Opinion
C. A. PC-2018-8236
05-05-2020
SOUTH BROADWAY PROPERTIES, LLC, Plaintiff, v. 999 SOUTH BROADWAY, LLC; NICHOLAS BARRETT; and HOMEPRO INSPECTIONS OF RI CORP., Defendants, v. STEWART TITLE GUARANTY COMPANY, Third-Party Defendant.
For Plaintiff: John O. Mancini, Esq.; Thomas P. Carter, Esq., Michael L. Mineau, Esq. For Defendant: Max Wistow, Esq.; Kenneth J. Sylvia, Esq., Lauren A. Solar, Esq.
For Plaintiff: John O. Mancini, Esq.; Thomas P. Carter, Esq., Michael L. Mineau, Esq.
For Defendant: Max Wistow, Esq.; Kenneth J. Sylvia, Esq., Lauren A. Solar, Esq.
DECISION
STERN, J.
Defendants 999 South Broadway, LLC (999) and Nicholas Barrett (Barrett) (collectively, Defendants) have filed a motion for summary judgment as to all counts of Plaintiff South Broadway Properties, LLC's (Plaintiff) Second Amended Complaint (Complaint). Plaintiff timely objected to Defendants' motion and has filed a cross-motion for summary judgment as to Counts I and II of Plaintiff's Complaint. Defendants timely objected to Plaintiff's motion. Jurisdiction is pursuant to Super. R. Civ. P. 56(c) and G.L. 1956 §§ 8-2-14 and 9-30-1 et seq.
I
Facts and Travel
Barret is the sole member and manager of 999, which is a Rhode Island limited liability company. Defs.' Mot., Ex. A ¶ 1; see also id. at Ex. D. On or about November 10, 2004, 999 acquired three parcels located at or about 999 South Broadway, East Providence, Rhode Island (the Property). Id. at Ex. A ¶ 4; see also id. at Tab 1. The first parcel-more particularly described as East Providence Tax Assessor's Map 207, Block 2, Parcel 10-contains an office building (the Office Building Parcel). Id. ¶ 3; see also id. at Tab 2. The second parcel-more particularly described as East Providence Tax Assessor's Map 207, Block 4, Parcel 1-contains a parking lot (the Parking Lot Parcel) and is situated diagonally across the street from the Office Building Parcel. Id. ¶ 3; see also id. at Tab 2. The third parcel-more particularly described as East Providence Tax Assessor's Map 207, Block 2, Parcel 8-also contains a parking lot and is located down the street from the Office Building Parcel (the Disputed Parcel). Id. ¶ 3; see also id. at Tab 2.
On or about March 11, 2016, Barret-as manager of 999-and Muhammad S. Akhtar and Iole Ribizzi-Akhtar executed a Purchase and Sale Agreement for the sale of the Office Building Parcel and the Parking Lot Parcel. Id. at Tab 4. Shortly thereafter, Muhammad Akhtar formed South Broadway Properties, LLC. Id. at Ex. D. On or about April 29, 2016, Barret-as manager of 999-deeded the Office Building Parcel and the Parking Lot Parcel to Plaintiff. Id. at Ex. A. at Tab 6. Defendants retained ownership of the Disputed Parcel. Id. ¶ 11.
On May 27, 1987-decades prior to both Plaintiff and Defendants' ownership of the various parcels-the East Providence Zoning Board had granted a Use Variance for the Disputed Parcel (the Use Variance). Id. at Ex. E. The applicant-the East Providence Credit Union- requested "permission to construct off street parking in a residential district, a non-conforming use . . . ." Id. at Ex. E. The application sought a variance from the landscaping requirements for a parking area, and from Section 34-22(d) of the then-enacted Zoning Ordinance, which prohibited off-street parking for commercial uses in residential zones and required off-street parking spaces to
"be on the same lot or premises as the building, structure or use it is intended to serve, on a lot adjoining the premises or on a lot directly across an adjoining street from the premises. When practical difficulties . . . prevent the location of off-street parking space as herein required, such space shall be located within four hundred feet of the premises." Id. at Ex. L.
