Goat Island South Condominium Association, Inc et al v. IDC Clambakes, Inc

Filing 32

OPINION AND ORDER re: 25 Appellant's Brief, filed by Goat Island South Condominium Association, Inc, Capella South Condominium Association, Inc.: the decision of the Bankruptcy Court is AFFIRMED in part and VACATED in part; IDC Clambakes, Inc. must pay Goat Island South Condominium Association, Inc. $2,600,000.00 for its use and occupancy of the Reserved Area and Regatta Club. So Ordered by Chief Judge William E. Smith on 6/10/15. (Jackson, Ryan)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
)
GOAT ISLAND SOUTH CONDOMINIUM
)
ASSOCIATION, INC. and CAPELLA
)
SOUTH CONDOMINIUM ASSOCIATION,
)
INC.,
)
)
Appellants,
)
)
v.
)
C.A. No. 14-245 S
)
IDC CLAMBAKES, INC.,
)
)
Appellee.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, Chief Judge.
Pending before the Court is Appellants Goat Island South
Condominium

Association,

Inc.

and

Capella

South

Condominium

Association, Inc.’s (collectively the “Associations”) appeal of
the

United

States

(ECF No. 25.)

Bankruptcy

Court

decision

in

this

matter.

The decision of the Bankruptcy Court is AFFIRMED

in part and VACATED in part. 1
The Bankruptcy Court chronicled the factual and procedural
background of this case in great detail.

1

This Court will not

The Court has appellate jurisdiction over the final
judgment of a United States Bankruptcy Court sitting within its
jurisdiction.
28 U.S.C. § 158.
The Court reviews the
Bankruptcy Court’s rulings of law de novo and its findings of
fact for clear error.
Bank Rhode Island v. Pawtuxet Valley
Prescription & Surgical Ctr., Inc., 386 B.R. 1, 3 (D.R.I. 2008).

repeat

that

Bankruptcy
agrees

background

Court’s

with

the

here,

decision

Bankruptcy

and

are

Parts

hereby

Court’s

presented and the burden of proof.
agrees

with

the

Bankruptcy

implied-in-fact contract. 2

Court

I

and

II

ADOPTED.

analysis

of

of

The
the

the
Court

question

Additionally, this Court
concerning

the

lack

of

an

Accordingly, this Court affirms Parts

III.1-2 of the Bankruptcy Court’s decision.
However,

the

Bankruptcy

Court’s

implied-in-law

contract analysis is a different matter. 3

or

quasi-

Faced with a record

2

Specifically, the Court agrees that an implied-in-fact
contract requires mutuality of assent and an agreement to be
bound.
Here, the Bankruptcy Court correctly determined that
these elements were lacking.
Indeed, Associations and IDC
Clambakes,
Inc.’s
(“Clambakes”)
corporate
sister,
IDC
Properties, raged against one another concerning the property
for years until, ultimately, the Rhode Island Supreme Court
ruled that Associations was the rightful owner.
To say that
Clambakes and Associations had a meeting of the minds, mutual
assent, and an intention to be bound to one another during this
time ignores that reality.
3

At the outset, Associations’ argument that Clambakes
should be judicially estopped from claiming that no implied
agreement existed between the parties should be addressed.
Judicial estoppel is an extraordinary equitable doctrine within
the Court’s discretion that is only invoked when a party derives
an unfair advantage from presenting inconsistent arguments to
the court. Gaumond v. Trinity Repertory Co., 909 A.2d 512, 519
(R.I. 2006).
To support its position, Associations point to
Clambakes’ application for a temporary restraining order in the
Bankruptcy Court in June 2005, in which Clambakes asserted that,
at a minimum, a tenancy at sufferance had been created by the
dynamic between Associations and Clambakes.
(Mot. for Temp.
Restraining Order 9-10, ECF No. 17.)
Although a tenancy at
sufferance carries with it some implication that an agreement
once existed, see Ucci v. Mancini, 344 A.2d 367, 370 (R.I.
1975), Clambakes did not specifically argue in its temporary
2

that has been described by the First Circuit as “problematic,”
Goat Island S. Condo. Ass’n, Inc. v. IDC Clambakes, Inc. (In re
Clambakes,

Inc.),

727

F.3d

58,

61

(1st

Cir.

