IDC Clambakes, Inc et al
OPINION AND ORDER: the decision of the Bankruptcy Court is AFFIRMED in part and VACATED in part. So Ordered by Judge William E. Smith on 4/10/12. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
In re IDC Clambakes, Inc.,
C.A. No. 10-267 S
OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
This cross-appeal from the Bankruptcy Court’s Decision and
Order begins the end of the protracted, litigious relationship
of the parties concerning an area of Goat Island, on a portion
of Goat Island South Condominium, known as the “Reserved Area”
in Newport, Rhode Island.
The Appellants/Cross-Appellees are
Goat Island South Condominium Association, America Condominium
Association, Capella South Condominium Association, and Harbor
“Associations”), and the Appellee/Cross-Appellant is Debtor IDC
shareholder of Clambakes, IDC Properties, Inc. (“Properties”),
and IDC, Inc.
The following, largely undisputed, narrative of the
relevant events is derived from the Bankruptcy Court’s opinion:
IDC, Inc. and Properties are the successors in
interest to Globe Manufacturing Co., the declarant of
a Newport, Rhode Island, condominium complex situated
on Goat Island, consisting of approximately twentythree acres.
The master declaration reserved to the
declarant the right to convert, inter alia, the
Reserved Area (also referred to as the North Unit) to
a master unit and to construct improvements thereon,
until December 31, 1994. . . . Properties failed to
timely exercise said development rights, but instead
attempted to extend the development rights deadline
Between 1996 and 1998, meetings, discussions, and
negotiations took place between IDC, Inc., Properties,
Roos, and the Associations and their attorneys
amendments, fee assessments and voting schemes.
January 5, 1998, the Associations, Properties, IDC,
Inc., and Roos, entered into a Tolling Agreement which
preserved the Associations’ claims relative to the
amendments, development rights, the Rhode Island
improvements, and the allocation of common element
This agreement was extended several times
Clambakes was not a party to the original Tolling
Agreement, nor to any of its extensions.
Clambakes [came] into existence [on] April 18,
1996. . . . It is agreed that Clambakes is a separate
and distinct corporation with separate assets and
liabilities, and that Roos is the sole shareholder and
President of both Clambakes and Properties.
In late 1997 and throughout 1998, while the
Tolling Agreement was in effect, Properties made plans
and preparations to construct an opulent banquet
facility on the Reserved Area. Prior to the start of
construction, in October 1997, the America Condominium
Association raised concerns with the City of Newport
Zoning Officer about the issue of parking on Goat
Island to handle the proposed Clambakes operation.
The Zoning Officer’s response was “that the proposal
is allowed under the zoning code of the City of
See Debtor’s Exhibit 21.
four months later, upon the filing of the building
permit for the construction of the facility, the
America Condominium Association again raised the
parking issue with the Newport Building Inspector.
“It’s our understanding that a permit application has
been filed with your Office for the purpose of
constructing a bldg. [sic] that would, among other
uses, be used for clambakes.
While we don’t have a
particular objection as to the land use with respect
to the building itself, we do have a substantial
problem with the parking requirements for that bldg.,
[sic] as well as for other commercial parking on and
around that site.”
Debtor’s Exhibit 63 (emphasis
On March 1, 1998, while the facility was still
under construction, Properties entered into a twenty
year lease with Clambakes, doing business as The
Newport Regatta Club (“Regatta Club”). . . . In July
1998, an application was filed with the Board of
License Commissioners to transfer the liquor license
of Dorell, Inc. to IDC Clambakes, Inc., d/b/a The
Newport Regatta Club.
The issuance of the liquor
license was delayed for several months at the request
of, and pending the America Condominium’s Zoning Board
There is no evidence that any of the
individual unit owners or the plaintiff Associations
opposed the liquor license transfer to Clambakes. See
Debtor Exhibits 66, 67.
The only question raised by
the Associations during the construction of the
facility concerned the adequacy and/or logistics of
On December 16, 1998, the Regatta Club’s use and
Nearly one year later, on October 20, 1999, America
Condominium appealed the Newport building inspector’s issuance
of the building permit and certificate of occupancy on the
grounds that it was in violation of a special use permit on the
property, which appeal was subsequently denied.
