Opinion
C.A. No. 10C-08-018 (RBY).
Submitted: September 3, 2010.
Decided: November 24, 2010.
Upon Consideration of Defendants' Motion to Dismiss DENIED.
Thomas P. Preston, Esq., Blank, Rome, LLP, Wilmington, Delaware for Plaintiff.
Kathi A. Karsnitz, Esq. Georgetown, Delaware for Defendants.
OPINION AND ORDER
SUMMARY
In October, 2008, Westwood Development Partners, LLC ("Westwood") filed a breach of contract action in Superior Court against Stephen G. Draper, Emily Draper and the Clara Emily Draper Trust (collectively, the "Draper Family"). Before the Superior Court had the opportunity to rule on Westwood's claim, the Draper Family filed a counterclaim seeking, among other remedies, specific performance of the contract (the "Agreement"), and the matter was transferred to the Court of Chancery through stipulation of the parties.
After briefing and argument on the Draper Family's specific performance claim, Master Glasscock issued a Final Report on June 3, 2010, in which he found that specific performance was not an available remedy. The Master noted that both parties had raised issues that could only be resolved by a court of law. Pursuant to Court of Chancery Rule 144(a)(2) the Master's Report was submitted to Chancellor Chandler who, on June 17, 2010, approved the Final Report and adopted the Master's findings of fact.
Westwood Development LLC, v. Draper, et al., C.A. No. 4428-MG (Del. Ch. June 3, 2010).
Westwood Development LLC, v. Draper, et al., C.A. No. 4428-MG (Del. Ch. June 17, 2010) (ORDER).
On August 17, 2010 Westwood filed a Motion to Re-Open, requesting that the case be transferred from the Court of Chancery to the Superior Court for a hearing on its legal claims. The Draper Family contested Westwood's Motion, on the grounds that Westwood's purported transfer was legally insufficient to invoke the Superior Court's jurisdiction over the dispute. On September 3, 2010, the parties appeared before this Court to present arguments addressing the validity of Westwood's transfer. After a hearing, the Court chose to reserve decision on the matter, and the Court's disposition on Westwood's Motion to Re-Open remains pending.
See 10 Del. C. § 1902.
Westwood, however, has now filed a substantively similar action against the Draper Family in Superior Court. Westwood did so to ensure compliance with the statute of limitations, and to negate the Draper Family's jurisdictional challenge to its Motion to Re-Open. It is undisputed that Westwood has invoked this Court's jurisdiction to hear its legal claims in this new action, and The Draper Family has already evinced its opposition by filing both a Motion to Dismiss and a Motion to Stay Discovery. On October 1, 2010, the Court heard arguments on both of the Draper Family's motions. Ruling from the bench, the Court granted the Draper Family's Motion to Stay Discovery pending the Court's forthcoming decision on the Draper Family's Motion to Dismiss. The Court has now had adequate time to evaluate the merits of the parties' contentions, and these are its findings. For the reasons stated below, the Draper Family's Motion to Dismiss is DENIED, and this Court's reserved decision concerning Westwood's Motion to Re-Open is MOOT.
FACTS
The facts are synthesized from the Court of Chancery's underlying opinion.
This matter involves an agreement of purchase and sale for real property in Kent County. Under the agreement, Westwood agreed to purchase from the Draper Family several parcels of unimproved real property for a price of $6,000,000, of which $1,000,000 was paid as an earnest money deposit. The contract provides:
[e]xcept as expressly provided otherwise in this Agreement, that deposit shall be NON-REFUNDABLE and pending final settlement that deposit shall be held by Seller for its own use and benefit. At final settlement that deposit shall be applied as part payment of the purchase price; and at final settlement the balance of the purchase price shall then be paid by Purchaser to Seller in the amount of FIVE MILLION ($5,000,000) DOLLARS.
(Pl.'s Ex. A at 2.) (emphasis in original).
The contract contains numerous contingencies and preconditions to the consummation of the sale, some of which require the return of the deposit and others which do not. Pertinent here are two such provisions, paragraphs 9 and 12. Paragraph 9 provides: "Seller shall supply to Purchaser satisfactory Phase I and Phase II environmental audit reports prior to final settlement; and if Seller shall fail to do so, Purchaser may accept the property in its condition as reported or it may elect to terminate this Agreement, in which case the said deposit shall be refunded promptly to the Purchaser." Thus, if the Agreement is terminated subject to Paragraph 9, the Draper Family is required to return Westwood's deposit.
