SCOVT affirms the dismissal of investors’ claims against state actors in connection with Jay Peak EB-5 program, except reverses dismissal of claims of negligence and negligent misrepresentation, gross negligence, breach of contract and the implied covenant of good faith and fair dealing .

Sutton v. Vermont Regional Center, 2019 VT 71 [filed October 4, 2019] (amended and superceded by 2019 VT 71A) 

ROBINSON, J. Plaintiff investors appeal the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. We reverse the dismissal of plaintiffs' claims of negligence and negligent misrepresentation against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. We affirm the dismissal of plaintiffs' remaining claims. 

Negligence. We conclude that plaintiffs have stated a claim for negligence based on ACCD's undertaking, and that the economic nature of their losses is not an impediment to such a claim [ We note that because of the plethora of exceptions to the broad formulation of the economic-loss rule, the Tentative Draft of the Restatement (Third) of Torts: Liability for Economic Harm articulates "a more limited principle: not that liability for economic loss is generally precluded, but that duties of care with respect to economic loss are not general in character; they are recognized in specific circumstances." Restatement (Third) of Torts: Liab. for Econ. Harm § 1 cmt. b (Tentative Draft No. 1, 2012) ("Stating the absence of a duty as a general rule can create confusion by seeming to threaten well-established causes of action, by leaving behind an uncertain and unwieldy number of exceptions, and by implying a needless presumption against the existence of a duty on facts not yet considered. The rule of this Section creates no such presumption. It merely means that duties to avoid causing economic loss require justification on more particular grounds than duties to avoid causing physical harm.")]. Plaintiffs have alleged sufficient facts to make out a “special relationship” between defendants and plaintiffs such that they may recover for their purely economic losses.

Negligent Misrepresentation. We conclude that plaintiffs have stated a claim for negligent misrepresentation under Restatement (Second) of Torts § 552(1)). 

Sovereign Immunity. We conclude that plaintiffs' claims are comparable to recognized causes of action against private persons and that the discretionary function exception to the State's waiver of sovereign immunity in the Tort Claims Act does not apply to these allegations. 

Gross Negligence against Individual Defendants. We conclude that certain individual defendants are absolutely immune from suit. That claim against another fails because plaintiffs have not alleged conduct by him that would overcome qualified immunity. That plaintiffs have not made out a claim of gross negligence against another individual but that. Plaintiffs have adequately alleged that Brent Raymond and James Candido are not shielded by qualified immunity and have made allegations that could establish gross negligence under the tort claims act. 

Breach of Contract and Covenant of Good Faith and Fair Dealing. We conclude that plaintiffs have made out claims for breach of contract and of the implied covenant of good faith and fair dealing sufficient to meet our lenient notice-pleading standards.

Third-Party Beneficiary Breach of Contract. We conclude that the trial court properly dismissed plaintiffs' claims for breach of contract.

Securities Fraud. We conclude that the trial court properly dismissed plaintiffs' claim of securities fraud under the Vermont Uniform Securities Act, 9 V.S.A. §§ 5501 and 5509, against all defendants. The claim falls squarely within an exception to the State's waiver of sovereign immunity through the Vermont Tort Claims Act, and as to the individual defendants, was not pled with the particularity required for averments of fraud under Vermont Rule of Civil Procedure 9(b). 

Breach of Fiduciary Duty Aiding, Abetting Breach of Fiduciary Duty and Breach of Implied Contract Breach-of-fiduciary-duty claims are distinct from ordinary negligence claims and rest on different elements of proof. Similarly, implied contract claims are distinct from contract claims. An implied-contract claim is not a contract claim. Because of inadequate briefing we do not address claims that the court erred in dismissing plaintiff’s claim of breach of fiduciary duty against all defendant, aiding and abetting breach of fiduciary duty against all defendants, and breach of implied contract against all defendants. 

Affirmed, except that the dismissal of the following claims is reversed:

• ·negligence against ACCD;
• ·negligent misrepresentation against ACCD;
• ·gross negligence against defendants Brent Raymond and James Candido; and
• ·Breach of contract and the implied covenant of good faith and fair dealing against ACCD.

The matter is remanded for further proceedings consistent with this opinion.