Ass’n., Inc. v. Benson, No. 99-180, 2000 WL 33159156 (R.I.
Super. May 19, 2000). The appeal did not raise any allegations
of trespass against either Properties or Clambakes. Thereafter,
America Condominium filed a lawsuit in Superior Court seeking a
remand of the action to the zoning board, which request was
Am. Condo. Ass’n v. Benson, No. CIV.A. NC993
reception and banquet operations began.
from mid-December 1998 until April 8, 2005, Clambakes
operated the Regatta Club and paid rent to Properties
pursuant to the terms of their lease.
seven year period the Associations made no protest nor
took any action to enjoin Clambakes’ operation of its
business or to express objection – overtly or
otherwise – to Clambakes’ possession and/or operation
of the Regatta Club.
Approximately six months after Clambakes began
operating the Regatta Club, on May 28, 1999 – three
days before the expiration of the Tolling Agreement,
the Associations filed a state court action against
IDC, Inc., Properties and Roos individually, alleging,
inter alia, violations of the Rhode Island Condominium
Act, R.I. Gen. Laws § 34-36.1-1.01, et seq. (1956),
and that the voting scheme used in amending and
extending the development rights in the Reserved Area
ineffective. . . .
[O]mitted from this lawsuit was
Clambakes, . . . and Clambakes was never added as a
party during the entire six year period that the
America litigation wound its way through the Rhode
Island Superior and Supreme Courts.
[A]lthough the Associations were suing Clambakes’
lessor, they never contested Clambakes’ right to
possess and operate, nor ever objected to its
operation, as lessee, of the Regatta Club.
contrary, during the entire time in question, unit
owners contracted with Clambakes to host private
events at the Regatta Club under standard business
terms and rates, and the Harbor Houses Condominium
Association similarly used the Regatta Club to conduct
its annual meetings. At no time did any unit owners,
or the Harbor Houses Association, or the Associations
notify Clambakes that it was operating without the
consent of the owner, or assert any claims of trespass
or unauthorized occupancy against it.
used and enjoyed the Club for seven years.
On October 15, 1999, nearly one year after
Clambakes took possession of and began operating the
Regatta Club, the Associations recorded a Notice of
Lis Pendens in the land records for the City of
180, 2001 WL 1452781 (R.I. Super. Nov. 2, 2001).
not a party to any of that litigation.
Newport against “IDC Properties, Inc., the present
Development Unit, the West Development Unit, and the
South Development Unit,” referencing the state court
damages, see Plaintiff Exhibit E, again with no
mention of Clambakes.
Soon after the Supreme Court’s decision in
America II in April 2005, holding that “title [to the
Reserved Area and its structures] rested with the unit
owners in common ownership from the creation of the
condominium,” 870 A.2d at 443, the Associations filed
an Application for Writ of Execution for Possession
and Writ of Ejectment, seeking for the first time to
evict Properties, IDC, Inc., and Thomas Roos, see
Debtor’s Post Trial Memorandum, Composite Exhibit GG,
but with still no mention of Clambakes in any of the
On June 16, 2005, Clambakes filed the instant
Chapter 11 case, initially trying to relitigate in
this Court many of the same issues already decided
against IDC, Properties and Roos in the state courts.
When that strategy failed, Clambakes began in earnest
to address its Debtor in Possession responsibilities,
i.e., a plan was promptly confirmed, all creditors and
fees were paid, and sufficient funds were placed in
escrow to pay the Associations in full, if their
claims are allowed. . . .
