise public policy that, for the purpose of removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed by the fiduciary.'" Thorpe v. CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996) (quoting Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939)).

For that reason, the "absence of specific damage to a beneficiary is not the sole test for determining disloyalty by one occupying a fiduciary position." In re Tri-Star Pictures, 634 A.2d 319, 334 (Del. 1993).

Breach of loyalty claims brought against a controlling fiduciary "comprise a special breed of cases that often loosens normally stringent requirements of causation and damage." Milbank, 722 F.2d at 543; see also ABCKO, 722 F.2d at 996 (holding that once the court determined that the controlling fiduciary's conduct constituted a breach of fiduciary duty, "the district judge was not required to find a 'but for' relationship between [the fiduciary's] conduct and [plaintiff's] lack of success"). It would be anomalous to permit a usurping partner to hide behind protestations of financial inability given that the partner often has substantial control over such circumstances. See II Alan R. Bromberg & Larry E. Ribstein, On Partnership § 6.07(d) (2008) (explaining that corporate opportunity doctrine has been applied to partnerships to (1) prevent the improper use of partnership assets and information, and (2) ensure that the partners will exercise their energies for the benefit of the partnership rather than for their personal gain).

Moreover, where, as here, a fiduciary relationship exists between the General Partner and Limited Partners, the burden of proving fair dealing shifts to the fiduciary. See Konover Dev. Corp. v. Zeller, 228 Conn. 206, 229-30, 635 A.2d 798, 810 (1994); see also Tomaino v. Concord Oil of Newport, Inc., 709 A.2d 1016, 1021 (R.I. 1998); Horowitz v. Le Lacheure, 81 R.I. 235, 239, 101 A.2d 483, 486 (1953). Indeed, the fiduciary may not simply hide behind hollow assertions that the plaintiff-corporation could not avail itself of the opportunity; rather, the fiduciary must establish by clear and convincing evidence that a corporation was unable or unwilling to take advantage of a corporate opportunity. See Konover, 228 Conn. at 229-30; see also Norman v. Elkin, 617 F.Supp.2d 303, 312-13 (D. Del. 2009) (stating that a defendant faces a significant burden in establishing that a corporation was financially unable to take advantage of a corporate opportunity); General Video Corp. v. Kertesz, No. 1922-VCL, 2008 WL 5247120, at *19 (Del. Ch. Dec. 17, 2008) (citing Sterianou ex rel. Stephanis v. Yiannatsis, No. 1508, 1993 WL 437487, at *4 (Del. Ch. Oct. 4, 1993)) (stating that the fiduciary must establish that such financial inability amounted to insolvency to the point where the corporation is practically defunct). Here, however, Defendant neither established that QTA had rejected the opportunity to purchase the Recoll Note, nor that the QTA was financially insolvent.

In Huffington v. Upchurch, the Texas Supreme Court stated that the fiduciary-defendant bears the burden of establishing a partnership's incapability,...