Anthony Nieves v. Insight Building Co., LLC ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ANTHONY NIEVES, KRISTIN )
CUIFFO, DENNIS HUTH, PENNY )
HUTH, ANTHONY RAIA, PATRICIA )
LAVOOK, MARTIN MURDOCH and )
PAULA MURDOCH, )
)
Plaintiffs, )
)
v. ) C.A. No. 2019-0464-SG
)
INSIGHT BUILDING CO., LLC, DBA )
INSIGHT HOMES, 36 BUILDERS, )
INC. DBA INSIGHT HOMES, INC., )
INSIGHT HOMES, INC., HANDLER )
CORPORATION DBA HANDLER )
HOMES, SEVEN BRANCH, LLC, )
CANNON ROAD INVESTMENTS, )
LLC and INDIAN MISSION )
INVESTMENTS, LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: May 19, 2020
Date Decided: August 4, 2020
Julia B. Klein, of KLEIN, LLC, Wilmington, Delaware, Attorney for Plaintiffs.
Curtis J. Crowther and William E. Gamgort, of YOUNG CONAWAY STARGATT
& TAYLOR, LLP, Wilmington, Delaware, Attorneys for Defendants Handler
Corporation dba Handler Homes, Seven Branch, LLC, Cannon Road Investments,
LLC and Indian Mission Investments, LLC.
Nicholas G. Kondraschow and William J. Rhodunda, Jr., of RHODUNDA,
WILLIAMS & KONDRASCHOW, Wilmington, Delaware, Attorneys for Insight
Building Co., LLC dba Insight Homes, 36 Builders, Inc. dba Insight Homes, Inc.,
and Insight Homes, Inc.
GLASSCOCK, Vice Chancellor
Indian Mission Church was founded in 1881 by and to serve the Nanticoke
Indian people of Sussex County. 1 As is typical in Sussex County, the church has
lent its name to the crossroads at which the church building was constructed, and the
surrounding area, as well.
Sussex County itself is a poorly-drained plain, with many wetlands, areas of
saturated soils and pocosins.2 It is kept farmable and habitable, in part, by a network
of tax ditches and private drainage ditches that carry water, ultimately, to nearby
tidal creeks. The Indian Mission area of the County is no different. It lies in the
drainage basin of the Hopkins Prong of Herring Creek, a tributary of Rehoboth Bay.
Because of its low elevation and flat topography, the area draining to Herring Creek
is prone to drainage problems. This case highlights one such; it is not the first over
which I have presided. 3
The drainage qualities of the Indian Mission area were of little moment prior
to the last thirty years. Since then, however, the proximity of the locale to the area
beaches have made it, while still rural in character, attractive to residential
1
See The Nanticoke Indian Tribe, Indian Mission United Methodist Church,
www.nanticokeindians.org/page/indian-mission-church.
2
The “Delmarva (or Carolina) ‘Bays.’” See Robinson v. Oakwood Vill., LLC, 2017 WL 1548549,
at *1 (Del. Ch. Apr. 28, 2017). Pocosin itself is a Delaware Indian word meaning “upland swamp.”
Pocosin, Merriam-Webster’s Online Dictionary, https://www.merriam-webster.com/dictionary/
pocosin (“an upland swamp of the coastal plain of the southeastern U.S.”).
3
See Robinson, 2017 WL 1548549.
development. Any such development must consider storm run-off, 4 and comply
with Delaware stormwater management law 5 and County drainage regulations.6
Perhaps one-half a mile south of Indian Mission crossroads lies a creek,
Philips Branch, on the south side of which is a new large housing development called
by its creators Stonewater Creek. This development is in the process of being
completed. The Plaintiffs here are homeowners and residents of Stonewater Creek.
Defendant Indian Mission Investments, LLC developed the property and Defendant
Insight Homes, Inc. constructed the homes. 7 The Plaintiffs allege that the defective
drainage system for Stonewater Creek, the improper construction and grading of
their home sites, or a combination of the two, has led to numerous problems, for
which they seek relief here.
The complaint describes those problems in colorful fashion. Generations of
young congregants at the Indian Mission Church have no doubt learned about the
seven plagues described in the biblical book of Exodus; if the complaint is true,
conditions in Stonewater Creek rival those inflicted on those ancient Egyptians. The
complaint8 describes homes that are unlivable because infested with molds and
4
See generally id.5
Notably, the Delaware Stormwater Management Act, 7 Del. C. § 4001 et. seq.
