Opinion
C.A. PB-2008-2364
01-17-2017
MANAGEMENT CAPITAL, L.L.C., Plaintiff, v. F.A.F., INC. and ARTHUR FIORENZANO, Defendants.
For Plaintiff: Joseph V. Cavanagh, Jr., Esq. For Defendant: Rajaram Suryanarayan, Esq. Robert D. Wieck, Esq.
Providence County Superior Court
For Plaintiff: Joseph V. Cavanagh, Jr., Esq.
For Defendant: Rajaram Suryanarayan, Esq. Robert D. Wieck, Esq.
DECISION
SILVERSTEIN, J.
This matter is before the Court for decision following a nonjury trial between Plaintiff Management Capital, L.L.C. (Management) and Defendants F.A.F., Inc. (F.A.F.) and Arthur Fiorenzano (Fiorenzano). The crux of the dispute between the parties hinges on three issues: (a) contract reformation; (b) interpretation of the term "funded debt"; and (c) anticipatory repudiation. This Court has jurisdiction pursuant to G.L. 1956 §§ 8-2-13 and 8-2-14.
I Facts and Travel
In the spring of 2002, F.A.F.-a Rhode Island costume jewelry manufacturing and distribution business-and its President, Fiorenzano, engaged Management Solutions, LLC-an affiliate of Management-to help resolve judgments rendered against F.A.F. in two unrelated lawsuits. Trial Tr. 70:20-73:5, 75:24-76:8. In addition to receiving an hourly fee for its services, Management's principals-Ernest Humphreys (Humphreys), Robert Manchester (Manchester), and Jerry Cerce-signaled to Fiorenzano and F.A.F.'s Chief Financial Officer, Armand Almeida (Almeida), that they were interested in a warrant for stock in F.A.F. as further compensation for Management's services. Id. at 78:4-79:12, 548:15-17, 554:1-17. After Almeida initially advised Fiorenzano against agreeing to a warrant, and although Fiorenzano declined Management's first warrant proposal, on October 10, 2002, Fiorenzano agreed in writing to grant Management a warrant. See id. at 555:19-556:10; Joint Exs. 4, 5.
Management Solutions, LLC assigned its rights under the Common Stock Warrant (Warrant) at issue in this case to Management. For purposes of clarity, the Court will refer to Management Solutions, LLC and Management Capital, L.L.C. as a single entity throughout this Decision.
Fiorenzano's October 10, 2002 agreement was based on a set of terms-known as the Warrant Terms-that Management had provided in its October 9, 2002 letter to Fiorenzano. See Joint Ex. 4, Ex. A. The Warrant Terms were brief. See id. First, F.A.F. was to grant Management a right to acquire 10% of F.A.F.'s stock for a price of $710,000. Id. According to the Warrant Terms, Management's right to acquire that stock had to be exercised "at any time prior to December 31, 2007." Id. at ¶ 2. Second, Management was to be granted a put right that allowed it to redeem whatever interest Management had in F.A.F. or the Warrant itself, exercisable any time after December 31, 2007. Id. at ¶ 4. Finally, F.A.F. had a call right that allowed it to force Management to sell whatever interest it had in F.A.F. or the Warrant itself, again exercisable any time after December 31, 2007. Id.
As the Court has previously noted, "[t]he term 'put' as used [herein] refers to an 'option to sell something (esp. securities) at a fixed price even if the market declines, ' or 'the right to require another to buy.'" Mgmt. Capital, LLC v. F.A.F., Inc, No. PB-2008-2364, 2015 WL 1583827, at *1 n.1 (R.I. Super. Apr. 2, 2015) (quoting Black's Law Dictionary 1268 (10th ed. 2014) (defining "put option")).
The term "call, " when used in the context of stock options, refers to "[a]n option to buy something (esp. securities) at a fixed price even if the market rises" or "the right to require another to sell." Black's Law Dictionary 1268 (10th ed. 2014) (defining "call option").
In early 2003, after Management had successfully managed resolutions to F.A.F.'s judgments, Management and F.A.F. began a six-month process of circulating drafts of what would eventually become the Warrant. Trial Tr. 102:2-25, 358:16-19; see Pl.'s Ex. 47. During the drafting process, Management was focused on ensuring its right to review F.A.F.'s 2007 audited financial statements prior to deciding how to exercise its rights under the Warrant. Trial Tr. 114:19-115:17, 118:11-22, 119:10-20, 335:20-336:4. Following a conversation with Humphreys, Almeida agreed to Management's request regarding the 2007 audited financial statements. Id. at 591:25-592:2. Based on that agreement, on June 4, 2003, F.A.F.'s attorney inserted language in Sections 3.1 and 13 of the Warrant to ensure that Management could review F.A.F.'s audited financial statements for the year ending December 31, 2007 before deciding whether to buy shares or put the Warrant. Id. at 331:18-23, 335:23-25, 597:8-22; compare Joint Ex. 10 with Joint Ex. 9; see also Pl.'s Ex. 47. After F.A.F.'s attorney inserted that language into the Warrant, it remained unedited throughout the rest of the drafting process. See Pl.'s Ex. 47; compare Joint Ex. 16 with Joint Exs. 9, 10.
On July 7, 2003, after six months of circulating drafts, Management and F.A.F. executed the Warrant. See Pl.'s Ex. 47. Just as under the Warrant Terms, Management could purchase 10% of F.A.F's stock shares at an exercise price of $710,000. Compare Joint Ex. 4 (Warrant Terms) with Joint Ex. 16 (the Warrant). However, unlike the Warrant Terms, the final version of the Warrant included language regarding Management's review of F.A.F.'s 2007 audited financial statements. Compare Joint Ex. 4 with Joint Ex. 16. Section 3.1 of the Warrant, entitled "Exercise, " provided the expiration date for Management's right to exercise the Warrant and purchase 10% of F.A.F.'s stock for $710,000. Joint Ex. 16 at 2, § 3. Pursuant to Section 3.1,
"This Warrant may be exercised in whole or in part at any time by the registered holder by the surrender of this Warrant at any time after the date hereof and before 5:00 p.m. on: (a) the date which is seventy-five (75) days after receipt by [Management], or any subsequent holder hereof, of the audited financial statements of [F.A.F.] for the year ending December 31, 2007; or (b) October 31, 2007, whichever is the earlier to occur ("Expiration Time") . . . ." Id.
Thus, Management had until the earlier of seventy-five days post-receipt of F.A.F.'s 2007 audited financial statements or October 31, 2007 to purchase 10% of F.A.F.'s stock for $710,000. Id.
The parties have referred to October 31, 2007 as the "drop dead date" for Management's exercise rights.
Similarly, Section 13 of the Warrant outlined when Management and F.A.F.'s put and call rights would kick in. Id. at 3, § 13. Under Section 13, entitled "Put and Call Rights, "
"At any time after 5:00 p.m. on (a) the date which is forty-five (45) days after receipt by [Management], or any subsequent holder hereof, of the audited financial statements of [F.A.F.] for the year ending December 31, 2007; or (b) September 30, 2007, whichever is the earlier to occur, [F.A.F.] shall have a call and [Management] or any subsequent holder hereof shall have a put with respect to the Warrant, or the shares issued pursuant to this Warrant, if applicable." Id.
