Court Opinion

ID: 9943503
Source: CourtListenerOpinion
Date Created: 2024-02-23 17:16:14.021175+00
Date Added: 2024-06-11T13:47:05.908122
License: Public Domain

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal
revision before publication in the Vermont Reports. Readers are requested to notify the Reporter
of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109
State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made
before this opinion goes to press.

                                              2024 VT 11

                                            No. 23-AP-311

Stowe Aviation, LLC et al.                                        Supreme Court

                                                                  On Appeal from
   v.                                                             Superior Court, Orleans Unit,
                                                                  Civil Division

Agency of Commerce & Community Development                        January Term, 2024

Mary Miles Teachout, J. (Ret.)

Michael B. Stevens of Derrevere Stevens Black & Cozad, Burlington, for Plaintiffs-Appellants.

Charity R. Clark, Attorney General, and David R. Groff, Assistant Attorney General, Montpelier,
 for Defendant-Appellee.

PRESENT: Reiber, C.J., Eaton, Carroll and Cohen, JJ., and Tomasi, Supr. J.,
         Specially Assigned

        ¶ 1.     CARROLL, J. Plaintiffs Stowe Aviation, LLC and Stowe Airport Investment,

LP appeal from an order denying their motion to reopen this breach-of-contract case and for leave

to file a second amended complaint. We reverse and remand.

        ¶ 2.     Plaintiffs make the following allegations in their first amended complaint.1 In May

2014, plaintiffs and the Vermont Agency of Commerce and Community Development (ACCD)

executed a memorandum of understanding (MOU). The MOU set out the parties’ responsibilities

relating to plaintiffs’ intention to develop and expand the Morrisville-Stowe State Airport using

        1
            We take no position on the merits of plaintiffs’ allegations.
investments secured through the EB-5 program.2 Under the MOU, ACCD and its in-house EB-5

program administrator, the Vermont Regional Center,3 agreed to assist plaintiffs with oversight

and administration of the EB-5 program as it related to plaintiffs’ project and to assist the project’s

EB-5 investors. Plaintiffs acquired four EB-5 investors in the first year, obtained a $4.6 million

grant from the Federal Aviation Administration, and raised $1.7 million in private financing.

Plaintiffs expanded the airport’s services and hours of operation and secured commercial airline

service to the airport.

        ¶ 3.    In December 2014, ACCD separately executed a MOU with the Department of

Financial Regulation (DFR) without notice to plaintiffs. Under that MOU, DFR assumed ACCD’s

obligations in relation to plaintiffs’ project. At about this same time, there were concerns—later

substantiated—that several unrelated EB-5 projects at Jay Peak and elsewhere in the Northeast

Kingdom of Vermont had been involved in a years-long scheme by project directors to embezzle

EB-5 funds for private gain. See generally State v. Quiros, 2019 VT 68, 211 Vt. 73, 220 A.3d

1241. DFR’s unilateral involvement with plaintiffs was related to these concerns. At the time

plaintiffs executed the MOU with ACCD, ACCD had represented to plaintiffs that the Jay Peak

projects were subject to “gold standard” oversight.

        ¶ 4.    DFR demanded that plaintiffs execute a new MOU with different terms or else face

cancellation of the airport project and the May 2014 MOU with ACCD. Plaintiffs refused and

        2
         We have previously explained the EB-5 program in detail. See generally Sutton v. Vt.
Reg’l Ctr., 2019 VT 71A, 212 Vt. 612, 238 A.3d 608. In brief, the EB-5 program, administered
by the United States Customs and Immigration Services via regional state-level centers, such as
the Vermont Regional Center, allows foreign investors to make a qualifying investment in
commercial projects throughout the United States to obtain permanent-resident status for
themselves and their spouses and children.
        3
       VRC is not a distinct legal entity from ACCD. Accordingly, for clarity we refer only to
ACCD throughout unless it is infeasible to do so.
                                                2
ACCD cancelled the May 2014 MOU and provided a copy of the cancellation notice to plaintiffs’

lender. The lender suspended financing of the project. The project subsequently failed.

