BOUCHARD, C.
This action involves an alleged oral agreement made over twelve years ago concerning the ownership of real property located at 101 South Boardwalk, Rehoboth Beach, Delaware 19971 (the "Rehoboth Property"). The Rehoboth Property used to be a motel called the Sunview Motel. It is now home to a Greene Turtle restaurant.
The thrust of the oral agreement, which is referred to as the "Friendly Agreement," is that Sunview Corporation ("Sunview") would transfer the Rehoboth Property to Boardwalk Properties, LLC ("Boardwalk") and then, upon the satisfaction of two conditions discussed below, Boardwalk would retransfer the Rehoboth Property back to Sunview on a "dollar for dollar basis." Sunview transferred the Rehoboth Property to Boardwalk for $3.2 million in 2002, and dissolved four years later in 2006. In 2013, the principal behind Sunview demanded that Boardwalk retransfer the Rehoboth Property for $3.2 million, which Boardwalk refused to do.
In 2014, a Court-appointed receiver for Sunview filed this action asserting two claims against Boardwalk: specific performance for breach of contract (Count I) and unjust enrichment (Count II). Boardwalk moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6) on four separate grounds: (i) laches; (ii) the Statute of Frauds; (iii) the rule against perpetuities; and (iv) the Complaint otherwise fails to state a claim.
In this opinion, I conclude that Sunview has failed to state a claim for specific performance because at least two essential terms of the Friendly Agreement—the conditions to and timing of Boardwalk's obligation to perform—are not sufficiently definite to demonstrate the existence of a valid contract. I also conclude for the reasons explained below that the specific performance claim is legally defective either by application of the rule against perpetuities or the doctrine of laches, depending on whether or not the Friendly Agreement is construed to require Sunview to demand that Boardwalk retransfer the Rehoboth Property before Boardwalk must perform. Finally, I conclude that Sunview's unjust enrichment claim, which is premised on the theory that the Rehoboth Property was transferred to Boardwalk for less than fair value in 2002, must be dismissed on laches grounds. Accordingly, I grant Boardwalk's motion to dismiss the Complaint.
Plaintiff Dominick A. Pulieri ("Pulieri") is a former director, officer, and stockholder of Sunview Corporation. Pulieri is also a stockholder of non-party Grotto Pizza, Inc. ("Grotto"), a chain of pizzerias well known in Delaware. On June 13, 2014, in a related action in this Court (C.A. No. 9701), the Court appointed Pulieri as the receiver of Sunview Corporation "for the limited purpose of prosecuting an action against Boardwalk Properties, LLC for specific performance of a contract for the transfer of real property located at 101 South Boardwalk, Rehoboth Beach, Delaware 19971."
Sunview Corporation was a Delaware corporation with its principal place of business in Rehoboth Beach, Delaware. On March 6, 2006, Pulieri filed a Certificate of Dissolution for Sunview with the Delaware Secretary of State.
Non-party Joseph Paglianite ("Paglianite"), Pulieri's brother-in-law, is also a former director, officer, and stockholder of Sunview.
Defendant Boardwalk Properties, LLC is a Delaware limited liability company. Boardwalk is the current owner of the Rehoboth Property.
Non-party Joseph J. Farnan, Jr. ("Farnan"), a former federal judge, had the authority to act on behalf of Boardwalk and non-party KidFar Properties, LLC ("KidFar") at all relevant times.
From the late 1990s through 2003, Sunview, Grotto, non-party Lido Realty and certain other unspecified Grotto-related entities (collectively, the "Grotto Entities"
"In or around 2002 to 2003,"
a series of real estate transactions by which the respective Grotto Entity-owner would transfer certain real property to entities, for which Farnan was acting as the authorized agent . . ., on the condition that the respective Grotto Entity-owner would retain the right to have the real property re-transferred to it on a dollar for dollar basis, upon the happening of two contingencies[,] the first being the improvement of the financial health of the Grotto Entities and the second contingency being an initiation of a buy-out or removal of the interests of Pulieri's brother-in-law, [Paglianite], from all Grotto Entities with the exception of Pizza Systems, Inc.