6
See Sussex Cty. C. §§ 90-1 through 90-5.
7
There are other entity Defendants, as described below.
8
While I accept the allegations of the complaint as true for purposes of this pleadings-stage motion,
they remain only that, allegations.
2
allergy-causing pests. Homes have been “covered by frogs,” and those frogs have
not been idle, because homesites are afflicted with schools of “frolic[some]”
tadpoles. Swarms of mosquitos “transmit[]” “disease,” and apparently attract
“armies of spiders.”9
The Plaintiffs seek an injunction forcing Indian Mission Investments, LLC
and Insight Homes, Inc. to comply with the Delaware Stormwater Management Act
to remedy these problems. They also seek damages under theories of negligence
and breach of fiduciary duty, as well as breach of contract and warranty, and fraud.
The Defendants have moved to dismiss the equitable claims. 10 This
Memorandum Opinion sets out my decision on those motions, below.
I. BACKGROUND 11
A. The Parties
Plaintiffs Anthony Nieves, Kristin Cuiffo, Dennis Huth, Penny Huth, Anthony
Raia, Patricia Lavook, Martin Murdoch, and Paula Murdoch are residents of the
Stonewater Creek development (“Stonewater Creek”) in Sussex County. 12
9
Thus far, there are no reports of the stormwater run-off turning to blood.
10
Insight Homes, Inc. has also moved to dismiss the Plaintiffs’ claim for fraud.
11
I draw all facts from the Plaintiffs’ First Amended Complaint, Docket Item (“D.I.”) 30 (“Am.
Compl.”) and documents incorporated therein. See in re Morton’s Rest. Grp., Inc. S’holder Litig.,
74 A.3d 656, 658–59 (Del. Ch. 2013) (permitting consideration of documents incorporated into
complaint in motion to dismiss). As discussed further below, all well-pled facts are considered
true for the sake of this motion.
12
Am. Compl., ¶¶ 1–8.
3
Defendant Insight Building Co., LLC dba Insight Homes is a Delaware
limited liability company. 13 36 Builders, Inc. dba Insight Homes, Inc. is a Delaware
corporation.14 Insight Homes, Inc. is a Delaware corporation. 15 I refer to Insight
Building Co., LLC, 36 Builders, Inc., and Insight Homes, Inc. collectively as
“Insight.”
Defendant Handler Corporation dba Handler Homes (“Handler”) is a
Delaware corporation. 16
Defendant Indian Mission Investments, LLC (“Indian Mission”), is a
Delaware limited liability company. 17
Non-parties Seven Branch, LLC (“Seven Branch”) and Cannon Road
Investments, LLC (“Cannon Road”), are Delaware limited liability companies that
were formerly defendants but were voluntarily dismissed from this Action.18
13
Id. ¶ 9.
14
Id. ¶ 10.
15
Id. ¶ 11.
16
Id. ¶ 12.
17
Id. ¶ 15.
18
Id. ¶¶ 13–14; D.I. 63.
4
According to the First Amended Complaint (the “Amended Complaint”),
Indian Mission conveyed the lots to Insight; Insight then built the houses and sold
the lots to the Plaintiffs. 19
B. Factual Background
1. The Stonewater Creek Development and Handler’s Relationship to
Indian Mission
Indian Mission developed the Stonewater Creek development, where the
Plaintiffs reside.20 Handler, a builder and developer in Delaware, is Indian
Mission’s parent. 21 Handler typically develops properties through affiliates such as
Indian Mission.22 Normally, the assets of each Handler affiliate company are the
plots that the affiliate develops. 23 Thus, per the Amended Complaint, as plots sell,
the assets held by the affiliate diminish.24 The affiliates, including Indian Mission,
are bonded, but the bonds are posted to the Sussex Conservation District, and thus
unavailable as a remedy to homeowners.25
19
Am. Compl., ¶ 117 (“The lots on which Plaintiffs had their homes constructed all were conveyed
to their homebuilder by Indian Mission.”); see id. ¶ 59 (“Indian Mission retained ownership of the
plots until a few months before Plaintiffs took possession of their respective homes.”).
20
Id. ¶¶ 28, 30.
21
Id.
22
Id. ¶ 28.
23
Id. ¶ 36.