        ¶ 5.    Based on these and other allegations, plaintiffs filed a two-count complaint against

ACCD. Plaintiffs complained in count one that they executed the MOU with ACCD based on its

representations that it provided “gold standard” oversight of EB-5 projects, when in fact a

significant fraud had been perpetrated on its watch. Because of this oversight failure, plaintiffs

alleged, ACCD breached its obligation to perform under the MOU, causing the project to fail and

damaging plaintiffs. In count two, plaintiffs alleged that ACCD’s misrepresentations about its

oversight of other EB-5 projects amounted to bad-faith conduct and destroyed plaintiffs’ right to

receive benefits under the May 2014 MOU. Plaintiffs contended that ACCD’s conduct breached

the implied covenant of good faith and fair dealing.

        ¶ 6.    The trial court granted the State’s motion to dismiss for failure to state a claim on

both counts. It found ACCD’s representations about its oversight capabilities irrelevant to the

analysis. It concluded that the MOU did not contain any provision promising oversight of the Jay

Peak projects for the benefit of plaintiffs. It did find that plaintiffs had alleged a basis for a breach-

of-contract claim with respect to ACCD’s “unauthorized and unilateral transfer of the MOU to

DFR,” DFR’s subsequent demands on plaintiffs, and ACCD’s ultimate cancellation of the May

2014 MOU. Plaintiffs did not, however, adequately plead damages related to this alleged breach,

and therefore failed to state a claim. The court found that a potential claim of breach of the implied

covenant of good faith and fair dealing arising from the same allegations suffered from the same

deficiency. Plaintiffs did not request leave to amend the complaint prior to the court’s decision—

nor did the court sua sponte grant such leave in its order. It dismissed the complaint pursuant to

Vermont Rule of Procedure 41(b) and closed the case the same day.

        ¶ 7.    Plaintiffs moved under Vermont Rule of Civil Procedure 15 to amend the complaint

in response to the court’s identification of a potential basis for plaintiffs’ two claims. The State

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opposed the motion, arguing that repleading under Rule 15 only applied to an operative complaint,

and because the court had closed the case, plaintiffs had to first move the court to reopen or vacate

judgment under Vermont Rules of Civil Procedure 59 or 60. Plaintiffs then timely filed a restyled

motion seeking relief under either Rule 59 or 60, and submitted a proposed second amended

complaint attempting to cure the deficiencies the court identified in its final order. Plaintiffs argued

that having an opportunity to cure a pleading deficiency was appropriate relief under Rule 59(e),

and in the alternative, that the failure to grant leave to amend in the final order was a clerical

mistake and a basis to reopen the case under Rule 60(b).

        ¶ 8.    The court concluded that for plaintiffs to prevail under Rule 59(e), the court had to

have made a mistake, not plaintiffs. It found that plaintiffs’ failure to request leave to amend in

the event the court ruled in ACCD’s favor on both counts was not a fault or mistake of the court,

but of plaintiffs. It found that the proposed second amended complaint contained new arguments

that plaintiffs could have pleaded before it closed the case. It determined that dismissal with

prejudice was appropriate under Rule 41(b) because the order was a final order that disposed of all

claims. See Stratton Corp. v. Engelberth Const. Inc., 2015 VT 75, ¶ 17, 199 Vt. 388, 124 A.3d

489 (“If the court does not specify that the dismissal is without prejudice . . . the dismissal will be

with prejudice” when “the court expressly provides that dismissal was with prejudice” or “when it

is silent on the matter.” (quotation omitted)). It concluded that Rule 60 motions filed within the

time allowed for Rule 59 motions should be treated the same as relief requested under Rule 59,

and that it had not made a clerical mistake in failing to sua sponte grant leave to amend. The court

accordingly denied the motion. Plaintiffs appealed this order.

        ¶ 9.    Plaintiffs first contend that the trial court committed error as a matter of law in its

order granting the State’s motion to dismiss. They argue that their first amended complaint stated

a claim arising from the transfer of oversight duties to DFR and ask this Court to reverse on that

ground. We decline to reach this argument because it is raised for the first time in plaintiffs’ brief.

                                                   4
In their notice of appeal, plaintiffs stated that they sought to appeal only the order denying their

Rule 59 motion; they did not appeal the May 2023 order dismissing the complaint. Moreover,

plaintiffs did not challenge the merits of the dismissal order in any of their postjudgment motion

papers in the trial court. We therefore do not reach their claim concerning that order here. See In

re White, 172 Vt. 335, 343, 779 A.2d 1264, 1270 (2001) (“We have repeatedly stressed that we

will not address arguments not properly preserved for appeal.”).

