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Beaudoin v. Feldman

Supreme Court of Vermont

August 17, 2018

Eugene W. Beaudoin, Derivatively on Behalf of The New England Expedition Limited Partnership II and The New England Expedition Limited Partnership IV
Barry E. Feldman, The New England Expedition-Colchester, LLC and Colchester Managing Member, Inc.

          On Appeal from Superior Court, Chittenden Unit, Civil Division Robert A. Mello, J.

          Catherine A. Shaghalian and Theodore Orson of Providence, Rhode Island, and John T. Sartore, Burlington, for Plaintiffs-Appellees.

          Erin Miller Heins of Langrock Sperry & Wool, LLP, Burlington, and Richard Boren of Shechtman Halperin Savage LLP, Pawtucket, Rhode Island, for Defendants-Appellants.

          PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.

          SKOGLUND, J.

         ¶ 1. In this commercial dispute involving the sale of a grocery store, defendants Barry Feldman, the New England Expedition-Colchester, LCC (NEE-Colchester), and Colchester Managing Member, LLC (CMM), ask this Court to strike jury-awarded punitive damages and to find that the trial court erred in numerous evidentiary rulings, in denying defendants' motion for judgment as a matter of law, and in denying defendants' motion for a new trial. For the below-stated reasons, we strike the punitive damages, but affirm the remainder of the trial court's rulings and orders.

         ¶ 2. This appeal concerns a commercial dispute over the proceeds from a 2012 sale of a grocery store between plaintiffs-Eugene Beaudoin, the New England Expedition Limited Partnership II (NEELP-II), and the New England Expedition Limited Partnership IV (NEELP-IV)-and defendants. Prior to the transaction at issue, Feldman and Beaudoin had a sixteen-year business relationship during which they developed commercial properties throughout New England. In 1993, the parties met and orally agreed to develop supermarkets together. Based on this oral agreement, the general business agreement and division of responsibility and equity was as follows. Beaudoin would be responsible for the pre-development elements of each project, including scouting out projects and obtaining the necessary permits and zoning approvals. Feldman would be responsible for securing financing for each project and then managing the projects after they were completed. Under this agreement, Beaudoin would receive one-third equity and Feldman would receive two-thirds equity in completed projects.

         ¶ 3. Beaudoin and Feldman developed a grocery store in Colchester (the Colchester store) in 1997 or 1998. The Colchester store was owned by NEE-Colchester, which consisted of three members: NEELP-II with a 49.75% member interest, NEELP-IV with a 49.75% member interest, and CMM with a 0.5% managing-partner interest. NEELP-II and NEELP-IV each consisted of three partners. Feldman's wife was a 66% limited partner and Beaudoin was a 33% limited partner in both NEELP-II and NEELP-IV. Kalfeld Realty II and Kalfeld Realty IV had a 1% general-partnership interest in NEELP-II and NEELP-IV, respectively. Feldman was the sole shareholder of Kalfeld Realty II, Kalfeld Realty IV, and CMM.

         ¶ 4. On December 24, 2012, the Colchester store sold to a third party for $14, 500, 000. The net proceeds before distribution were $1, 300, 000. Pursuant to the corporate structure explained above, Feldman would have been entitled to two-thirds and Beaudoin to one-third of the proceeds. However, Feldman distributed 100% of the net proceeds to himself as reimbursement for monthly payments made by Feldman to Beaudoin from 2005 through 2010. Consequently, Beaudoin filed suit against Feldman for claims of conversion, breach of fiduciary duty, and unjust enrichment and sought both compensatory and punitive damages.

         ¶ 5. At trial, the parties did not dispute that Beaudoin received monthly payments between 2005 and 2010. Rather, the core disputed issues at trial were the characterization of these payments as either personal loans or salary for work done, and the events leading up to the sale of the Colchester store, with each party presenting a different explanation to the jury.