2013),

the

Bankruptcy Court properly determined that the correct solution
to

this

dispute

could

be

found

by

turning

to

equity.

The

Bankruptcy Court determined that certain elements of an impliedin-law, or quasi, contract had been met, but ultimately held
that Clambakes had provided reciprocal benefits to Associations,
such that no payment for use and occupancy was warranted.

While

the Court agrees with the Bankruptcy Court’s overall framework,
the Bankruptcy Court’s application of that framework and its
chosen

remedy

were

clearly

erroneous.

Therefore,

for

the

reasons set forth below, the Bankruptcy Court’s decision on the
quasi-contract issue is vacated.
I.

Discussion
Before assessing the Bankruptcy’s Court equitable analysis,

a critical aspect of this case must be reviewed at the outset.
Although

Island

Development

Corporation,

Inc.

and

IDC

Properties, Inc. (collectively, “IDC”) constructed the Regatta
Club at its own expense, the Rhode Island Supreme Court has

restraining order application that it had an express or implied
agreement with Associations.
Additionally, both parties have
argued
this
case
under
alternative
theories
as
it
has
progressed, and thus the equities do not clearly favor either
side.
3

determined

that

it

did

so

after

its

development

rights

had

expired and that, consequently, the Regatta Club is owned by
Associations, the entities that own the land upon which it was
built.

See Am. Condo. Ass’n, Inc. v. IDC, Inc., 870 A.2d 434,

443 (R.I. 2005) (America II); Am. Condo. Ass’n, Inc. v. IDC,
Inc., 844 A.2d 117, 131 (R.I. 2004) (“America I”).
Rhode

Island

Associations’
considerable

Supreme

Court

ownership
and

of

rejected

the

inequitable

Regatta

windfall”

IDC’s
Club
on

Further, the

argument

that

constituted

account

of

“a

IDC’s

“considerable investment in developing the . . . Regatta Club.”
America I, 844 A.2d at 134.

The Court emphasized that IDC built

the Regatta Club “at a time when [it was] on notice that [its]
right

to

do

so

was

in

dispute”

and

concluded

that

IDC

constructed the building “at [its] peril and cannot now contend
that

equity

should

prevent

[Associations]

because of their expenditures.”
analysis

in

this

case

must

from

Id. at 135.

accept

the

Rhode

prevailing

Any equitable
Island

Supreme

Court’s determination that Associations owned the Regatta Club
from the moment it was constructed and that IDC was not entitled
to equitable relief for the costs it incurred in constructing
the

Regatta

Club.

These

determinations

are

the

established

facts of this case, and this proceeding cannot be a vehicle to
revisit or temper the effects of those holdings.

That die is

cast, and it is from this premise that the analysis begins.
4

The Bankruptcy Court’s analysis overlooks this aspect of
the

case

and,

respects.

as

a

result,

is

clearly

erroneous

in

several

At the outset, the Bankruptcy Court clearly erred in

characterizing the lease of the Reserved Area as a ground lease.
Additionally, the Bankruptcy Court clearly erred in its balance
of

the

equities

–

which

resulted

in

its

determination

that

Clambakes owed Associations nothing – by incorrectly considering
rent

paid

by

Clambakes

to

IDC

Properties,

the

cost

of

constructing the Regatta Club, and the fact that Associations
already

had

litigation.

received

title

to

the

building

in

earlier

Finally, apart from these errors, the Bankruptcy

Court also clearly erred in offsetting the amount that Clambakes
would

otherwise

owe

Associations

with

the

goodwill

that

Clambakes created in the Regatta Club; on this record, there is
no basis by which to quantify that goodwill.
To

recover

on

an

implied-in-law

contract,

a

party

must

prove that the plaintiff conferred a benefit to the defendant,
that the defendant appreciated the benefit, and that, under the
circumstances,

it

would

be

inequitable

for

the

defendant

to

retain the benefit without payment of the value of that benefit.
Fondedile, S.A. v. C.E. Maguire, Inc., 610 A.2d 87, 97 (R.I.
1992).