       ¶ 10.     Plaintiffs also assert that Rule 59(e) is a viable means to reopen the pleadings, and

the trial court abused its discretion in denying relief under that rule. We agree that plaintiffs can

potentially obtain Rule 59(e) relief, and therefore reverse the order denying plaintiffs’ Rule 59(e)

motion and remand for further proceedings to evaluate plaintiffs’ request to replead consistent with

this opinion.4

       ¶ 11.     We review orders denying Rule 59(e) relief for an abuse of discretion. Houghton

v. Leinwohl, 135 Vt. 380, 382, 376 A.2d 733, 736 (1977). An abuse of discretion occurs where

the court “has withheld its discretion entirely or” has exercised it “for clearly untenable reasons or

to a clearly untenable extent.” HSBC Bank USA N.A. v. McAllister, 2018 VT 9, ¶ 8, 206 Vt. 445,

182 A.3d 593 (quotation omitted). “We view the evidence in the light most favorable to the

prevailing party when reviewing the disposition of a Rule 59 motion.” N. Sec. Ins. Co. v. Mitec

Elec., Ltd., 2008 VT 96, ¶ 34, 184 Vt. 303, 965 A.2d 447.

       ¶ 12.     The first question presented is whether plaintiffs can prevail on a Rule 59(e) motion

to replead where plaintiffs did not seek leave to amend their complaint prior to the court’s merits

decision and where the court dismissed with prejudice and closed the case. We review this

question of law without deference to the trial court. State v. Amidon, 2008 VT 122, ¶ 16, 185 Vt.

       4
          Plaintiffs concede that Rule 60 motions filed within the time allowed for Rule 59 motions
are treated as Rule 59 motions, and we therefore confine our discussion to Rule 59 in this opinion.
See Gregory v. Poulin Auto Sales, Inc., 2012 VT 28, ¶ 17 n.3, 191 Vt. 611, 44 A.3d 788.
                                                 5
1, 967 A.2d 1126 (“The interpretation of procedural rules is a question of law which we review de

novo.”).

       ¶ 13.   Rule 59(e) provides courts with “the power to rectify [their] own mistakes in the

period immediately following the entry of judgment.” Mitec, 2008 VT 96, ¶ 41 (quotation

omitted). This power includes the ability to “change . . . a dismissal with prejudice to one without

prejudice” and to clarify judgments, among other relief. Reporter’s Notes, V.R.C.P. 59; State v.

Champlain Cable Corp., 147 Vt. 436, 438, 441, 520 A.2d 596, 597, 600 (1986). We have never

addressed whether the court’s power includes granting Rule 59(e) relief to cure a pleading

deficiency, but we have encountered similar questions before. In State v. Equinox House, Inc.,

134 Vt. 59, 350 A.2d 357 (1975), the State took a direct appeal from a dismissal order. We

explained that a safer course would have been to first seek relief under Rule 59 or 60. We

nevertheless held that the State presented a “persuasive case,” particularly in light of our liberal

amendment standard, and directed the court to strike the order and permit, on motion, the State to

file an amended complaint under Rule 60(b). Id. at 63, 350 A.2d at 360.

       ¶ 14.   We revisited the topic in Mitec, where the issue was whether a prevailing party who

did not plead a recoupment cause of action in an insurance-coverage case could do so after entry

of judgment. We first held that the right to amend provided by Rule 15 no longer attached after

entry of judgment. Mitec, 2008 VT 96, ¶ 39. We disagreed with the trial court’s conclusion that

a “manifest injustice” basis under Rule 59(e) provided an avenue to amend the complaint to include

the new claim. Id. ¶ 42 (explaining that manifest injustice is one of four basic grounds of relief

under Rule 59(e)). We surveyed the cases cited by the trial court and in a leading civil-practice

treatise—11 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2810.1 (2d ed.

1995)—and found no similarity between those cases and the situation in Mitec, where the party

could have brought its recoupment claim sooner but failed to do so. Id. ¶¶ 42-44. We concluded

that the omission was “entirely due to the fault or neglect” of the plaintiff because its “complaint

                                                 6
did not so much as mention reimbursement of attorney’s fees.” Id. ¶ 45 (internal quotation marks

omitted).

