Bacon v. Reimer & Braunstein, LLP
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Bacon v. Reimer & Braunstein, LLP (2005-289)
2007 VT 57
[Filed 20-Jun-2007]
ENTRY ORDER
2007 VT 57
SUPREME COURT DOCKET NO. 2005-289
JANUARY TERM, 2007
Charles Bacon, Maureen Bacon and } APPEALED FROM:
M & C Realty, Inc. }
}
v. } Windsor Superior Court
}
Reimer & Braunstein, LLP, }
Paul Samson, David Fanikos, } DOCKET NO. 598-12-04 Wrcv
Doremus & Kantor, Steven Kantor }
and Peter Barton }
Trial Judge: Theresa S. DiMauro
In the above-entitled cause, the Clerk will enter:
¶ 1. Plaintiffs M & C Realty and its principals, Charles and
Maureen Bacon, appeal from a superior court order granting summary judgment
in favor of defendants, attorneys and other agents of the Rhode Island
Depositors Economic Protection Corporation (DEPCO). The court ruled that
the Bacons' malicious prosecution suit was barred by an adverse ruling on
their summary judgment motion in an earlier civil action by DEPCO against
them and others. The Bacons contend the court erred in concluding that the
denial of their earlier motion established that DEPCO had probable cause to
bring the action as a matter of law. As explained below, we agree that the
court erred, and we therefore reverse and remand for further proceedings.
¶ 2. The material facts are as follows. DEPCO is a public
corporation established by the State of Rhode Island to collect and
liquidate the assets of a number of credit unions which failed during the
1991 Rhode Island credit union crisis. In May 1997, DEPCO filed a superior
court complaint against David F. LaRoche, the Bacons and a number of
Vermont entities, seeking to recover more than $15 million owed on various
promissory notes to the failed credit unions. The complaint alleged that
the Bacons and other defendants had participated with LaRoche in the
transfer of assets in a scheme designed to defraud the credit unions. As
to the Bacons and their company, the complaint alleged two such
transactions, one in which LaRoche used several corporate entities that he
controlled to sell a property known as Westenfeld Farm to the Bacons for
less than fair market value, and a second in which LaRoche allegedly
orchestrated the below-market tax sale of a lot in a Quechee development to
the Bacons, who then resold it for a substantially higher amount. The
complaint sought to set aside the allegedly fraudulent transfers under the
Vermont fraudulent conveyance statutes, 9 V.S.A. §§ 2285 to 2312, to
"pierce the veil" and appoint receivers for the corporate defendants, and
to attach realty owned by the various defendants.
¶ 3. In October 1997, the Bacons moved for summary judgment,
asserting that there were no connections between themselves and the LaRoche
entities that would entitle DEPCO to relief and that all of the disputed
transactions were done at arms length and for a fair price. DEPCO opposed
the motion, arguing that it had not completed discovery "[i]n what is
clearly a complex and factually detailed case," that "the sparse . . .
document production" it had received thus far suggested that Charles Bacon
was "heavily involved" in LaRoche-controlled entities in Vermont, and that
the Bacons had "profited substantially because of their favored insider
status" from the two transactions at issue. The court issued a written
decision in January 1998 denying the motion. The court found that the
documents and affidavits submitted by the parties "do not demonstrate a
lack of material facts in dispute; instead, they suggest that there have
been several complex transactions involving David LaRoche and Charles
Bacon." As the court explained, it could not "accept at face value" the
Bacons' relatively unsupported assertion that the "transactions at issue
were negotiated at arms length."
¶ 4. In September 2001, following the successful resolution of its
claims against the other defendants, DEPCO dismissed its complaint against
the Bacons with prejudice, later explaining that the action was no longer
"cost-effective." In November 2004, the Bacons filed the instant suit for
malicious prosecution against defendants, a DEPCO employee and three of its
former attorneys. Defendants moved for summary judgment, claiming that the
denial of the Bacons' motion for summary judgment in the underlying DEPCO
action established, at a minimum, probable cause for the action. See
Anello v. Vinci, 142 Vt. 583, 586-87, 458 A.2d 1117, 1119 (1983) (holding
that to recover for malicious prosecution, plaintiff must prove that
defendant initiated or continued the case without probable cause, that
defendant acted with malice, and that the earlier case terminated in
plaintiff's favor). The trial court agreed, ruling that "as a matter of
logic . . . prima facie evidence to survive the motion for summary judgment
also meets the standard of probable cause, which is less stringent."