On July 11, 2005, a Chapter 11 trustee was
appointed, and shortly thereafter, in order to allow
the Debtor to complete its substantial summer event
bookings scheduled from July 28, 2005 through October
31, 2005, filed an emergency motion requesting that he
be authorized to operate the Regatta Club in the
ordinary course and to make adequate protection
payments to the Associations for its use and occupancy
during the Debtor’s busy season. . . . Negotiations
followed, and on August 25, 2005, the Court approved a
Consent Order settling the trustee’s emergency motion,
wherein the parties agreed that the trustee should
continue to operate the Debtor’s business in the
consideration of the payment of $450,000 as adequate
protection for the use and occupancy of the premises
for the period April 8, 2005 (the date of the Supreme
Court decision declaring title in the unit owners),
through November 5, 2005
permitted event booking).
In re IDC Clambakes, Inc., 431 B.R. 51, 55-57 (Bankr. D.R.I.
On February 8, 2008, this Court remanded the case to the
Bankruptcy Court after its initial decision on Clambakes’ motion
Condo. Ass’n, Inc. v. IDC Clambakes, Inc., 382 B.R. 178 (D.R.I.
The Court instructed the Bankruptcy Court on remand to
requirements; (2) carefully adhere to the elements of trespass
Association’s claim for trespass damages is precluded by America
I or America II.
Id. at 179-80.
On remand, the Bankruptcy
Court held a nine-day trial and, thereafter, issued an opinion
holding (in relevant part) that (1) the Associations’ claims for
trespass and/or damages against Clambakes were not precluded by
between March 1, 1998 and April 8, 2005 because the Associations
consented to its operation of the Regatta Club on the Reserved
Area; and (3) Clambakes trespassed between April 8, 2005 and
November 5, 2005, but the Associations’ damages were limited to
the $450,000 that was already paid by the Chapter 11 trustee,
Clambakes, 431 B.R. at 58-62.
On appeal to this Court, the Associations contend that (1)
consented to Clambakes use and occupancy was clearly wrong; (2)
even if the Associations had impliedly consented, such implied
consent would give rise to an implied obligation to pay; (3) the
testimony; and (4) the Bankruptcy Court erred in considering
Clambakes also advances two alternative arguments, to be taken
up if the Court does not uphold the Bankruptcy Court’s consent
determination: (1) that the Bankruptcy Court erred in finding
that the Associations had constructive possession of the North
Unit; and (2) that the Bankruptcy Court erred in holding that
the Associations’ demand for trespass damages was not precluded
by the doctrine of issue preclusion.
Standard of Review
This Court reviews the Bankruptcy Court’s factual findings
for clear error, Thunberg v. Wallick (In re Thunberg), 641 F.3d
reviewed de novo.
Gannett v. Carp (In re Carp), 340 F.3d 15, 21
(1st Cir. 2003).
Under the clear error standard of review, this Court will
only set aside the Bankruptcy Court’s findings of fact where, in
(quoting Cumpiano v. Banco Santander, 902 F.2d 148, 152 (1st
The Bankruptcy Court’s findings will be upheld so
long as it follows that the Bankruptcy Court's findings are
supportable on any reasonable view of the record.
See Boroff v.
Tully (In re Tully), 818 F.2d 106, 109 (1st Cir. 1987).
Trespass between March 1, 1998 and April 8, 2005
Associations consented to its use and occupancy of the Reserved
On appeal, the Associations contend that the Bankruptcy
Court fundamentally misapprehended the record as a whole and
that its finding of consent to Clambakes’ use and occupancy is
(quoting Ferreira v. Strack, 652 A.2d 965, 969 (R.I. 1995)).
“Consent is willingness in fact for conduct to occur.
It may be
manifested by action or inaction and need not be communicated to
Restatement (Second) of Torts § 892 (1979).
words or conduct are reasonably understood by another to be
intended as consent, they constitute apparent consent and are as
effective as consent in fact.”
More specifically with
respect to apparent consent:
Even when the person concerned does not in fact agree
to the conduct of the other, his words or acts or even
his inaction may manifest a consent that will justify
the other in acting in reliance upon them.
true when the words or acts or silence and inaction,
would be understood by a reasonable person as intended
to indicate consent and they are in fact so understood
by the other. . . .
On the other hand, if a
reasonable person would not understand from the words
or conduct that consent is given, the other is not
justified in acting upon the assumption that consent
is given even though he honestly so believes; and
there is then no apparent consent.