24
Id. The mechanism by which this “diminishes” the company’s assets is not described in the
Amended Complaint. Presumably, lots are exchanged for cash, an asset.
25
Id.
5
Handler personnel enact business for the affiliates. For example, Handler’s
Vice President, Robert Allen, Jr., is an “authorized signatory” for Indian Mission,
and he has signed documents on behalf of Indian Mission.26 Allen uses his Handler
email when conducting business for Indian Mission.27 Likewise, Handler’s
President, Mark Handler, conducts business on behalf of various Handler affiliates
through his Handler email. 28 The Sussex Conservation District’s only contact
information for Stonewater Creek’s developers are the Handler emails of Allen and
Mark Handler.29
2. The Plaintiffs Contract with Insight to Build Their Homes in
Stonewater Creek
Although Indian Mission developed the plots in Stonewater Creek, the
Plaintiffs contracted with Insight to construct their homes and provide landscaping.30
Insight offers prospective homeowners base models that the homeowners can then
modify and upgrade. 31 Insight holds itself out as a premier energy efficient
homebuilder.32 As a part of its marketing plan, Insight offers an “extensive warranty
26
Id. ¶¶ 31–32.
27
Id. ¶ 32.
28
Id. ¶ 33.
29
Id. ¶ 34.
30
Id. ¶ 18.
31
Id. ¶ 23.
32
Id. ¶¶ 24–27.
6
program” that includes, among other things, warranties related to the grading around
the homes, settling around the foundation, drainage, and swales. 33 The Plaintiffs
allege that these marketing campaigns, in part, induced each of them to select Insight
as their homebuilder.34
On October 21, 2018, Plaintiffs Nieves and Cuiffo (together, the “Nieveses”)
signed a contract for Insight to build their home in Stonewater Creek.35 The
Nieveses closed on the home in March 2019.36 A home inspection commissioned
after the closing revealed “numerous structural defects,” most having to do with
mold and drainage. 37 When the Nieveses informed Insight about the mold, Insight
sponsored and participated in a mold remediation, which the Nieveses found
inadequate. 38 The Nieveses then allege they discovered improper grading, swales,
and drainage on their lot and surrounding lots that created severe water problems
that attracted pests and caused Cuiffo to have allergic reactions. 39
33
Id. ¶¶ 19–20.
34
Id. ¶ 22.
35
Id. ¶ 37.
36
Id. ¶ 38.
37
Id. ¶ 39.
38
Id. ¶¶ 40–43.
39
Id. ¶¶ 44–47.
7
3. The Stormwater Management System and Related Problems
In developed areas of the County, stormwater management systems control
stormwater runoff.40 Delaware enacted Chapter 40, Title 7 of the Delaware Code
(the “Stormwater Management Act” or the “Act”) to require any “person” who
engages in “land disturbing activities” to submit “a sediment and stormwater
management plan . . . and obtain[] a permit to proceed.” 41 Land disturbing activities
requiring such a permit include:
any land change or construction activity for residential, commercial,
industrial, or institutional land use which may result in soil erosion from
water or wind or movement of sediments or pollutants into state waters
or onto lands in the State, or which may result in accelerated stormwater
runoff, including clearing, grading, excavating, transporting, and filling
of land. 42
Sussex County, based on authority from the Act, enacted the Sediment
Control and Stormwater Management Ordinance of Sussex County, Delaware (the
“Stormwater Ordinance”) in the Sussex County Code to protect public health and
the environment. 43 The Stormwater Ordinance provides Sussex County with the
power to withhold building permits until the Sussex Conservation District approves
a stormwater management plan.44 The Sussex Conservation District, in turn, has
40
Id. ¶ 48.
41
Id.; 7 Del. C. § 4003(a).
42
Am. Compl., ¶ 49; 7 Del. C. § 4002(4).
43
Am. Compl., ¶ 50; Sussex Cty. C. §§ 90-1 through 90-2.
44
Am. Compl., ¶ 51; Sussex Cty. C. §§ 90-1 through 90-5.