The Court agrees with the Bankruptcy Court that these

elements fit the circumstances of this case.

5

The

Bankruptcy

Court

properly

found

that

Associations

conferred a benefit upon Clambakes by permitting it to operate
its

business

clearly

in

erred,

the

Reserved

however,

in

benefit was a ground lease.

Area.

finding

The
that

Bankruptcy

the

nature

Court

of

this

In the state-court litigation, the

Rhode Island Supreme Court determined that Associations owned
the Regatta Club from its construction to the end of Clambakes’
occupancy.

America I, 844 A.2d at 135 (explaining that one who

proceeds in the face of a known challenge to property proceeds
at his own peril because “the duty of the courts is to protect
rights, and innocent complainants cannot be required to suffer
the

loss

of

their

rights

because

of

the

expense

of

the

wrongdoer”); America II, 870 A.2d at 442 (“Consequently, these
portions

of

the

elements.”).

condominium

always

were,

and

remain,

common

Though the Associations did not construct this

building, it cannot be ignored that the Rhode Island Supreme
Court has deemed them to be the owners since its construction.
Nor can it be ignored that Clambakes benefited from the building
as well as the land.

Clambakes did not construct the building,

but did become effectively a tenant of both the property and
building, and thus must pay for its use of both.
The Bankruptcy Court determined that, if the building was
included, the appropriate use and occupancy cost from March 1,
1998

to

April

7,

2005

was

$2.6
6

million.

This

finding

is

supported by the record.

In making this finding, the Bankruptcy

Court credited testimony of Associations’ expert, and rejected
testimony

from

Clambakes’

expert.

Associations’

expert

calculated a fair use and occupancy value during the time in
question to be $2.6 million.

(Foster Tr. 75, ECF No. 15-7.)

Under cross examination, Clambakes’ expert admitted that on the
high end, he calculated a proper use and occupancy value at $3.2
million.

(Scotti Tr. 23, ECF No. 15-3.)

This expert, however,

took pains to qualify this figure, explaining that it was the
high

side

of

his

estimate

and

did

not

include

adjustments he could have made.

(Id. at 25-26.)

the

to

Bankruptcy

Court’s

decision

credit

the

certain

Simply put,
Associations’

expert over the Clambakes’ expert to determine a reasonable fee
for the use and occupancy of the Regatta Club and the ground it
occupies was supported by the record and not clearly erroneous.
The

second

Clambakes

step

appreciated

in

the

the

inquiry

benefit

is

determining

conferred

upon

whether

it.

The

evidence indicates that Clambakes operated a successful business
venture at the Regatta Club, but did not pay Associations for
the

use

of

appreciated

this
the

property;

benefit

that

this
was

7

demonstrates
conferred

that

upon

Clambakes

it,

as

the

Bankruptcy Court correctly determined. 4

See Narragansett Elec.

Co. v. Carbone, 898 A.2d 87, 100 (R.I. 2006).
The

third

situation

to

step

requires

determine

if

assessing
a

payment

the
is

equities

of

the

warranted.

The

Bankruptcy Court clearly erred when it included several factors
in the analysis to determine that, under these circumstances,
Clambakes need not pay Associations anything.

For starters, it

was clear error to consider the cost of building the Regatta
Club and the fact that rent paid by Clambakes likely helped fund
the

construction.

Clambakes

played

no

role

in

this

construction, and the fact that its rental payments may have
subsequently funded the development of the property is beside
the point.

Indeed, in America I the Rhode Island Supreme Court

determined that the entity that constructed the building, IDC,
was not entitled to equitable relief based on its expenditures
because it built in the face of a known challenge to title.
While

the

Court

circumstances,

it

may

properly

would

fly

evaluate

in

the

the

face

of

totality
the

of

holding

the
of

America I to consider the value of the property IDC lost in that
litigation in mitigation of the cost to Clambakes.

See R & B

Elec. Co. v. Amco Constr. Co., 471 A.2d 1351, 1353-54 (R.I.

