Tomaino v. Concord Oil of Newport, Inc.

• Decision Date: 25 March 1998
• Docket Number: No. 95-684-A,95-684-A
• Citation: 709 A.2d 1016
• Parties: Joseph M. TOMAINO et al. v. CONCORD OIL OF NEWPORT, INC., a Massachusetts Corporation. ppeal.
• Court: Rhode Island Supreme Court

Page 1016

709 A.2d 1016

Joseph M. TOMAINO et al. v. CONCORD OIL OF NEWPORT, INC., a Massachusetts Corporation.

No. 95-684-Appeal.

Supreme Court of Rhode Island.

March 25, 1998.

Joseph R. Palumbo, Jr., Middletown, for Plaintiff.

Paul S. Callaghan, Kenneth P. Borden, Providence, for Defendant.

Before WEISBERGER, C.J., and LEDERBERG, FLANDERS and GOLDBERG, JJ.

OPINION

WEISBERGER, Chief Justice.

This case comes to us on cross-appeals from a judgment entered in Superior Court. The plaintiffs' complaint sought declaratory relief, injunctive relief, and money damages on the issue of ownership of certain underground gasoline tanks located on three separate parcels of land owned by the plaintiff Joseph M. Tomaino (Tomaino or plaintiff). ¹ For the reasons set forth below, we affirm in part and reverse in part. The facts insofar as are pertinent to the instant appeal are as follows.

In 1976 Tomaino became a 25-percent owner of Concord Oil Company (Concord), a closely held Massachusetts corporation involved primarily at that time in the home-heating-oil business. Tomaino, who brought with him seventeen years of experience from his previous employment with Texaco, Inc., became a member of the board of directors and vice president of Concord. His primary area of responsibility with Concord was the development, maintenance, and enhancement of Concord's retail-gasoline business.

The president of Concord was Arthur R. Bethke (Bethke), who along with his wife, Virginia, and two sons, Charles and Douglas, owned the rest of the Concord stock. Bethke, from the time he acquired the business in 1969, ran the company. ²

Between 1976 and 1978 Concord developed several gasoline retail outlets. Because of its limited liquid capital and other business considerations, Concord would as a general rule either lease its service-station locations and/or negotiate a supply contract with an existing operator. Regardless of the form of the business, it was routine for Concord to acquire ownership of the underground tanks at each location where it was supplying gasoline. ³ This practice was standard operating procedure in the retail-gasoline industry in New England at that time. Three witnesses in the business of gasoline retailing, Arthur DeBlois III, president of DB Companies, Incorporated; Steven B. Shaer, principal and executive vice president of Mutual Oil Company Incorporated; and James Ahern, president of Drake Petroleum Company, testified that during the 1970s it was very common for gasoline distributors to own the underground tanks and related petroleum-marketing equipment (that is, underground fuel lines, underground pump systems, gas pump islands, and the like) at retail locations with which the distributor had a supply or a commission contract. Arthur DeBlois testified that by securing ownership of the gasoline storage tanks, the supplier could "put a lock on [the] business through [the] contractual relationship." In addition, by owning the tanks, the supplier had the power to remove the equipment from the property in the event the onsite vendor was unable or unwilling to meet the supplier's business expectations. According to two of the witnesses this practice did not change until the mid-1980s, upon the advent of greater environmental-testing procedures and the consequent environmental liability, which was never an issue in the 1970s.

Prior to joining Concord, Tomaino had investigated the possibility of purchasing/leasing several retail gasoline businesses located in Rhode Island and owned by Newport Oil Corporation (Newport Oil). In 1978, after joining Concord, Tomaino and Bethke agreed that Tomaino would renew negotiations with Newport Oil in order to pursue jointly these opportunities on behalf of Concord. Tomaino negotiated an agreement with Newport Oil to lease three properties upon which retail-gasoline businesses were in operation. Specifically the locations were Two Carol Avenue, Newport (Newport); One Mile Corner, Middletown (One Mile Corner); and 2311 West Main Road, Portsmouth (Portsmouth). ⁴

Tomaino and Bethke formed a separate corporation, Concord Oil of Newport, Inc. (Concord/Newport), a subsidiary of Concord and defendant here, to supply and/or operate the retail-gasoline businesses at each location. Ownership of Concord/Newport was as follows: Concord owned 68 percent of the stock and Tomaino owned 32 percent. ⁵ Tomaino served as president of the new entity, Bethke served as treasurer, and Mrs. Bethke was appointed clerk. Tomaino created a revocable inter vivos Massachusetts business trust, Fox Hill Realty Trust (Fox Hill), of which he was the settlor, naming his children as beneficiaries. Fox Hill entered into a ten-year lease for each of the locations with Newport Oil. ⁶ By separate purchase-and-sale agreement executed March 23, 1978, Fox Hill purchased all the buildings and improvements constituting the gasoline service stations, including all petroleum-marketing equipment, underground tanks, and ancillary facilities at the price of one dollar. ⁷