How cited

Note.  The foregoing opinion has been amended and superceded by the opinion reported as  2019 VT 71A . While a motion to reargue was pendiing on the issue of sovergin immunity ,the Court amended ts decision to reflect that plaintiffs withdrew their appeal of the trial court's dismissal of the negligent-misrepresentation claim against ACCD. Sutton v. Vermont Reg'l Ctr., 2019 VT 71A, n. 1. 'The mandae is amended  to read as follows:

Affirmed, except that the dismissal of the following claims is reversed: 

• negligence against ACCD; 
• gross negligence against defendants Brent Raymond and James Candido; and 
• breach of contract and the implied covenant of good faith and fair dealing against ACCD. 

The matter is remanded for further proceedings consistent with this opinion.

Stealing customers by insider is both breach of fiduciary duty and interference with business relations worthy of punitive damages:

J.A. Morrissey, Inc. v. Smejkal, 2010 VT 66 (Johnson, J.)
This case arises from the demise of a business relationship within a construction company. Defendants appeal from the partial denial of their post-trial motion for judgment as a matter of law, or in the alternative, for a new trial, following a jury verdict in favor of plaintiffs in an action for breach of fiduciary duty, interference with business relations, and fraudulent conveyance. On appeal, defendants first assert that the evidence did not support the jury’s conclusion that Smejkal breached his fiduciary duties. Second, defendants challenge the jury’s verdict with respect to interference with prospective business relationships. Third, defendants argue that the fraudulent conveyance finding was erroneous. Finally, defendants assert that punitive damages were not properly assessed against Smejkal because there was insufficient evidence of malice. We affirm.

Smejkal owed a fiduciary duty to JAM in his role as vice-president and corporate director of the company. This duty imposed an obligation upon Smejkal to act with the utmost good faith and loyalty for the best interests of JAM. Officers and directors have been found to have breached their fiduciary duties when, while still employed by the company, they solicit the business of a single customer before leaving the company, or use the company’s facilities or equipment to assist them in developing their new business . A corporation’s fiduciary is not permitted to take advantage of business opportunities which are considered to belong to the corporation as far as the fiduciary is concerned.. Based on the evidence the jury could have concluded that Smejkal abused his position and intentionally failed to inform JAM about the Johnson estimate because he wanted to usurp the project for himself, thereby breaching his fiduciary duties to JAM.

To prevail on a claim for interference with prospective business relationships, a plaintiff must show: (1) the existence of a valid business relationship or expectancy; (2) knowledge by the interferer of the relationship or expectancy; (3) an intentional act of interference on the part of the interferer; (4) damage to the party whose relationship or expectancy was disrupted; and (5) proof that the interference caused the harm sustained. Gifford v. Sun Data, Inc., 165 Vt. 611, 613 n.2, 686 A.2d 472, 474 n.2 (1996). A plaintiff must show that the interferer acted with the purpose to harm the plaintiff or by means that are dishonest, unfair, or improper. Id. at 613, 686 A.2d at 474-75. Competitive business practices are not proscribed under the tort unless those practices are criminal or fraudulent. Id. at 613, 686 A.2d at 475; see Restatement (Second) of Torts § 768(1) (1979) (competition does not rise to level of improper interference if “actor does not employ wrongful means”). Based on the evidence, it was reasonable for the jury to infer that Smejkal wrongfully used his position as a trusted, high-ranking JAM employee to sabotage JAM and then usurp Paluska as a client for his new company. The jury could also have inferred that Smejkal knew that the Johnson estimate would generate work for JAM and then chose not to tell anyone at JAM about the estimate or his work on the project because he wanted to perform work for Johnson himself and for his own benefit. Indeed, the facts show that Smejkal abused his position of trust at JAM to surreptitiously obtain work for himself.