Id. at § 892, cmt. c (emphasis added).
apparent consent [a]s a fact issue,” id. at § 892, reporter’s
note, cmt. c, the Bankruptcy Court’s consent determination is
more properly viewed as a mixed question of law and fact.
questions of law and fact “invok[e] a sliding standard of review
. . . .”
Braunstein v. McCabe, 571 F.3d 108, 124 (1st Cir.
nature of the mixed question; the more fact-dominated it is, the
more likely that deferential, clear-error review will obtain,
and the more law-dominated it is, the more likely that nondeferential, de novo review will obtain.”
Sierra Fria Corp. v.
Donald J. Evans, P.C., 127 F.3d 175, 181 (1st Cir. 1997); see
also Fidelity & Guar. Ins. Co. v. Star Equip. Corp., 541 F.3d 1,
5 (1st Cir. 2008).
In the present case, it is clear that the
Bankruptcy Court’s consent determination was fact-dominated and
is accordingly reviewed for clear error.
See Sierra Fria, 127
F.3d at 181.
The Bankruptcy Court determined that, “throughout the seven
year term of Clambakes’ management and operation of the Regatta
inactions) signaling apparent consent to Clambakes’ possession
and operation of the Regatta Club.”
B.R. at 60.
In support of this determination, the Bankruptcy
In re IDC Clambakes, 431
Second, during the construction, licensing, and approval
Morrissette stated: “While we don’t have a particular objection
as to the land use with respect to the building itself, we do
have a substantial problem with the parking requirements for
that bldg., [sic] as well as for other commercial parking on and
around that site.”
The Bankruptcy Court also noted that
there was no objection to the City’s transfer of the liquor
license for Clambakes’ use at the Regatta Club.
Third, Clambakes was not a party to the America litigation,
and “while Clambakes is charged with knowledge of its existence,
given that its sole shareholder [Roos] was a named Defendant,
the Associations gave no indication of their intent to withdraw
their apparent consent for Clambakes to continue operating the
Regatta Club pending the outcome of the suit against its lessor,
directly with the Regatta Club to host private events.
Fifth, there was no written or verbal notice, signage, or any
other type of claim made against Clambakes to quit the premises.
One of the Associations arguments on appeal is that the
conclusion of trial, the Bankruptcy Court requested that the
parties file post-trial memoranda.
Appended to Clambakes’ postvolume
composite exhibits were not part of the record at trial; it is
otherwise object to these exhibits before the Bankruptcy Court.
waiver or consent, ordinarily may not receive additional factual
information of a kind not susceptible to judicial notice unless
available to litigants.”
Lussier v. Runyon, 50 F.3d 1103, 1105-
06 (1st Cir. 1995); see also id. at 1113 (“It is a fundamental
consider extra-record evidence concerning disputed adjudicative
Those procedural safeguards “include, but are not
question its source, relevance, and reliability, the right to
Id. at 1113 n.13.
In the normal course, if a party desires to supplement the
consider by assessing a variety of factors.
See, e.g., Davignon
Marriott Int’l, Inc., 81 F.3d 1148, 1160 (1st Cir. 1996).2
by contrast, such a motion was neither made by Clambakes nor
entertained sua sponte by the Bankruptcy Court.
extra-record evidence was surreptitiously appended to Clambakes’
It is true that parties are expected to thoroughly review
all submissions by opposing counsel and vigilantly pursue any
And here, there is no doubt that the
Associations failed in that regard.
They received a copy of
Clambakes’ post-trial composite exhibits on December 4, 2008 and
never objected, moved to strike, or otherwise complained about
Bankruptcy Court’s decision was on appeal to this Court.
fact, it would appear that the Associations did not bring the
issue to the Court’s attention until they filed their September
30, 2010 reply brief.