8
authority to request suspension or revocation of building permits in the case of
absent or inadequate stormwater management plans. 45 Sussex County amended the
Stormwater Ordinance in 2017 to provide “technical drainage and grading
requirements.”46
Stonewater Creek has been developed in several “phases.” Prior to the
construction of any homes in the relevant phase—“Phase 5.3”—Indian Mission
submitted a stormwater management plan for Phase 5.3 (the “Stormwater
Management Plan”) to Sussex County. 47 According to the Plaintiffs, the Stormwater
Management Plan failed to account for the construction of any future homes; in other
words, it provided for adequate stormwater runoff only for the development free of
houses.48 In addition, the Plaintiffs allege that Indian Mission’s actual development
of the plots did not conform to its own Stormwater Management Plan, and that both
Indian Mission and Insight foresaw problems with drainage.49
Indian Mission maintained ownership of the Plaintiffs’ plots “until a few
months before Plaintiffs took possession of their respective homes.” 50 Although
45
Sussex Cty. C. §§ 90-1 through 90-6; Am. Compl., ¶ 52.
46
Sussex Cty. Ordinance No. 2489 (March 28, 2017), at 1; Am. Compl., ¶ 53.
47
Am. Compl., ¶ 54.
48
Id. ¶¶ 54–56.
49
Id. ¶ 57.
50
Id. ¶¶ 58–59. As noted, it appears from the Amended Complaint that Indian Mission sold the
lots to Insight, who then built the homes and sold the lots to the Plaintiffs. Id. ¶ 117 (“The lots on
9
Indian Mission remains responsible for the engineering of a surface water runoff
system, it delegated final work on that system to Insight.51 The Plaintiffs allege that
Insight then conducted the work without the required oversight from Sussex County
or the Delaware Department of Natural Resources and Environmental Control
(DNREC). 52 The Plaintiffs allege, supported by several examples, that the actual
development of Phase 5.3 of Stonewater Creek was done out of sync not only with
Indian Mission’s own Stormwater Management Plan, but in violation of the
requirements of the Stormwater Management Act, to disastrous results.53
Specifically, the Plaintiffs allege that the grading on the lots is inconsistent with “the
easement appearing thereon,” 54 that the Defendants used faulty construction with
regard to the main infiltration ditches,55 that swales fail to drain,56 that the infiltration
basin ditches and driveway pipes are improperly placed,57 that the project lacked
supervision by an engineer,58 and that the Defendants’ ad hoc remedies were
which Plaintiffs had their homes constructed all were conveyed to their homebuilder by Indian
Mission.”).
51
Id. ¶ 60.
52
Id.
53
Id. ¶¶ 61–70.
54
Id. ¶ 60
55
Id. ¶ 62.
56
Id. ¶ 63.
57
Id. ¶ 64.
58
Id. ¶ 66.
10
ineffective and insufficient. 59 Allegations of “homes overnight being covered by
frogs,” “frolicking tadpoles,” “[d]isease-transmitting mosquitos” and “armies of
spiders” populate the Amended Complaint. 60
In March 2018, the Sussex Conservation District failed Stonewater Creek’s
storm management inspection and withheld further building permits as a result. 61 It
issued permits again after Indian Mission promised to attempt remediation.62
Remediation plans were delayed, or attempted and failed, until April 2019, when the
Sussex Conservation District again withheld building permits as a result of the
drainage problems. 63 In May 2019, Indian Mission met onsite in Stonewater Creek
with engineers to discuss remediation.64 The Sussex Conservation District released
building permits on the day that remediation efforts began in July, but according to
some residents, efforts were ineffective or aggravated the problem. 65
The Plaintiffs allege, based on newspaper articles, Sussex County Council
comments, a response from the Sussex Conservation District, resident complaints,
59
Id. ¶ 65.
60
Id. ¶¶ 61–70.
61
Id. ¶ 71.
62
Id.
63
Id. ¶¶ 72–74.
64
Id. ¶¶ 74–75.
65
Id. ¶¶ 76–79.
11
and inspections failures that Indian Mission has been aware of the stormwater and
drainage issues for years and has responded inadequately or ignored the problem. 66
4. The Plaintiffs’ Claims
In Counts I and II, the Plaintiffs seek injunctive relief against Indian Mission
and Insight for breach of the Stormwater Management Act.67 In Count III, the
Plaintiffs seek a declaratory judgment that Indian Mission and Insight violated the
Stormwater Management Act.68 Count IV alleges a breach of fiduciary duty on the
part of Indian Mission in its role as developer of Stonewater Creek.69 Count V
alleges negligence against Indian Mission and Insight for their roles in the
development and construction of the Plaintiffs’ homes. 70 In Count VI, the Plaintiffs
seek to pierce the corporate veil and hold Handler liable for the actions of its affiliate,
Indian Mission. 71 In Counts VII and VIII, the Plaintiffs allege breach of contract
and implied warranties against Insight regarding its construction of their homes.72
66
See id. ¶¶ 85–91.
