VanLee Corp. v. Madden

STATE OF MAINE > SUPERIOR COURT

CUMBERLAND, ss. : CIVIL ACTION ~

4 DOCKET NO. CV-99-434

oe ee tte. aem- EM) acco

VANLEE CORP., )

)

Plaintiff, )

)

Vv. ) ORDER ON PLAINTIFF’S MOTION

) FOR SUMMARY JUDGMENT

DON A. MADDEN SR., __. )

DON A. MADDEN JR., )

JOHN A. MADDEN, AND )

ROBERT A. MADDEN, )

)

Defendants. )

FACTUAL BACKGROUND

Defendants purchased the Radisson Eastland Hotel (“Hotel”) in Portland

from Plaintiff in October of 1997. The entire purchase price was $9 million.

Defendants’ Statement of Material Facts (“DSMEF”) 93. Plaintiff took back a

promissory note (“Note”) for $1.7 million from Defendants. The first payment on

the note came due in June, 1998. DSMF 95. Defendants tendered that payment, and

made monthly payments for a year following it. Id.; Plaintiffs Statement of Material

Facts (“PSMF”) 2.

The defendants failed to make their July 1, 1999 payment under the Note,

which constituted a default under the terms of the Note. See Note, Section3(a);

PSMF 73. On July 13, 1999, Plaintiff gave each defendant notice of the default.

PSMF 94. Because the defendants failed to cure the default, Plaintiff accelerated the

balance due. PSMF 95-6. Plaintiff asserts that the sum due as of the date of their

SMF was $1,786,489, with $522 in interest accruing per day. Plaintiff’s complaint

seeks the amounts due and owing under the Note. Defendants asserted several

affirmative defenses, including fraud and waiver, and counterclaimed for negligent

misrepresentation and fraudulent inducement. Plaintiff moved for summary

judgment on its complaint.

The purchase and sale agreement (“Agreement”) contained three sections

that Defendants contend contained false material misrepresentations that void the

contract. Section 3.9 provided

...to the best of Seller’s knowledge after due inquiry, (i) all of the

207 hotel rooms, the Apartments, the lobby, and the common areas

of the Hotel are in rentable and/or useable condition, normal wear

and tear accepted, and (ii) there are no defects in any of the service

systems at the Hotel including the electrical, sanitary, sewage, water,

heating, air ventilation, air conditioning or mechanical systems which

would materially interfere with the use of the Improvements or the

normal operation of such systems.

Section 3.18 provided

No inaccuracies. “To the best of the seller’s knowledge, after due

inquiry, there are no material inaccuracies in the documents and

items submitted or to be submitted to purchaser for its review.”

Section 3.4 provided

To Seller’s knowledge, after due inquiry, there are no violations of any

law, regulation, ordinance or order applicable to the property or any

portion thereof, which have not been disclosed to Purchaser and

which materially adversely affect the Property.

Defendants also claim that one of the principals of Plaintiff VanLee Corp., L. Joseph

VanWhy, represented to the Defendants that the Hotel generated a “net income in

“excess of $1 million!.” DSMF 914; Madden Affidavit 715. .

During the Fall of 1997, the Defendants spent $896,000 on repairs, including

the replacement of doors and roofing, the updating of computers and wallpapering.

DSMF 710. Although the Defendants expected to spend some funds to improve the

Hotel, they allege that this amount was in addition to sums reasonably anticipated.

Id. Defendants argue that they had to spend these funds because of the Plaintiff's

misrepresentations about the Hotel’s condition. Id.

In November, 1997, Defendants discovered that the Hotel’s backup boiler was

inadequate, that the Hotel did not have a fresh air supply, and that asbestos covered

virtually all of the steam lines. DSMF 411. Further, Defendants were informed that

the Hotel violated several city and state code provisions. DSMF 713. Under

Defendants’ management, the Hotel brought them a net annual income of ©

$600,000*. DSMF 115.