Thus, pursuant to Section 13, Management's right to put the Warrant began on the earlier date of forty-five days post-receipt of F.A.F.'s 2007 audited financial statements or September 30, 2007. Id. In sum, under the Warrant, Management had two options: it could buy shares in F.A.F. or it could put the Warrant. See Trial Tr. 335:23-25.
Furthermore, with respect to the put and call rights, "[t]he purchase price for the Warrant, or the shares issued pursuant to the Warrant, if applicable, shall be determined and paid as provided in Section 14 . . . ." Joint Ex. 16 at 4, § 13. Under Section 14, entitled "Determination and Payment of Purchase Price, "
"The purchase price for the Warrant, or the shares issued pursuant to this Warrant, if applicable, shall be equal to the percentage ownership of [F.A.F.] represented by the shares, multiplied by the Value of [F.A.F.]. The Value of [F.A.F.] shall be equal to: (a) the average EBITDA of [F.A.F.] for the last 2 fiscal years of [F.A.F.] prior to the exercise of the put or call; (b) multiplied by 5; (c) less only funded debt, all as of the last day of the most recently completed fiscal year of [F.A.F.]." Id. at 4, § 14 (emphasis added).
Several years passed without any action on the Warrant. However, in either August or September of 2007, when Management considered how to proceed with its options under the Warrant, Management noticed a conflict with the dates provided in Sections 3 and 13. Trial Tr. 135:20-24, 137:24-138:2, 373:13-374:3. Manchester formally brought this issue to F.A.F.'s attention in a September 28, 2007 correspondence to Fiorenzano and F.A.F.'s attorney. See Joint Ex. 17. In his letter, Manchester expressed concern that there had been a typo, or scrivener's error, with respect to Sections 3.1 and 13 of the Warrant. Id. Specifically, Manchester and Humphreys were concerned that under Section 3.1, Management's exercise right to purchase stock in F.A.F. would expire on October 31, 2007, a date prior to its ability to review F.A.F.'s 2007 audited financial statements. Trial Tr. 335:15-21. In other words, F.A.F.'s 2007 financial statements would not be available until sometime in late March or early April of 2008-well after the "drop dead date" of October 31, 2007. Tr. 114:8-24, 335:8-13, 369:5-24, 370:8-23, 591:13-20, 591:25-592:11.
In his September 28, 2007 correspondence, Manchester expressed similar concern with respect to the date "September 30, 2007" in Section 13 of the Warrant. See Joint Ex. 17. Under Section 13's plain language, Management's right to put the Warrant would begin on September 30, 2007, again well before F.A.F.'s 2007 audited financial statements would be made available. See Joint Ex. 16 at 3, § 13. This was also important to Management because, as provided in Section 14 of the Warrant, the purchase price with respect to Management's put right was to include the last two fiscal years prior to the exercise of that right. See id. at 4, § 14. According to Management, to read Section 13 as triggering Management's put rights on September 30, 2007 would mean that F.A.F.'s value would be based on fiscal years 2005 and 2006, not 2006 and 2007. To resolve what he ostensibly believed were two drafting errors, Manchester suggested two changes to the Warrant language: "1) Section 3.1: the date of October 31, 2007 should have been October 31, 2008[;] and 2) Section 13 (b): the [date of] September 30, 2007 should have been September 30, 2008." Joint Ex. 17. Manchester continued:
Management has stated that if F.A.F. used "2005 and 2006 as the final years of the Warrant valuation period, the Warrant would have a negative value." Pl. Mgmt. Capital, LLC's Post-Trial Mem. at 45 n.24 (citing Trial Tr. 373:20-21; Pl.'s Ex. 32); see also Trial Tr. 375:16-376:6.
"In order to preserve [Management's] rights under the terms of the Warrant as presently written, we believe that it is necessary for Management [] to exercise its put rights as set forth in the Warrant. Therefore, Management [] hereby provides notice of the exercise of its right to put the Warrant.
"While nothing in this letter should be interpreted to affect the exercise by Management [] of its rights under the Warrant, we prefer to amend the Warrant to correct the dates in Sections 3.1 and 13 (b) of the Warrant as described above and then rescind this notice." Id.
F.A.F. disagreed with Manchester's understanding of the Warrant. In an October 1, 2007 correspondence, F.A.F.'s attorney concurred with Humphreys' assessment that there was a drafting error with respect to the dates in Sections 3.1 and 13; however, F.A.F.'s attorney disagreed as to which dates were in error. See Joint Ex. 18. As F.A.F.'s attorney wrote, "F.A.F. agreed to the 'window' which is reflected in § 3.1 and § 13. In drafting the 'window' provisions, however we mistakenly referred to the December 31, 2007 financial statements vis-à-vis the December 31, 2006 financial statements." Id. at 1. According to F.A.F.'s attorney, it was F.A.F.'s position that "the Warrant had to be exercised prior to 12/31/07." Id. at 2; see also Trial Tr. 946:8-12, 947:6-8. This was a position contrary to Management's understanding of the Warrant. See Joint Ex. 17.
By 2007, Louis Rotella (Rotella) had replaced Almeida as F.A.F.'s new CFO. Trial Tr. 136:16-137:3. Rotella's position on the purported error with respect to the dates in Sections 3.1 and 13 of the Warrant was consistent with F.A.F.'s attorney's October 1, 2007 correspondence. In conversations with Manchester in the summer of 2007, Rotella stated that it was F.A.F.'s position that the Warrant had to be exercised before October 31, 2007 and that the Warrant's value was based on the audited financial statements for the year ending December 31, 2006, not December 31, 2007 as provided under Section 3.1. Id. at 373:18-21, 375:16-376:6, 514:19-23. Throughout the fall of 2007, through conversations and correspondence involving Manchester and Humphreys, Rotella maintained F.A.F.'s position that Management's exercise right expired on October 31, 2007, and Management's put right would be based on fiscal years 2005 and 2006. Id. at 138:3-9, 331:24-332:113, 375:16-376:10. During this time, Fiorenzano concurred with Rotella's reading of Sections 3.1 and 13 and also rejected Management's assertion that it could review F.A.F.'s 2007 audited financial statements prior to deciding how to proceed under the Warrant. Id. at 136:13-137:3, 138:3-9, 140:25-141:9. In early 2008, Rotella again rejected Management's position. Id. at 381:3-7.
On March 21, 2008, Management brought the present lawsuit against F.A.F. and Fiorenzano. Following the nonjury trial held before this Court, the parties submitted post-trial memoranda. Thereafter, the Court allowed the parties to file further supplemental memoranda to clarify the factual and legal issues at stake in this case. In its case against F.A.F. and Fiorenzano, Management primarily seeks three outcomes: (1) reformation of the Warrant to amend the dates in Sections 3.1 and 13; (2) a declaratory judgment that "funded debt" clearly and unambiguously means long-term debt; and (3) a finding that F.A.F., through a series of communications and actions, repudiated the Warrant and is therefore in breach of contract.
