Tonetti Enterprises v. Mendon Road Leasing

• Decision Date: 28 March 2008
• Docket Number: No. 2006-195-Appeal.,2006-195-Appeal.
• Citation: 943 A.2d 1063
• Parties: TONETTI ENTERPRISES, LLC v. MENDON ROAD LEASING CORP.
• Court: Rhode Island Supreme Court

943 A.2d 1063

TONETTI ENTERPRISES, LLC v. MENDON ROAD LEASING CORP.

No. 2006-195-Appeal.

Supreme Court of Rhode Island.

March 28, 2008.

Joseph A. Lamagna, Esq., Pawtucket, for Plaintiff.

Mark B. Morse, Esq., Providence, for Defendant.

Eric B. DiMario, Esq., Providence, for Digital Federal Credit Union.

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

OPINION

Justice SUTTELL, for the Court.

The defendant, Mendon Road Leasing Corp. (Mendon Road) appeals from a Superior Court judgment denying its motion to vacate a District Court default judgment awarding the plaintiff, Tonetti Enterprises, LLC (Tonetti), possession of the premises that Mendon Road had been leasing from Tonetti. Also before the Court is an appeal by Digital Federal Credit Union (Digital) from an order denying its motion to intervene in this commercial ejectment action. For the reasons set forth in this opinion, we reverse the judgment and order of the Superior Court.

I Facts and Procedural History

The appeals before this Court arise out of a lease agreement entered into by Tonetti and Mendon Road's predecessor, 99A Management Corporation,¹ for the lease of commercial property located at 1754 Mendon Road, Cumberland, Rhode Island. Under the terms of the lease agreement, lessee was to pay rent on an annual basis and was also required to pay common area maintenance (CAM) charges as additional rent at the end of each year. The lease agreement stated that at the end of each year, Tonetti would adjust the CAM charges to reflect the actual expenses incurred by Tonetti, but lessee had the right to review Tonetti's records concerning the CAM charges within sixty days of the assessment of the CAM charges. Furthermore, the lease agreement contained a clause providing that if lessee has given notice to Tonetti of the name and address of any mortgagee, Tonetti was obligated to send that mortgagee a duplicate copy of any notice that was given to lessee.

On January 4, 2002, Tonetti filed an action against Hemisphere Management Corp. in District Court claiming an arrearage in rental payments and seeking repossession of the leased premises. On February 27, 2002, the parties entered into a consent order setting forth a payment schedule for certain rental and CAM expenses, and establishing an electronic fund transfer mechanism for payments due after May 1, 2002. In the event of default, the consent order provided that Tonetti's "remedy shall be a motion for the entry of judgment of possession," with seven days notice of failure to pay to be forwarded to Hemisphere Management Corp., attention Demetrios E. Haseotes, with a copy to its two named attorneys.

Several years later, another dispute arose between landlord and tenant. On August 1, 2005, Tonetti advised Mendon Road that an audit had revealed an additional fee of $3,285.92 owing for CAM expenses. This was followed by a notice of default under the provisions of the lease and a notice of violation of the consent order sent by certified mail to Mendon Road's corporate address in New York. Copies of the notice, however, were not sent to the attorneys listed in the consent order. When these notices failed to engender payment of the disputed expenses, Tonetti forwarded to Mendon Road a notice of termination of lease by facsimile and certified mail.

On December 15, 2005, Tonetti initiated two separate actions against Mendon Road, each seeking repossession of the premises. First, Tonetti filed a motion for entry of a judgment of possession under the provisions of the February 27, 2002 consent order. A hearing date on said motion was scheduled for January 3, 2006.² Secondly, Tonetti filed a new complaint against Mendon Road in District Court under G.L. 1956 § 34-18.1-9, asserting that Mendon Road had defaulted in the payment of rent, additional rent, CAM charges, and/or taxes under the terms of the lease.

The summons was served on Demetrios B. Haseotes in Cumberland, Rhode Island, on December 27, 2005. The summons stated that the appearance date was set for 9 a.m. on January 4, 2006, and in bold print, "If you fail to appear on the date stated below, judgment by default will be taken against you for the relief demanded in the complaint."

