Opinion
C.A. No. 14896
Date Submitted: March 31, 2000.
Date Decided: May 23, 2000.
Cathy L. Reese, Esquire and Michael D. DeBaecke, of BLANK ROME COMISKY MCCAULEY LLP, Wilmington, Delaware, Attorneys for Plaintiff.
Jeffrey J. Clark, Esquire, of SCHMITTINGER RODRIGUEZ, Dover, Delaware, Attorney for Defendants.
MEMORANDUM OPINION
I. INTRODUCTION
In 1996, the plaintiff bank sued a married couple (the Lucks) for specific performance of a negotiated settlement agreement arising from a 1985 note and mortgage. The bank later named as defendants the purchasers of the property securing the mortgage, note and settlement agreement.
In 1998, the bank asserted additional claims relating to a different mortgage, note and settlement agreement between the bank, as lender, and the Lucks, a second couple (the Stephens), and a partnership controlled by the two couples, as borrowers. The bank sought damages and the setting aside of allegedly fraudulent transfers of the partnership's property to the affiliates of the previously named defendant purchasers. The lender also sought the appointment of a receiver for each of the conveyed properties.
The Stephens and the partnership have filed a motion to dismiss for lack of subject matter jurisdiction. They argue that they "have no ties to the land which was central to the equitable claims" and that the claims against them are "only a separate debt action" based on the second note. For the reasons discussed herein, I will deny the motion to dismiss.
II. BACKGROUND
The plaintiff, Beal Bank, SSB, bears the burden of establishing that this case comes within the subject matter jurisdiction of this court. "Subject matter jurisdiction is determined from the face of the complaint as of the time it was filed, with all material factual allegations assumed to be true." I view the facts and claims asserted through this lens.
See Scattered Corp. v. Chicago Stock Exchange, Del. Ch., 671 A.2d 874, 877 (1994).
Wilmington Fraternal Order of Police Lodge No #1 v. Bostrom, Del. Ch., C.A. No. 16348, mem. op. at 12, Jacobs, V.C. (Jan. 22, 1999) (citing Diebold Computer Leasing, Inc. v. Commercial Credit Corp., Del. Supr., 267 A.2d 586, 590 (1970) and Western Airlines, Inc. v. Allegheny Airlines, Inc., Del. Ch., 313 A.2d 145, 149 (1973)).
A. The 1996 Complaints
In March 1996, plaintiff Beal filed an action seeking specific performance of a settlement agreement entered into by Beal's predecessor in interest and William A. and Amanda N. Lucks. The settlement agreement related to a $410,000 loan and promissory note (the "1985 Note"). Plaintiff amended its complaint in December 1996, adding claims against several persons and entities, (collectively, the "Hirsch and Cummings Group") who purchased portions of the property securing the 1985 Note and the settlement agreement. In addition to the claim for specific performance, plaintiff asked this court to pierce the corporate veil of the Hirsch and Cummings Group entities and to award monetary damages for the Lucks' breach of contract. As a result of a recent settlement between Beal and the Hirsch and Cummings Group, these claims were dismissed in January 2000.
Although Beal obtained its interest in this matter via a series of assignments, transfers and successions, I refer in this Opinion to Beal as the original lender. The distinction is, at this stage of the proceeding, not material.
B. The 1998 Second Amended Complaint
This motion relates to claims first asserted in Beal's second amended complaint, filed in March 1998. In 1987, in exchange for a $1.4 million loan from Beal, The Inn at Canal Square Company, L.P. (the "Inn"), the Lucks, and Ronald L. and Ellen P. Stephens executed a note (the "1987 Note"), secured by a mortgage on certain property owned by the Inn. The Lucks and the Stephens also individually guaranteed repayment of the 1987 Note (the "1987 Guaranty").
After the Inn, the Lucks and the Stephens defaulted on the loan and Beal filed a foreclosure action, the parties entered into a settlement agreement (the "1991 Settlement Agreement"). The Inn and its partners later defaulted on this agreement, again giving Beal the right to foreclose on the property.
A foreclosure sale of the Inn property securing the 1987 Note and the 1991 Settlement Agreement was scheduled for March 12, 1996. On December 2, 1995, however, the Inn, William Lucks and Ronald Stephens, as general partners of the Inn, conveyed the Inn's property to defendant Guardian Realty Group, LLC. The transfer was allegedly made in consideration of $1.00. The Inn also conveyed its leasehold interest in two parking areas adjoining the conveyed property to defendant Guardian Equity, LLC. In connection with the conveyances, Defendant Guardian Mortgage Corp. contracted to indemnify the Lucks and the Stephens from all liabilities or costs arising from any subsequent suit filed by Beal. Each Guardian entity was a part of the Hirsch and Cummings Group.
