Court Opinion

ID: 4265537
Source: CourtListenerOpinion
Date Created: 2018-04-19 15:48:42.38232+00
Date Added: 2024-06-11T07:49:15.839668
License: Public Domain

April 19, 2018

                                                                             Supreme Court

                                                                             No. 2017-87-Appeal.
                                                                             (PC 15-5306)

                 West Davisville Realty Co., LLC        :

                                 v.                     :

                    Alpha Nutrition, Inc. et al.        :

                          NOTICE: This opinion is subject to formal revision before
                          publication in the Rhode Island Reporter. Readers are requested to
                          notify the Opinion Analyst, Supreme Court of Rhode Island,
                          250 Benefit Street, Providence, Rhode Island 02903, at Telephone
                          222-3258 of any typographical or other formal errors in order that
                          corrections may be made before the opinion is published.
                                                                    Supreme Court

                                                                    No. 2017-87-Appeal.
                                                                    (PC 15-5306)

     West Davisville Realty Co., LLC          :

                     v.                       :

        Alpha Nutrition, Inc. et al.          :

              Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

                                         OPINION

       Justice Indeglia, for the Court. The defendant, David Paolo (defendant or Paolo),

appeals from a Providence County Superior Court judgment granting summary judgment in

favor of the plaintiff, West Davisville Realty Co., LLC (plaintiff or West Davisville), holding

Paolo liable on a personal guaranty of a termination of lease agreement between West Davisville

and Alpha Nutrition, Inc. d/b/a Doggiefood.com (Alpha).1 This case came before the Supreme

Court on March 8, 2018, pursuant to an order directing the parties to appear and show cause why

the issues raised in this appeal should not be summarily decided. After hearing the parties’

arguments and reviewing their memoranda, we are satisfied that cause has not been shown.

Accordingly, we shall decide this appeal at this time without further briefing or argument. For

the reasons set forth herein, we affirm the judgment of the Superior Court.

                                                  I

                                        Facts and Travel

       In August 2012, Alpha entered into a lease agreement with West Davisville to rent

commercial space in North Kingstown for a five-year term—from September 1, 2012 to August

1
 Although Alpha is also a defendant in this action, default entered against Alpha on February 3,
2016, and no further action was taken. Therefore, Alpha is not a party to this appeal.
                                                  1
31, 2017. In 2015, after suffering some financial setbacks, Alpha was past due on its rent

payments to West Davisville. In response to this problem, Paolo, after developing a plan with

Alpha’s sole shareholder, said that he “communicated with West Davisville to determine

whether [it] was willing to terminate its lease with Alpha prior to the full term of the written

lease.” Paolo explained that he was not a shareholder or officer of Alpha at that time, but he was

under the impression that he might eventually hold such a position, and so he participated in the

negotiations.2

       In exchange for ending the lease agreement early, on June 25, 2015, Alpha entered a

Termination and Release Agreement (the termination agreement) with West Davisville, and

issued a promissory note, personally guaranteed by Paolo, for the sum of $62,362.50. The

termination agreement provided, in pertinent part, that:

                 “WHEREAS, the Landlord has agreed to terminate the Lease at
                 Tenant’s request in exchange for the consideration set forth below
                 and upon the other terms hereof.

                 ***

                 2. Consideration. As consideration for Landlord’s agreement to
                 terminate the Lease at Tenant’s request, Tenant shall pay Landlord
                 the sum of Sixty Two Thousand Three Hundred Sixty-Two and
                 50/100 ($62,362.50) Dollars. Tenant agrees to make payments to
                 Landlord over an 18 month term with interest accruing at the fixed
                 rate of 5% per annum. The deferred payments shall be set forth in
                 a Promissory Note to be executed contemporaneously with this
                 Agreement and shall be secured by the unlimited personal guaranty
                 of the Tenant’s principal shareholder David Paolo. The guaranty
                 shall be executed and delivered by Mr. Paolo contemporaneously
                 with this Agreement.”

