Takian v. Rafaelian

• Citation: 53 A.3d 964
• Decision Date: 29 June 2012
• Docket Number: No. 2010–372–Appeal.,2010–372–Appeal.
• Parties: Charles TAKIAN et al. v. Ralph RAFAELIAN et al. v. Charles Takian et al.
• Court: United States State Supreme Court of Rhode Island

53 A.3d 964

Charles TAKIAN et al.

v.Ralph RAFAELIAN et al.

v.Charles Takian et al.

No. 2010–372–Appeal.

Supreme Court of Rhode Island.

June 29, 2012.

Patrick J. Dougherty, Esq., for Plaintiffs.

Paul R. Crowell, Esq., Providence, for Defendants.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, and ROBINSON JJ.

OPINION

Justice FLAHERTY, for the Court.

“In the business world, the rearview mirror is always clearer than the windshield.” ¹ This dispute springs from the remnants of a potentially fruitful business relationship that rapidly turned sour. The plaintiffs, Charles and Marguerite Takian, and the defendants, Ralph and Lucia Rafaelian, together purchased property in South Kingstown that included a motel, a restaurant, and a trailer park.² The couples formed Lumar Realty Corporation to manage the property, and the plaintiffs agreed to run the businesses situated on it. In 2002, the relationship between the plaintiffs and the defendants began to deterioratebecause the defendants believed that the plaintiffs were mismanaging the businesses, and the defendants decided to sell their interest to the plaintiff's son, Randolph. As part of the sale, the defendants signed a release absolving the plaintiffs from “any and all claims arising out of the ownership of the property and operation of the business.”

After the sale, defendants continued to feel unsettled about how the business had been operated. They investigated further and alleged to have discovered facts that suggested far more serious misdeeds in the management of Lumar. It was plaintiffs, however, that initiated legal action. They filed an action for declaratory relief, in which they sought a ruling that the release that had been executed by defendants contemporaneous with the sale barred any further claims. The defendants counterclaimed, both on behalf of themselves and derivatively on behalf of the corporation, alleging a torrent of claims, including embezzlement, misrepresentation, misappropriation, and loss of corporate opportunity. A justice of the Superior Court granted summary judgment in favor of plaintiffs, after he found that the release was both valid and effective against both defendants and the corporation. This appeal ensued.

On March 6, 2012, the parties appeared before this Court for oral argument based on an order directing the parties to show cause why the issues raised by defendants' appeal should not be decided summarily, without further briefing or argument. After considering the record, the memoranda submitted by the parties, and the oral arguments advanced by each, we are of the opinion that cause has not been shown and that the appeal should be decided at this time. For the reasons set forth in this opinion, we affirm in part and vacate in part the judgment of the Superior Court, and remand the matter for further proceedings not inconsistent with this opinion.

IFacts & Travel

In 1986, plaintiffs and defendants purchased property located at 836 Matunuck Road in South Kingstown, Rhode Island; there were three businesses on the property: the Blackbeard Ocean View Hotel, a small restaurant, and a trailer park. Each couple contributed a $25,000 downpayment to the purchase price and each owned a 50 percent interest in the property.³ According to defendants, there was a quid pro quo agreement between the parties; defendants would finance the remainder of the purchase price if plaintiffs would operate the business. To effectuate their intent, the parties formed Lumar Realty Corporation. The corporation's stated purpose was to manage the hotel and real estate operations, which included the sale and rental of space for trailers and the maintenance of the property. Significantly, no stock was issued by the corporation at the time of its formation.

Despite the existence and stated purpose of Lumar, it is unclear from the record whether the corporation was continuously used to manage the businesses. For instance, letters to the trailer park tenants from the early 1990s ask the tenants to make their rent checks payable to Lumar Realty Corp., but subsequent letters from the mid-to-late 1990s ask the tenants to make their checks payable to Charles Takian. Lumar entered into lease agreements with trailer-park tenants as lessor, but at no time did the corporation own any of the property. In 2000, Lumar's corporate charter was revoked for failure to file an annual report with the secretary of state, but defendants had the charter reinstated in 2003. Additionally, it is undisputed that although the corporate charter authorizes the issuance of 600 shares of stock, Lumar did not issue any stock until 2005, when defendants issued fifty shares each to themselves.