       ¶ 15.   While neither Equinox nor Mitec is entirely on point, we are persuaded that both

cases imply that curing a pleading deficiency is a possible basis for relief under Rule 59(e).5 As

we noted in Equinox, “[f]reedom of amendment is a fundamental principle of our rules.” 134 Vt.

at 62, 350 A.2d at 359; see also Foman v. Davis, 371 U.S. 178, 181-82 (1962) (stating that Rule

59 motion to amend should have been granted because purpose of civil rules, including Rule 15,

is that “[i]f the underlying factors or circumstances relied upon by a plaintiff may be a proper

subject of relief, he ought to be afforded an opportunity to test his claims on the merits”). And

while we ultimately reversed the trial court in Mitec, we did so because Rule 59(e) was not a viable

means to add a new claim the litigant conceded it could have pleaded before the court entered

judgment. Our decision was based on the specific facts of that case, and we did not express or

imply that the rule never allowed repleading after the court closes the case or enters judgment.

       ¶ 16.   Rule 59(e) relief to amend pleadings is available in most if not all the federal

circuits. See, e.g., Acevedo-Villalobos v. Hernandez, 22 F.3d 384, 389 (1st Cir. 1994), cert.

denied, 513 U.S. 1015 (1994), reh’g denied, 513 U.S. 1122 (1995); Metzler Inv. Gmbh v. Chipotle

Mexican Grill, Inc., 970 F.3d 133, 142 (2d Cir. 2020); Jang v. Boston Sci. Scimed, Inc., 729 F.3d

357, 367-68 (3d Cir. 2013); Laber v. Harvey, 438 F.3d 404, 427 (4th Cir. 2006) (en banc); Schiller

v. Physicians Res. Grp. Inc., 342 F.3d 563, 568-69 (5th Cir. 2003); Bunn v. Navistar, Inc., 797

Fed. App’x. 247, 257 (6th Cir. 2020); Harris v. City of Auburn, 27 F.3d 1284, 1286-87 (7th Cir.

1994); United States v. Mask of Ka-Nefer-Nefer, 752 F.3d 737, 742-43 (8th Cir. 2014); see also

       5
         In a three-Justice memorandum decision, we strongly intimated that Rule 59(e) relief to
replead was an option for parties if properly litigated. Childs v. Valente, No. 2007-333, 2008 WL
2793869, at *2-3 (Vt. Apr. 1, 2008) (unpub. mem.) [https://perma.cc/ML9Q-HZBB].
                                                   7
Rule v. Tobin, 168 Vt. 166, 169, 719 A.2d 869, 871 (1998) (stating that Court looks to federal

cases when Vermont procedural rule is substantially identical to federal rule).

        ¶ 17.   In Williams v. Citigroup Inc., 659 F.3d 208 (2d Cir. 2011) (per curiam), the Second

Circuit encountered facts similar to the present dispute. There, the district court dismissed the

plaintiff’s complaint and entered final judgment the following day. The plaintiff timely moved to

reopen the judgment and sought leave to cure defects in the original complaint that the court

identified in its dismissal order. The court denied the motion on the bases that the plaintiff could

have presented the proposed new facts earlier and failed to explain why the court should grant

“leave to replead at this stage when [the plaintiff] failed to request an opportunity to replead in the

first instance.” Id. at 212.

        ¶ 18.   The Second Circuit reversed. It first refused to find an abuse of discretion where

the court failed to sua sponte grant leave to replead in its dismissal order. However, it concluded

that the court abused its discretion in denying the motion for reconsideration. It noted that, “[a]s

a procedural matter, [a] party seeking to file an amended complaint postjudgment must first have

the judgment vacated or set aside pursuant to [Rules] 59(e) or 60(b).” Id. at 213 (quotation

omitted) (alterations in original). It explained that “postjudgment motions for leave to replead

must be evaluated with due regard to both the value of finality and the policies embodied in Rule

15.” Id. Balancing these two considerations, it held that the district court abused its discretion by

requiring the plaintiff to move for leave to replead “in the first instance.” Id. at 214. The court

held that the U.S. Supreme Court in Foman “makes unmistakably clear there is no such rule”

requiring litigants to request leave to amend with their opposition papers or to do so before the

court enters judgment. Id. The court vacated the judgment and remanded for the district court to

“address whether the proposed amendments would be futile” under Rule 15 and whether the

proposed amendments cured the deficiencies the court identified in light of the competing interests

in finality and liberal amendment policies underlying Rule 15. Id.