DISCUSSION

Defendants do not dispute Plaintiff's Statements of Material Facts, which set

out Plaintiff's prima facie case as to recovery on the terms of the Note®. Defendants

1 The Defendants’ SMF does not state whether this alleged misrepresentation was to be

interpreted as $1 million net income per year. However, the Defendants clarify this statement in their

opposition brief, at 5, that the represented income was “on a yearly basis.”

2 Neither the SMFs nor the briefs detail exactly when the Defendants figured that the Hotel

only brought in $600,000 yearly. Further, other than their general allegations in their counterclaims as

to false and misleading statements, Defendants do not elaborate on how Plaintiff's statement that the

Hotel “generated a net income in excess of $1 million” was false or intentionally or recklessly made.

3 In their responses to Plaintiff’s SMF, Defendants “qualify” Plaintiffs statements, but do not

properly dispute these statements. See Bennett v. Tracy, 1999 ME 165, 914, 740 A.2d 571, 574.

3

have alleged fraud’, which renders a contract voidable, both as an affirmative

defense and as a counterclaim. See Dubie v. Branz, 145 Me. 170, 173, 73 A.2d 217, 220

(1950), cited in Harriman v. Maddocks, 518 A.2d 1027, 1029 (Me. 1986); RESTATEMENT

(SECOND) OF CONTRACTS § 164 (1981). A party induced to enter a contract by fraud, as

alleged here, may either disaffirm the contract and rescind it, or affirm the contract

and seek tort damages for the fraud. See Rosenthal v. Rosenthal, 543 A.2d 348, 355

(Me. 1988). The fraudulently induced party is limited to one form of recovery only

and may not both rescind and collect damages. E. I. DuPont de Nemours & Co. v.

Florida Evergreen Foliage, 744 A.2d 457, 463 (Del. 2000). At issue currently is

whether Defendants may rescind the Note due to the Plaintiff's alleged fraud. No

party has moved for summary judgment on Defendants’ counterclaims.

The right of a party to rescind a contract due to fraud is limited because it

must be brought within a “reasonable time” after discovery of the grounds justifying

it. Mott v. Lombard, 655 A.2d 362, 365 (Me. 1995). The failure to act on the fraud

within a reasonable time waives a party’s right to rescind. Janush v. Nationwide

Mutual, 2000 WL 254560, *3 (Conn. Super. Ct. 2000). What constitutes a “reasonable

time” is a mixed question of law and fact. Id. When the facts are ascertained, the

determination is a question of law. See Mott, 655 A.2d at 365, citing Getchell v.

Kirby, 113 Me. 91, 94, 92 A. 1007, 1008 (1915); see also Gordon v. Hutchins, 118 Me. 6,

4 To prove fraud, a party must show a false representation of material fact, knowledge on the

part of the representer of the statement’s falsity or reckless disregard thereof, made for the purpose of

inducing the other party to rely on it and justifiable reliance by the other party. Glynn v. Atlantic

Seabord Corp., 1999 ME 53, 10, 728 A.2d 117, 119.

12, 105 A. 356, 359 (1919) (2 1/2 years unreasonable); Clark v. Stetson, 113 Me. 276,

280, 93 A. 741, 742 (1915) (continuing to occupy the premises at least 2 months after

knowledge of deceit was unreasonable); see also 88 Blue Corp. v. Reiss Plaza Assocs.,

585 N.Y.S.2d 14, 16-17 (N.Y. App. Div. 1992) (11 months unreasonable). By waiting to

assert fraud until they were sued on the Note and by paying the installments due on

the note for almost two years after discovery of the alleged fraud, Defendants can no

longer allege fraud as a basis for rescission.