The defendants contend that a series of revelations about the corporation's businesses led to the deterioration and eventual dissolution of their relationship with plaintiffs. First and foremost, the businesses did not appear to be profitable or even capable of meeting their operating costs. The defendants assert that they received a notice from the fire district that the property was subject to a tax sale because of unpaid taxes. A liability insurance cancellation notice was also issued. Furthermore, when defendants visited the property, they found it to be in “deplorable condition.” Thus, defendants decided to bring their involvement in this venture to an end by selling their interest to plaintiffs.

The defendants hired an accountant, Mark Provost, C.P.A., to review Lumar's records in preparation for the sale. The records showed that “shareholders” had loaned Lumar $145,673, which had been placed into a “loan account.” Based on his review, however, Provost concluded that $94,961 had been withdrawn from that account over time. The defendants alleged that these withdrawals represented “actual distributions” of money and that because they received no money, plaintiffs must have improperly kept the proceeds entirely for themselves. Conversely, an accountant retained by plaintiffs to inspect the corporation's finances testified at a deposition that the loan account was used when he compiled Lumar's annual tax returns as a “balancing account” to balance the corporate check book at the end of the year. He illustrated this purpose using the following example: If the checking account had a balance of $5,000 at the beginning of the year, and the corporation had a net profit of $10,000, but at the end of the year the account's balance was only $8,000, then he would debit the shareholder loan account $7,000 to balance the checking account. The defendants argued that this was merely an artifice to cover up the plaintiffs distributions of corporate funds to themselves.

Upset by these revelations, Ralph Rafaelian authored a memorandum, which he sent to plaintiffs, that summarized his understanding of the loan account, the distributions from that account he believed he and his wife were entitled to, and additional compensation he believed they were owed because of plaintiffs' general mismanagement of the property over the years. After detailing the basis for defendants' grievances against Charles and Marguerite Takian, the memorandum concluded with an ultimatum; in addition to a purchase price, it demanded a separate $100,000 payment to them from Charles and Marguerite. Concluding, Ralph threatened that if plaintiffs did not agree to such a payment, “the deal is terminated” and defendants will conduct “a full audit and let the ‘chips fall.’ ”

The plaintiffs agreed immediately to the $100,000 payment, and they delivered a promissory note through Randolph to defendants. The plaintiffs' riposte came in the form of a “joint and mutual release and indemnity agreement.” The agreement says, in relevant part, “The Takians and Rafaelians hereby mutually release one another from any and all claims arising out of the ownership of the property and operation of the business.” Additionally, plaintiffsagreed to “defend, indemnify, and hold harmless the Rafaelians from any and all liability arising out of the parties ownership of the property and operation of the business * * *.” All the parties, including Randolph, signed the agreement and the sale was consummated in August 2002. At all times during the closing, the Rafaelians were represented by counsel.

In 2003, plaintiffs sold the campground to the Blackbeard Housing Association, an organization that had been created by the property's tenants, for $1.4 million. It is noteworthy that in July 2002, a tenant named Donald Tatro had approached Lucy Rafaelian and told her that the tenants were interested in purchasing the property; she responded by telling them to come back with an offer of more than $1 million. The defendants say that Charles Takian became aware of the offer and threatened the tenant spearheading the effort to buy the property by “screaming and hollering” that he would handle any negotiations and that “in no uncertain terms” he was not to speak to Lucy. Lucy received no further calls from the association before defendants' sale of their interest to Randolph Takian.

Even after severing their ties to the property and ending their business relationship with plaintiffs, defendants continued to investigate plaintiffs' management of Lumar. Eventually, they came to believe that plaintiffs were guilty of more nefarious wrongdoings than they originally had suspected. Both plaintiffs and defendants filed miscellaneous petitions for discovery in the Superior Court, in which they sought each other's financial records. After it came to light that the trailer-park tenants' checks had been deposited into plaintiffs' personal bank account, plaintiffs, in a preemptory strike, sought a declaratory judgment that the release-and-indemnity agreement executed in connection with the sale was valid and that it barred any further claims by defendants. In response, defendants filed a plethora of counterclaims. ⁴

The plaintiffs filed a motion for summary judgment, and a...