II Standard of Review
"When a trial justice presides over a nonjury trial, Rule 52(a) of the Superior Court Rules of Civil Procedure requires that he or she 'find the facts specially and state separately [his or her] conclusions of law thereon.'" S. Cnty. Post & Beam, Inc. v. McMahon, 116 A.3d 204, 210 (R.I. 2015). "The trial justice, however, 'need not engage in extensive analysis to comply with this requirement.'" Id. (quoting JPL Livery Servs., Inc. v. R.I. Dep't of Admin., 88 A.3d 1134, 1141 (R.I. 2014)). Along those lines, the Rhode Island Supreme Court "'has recognized that [a] trial justice's analysis of the evidence and findings in the bench trial context need not be exhaustive.'" Id. (alteration in original) (quoting Notarantonio v. Notarantonio, 941 A.2d 138, 144 (R.I. 2008)).
III Discussion
This nearly seven-year-long dispute between Management and F.A.F. boils down to three discrete issues: (a) contract reformation; (b) the meaning of the term "funded debt"; and (c) whether F.A.F. repudiated the Warrant. The Court will address each issue in turn.
A Contract Reformation
With respect to the first issue, Management contends that the dates listed in Sections 3.1 and 13 of the Warrant-October 31, 2007 and September 30, 2007, respectively-are the result of a mutual mistake in the form of a typo, or scrivener's error. Management argues that it has put forth clear and convincing evidence establishing that a mutual mistake occurred after F.A.F.'s attorney introduced the language regarding Humphreys and Almeida's agreement to allow Management to review the audited financial statements for the year ending December 31, 2007. According to Management, when F.A.F.'s attorney introduced that language, which accurately reflected the parties' intent, neither party noticed that the dates "October 31, 2007" and "September 30, 2007" needed to be changed to "October 31, 2008" and "September 30, 2008." In support of its argument, Management points to testimony from F.A.F.'s former CFO, Almeida, as well as from one of Management's principals, Humphreys. Management avers that its evidence of a mutual mistake is sufficiently clear and convincing for the Court to reform the Warrant.
On the other hand, while F.A.F. agrees that there is a typo in Sections 3.1 and 13, it disputes which date is mistaken. F.A.F. counters that the typographical error occurred when its attorney inserted the date "December 31, 2007" instead of "December 31, 2006" with respect to the audited financial statements. To support this contention, F.A.F. offered its attorney's testimony and his October 1, 2007 correspondence to Management.
Under Rhode Island law, "'[f]or a contract to be subject to judicial reformation, the court must first find a mutual mistake.'" Merrimack Mut. Fire Ins. Co. v. Dufault, 958 A.2d 620, 624 (R.I. 2008) (quoting Gorman v. Gorman, 883 A.2d 732, 740 (R.I. 2005)). In other words, "[t]o warrant reformation it must appear that by reason of a mistake, common to both parties, their agreement fails in some material respect correctly to reflect their prior completed understanding." Hopkins v. Equitable Life Assurance Soc'y of U.S., 107 R.I. 679, 685, 270 A.2d 915, 918 (1970); see also Yates v. Hill, 761 A.2d 677, 680 (R.I. 2000). A party that seeks judicial reformation of a contract must prove the existence of a mutual mistake by clear and convincing evidence. Merrimack Mut. Fire Ins. Co., 958 A.2d at 624.
A mutual mistake is "'one that is common to both parties wherein each labors under a misconception respecting the same terms of the written agreement sought to be [reformed].'" Merrimack Mut. Fire Ins. Co., 958 A.2d at 624 (alteration in original) (internal quotation marks omitted) (quoting McEntee v. Davis, 861 A.2d 459, 463 (R.I. 2004)). As our Supreme Court has explained, "'[a] mutual mistake is not merely the existence of a common error, but rather involves a shared misconception relating to the parties' intent.'" Id. (quoting McEntee, 861 A.2d at 463). To determine whether parties to a contract are laboring under a common error with respect to their prior completed understanding, the Court should admit and may consider extrinsic or parol evidence "for the purpose of reforming the contract to mirror the true intent of the parties." Marr Scaffolding Co. v. Fairground Forms, Inc., 682 A.2d 455, 459 (R.I. 1996) (citing 2 E. Allan Farnsworth, Contracts § 7.5 at 219 (1990)).
Here, the Court finds that the parties had a "prior completed understanding" that Management would be able to review F.A.F.'s 2007 audited financial statements prior to deciding how to proceed under the Warrant. See Hopkins, 107 R.I. at 685, 270 A.2d at 918. The evidence is clear and convincing on this point and, as discussed below, this fact is determinative of the existence of a mutual mistake. Almeida, as F.A.F.'s former CFO and a principal negotiator of the Warrant, and Humphreys provided compelling testimony regarding the understanding between F.A.F. and Management with respect to the 2007 audited financial statements.
When asked about his recollection of his discussion with Humphreys "about the [20]07 [audited] financial statements and their availability for Management, " Almeida testified: "Well, normally . . . audited financial statements are not ready until sometime in very late March generally into April. And [Humphreys] was asking for some time with those statements to evaluate them. And I just said that simply made sense to me." Trial Tr. 591:13-20. Almeida was then asked why it made sense to him that Humphreys, on Management's behalf, would want some time with the 2007 audited financial statements, to which he responded: "Simply because of the availability of the statements well into 2008, probably into the second quarter 2008; and then sometime to evaluate them, review them, and to make his decision." Id. at 592:6-11. When pressed on whether he understood why Humphreys wanted the language that was later inserted on June 4, 2003 reflecting the agreement about the 2007 financial statements, Almeida again asserted: "it just made sense to have the financial statements in hand so Mr. Humphreys could review them and make a decision." Id. at 594:25-595:2. Humphreys testified similarly. See id. at 108:15-23, 115:7-10, 120:20-121:2. Based on this evidence, with respect to both Sections 3.1 and 13, it is clear to the Court that the parties intended that Management would have the 2007 financial statements prior to deciding whether to buy shares or put the Warrant.
The only evidence to the contrary is F.A.F.'s attorney's testimony that the mistake in Sections 3.1 and 13 was the reference to the 2007 audited financial statements, which he testified should have been a reference to the statements for the year ending December 31, 2006, not December 31, 2007. Trial Tr. 966:8-13. However, this evidence falls short of overcoming Management's clear and convincing evidence proving otherwise. See also 967:4-9.
