Opinion
C. A. PC-2015-3665
02-02-2024
JOSEPH A. MARAIA Plaintiff, v. THE ALPINE COUNTRY CLUB, INC. Defendant.
For Plaintiff: Michael D. Resnick, Esq. For Defendant: Timothy M. Bliss, Esq.
For Plaintiff: Michael D. Resnick, Esq.
For Defendant: Timothy M. Bliss, Esq.
DECISION
LANPHEAR, J.
This matter was tried before the Court without a jury in November 2023. The Court has reviewed post-trial memoranda and now issues its Decision.
I
FINDINGS OF FACT
The Alpine Country Club, Inc. (Alpine) is a Rhode Island corporation which maintains and operates a golf course, restaurant, and provides other services for its members. Its by-laws delineate fourteen (14) different classes of membership, including those which own stock in the corporation, and those which do not. Only stockholding members may vote at club membership meetings and enjoy certain other privileges. Members may resign at any time. The by-laws require a written resignation letter, but, in practice, a writing is not always required. Stockholders who resign must surrender their stock certificates within thirty days (Ex. 15, Article XI, § 8(a)(i).)
The club must pay the resigned stockholder the entire purchase price for the stock within three years of the resignation. (Ex. 15, Article XI, section 8(a)(ii).) However, the by-laws also indicate that the club need not pay more than ten (10) resignees in any one calendar year. (Ex. 15, Article XI, section 8(c).) In practice, the club for at least the last twenty-seven (27) years, has been redeeming ten (10) shares per year, giving preference to repurchasing the shares of deceased members first. (Ex. 18.) For members who have passed away, those shares are redeemed to their families first, then to the others in order of resignation. There has been a backlog of people waiting to redeem for many years.
Plaintiff, Joseph A. Maraia (Mr. Maraia) joined Alpine as a shareholder in 1993 and purchased a share for $7,500. He resigned by walking out and indicating verbally that he did not want to belong anymore, but for purposes of this litigation both parties agree that he resigned on May 1, 2005. In 2014, after Mr. Maraia's daughter resigned and received payment for her share, Mr. Maraia then became concerned about when he would be repaid. After asking his daughter to intervene, Mr. Maraia concluded that he would not be paid until 2015. In February 2015, Alpine told Mr. Maraia he would be paid in 2015, and Mr. Maraia was given the names of those others who would be paid. (Ex. 7.)
Mr. Maraia's daughter and son-in-law, Mr. and Mrs. McGraw, resigned in 2004 and their shares were redeemed in 2014.
Mr. Maraia retained counsel who wrote to Alpine demanding payment by May 15, 2015. (Ex. 8.) Mr. Maraia's attorney was told payment would be made in 2015. (Ex. 9.) On July 20, 2015 Mr. Maraia's attorney demanded payment of the $7,500 by August 3, 2015 or litigation would then commence. (Ex. 10.) The Complaint herein was filed on August 21, 2015. A check was issued to Mr. Maraia on September 9, 2015. (Exs. 11, 12.) Counsel for Alpine learned of the suit on September 14, 2015 and asked for a prompt dismissal. (Ex. 12.) Mr. Maraia was charged $3,700 by his own attorney for legal fees and therefore refused to cash the $7,500 check, demanding that his counsel fees also be paid.
Returned service of process should be filed with the Court. Super. R. Civ. P. 4(j). No served summonses were filed. Counsel for Alpine testified that Alpine was not served until about September 11, 2015.
In 1998, Alpine extended the terms of a mortgage loan it had received from Bank Rhode Island. In doing so, Alpine covenanted to its lender that it would not redeem more than $75,000 in stock in any one year. (Ex. A.) Refinancing that mortgage in January 2015, Alpine agreed to a $100,000 limit in redeemed stock payments.