As examples, in addition to the required environmental audit reports referred to above, the Agreement in paragraph 3 requires the Seller to provide marketable fee simple title, and the purchase is conditioned upon the receipt by the Purchaser of major subdivision approval for a housing subdivision (Agreement, at ¶ 11). The Agreement is also conditioned upon the Seller not introducing any hazards or toxic substances onto the property (Agreement, at ¶ 16) and the Agreement may be terminated if the property is taken by eminent domain prior to settlement (Agreement, at ¶ 24).
(Pl.'s Ex. A. at 4.)
On the other hand, if the Agreement is terminated subject to Paragraph 12, the Draper Family is not required to return Westwood's deposit. Paragraph 12 provides:
Final Settlement hereunder shall take place within fifteen (15) days following major subdivision approval for the Property and recordation of the subdivision Plat Plan in the Office of the Recorder of Deeds in Dover, Delaware. Settlement shall take place in the offices of Purchaser's attorneys. The foregoing notwithstanding, this Agreement shall terminate at the written election of either party at any time after three (3) years from the date of this Agreement.
(Pl.'s Ex. A. at 5.) (emphasis added).
Thus, under paragraph 12, both parties had a bargained-for right to terminate the Agreement, if not consummated, after October 17, 2008.
The Agreement was entered and the deposit paid on October 17, 2005. On September 23, 2008, shortly before the third anniversary of the date on which the Agreement was entered, Westwood notified the Draper Family that they had failed to provide environmental audit reports that were "satisfactory" to Westwood under paragraph 9 of the Agreement, and that subdivision approval for the property was not obtainable as provided in paragraph 12. Accordingly, Westwood terminated the Agreement, and demanded return of its deposit. Westwood repeated its demand for return of the deposit, citing paragraph 9, on October 20, 2008, a few days after the third anniversary of the date of entry of the contract. In that letter, Westwood again stated that the contract was terminated.
In late October, 2008, Westwood filed suit in Superior Court seeking return of the deposit. At issue before the Superior Court in Westwood's initial complaint was whether the environmental audit reports provided by the Draper Family were "satisfactory" under the terms of paragraph 9. If they were not, Westwood was entitled to return of the deposit; otherwise, the Draper Family was entitled to retain the deposit. As described above, before the merits of Westwood's claim could be addressed by the Superior Court, both parties agreed to transfer the matter to the Court of Chancery.
The Court of Chancery determined that Westwood's October 20, 2008 letter was a termination of the Agreement under paragraph 12. Termination under paragraph 12 does not require the Draper Family to return Westwood's deposit. The Court of Chancery then analyzed the Agreement as akin to an option contract: under the terms of paragraph 2 (providing that the deposit is non-refundable) and paragraph 12 (providing that, after three years, the contract is terminable at will) the contract allowed either Westwood or the Draper family to walk away after three years, in which case the Draper Family would retain the $1,000,000 deposit.
To put it another way, the Court of Chancery found that the Draper Family entered into a contract with Westwood according to which it was entitled to a very substantial non-refundable deposit. If the contract were not consummated within three years, either party could terminate the contract at will, which would leave the Draper Family with both title to the property and the $1,000,000 deposit, which represented almost 17% of the purchase price. It is important to note, however, that the only issue the Court of Chancery was tasked with resolving was whether or not specific performance was appropriate under these circumstances.
The Court of Chancery concluded that the unambiguous language of the contract provided that the Draper Family was not entitled to the equitable remedy of specific performance, and that any relief to which the Draper Family might be entitled to was only available at law. Consequentially, the Court of Chancery stated that the matter should be returned to Superior Court for a hearing to evaluate the strength of the parties' legal claims.
DISCUSSION
A. The Draper Family's Motion to Dismiss is Denied
The Draper Family's Motion to Dismiss is predicated upon a finding by Master Glasscock, which, the Draper Family contends, is determinative of the outcome in this case. The Draper Family argues that the Court of Chancery's finding that Westwood terminated the Agreement under Paragraph 12 forecloses any remedy available to Westwood in Superior Court. The Draper Family contends that because the Agreement was terminated under Paragraph 12, Westwood is not entitled to the return of its $1,000,000 deposit. The Draper Family claims that because this finding of fact is contained within a valid and final judgment of the Court of Chancery, the Draper Family is entitled to keep the deposit, and Westwood is collaterally estopped from claiming otherwise. Westwood, of course, vigorously disputes the Draper Family's analysis.