Another prerequisite to allowing the remedy of rescission is the ability to

restore the parties to the “status quo ante,” or to each party’s status before entering

the contract. See Frye Pulpwood Co. v. Ray, 95 A. 1039, 1039, 114 Me. 272 (1915); see

also McAuliffe v. GMAC Mortgage Corp., 180 B.R. 336, 336-37 (D. Me. 1995); Haynes

v. Jackson, 2000 ME 11, 77 n.3, 744 A.2d 1050, 1051 (citing Masters v. VanWart, 125

Me. 402, 407, 134 A. 539, 541-42 (“rescission is an equitable remedy which seeks to

return the parties to the positions they were in prior to the agreement”)); 2 DAN B.

Dosss, LAW OF REMEDIES § 9.3(3) (1993). Here, because the defendants have vacated

the hotel, which has been sold in a foreclosure, Defendants cannot restore Plaintiff

to status quo ante and therefore cannot rescind the contract.

For the two reasons stated above, Defendants has raised no genuine issue of

material fact to defeat Plaintiff’s Motion for Summary Judgment. However, because

the factual and legal issues asserted in the counterclaims are closely connected with

the complaint, the court cannot grant Plaintiff's request for M.R. Civ. P. 54(b)

certification on the complaint. See Dravo Corp. v. Regional Waste Sys., Inc., 632

A.2d 141, 142 (Me. 1993) (listing factors relevant to trial court’s determination of “no

just reason for delay;” vacating certification of claim where unadjudicated claims

were factually and legally intertwined with adjudicated claim).

The entry is

Plaintiff's Motion for Summary Judgment on its Complaint is GRANTED.

Plaintiff's Request that the court enter a 54(b) certification of the complaint is

DENIED.

Dated: June 12, 2000 Lan, lib 2

Robert E. Crowley

Justice, Superior Court

Date Filed ___08/02/99 CUMBERLAND Docket No. _ CV-99-434

. County

Contract

Action

VanLee Corp. Don A. Madden Sr., Don A. Madden Jr.,

John A. Madden, and Robert A. Madden

RUFUS BROWN, ESQ. (ALL DEFS)

VS. PO BOX 7530, PORTLAND, ME 04112-7530

S Attorney, 4 Defendant's Attorney Johr-Madden-$50-651-9598

74-7000 37-Cheoetan-tane;—Chal imax FE 37 57/9-

DANIEL CUMMINGS, ESQ Kare rink Welt; Esq---Gdir}-- w/d

PO BOX 4600 4PCO--BO- -4726---764-0900 Robext-Madden-

+Pert-Land;--ME04442829 chootawtLane-Shali

PORTLAND ME 04112-4600

tuarGepi9o2ektBBMan,-ESQ-CALL)-—-aRy 32°79

EVAN-SMETH-ESQ-CALL}

Don-A-Madden--G41- 950-863-1900-

22.9-Mooney- Road,- Fort-Walton-Beach-FI-325

Dorr Ac Madderr Jr. S504 343~24: --

324--Yacht-Ciub brive;- Fort Welitor Beach—

S254

Plaintiff’

Date of

Entry

1999

August 02 | Received 08/02/99:

Plaintiff's Summary Sheet filed.

Plaintiff's Complaint filed.

Plaintiff's Motion for Attachment and Attachment on Trustee process

filed.

Plaintiff's Memorandum of Law in Support of Motion for Attachment and

Attachment on trustee process filed.

Affidavit of Joe Van Why with Exhibit A filed.

Aug. 04 Received 08-04-99:

Order Approving Ex Parte Attachment and Attachment on Trustee Process

filed. (Cole, J.)

The court hereby APPROVES attachment and attachment on trustee process

may be made ex parte against the property, goods, and credits of each

of the Defendants, Don A. Madden Sr., Don A. Madden Jr., John A. Madden, an

Robert A. Madden in the amount of $1,786,489.75.

" " On 08-04-99:

Copy sent to Daniel Cummings, Esq.

'" tt

tt "

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‘sept. 14 | Received 9.13.99:

Summons filed.

Defendant, Don Madden, Sr, et al's served on 8.26.99.

