North Atlantic Fishing, Inc. v. Geremia
| Decision Date | 03 May 1993 |
| Docket Number | C.A. No. 92-227L. |
| Citation | 153 BR 607 |
| Parties | NORTH ATLANTIC FISHING, INC. and Herbert Lee v. Louis GEREMIA, Trustee, and Arthur Reposa and Peter Reposa. |
| Court | U.S. District Court — District of Rhode Island |
Thomas S. Hemmendinger, Providence, RI, for North Atlantic Fishing, Inc. and Herbert Lee.
Thomas H. Quinn, Providence, RI, and William Y. Chaika, Cranston, RI, for Trustee and Reposas.
Louis A. Geremia, Providence, RI, Trustee.
This matter is before the Court on appeal from a Decision and Order issued on November 14, 1991 by Judge Votolato of the United States Bankruptcy Court for the District of Rhode Island. Appellants, North Atlantic Fishing, Inc. ("NAF") and its sole shareholder Herbert Lee, challenge the Bankruptcy Court's calculation of the compensatory and punitive damages which were granted in favor of appellees. In contrast, appellees, Louis A. Geremia, trustee in bankruptcy, and debtors Arthur and Peter Reposa, support Judge Votolato's 1991 decision in its entirety.
Almost nine years have passed since the transaction which underlies this dispute actually occurred. The original contact between the parties, which was consummated in early 1984, arose out of their mutual interest in a fishing boat owned by NAF. The Reposas wished to buy the boat while NAF and Lee were interested in selling it. Importantly, on March 22, 1984, while the Reposas were still deciding whether to purchase the vessel, the boat sank at dockside. Much of the lower level, including the engine, incurred damage. After having the boat cleaned and repaired, Lee told the Reposas that water had not gotten into the engine and that the problem was remedied. Thus, despite the earlier sinking, the Reposas decided to purchase the vessel for $665,000.00. On May 11, 1984, the Reposas paid $14,000.00 in cash, assumed the $270,000.00 balance owed to Mellon Bank on an existing mortgage on the boat, and granted NAF a $381,000.00 note secured by a second mortgage on the boat as well as equity mortgages on the Reposas' homes and another fishing boat they owned.
Trouble ensued soon after the Reposas began using the vessel. In July 1984, the engine failed. The Reposas took the vessel to Marty's Marine, Inc. ("Marty's") for repair. However, due to faulty workmanship, the engine failed again just one month later. After three months of further repair work by Giles and Ransome, Inc., the boat was again seaworthy. Unfortunately, this condition did not last long; in July 1985, the ship's propeller caught on a submerged wire and the reverse gear failed. This time the boat was out of commission until late August 1985.
Although this ill-fated vessel was finally in working order, Arthur Reposa, financially unable to withstand all of the previous turmoil, filed a Chapter 11 petition in September 1985. His son Peter filed a similar petition four months later. The two cases were consolidated and then, in August 1986, were converted to Chapter 7.
The Bankruptcy Court and the Chapter 7 trustee soon began their work. In February 1987, the Bankruptcy Court approved a $30,000.00 payment from Marty's liability insurer as a compromise for the damages caused by Marty's faulty repairs. The next month the Bankruptcy Court authorized the Chapter 7 trustee to sell the fishing boat for $425,000.00 and to pay the first secured creditor, Mellon Bank, $314,485.00 of the proceeds. Rather than turn over the remaining proceeds to NAF and Lee, who had filed a proof of claim in the amount of $423,555.65, the trustee filed an adversary proceeding in May 1987. The Reposas joined the trustee in alleging that Herbert Lee had fraudulently misrepresented the condition of the boat, and that such misrepresentations led to the ship's extended down time.
After a four day trial in December 1989, Judge Votolato determined that Lee had committed fraud by misrepresenting the condition of the boat. Reposa v. North Atlantic Fishing, Inc. (In re Reposa), A.P. No. 87-0021, slip op. at 10 (Bankr.D.R.I. Dec. 29, 1988) (hereinafter "Votolato 1988"). He thus decided that Lee and NAF were liable for the Reposas' losses due to the first engine failure, and calculated the actual losses at $22,125.00. Id. at 14. Judge Votolato also determined that, by his intentional fraudulent conduct, Lee had endangered the lives of the Reposas and any others who could have been out at sea when the boat's engine failed. Id. at 15. The Judge therefore assessed $160,000.00 in punitive damages. Id. The final result was to decrease NAF's proof of claim to $241,430.65 plus interest. Id. at 16.