                                                  8
       ¶ 19.   We similarly hold that the trial court’s denial of plaintiffs’ motion in this case was

an abuse of discretion. The court correctly noted that Rule 59(e) is meant to remedy mistakes

made by the court, not litigants. However, the court’s conclusion that relief was unavailable

because plaintiffs should have requested leave to amend in their opposition papers cannot be

squared with Equinox, Mitec, or the federal cases addressing the topic, including Foman. Such

practice may be recommended, but the rules do not require it.

       ¶ 20.   The trial court likewise did not adequately address plaintiffs’ proposed new

allegations pleaded in response to the dismissal order. Cf. Mitec, 2008 VT 96, ¶¶ 44-46 (holding

that Rule 59(e) relief not available on manifest injustice basis where party sought to add entirely

new claim it conceded could have pleaded before entry of judgment). Plaintiffs’ second amended

complaint contains new allegations of damages arising from the transfer of oversight to DCF and

subsequent cancellation of the May 2014 MOU, which the trial court had found lacking. In light

of this opinion, the court may determine that plaintiffs’ new allegations are a good-faith attempt

to flesh out the “underlying facts” and “circumstances” plaintiffs already pleaded and which the

court identified “may be a proper subject of relief.” Foman, 317 U.S. at 182. If so, plaintiffs

“ought to be afforded an opportunity to test” their claims “on the merits.” Id.

       ¶ 21.   On remand, therefore, plaintiffs must first convince the court to reopen the case

under Rule 59(e) before they can file their second amended complaint. The standard to prevail on

a Rule 59(e) motion in this context is more exacting, because the presumption to grant leave to

amend under Rule 15 “disappears after judgment has been entered.” Harris, 27 F.3d at 1287; see

Metzler, 970 F.3d at 146 (explaining that purposes underlying Rule 15 are one consideration in

ruling on postjudgment motion to replead, but are not “sole” consideration, and standard to grant

leave to replead postjudgment is more “exacting”); Mitec, 2008 VT 96, ¶ 44 (citing Harris, 27 F.3d

at 1287, for proposition that prejudgment presumption to grant leave to amend under Rule 15

“disappears” after entry of judgment or case closure). “[I]t would be contradictory to entertain a

                                                 9
motion to amend the complaint without a valid basis to vacate the previously entered judgment.”

Metzler, 970 F.3d at 142 (quotation omitted). Plaintiffs must demonstrate one of the “four basic

grounds” for granting a Rule 59 motion. Mitec, 2008 VT 96, ¶ 42 (quoting Wright & Miller, supra,

§ 2810.1).

       ¶ 22.   Here, the most plausible ground for assessing the motion is to “prevent manifest

injustice.” Id. Factors the court may consider in determining whether reopening a case for the

purpose of amending a complaint is necessary to prevent manifest injustice include: whether the

court has previously permitted amendments and whether it did so following a decision on the

merits, the conditions under which the court dismissed the previous claims, and how many times

the litigant sought leave to amend. See Metzler, 970 F.3d at 145-48. This list is not exclusive.

Furthermore, this analysis, while “significantly more” narrow than a prejudgment Rule 15 analysis,

Janese v. Fay, 692 F.3d 221, 229 (2d Cir. 2012), should nonetheless be mindful of our liberal

attitude toward allowing amendments. See Equinox, 137 Vt. at 62, 350 A.2d at 359.

       ¶ 23.   If plaintiffs sufficiently demonstrate a basis for relief under Rule 59(e), the inquiry

proceeds to whether plaintiffs’ second amended complaint meets the ordinary Rule 15 standard.

Colby v. Umbrella, Inc., 2008 VT 20, ¶ 4, 184 Vt. 1, 955 A.2d 1082 (identifying factors to evaluate

whether to allow party to amend pleadings under Rule 15 including undue delay, bad faith, futility,

and prejudice); Bevins v. King, 143 Vt. 252, 254-56, 465 A.2d 282, 283-84 (1983). Plaintiffs can

only file their second amended complaint if they prevail on both Rule 59(e) and Rule 15 standards.

        The order denying plaintiffs’ postjudgment motion for reconsideration is reversed, and the
matter is remanded for further proceedings consistent with this opinion.

                                                FOR THE COURT:

                                                Associate Justice

                                                 10