An award of punitive damages requires a showing of: (1) wrongful conduct that is outrageously reprehensible; and (2) malice. Fly Fish Vt., Inc. v. Chapin Hill Estates, Inc., 2010 VT 33, ¶ 18. Malice is “defined variously as bad motive, ill will, personal spite or hatred, reckless disregard, and the like.” Id. Malice may be found where one seeks to profit, through conduct that is deliberate and outrageous, at the expense of another. DeYoung v. Ruggierio, 2009 VT 9, ¶ 27, 185 Vt. 267, 971 A.2d 627 (“[M]alice may arise from deliberate and outrageous conduct aimed at securing financial gain or some other advantage at another’s expense, even if the motivation underlying the outrageous conduct is to benefit oneself rather than harm another.”). Compare Villeneuve v. Beane, 2007 VT 75, ¶ 10, 182 Vt. 575, 933 A.2d 1139 (mem.) (concluding that landlord’s conduct in unlawfully evicting tenants was “intentional, unlawful, criminal in nature, and outrageous” and justified punitive damages) with Monahan v. GMAC Mortgage Corp., 2005 VT 110, ¶¶ 53, 60, 179 Vt. 167, 893 A.2d 298 (concluding that “conduct that does not involve a deliberate decision by the promisor to breach, falls far short of the punitive damages standard” and that conduct evidencing breach of covenant of good faith and fair dealing which consisted “mainly of inaction” did not “indicate the personal ill will, or evidence the bad motive associated with malice”).

We conclude that the evidence presented here is sufficient to support the jury’s assessment of punitive damages against Smejkal because the jury could have found that Smejkal “harbored ill will, and actual malice towards JAM, and intentionally desired, and took concrete actions to steer economic benefits to himself and away from JAM.” In light of the relationship between the parties and the trust that was placed in Smejkal as an important member of a small company, his actions meet the standard of intentional and sufficiently wrongful conduct necessary to sustain punitive damages. The jury could have properly found that Smejkal’s conduct—which included a concerted effort to sabotage JAM’s professional relationship with longstanding clients and to siphon off those clients for his own financial benefit—demonstrated actual malice towards JAM.

Stealing plaintiffs’ money and then lying to them about the theft, notwithstanding fiduciary duty, was malice as a matter of law.

New trial on amount of punitive damages granted, even though plaintiff made no Rule 50 motion. DeYoung v. Ruggerio, 2009 VT 9 (Dooley, J.)

This is an action by clients against a lawyer who misappropriated funds belonging to the clients. The lawyer failed to answer the complaint, and the superior court entered a default judgment in favor of plaintiffs. The court held a trial on damages, and a jury awarded no punitive damages based on a special interrogatory that it did not find malice. On appeal, we conclude that the element of malice was demonstrated as a matter of law in this case. Even though Plaintiff made no Rule 50 motion on this issue, we reverse the judgment in part and remand the matter for the jury to determine how much in punitive damages, if anything, to award plaintiffs.

Our longstanding definition of malice has been a source of confusion by referring not only to “conduct manifesting personal ill will” but also to “conduct showing a reckless disregard to the rights of others.” Although defendant acknowledges stealing plaintiffs’ money and then lying to them about the theft for years notwithstanding his fiduciary duty to them, he contends that the jury could reasonably have found no malice because (1) he did not intend to harm them, and (2) he always intended to return the money to them sooner rather than later. We conclude that even if the jury accepted this explanation entirely, defendant’s fraudulent conduct demonstrated bad motive and malice as a matter of law.

Malice or “bad motive” does not arise exclusively from “personal ill will” toward a particular person. Malice may also be found when the defendant engages in deliberate and outrageous conduct aimed at securing financial gain or some other advantage at another’s expense, even if the motivation underlying the outrageous conduct is to benefit oneself rather than harm another. To find malice, the jury was not required to determine that defendant’s motive in stealing plaintiffs’ estate funds was to harm them rather than enrich himself. Especially this case involving wrongdoing by a fiduciary, Defendant’s admitted motive to enrich himself and promote the interests of his company, in and of itself demonstrates a bad motive.

The trial court could have found malice as a matter of law, in light of the record demonstrating his intentional course of wrongdoing, committed with conscious and deliberate disregard for plaintiffs’ rights, and pursuant to an illegitimate motive. In the absence of a Rule 50 motion, the court should have granted plaintiffs’ post-hearing motion for a new trial based on the complete absence of evidence to support the jury’s finding of no malice. Accordingly, we reverse and remand for the jury to consider the proper amount of punitive damages, if any, without requiring them to make the threshold determination of whether malice existed.