I refer to the improvement of the financial health of the Grotto Entities as the "Financial Improvement Condition," to the removal of Paglianite's interests in certain Grotto Entities as the "Paglianite Removal Condition," and to both together as the "Retransfer Conditions."
Regarding the Paglianite Removal Condition, Sunview alleges that "[f]or many years leading up to the Friendly Agreement, Farnan had advised Pulieri to jettison Paglianite, counseling him to `get rid of his evil brother-in-law.'"
The first alleged transfer pursuant to the Friendly Agreement involved the Rehoboth Property, which Sunview owned at the time.
In December 2002, Sunview needed money to make a balloon payment on the loan it had entered into to purchase the Rehoboth Property. Farnan "counseled" Pulieri and Sunview to transfer the Rehoboth Property to Boardwalk in an arrangement to be governed by the Friendly Agreement—i.e., upon satisfaction of the Retransfer Conditions, Boardwalk would transfer the Rehoboth Property back on a dollar-for-dollar basis.
On December 30, 2002, Pulieri and Sunview transferred the Rehoboth Property to Boardwalk for $3.2 million.
The second alleged transfer pursuant to the Friendly Agreement involved real estate located in Dewey Beach, Delaware (the "Dewey Beach Property"). At the time, Lido Realty, of which Grotto, Pulieri, and Paglianite were general partners, owned the Dewey Beach Property.
In early 2003, Pulieri faced an income tax liability of approximately $397,000. As before, Farnan "counseled" Pulieri, Lido Realty, and Grotto to transfer the Dewey Beach Property to KidFar in another arrangement pursuant to the Friendly Agreement—i.e., upon satisfaction of the Retransfer Conditions, KidFar would transfer the Dewey Beach Property back on a dollar-for-dollar basis.
On May 8, 2003, Lido Realty and Grotto transferred the Dewey Beach Property to KidFar for $2.8 million.
In the fall of 2004, Pulieri informed Farnan and KidFar that he, Lido Realty, and Grotto were "ready, willing, and able to exercise their right to have the Dewey Beach Property re-transferred on a dollar-for-dollar basis."
On March 6, 2006, Sunview dissolved. Pulieri executed the Certificate of Dissolution as Sunview's President.
On September 6, 2013, Pulieri, Sunview, and other Grotto-related entities filed a complaint in Delaware Superior Court against Pulieri's former counsel, Duane Morris LLP. As amended, the complaint asserts claims for legal malpractice for failing to timely pursue certain claims against Farnan and others, including claims related to the retransfer of the Rehoboth Property.
According to that amended complaint, Pulieri and Sunview learned of facts giving rise to their claims related to the Rehoboth Property in June 2009.
On February 10, 2012, Duane Morris informed Pulieri that bringing a claim against Boardwalk related to the Rehoboth Property could result in sanctions against Duane Morris and Sunview.
On April 3, 2013, Pulieri, on behalf of Sunview, informed Farnan in writing that Sunview was "ready, willing, and able to have the [Rehoboth Property] transferred back to Sunview pursuant to the terms of the Friendly Agreement."
On March 11, 2014, Pulieri's counsel, on behalf of Sunview, sent a second letter to Farnan's counsel in which Pulieri sought to exercise his right under the Friendly Agreement to have the Rehoboth Property retransferred.
On June 13, 2014, Pulieri was appointed as the receiver of Sunview in a separate action.
A motion to dismiss under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief must be denied unless, accepting as true all well-pled allegations and drawing all reasonable inferences from those allegations in the plaintiff's favor, there is no "reasonably conceivable set of circumstances susceptible of proof" in which the plaintiff could recover.
Count I, which is styled as a claim for breach of contract, asserts that Sunview "is entitled to [the] relief of Specific Performance of the Friendly Agreement directing . . . Boardwalk to re-transfer the [Rehoboth Property] to Sunview Corporation."
Under Delaware law, a party asserting a breach of an oral agreement must prove the existence of an enforceable contract by a preponderance of the evidence.
The legal standard here is thus whether it is reasonably conceivable that Sunview could establish a right to specific performance by clear and convincing evidence.
"The elements necessary to prove the existence of an enforceable contract are: (1) the intent of the parties to be bound, (2) sufficiently definite terms, and (3) consideration."