A
Presentation of Witnesses
Mr. Maraia was Plaintiff's first witness. He testified at ninety-seven (97) years old, challenged with his hearing but provided answers to each question, often straying from what counsel was asking. He testified that he did not know what the rules of Alpine were but was courteous and cooperative to the Court. For example, when asked if he reviewed the club's by-laws, he responded that his daughter told him he would be paid the next year. He often began answers before the question was finished and departed from the issue. He was friendly, but his difficulty hearing made it challenging to determine if he was skirting the questions.
Mr. Maraia was asked about conversations with his daughter. Without a jury present, the Court allowed this testimony into evidence, particularly because the question was never directed to what Mrs. McGraw said. As the Court said at trial, the Court did not expect to provide much weight to this evidence. Now post-trial, the Court notes that many of the answers were established to be incorrect at a later point, such as whether Mr. and Mrs. McGraw received their monies in 2014.
Joseph Penza, an experienced attorney with a concentration in litigation, was Plaintiff's second witness and Defendant's only witness. He served on the board and as an attorney for Alpine. He was courteous, clear, and responsive to each examiner. He was concise but defensive of Alpine's position. Obviously, he was familiar with the issues before the trial, having defended Alpine in the suit for a period and serving as a witness at a records deposition.
II
STANDARD OF REVIEW
Nonjury trials are governed by Rule 52(a) of the Superior Court Rules of Civil Procedure, which states that "the court shall find the facts specially and state separately its conclusions of law thereon." Super. R. Civ. P. 52(a). "The trial justice, however, 'need not engage in extensive analysis to comply with this requirement.'" Gregoire v. Baird Properties, LLC, 138 A.3d 182, 191 (R.I. 2016) (quoting JPL Livery Services, Inc. v. Rhode Island Department of Administration, 88 A.3d 1134, 1141 (R.I. 2014)).
Furthermore, the Rhode Island Supreme Court '"has recognized that [a] trial justice's analysis of the evidence and findings in the bench trial context need not be exhaustive[.]"' Id. (quoting JPL Livery Services, Inc., 88 A.3d at 1141). It follows that, '"if the decision reasonably indicates that [the trial justice] exercised [his or her] independent judgment in passing on the weight of the testimony and the credibility of the witnesses it will not be disturbed on appeal unless it is clearly wrong or otherwise incorrect as a matter of law."' Id. (quoting JPL Livery Services, Inc., 88 A.3d at 1141).
III
ANALYSIS
A
Contract Interpretation
The Rhode Island Supreme Court has noted that "[i]t has been well established that there should be no judicial interference with the internal affairs, rules and by-laws of a voluntary association unless their enforcement would be arbitrary, capricious or constitute an abuse of discretion." Hebert v. Ventetuolo, 480 A.2d 403, 407 (R.I. 1984); see also Cotroneo v. Alpine Country Club, 636 A.2d 730, 730-31 (R.I. 1993) (holding that "the trial justice was correct in declining to interfere with the internal affairs of a voluntary association, since due process in accordance with the rules and bylaws of that association was accorded to the plaintiff"). For example, in Hebert, two high school hockey players were placed under guardianship, which resulted in a change in their legal address and, subsequently, a change in school. 480 A.2d at 404-05. The principal of the new school suspended them without hearing or explanation, believing the only reason they obtained guardianship was to play on the school's team, which was a violation of the Rhode Island Interscholastic League rule. Id. at 405. The Court concluded that the league's rule was not arbitrary or capricious because "[i]t was obviously designed to prevent the problems of school-jumping and the recruitment of high school athletes. Consequently, finding that the rule reasonably relates to its designed purpose, the league may bind its members to it, and we will not interfere with its implementation." Id. at 407.
Additionally, in King v. Grand Chapter of Rhode Island Order of Eastern Star, our Supreme Court determined that "[t]he constitutions, bylaws, and rules of private organizations create a legally enforceable agreement in the nature of a contract between the organization and the member because of corresponding mutual obligations-by the member to follow the rules of the organization, and by the organization to fairly apply those rules." 919 A.2d 991, 998 (R.I. 2007). Furthermore, '"[a] voluntary association may, without direction and interference by the courts, for its government, adopt a constitution, by-laws, rules and regulations which will control as to all questions of discipline, or internal policy and management, and its right to interpret and administer the same is as sacred as the right to make them."' Gorman v. St. Raphael Academy, 853 A.2d 28, 38 (R.I. 2004) (quoting State ex rel. Givens v. Superior Court of Marion County, 117 N.E.2d 553, 555 (1954)).