67
Id. ¶¶ 92–108. Count I was originally brought against Seven Branch and Cannon Road as well,
the adjacent developers, but the claims against these two entities have been dismissed. D.I. 63.
68
Am. Compl., ¶¶ 109–15.
69
Id. ¶¶ 116–20.
70
Id. ¶¶ 121–27. The Amended Complaint styles this as “Willful and Malicious Negligence,” but
the Plaintiffs’ request for punitive damages was struck from the Amended Complaint on May 19,
2020. D.I. 63.
71
Am. Compl., ¶¶ 128–37.
72
Id. ¶¶ 138–54.
12
Count IX alleges negligent construction against Insight.73 The following Count,
which is also labeled Count IX, but which I refer to as “alias Count X” for the sake
of clarity, alleges fraudulent concealment and misrepresentation against Insight. 74
C. Procedural History
The Plaintiffs filed their Verified Complaint for Preliminary and Permanent
Injunction, Declaratory Judgment, and Related Relief (the “Initial Complaint”) on
June 18, 2019. 75 All Defendants moved to dismiss the Initial Complaint on July 9
and July 19, 2019. 76 The Plaintiffs filed the Amended Complaint on September 2,
2019. 77 Defendants Handler, Seven Branch, Cannon Road, and Indian Mission
moved to dismiss the Amended Complaint and to strike the Plaintiffs’ request for
punitive damages on September 27, 2019 (the “Indian Mission Motion to
73
Id. ¶¶ 155–60.
74
Id. ¶¶ 161–65.
75
Verified Compl. for Prelim. and Permanent Inj., Declaratory J., and Related Relief, D.I. 1.
76
Def.’ Seven Branch LLC, Handler Corporation dba Handler Homes and Indian Mission
Investments, LLC’s Mot. to Dismiss Verified Compl. for Prelim. and Permanent Inj., Declaratory
J., and Related Relief and to Strike Certain Relief Sought Therein, D.I. 16; Defs. Insight Building
Co., LLC, 36 Builders, Inc. dba Insight Homes, and Insight Homes, Inc.’s Mot. to Dismiss, D.I.
23.
77
First Am. Compl., D.I. 30. The Plaintiffs then filed an amended motion to expedite claims
against the Insight Defendants only. Pls.’ Am. Mot. to Expedited Claims (against Insight Defs.
only), D.I. 35. Insight opposed this motion. Insight Defs.’ Response to Pls.’ Am. Mot. for
Expedited Proceedings and Trial Date, D.I. 42. Ultimately, I heard both motions to dismiss at the
same time.
13
Dismiss”).78 The Insight Defendants moved to dismiss the same day (the “Insight
Motion to Dismiss”). 79
I heard argument on both motions to dismiss on May 12, 2020.80 Based on
my partial ruling from the bench, the parties stipulated to dismiss Seven Branch and
Cannon Road and to strike the Plaintiffs’ request for punitive damages.81 I issued
an order dismissing those defendants and striking the punitive damages request on
May 19, 2020, and I took the remainder of the matter under consideration on that
date.
II. ANALYSIS
The Defendants have moved to dismiss this action under Chancery Court Rule
12(b)(6). In considering such a motion,
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the nonmoving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof. 82
78
Defs.’ Handler Corporation DBA Handler Homes, Seven Branch, LLC, Cannon Road
Investments, LLC and Indian Mission Investments, LLC’s Mot. to Dismiss First Am. Verified
Compl. and to Strike Request for Punitive Damages Therein, D.I. 38.
79
Insight Defs.’ Mot. to Dismiss, D.I. 40.
80
D.I. 60.
81
Order (a) Dismissing Defs. Seven Branch, LLC and Cannon Road Investments, LLC, with
Prejudice, and (b) Striking Demand for Punitive Damages from Am. Compl., D.I. 63.
82
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotations
omitted).