In the narrative attached to the application, the East Providence Credit Union indicated that the Disputed Parcel would be used as an "accessory off-street parking facilit[y] for the East Providence Credit Union." Id. at Ex. E. During the Zoning Board hearing, counsel for the East Providence Credit Union testified that the parking on the Disputed Parcel would be limited "only to employees of the credit uni[on] and not to the customers." Id.
Plaintiff filed the instant action on June 7, 2019, seeking specific performance and alleging breach of contract, fraud and misrepresentation, fraud in the inducement, and breach of the implied duty of good faith and fair dealing in connection with their purchase of the Property. See generally id. at Ex. N at Tab F. Plaintiff alleges, inter alia, that the Defendants made false representations and/or failed to disclose the Use Variance, which Plaintiff alleges encumbered the Disputed Parcel and merged the Disputed Parcel, the Office Building Parcel, and the Parking Lot Parcel such that they are one lot and use of each lot is dependent on common ownership of all three parcels. Id. ¶¶ 18-21. Plaintiff further alleges that Defendants were aware of water issues, damages, leaking, and mold problems and did not disclose those problems to Plaintiff when it purchased the Property. Id. ¶ 22.
The Court heard from both parties on the instant motions for summary judgment on January 22, 2020. After considering oral and written arguments, the Court now decides the cross-motions for summary judgment.
II
Standard of Review
"'Summary judgment is an extreme remedy and should be granted only when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as [a] matter of law.'" Rose v. Brusini, 149 A.3d 135, 139 (R.I. 2016) (quoting Plunkett v. State, 869 A.2d 1185, 1187 (R.I. 2005)) (internal quotation omitted). "'Only when a review of the admissible evidence viewed in the light most favorable to the nonmoving party reveals no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law, will this Court . . . grant . . . summary judgment.'" Id. at 139-40 (quoting National Refrigeration, Inc. v. Standen Contracting Co., 942 A.2d 968, 971 (R.I. 2008)). "The party opposing 'a motion for summary judgment carries the burden of proving by competent evidence the existence of a disputed material issue of fact and cannot rest on allegations or denials in the pleadings or on conclusions or legal opinions.'" Id. at 140 (quoting National Refrigeration, Inc., 942 A.2d at 971).
III
Defendants' Motion for Summary Judgment
Defendants move for summary judgment on all counts of Plaintiff's Complaint, arguing that the title claims must fail because 1) the Use Variance did not merge the three parcels; 2) the Office Building Parcel's present use conforms with the zoning ordinance; 3) Plaintiff's fraud claim must fail because application of the zoning ordinance to a parcel is a legal opinion that cannot be the basis of a fraud claim; and 4) the Use Variance applies only to the Disputed Parcel and has no effect on Plaintiff's parcels. Defendants also move for summary judgment on the property damage claims, arguing that the Defendants did not make misrepresentations to the Plaintiff because the alleged property damage occurred nine months after the sale and, in any event, Plaintiff agreed the building would be sold "as is" and, therefore, was responsible for relying on its own pre-purchase inspection. Lastly, Defendants move for summary judgment on the alter ego claim against Barrett, alleging that the Plaintiff has presented inadequate evidence to support its claim that 999 is Barrett's alter ego.
A
Title Claim
Defendants first move for summary judgment on the title claim, arguing that no genuine issue of material fact is in dispute and that they are entitled to judgment as a matter of law that the Office Building Parcel, the Parking Lot Parcel, and the Disputed Parcel are not merged by the Use Variance. Specifically, Defendants argue that as a matter of law it is impossible for noncontiguous parcels to merge. Moreover, Defendants allege that the Office Building Parcel's present use conforms with the East Providence Zoning Ordinance because variances run with the land and do not depend on ownership, and, therefore, adding or removing parking on another parcel does not affect the Office Building Parcel.
