Gulati Family Ltd. P'ship II v. JCDH Props., C. A. PC-2015-4599

CourtSuperior Court of Rhode Island
Writing for the CourtTAFT-CARTER, J.
PartiesGULATI FAMILY LIMITED PARTNERSHIP II Plaintiff, v. JCDH PROPERTIES, LLC THE CIOE COMPANIES, LLPRICHI INVESTMENT PROPERTIES, LLC JOHN M. CIOE, individually ROBERT A. CIOE, individually ROBERT R. CIOE, individually Defendants.
Docket NumberC. A. PC-2015-4599
Decision Date12 September 2022

GULATI FAMILY LIMITED PARTNERSHIP II Plaintiff,
v.

JCDH PROPERTIES, LLC THE CIOE COMPANIES, LLPRICHI INVESTMENT PROPERTIES, LLC JOHN M. CIOE, individually ROBERT A. CIOE, individually ROBERT R. CIOE, individually Defendants.

C. A. No. PC-2015-4599

Superior Court of Rhode Island, Providence

September 12, 2022


For Plaintiff: Charles D. Blackman, Esq.

For Defendant: Robert Fine, Esq.

DECISION

TAFT-CARTER, J.

This matter is before the Court for decision following a non-jury trial on Counts II-VI of the Amended Complaint filed by Plaintiff Gulati Family Limited Partnership II (GFLP). GFLP filed the instant action against Defendants JCDH Properties, LLC (JCDH), the Cioe Companies, LLP (TCC), RICHI Investment Properties, LLC, and John M. Cioe, individually, Robert A. Cioe, individually, and Robert R. Cioe, individually.

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I

Travel of the Case

GFLP filed the operative complaint in this matter-i.e., the Amended Complaint-on June 23, 2021.[1] The Amended Complaint contains six counts: Count I, Action on Promissory Note;[2]Count II, Promissory Estoppel;[3] Count III, Promissory Estoppel;[4] Count IV, Garnishment/Constructive Trust;[5] Count V, Misrepresentation and Fraud;[6] and Count VI, Express Guaranty.[7]

On September 25, 2018, Judge Silverstein denied the parties' cross-motions for summary judgment. (Bench Decision (September 25, 2018) (Silverstein, J.).) First, with respect to GFLP's Motion for Partial Summary Judgment[8] as to Count III, which was predicated upon GFLP's

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contention that section 2.4 of the Restated and Amended Operating Agreement (2005) of JCDH Properties LLC (Restated Operating Agreement) constituted a written "guaranty" by Defendants of GFLP's loan to JCDH, Judge Silverstein denied the motion, ruling that the language of section 2.4 was insufficient to constitute an enforceable guaranty under either Rhode Island or Arizona law. Id. at 3:8-16. First, Judge Silverstein noted that the language of section 2.4 was "so ambiguous because of the 'and/ors' and because of the language 'it is expected' so as to make that language not even sufficient as a memorandum to sustain the legal concept of guaranty in order to get out from under what we refer to as statute of frauds." Id. at 3:8-14.[9] Second, with respect to Defendants' Cross-Motion for Summary Judgment as to the remaining counts, which was based on Defendants' assertion that it did fund a $650,000 loan to JCDH-a factual assertion contested by GFLP-Judge Silverstein denied the motion, finding Defendants' evidence "not sufficient in the face of [GFLP's] denial and in the lack of any evidence demonstrating receipt by [GFLP] or by [JCDH] of the $650,000." Id. at 4:6-9. Defendants' Renewed Motion for Summary Judgment was denied on October 17, 2019. See Docket PC-2015-4599.

This action proceeded to trial without a jury on July 12 and 13, 2021. At trial, GFLP presented the following witnesses: Ramesh Gulati, John M. Cioe, and Joseph Altieri. See Tr. Index. After conclusion of GFLP's case-in-chief, Defendants recalled John M. Cioe and also presented Robert R. Cioe. See id. The parties jointly submitted six full exhibits in advance of trial.[10] GFLP

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offered an additional twenty-eight exhibits[11] that were entered in full, while Defendants offered an additional eight exhibits that were also entered in full.[12] At the close of GFLP's case-in-chief, and again at the close of trial, Defendants renewed their motion for entry of judgment on the pleadings pursuant to Rule 52(c) of the Superior Court Rules of Civil Procedure. GFLP objected to both motions, and the Court reserved ruling on both motions. (Tr. 134:10-135:5; 200:6-9.)

The parties elected to submit post-trial briefs in lieu of closing arguments. (Tr. 200:10-21.) Both post-trial briefs were submitted on November 3, 2021. See Docket PC-2015-4599; see also Plaintiff Gulati Family Limited Partnership II's Proposed Findings of Fact and Proposed Conclusions of Law (Pl.'s Prop. Findings and Prop. Concl.) and Post-Trial Memorandum of Defendant Cioe Parties (Defs.' Post-Trial Mem.).) Jurisdiction is pursuant to Rule 52(a) of the Superior Court Rules of Civil Procedure.

II

Findings of Fact

The Court has reviewed the evidence presented at trial by the parties and makes the following findings of fact.