Summons filed.

Defendant, Don Madden, Jr., served on 8.26.99.

Summons filed.

Defendant Robert Madden served on 8.26.99.

Summons filed.

Defendant John Madden served on 8.26.99.

Sept. 16 Received 9-16-99.

Defendants' Motion to Extend Time to Answer or Otherwise Respond to

Plaintiff's Complaint filed.

STATE OF MAINE SUPERIOR COURT

CUMBERLAND, ss. CIVIL ACTION

DOCKET NO. CV-99-434

VANLEE CORP., Net - CoM = [Af oO

Plaintiff oe

v. ORDER ON PLAINTIFF'S.

MOTION FOR SUMMARY -

DON A. MADDEN, SR., JUDGMENT . e

DON A. MADDEN, JR.,

JOHN A. MADDEN, and 3 oe

ROBERT A. MADDEN,

Defendants

FA AL BACKGR D

On July 1, 1997, VanLee Corp. and the Maddens executed an Agreement of

Purchase and Sale for the Radisson Eastland Hotel. Plaintiff’s Statement of Material

Facts { 1; Defendants’ Amended Statement of Material Facts (“DSMF”) { 1. On

October 22, 1997, each of the four defendants executed and delivered a promissory

note in favor of VanLee in the amount of $1,700,000.00. DSMF { 3. VanLee brought

suit seeking amounts due and owing under the promissory note after the Maddens’

default. The Maddens counterclaimed, alleging negligent misrepresentation, Count

I, and fraud in the inducement, Count II. On June 12, 2000, this Court granted

VanLee’s Motion for Summary Judgment on its complaint. On August 7, 2000,

VanLee moved for summary judgment on the Counterclaim.

DISCUSSION

Summary judgment is properly granted if the Maddens have presented

evidence that, if they presented no more, would entitle VanLee to a judgment as a

matter of law. See M. R. Civ. P. 56(c); Polk v. Town of Lubec, 2000 ME 152, J 11, 756

A.2d 510, 513. The Maddens, as counterclaim plaintiffs, would bear the burden at

trial on the negligent misrepresentation! and fraud? claims. To avoid summary

judgment, the Maddens may not simply “rely on conclusory allegations or

unsubstantiated denials, but must identify specific facts derived from the pleadings,

depositions, answers to interrogatories, admissions and affidavits to demonstrate

either the existence or absence of an issue of fact.” Id. (quoting Kenny v. Department

of Human Servs., 1999 ME 158, J 3, 740 A.2d 560, 562). A genuine issue of fact exists

if there is sufficient evidence supporting the claimed factual dispute to require the

factfinder to choose between the parties’ differing versions of the truth at trial.

Burdzel v. Sobus, 2000 ME 84, J 6, 750 A.2d 573, 575.

Inadmissible Hearsay

Evidence set forth in an affidavit in opposition to a motion for a summary

judgment must be admissible. M.R. Civ. P. 56(e). See also Bahre v. Liberty Group,

Inc., 2000 ME 75, J 13, 750 A.2d 558, 561; Searles v. Trustees of St. loseph’s College,

695 A.2d 1206, 1210 n. 2 (Me. 1997). VanLee argues that because paragraphs 9, 10, and

13 in the Maddens’ statement of material facts are based on hearsay and would

1 For the Maddens to prevail on a claim of negligent misrepresentation, they

must have relied upon VanLee’s false representations to their pecuniary detriment.

See Perry v. HO. Perry & Son Co., 1998 ME 131, [ 5, 711 A.2d 1303, 1305.

2 VanLee is liable for fraud if it (1) made a false representation (2) of a material

fact (3) with knowledge of its falsity or in reckless disregard of its truth or falsity (4)

to induce the Maddens to act in reliance upon it, and (5) the Maddens justifiably

relied upon the representation as true and acted upon it to their detriment. See

Francis v. Stinson, 2000 ME 173, J 38, 760 A.2d 209, 217.

therefore be inadmissible at trial, this Court should disregard those “facts.”

