Monday, September 27, 2010

Shelburne Supermarket: Malpractice Proves to Be Out of Stock

The latest in a series of cases involving the members of the Clayton family and their intra-familial struggle for control of the Shelburne Supermarket.  For those unfamiliar with the case, it began in 1987 when Steven, the son, returned his controlling ownership shares in the Supermarket to his parents, Harry and Lucille.  The family court was not persuaded by this maneuver and put Steven’s interests in the Supermarket in the common assets pot for consideration.  Defeated in that forum, Steven asked his parents for his shares back.  Harry and Lucille, who had apparently soured on their son, refused.  Corporate stalemate and civil litigation ensued.   In hopes of laying those disputes to rest, and at the urging of counsel for the corporation, the Claytons engaged in binding arbitration in 2002. 

Enter Stephen Unsworth, Esq., who represented Harry and Lucille in the arbitration.  Again Steven’s attorney Leighton Detora, Unsworth sought to have Arthur O’Dea, the Arbitrator, affirm the transfer and reject any claims Steven had in the Supermarket.  In his written decision, however, O’Dea found that the actions by the Claytons in 1987 to return the stock were “a charade intended solely to thwart Steven’s wife from claiming an interest in the corporation” and thus the transfers were void ab initio.  In reaching that conclusion, the arbitrator necessarily found that the applicable statutes of limitations did not prevent him from considering the 1987 events.  Indeed, the arbitrator noted, the Claytons had entered into arbitration precisely to end the uncertainty that arose from the 1987 events, and had agreed at their own shareholders’ meeting prior to the arbitration that the statute of limitations would not apply in the arbitration.

Unsatisfied with the outcome of the arbitration, the Claytons began to loose the other arrows in their legal quiver.  Exit Unsworth. 

Through their new counsel, Harry and Lucille first moved in the superior court to vacate or modify the arbitrator’s decision; the superior court denied their motion and the Supreme Court dismissed their subsequent appeal.  See In re Shelburne Supermarket, 2010 VT 30.

Next, the elder Claytons and Steven locked horns in a dispute over past dividend payments.  The Supreme Court affirmed the superior court’s decision that the Claytons owed Steven over $500,000 in past dividends.  See Id. 

The Claytons also tried to block Steven’s purchase of a lot from the Clayton family corporation and sought past, present, and future CAM charges on the purchase and Steven’s previous use of the lot.  Clayton v. Clayton Investments, Inc., 2007 VT 38A (mem.).

Last, while the dividend dispute was pending, the Claytons filed the suit underlying this appeal.  They sued Unsworth, his law firm at the time of the arbitration, and his current firm.  They alleged Unsworth had committed malpractice for a litany of reasons, chief among them his waiver of the statute-of-limitations defense during the arbitration.  The Claytons argued, in fact, that this waiver was so clearly malpractice that they should not be required to introduce expert evidence to prove it. 

The defendant lawyer and law firms quickly prevailed; the superior court agreed with them that the malpractice claim failed because the alleged malpractice, even if it did occur, was not the cause of their damages.  More fundamentally, however, the Claytons failed, with respect to all of their malpractice rationales, to submit any affidavits or other admissible evidence to support the claims.  Rather, they relied on unsworn arguments of counsel, unsupported by the record, which could not meet their burden.  The Supreme Court could have affirmed the superior court’s decision on this basis and not reached out to the merits of the claims.

The Supreme Court, however, also took pains to reject on its merits the Claytons’ claim that Unsworth’s “waiver” of the statute-of-limitations defense in the arbitration was negligent.  To the contrary, the court held, the statute of limitations simply had no application to the arbitration at all; the statute of limitations operates only to bar untimely claims from being brought in a court of law, not to prevent parties from freely deciding to enter into arbitration. “Certainly, parties are free to agree to arbitrate all kinds of disputes, including old ones.”  The Claytons had made that free choice, and the Court would not relieve them from its consequences.

Whether this will be the end of Shelburne Supermarket’s impact on Vermont case law remains to be seen.

Gavin Boyles

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