(Pl.'s Ex. A. at 8, 11 n.7.)
The collateral estoppel standard set forth by the Delaware Supreme Court in Messick v. Star Enterprise applies here. Under the doctrine of collateral estoppel, if a court has decided an issue of fact necessary to its judgment, that decision precludes relitigation of the issue in a suit on a different cause of action involving a party to the first case. "The test for applying collateral estoppel requires that (1) a question of fact essential to the judgment, (2) be litigated and (3) determined (4) by a valid and final judgment." Thus, for collateral estoppel to apply, the question of fact previously determined must have been essential to the valid and final judgment.
655 A.2d 1209 (1995) (concerning the collateral estoppel effect of an Industrial Accident Board ruling)
Allen v. McCurry, 449 U.S. 90, 94 (1980).
Taylor v. State, 402 A.2d 373, 375 (Del. 1979) (citing Tyndall v. Tyndall, 238 A.2d 343, 346 (Del. 1968)).
Naylor v. Taylor, 1996 WL 658851 (Del. Super. Aug. 23, 1996) (citing Taylor, 402 A.2d at 375); Columbia Gas Co. v. Playtex FP, Inc., 584 A.2d 1214, 1216 (Del. 1991) (quoting Tyndall, 238 A.2d at 346). See also Caravel Academy, Inc. v. Campbell, 1987 WL 16720 (Del. Super. August 6, 1987) (Memorandum Opinion at 3) (Board's factual findings supported an alternative ground for affirming Referee's decision, therefore unnecessary and not given conclusive effect).
At the very least, the Court recognizes that divining what the Master's Report intended and what the Chancellor's Order adopted is equivocal. The Court has concluded, however, that the Draper Family fundamentally misapprehends the context of the Court of Chancery's factual finding. The question of fact concerning Westwood's termination of the Agreement was simply not essential to the Court of Chancery's judgment; thus, the doctrine of collateral estoppel does not apply. While the Court of Chancery did indicate that Westwood's October 20, 2008 letter was a termination under paragraph 12, the Court of Chancery limited its findings only to the issue of the Draper Family's right to compel the sale of the property. The Court of Chancery never held that Westwood's sole claim against the Draper Family was founded in paragraph 12.
Indeed, the Court of Chancery's factual finding that Westwood had terminated the Agreement pursuant to paragraph 12 was buttressed by its reasoning that a contrary finding (that Westwood had terminated the Agreement under paragraph 9) would produce the exact same result as to the Draper Family's specific performance claim. Thus, if the Court of Chancery believed that its decision would be the same no matter what paragraph Westwood terminated the contract under, it cannot follow that the Court of Chancery's factual determination was "essential to the judgment."
A contrary interpretation would be inimical to the Court of Chancery's holding. The Court of Chancery found that both before and after the running of the three-year anniversary of the formation of the contract, Westwood sent letters to the Draper Family, declaring the contract terminated. Both letters demanded that the Draper Family return the earnest money deposit, citing unsatisfactory environmental audit reports. The Court of Chancery never addressed the veracity of that allegation, writing "[i]f Westwood is correct, it is entitled to the return of its deposit under the terms of paragraph 9 of the Agreement . . . [that issue] remain[s] for a court of law." And so it does. The Draper Family's Motion to Dismiss is therefore denied.
B. The Parties' Pending Litigation is Moot
In light of the foregoing analysis, this Court's disposition on Westwood's motion to Re-Open is moot. Both cases raise, as the Draper Family admits, "essentially the same claim." Therefore, because the Court denies the Draper Family's Motion to Dismiss in the current litigation, Westwood's legal claim can now move forward, and a decision on Westwood's previous action is unnecessary.
(Def.'s Br. at 1.)
CONCLUSION
For the foregoing reasons, the Draper Family's Motion to Dismiss is DENIED. This Court's pending decision on Westwood's Motion to Re-Open is MOOT.
SO ORDERED.