As presently written, under both Sections 3.1 and 13 of the Warrant, Management lacks the very thing it needed to decide whether to buy shares or put the Warrant: the audited financial statements for the year ending December 31, 2007. The "window" during which Management could determine whether to buy shares or put the Warrant was expressly based on the parties' prior completed understanding that Management could review F.A.F.'s audited financial statements for the year ending December 31, 2007-statements that would not be available until March or April of 2008. Trial Tr. 591:13-20. Looking to Section 3.1, it would be implausible that the parties intended to both allow Management to review statements that would not be available until early 2008 and operate under an understanding that the "drop dead date" of Management's ability to buy shares would expire on October 31, 2007. See Joint Ex. 16 at 2, § 3.1.
Section 13 of the Warrant contains a typo that leads to a similar contradiction. See Trial Tr. 614:9-14; Joint Ex. 16 at 3-4, § 13. Pursuant to Humphreys' agreement with Almeida, prior to deciding whether to put the Warrant under Section 13, Management had the right to first review F.A.F.'s 2007 audited financial statements. But, again, those statements could not have been in Management's possession until March or April of 2008. Trial Tr. 591:16-18, 592:6-11. When F.A.F.'s attorney inserted the language into the June 4, 2003 draft of the Warrant, see Joint Ex. 10 at 2, neither party noticed that internal contradiction-one which resulted in "a shared misconception relating to the parties' intent." See Merrimack Mut. Fire Ins. Co., 958 A.2d at 624 (citation omitted).
The typo giving rise to the mutual mistake was common to both Management and F.A.F.; the dates in Sections 3.1 and 13 were directly contrary to the parties' prior completed understanding regarding the 2007 audited financial statements. See Trial Tr. 108:15-23, 115:7-10, 120:20-121:2, 591:13-20, 591:25-592:2, 592:6-11, 594:25-595:2. Indeed, those dates- respectively, "October 31, 2007" in Section 3.1 and "September 30, 2007" in Section 13-went unnoticed for four years. As one court in Rhode Island has articulated, "'[t]he classic case for reformation' is when the mutual mistake can be traced to a typo or transcription error." Berrios v. Jevic Transp., Inc., No. PC 04-2390, 2012 WL 894010, at *4 (R.I. Super. Mar. 12, 2012) (Gibney, P.J.) (quoting OneBeacon Am. Ins. Co. v. Travelers Indem. Co. of Ill., 465 F.3d 38, 41 (1st Cir. 2006)). The parties' use of "October 31, 2007" and "September 30, 2007, " rather than "October 31, 2008" and "September 30, 2008, " in Sections 3.1 and 13 of the Warrant presents such a "classic case" for reformation. See id. Here, the typo in those sections has resulted in a mutual mistake, thus forming the predicate for contract reformation. See id.
Sitting in its capacity as a trier of fact, the Court finds that the evidence clearly and convincingly establishes that the parties intended that Management would be able to review the audited financial statements for the year ending December 31, 2007 prior to deciding whether to buy shares or put the Warrant. See S. Cnty. Post & Beam, Inc., 116 A.3d at 210; see also Merrimack Mut. Fire Ins. Co., 958 A.2d at 624; Hopkins, 107 R.I. at 685, 270 A.2d at 918. Therefore, Management has met its burden to show the existence of a mutual mistake, see Merrimack Mut. Fire Ins. Co., 958 A.2d at 624, and the Court may reform the Warrant "to mirror the true intent of the parties." Marr Scaffolding Co., 682 A.2d at 459. As a result, the Court reforms the Warrant as follows. Section 3.1 will now read:
For purposes of clarity, earlier in this Decision the Court used brackets to indicate that "MC" represented "Management" and "the Corporation" represented "F.A.F." in Sections 3.1 and 13. Because the Court is reforming the Warrant, it now uses the precise language of the contract to refer to the parties.
"This Warrant may be exercised in whole or in part at any time by the registered holder by the surrender of this Warrant at any time after the date hereof and before 5:00 p.m. on: (a) the date which is seventy-five (75) days after receipt by MC, or any subsequent holder hereof, of the audited financial statements of the Corporation for the year ending December 31, 2007; or (b) October 31, 2008, whichever is the earlier to occur ("Expiration Time"); together with payment to the Corporation of the Exercise Price (or portion thereof) for the shares to be purchased hereunder." (Emphasis added).
Section 13 will now read:
"At any time after 5:00 p.m. on (a) the date which is forty-five (45) days after receipt by MC, or any subsequent holder hereof, of the audited financial statements of the Corporation for the year ending December 31, 2007; or (b) September 30, 2008, whichever is the earlier to occur, the Corporation shall have a call and MC or any subsequent holder hereof shall have a put with respect to the Warrant, or the shares issued pursuant to this Warrant, if applicable. The Closing of the purchase and sale shall take place within 120 days of the date of exercise of the put or call. The purchase price for the Warrant, or the shares issued pursuant to the Warrant, if applicable, shall be determined and paid as provided in Section 14 hereof." (Emphasis added).
B Funded Debt
Next, the parties are conflicted as to the meaning of the phrase "less only funded debt." In Section 14 of the Warrant, which deals with the purchase price, the parties defined the "Value of the Corporation"-meaning the value of F.A.F.-to "be equal to: (a) the average EBITDA of [F.A.F.] for the last 2 fiscal years of [F.A.F.] prior to the exercise of the put or call; (b) multiplied by 5; (c) less only funded debt . . . ." Joint Ex. 16 at 4, § 14 (emphasis added). The term "funded debt" is not defined in the Warrant. Still, both parties argue that the term "funded debt" has a clear and unambiguous meaning; however, unsurprisingly, the parties assign separate yet purportedly clear and unambiguous meanings to it.
When engaging in the familiar task of contractual interpretation, the Court must first determine whether a contract term is ambiguous. Young v. Warwick Rollermagic Skating Ctr, Inc., 973 A.2d 553, 558 (R.I. 2009). Whether a contract term is ambiguous is a question of law. Id.; see also Paul v. Paul, 986 A.2d 989, 993 (R.I. 2010) ("The existence of ambiguity in a contract is a question of law."). It is well settled that a contract term is ambiguous "only when [it] is 'reasonably and clearly susceptible of more than one interpretation.'" Rivera v. Gagnon, 847 A.2d 280, 284 (R.I. 2004) (quoting Rubery v. Downing Corp., 760 A.2d 945, 947 (R.I. 2000) (per curiam)); see also Rotelli v. Catanzaro, 686 A.2d 91, 94 (R.I. 1996). Stated differently, "a contract provision is ambiguous if it is 'reasonably susceptible of different constructions.'" Carney v. Carney, 89 A.3d 772, 776 (R.I. 2014) (quoting Paul, 986 A.2d at 993).
As the Rhode Island Supreme Court has instructed, "'[b]ecause ambiguity lurks in every word, sentence, and paragraph in the eyes of a skilled advocate . . . the question is not whether there is an ambiguity in the metaphysical sense, but whether the language has only one reasonable meaning when construed, not in a hypertechnical fashion, but in an ordinary, common sense manner.'" Paul, 986 A.2d at 993 (alteration in original) (quoting Garden City Treatment Ctr., Inc. v. Coordinated Health Partners, Inc., 852 A.2d 535, 542 (R.I. 2004). "If the contract term[] [is] clear and unambiguous, judicial construction is at an end for the term[] will be applied as written." Rivera, 847 A.2d at 284 (citing W.P. Assocs. v. Forcier, Inc., 637 A.2d 353, 356 (R.I. 1994)); see also Textron, Inc. v. Aetna Cas. and Sur. Co., 638 A.2d 537, 539 (R.I. 1994).
