Stowe Aviation v. Agency of Com. & Cmty. Dev.

312 A.3d 1017

2024 VT 11

STOWE AVIATION, LLC et al.

v.AGENCY OF COMMERCE & COMMUNITY DEVELOPMENT

No. 23-AP-311

Supreme Court of Vermont.

January Term, 2024

February 23, 2024

On Appeal from Superior Court, Orleans Unit, Civil Division, Mary Miles Teachout, J. (Ret.)

Michael B. Stevens of Derrevere Stevens Black & Cozad, Burlington, for Plaintiffs-Appellants.

Charity R. Clark, Attorney General, and David R. Groff, Assistant Attorney General, Montpelier, for Defendant-Appellee.

PRESENT: Reiber, C.J., Eaton, Carroll and Cohen, JJ., and Tomasi, Supr. J., Specially Assigned

CARROLL, J.

¶ 1. Plaintiffs Stowe Aviation, LLC and Stowe Airport Investment, LP appeal from an order denying their motion to reopen this breach-of-contract case and for leave to file a second amended complaint. We reverse and remand.

¶ 2. Plaintiffs make the following allegations in their first amended complaint.¹ In May 2014, plaintiffs and the Vermont Agency of Commerce and Community Development (ACCD) executed a memorandum of understanding (MOU). The MOU set out the parties’ responsibilities relating to plaintiffs’ intention to develop and expand the Morrisville-Stowe State Airport using investments secured through the EB-5 program.² Under the MOU, ACCD and its in-house EB-5 program administrator, the Vermont Regional Center,³ agreed to assist plaintiffs with oversight and administration of the EB-5 program as it related to plaintiffs’ project and to assist the project’s EB-5 investors. Plaintiffs acquired four EB-5 investors in the first year, obtained a $4.6 million grant from the Federal Aviation Administration, and raised $1.7 million in private financing. Plaintiffs expanded the airport’s services and hours of operation and secured commercial airline service to the airport.

¶ 3. In December 2014, ACCD separately executed a MOU with the Department of Financial Regulation (DFR) without notice to plaintiffs. Under that MOU, DFR assumed ACCD’s obligations in relation to plaintiffs’ project. At about this same time, there were concerns—later substantiated—that several unrelated EB-5 projects at Jay Peak and elsewhere in the Northeast Kingdom of Vermont had been involved in a years-long scheme by project directors to embezzle EB-5 funds for private gain. See generally State v. Quiros, 2019 VT 68, 211 Vt. 73, 220 A.3d 1241. DFR’s unilateral involvement with plaintiffs was related to these concerns. At the time plaintiffs executed the MOU with ACCD, ACCD had represented to plaintiffs that the Jay Peak projects were subject to "gold standard" oversight.

¶ 4. DFR demanded that plaintiffs execute a new MOU with different terms or else face cancellation of the airport project and the May 2014 MOU with ACCD. Plaintiffs refused and ACCD cancelled the May 2014 MOU and provided a copy of the cancellation notice to plaintiffs’ lender. The lender suspended financing of the project. The project subsequently failed.

¶ 5. Based on these and other allegations, plaintiffs filed a two-count complaint against ACCD. Plaintiffs complained in count one that they executed the MOU with ACCD based on its representations that it provided "gold standard" oversight of EB-5 projects, when in fact a significant fraud had been perpetrated on its watch. Because of this oversight failure, plaintiffs alleged, ACCD breached its obligation to perform under the MOU, causing the project to fail and damaging plaintiffs. In count two, plaintiffs alleged that ACCD’s misrepresentations about its oversight of other EB-5 projects amounted to bad-faith conduct and destroyed plaintiffs’ right to receive benefits under the May 2014 MOU. Plaintiffs contended that ACCD’s conduct breached the implied covenant of good faith and fair dealing.

¶ 6. The trial court granted the State’s motion to dismiss for failure to state a claim on both counts. It found ACCD’s representations about its oversight capabilities irrelevant to the analysis. It concluded that the MOU did not contain any provision promising oversight of the Jay Peak projects for the benefit of plaintiffs. It did find that plaintiffs had alleged a basis for a breach-of-contract claim with respect to ACCD’s "unauthorized and unilateral transfer of the MOU to DFR," DFR’s subsequent demands on plaintiffs, and ACCD’s ultimate cancellation of the May 2014 MOU. Plaintiffs did not, however, adequately plead damages related to this alleged breach, and therefore failed to state a claim. The court found that a potential claim of breach of the implied covenant of good faith and fair dealing arising from the same allegations suffered from the same deficiency. Plaintiffs did not request leave to amend the complaint prior to the court’s decision—nor did the court sua sponte grant such leave in its order. It dismissed the complaint pursuant to Vermont Rule of Procedure 41(b) and closed the case the same day.