         ¶ 6. Feldman testified that, in 1995, he was approached by Beaudoin who claimed he was in need of financial help to meet his monthly living expenses. Feldman testified that he orally agreed to help Beaudoin as a personal favor and that he paid Beaudoin $7, 000 to $30, 000 per month from 1995 to 2010. Between 1995 and 2010, Feldman's payments to Beaudoin totaled approximately $2, 300, 000, with approximately $1, 310, 000 of those payments made between 2005 and 2010. Feldman testified that, for the years between 2005 and 2010, most of the payments made either by Feldman or by Feldman's wife were recorded on NEELP-II and NEELP-IV tax returns as capital contributions. Feldman told Beaudoin in 2010 that the payments would stop due to the downturn in the economy.

         ¶ 7. While Beaudoin does not contest receiving these payments, he testified that that he always thought of the payments, which were made by either Feldman or Feldco, Feldman's real estate development company, as compensation for services he rendered to the partnership. He testified that he was unaware of Feldman's characterization of the payments as capital contributions because, notwithstanding Feldman's obligations under the NEELP-II and NEELP-IV partnership agreements to provide copies of the partnership tax returns to Beaudoin, Feldman never did.

         ¶ 8. After the payments stopped in 2010, Beaudoin sought a buyout of his ownership interest in various projects that he had developed with Feldman, including the Colchester store. Feldman prepared a chart of stabilized values of all the jointly owned real estate which showed a total outstanding debt on the Colchester store of $13, 960, 000 as of October 2010. At this point in time, Beaudoin described his relationship with Feldman as amicable. However, after October 2010, the parties' relationship deteriorated to the point that both parties obtained legal counsel. In December 2011, Feldman gave Beaudoin a second revised chart reflecting the values of the same real estate referenced in the October 2010 chart. The chart reflected a new debt of $1, 790, 000 on the Colchester store, with a footnote explaining that the debt was owed to Feldman and accounted "for only those payments made by [Feldman] to [Beaudoin] over the last 10 years, ending in May 2010, which [Beaudoin] took as monthly self-employment earnings." Beaudoin testified that, because he was concerned about this new debt, he requested, through his counsel, to be kept abreast of the details of the Colchester store sale but was not informed until after the closing that the sale had been completed.

         ¶ 9. Both prior to trial and during trial, the court made various evidentiary rulings that Feldman challenges here. First, Beaudoin proffered evidence demonstrating that Feldman sold another property that the parties jointly owned in Rhode Island (Rhode Island store) in May 2016 without notice to Beaudoin. The evidence showed that the sale was in violation of a Rhode Island court order requiring Feldman to provide Beaudoin with advance notice of the sale and that Feldman was ultimately held in contempt as a result of the failure to notify. The Rhode Island court found that Feldman should have informed Beaudoin of the sale but made no determination that Feldman converted, misappropriated, or did anything else inappropriate with the proceeds of the Rhode Island sale. Beaudoin offered the evidence of the "incredibly similar" situation to help the jury infer that Feldman's actions around the Colchester store were deliberate, malicious, and in bad faith. Feldman objected to the admission of the Rhode Island store sale and contempt order evidence both through a motion in limine and at trial and, in the alternative, sought a limiting instruction. The trial court admitted the evidence and instructed the jury to consider the evidence only to determine whether "Feldman acted intentionally, in bad faith, or with malice by fraudulently converting proceeds from the [Colchester store] sale that rightfully belong to [Beaudoin] and whether punitive damages are, therefore, appropriate."

         ¶ 10. Second, prior to trial, Beaudoin filed a motion in limine to exclude evidence of his federal tax returns from the years 1995 to 2004 (pre-2005 tax returns). He argued that they were inadmissible character evidence under Vermont Rule of Evidence 404(b). Feldman suggested that he sought to offer the pre-2005 tax returns to show that Beaudoin either failed to report income or underreported income to the Internal Revenue Service. He argued that the pre-2005 tax returns were relevant and admissible for impeachment purposes and for the substantive purpose of showing how the payments to Beaudoin were characterized by Beaudoin during those years and how much he was paid. After a hearing on the motion, the trial court granted Beaudoin's motion and excluded the pre-2005 tax returns because they were not relevant to the issues at trial: "whether the 2005-2010 payments from Feldman to Beaudoin were properly construed as loans or as salary." The trial court also agreed with Beaudoin that the tax returns, if used for impeachment purposes, were impermissible extrinsic evidence. The court reaffirmed its decision to exclude the evidence at trial upon Feldman's renewed objection.