Plaintiff objects, arguing that the Use Variance constitutes a covenant, condition and restriction on the title to the Office Building Parcel and the Disputed Parcel. Plaintiff further contends that the Office Building Parcel does not currently conform with the Zoning Ordinance because it is parking deficient, and the Disputed Parcel may only be used for parking for the Office Building Parcel.
Under Rhode Island law, "[w]hen a landowner seeks special treatment under zoning ordinances for a parcel of land, this special treatment may be referred to as a variance." Felicio v. Fleury, 557 A.2d 480, 482 (R.I. 1989). Conversely, "[a] restrictive covenant is a provision in a deed that limits the use of the property, ordinarily by prohibiting certain uses or activities." Roland F. Chase, Rhode Island Zoning Handbook § 21 (3d ed. 2016 and 2017 Supp.). Here, it is beyond dispute that the Use Variance is a variance, and not a covenant or restriction on title. The Use Variance granted "special treatment" to the owner of the Disputed Parcel by allowing commercial parking in a residential zone and giving relief from landscaping requirements under the East Providence Zoning Ordinance. Accordingly, Plaintiff's contention that the Use Variance is a covenant, condition and restriction on title is of no moment.
Moreover, the Court can find no precise authority-and the Plaintiff points to none- which stands for the proposition that noncontiguous lots may be merged. In fact, the two general requirements of merger are common ownership and contiguous lots. See McKendall v. Town of Barrington, 571 A.2d 565, 567 (R.I. 1990). The Supreme Court of Vermont has explicitly rejected the notion that noncontiguous lots can merge, instead finding the idea illogical and not plausible. See Robinson v. Patrick, 559 A.2d 1091, 1092-93 (Vt. 1989). Accordingly, this Court finds Plaintiff's argument that the Office Building Parcel and Disputed Parcel have merged fails. There are five parcels separating the Office Building Parcel and the Disputed Parcel, see Defs.' Mot., Ex. A at Tab 2, and the Court finds that under both our Supreme Court's precedent discussing merger and general principles of zoning law, noncontiguous parcels cannot merge.
Rather, under the well-established principles of zoning, the Use Variance concerns use of the Disputed Parcel, not the person(s) using or occupying the Disputed Parcel. See Guenther v. Zoning Board of Review of City of Warwick, 85 R.I. 37, 41-42, 125 A.2d 214, 217 (1956); see also Olevson v. Zoning Board of Review of Town of Narragansett, 71 R.I. 303, 308, 44 A.2d 720, 722 (1945) (reversing a condition placed on a variance where the condition applied only to a particular person because that condition "amounts really to a mere license or privilege to an individual and does not relate in its proper sense to the use of the property and the zoning thereof"). Accordingly, the Use Variance cannot restrict ownership of the Disputed Parcel because that would be an impermissible condition which concerns the person(s) using or occupying the Disputed Parcel. See Guenther, 85 R.I. at 41-42, 125 A.2d at 217. As such, Defendants' motion for summary judgment is granted insofar as the Office Building Parcel, the Parking Lot Parcel, and the Disputed Parcel are not merged by the Use Variance.
B
Fraud and Misrepresentation Claims
Defendants also contend that Plaintiff's fraud claim fails because application of the zoning ordinance to the Disputed Parcel is a legal opinion that cannot be the basis of a fraud claim and, moreover, Plaintiff has failed to identify any affirmative misrepresentations made by Defendants. Plaintiff objects, arguing summary judgment is inappropriate as to its fraud and misrepresentation claims because the Defendants knew that the Use Variance on the Disputed Parcel existed and did not disclose its existence to Plaintiff. Accordingly, Plaintiff argues that its fraud and misrepresentation claims are not based on a legal opinion of the application of the zoning ordinance to the Disputed Parcel, but rather that Defendants failed to disclose the Use Variance to Plaintiff.