2
  In its statement filed pursuant to Rule 12A of the Supreme Court Rules of Appellate Procedure,
plaintiff refers to Paolo as a “sophisticated businessman” who founded a company and serves as
the CEO of another company.
                                                 2
Additionally, the promissory note stated that:

               “FOR VALUE RECEIVED, the undersigned, David Paolo,
               individually and Alpha Nutrition, Inc., a Rhode Island
               corporation (jointly and severally, the “Borrower”), does hereby
               promise to pay to the order of West Davisville Realty Co., LLC, a
               Rhode Island limited liability company * * * the principal sum of
               Sixty Two Thousand Three Hundred Sixty-Two and 50/100
               ($62,362.50) Dollars, together with accrued interest on any and all
               principal amounts remaining unpaid hereunder from time to time
               from the date hereof until payment in full hereof.”

Paolo signed the promissory note twice—on behalf of Alpha and individually.

       He also executed a personal guaranty that stated, in relevant part, as follows:

               “1. Guaranty. Guarantor hereby absolutely and unconditionally
               guarantees to the Landlord: (i) the punctual payment, at the
               Landlord’s address, as and when due under the Note (whether by
               acceleration or otherwise) of any and all obligations owed to the
               Landlord which require payment; and (ii) performance by Tenant,
               as and when required by the Note or the Termination Agreement of
               all obligations owed to the Landlord requiring performance.”

Paolo and Alpha made the first payment, but made no further payments on the promissory note.

       On December 4, 2015, plaintiff filed a complaint in Providence County Superior Court

alleging breach of contract and unjust enrichment against Alpha and Paolo. In response, Paolo

filed an answer with affirmative defenses, including the defenses of failure of consideration,

fraud in the inducement by an Alpha shareholder, failure to join an indispensable party, and

failure to properly mitigate damages.

       West Davisville moved for summary judgment on May 2, 2016. Paolo objected to the

motion, arguing that (1) there was a genuine issue of material fact with respect to whether West

Davisville fraudulently induced Paolo to sign the contracts; (2) plaintiff failed to mitigate its

damages; and (3) Paolo had received no consideration for his personal signatures on the

documents, including the personal guaranty. Paolo also submitted an affidavit in support of his

                                                 3
objection to plaintiff’s motion for summary judgment. In the affidavit, Paolo explained that,

despite his understanding that he was likely to become a shareholder of Alpha, he never actually

became one.3

       In that affidavit, Paolo also stated that he had discovered that another tenant moved into

Alpha’s rented space soon after the agreement was made, which he believed occurred before the

agreement was signed. He explained: “If I had known that West Davisville had organized

another tenant to occupy the leasehold, I would not have signed the contracts. I believe now that

I was fraudulently misled by West Davisville during negotiations.”

       After the hearing on the motion for summary judgment, in an attempt to “clarify certain

factual issues” in his first affidavit, before a ruling was made, Paolo submitted a second affidavit.

In it, he admitted that he had held himself out as a stockholder of Alpha during the negotiations.

He also identified the two representations made by officers of West Davisville that caused him to

sign the personal guaranty: (1) “that Alpha owed back rent in the amount of $62,362.50”; and

(2) “that Alpha might eventually owe more rent because West Davisville was facing a potential

vacancy of the [property].”

       Paolo’s contention was that West Davisville actually had a tenant in Alpha’s location

paying rent during the months for which West Davisville sought rent from Alpha, and, had Paolo

known that, he would not have signed the documents. As evidence of his contention, Paolo

3
  At the summary-judgment hearing, the hearing justice expressed serious concerns with Paolo’s
sworn affidavit that conflicted with the information provided to the Rhode Island Secretary of
State that listed Paolo as Alpha’s CEO, suggesting that the affidavit stating that he was not the
CEO of Alpha could be “very close to not only being a fraud upon the [c]ourt but perhaps a
crime.”
                                                 4
submitted an excerpt from an email authored by Steven DiCenso, the managing member of West