This Court has found that that the "price, date of settlement, and the property to be sold" are essential terms of an enforceable contract for the sale of real property.
Boardwalk contends that the Complaint fails to allege with sufficient detail several essential terms of the Friendly Agreement, including the date of formation, the parties to the agreement, the covered properties, and the retransfer price.
The two Retransfer Conditions indisputably are essential terms of the Friendly Agreement because they are the necessary conditions that Sunview must satisfy before the Rehoboth Property could be retransferred.
First, both the Financial Improvement Condition and the Paglianite Removal Condition are dependent on a change in circumstances affecting the "Grotto Entities," i.e., "the improvement of the financial health of the Grotto Entities" and the "removal of the interests of" Paglianite "from all Grotto Entities with the exception of Pizza Systems, Inc."
Second, the Financial Improvement Condition refers vaguely to the "improvement of the financial health" of the Grotto Entities. In my view, the Complaints fails to identify any sufficiently definite metric for any party to the Friendly Agreement, let alone the Court, to discern what it means for the financial health of the Grotto Entities (assuming one could determine which entities this term encompasses in the first place) to have improved in order to conclude that this condition has been satisfied.
Even if the Retransfer Conditions were sufficiently definite, a related yet distinct essential term is not sufficiently definite: the timing of Boardwalk's obligation to perform. This is an essential term to the Friendly Agreement because it dictates when Boardwalk must retransfer the Rehoboth Property to Sunview.
For example, "upon the happening" could mean that Boardwalk was required to perform automatically upon the satisfaction of the Retransfer Conditions or it could mean, as Sunview contends in its opposition brief,
For the foregoing reasons, it is not reasonably conceivable in my opinion that Sunview could prove by a preponderance of the evidence the existence of an enforceable contract because, as alleged, essential terms of the Friendly Agreement are not sufficiently definite.
Boardwalk alternatively asserts that Sunview's claim for specific performance must be dismissed under the rule against perpetuities or under laches, depending on whether Boardwalk's obligations under the Friendly Agreement were contingent on Sunview demanding that Boardwalk perform under the agreement. Specifically, assuming a demand of performance was required, Boardwalk argues that the Friendly Agreement is void under the rule against perpetuities because Sunview could exercise its option to repurchase the Rehoboth Property beyond the perpetuities period.
For the reasons discussed below, I conclude that Count I must be dismissed in either scenario because the Friendly Agreement would violate the rule against perpetuities if it did include such a requirement or, alternatively, would be barred under the doctrine of laches if it did not.
As the Delaware Supreme Court noted in Stuart Kingston, Inc. v. Robinson,
Sunview contends it possesses a "power of termination" or a "right of reentry" to the Rehoboth Property that is not subject to the rule against perpetuities,
Applying principles from the Restatement (First) of Property, which the Delaware Supreme Court had cited with approval,
I find no meaningful distinction between the provision at issue in Welsh and the Friendly Agreement. Here, assuming Sunview is required to demand performance, as it contends in its brief, the alleged terms of the Friendly Agreement do not require Sunview to do so. In other words, upon satisfaction of the Retransfer Conditions, Sunview has the right, but not the obligation, to demand performance and thereby repurchase the Rehoboth Property for the retransfer price. As in Welsh, I conclude that the consideration that Sunview must pay to regain title to the Rehoboth Property means that the Friendly Agreement did not grant to Sunview a power of termination or a right of reentry. Even if, as Sunview argues, "[i]t is evident from the facts surrounding the transaction that Sunview never intended to part permanently with the [Rehoboth Property],"
Because it is "regarded as having the effect of creating a future interest," an option to purchase real property, such as Sunview's option to repurchase the Rehoboth Property, is subject to the rule against perpetuities.
Boardwalk contends that Sunview's option is void under the rule against perpetuities because Sunview, an entity with perpetual existence, could have exercised that option to repurchase the Rehoboth Property from Boardwalk, another entity with perpetual existence, at an indefinite time in the future.