14
However, I do not need to accept “conclusory allegations unsupported by specific
fact” as true, nor must I “draw unreasonable inferences” in the Plaintiffs’ favor.83 I
may consider facts in documents incorporated into the Amended Complaint.84
A. Defendant Indian Mission’s Motion to Dismiss Count IV for Breach of
Fiduciary Duty is Granted
In Count IV, the Plaintiffs bring a claim for breach of fiduciary duty against
Indian Mission in its role as developer of Stonewater Creek. 85 As noted, the
pleadings do not allege that the Plaintiffs purchased their lots directly from Indian
Mission or otherwise had a contractual or commercial relationship with Indian
Mission.86 The Plaintiffs, however, allege that “Indian Mission owes a common law
fiduciary duty to Plaintiffs” because “Plaintiffs reposed a special trust in and reliance
on the judgment of the developer. . .” 87
Fiduciary relations are special, equitable relationships of trust. Under
Delaware law, a fiduciary relationship arises “where one person reposes special trust
in and reliance on the judgment of another or where a special duty exists on the part
83
Thermopylae Capital Partners, L.P. v. Simbol, Inc., 2016 WL 368170, at *9 (Del. Ch. Jan. 29,
2016) (quoting Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011)).
84
See In re Morton’s Rest. Grp., Inc. S’holder Litig., 74 A.3d 656, 658–59 (Del. Ch. 2013); In re
Martha Stewart Living Omnimedia, Inc. S’holder Litig., 2017 WL 3568089, at *3 (Del. Ch. Aug.
18, 2017).
85
Am. Compl., ¶¶ 116–20.
86
Id. ¶ 117.
87
Id. ¶ 118.
15
of one person to protect the interests of another.”88 The fact that a relationship
involves “trust in the specialized knowledge or skill of one party,” however, does
not turn it into a fiduciary relationship.89 Rather, a fiduciary relationship “requires
confidence reposed by one side and domination and influence exercised by the
other.”90 The equitable concept of the fiduciary relationship developed as an
incident of the law of trusts. The hallmark of a fiduciary relationship is illustrated
by the trustee/beneficiary relationship: for such a relationship to prevail, both parties
must have the same end in mind—the good of the beneficiary—and the trustee must
pursue this end to the exclusion of any other interests. 91 Because fiduciary
relationships thus are straitened by the imposition of special duties, a legal regime
imposing broadly such relationships, by definition, would hamstring parties’ ability
to self-order, with perverse effects on efficiency and the right to contract. Broadly
88
Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012) (quoting Metro Ambulance, Inc. v.
E. Med. Billing, Inc., 1995 WL 409015, at *2 (Del. Ch. July 5, 1995)).
89
Prestancia Mgmt. Grp., Inc. v. Virginia Heritage Found., II LLC, 2005 WL 1364616, *6 n.50
(Del. Ch. May 27, 2005).
90
Id. at *6 (emphasis added) (citing Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 625
(Del. Ch. 2005)).
91
Wal-Mart Stores, 872 A.2d at 626 (“the concept of a fiduciary relationship, which derives from
the law of trusts, is more aptly applied in legal relationships where the interests of the fiduciary
and the beneficiary incline toward a common goal in which the fiduciary is required to pursue
solely the interests of the beneficiary in the property.” (quoting Crosse v. BCBSD, Inc. 836 A.2d
492, 495 (Del. 2003))), aff’d in pertinent part 901 A.2d 106 (Del. 2006).
16
imposing such relationships would be inimical to commercial affairs, and fiduciary
duties are thus narrowly implied, arising only in the conditions described above.92
The Plaintiffs cite to Delaware cases in which this Court has found that
developers owed fiduciary duties to homeowners.93 However, in these cases, the
developers retained control of (or acted in lieu of) a homeowners association and
used this control to extract benefits for themselves.94 A role on the board or as
controller of a homeowners association invokes fiduciary duty because of the ability
to exercise “domination and influence” over the homeowners, particularly in the
form of imposing rules and extracting assessments, and because, as the controller or
director of such board, the goal of any action must be in the interests of the
92
See id. at 624–25.
93
REDUS Peninsula Millsboro, LLC v. Mayer, 2014 WL 4261988 (Del. Ch. Aug. 29, 2014);
Phillips v. Yingling, 1982 WL 149636 (Del. Ch. Apr. 23, 1982).