Davisville, to an employee at the Quonset Development Corporation.4

          On October 27, 2016, the hearing justice issued a written decision granting plaintiff’s

motion for summary judgment. First, the hearing justice determined that whether Paolo was a

corporate officer of Alpha at the time he signed the termination agreement was not material to

the resolution of the motion for summary judgment. The hearing justice concluded that the

consideration sufficient to bind Alpha to the contract—the early release of Alpha from the

lease—also flowed to the personal guaranty signed by Paolo, such that a valid contract was

executed.

          Next, the hearing justice determined that Paolo had not demonstrated any evidence to

support his allegation of fraudulent inducement, but had only relied on the bare allegation in the

following affirmative defense contained in his answer to plaintiff’s complaint: “Fraud in the

inducement, specifically that a prior shareholder of Alpha Nutrition, Inc., Tony Gabriele, falsely

represented the business situation of Alpha Nutrition, causing this Defendant to enter into a

guarantee which benefitted Mr. Gabriele.” The hearing justice explained: “In offering a moving

target of allegedly fraudulent statements—raising one type of fraud in his pleading but opposing

summary judgment on another—Paolo has fallen well short of ‘[setting] forth specific facts

showing * * * a genuine issue of material fact’ to successfully oppose summary judgment.” The

hearing justice also determined that Paolo had failed to establish his fraud defense by clear and

4
    That email reads, in part, as follows:

                  “I cannot start paying [Alpha’s] bills because it will effect [sic] my
                  case. The subtenant is Hope Valley Industries. They needed some
                  additional storage space and I allowed them to use the [Alpha
                  suite]. I’m keeping it quiet because it’s very short-term and is
                  allowing me to recoup some of the monies owed to me.”

                                                    5
convincing evidence. Accordingly, he concluded that there was no genuine issue of material fact

as to whether Paolo was fraudulently induced into signing the termination agreement, the

promissory note, and the personal guaranty.

       On the issue of West Davisville’s purported failure to mitigate damages, the hearing

justice held that any duty to mitigate evaporated with the lease—that is, the termination

agreement replaced the lease and, under the termination agreement, West Davisville had no duty

to mitigate damages. The hearing justice also determined that West Davisville was entitled to

reasonable attorneys’ fees based on the terms of the promissory note, to be calculated at a later

date. Consequently, the hearing justice granted summary judgment in favor of West Davisville.

Paolo timely appealed to this Court.

                                                II

                                       Standard of Review

       When we review a hearing justice’s grant of a motion for summary judgment, we conduct

our analysis de novo. Jessup & Conroy, P.C. v. Seguin, 46 A.3d 835, 838 (R.I. 2012). If we

determine that “there exists no genuine issue of material fact and the moving party is entitled to

judgment as a matter of law[,]” then we will affirm the grant of a motion for summary judgment.

Sisto v. America Condominium Association, Inc., 68 A.3d 603, 611 (R.I. 2013) (quoting Zanni v.

Voccola, 13 A.3d 1068, 1071 (R.I. 2011)). We review “the evidence in the light most favorable

to the nonmoving party.” Narragansett Indian Tribe v. State, 81 A.3d 1106, 1109 (R.I. 2014).

While “[s]ummary judgment is a drastic remedy,” Coogan v. Nelson, 92 A.3d 213, 216 (R.I.

2014) (quoting NV One, LLC v. Potomac Realty Capital, LLC, 84 A.3d 800, 805 (R.I. 2014)), it

is “appropriate when no genuine issue of material fact is evident from the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits if any, and the

                                                6
[hearing] justice finds that the moving party is entitled to prevail as a matter of law.” Coogan,

92 A.3d at 216 (quoting Swain v. Estate of Tyre, 57 A.3d 283, 288 (R.I. 2012)).

                                                  III

                                              Discussion

                                                  A

                                      Fraudulent Inducement

          Paolo’s main argument on appeal is that a genuine issue of material fact remains as to

whether West Davisville fraudulently induced him to personally guarantee the agreements.