         ¶ 11. Third, Beaudoin introduced evidence of Feldman's other real estate development projects in Boston and New York through Feldman's testimony as an adverse witness. Feldman objected, arguing that the evidence was not relevant to the current issues. The trial court found the evidence to be relevant to Beaudoin's experience in development and thus permitted it, but it limited Beaudoin's inquiry to the size and scope of the other projects. Feldman expressed concern over the fact that several of these projects had been abandoned and were no longer being developed. Feldman's counsel could have but did not clarify the status of each project during cross-examination.

         ¶ 12. Fourth, at the close of Beaudoin's evidence, Feldman moved for judgment as a matter of law, arguing that Beaudoin failed to join allegedly indispensable parties to the lawsuit, including Feldman's wife, Kalfeld Realty II, and Kalfeld Realty IV, all partners to the transaction. The trial court denied the motion, noting that whether any of the three parties "could have been joined or should have been joined [was] really not the issue. The real issue [was] whether [Beaudoin] has presented evidence upon which a jury could return a verdict in favor of [Beaudoin] against the defendants named."

         ¶ 13. Fifth, during closing arguments, Beaudoin's counsel said, "Put yourself in his shoes. Say to yourself if I was [Beaudoin], what would I do? Would I be upset? Would I feel I was treated unfairly?" Feldman objected, and the trial court sustained the objection and responded with a curative instruction: "Yes. Ask them to put themselves in the same position."[1] Beaudoin's counsel handed the jury a verdict form filled out with the full amount of requested damages. Again, Feldman objected, and the trial court gave another curative instruction: "So ladies and gentlemen, a decision about your verdict is for you to make. This is only arguments by counsel. The evidence is what you've heard from the witness stand and the law is what I will tell you the law is."

         ¶ 14. After hearing all the evidence and closing arguments, the jury determined that Feldman had converted Beaudoin's share of the Colchester-store sale proceeds, that he breached his fiduciary duty to Beaudoin, and that he was unjustly enriched by the sale. As a result, they awarded $432, 300 in compensatory damages and $250, 000 in punitive damages to Beaudoin.

         ¶ 15. Feldman appeals, arguing that the trial court: (1) erred by allowing the jury to consider punitive damages in this commercial dispute; (2) abused its discretion by allowing Beaudoin to introduce evidence of the Rhode Island contempt order; (3) abused its discretion by excluding evidence of Beaudoin's pre-2005 tax returns; (4) abused its discretion by admitting evidence of Feldman's additional real estate projects; (5) erred by denying Feldman's motion for judgment as a matter of law for Beaudoin's failure to join allegedly indispensable parties; and (6) erred in denying Feldman's motion for a new trial after Beaudoin's counsel's closing statement remarks. We address each issue in turn.

         I. Punitive Damages

         ¶ 16. Feldman argues that the trial court erred by allowing the jury to consider punitive damages in this commercial dispute. Beaudoin asserts that Feldman did not properly preserve this argument for appellate review. In order to preserve an objection to jury instructions for appellate review, Vermont Rule of Civil Procedure 51(b) requires that a "party object[] thereto either at a charge conference or before the jury retires to consider its verdict, stating distinctly the matter objected to and the grounds of the objection." Beaudoin argues Feldman did not object at the charge conference or before the jury retired, and thus this issue was not properly preserved for our review. Feldman, on the other hand, argues that the issue was properly preserved, as Beaudoin's argument inaccurately describes the issue Feldman raised at trial and raises here. Feldman asserts that the error he objected to and appeals now was not that the content of the jury instructions regarding punitive damages was incorrect, but instead that it was the question of whether punitive damages, as a matter of law, should have been brought to the jury in the first place. And therefore, Feldman argues, his motion for judgment as a matter of law under Vermont Rule of Civil Procedure 50(a) and renewed motion for judgment as a matter of law under Vermont Rule of Civil Procedure 50(b) preserved the issue of whether punitive damages should have been put in front of the jury.