¶ 7. Plaintiffs moved under Vermont Rule of Civil Procedure 15 to amend the complaint in response to the court’s identification of a potential basis for plaintiffs’ two claims. The State opposed the motion, arguing that repleading under Rule 15 only applied to an operative complaint, and because the court had closed the case, plaintiffs had to first move the court to reopen or vacate judgment under Vermont Rules of Civil Procedure 59 or 60. Plaintiffs then timely filed a restyled motion seeking relief under either Rule 59 or 60, and submitted a proposed second amended complaint attempting to cure the deficiencies the court identified in its final order. Plaintiffs argued that having an opportunity to cure a pleading deficiency was appropriate relief under Rule 59(e), and in the alternative, that the failure to grant leave to amend in the final order was a clerical mistake and a basis to reopen the case under Rule 60(b).

¶ 8. The court concluded that for plaintiffs to prevail under Rule 59(e), the court had to have made a mistake, not plaintiffs. It found that plaintiffs’ failure to request leave to amend in the event the court ruled in ACCD’s favor on both counts was not a fault or mistake of the court, but of plaintiffs. It found that the proposed second amended complaint contained new arguments that plaintiffs could have pleaded before it closed the case. It determined that dismissal with prejudice was appropriate under Rule 41(b) because the order was a final order that disposed of all claims. See Stratton Corp. v. Engelberth Constr. Inc., 2015 VT 75, ¶ 17, 199 Vt. 388, 124 A.3d 489 ("If the court does not specify that the dismissal is without prejudice … the dismissal will be with prejudice" when "the court expressly provides that dismissal was with prejudice" or "when it is silent on the matter." (quotation omitted)). It concluded that Rule 60 motions filed within the time allowed for Rule 59 motions should be treated the same as relief requested under Rule 59, and that it had not made a clerical mistake in failing to sua sponte grant leave to amend. The court accordingly denied the motion. Plaintiffs appealed this order.

[1] ¶ 9. Plaintiffs first contend that the trial court committed error as a matter of law in its order granting the State’s motion to dismiss. They argue that their first amended complaint stated a claim arising from the transfer of oversight duties to DFR and ask this Court to reverse on that ground. We decline to reach this argument because it is raised for the first time in plaintiffs’ brief. In their notice of appeal, plaintiffs stated that they sought to appeal only the order denying their Rule 59 motion; they did not appeal the May 2023 order dismissing the complaint. Moreover, plaintiffs did not challenge the merits of the dismissal order in any of their postjudgment motion papers in the trial court. We therefore do not reach their claim concerning that order here. See In re White, 172 Vt. 335, 343, 779 A.2d 1264, 1270 (2001) ("We have repeatedly stressed that we will not address arguments not properly preserved for appeal.").

¶ 10. Plaintiffs also assert that Rule 59(e) is a viable means to reopen the pleadings, and the trial court abused its discretion in denying relief under that rule. We agree that plaintiffs can potentially obtain Rule 59(e) relief, and therefore reverse the order denying plaintiffs’ Rule 59(e) motion and remand for further proceedings to evaluate plaintiffs’ request to replead consistent with this opinion.⁴

[2–4] ¶ 11. We review orders denying Rule 59(e) relief for an abuse of discretion. Houghton v. Leinwohl, 135 Vt. 380, 382, 376 A.2d 733, 736 (1977). An abuse of discretion occurs where the court "has withheld its discretion entirely or" has exercised it "for clearly untenable reasons or to a clearly untenable extent." HSBC Bank USA N.A. v. McAllister, 2018 VT 9, ¶ 8, 206 Vt. 445, 182 A.3d 593 (quotation omitted). "We view the evidence in the light most favorable to the prevailing party when reviewing the disposition of a Rule 59 motion." N. Sec. Ins. Co. v. Mitec Elec., Ltd., 2008 VT 96, ¶ 34, 184 Vt. 303, 965 A.2d 447.

[5] ¶ 12. The first question presented is whether plaintiffs can prevail on a Rule 59(e) motion to replead where plaintiffs did not seek leave to amend their complaint prior to the court’s merits decision and where the court dismissed with prejudice and closed the case. We review this question of law without deference to the trial court. State v. Amidon, 2008 VT 122, ¶ 16, 185 Vt. 1, 967 A.2d 1126 ("The interpretation of procedural rules is a question of law which we review de novo.").

[6] ¶ 13. Rule 59(e) provides courts with "the power to rectify [their] own mistakes in the period immediately following the entry of judgment." Mitec, 2008 VT 96, ¶ 41, 184 Vt. 303, 965 A.2d 447 (quotation omitted). This power includes the ability to "change … a dismissal with prejudice to one without prejudice" and to clarify judgments, among other relief. Reporter’s Notes, V.R.C.P. 59; State v. Champlain Cable Corp., 147 Vt. 486, 438, 441, 520 A.2d 596, 597, 600 (1986). We have never...