Paragraphs 9 and 10 in DSMF and the underlying affidavit of Don A. Madden,

Jr. detail statements by Dana Morton to the Maddens regarding the inadequacy of the

backup for the primary boiler at the hotel and code violations. DSMF {{ 9, 10.

These conversations are hearsay and do not fall into any of the enumerated

exceptions in the rules of evidence. See M.R. Evip. 801-803. Paragraph 13 mentions

an unsatisfactory review of the hotel by the Radisson Hospitality Worldwide and

states “[i]t was clear to Radisson Hospitality Worldwide that the less than satisfactory

performance review was the product of problems existing or created at the Radisson

under the former Management.” DSMF { 13. The assertions in this paragraph are

hearsay and do not fit into any of the enumerated exceptions. See M.R. EvipD. 801-

803. The copies of the performance reviews attached to the Madden Affidavit are

also not excepted from the hearsay rule. See M.R. EvID. 801-803; Madden Aff. J 17;

Def.’s Ex.G & H.

Affiant’s Lack of Personal Knowledge -

“Conclusions of fact and law do not properly belong in an affidavit filed in

support of a motion for summary judgment.” Town of Orient v. Dwyer, 490 A.2d

660, 662 (Me. 1985). An opposing affidavit must show affirmatively that the affiant

has personal knowledge of the material asserted. M. R. Civ. P. 56(e); Spickler v.

Greenberg, 586 A.2d 1232, 1234 (Me. 1991). Conclusory assertions will not substitute

for this showing of personal knowledge. Id.

VanLee argues that paragraphs 5 and 8 of the Maddens’ statement of material

facts and the underlying affidavit paragraphs are improperly conclusory in nature.

Paragraph 5 and Madden Affidavit paragraph 6 initially present background

information about the Maddens’ obligation under the promissory note. The third

sentence then states “[u]nfortunately, due to the express fraudulent

misrepresentations by the Seller...the Maddens simply could not operate the

Radisson as they were informed by VanLee that they could...” DSMF { 5; Madden

Aff. [ 6. This statement is an improper legal conclusion. Likewise, paragraph 8 and

Affidavit paragraph 11 presents an improper legal conclusion. Those paragraphs

begin by describing the Maddens’ expenditures in renovating the hotel. The affiant

then concludes that those amounts were incurred “solely because of

misrepresentations of the Plaintiff with respect to the soundness of the structure.”

DSME {J 8; Madden Aff. | 11. The Court will not consider these conclusory

statements because they do not sufficiently establish the affiant’s personal

knowledge of these matters.

It is not established that paragraph 12 and Affidavit paragraph 16 are based on

the affiant’s personal knowledge as required by the Rules. See MLR. Civ. P. 56(e).

That paragraph states “[cJontrary to Plaintiff’s express representation, the Maddens

subsequently determined that the actual net income generated by the Radisson,

under Plaintiff’s management, was approximately $600,000 per year.” DSMF { 12;

Madden Aff. J 16. Nowhere in the Madden affidavit is it revealed how the affiant

learned or determined that the actual net income generated by the Radisson under

VanLee management was approximately $600,000 per year. See Spickler, 586 A.2d at

1234 (holding that the plaintiff's “personal knowledge” did not rise above the level

of mere speculation, in part because the plaintiff’s affidavit did not reveal how he

learned of the alleged wrongdoing).

Affidavit paragraph 18, the foundation for paragraph 14, is not based upon the

affiant’s personal knowledge. That paragraph states “[i]t is my belief” that the Seller

was aware of the poor conditions of the hotel. Madden Aff. { 18. The affiant also

states that he believes the Sellers falsely represented what they knew about the state

of the hotel. Id. A belief by the affiant is not the equivalent of personal knowledge.