         ¶ 17. When considering a past case with practically identical procedural history, this Court held that, even where a party failed to object to jury instructions pursuant Rule 51(b), it properly preserved its claim "that the trial court erred in submitting plaintiffs' demand for punitive damages to the jury" by seeking judgment as a matter of law in compliance with Rule 50(a) and renewing its motion after entry of the judgment as required by Rule 50(b). Murphy v. Stowe Club Highlands, 171 Vt. 144, 154, 761 A.2d 688, 695-96 (2000). Here, Feldman did just that-during trial, he sought judgment as a matter of law claiming that there was insufficient evidence to support the punitive-damages claim under V.R.C.P. 50(a), and then properly renewed his motion after judgment was entered under V.R.C.P. 50(b). Because Feldman challenges the presentation of punitive damages to the jury in the first place rather than the substance of the punitive-damages instruction ultimately given to the jury, Feldman properly preserved his claim for appellate review by complying with V.R.C.P. 50(a) and (b), regardless of "whether or not [he] also objected to the jury instruction." Id. See also Wolf v. Yamin, 295 F.3d 303, 308 (2d Cir. 2002) (finding party preserved argument through motion for judgment as matter of law, which "challenged not the substance of the instructions on punitive damages but the sufficiency of the evidence supporting such an award," without making timely objection to jury instructions because "whether the jury instructions were proper and whether [the party]'s objection to those instructions was timely are irrelevant to the question whether [opposing party] sustained his burden of proof by presenting evidence on each element of his claim" for punitive damages).

         ¶ 18. The issue preserved, we address Feldman's claim that the trial court erred by allowing the jury to consider punitive damages in this commercial dispute. In Vermont, "[p]unitive damages are reserved for especially egregious conduct," and thus the party seeking them must overcome a very high standard of proof. Connors v. Dartmouth Hitchcock Med. Ctr., 12 F.Supp.3d 688, 695 (D. Vt. 2014). "[T]he purpose of punitive damages is to punish conduct that is morally culpable to the degree of outrage frequently associated with crime." Fly Fish Vermont, Inc. v. Chapin Hill Estates, Inc., 2010 VT 33, ¶ 19, 187 Vt. 541, 996 A.2d 1167 (citing Brueckner v. Norwich Univ., 169 Vt. 118, 129, 730 A.2d 1086, 1095 (1999)). An award of punitive damages requires a showing of two essential elements-"wrongful conduct that is outrageously reprehensible" and "malice, defined variously as bad motive, ill will, personal spite or hatred, reckless disregard, and the like." Id. ¶ 18. The "conduct need not only be wrongful, but truly reprehensible," and malice must be proven by "some showing of bad motive." Id. ¶ 19 (quotation omitted and emphasis added). The evidence presented at trial and cited in the trial court's findings when denying Feldman's motion for judgment as a matter of law cannot sustain an award of punitive damages as they do not reflect behavior that satisfies the high bar set by this Court.

         ¶ 19. First, Feldman testified that he believed that he had the right to reimburse himself for the payments he made to Beaudoin. The evidence showed that Feldman provided Beaudoin with notice of the disputed debt at least one year before the Colchester-store sale. Beaudoin admitted to receiving notice of the debt but claimed he lacked information of the specific nature of the debt. It is also clear from the record that Feldman concluded the Colchester-store sale without notice to Beaudoin. However, while Feldman's action may have been intentional, the evidence does not suggest that Feldman deliberately hid a plan to repay himself for the payments he understood as loans, for he provided notice to Beaudoin of such debt and the alleged debt was discussed in connection with the sale. Beaudoin was provided with a copy of the purchase-and-sales agreement for the Colchester store in December. Through his attorneys, questions were raised about Feldman's classification of the payments made to him as a "loan" and credited against the Colchester property. Feldman's belief that he was owed the money and sought to reimburse himself may have been wrong, but it was hardly malicious. See, e.g., Meadowbrook Condo. Ass'n v. S. Burlington Realty Corp., 152 Vt. 16, 28, 565 A.2d 238, 245 (1989) (striking punitive damages finding even willful violation of consumer protection statute could not, in and of itself, support punitive damages because conduct "did not evince the degree of malice required"). And, "actionable misconduct alone, however wrongful, cannot sustain punitive damages without ...

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