All parties appealed. In relevant part, the trustee and the Reposas contested the Bankruptcy Court's failure to void NAF's promissory note, the second preferred ship's mortgage, and the additional equity mortgages. They argued, in the alternative, that the punitive damages should have been increased to offset the Reposas' remaining indebtedness to NAF. On the other hand, NAF and Herbert Lee challenged the award of compensatory and punitive damages as unwarranted and excessive. After considering the issues, Judge Pettine affirmed the Bankruptcy Court's finding of fraud. In re Reposa, C.A. No. 89-682P & C.A. No. 89-683P, slip op. at 9 (D.R.I. Mar. 11, 1991) (hereinafter "Pettine Decision"). However, deciding that the negligent repair work was foreseeable as a matter of law, Judge Pettine determined that Lee and NAF were responsible for damages resulting from both the first and second engine failures. Id. at 10. He remanded the case, instructing the Bankruptcy Court to recalculate compensatory damages. Id. at 17. Although Judge Pettine did not rule on punitive damages, he invited the Bankruptcy Court to review its punitive damages assessment in light of the new ruling on compensatory damages. Id. at 13. On remand the Bankruptcy Court increased the compensatory damages to $89,395.01. Reposa v. North Atlantic Fishing, Inc. (In re Reposa), A.P. No. 87-0021, slip op. at 3, 1991 WL 502482 (Bankr.D.R.I. Nov. 14, 1991) (hereinafter "Votolato 1991"). Additionally, Judge Votolato more than doubled the punitive damages award, determining that the punitive damages should offset the Reposas' remaining indebtedness to NAF. Id. at 4. Accordingly, the Bankruptcy Court assessed punitive damages of $334,160.64, an amount equal to NAF's $423,555.65 proof of claim less the $89,395.01 compensatory damages award. Id.
NAF and Lee again appealed, resulting in the present action. This Court has jurisdiction over appeals from final judgments, orders, and decrees of the Bankruptcy Judge for the District of Rhode Island pursuant to 28 U.S.C. § 158(a). After reviewing the appeal, the Court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed.Bankr.R. 8013. Appellants now ask this Court to decrease the compensatory damages and eliminate, or at least decrease, the punitive damages awarded to appellees. They also contend that the Court should order the debt owed to them by the Reposas be satisfied with the proceeds remaining from the sale of the boat and foreclosure on the Reposas' houses. In contrast, appellees argue that the Bankruptcy Court's final judgment should be affirmed.
The Court heard arguments and then took this matter under advisement. It is now in order for decision. For the reasons that follow, the Court vacates the Bankruptcy Court Decision and Order, and remands with instructions regarding compensatory and punitive damages.
In reviewing an appeal from the bankruptcy court, the district court applies the identical standards of review that govern appeals of civil cases to appellate courts generally. In re LaRoche, 969 F.2d 1299, 1301 (1st Cir.1992). Accordingly, the Court will review the Bankruptcy Court's legal conclusions de novo, id., and will set aside findings of fact only if it determines, after giving due regard to the Bankruptcy Court's opportunity to judge witnesses' credibility, that the findings are "clearly erroneous." Fed.Bankr.R. 8013. Again as in other appellate review contexts, a factual finding is "clearly erroneous" only when it leaves the appellate court "with the definite and firm conviction that a mistake has been committed." In re Bible Speaks, 869 F.2d 628, 630 (1st Cir.) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)), cert. denied, Bible Speaks, Inc. v. Dovydenas, 493 U.S. 816, 110 S.Ct. 67, 107 L.Ed.2d 34 (1989); see also In re Gaudet, 132 Bankr. 670, 673 (D.R.I.1991).
Appellants argue that the Bankruptcy Court misapplied the law in calculating compensatory damages. First, appellants contend that Judge Votolato erroneously relied on the collateral source doctrine, and failed to subtract the sum of money appellees received in a settlement with Marty's. Second, appellants note that the Bankruptcy Court's determination of detention damages ignores a moratorium on mortgage payments which NAF granted the Reposas while the boat was disabled after the second engine failure. The Court addresses each issue in turn.
As set forth in the Background section, the Bankruptcy Court originally determined that, although liable for the first engine failure, Herbert Lee and NAF were not responsible for the damages caused by Marty's negligent repair work. Votolato 1988, slip op. at 10. However, Judge Pettine reversed, deciding as a matter of law that it was foreseeable to Herbert Lee and NAF that the boat's engine would fail and require repairs, and that the repair work might be done negligently. Pettine Decision, slip op. at 10. In following Judge Pettine's instructions on remand, the Bankruptcy Court increased the compensatory damages to reflect the amount the Reposas lost from both the first and second engine...
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