Mr. Haseotes accepted service of process. However, he is not the president of defendant corporation; rather, it is his son, Demetrios E. Haseotes who is president. Nevertheless, Mendon Road's attorney submitted an affidavit stating that at some time between December 27, 2005, and January 3, 2006, Demetrios E. Haseotes contacted him and forwarded him a copy of the complaint. Mendon Road responded to the complaint on January 3, 2006, with an answer denying that it had defaulted under the terms of the lease. Mendon Road also raised a number of affirmative defenses in its answer including accord and satisfaction, release, waiver, laches, and unclean hands, along with defenses under Rule 12 of the District Court Civil Rules for failure to state a claim upon which relief can be granted and lack of subject-matter jurisdiction. It is undisputed, however, that neither Mendon Road nor its attorney appeared in District Court on January 4, 2006.

At the hearing on January 4, 2006, plaintiff presented the testimony of its manager, Gino Tonetti, and judgment for possession was entered in its favor. On January 20, 2006, Mendon Road filed a motion to vacate entry of judgment by default, as well as a motion for stay of execution, both of which were denied. The defendant then filed a notice of appeal to the Superior Court.³

In its written submissions to the Superior Court, Mendon Road argued that before the hearing in District Court, it had, in fact, cured the alleged default by wiring to Tonetti's account sufficient funds to pay the CAM charges in full. Mendon Road also advanced the following arguments: (1) clerical error justified relief because the clerk of the District Court failed to note that defendant filed an answer on January 3, 2006, and incorrectly noted on the civil face sheet that "Pres Haseotes served"; (2) the judgment was void for inadequate service of process; (3) Mendon Road's failure to attend the hearing was due to excusable neglect because of a combination of inadequate service of process and confusion over hearing dates caused by the previous action Tonetti filed seeking similar relief; (4) Tonetti misrepresented to the court that defendant's president had been served, when in fact it was the president's father who was served, and further misrepresented that defendant had not paid the CAM charges when in fact the CAM charges had been paid in full on December 19, 2005, by means of electronic transfer; and (5) Mendon Road had not been provided notice under either Rule 55 or Rule 77 of the District Court Civil Rules.

On March 3, 2006, Digital filed a motion to intervene in the Superior Court asserting that it had an interest in the litigation as the holder of a leasehold mortgage of $1.55 million. Digital asserted that the outcome of Tonetti's commercial ejectment action could impair its ability to protect its property interest, and that the existing parties did not adequately represent Digital's interests. More specifically, Digital argued that if Mendon Road was unsuccessful in this litigation, its ability to continue making payments to Digital would be severely affected, as would Digital's ability to foreclose on the property, if necessary. Digital argued that it should have received all notices sent to Mendon Road under the terms of the lease agreement, but that it did not receive any of the notices sent to defendant about the default and termination of the lease agreement. Digital admitted in its memorandum supporting its motion to intervene that there was an issue of material fact about whether Tonetti received actual notice of Digital's mortgage on the leasehold, but Digital states that Tonetti had constructive notice of the mortgage because the mortgage had been recorded in the Cumberland Registry of Deeds. Therefore, Digital maintained, Tonetti should have notified Digital of the default and termination of the lease.

The motions to vacate and to intervene both were denied by the hearing justice in a written decision filed on April 18, 2006. The hearing justice rejected Mendon Road's argument that clerical error was to blame for the entry of the default judgment because its attorney stated in his affidavit that he had read the summons before the January 4, 2006 court date. Therefore, although the clerk erroneously recorded that defendant had been served and neglected to record that defendant had filed an answer, defendant did have notice of the hearing date. With regard to the clerk's failure to note that Mendon Road filed an answer before the hearing, the hearing justice stated it was not the clerk's failure to indicate that defendant filed an answer that caused the default judgment to be entered, rather it was defendant's failure to appear at the hearing.

Next, the hearing justice considered the argument that the default judgment was void for improper notice and insufficient service of process. She ruled that Mendon Road was not entitled to notice under either Rule 55 or Rule 77. The hearing justice found that § 34-18.1-9, a statute pertaining to commercial property evictions, applied in this case and, as a result, Tonetti was not required to provide any particular notice to Mendon Road other than by service of the summons and complaint. Further, the hearing justice found that Tonetti complied with the notice requirement contained in the lease agreement. Concerning the sufficiency of the service of process, the hearing justice agreed that proper service was not made on the corporate defendant. However, the hearing justice found that defendant waived this defense by failing to state it in its answer.

The hearing justice also disposed of Mendon Road's argument that the motion to vacate should be granted for excusable neglect. The...