Accordingly, it granted DEPCO's motion and dismissed the case. This appeal
followed.
¶ 5. The trial court here was correct that substantial authority
supports the proposition that a denial of summary judgment on the ground
that material issues remain in dispute is persuasive, if not conclusive,
evidence of the existence of probable cause for purposes of defeating a
subsequent claim for malicious prosecution. See, e.g., Wolfinger v.
Cheche, 80 P.3d 783, 791 (Ariz. Ct. App. 2003) (though not dispositive in
all circumstances, surviving a motion for summary judgment on the ground
that material issues remain in dispute generally means that a claim is
objectively reasonable and thus negates an essential element in a later
malicious prosecution action); Wilson v. Parker, Covert & Chidester, 50 P.3d 733, 738 (Cal. 2002) (absent proof of perjury or fraud "a trial
court's conclusion that issues of material fact remain for trial
necessarily implies that the judge finds at least some merit in the claim"
and "compels the conclusion that there is probable cause" (quotations and
alterations omitted)); (FN1) Davis v. Butler, 522 S.E.2d 548, 550 (Ga. Ct.
App. 1999) ("[w]here the trial court finds in the alleged abusive
litigation that such action withstands the attack by motion for summary
judgment and is entitled to a trial by jury, although the plaintiff may
lose at trial, such denial of summary judgment constitutes a legal
determination that the action has substantial justification" for purposes
of defeating the vexatious litigation claim).
¶ 6. We agree that the denial of a motion for summary judgment may
provide persuasive evidence that the case had sufficient merit to establish
the element of probable cause and thereby defeat a subsequent suit for
malicious prosecution. Summary judgment is appropriate "where, after an
adequate time for discovery, a party fails to make a showing sufficient to
establish the existence of an element essential to his case and on which he
has the burden of proof." Poplaski v. Lamphere, 152 Vt. 251, 254-55, 565 A.2d 1326, 1329 (1989) (quotations omitted). Thus, the denial of summary
judgment may well establish that, if the material facts in dispute are
decided favorably to the party opposing the motion, the claimant could
establish all of the elements of the claim necessary to prevail at trial.
See Fromson v. State, 2004 VT 29, ¶13, 176 Vt. 395, 848 A.2d 344 ("[i]f
the nonmoving party alleges specific facts that raise a triable issue and
establish a prima facie case" summary judgment must be denied). In such a
case, logic supports a finding that the claim had sufficient potential
merit to preclude any subsequent finding in a malicious prosecution suit
that there was no objectively reasonable basis to bring the action. See
Wilson, 50 P.3d at 738 ("denial of a defendant's summary judgment motion
provides . . . persuasive evidence that a suit does not totally lack merit"
for purposes of determining probable cause to bring the action (quotations
and alterations omitted)); W. Keeton, Prosser & Keeton on the Law of Torts
§120, at 893-94 (5th ed. 1984) (probable cause standard in civil actions
merely requires that facts and law would support a "reasonable chance" of
prevailing on the claim).
¶ 7. We are not persuaded, however, that the summary judgment in
the underlying action here was of this nature. As noted earlier, the Bacons
moved for summary judgment before any significant discovery had occurred in
the case. Indeed, although DEPCO now asserts that the court's denial of
the motion conclusively established that the action was meritorious, the
record shows that it opposed the motion at the time on the ground that
summary judgment was "premature"; DEPCO argued that the Bacons' affidavits
were "conclusory" and that it had "not had an adequate opportunity to
conduct meaningful discovery." Although the court ultimately ruled that
material facts remained in dispute as to whether the Bacons had paid fair
market value in connection with the allegedly fraudulent transactions, the
court's finding - as DEPCO observed - was based largely on the parties'
self-serving affidavits, not on expert appraisals or other substantial
independent evidence.