Paolo maintains that West Davisville falsely represented to him that Alpha owed the rent it did

because West Davisville did not disclose that it had already secured another tenant for the

property, effectively providing plaintiff with a double recovery. West Davisville counters that

Paolo failed to plead fraud against plaintiff as an affirmative defense.          West Davisville

alternatively argues that Paolo’s allegations of fraud are inapposite because it is undisputed that

Alpha owed past-due rent based on an acceleration clause in the lease, making Alpha liable

regardless of whether West Davisville had secured another tenant.5            Furthermore, West

Davisville highlights that Paolo never filed a Rule 56(f) affidavit seeking limited discovery on

the fraud issue.6

5
    The acceleration clause contained in the lease provides as follows:

               “Tenant hereby agrees that, in the event of Tenant’s breach of this
               Lease, Tenant expressly waives any rights concerning [sic], and
               releases Landlord from, any and all mitigation obligations, and
               Tenant is responsible for paying all sums, including accelerated
               obligations, as aforesaid regardless of the potential or actual
               reletting of the Leased Premises.”
6
  Rule 56(f) of the Superior Court Rules of Civil Procedure provides, in relevant part, that
“[s]hould it appear from the affidavits of a party opposing the motion that the party cannot for
                                                   7
       It is well established that “[f]raud vitiates all contracts.” Guzman v. Jan-Pro Cleaning

Systems, Inc., 839 A.2d 504, 507 (R.I. 2003) (quoting Bogosian v. Bederman, 823 A.2d 1117,

1120 (R.I. 2003)). If a party “is induced to enter into a contract based upon a fraudulent

statement from the other party to the contract, then the party who has been fraudulently induced

is not bound by the contract.” Id. (quoting Bogosian, 823 A.2d at 1120); see Bjartmarz v.

Pinnacle Real Estate Tax Service, 771 A.2d 124, 127 (R.I. 2001).

       However, fraud is an affirmative defense, and failure to plead it in one’s answer amounts

to waiver. Super. R. Civ. P. 8(c); Catelli v. Fleetwood, 842 A.2d 1078, 1081 (R.I. 2004) (“It is

well settled that ‘failure to plead an affirmative defense results in its waiver.’” (quoting Duquette

v. Godbout, 416 A.2d 669, 670 (R.I. 1980))). Nevertheless, an affirmative defense need not “be

explicitly labeled as such, and the defense may be pleaded in general terms so long as it gives the

[plaintiff] fair notice of the defense.” Catelli, 842 A.2d at 1081 (quoting Tucker v. Mammoth

Mart Inc., 446 A.2d 760, 762 (R.I. 1982)).

       It is clear that Paolo failed to assert fraud against plaintiff in his answer. The only fraud

that Paolo pleaded was against “a prior shareholder of Alpha Nutrition, Inc., Tony Gabriele,”

who Paolo alleged “falsely represented the business situation of Alpha Nutrition,” which

allegedly caused Paolo “to enter into a guarantee which benefitted Mr. Gabriele.” That is

insufficient to put West Davisville on notice that there were allegations of fraud against it.

Because Paolo never moved to amend his answer, his allegations raised for the first time in his

affidavits in opposition to plaintiff’s summary-judgment motion are not adequate to oppose

summary judgment. See Catelli, 842 A.2d at 1081. Therefore, any attempt by Paolo to now

reasons stated present by affidavit facts essential to justify the party’s opposition, the court may
* * * order a continuance to permit * * * discovery to be had * * *.”
                                                 8
point to purported evidence of fraudulent inducement by West Davisville is not relevant in this

appeal.

                                                 B

                                          Consideration

          Paolo also argues that there is a genuine question of material fact as to whether West

Davisville provided consideration to Paolo to effectuate a valid contract. To this, plaintiff

responds that Paolo was the “President/CEO” of Alpha, and Alpha collected the benefit of

terminating the lease early.