By way of example, Sunview might not satisfy the Financial Improvement Condition (or thereafter exercise its option) until two days from now or two centuries from now. The latter example may seem extreme, but it conclusively demonstrates that the duration of Sunview's option is indefinite. Accordingly, if the Friendly Agreement required Sunview to demand Boardwalk's performance, as Sunview contends, then Count I must be dismissed under Court of Chancery Rule 12(b)(6) because Sunview's option to repurchase the Rehoboth Property would be void under the rule against perpetuities.
The Delaware Supreme Court has defined laches generally as "an unreasonable delay by the plaintiff in bringing suit after the plaintiff learned of an infringement of his rights, thereby resulting in material prejudice to the defendant."
Although this Court's laches inquiry is fact-specific,
The three-year statute of limitations for contract claims starts to run when the claim accrues,
Here, Boardwalk describes Count I as "between four and ten years old."
For purposes of Boardwalk's motion to dismiss, I need not resolve precisely when Sunview's contract claim accrued. In my opinion, Sunview's claim—assuming the Friendly Agreement did not require Sunview to demand performance—accrued no later than March 6, 2006, the date of Sunview's dissolution. The fact that Boardwalk failed to perform after Sunview—by its own admission—had satisfied the Retransfer Conditions and complied with the other terms of the Friendly Agreement before it dissolved
Accordingly, Count I would have been presumptively untimely had it been filed after March 6, 2009, three years after the date of Sunview's dissolution, let alone in July 2014. Notably, Sunview does not argue that a recognized tolling doctrine applies,
Sunview attempts to salvage the timeliness of its claim by arguing that any delay was the result of the "prolonged investigation and delay" of Pulieri's lawyers at Duane Morris. But, as recently as Levey v. Brownstone Asset Management, LP,
Finally, Sunview submits that Count I is analogous to the claim for specific performance of an oral agreement found timely in Walton v. Beale.
Sunview's allegations stand in stark contrast to the facts of Walton, where the buyer had no reason to know of the sellers' breach until they expressly revoked their offer. Here, assuming the Friendly Agreement required Boardwalk to retransfer the Rehoboth Property automatically upon Sunview's satisfaction of the Retransfer Conditions and did not require Sunview to demand performance, Sunview had knowledge of its claim by March 6, 2006, the date it dissolved. That is because Sunview admits it had complied with all of the terms of the Friendly Agreement by that date and Sunview inarguably must have known by that date that Boardwalk had not performed. Unlike the reasonable delay of six months between notice of the claim and the lawsuit in Walton, I conclude that Sunview's delay of more than eight years from March 2006 until the filing of the Complaint in this action in July 2014 was unreasonable and unjustified.
Sunview was on notice of its claim for specific performance in March 2006, and it failed to act with the requisite alacrity to vindicate its rights. Thus, assuming the Friendly Agreement did not require Sunview to demand performance by Boardwalk, Count I must dismissed under Court of Chancery Rule 12(b)(6) on the grounds of laches.
In Count II, an alternative claim for relief, Sunview alleges that Boardwalk is liable for unjust enrichment because it was unfairly "enriched by the transfer of the [Rehoboth Property] in a transaction that was not arms-length in which Boardwalk unilaterally set the terms without consideration of the [Rehoboth Property's] fair market value."
"The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law."
According to the Complaint, the alleged enrichment and impoverishment occurred on December 30, 2002, when Sunview transferred the Rehoboth Property to Boardwalk for the below-market-value price of $3.2 million.
Sunview contends that the laches period should be tolled under the inherently unknowable injury doctrine because "Pulieri and Sunview could not know that Boardwalk had been unjustly enriched until their demand for performance was first met with silence in the spring of 2013."
In my view, Sunview's argument about tolling is based on a mistaken premise.
As explained above, the unlawful conduct that forms the basis for the unjust enrichment claim occurred at the time of Sunview's below-market-value transfer of the Rehoboth Property to Boardwalk in December 2002.
Because Sunview has not offered a persuasive justification to depart from the analogous limitations period, I conclude that Count II, a presumptively untimely claim, must be dismissed on laches grounds.
For the foregoing reasons, Boardwalk's motion to dismiss the Complaint under Court of Chancery Rule 12(b)(6) is GRANTED. Under Court of Chancery Rule 15(aaa), the dismissal is WITH PREJUDICE.