In Lussier, the court sustained a “preserved objection” and
determined that there was “no basis for finding that the parties
waived this deprivation, consented to the court’s shortcut, or
“While the court’s decision turns on flexible and casespecific criteria, among the facts the district court should
consider are ‘whether (1) the evidence sought to be introduced
is especially important and probative; (2) the moving party’s
explanation for failing to introduce the evidence earlier is
bona fide; and (3) reopening will cause no undue prejudice to
the non-moving party.’” Davignon v. Hodgson, 524 F.3d 91, 114
(1st Cir. 2008) (quoting Rivera-Flores v. Puerto Rico Tel. Co.,
64 F.3d 742, 746 (1st Cir. 1995) (citation omitted)).
50 F.3d at 1113, 1115.
While there was certainly no
preserved objection here, and a colorable argument could be made
that the Associations’ silence and inaction constituted a waiver
of the issue, to consider this issue waived would only reward
Clambakes’ brazen attempt to sneak new evidence into the record
determination was “premised on this late-arriving evidence” or
is sufficiently supported by evidence that was properly in the
See id. at 1115 (“To the extent that the judgment is
premised on this late-arriving evidence, it cannot stand.”).
As framed by the Associations, the real issue is whether
Composite Exhibit P contains a small excerpt
of Raymond Morrissette’s testimony before the Bankruptcy Court
on July 5, 2005.
The following exchanges were underscored in
the transcript appended to Clambakes’ post-trial memorandum:
And you on behalf of unit owners are saying to
the building official that you don’t have any
objection to the land use with respect to the
Because counsel had advised us not to try and
stop a business.
. . . .
So your attorneys were advising you that the
business was a separate issue as opposed to who owns
the ground, correct?
We just didn’t want to get
contest of stopping the business.
So you made a conscience [sic] decision based on
institution or the conduct of business on that
(Composite Ex. P, In re: IDC Clambakes, Inc., (Bankr. D.R.I.
Dec. 4, 2008), BK No. 05-12267, ECF No. 671-5.)
Although that testimony was provided before the Bankruptcy
Court, it was not provided during the trial of this matter, not
made an exhibit during the trial, and was therefore not properly
part of the record for the Bankruptcy Court’s consideration.
Morrissette testimony contained in Composite Exhibit P is (very)
frequently cited in Clambakes’ reply brief on appeal, it is
never cited or quoted in the Bankruptcy Court’s decision.
frankly, it strikes the Court that Composite Exhibit P is so
significant that, had the Bankruptcy Court considered it, it
unquestionably would have cited and quoted from it extensively
to support its ultimate conclusion as to consent.
See Lussier, 50 F.3d at 1115.
Having determined that the Bankruptcy Court’s finding on
consent was not based upon or tainted by its consideration of
extra-record evidence, it still remains for this Court to assess
whether that finding was clearly erroneous.
The arguments of
Associations’ actions (or inactions).
The Associations argue
that it was illogical and clearly wrong for the Bankruptcy Court
to find that the Associations had consented at the same time
that the parties had engaged in hard-fought litigation and a
bitter dispute over title to the Reserved Area.
argue that the only appropriate interpretation of their words
and conduct was that they were pursuing their claims in court,
while refraining from self-help.
Clambakes, on the other hand,
record that reflects nonfeasance and deliberate inaction on the
part of the Associations.
In support of its contention that the consent determination
was erroneous, the Associations argue that the Bankruptcy Court
suffices to say that these arguments go to the character and
weight of the evidence; and, such determinations are best left
to the finder of fact.
See United States v. Young, 105 F.3d 1,
5 (1st Cir. 1997) (“Deference to the [trial] court's findings of
fact reflects our awareness that the trial judge, who hears the
testimony, observes the witnesses' demeanor and evaluates the
facts first hand, sits in the best position to determine what
Moreover, while the Associations attempt to pick apart the
Bankruptcy Court’s assessment of individual pieces of evidence
and related findings of fact, it is clear that the Bankruptcy
Court’s decision rested on the record, as a whole, presented at
And looking at that record on appeal, it is apparent
that this is a close case on the facts, with evidence supporting
the arguments of both sides.