On June 12, 1978, Fox Hill transferred ownership, by bill of sale, of the underground tanks, pump islands, pump systems, and related lighting at each location to Concord/Newport for $5,000. Tomaino testified that this figure was below market value for the tanks and other improvements. There was additional testimony that this amount was substantially less than Concord/Newport had paid on previous occasions for similar acquisitions. The tanks became corporate assets of Concord/Newport and were depreciated on its income tax returns over the next five years.

Subsequently Concord/Newport paid for major retrofitting and renovation work on the tanks and underground pumping systems at two of the three Concord/Newport locations. In the 1980s the Rhode Island Department of Environmental Management began requiring owners of underground storage tanks to register them with the state. The tanks were registered with Concord/Newport listed as owner. Concord/Newport also provided and paid for tank inspection. In the mid-1980s, Bethke, Tomaino, and Michael T. Whaley, an officer and comptroller of Concord, discussed the necessity of purchasing environmental liability insurance on Concord- and Concord/Newport-owned underground tanks, including those located at the three subject properties. Concord/Newport, not Fox Hill, purchased all necessary insurance. Tomaino left Concord's employ in February 1993. Following Tomaino's departure, Concord/Newport continued to insure and maintain the tanks just as it had during Tomaino's tenure with the company.

George A. Giacobbi, a marketing representative for Concord from 1988 through 1994, testified that after Tomaino left in 1993, he (Giacobbi) attended a meeting with Bethke and Mark Daggis, a representative from Dairy Mart--the business occupying the Newport location. Giacobbi testified that Bethke offered to sell the underground tanks to Dairy Mart. Giacobbi also testified that he was present on another occasion when Greg Caneb, a Concord employee, offered to sell the tanks to other representatives from Dairy Mart.

In May 1993 Concord/Newport notified Tomaino of its intention to quit its tenancy at the One Mile Corner location. Tomaino requested that Concord/Newport remove its underground tanks at that site. After Concord/Newport failed to do so, Tomaino, after notifying Concord/Newport of his intention, removed the tanks at a cost of $18,600.

Frank M. Oliveira (Oliveira), a commercial real estate broker engaged by Fox Hill to rent the property testified that the presence of the tanks frustrated his efforts because suitable tenants were unwilling to assume the potential liability that the presence of the tanks created. Rhode Island Pizza, Inc., a franchisee of Domino's Pizza (Domino's), eventually agreed to rent the premises on the condition that the tanks be removed. Thereafter Tomaino paid for the removal of the tanks at the One Mile Corner location. When Domino's finally assumed tenancy, the property had been unoccupied for eleven and one-half months. Oliveira's undisputed testimony was that the fair rental value of the One Mile Corner property at that time was $3,000 per month triple net. ⁸

On February 3, 1994, plaintiff filed a complaint seeking declaratory relief, injunctive relief, and money damages. In August 1994 Tomaino received further notice from Concord/Newport of its intention to terminate its tenancy at both the Portsmouth and the Newport locations. Concord/Newport removed a portion of the petroleum marketing equipment from each location, but did not remove the underground tanks or the related piping. Tomaino did not, however, remove at his own expense the tanks at either the Newport or the Portsmouth locations. Tomaino was unsuccessful in renting either of these two properties from that time until the time of trial.

A trial was held in Superior Court in June 1995. The trial justice denied defendant's motion for judgment as a matter of law. The jury determined that the tanks were the property of defendant Concord/Newport and awarded plaintiff $88,950 in damages, representing costs incurred in removing two tanks from one location and for lost rental revenue at each additional location. The trial justice denied defendant's motion for a new trial and directed defendant to remove the remaining underground tanks and related equipment. The trial justice conditioned the denial of defendant's motion upon plaintiff's acceptance of a remittitur of $37,650. The remittitur was imposed because the trial justice concluded that Tomaino had failed to mitigate damages by not removing the remaining tanks located at the Newport and the Portsmouth locations and thus render those properties eligible for lease or sale.

In support of its appeal defendant raises three issues. First, it claims that because the sale of the underground tanks was never authorized, approved, or ratified by its directors or shareholders, the trial justice...