In the case at bar, the Court is tasked with determining whether the term "funded debt, " as provided in Section 14 of the Warrant, is ambiguous as a matter of law. See Young, 973 A.2d at 558. As stated above, Management and F.A.F. both agree that "funded debt" is clear and unambiguous. However, the parties assign different meanings to that term. Management argues that "funded debt" clearly and unambiguously means "long-term debt." F.A.F., on the other hand, asserts that "funded debt" means "all debt." The consequence of either interpretation is the increase or decrease in the valuation of F.A.F in the context of Management's right to put the Warrant. See Joint Ex. 16 at 4, § 14.
Here, the Court concurs with both parties: "funded debt" is a clear and unambiguous contract term because it is not reasonably susceptible to more than one meaning. See Carney, 89 A.3d at 776; Rivera, 847 A.2d at 284. However, mindful of the Rhode Island Supreme Court's instruction to not engage in a hypertechnical or metaphysical analysis of the meaning of words, see Paul, 986 A.2d at 993, the Court also holds that "funded debt" means "long-term debt, " which is bank debt payable after one year. Funded debt is "[s]ecured long-term corporate debt meant to replace short-term, floating, or unsecured debt." Black's Law Dictionary 489 (10th ed. 2014). Although there is little case law that discusses the definition of this term, this Court finds persuasive a case from the Hawaiian Supreme Court. See Emps.' Ret. Sys. of Hawaii v. Ho, 352 P.2d 861 (Haw. 1960). In Emps.' Ret. Sys. of Hawaii, the court ran through a litany of dictionary definitions for the purposes of determining the meaning of "funded debt" as used in its state constitution. Id. at 865. In each definition the court cited, there was one constant: "funded debt" was debt running for a permanent or fixed period of time. See id. The court also considered notes from its state constitutional convention, which distinguished between debt "which shall be payable within one year" and funded debt. See id. at 868.
Moreover, F.A.F.'s accountant, Daniel Syner (Syner), acknowledged that when he researched the meaning of funded debt, he found that it meant "[g]enerally long-term debt." Trial Tr. 730:4-12; see also id. at 736:12-23. Based on these authorities, "funded debt" is distinguishable from "all debt" and short-term debt, leaving "funded debt" susceptible to one reasonable meaning: long-term debt, which is bank debt payable after one year. See id. 730:4-12; Emps.' Ret. Sys. of Hawaii, 352 P.2d 861; Black's Law Dictionary 489 (10th ed. 2014).
F.A.F. also argues that the Court should consider the Warrant Terms, which as explained above, was the letter containing the initial proposal for the Warrant. However, because the Court has found that "funded debt" is a clear and unambiguous term, it will not consider parol or extrinsic evidence, including the Warrant Terms. See Nat'l Refrigeration, Inc. v. Standen Contracting Co., 942 A.2d 968, 972 (R.I. 2008); cf. Hawkins v. Smith, 105 R.I. 669, 676, 254 A.2d 747, 751 (1969) ("Parol or extrinsic evidence is admissible to explain an agreement which is unclear, . . . or inexplicit, . . . or ambiguous") (internal citations omitted).
The Court's determination with respect to the definition of funded debt comports with the well-established rule against surplusage. See Andrukiewicz v. Andrukiewicz, 860 A.2d 235, 239 (R.I. 2004). As our Supreme Court has explained, "[w]hen ascertaining the usual and ordinary meaning of contractual language, every word of the contract should be given meaning and effect; an interpretation that reduces certain words to the status of surplusage should be rejected." Id. (citing Emp'rs Mut. Cas. Co. v. Pires, 723 A.2d 295, 298 (R.I. 1999)). Again, Section 14, in pertinent part, provides a valuation of F.A.F. based in part on a value "less only funded debt." See Joint Ex. 16 at 4, § 14. If the Court were to find that "funded debt" meant "all debt, " then it would ascribe no meaning to the modifier "only." See Andrukiewicz, 860 A.2d at 239. To interpret "funded debt" in this manner would violate the rule against surplusage because the words "only" and "funded" would be rendered meaningless-"every word of the [Warrant] should be given meaning and effect." See id. For this reason too, "funded debt" cannot mean "all debt."
Accordingly, the Court finds that "funded debt" is a clear and unambiguous contract term, reasonably susceptible to only one meaning: long-term debt. See Trial Tr. 730:4-12; Emps.' Ret. Sys. of Hawaii, 352 P.2d 861; Black's Law Dictionary 489 (10th ed. 2014); see also Andrukiewicz, 860 A.2d at 239.
C Anticipatory Repudiation
Management further asserts that F.A.F. breached the Warrant through a series of statements and actions that amounted to an anticipatory repudiation. According to Management, F.A.F.-through its attorney's October 1, 2007 correspondence, Rotella's statements regarding the 2007 audited financial statements and the valuation of the Warrant, and Fiorenzano's adherence to Rotella's position-refused to perform its obligations under the Warrant prior to the date of performance. In response, F.A.F. argues that its attorney's correspondence, alone, is insufficient to establish an unconditional statement necessary for a finding of anticipatory repudiation. F.A.F. further contends that even if its words and actions established an anticipatory repudiation, Management did not properly exercise its post-repudiation rights, such as treating the Warrant as breached and promptly suing.
Anticipatory repudiation-also known as anticipatory breach of contract-is generally defined as a breach "committed before the time has come when there is a present duty of performance . . . . It is the outcome of words or acts evincing an intention to refuse performance in the future." N.Y. Life Ins. Co. v. Viglas, 297 U.S. 672, 681 (1936); see also 23 Williston, Contracts § 63:29 at 538-39 (4th ed. 2002) ("Repudiation of an agreement occurs when one party refuses to perform and communicates that refusal distinctly and unqualifiedly to the other party.") (internal quotation marks omitted) (citation omitted). In Rhode Island, to prevail on a claim for anticipatory repudiation, a party to a contract must show that the other party's "'refusal to perform [was] . . . positive and unconditional.'" Griffin v. Zapata, 570 A.2d 659, 662 (R.I. 1990) (quoting Thompson v. Thompson, 495 A.2d 678, 682 (R.I. 1985)) (emphasis added). Such "a repudiation can be evidenced by either a statement to that effect or 'a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.'" Thompson, 495 A.2d at 682 (quoting 2 Restatement (Second) Contracts § 250(b) at 272 (1981)).