A fair reading of the record supports the view that, from a
factual standpoint, Clambakes either thought Properties owned
the Reserved Area and Clambakes’ use and occupancy was pursuant
to a lease, or it thought that its possession was contested due
to the pendency of the America litigation.
On the other hand,
operation of the Regatta Club, the Associations essentially sat
At the end of the day, while it may be true that one
could fairly interpret the record as the Associations suggest,
determination that the Associations’ deliberate inaction in the
face of the construction and operation of a large, thriving
business, coupled with the affirmative actions of Harbor Houses
could be “reasonably understood by another to be intended as
Restatement (Second) of Torts § 892, is supportable
on a reasonable view of the record.4
See Boroff, 818 F.2d at
As to the Associations’ argument with respect to Exhibit
EE, even if the Bankruptcy Court abused its discretion in not
admitting it, that decision was harmless error. The Bankruptcy
Court’s consent determination rested on a pattern of inaction
(and affirmative action) that had nothing to do with a purported
misapprehension of the scope of the America litigation.
The Associations argue in the alternative that, even if
determination, implied consent necessarily gives rise to an
implied obligation to pay fair value of the benefit received.
In support of this proposition, the Associations cite four Rhode
Island Supreme Court cases and the Restatement (Third) of
Restitution. The cases cited by the Associations do not involve
implied consent in a trespass context but rather involve implied
And the portion of the Restatement that the
Associations cite pertains to “Trespass, Conversion, and
Comparable Wrongs.” See Restatement (Third) of Restitution § 40
Since a trespasser is “[o]ne who intentionally and
without consent or privilege enters another's property,” Bennett
v. Napolitano, 746 A.2d 138, 141 (R.I. 2000) (emphasis added)
(quoting Ferreira v. Strack, 652 A.2d 965, 969 (R.I. 1995)), and
the Court has sustained the consent determination, Clambakes was
not a trespasser during the period in question, and this portion
of the Restatement is not applicable.
Most importantly, this
argument was not raised before the Bankruptcy Court below and
is, accordingly, not properly before this Court on appeal.
Trespass between April 8, 2005 and November 5, 2005
In the Bankruptcy Court’s decision, the court held that,
“even without argument on the issue, the conclusion is mandatory
that, as of April 8, 2005, the Associations’ apparent consent
ended, that, by operation of law Clambakes became a trespasser
upon the Reserved Area, and that said trespass continued until
Clambakes vacated the premises on November 5, 2005.”
Clambakes, 431 B.R. at 61 (emphasis added).
In re IDC
The court then went
on to determine that the appropriate measure of damages for that
period of time was limited to the $450,000 that was already paid
determination was erroneous because the Associations’ proofs of
claim do not encompass this time period.
A review of the record suggests that Clambakes is correct.
contain the following: “2. Date debt was incurred: 1998 – April
The Associations’ brief to this Court suggests that
there is no disagreement as to the scope of their proofs of
claim: “On October 3, 2005, the Condominium Associations filed
timely proofs of claim seeking the fair value of the Debtor’s
pre-Petition use and occupancy of the Reserved Area and the
improvements thereon for the period from 1998 to April 8, 2005
Furthermore, in its Reply Brief to this Court, the Associations
assertion that their claims did not encompass the period of time
review of the entire Bankruptcy Court record and could find no
suggestion that the claim period had been somehow expanded or
Accordingly, the question of whether Clambakes trespassed
after April 7, 2005 was simply not before the Bankruptcy Court,5
and that determination is hereby vacated.
For the reasons set forth in this opinion,6 the decision of
the Bankruptcy Court is AFFIRMED in part and VACATED in part.
IT IS SO ORDERED.
/s/ William E. Smith
William E. Smith
United States District Judge
Date: April 10, 2012
Clambakes made clear during the hearing before this Court
that they do not contend that they are entitled to the return of
any of the $450,000 that was already paid.
resolution of this particular question on appeal has no monetary
impact on either party.
Having affirmed the Bankruptcy Court’s decision on the
basis of its consent determination, the Court need not consider
the issues raised in the alternative by Clambakes.