Nothing in this paragraph shows that the affiant had any personal knowledge of

VanLee’s awareness of the hotel conditions or that VanLee falsely represented their

knowledge. This paragraph is therefore not considered by the Court.

Lack of Genuine Issue

A party opposing summary judgment must identify “specific facts derived

from the pleadings, depositions, answers to interrogatories, admissions and

affidavits” to demonstrate the existence of an issue of fact. Polk, 2000 ME 152, { 11,

756 A.2d at 513. The remaining paragraphs in the Maddens’ statement of facts,

paragraphs 6, 7 and 11, do not demonstrate the existence of an issue of fact. These

paragraphs do not establish any misrepresentations, nor are they linked to any of

VanLee’s alleged wrongdoing.

Based on the remaining facts, VanLee would be entitled to a judgment as a

matter of law at trial. Summary judgment in favor of the Plaintiff is therefore

appropriate.

The entry is

D Plaintiff’s Motion for Summary Judgment on the Defendants’ Counterclaim |

is GRANTED.

Dated at Portland, Maine this 5th day of December, 2000.

ke hla.

Robert E. Crowley

Justice, Superior Court

Date Filed 08/02/99 CUMBERLAND Docket No. __ CV799--434

County

Action Contract

VanLee Corp« BONAR | &"""""" Ton A, Madden Sr., Don A. Madden Jr.,

bee John A. Madden, and Robert A. Madden

DEC iz 2000 RUFUS BROWN, ESQ. (ALL DEFS)

VS. PO BOX 7530, PORTLAND, ME 04112-7530

Plaintiff’s Attorney. i Defendant’s Attorney JoRR-Madden-050-651-9598-

774-7000 + 937-Cheetan- Lane;-Shaiimas FE 32579-

DANIEL CUMMINGS, ESQ Prink Wolf; Beqe--tabiy- w/d

PO BOX 4600 . ° oe -BOt 4726--764-0960 Robext-Madden-

Perthland; ME O4H2829 Choctaw Lane-Shalima:

PORTLAND ME 04112-4600 _

tuarBEp=9 02 ERP EB uaN,-BSQ-¢ALL}--ARB 77°79

+EVAN-SMEFH-ESQ-CALL)

Don-A- Madden-$45-950-863-1900-

229-Mooney- Road>—-Foxrt-Walton-Beach-Fi-325

Date of Dorr Ac tMatiterr Gr SSO 243-31 07--—

Entry 304--racht Ciub- Drive; fort Welter Beach --

SF

1999

August 02 | Received 08/02/99:

Plaintiff's Summary Sheet filed.

" " Plaintiff's Complaint filed.

" " Plaintiff's Motion for Attachment and Attachment on Trustee process

filed.

" " Plaintiff's Memorandum of Law in Support of Motion for Attachment and

Attachment on trustee process filed. —

" " Affidavit of Joe Van Why with Exhibit A filed.

Aug. 04 Received 08-04-99:

Order Approving Ex Parte Attachment and Attachment on Trustee Process

filed. (Cole, J.)

The court hereby APPROVES attachment and attachment on trustee process

may be made ex parte against the property, goods, and credits of each

of the Defendants, Don A. Madden Sr., Don A. Madden Jr., John A. Madden, anc

Robert A. Madden in the amount of $1,786,489.75.

" " On 08-04-99:

Copy sent to Daniel Cummings, Esq.

Sept. 14 | Received 9.13.99:

Summons filed. sy

Defendant, Don Madden, Sr, et al's served on 8.26.99. 3S

" " Summons filed. ‘

Defendant, Don Madden, Jr., served on 8.26.99.

" " Summons filed.

Defendant Robert Madden served on 8.26.99.

" " Summons filed.

Defendant John Madden served on 8.26.99.

Sept. 16 Received 9-16-99.

Defendants' Motion to Extend Time to Answer or Otherwise Respond to

Plaintiff's Complaint filed.