This action involves a dispute between investors in an Arizona real estate development project as to whether GFLP, an investor in the project, is entitled to recover from Defendants, fellow investors in the project, the losses GFLP experienced when JCDH, the real estate developer, defaulted on a $100,000 loan from GFLP.[13]

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Restated and Amended Operating Agreement (2005) of JCDH Properties LLC

The real estate development project giving rise to the instant litigation was in Marana, Arizona and was known as "Serenita at Saguaro Ranch." (Tr. 8:7-25.) JCDH, an Arizona limited liability company formed in 2004, had previously acquired the development rights to the thirteen-lot Serenita subdivision. (SUF ¶ 4.) JCDH was organized pursuant to an Operating Agreement dated June 25, 2004, which was restated and amended on June 21, 2005 as the Restated and Amended Operating Agreement (2005) of JCDH Properties LLC (Restated Operating Agreement).

The Restated Operating Agreement, a comprehensive and detailed agreement, contains key terms of JCDH's formation and governance, including its formation as an Arizona limited liability company, its purpose, and its capitalization, as well as the rights and duties of its members, including such details as profits, losses, and distributions, and various other provisions essential to the running of the company. Included within these provisions are several terms relevant to the instant litigation, including a provision concerning "Member Loans":

Section 2.4 of the Restated Operating Agreement provides:

"2.4 Member Loans. If funds are needed by the Company, Members may make such loans to the Company in such amount as the Members reasonably determine is needed. It is expected that Al Mansfield and/or AJM Investments, John Cioe, Robert Cioe and/or A.J.R. Investments L.L.C. will, if required, guaranty ("Personal Guaranty") loans to the Company for use as operating capital."

Additional key terms of the Restated Operating Agreement, include (1) a provision governing any future additions or amendments[14] to the Restated Operating Agreement, (2) a

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merger clause,[15] (3) a choice of law provision,[16] and (4) section 6.8, a provision relating to member loans to the company, which states:

"6.8 Loans to Company. Nothing in this Agreement shall prevent any Member from making secured or unsecured loans to the Company by agreement with the Company. All such loans shall be evidenced by a promissory note executed by the Company and shall contain such terms and conditions as are commercially reasonable or as may be agreed to by the Members."

GFLP's Investment in JCDH

GFLP's initial investment in JCDH's Arizona real estate development project came about as a result of discussions that began in August 2005 at a family barbeque hosted by attorney Joseph Altieri (Altieri)[17] at his home in Narragansett, Rhode Island. (Tr. 7:1-4; 7:7-9; 74:3-5; 127:5-11.) In attendance was Ramesh Gulati (Gulati), a friend of Altieri who is a certified financial planner, financial advisor, and owner of his own registered investment advisory firm dealing in financial products including stocks, bonds, mutual funds, exchange trade funds, private placements, and real

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estate. (Tr. 6:5-14; 7:7-9; 11:9-15; 124:2-11; 127:5-19.) Gulati is the managing partner of GFLP, a Rhode Island limited partnership (SUF ¶ 1) and the vehicle through which Gulati managed the money and assets of his family. (Tr. 6:15-25.) Also in attendance was Altieri's nephew, John M. Cioe. (Tr. 8:13-18.) At the time, John M. Cioe was a general partner of TCC, an Arizona limited liability partnership, and his brother, Robert R. Cioe, and father, Robert A. Cioe are or were partners in TCC. (SUF ¶¶ 2-3.) (Tr. 7:12-25.)[18]

During the August 2005 event, Gulati and John M. Cioe discussed the Arizona real estate development project known as "Serenita at Saguaro Ranch." (Tr. 8:4-25; 127:15-22.) Intrigued by the potential investment opportunity, as well as by stories of the Cioes' recent success in the world of Arizona real estate development, Gulati kept in touch with John M. Cioe. (Tr. 8:13-25; 9:19-25.)

On or about August 11, 2005, GFLP purchased a 1 percent membership stake in JCDH through an initial investment of $50,000.[19] (SUF ¶ 6.) (Tr. 11:4-6.) In connection with becoming a member of JCDH, GFLP signed a Joinder Agreement to the Restated Operating Agreement (Joinder Agreement), which was executed later that month. (SUF ¶ 6.) (Tr. 12:16-13:18.) GFLP acknowledges that it is "an experienced investor" and also that it "appreciated that there were risks associated with the . . . investment," (SUF ¶ 7) (Tr. 13:19-22), and Gulati testified at trial that he received the Joinder Agreement and was aware of the "high degree of risk" of "loss by [the investor] of its entire investment." (Tr. 51:15-24.) GFLP makes no claim in the present action to recover GFLP's lost equity investment of $50,000. (SUF ¶ 7.) (Tr. 13:19-35.)

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GFLP's and TCC's 2009 Emergency Loans to JCDH

By late 2009, the real estate market in Arizona was declining rapidly as the global financial crisis continued to devastate the nation's real estate market. (Tr. 16:15-22; 137:17-22.) By October 2009, JCDH was facing a severe liquidity shortage that threatened to derail the Serenita project. (Tr. 16:5-7; 16:17-22.) JCDH was responsible for significant payments[20] to Marshall and Isley Bank (M & I Bank) on several aggregated loans, and these payments were coming due toward the end of October 2009. (Tr. 87:4-15.) Seeking to forestall foreclosure, members of JCDH took...

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