Here, the Court has been presented with the uncontroverted affidavit of Barrett, which attests that the Defendants did not know "at any time prior to the sale of [the Property] to [Plaintiff] that a use variance existed on any of the Three Parcels." Defs.' Mot., Ex. A ¶ 12. Barrett further attests that the Defendants never "received any notice of violation or other document from the City of East Providence identifying any zoning deficiency or pending enforcement action on any of the Three Parcels." Id. ¶ 13. The Plaintiff has failed to respond, by affidavit or otherwise, setting forth specific facts showing there is a genuine issue of material fact as to whether Defendants made misrepresentations regarding the existence of the Use Variance. See Jessup & Conroy, P.C. v. Seguin, 46 A.3d 835, 839 (R.I. 2012) (finding summary judgment appropriate where litigant failed to produce competent evidence to demonstrate a genuine issue of material fact). Notably, the Plaintiff presented the affidavit of Mohammed S. Akhtar, who attested that he was unaware of the Use Variance at the time that Plaintiff purchased the Property from Defendants. See Pl.'s Obj. Summ. J. Suppl., Ex. J ¶ 2. However, the affidavit is devoid of any testimony regarding what representations the Defendants made to Plaintiff about the Use Variance.
Accordingly, the Court finds that no genuine issue of material fact exists as to whether Defendants misrepresented the existence of the Use Variance. Defendants' motion for summary judgment on the fraud and misrepresentations claims is granted.
C
Property Damage Claim
Defendants also move for summary judgment on Plaintiff's property damage claim, arguing that the alleged property damage occurred nine months after the sale. In support, Defendants rely on a letter from Plaintiff to its insurer-CNA Insurance-which informed the insurer that "[t]here was a malfunction of one of the sump pumps in the basement in January 2017, which . . . caused the mold to grow . . . ." Defs.' Mot. Summ. J., Ex. C. Defendants further argue that they cannot be held liable for the alleged property damage because the Purchase and Sale Agreement provided that the sale was "'as is' 'where is' without any representations expressed or implied whatsoever," and that Plaintiff "acknowledge[d] that it has the capacity to perform its inspection of the Property and will rely solely upon such inspection." Id. at Ex. A, Tab 4 ¶ 19(e).
Plaintiff objects, arguing that there is a genuine issue of material fact as to whether there was an active mold problem at the building at the time of the sale. In support, Plaintiff argues that the Defendants' claim that any pre-existing mold was remediated is false, as shown through the Servpro records. Specifically, Plaintiff argues that while Defendants alleged that Servpro completed mold remediation services at the building, see Defs.' Mot. Summ J., Ex. A ¶ 14, Plaintiff has adduced evidence from Servpro that in February of 2013 Servpro notified the Defendants that it had discovered the existence of pre-existing mold in the building, but Servpro did not provide any mold remediation services at the building. See Pl.'s Suppl. Obj., Ex. I; Ex. J. Accordingly, the Court finds that there is a genuine dispute of material fact as to whether the Defendants remediated the mold issue that they were notified about by Servepro in 2013, and the Defendants' motion for summary judgment on Plaintiff's property damage claim is denied.
D
Alter Ego Claim
Lastly, Defendants move for summary judgment on Count VII, which alleges that 999 is the alter ego of Barrett and seeks to pierce the corporate veil to impose liability personally on Barrett. Defendants argue that there is no evidence which supports the Plaintiff's contention that 999 is an alter ego of Barrett. Defendants argue that Plaintiff's alter ego theory relies solely on the fact that Barrett is the sole member and manager of 999, see Defs.' Mot., Ex. M, No. 12, but has produced no evidence of the alleged unity of interest and lack of corporate formalities that is needed for an alter ego claim to succeed. Plaintiff objects, relying on its allegations that Barrett negotiated and transacted the sale of the Property and that there is a unity of interest and lack of corporate formalities. Plaintiff also alleges that if 999 is unable to satisfy a judgment, Barrett may be held vicariously liable.