However, as this Court has previously explained, once an anticipatory repudiation has been established, generally the non-repudiating party must then show that it followed one of three options:
"1. [] rescind the contract altogether, and if any performance has already been rendered by the injured party, to recover its value on principles of quasi contract;
"2. [] elect to treat the repudiation as a breach, either by bringing suit promptly, or by making some change of position; or
"3. [] await the time for performance of the contract and bring suit after that time has arrived." Mgmt. Capital, LLC, 2015 WL 1583827, at *7 n.11 (quoting Williston on Contracts § 63:33 (4th ed. 2014)).
"A central tenet of repudiation . . . is that a party is excused from performing any conditions precedent in the contract, once the other party is found to have anticipatorily repudiated." Id. at *6 (citing In re Best Payphones, Inc., 432 B.R. 46, 54 (S.D.N.Y. 2010) aff'd, 450 F.App'x 8 (2d Cir. 2011); 13 Williston on Contracts § 39:37 (4th ed. 2014)).
In support of its argument that F.A.F. anticipatorily repudiated or breached the Warrant- primarily through its attorney's October 1, 2007 correspondence-Management relies on the Rhode Island Supreme Court's decision in Griffin, 570 A.2d 659. In Griffin, our Supreme Court found that a seller anticipatorily breached a contract to sell property because the seller's attorney communicated to the buyer that the seller "was not going to be present at the . . . closing because he had not secured alternate housing at that time." Id. at 662. The Rhode Island Supreme Court determined that, taken together, the seller's words and actions-specifically the seller's testimony that he would not attend the closing, the communication from the seller's attorney to the buyer that "there would be no closing because the seller would not be present[, ]" and the lack of a change in sentiment from either the seller or the seller's attorney regarding the seller's presence at the closing-amounted to "actions and statements indicat[ing] a clear anticipatory repudiation of the [contract]." Id. Thus, words and actions indicating a clear intent not to perform are sufficient to show anticipatory repudiation. See id.
In light of those principles, the two questions for the Court to consider are: (1) whether F.A.F.'s attorney's October 1, 2007 correspondence, coupled with statements from Rotella and Fiorenzano, amount to a "positive and unconditional" refusal to perform under the Warrant, Griffin, 570 A.2d at 662; and (2) if so, whether Management properly adhered to the aforementioned post-repudiation options. As to the first question, the Court concludes that F.A.F. anticipatorily repudiated the Warrant. As discussed below, the combination of F.A.F.'s attorney's October 1, 2007 letter, Rotella's positions with respect to the 2007 audited financial statements and the Warrant valuation, and Fiorenzano's adherence to Rotella's position effectively communicated to Management that its right to buy shares, or exercise the Warrant, had expired and that the Warrant was essentially valueless. Although F.A.F. argues that the language used in the October 1, 2007 correspondence did not, by itself, indicate a "positive and unconditional" refusal to perform under the Warrant, the Court finds compelling the evidence presented that F.A.F.'s attorney's correspondence, taken together with Rotella and Fiorenzano's statements, made clear to Management that F.A.F. would not perform as required by the Warrant. See Griffin, 570 A.2d at 662.
Even if F.A.F.'s attorney's October 1, 2007 correspondence alone did not suffice as a "positive and unconditional" manifestation of F.A.F.'s refusal to perform, when considered together with Rotella and Fiorenzano's statements, there is clear evidence of such a "positive and unconditional" refusal to perform. This case is factually analogous to the situation in Griffin, where a communication from the defendant's attorney coupled with the defendant's conduct amounted to an anticipatory breach of contract. See id.
Precipitating F.A.F.'s attorney's October 1, 2007 letter was a conversation Manchester had with Rotella in the summer of 2007 regarding the Warrant. Trial Tr. 373:18-374:1. According to Manchester, after Rotella initially stated that the Warrant's plain language meant that 2005 and 2006 were the final two years for purposes of valuing the Warrant, see id. at 373:18-25, Manchester then recognized that the Warrant contained a typo in Sections 3.1 and 13. As a result, he subsequently approached Rotella to discuss amending the Warrant. Id. at 374:2-3, 375:19-376:3. However, Rotella took the position-a position he has maintained since-that the mistake in Sections 3.1 and 13 was the use of the year 2007, not 2006, to refer to F.A.F.'s audited financial statements. Id. at 376:4-6. In other words, with specific reference to Management's put right under Section 13 of the Warrant, Rotella was insisting that the final two years for purposes of calculating the Warrant's value were 2005 and 2006, not 2006 and 2007. Id. at 374:10-375:9; Joint Ex. 16 at 3-4, § 13; see also Pl.'s Ex. 30. According to what Rotella told Manchester, this meant that the Warrant would be valueless. See Trial Tr. 373:20-21; Pl.'s Ex. 32. Moreover, Rotella's position also meant that, pursuant to the typo in Section 3.1 of the Warrant, Management's ability to exercise the Warrant had expired seventy-five days after its receipt of the 2006, not 2007, audited financial statements. See Trial Tr. 514:19-23. Rotella's statements during that discussion then prompted Manchester's September 28, 2007 letter to Fiorenzano in which he formally requested the two changes to the Warrant and purported to exercise the Warrant. Id. at 376:12-377:2; see Joint Ex. 17.
Following F.A.F.'s receipt of that letter, F.A.F.'s attorney responded with his October 1, 2007 letter-formally staking out F.A.F.'s position regarding the 2007 audited financial statements and the purported mistakes in Sections 3.1 and 13. Trial Tr. 378:2-4; see Joint Ex. 18. Rotella consistently adhered to this position throughout the fall of 2007. Trial Tr. 331:24-332:13, 378:9-11. This remained the case even after Manchester reached out to Rotella on multiple occasions in his repeated attempts to resolve the mutually mistaken dates in Sections 3.1 and 13. Id. at 331:24-332:11, 375:10-376:3. Humphreys also reached out to Fiorenzano to state Management's case; however, Fiorenzano maintained that Rotella was correct. Id. at 137:4-9, 138:3-9, 140:25-141:5. As late as early 2008, Rotella maintained his position rejecting Management's interpretation of the Warrant. Id. at 380:25-381:7.
F.A.F.'s attorney's letter, combined with Rotella and Fiorenzano's statements, amounted to an assertion that Management's right to buy shares, or exercise the Warrant, had expired. See id. at 514:19-23. Such words and actions "indicate a clear anticipatory repudiation of the [Warrant]" because Management had a right to review the 2007 audited financial statements prior to deciding whether to buy shares or put the Warrant. See Griffin, 570 A.2d at 662. Furthermore, those statements and actions-particularly Rotella's insistence regarding F.A.F.'s interpretation of the mistakes in Sections 3.1 and 13 and the dates to be used for the Warrant valuation-made clear to Management that its right to put the Warrant had become valueless when, in fact, it had not. On that point, F.A.F. was mistaken, as the 2008 dates constitute a proper reading of the mutual mistake. Cf. In re Pickel, 493 B.R. 258, 270 (Bankr. D.N.M. 2013), aff'd, 512 B.R. 390 (B.A.P. 10th Cir. 2014) (rejecting any defense based on "mistaken contract interpretation" based on the proposition that "'[g]enerally, a party acts at his peril if, insisting on what he mistakenly believes to be his rights, he refuses to perform his duty'") (quoting Restatement (Second) Contracts § 250, cmt. d). As belabored above, F.A.F.'s position was directly contrary to the Warrant's language in Sections 3.1 and 13 because Management had a contractual right to review the 2007 audited financial statements.