Mr. Maraia directs the Court to consider his rights under Article XI § 8(a)(ii) only, which states that
"[t]he Club shall, within three (3) years after the date of such stockholder's voluntary resignation, withdrawal or retirement from the membership of the Club, pay to the stockholder the entire purchase price for his/her share specified in Section 12 hereof, in one lump sum or in such periodic installments and at such time(s) (within such three (3) year period) as the Board shall, in its sole discretion determine, without interest." (Ex. 6(A), at 26.)
He argues that, because Defendant did not pay out Mr. Maraia's share within the indicated time frame, it breached the contract.
On the other hand, Alpine asserts that there was no breach because, under Article XI § 8(c),
"[t]he Club shall not be obligated to redeem during any one calendar year more than ten (10) requests from resigning, withdrawing or retiring stockholders to redeem their shares of stock; and if there are more than ten (10) requests during any one calendar year, then the first ten (10) requests shall be granted at the discretion of the Board and all requests for redemption of shares of stock shall be processed on a chronological order." (Ex. 6(A), at 27.)
Similar to the rule applied by the Rhode Island Interscholastic League in order to prevent school-jumping by athletes in Hebert, Alpine's Article XI, Section 8(c) in its bylaws was intended to protect its financial viability. The refinancing agreement between Alpine and Bank Rhode Island in 1998 allowed for $75,000 and the 2015 agreement with Coastway Community Bank allows for the maximum of $100,000 in redeemed stock payments per fiscal year. Thus, in order to comply with its loan obligations, it was not arbitrary or capricious for Alpine to implement a system where it is only required to pay out to no more than ten (10) members in one calendar year and to prioritize payments to families of deceased members. This commitment existed for many years and even before Mr. Maraia joined Alpine. Exhibit 18 shows that there is a backlog of payments owed to various members and their families. Alpine cannot jeopardize its financing arrangements as well as breach obligations to its numerous members by providing payments too quickly to too many people. Neither is it obligated to do so under the reasonably applied and interpreted provision of its by-laws.
This provision existed in the 1990 version of Alpine's by-laws as well as in the newer 2015 version of the document.
"Fiscal Year" is defined as "the calendar year or commencing on such other date as the Board may from time to time determine." (Ex. 6(A), at 2.).
Additionally, the Court must note that Mr. Maraia did not make any written demands to redeem his stocks until nine (9) years after his 2005 resignation. Alpine promised to repay Mr. Maraia in 2015. Alpine kept its promise by issuing Plaintiff a check for the full amount of $7,500 on September 9, 2015, which was before the end of the calendar year 2015. Again, Exhibit 18 shows that, historically, Alpine made most of its payments in November and December of each year. Thus, it was not unreasonable for Alpine to hold off paying Mr. Maraia's share until September 9, 2015.
B
Breach of Contract
To establish a breach of contact '"the plaintiff must prove both the existence and breach of a contract, and that the defendant's breach thereof caused the plaintiff's damages."' Vicente v Pinto's Auto & Truck Repair, LLC, 230 A.3d 588, 592 (R.I. 2020) (quoting Fogarty v. Palumbo, 163 A.3d 526, 541 (R.I. 2017)).
In his post-trial memorandum, Plaintiff's overriding focus is that, under Defendant's By-Laws Article XI § 8(a)(ii), Alpine was obligated to redeem Mr. Maraia's stock within three (3) years of his resignation on May 1, 2005. Thus, according to Plaintiff, Alpine's failure to provide payment in 2008 constitutes a breach of contract. Furthermore, Plaintiff argues that Defendant cannot rely on Article XI § 8(c)'s ten-year provision. He explains that, for the provision to apply, Defendant must prove that each year there were more than ten (10) individuals who resigned or passed away and that each of them was entitled to be repaid before Mr. Maraia. Plaintiff alleges that, because Alpine failed to do so, it breached the contract.