Plaintiff also asserts that summary judgment on its alter ego claim is premature. Specifically, Plaintiff alleges that at Barrett's deposition on December 11, 2019, Defendants' counsel would only allow questioning regarding the property damage claim and would not allow Barrett to answer questions regarding the title or alter ego claims. On October 24, 2019, the Court granted Plaintiff's Super. R. Civ. P. 56(f) motion for a continuance of the hearing of Defendants' motion for summary judgment. Both in a chambers conference and on the record, counsel for both parties indicated that any additional discovery would be limited to the property damage claims. See Defs.' Mot., Ex. BB; see also Pl.'s Rule 56(f) Mot. (requesting "that Plaintiff be permitted to take certain depositions and conduct further discovery with regard to those issues specifically pertaining to the property damages claims"). Accordingly, this Court finds Plaintiff's assertion that summary judgment is premature without merit. The parties represented to the Court that any discovery after October 24, 2019 would be limited to the property damages claims. Therefore, Plaintiff's attempt to elicit information from Barrett at the December 11, 2019 deposition was improper and the alter ego claim is ripe for a summary judgment determination.
The alter ego doctrine is an equitable doctrine which provides that a corporation will not be regarded as an entity separate from its controlling shareholder if: 1) there is
"'such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, viz., the corporation is, in fact, the alter ego of one or a few individuals; and (2) the observance of the corporate form would sanction a fraud, promote injustice, or an inequitable result would follow.'" Heflin v. Koszela, 774 A.2d 25, 30 (R.I. 2001) (quoting Transamerica Cash Reserve, Inc. v. Dixie Power and Water, Inc., 789 P.2d 24, 26 (Utah 1990)).
Here, the Defendants have presented the affidavit of Barrett, which states that 999 is a validly existing Rhode Island limited liability company which files annual reports with the Rhode Island Secretary of State. Defs.' Mot., Ex. A ¶ 16. The Barrett affidavit further swears that his personal finances are not comingled with 999's, and that 999 maintains its own banking accounts separate and apart from Barrett, and that 999 keeps records of its income, expenses, profits, and losses. Id. ¶¶ 17-18. Moreover, 999's tax returns are professionally prepared separate and apart from Barrett's tax returns, except to the extent that 999's profits and losses pass through Barrett as its sole member, pursuant to tax laws. Id. ¶ 19.
Plaintiff has failed to set forth specific facts-via affidavits or otherwise-refuting the Barrett affidavit and showing that there is a genuine issue of material fact. Rather, the Plaintiff has rested its objection to summary judgment on mere allegations in the pleadings. See Jessup & Conroy, P.C., 46 A.3d at 838-39. These allegations are insufficient to withstand the uncontroverted affidavit of Barrett, which shows that Barrett and 999's finances are not commingled, that 999 keeps its own records, and that 999's tax returns are prepared independently. Cf. Heflin, 774 A.2d at 30-31 (reversing grant of summary judgment and finding a genuine issue of material fact as to whether a sole proprietorship was the alter ego of a corporation where the record revealed that two companies were located at the same business address and in the same office space; the corporation paid the wages of the sole proprietorship's employee; the sole proprietorship's employee worked in the corporation's lumberyard; the corporation's employees would help deliver gas for the sole proprietorship; and the sole proprietorship sent out an account statement in a business envelope belonging to the corporation). Accordingly, Defendants' motion for summary judgment with respect to Count VII is granted.
IV
Plaintiff's Motion for Summary Judgment
Plaintiff moves for summary judgment on Counts I and II of the Complaint, arguing that there is no genuine issue of material fact and it is entitled to judgment as a matter of law that the three parcels were merged by the Use Variance, cannot be separated, and therefore the Disputed Parcel must be conveyed to the Plaintiff. Based on the Court's decision on Defendants' motion for summary judgment and the reasoning outlined supra, Plaintiff's motion for summary judgment on Counts I and II of its Complaint is denied.
V
Conclusion
Based on the foregoing, Defendants' motion for summary judgment is granted with respect to the title claim, the claims of fraud or misrepresentation, and Count VII. Defendants' motion is denied with respect to the property damage claim. Plaintiff's motion for summary judgment is denied in its entirety. Counsel for the Defendants shall prepare and submit an order for entry consistent with this Decision.