4

The existence of a lease between Clambakes and IDC
Properties establishes that Clambakes knew it was not permitted
to use the property for free. Clambakes simply erroneously paid
the wrong party.
8

1984) (holding trial court was “clearly wrong” in considering
close relationship between corporate entities in quantum meruit
case).
The

simple

fact

remains

that

Clambakes

owes

use

and

occupancy payments to the rightful owner of the Reserved Area.
Id. at 1355 (“The concept of quasi-contractual liability rests
upon the equitable principle that one shall not be permitted to
enrich himself unjustly at the expense of another or to receive
property

or

benefits

without

making

compensation

therefor.”).

Simply because Clambakes was mistaken about the identity of that
owner does not excuse this obligation, and it was clear error to
factor

in

theory,

Clambakes’

Clambakes

may

rental
have

payments
a

to

cause

IDC

of

Properties.

action

against

In
IDC

Properties for the repayment of its wrongful rental payments –
though

given

the

common

ownership

lawsuit would be hard to imagine.

of

both

entities

such

a

But if there is a remedy for

Clambakes’ misdirected rent payment it is there, not here.
The Bankruptcy Court also clearly erred when it considered
the money that Clambakes expended to outfit and maintain the
property.

Just as IDC constructed the Regatta Club at its peril

when it “developed the Reserved Area at a time when [it was] on
notice that [its] right to do so was in dispute,” America I, 844
A.2d at 135, Clambakes outfitted and maintained the property at
its peril, knowing full well that ownership of the building and
9

land

was

in

dispute.

In

these

circumstances,

equity

cannot

weigh in favor of a reduction in the amount that Clambakes owes
Associations.
Finally, the Bankruptcy Court clearly erred in deducting at
least $240,000 per year from the use and occupancy payment to
account for goodwill and the value of the Regatta Club.

To be

sure, Associations benefited – and continues to benefit – from
the operation Clambakes began.
in

finding

that

goodwill

The Bankruptcy Court did not err
transferred

from

Clambakes

to

Associations; but it clearly erred in its finding as to the
value of that goodwill.

On the record before this Court, there

is insufficient particularized evidence to determine the extent
of this goodwill.

Clambakes’ expert, Peter Scotti, opined that

Associations leased out the Regatta Club for $1.5 million more
than it otherwise would have been able to thanks to the Regatta
Club building.

(Report of Peter Scotti 134, ECF No. 10.)

To

reach this figure, Scotti valued the Regatta Club building at
$2.8 million and determined that Associations received rent of
$300,000 more per year from its new tenant under a five-year
lease than it otherwise would have obtained for an empty lot.
(Report of Peter Scotti 134, ECF No. 10; Scotti Tr. 14-15, ECF
No. 15-3.)
the

building

Foster, the Associations’ expert, determined that
resulted

in

a

rental

10

payment

$240,000

per

year

higher than Associations otherwise would have obtained.

(Foster

Tr. 110, ECF No. 15-7.)
But the value of the building is not goodwill, and does not
account for the value of Clambakes’ operations going forward.
The

Rhode

between

Island

IDC

and

Supreme

Court

Associations.

has
And,

already
while

decided
experts

the

case

from

both

sides agree that some measure of goodwill passed when Clambakes
vacated the Reserved Area, neither expert offered evidence to
quantify the value of this goodwill. 5

(Foster Tr. 84-85, ECF No.

15-7; Scotti Tr. 13-14, 30, ECF No. 15-3.)

The value of the

building cannot be used as a stand-in for the value of the
business

that

was

transferred.

Therefore,

no

offset

can

be

properly made for the value of this goodwill.

5

The reputation Clambakes built clearly had value.
Calls
made to the Regatta Club after Clambakes vacated the premises
were forwarded to the new tenant Longview.
(Foster Tr. 89-90,
ECF No. 15-7.)
11

II.

Conclusion
For

the

foregoing

reasons,

after

considering

the

record

evidence, the Court finds that under quasi contract, and the
facts of this case, Clambakes must pay Associations $2,600,000
for its use and occupancy of the Reserved Area and Regatta Club.

IT IS SO ORDERED.

William E. Smith
Chief Judge
Date: June 10, 2015

12