          While we have doubts that defendant has even sufficiently briefed this issue,7 we agree

with the hearing justice that the consideration that benefited Alpha underlying the termination

agreement is also attributable to Paolo’s personal guaranty. See Tri-Town Construction Co. v.

Commerce Park Associates 12, LLC, 139 A.3d 467, 477-78 (R.I. 2016).

          “[A] valid contract requires competent parties, subject matter, a legal consideration,

mutuality of agreement, and mutuality of obligation.” Andoscia v. Town of North Smithfield, 159

A.3d 79, 82 (R.I. 2017) (quoting Voccola v. Forte, 139 A.3d 404, 414 (R.I. 2016)). “With

respect to the requirement of consideration specifically, we have stated that consideration

‘consists of some legal right acquired by the promisor in consideration of his promise, or

forborne by the promisee in consideration of such promise.’” Voccola, 139 A.3d at 414 (quoting

DeLuca v. City of Cranston, 22 A.3d 382, 384 (R.I. 2011) (mem.)). While a personal guaranty

“must be supported by consideration, there is no requirement that the guarantor receive a direct

benefit.” Tri-Town Construction Co., 139 A.3d at 477. In fact, we have previously determined

7
  See A. Salvati Masonry Inc. v. Andreozzi, 151 A.3d 745, 750 (R.I. 2017) (quoting In re Jake G.,
126 A.3d 450, 458 (R.I. 2015)) (“Generally, we deem an issue waived ‘when a party [s]imply
stat[es] an issue for appellate review, without a meaningful discussion thereof * * *.’”).
                                                 9
that “[w]hen a corporate officer agrees to be liable for a debt of the corporation, it is not

necessary for consideration to move to the officer personally[,]” but, rather, “[i]t is enough if the

corporation receives the consideration.” Id. (quoting Katz v. Prete, 459 A.2d 81, 86 (R.I. 1983)).

          Here, Paolo held himself out as a corporate officer, and he clearly agreed to be liable for

the debts of Alpha, through his signature on the personal guaranty, which he does not dispute he

signed. For such a personal guaranty to be valid, the underlying termination agreement must

have been supported by some consideration received by the corporation, which was present in

this case in that Alpha was released early from its lease obligations in exchange for a promise to

pay West Davisville $62,362.50. See Tri-Town Construction Co., 139 A.3d at 477; see also

Voccola, 139 A.3d at 414. Consequently, we agree with the hearing justice’s grant of the

plaintiff’s motion for summary judgment.8

                                                   IV

                                              Conclusion

          Accordingly, the Superior Court’s judgment is affirmed. The record may be returned to

that tribunal.

8
    Paolo did not contest the trial justice’s award of attorneys’ fees, costs, and expenses on appeal.
                                                   10
STATE OF RHODE ISLAND AND                                  PROVIDENCE PLANTATIONS

                         SUPREME COURT – CLERK’S OFFICE

                                 OPINION COVER SHEET

                                     West Davisville Realty Co., LLC v. Alpha Nutrition,
Title of Case
                                     Inc. et al.
                                     No. 2017-87-Appeal.
Case Number
                                     (PC 15-5306)
Date Opinion Filed                   April 19, 2018
                                     Suttell, C.J., Goldberg, Flaherty, Robinson, and
Justices
                                     Indeglia, JJ.
Written By                           Associate Justice Gilbert V. Indeglia

Source of Appeal                     Providence County Superior Court

Judicial Officer From Lower Court    Associate Justice Michael A. Silverstein
                                     For Plaintiff:

                                     Paul V. Sullivan, Esq.
                                     Glen R. Whitehead, Esq.
Attorney(s) on Appeal
                                     For Defendant:

                                     Daniel P. McKiernan, Esq.

SU-CMS-02A (revised June 2016)