Essentially, F.A.F. refused to accept any future exercise of the Warrant after October 1, 2007 and adhered to the untenable position that the mutual mistake in Sections 3.1 and 13 made Management's right to put the Warrant valueless. Through the combined statements and actions of its attorney, CFO, and CEO, F.A.F. positively and unconditionally made clear to Management that F.A.F. would not perform its obligations as provided by the Warrant. See Griffin, 570 A.2d at 662. As was the case in Griffin, these statements and actions amount to a "positive and unconditional" repudiation of the Warrant. See id. Put another way, F.A.F. manifested a clear intent not to perform its obligations under the Warrant prior to the date of performance. See id. Accordingly, the Court finds that F.A.F. anticipatorily repudiated the Warrant. See id.; Thompson, 495 A.2d at 682.
Management further asserts a claim that F.A.F. breached its duty of good faith and fair dealing. Because the Court finds in Management's favor on its claim for anticipatory repudiation, or anticipatory breach of contract, it need not reach a decision regarding any breach of the duty of good faith and fair dealing.
Turning to the second question, the Court must now determine whether Management properly preserved its post-repudiation rights. Briefly, in order to maintain a claim for breach of contract by anticipatory repudiation, the non-repudiating party must generally do one of three things: (1) "rescind the contract altogether"; (2) "treat the repudiation as a breach" and sue promptly; or (3) "await the time for performance of the contract and bring suit after that time has arrived." See Williston on Contracts § 63:33 at 559-60 (4th ed. 2014). Here, Management complied with the second option: it treated F.A.F.'s repudiation as a breach and sued promptly. After receiving the October 1, 2007 letter and thereafter pursuing several attempts to mend the situation regarding the mutual mistakes in the Warrant, Management filed suit on March 21, 2008. The Court finds that this was properly prompt, meaning that at some point after the breakdown in Management's attempts to amend the Warrant by agreement, Management treated F.A.F.'s repudiation as a breach. See id. At its longest, this time period extends from October 1, 2007 to March 21, 2008, a period that the Court considers sufficiently close in time to be prompt. See id. Thus, the Court finds that Management properly exercised its right to sue once F.A.F. breached the Warrant. See id.
In response to this line of reasoning, F.A.F. relies on the holding in Lucente v. Int'l Bus. Machs. Corp., 310 F.3d 243, 258 (2d Cir. 2002). In Lucente, the Second Circuit explained that:
"When confronted with an anticipatory repudiation, the non-repudiating party has two mutually exclusive options. He may (a) elect to treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relation between the parties, or (b) he may continue to treat the contract as valid and await the designated time for performance before bringing suit.
"The non-repudiating party must, however, make an affirmative election. He cannot at the same time treat the contract as broken and subsisting, for [o]ne course of action excludes the other. Indeed, [t]he law simply does not . . . permit a party to exercise two alternative or inconsistent . . . remedies." Id. (internal citations omitted) (internal quotation marks omitted).
Pointing to that holding, F.A.F. suggests that Management, in twice purporting to buy shares under the Warrant, affirmatively elected to treat the Warrant as valid rather than suing for repudiation. See id. In his September 28, 2007 letter, Manchester stated that:
"In order to preserve [Management's] rights under the terms of the Warrant as presently written, we believe that it is necessary for Management [] to exercise its put rights as set forth in the Warrant. Therefore, Management [] hereby provides notice of the exercise of its right to put the Warrant." Joint Ex. 17; see also Trial Tr. 376:16-377:2.
After more difficulty expressing Management's position on the mutual mistakes contained in Sections 3.1 and 13 of the Warrant, Manchester then sent an email on December 31, 2007, in which he provided notice that Management again "exercises its right to purchase shares of [F.A.F.] under the terms of the Warrant." Joint Ex. 19; see also Trial Tr. 377:4-6. According to F.A.F., these two efforts to buy shares under Section 3.1 of the Warrant amounted to an election of remedies, where Management would receive both the benefit of its bargain and the benefit of F.A.F.'s breach. See, e.g., Lucente, 310 F.3d at 258.
However, Management's attempts to exercise and put the Warrant were nullities, not an election of remedies. Based on the reformation of the Warrant, Management's window to decide whether to buy shares had not yet opened: it had not received the 2007 audited financial statements as of the September 28, 2007 letter and December 31, 2007 email. Management's efforts to buy shares under the Warrant are irrelevant because they were wholly ineffective. Thus, Management's dual attempts to exercise its right to purchase shares under the Warrant were meaningless and do not constitute an election of one option-treating the Warrant as valid-at the cost of another-suing for breach of contract. But see Lucente, 310 F.3d at 258.
F.A.F. further avers that Management had to actually exercise the Warrant in order to bring suit. In support of this contention, F.A.F. cites to the proposition that if a non-repudiating party chooses to ignore the other party's repudiation, it must still attempt to exercise its option. See Hermanowski v. Acton Corp., 580 F.Supp. 140 (E.D.N.Y. 1983), aff'd in part and remanded, 729 F.2d 921 (2d Cir. 1984). However, this cannot be the case on these facts. Requiring Management to fully comply with Section 3.1 of the Warrant would require Management to engage in a futile act. Cf. Swiss Bank Corp. v. Dresser Indus., Inc., 141 F.3d 689, 692 (7th Cir. 1998) (noting that "[f]utile gestures are not necessary to preserve contractual rights"). Management would have had to present F.A.F. with $710,000 and the Warrant only to be turned away because F.A.F. had taken the position that the Warrant's exercise time had expired. Moreover, Management made two attempts, while not fully in compliance with Section 3.1, purporting to buy shares under the Warrant. See Joint Exs. 17, 19. While noting that Management in part attempted to exercise its right to purchase shares under the Warrant, on these facts, the Court finds that Management did not need to fully exercise its option to buy shares in order to bring suit.
Therefore, F.A.F. anticipatorily repudiated the Warrant through statements and actions that manifested a "positive and unconditional" refusal to perform its obligations under the Warrant. See Griffin, 570 A.2d at 662. Furthermore, Management properly preserved its post- repudiation rights by promptly suing after F.A.F.'s anticipatory breach. See Williston on Contracts § 63:33 at 559-60 (4th ed. 2014).