The Stephens and the Inn now move to dismiss, arguing that while the claims arising out of the 1985 Note were equitable in nature, all claims under the 1987 Note and the 1991 Settlement Agreement, the only claims involving them, are distinctly legal. Thus, they contend, this court has no equitable jurisdiction to adjudicate those claims.
III. ANALYSIS
As stated, I make a realistic assessment of the claims as of the time of filing of the complaint. Under 10 Del. C. § 341, this court has "jurisdiction to hear and determine all matters and causes in equity." Under § 342, however, this court does not "have jurisdiction to determine any matter wherein sufficient remedy may be had by common law, or statute, before any other court or jurisdiction of this State."
See Diebold Computer Leasing, Inc. v. Commercial Credit Corp., Del. Supr., 267 A.2d 586, 588 (1970); McMahon v. New Castle Associates, Del. Ch., 532 A.2d 601, 603 (1987) (noting that instead of assuming equitable jurisdiction on the basis of "the incantation of magic words," the court makes "a realistic evaluation" of the allegations in the complaint).
This court's jurisdiction over a matter, once established, typically remains. "Thus, even if subsequent events moot all equitable causes of action or if the court ultimately determines that equitable relief is not warranted, the court retains the power to decide the legal features of the claim pursuant to the cleanup doctrine." Notwithstanding several events that arose after the filing of the complaint, the equitable basis supporting this court's jurisdiction over the matter is therefore quite clear.
Donald J. Wolfe, Jr. and Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery,§ 2-4, 81 (1998); see also Getty Refining Marketing Co. v. Park Oil, Inc., Del. Ch., 385 A.2d 147, 150 (1978), (holding that if the equitable issues of the case are resolved or mooted, this "Court has discretion to continue to hear the essentially legal portion of the action or to transfer it to the appropriate law court"), aff'd, Del. Supr., 407 A.2d 533 (1979).
The Fourth, Fifth, Eighth and Twelfth Claims in the complaint relate to the Stephens and the Inn, proponents of this motion. In its Fourth Claim for Relief, Beal asserts a breach of contract claim against the Lucks and the Stephens, based on the 1987 Guaranty. The Fifth Claim for Relief alleges that Ronald Stephens and the Inn are in breach of their obligations to repay the 1987 Note. It is not disputed that these claims, which seek only money damages, are distinctly legal in nature and do not implicate this court's jurisdiction. The movants are wrong, however, in asserting that the only claims brought against them were to collect a debt.
The Eighth Claim for Relief was brought under the Delaware Fraudulent Transfer Act. It is "settled in this State that this Court does have at least concurrent jurisdiction to hear controversies involving alleged violations of the Uniform Fraudulent Transfer Act, whether the claim has matured or not."
6 Del. C. § 1304, 1307.
Geny Refining, 385 A.2d at 149.
It was alleged that the Inn Partnership, of which Ronald Stephens was a general partner, transferred certain of its property while insolvent, for grossly inadequate consideration and in contemplation of an imminent foreclosure sale of the property securing the 1987 Note. Critically, in connection with the transfers, the Stephens obtained an indemnification agreement from an affiliate of the purported purchaser.
Compl. ¶¶ 126-128.
Besides seeking a declaration that the transfer was fraudulent, Beal asked the court to "set aside the transfer . . . pursuant to § 1309 of the Act." In its Twelfth Claim, Beal also sought, pursuant to § 1307 (a)(3)(b) of the Act, the equitable remedy of appointment of a receiver. Thus, while a claim under the Act merely establishes the court's concurrent jurisdiction, the relief sought in this case clearly justified this court's authority to hear the matter.
Compl. ¶ 131(b).
§ 1307(a)(3) authorizes the "[a]ppointment of a receiver to take charge of the asset transferred or of other property of the transferee," subject to applicable principles of equity. I also note that Beal actually sought the appointment of a receiver pendente lite, thus showing that its equitable claims were not simple formulaic efforts to establish this court's jurisdiction. Compare Clark v. Teveen Holding Co., Del. Ch., 625 A.2d 869, 879 (1992); and McMahon, 532 A.2d 601.
Finally, the fraudulent conveyance claim and claim for appointment of a receiver were factually intertwined with Beal's rights, as creditor, vis-ã-visthe Inn, the Lucks and the Stephens, as borrowers/guarantors. As such, it would have been inefficient if not impossible to sever the equitable claims asserted against the Inn (but clearly implicating conduct by the Stephens) from the monetary claims asserted individually against the Stephens.
Getty Refining, 385 A.2d at 150 ("Of great importance is whether the faces involved in the equitable counts and in the legal counts are so intertwined as to make it undesirable or impossible to sever them.").
That Beal's only remaining claims are for monetary damages, which could have been tried in Superior Court, does not divest this court of the equitable jurisdiction that attached with the filing of the complaint. The Stephens' and the Inn's Motion to Dismiss is therefore DENIED. ________________________ Vice Chancellor