¶ 8. Furthermore, a careful review reveals that the court's summary
judgment ruling contains little analysis of the facts or law as they relate
to the specific elements of the fraudulent conveyance counts against the
Bacons under 9 V.S.A. §§ 2285 to 2312. See In re Chase, 328 B.R. 675,
678-79 (Bankr. D. Vt. 2005) (setting forth the elements necessary to set
aside an allegedly fraudulent transfer under both the federal Bankruptcy
Code and the Vermont fraudulent conveyance statutes and noting that they
are essentially "identical"); Becker v. Becker, 138 Vt. 372, 375, 416 A.2d 156, 159 (1980) (setting forth the elements necessary to avoid a fraudulent
conveyance). (FN2) Although the court sketched the outlines of the showing
necessary to DEPCO's theory of recovery, its findings and conclusions in
this regard were negligible. While it found, for example, that there were
facts in dispute as to whether the transactions involving the Bacons were
arranged with the actual intent to defraud creditors, it cited no evidence
to substantiate the finding. The court's findings on the alternative
theory of "constructively fraudulent transfers" were equally thin. See
Chase, 328 B.R. at 678 (law will "set aside transfers that are tainted with
actual fraud and certain other transfers, commonly referred to as
constructively fraudulent transfers"). Although it found that there was
evidence that the debtor (LaRoche) was insolvent when the transfers took
place, its analysis of whether the Bacons had paid "less than a reasonably
equivalent value" for the assets - the key element of the DEPCO complaint -
was perfunctory and confined to the marginal evidence available at that
stage of the proceedings. Indeed, the court's ultimate conclusion that
material facts remained in dispute appears to rest largely on the
complexity of the alleged transactions and the "confused intermingling of
business activities and assets" among the parties. This falls short, in our
view, of the qualitative merits determination necessary to establish
probable cause as a matter of law and bar any subsequent claim for
malicious prosecution.
¶ 9. We conclude, therefore, that the trial court judgment must be
reversed, and the matter remanded for further proceedings. In so holding,
we express no opinion on the ultimate question of whether DEPCO had
probable cause to initiate and maintain the underlying action or whether
it acted with malice, as required to prove malicious prosecution. Anello,
142 Vt. at 587, 458 A.2d at 1119.
Reversed and remanded.
BY THE COURT:
_________________________________________
Paul L. Reiber, Chief Justice
_________________________________________
John A. Dooley, Associate Justice
_________________________________________
Denise R. Johnson, Associate Justice
_________________________________________
Marilyn S. Skoglund, Associate Justice
_________________________________________
Frederic W. Allen, Chief Justice (Ret.),
Specially Assigned
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Footnotes
FN1. Although Wilson specifically held that the denial of motion to strike
under an anti-SLAPP (strategic lawsuit against public participation)
statute established a prima facie case sufficient to establish the absence
of probable cause in a subsequent malicious prosecution action, the Court
analogized directly to the denial of summary judgment, explaining that "the
result in the prior case (whether a verdict or judgment in the plaintiff's
favor, or denial of a defense summary judgment or SLAPP motion) establishes
the existence of probable cause as a matter of law, absent proof of fraud
or perjury." 50 P.3d at 742.
FN2. As the court in Chase explained, under both the Bankruptcy Code and 9
V.S.A. §§ 2288 and 2289, a transfer may be set aside if tainted with actual
fraud, requiring a showing of an actual intent to defraud a creditor, or if
"constructively fraudulent," which requires a showing, inter alia, that
the debtor received "less than a reasonably equivalent value" in exchange
for the transfer. 328 B.R. at 678-79; accord 9 V.S.A. § 2288(a) (a
transfer incurred by a debtor is fraudulent if made "with actual intent" to
defraud or "without receiving a reasonably equivalent value in exchange for
the transfer or obligation").
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