D Damages
Next, because F.A.F. breached the Warrant, Management is entitled to damages. Under Rhode Island law, "'[i]t is well settled that a court may award damages for breach of contract to place the injured party in as good a position as if the parties fully performed the contract.'" Sophie F. Bronowiski Mulligan Irrevocable Trust v. Bridges, 44 A.3d 116, 120 (R.I. 2012) (quoting Riley v. St. Germain, 723 A.2d 1120, 1122 (R.I. 1999)). As our Supreme Court has repeatedly instructed, "'[t]he amount of damages sustained from a breach of contract must be proven with a reasonable degree of certainty, and the plaintiff must establish reasonably precise figures and cannot rely upon speculation.'" Id. (quoting Sea Fare's Am. Cafe, Inc. v. Brick Market Place Assocs., 787 A.2d 472, 478 (R.I. 2001). A plaintiff in a breach of contract action "'will not be denied recovery merely because the damages . . . are difficult to ascertain, as long as they prove damages with reasonable certainty.'" Id. (quoting Sea Fare's Am. Cafe, Inc., 787 A.2d at 478).
Here, Management has proved its damages with reasonable certainty. See id. At trial, Manchester testified that the value of the Warrant, at the time of F.A.F.'s breach, was equal to $1,234,055. Trial Tr. 388:24-25; Pl.'s Ex. 45. Manchester based the value of the Warrant on a set of numbers listed in the table exhibited in Plaintiff's Exhibit 45. Trial Tr. 388:5-25; see Pl.'s Ex. 45. Manchester input those numbers into the formula provided in Section 14 of the Warrant. Trial Tr. 388:15-25; Pl.'s Ex. 45. Again, Section 14 provides that:
"The purchase price for the Warrant, or the shares issued pursuant to this Warrant, if applicable, shall be equal to the percentage ownership of [F.A.F.] represented by the shares, multiplied by the Value of [F.A.F.]. The Value of [F.A.F.] shall be equal to: (a) the average EBITDA of [F.A.F.] for the last 2 fiscal years of [F.A.F.] prior to the exercise of the put or call; (b) multiplied by 5; (c) less only funded debt, all as of the last day of the most recently completed fiscal year of [F.A.F.]." Joint Ex. 16 at 4, § 14.
Using Section 14's formula, Manchester testified to the following calculations. First, he multiplied F.A.F.'s two-year average EBITDA for fiscal years 2006 and 2007 ($4,202,515) by 5 to arrive at the number $21,012,575. Trial Tr. 388:15-20. He then subtracted F.A.F.'s funded debt ($1,572,023), using a definition consistent with that provided in this Decision, which resulted in a finding that F.A.F.'s equity value was equal to $19,440,552. Id. at 20-22. To calculate the value of Management's ten percent interest in F.A.F. in accordance with the Warrant, Manchester multiplied that number by ten percent (.1) to arrive at $1,944,055. Id. at 23. Manchester then subtracted from $1,944,055 the exercise price ($710,000) to find that the net value of Management's put was $1,234,055. Id. at 23-25.
EBITDA is an abbreviation for "Earnings Before Interest, Tax, Depreciation, and Amortization." See Black's Law Dictionary 621 (10th ed. 2014).
The Court finds credible Manchester's calculation of the net value of Management's put. See Trial Tr. 388:5-25; Pl.'s Ex. 45. Manchester's testimony, in conjunction with the numbers and calculations exhibited in Plaintiff's Exhibit 45, satisfies Management's burden to prove damages with reasonable certainty. See Sophie F. Bronowiski Mulligan Irrevocable Trust, 44 A.3d at 120; Trial Tr. 388:5-25; Pl.'s Ex. 45. Accordingly, the Court finds that Management is entitled to damages in the amount of $1,234,055.
With respect to the calculation of damages, other than raising the issue of Manchester's credibility and taking issue with the definition of "funded debt, " F.A.F. did not offer a rebuttal calculation.
E Prejudgment Interest
The Court must now determine from which date prejudgment interest should run. Pursuant to G.L. 1956 § 9-21-10(a):
"In any civil action in which a verdict is rendered or a decision made for pecuniary damages, there shall be added by the clerk of the court to the amount of damages interest at the rate of twelve percent (12%) per annum thereon from the date the cause of action accrued, which shall be included in the judgment entered therein."
"[P]rejudgment interest 'is not an element of damages but is purely statutory, peremptorily added to the award by the clerk.'" Metro. Prop. & Cas. Ins. Co. v. Barry, 892 A.2d 915, 919 (R.I. 2006) (quoting Barbato v. Paul Revere Life Ins. Co., 794 A.2d 470, 472 (R.I. 2002)). As our Supreme Court has explained, prejudgment interest serves two purposes: "[(1)] to encourage early settlement of claims and [(2)] to compensate an injured plaintiff for delay in receiving compensation to which he or she may be entitled." Id. (citing Martin v. Lumbermen's Mut. Cas. Co., 559 A.2d 1028, 1031 (R.I. 1989)). While adding prejudgment interest is a "ministerial act, " id., here, the Court must determine the date on which "the cause of action accrued" for purposes of § 9-21-10(a).
Under Rhode Island law, "[t]he cause of action accrues on the first date an injured party has a right to seek judicial relief." Id. at 924 n.5 (citing Cardi Corp. v. State, 561 A.2d 384, 387 (R.I. 1989)). In other words, "[p]rejudgment interest begins to run when the action accrues for purposes of the statute of limitations." Id. In the case before the Court, Management argues that statutory interest should be calculated from October 13, 2008. Management bases this date on Manchester's testimony. Manchester estimated that Management would have received F.A.F.'s 2007 audited financial statements on April 1, 2008-a date consistent with the range Almeida provided in his testimony. Compare Trial Tr. 393:22-24 with id. at 591:13-20. Manchester then counted out seventy-five days to June 15, 2008, pursuant to the language provided in Section 13 of the Warrant, to comport with the window during which Management would begin to decide whether to buy shares or put the Warrant. Id. at 393:24-25. Then, Manchester added 120 days, pursuant to Section 13 of the Warrant, to account for the time when F.A.F. would have to deliver payment in return for Management's put of the Warrant. Id. at 393:24-394:1; see Joint Ex. 16 at 3-4, § 13 ("The Closing of the purchase and sale shall take place within 120 days of the date of exercise of the put or call."). This left the final date of accrual at October 13, 2008, which is the date of the breach-the date on which F.A.F. would have paid Management for its put of the Warrant. Trial. Tr. 393:24-394:1.
The Court concurs with Manchester's calculation for purposes of setting a date of accrual for the award of prejudgment interest. Thus, Management is entitled to prejudgment interest running from October 13, 2008, when its injury began to accrue. See Metro. Prop. & Cas. Ins. Co., 892 A.2d at 924 n.5.
IV Conclusion
After due consideration of the evidence presented at trial and of the arguments advanced by counsel for both parties, the Court finds in Management's favor on all three issues presented. Accordingly, the Court reforms the Warrant in the manner provided herein, declares that the term "funded debt" means long-term debt or bank debt payable after one year, and holds that F.A.F. anticipatorily repudiated the Warrant. Based on F.A.F.'s breach, Management is entitled to damages in the amount of $1,234,055 in addition to prejudgment interest running from October 13, 2008. Prevailing counsel shall present an appropriate order consistent herewith which shall be settled after due notice to counsel of record.
Because the Court finds in Management's favor on these three issues, there is no need to address F.A.F.'s counterclaims.