Although Plaintiff is correct that Alpine failed to provide dates of resignation or death of each member ahead of Mr. Maraia on the repayment schedule, it was Mr. Maraia's burden to establish that he should have been repaid earlier in order to prove there was a breach. Vicente, 230 A.3d at 592. Alpine presented credible evidence that showed the dates of the resignation or death for some members as well as dates of redemption of their stocks. Alpine was able to prove there was a payment structure that was reasonable and allowed Alpine to comply with its payment and mortgage obligations without jeopardizing its financial viability. Additionally, Alpine proved that this system has existed since 1995 and was not arbitrarily applied to Mr. Maraia. Thus, there is no indication that Alpine breached the contract with Mr. Maraia.
Furthermore, Plaintiff's allegations that Alpine did not issue its payment to him until he initiated the lawsuit are incorrect. The record shows that, on September 9, 2015, Alpine issued a full payment to Mr. Maraia (Ex. 11), which he declined to accept (Ex. 13.). Due to a delay, Alpine's counsel did not receive service until September 14, 2015, which was after the payment to Mr. Maraia was issued. Thus, Plaintiff's argument that Alpine did not issue a payment until after the lawsuit was initiated fails. Additionally, Alpine did not breach its contract with Mr. Maraia by not repaying him earlier. The by-laws allow for stock redemption within a designated calendar year. Alpine specified that Mr. Maraia was going to be repaid in 2015; thus, Alpine had until the end of the year to make payment to Mr. Maraia, which it did.
Thus, based on the analysis presented above, the Court finds that Alpine did not breach the contract with Mr. Maraia because it reasonably interpreted and applied the ten-year stock redemption provision and timely made the full payment to Mr. Maraia.
C
Breach of Fiduciary Duty
Although the Rhode Island Supreme Court has not addressed the issue of breach of fiduciary duty owed by the corporation to its stockholders, it is common to look to Delaware jurisprudence as instructive. Bove v. Community Hotel Corporation of Newport, Rhode Island, 105 R.I. 36, 41, 249 A.2d 89, 93 (1969). Courts in Delaware consistently have held that a corporation itself does not owe fiduciary duties to stockholders; only directors and officers do. See In re Wayport, Inc. Litigation, 76 A.3d 296, 322-23 (Del. Ch. 2013) ("Wayport is not liable for breach of fiduciary duty. As a corporate entity, Wayport did not owe fiduciary duties to its stockholders"); In re Dataproducts Corp. Shareholders Litigation, Civ.A No. 11164, 1991 WL 165301, at *6 (Del. Ch. Aug. 22, 1991) ("The claims stated against Dataproducts are clearly for breach of fiduciary duty. However, the plaintiffs concede that a corporation qua corporate entity is not a fiduciary of, and thus cannot owe a fiduciary duty to, its shareholders.")
Mr. Maraia filed his breach of fiduciary claim against Alpine as an entity only. Based on the law discussed above, the Court finds that his claim must fail because Alpine did not owe him any fiduciary duties.
D
Motion to Amend
Post-trial, plaintiff moved to amend the complaint to add Alpine's directors as party defendants. Alpine objected. The issue of fiduciary liability was tried at trial (without those directors present) but now that Alpine was asserting that a corporation could not be held liable for a fiduciary breach, plaintiff was attempting to change the suit significantly. While Super. R. Civ. P. 15(b) allows for post-trial motions to amend to conform to evidence, the directors were not identified at trial. Our high court has held"
A court may permit a post-trial amendment adding a party when it determines that, even though the absent party was not formally named in the pleadings, claims asserted by or against it were known to all parties, including the absent party, and actually litigated; the court may not, however, order a post-trial amendment adding an absent party when there has been no actual pre-trial notice of the claim and no meaningful opportunity to dispute that claim. Arnold Road Realty Associates, LLC v. Tiogue Fire District, 873 A.2d 119, 130 n.8 (R.I. 2005).
For the directors of Alpine there is no indication that they were aware of this suit or their potential involvement. Moreover, the proposed defendants-directors have been denied their ability to retain counsel, to cross-examine or to present their own evidence. Defendant Alpine vigorously objected to the motion to amend. Alpine noted that its defense regarding the corporation being an improper party for the fiduciary breach was raised at the summary judgment hearing several years ago.
In ruling on a motion to amend pretrial, under Rule 15(a), the high court reasoned: As we have previously stated,
'"Rule 15(a) . . . liberally permits amendment absent a showing of extreme prejudice.' Weybosset Hill Investments, LLC v. Rossi, 857 A.2d 231, 236 (R.I. 2004) (internal quotation marks omitted). It follows that '[t]he question of prejudice to the party opposing the amendment is central to the investigation into whether an amendment should be granted.' Faerber v. Cavanagh, 568 A.2d 326, 329 (R.I. 1990). And with respect to a party's delay in moving to amend, we have previously stated that, 'mere delay is an insufficient reason to deny an amendment.' Wachsberger v. Pepper, 583 A.2d 77, 79 (R.I. 1990); see Inleasing Corp. v. Jessup, 475 A.2d 989, 992 (R.I. 1984). Rather, it is incumbent upon the hearing justice to 'find that such delay creates substantial prejudice to the opposing party.' Wachsberger, 583 A.2d at 79. At the same time, it should
also be borne in mind that we have explicitly observed that 'the risk of substantial prejudice generally increases with the passage of time.' RICO Corp. v. Town of Exeter, 836 A.2d 212, 218 (R.I. 2003). In other words, there comes a point when delay becomes 'undue and excessive,' and 'causes prejudice to the opposing party.' See Faerber, 568 A.2d at 329 ('Although we have ruled that mere delay is not enough to deny the amendment, undue and excessive delay that causes prejudice to the opposing party is grounds for denial) (internal citation omitted)."' Harodite Industries, Inc. v. Warren Electric Corp., 24 A.3d 514, 531 (R.I. 2011).
Here, the prejudice of being added as a defendant after the case has been tried is substantial and clear. Plaintiff did not provide a reasonable explanation for its delay in adding parties. The suit was filed in 2015 and plaintiff had ample opportunities to seek amendment. Accordingly, the motion to amend is denied.
E
Attorney's Fees
Under G.L. 1956 § 9-1-45, "[t]he court may award a reasonable attorney's fee to the prevailing party in any civil action arising from a breach of contract in which the court: (1) [f]inds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party; or (2) [r]enders a default judgment against the losing party." (Emphasis added).
The Court already has determined above that Defendant did not breach the contract with Mr. Maraia. Thus, the threshold requirement that Mr. Maraia must be the "prevailing party" to qualify has not been met. Consequently, the Court finds that Mr. Maraia is not entitled to an award of attorney's fees.
Although the record shows that Mr. Maraia incurred $3,700 in attorney's fees, there is no evidence that his counsel ever was paid that amount.
F
Prejudgment and Post-Judgment Interest
"[I]n most instances prejudgment interest is available to those who succeed in winning a judgment." Rhode Island Insurers' Insolvency Fund v. Leviton Manufacturing Co., 813 A.2d 47, 50 (R.I. 2003). Also, § 9-21-10(a) "makes clear that prejudgment [and post-judgment] interest must be applied when pecuniary damages are awarded." Roadepot, LLV v. Home Depot, U.S.A., Inc., 163 A.3d 513, 525 (R.I. 2017).
Here, the Court already has determined that Alpine neither breached the contract with Mr. Maraia nor owed fiduciary duties to Plaintiff. As a result, Mr. Maraia is not entitled to monetary damages. Thus, no interest shall be awarded to Plaintiff.
IV
CONCLUSION
For the reasons stated, judgment is awarded to the defendant Alpine Country Club, Inc. and against the plaintiff Joseph A. Maraia on all counts.