94
See REDUS, 2014 WL 4261988, at *3 (noting that “[a]s alleged, the developer was the controller
of the association which would owe duties to its members, the lot owners, including the
Homeowners.”); Phillips, 1982 WL 149636, at *1 (property owners sued controlling developer to
enjoin collection of assessments and require developer to establish a board of directors for the
homeowners association). The Plaintiffs also cite to cases outside this jurisdiction to allege that
developers generally owe fiduciary duties to lot owners. Although the Plaintiffs find some
language generally amenable to their proposition, I find these cases align with the context
described above, where the developer maintains a role in the homeowners association. See
Walbeck v. I’On Co., LLC, 827 S.E.2d 348, 359 (S.C. Ct. App. 2019) (South Carolina Court of
Appeals recognizing “the fiduciary duty a developer owes to homeowners as the development’s
promoter” while also recognizing “that a fiduciary duty arose from the developer’s control of the
villa owners’ association.”); Raven’s Cove Townhomes, Inc. v. Knuppe Dev. Co., 114 Cal. App.
3d 783, 799 (Ct. App. 1981) (California court stating that “[i]n most jurisdictions, the developer is
a fiduciary acting on behalf of unknown persons who will purchase and become members of the
association” in the context of a case where “[t]he uncontroverted evidence established that the
Developer and its employees (who were the incorporating directors and initial officers) totally
controlled the [homeowners’] [a]ssociation”).
17
membership. Such corporate-board involvement is inherently equitable in nature.
Here, according to the Amended Complaint, Indian Mission developed Stonewater
Creek, including the Stormwater Management Plan for Phase 5.3, then “[t]he lots on
which Plaintiffs had their homes constructed all were conveyed to their homebuilder
by Indian Mission.”95 The drainage issues here do not involve actions of Indian
Mission with respect to any homeowners association at Stonewater Creek.96
There is, I suppose, some quantum of trust inherent in every commercial
relationship, if indeed such a relationship can be said to have existed between Indian
Mission and the Plaintiffs. But that proves too much—equity may not impinge on
every such relationship as a result. The duties owed by Indian Mission are imposed
by common and statutory law. Indian Mission’s interest is as a for-profit land
developer, the Plaintiffs’ interests were in contracting to purchase, at one remove,
residential property developed by Indian Mission. The relationship here was not one
of trust, and the ends sought by the parties were not identical. At its heart, as alleged,
the relationship was one of ordinary care, and equitable duties do not apply. The
facts alleged appear to support a claim in tort for negligence, which the Plaintiffs
95
Am. Compl., ¶¶ 117.
96
The Plaintiffs’ only allegation regarding Indian Mission’s involvement with the homeowners
association is that one of Handler’s principals, Allen, “directly instructs the HOA’s president, Rick
Goldberg, what to tell Stonewater Creek residents about the drainage crisis there.” Id. ¶ 32. The
Amended Complaint does not allege facts from which I can conclude that Indian Mission controls
Goldberg or the homeowners association; more fundamentally, the Amended Complaint does not
allege wrongdoing via such control.
18
have alleged in Count V and which Indian Mission has not moved to dismiss. In
sum, I cannot reasonably infer from the facts pled that Indian Mission’s role as a
land developer put it in the position of a fiduciary to the buyers of lots in Stonewater
Creek, and I therefore grant the motion to dismiss Count IV of the Amended
Complaint.
B. Defendant Handler’s Motion to Dismiss Count VI is Granted
In Count VI, the Plaintiffs seek to “pierce the corporate veil” and hold Handler
liable for the actions of its subsidiary, Indian Mission.97 In other words, the Plaintiffs
seek to hold Handler liable for any money damages Indian Mission incurs in this
action. Handler is Indian Mission’s corporate parent, and the Plaintiffs state no case
against Handler other than that assertion. Delaware law presumes respect for the
corporate form: “A subsidiary corporation is presumed to be a separate and distinct
entity from its parent corporation.”98 Similarities between entities, such as overlap
of personnel, do not negate this basic principle: “This rule applies even where one
corporation wholly owns another and even though the entities have identical officers
and directors.”99 To pierce the corporate veil, a plaintiff must adequately allege facts
from which the court may conclude that the subsidiary is “a sham and exist[s] for no
97
Id. ¶¶ 128–37.
98
Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971, at *6 n.44 (Del. Ch. Nov. 13, 2018)
(quoting 1 Fletcher Cyclopedia of the Law of Corporations § 26, at 82, 84–85).
99
Id.
19
other purpose than as a vehicle for fraud.” 100 Judicial disregard for the corporate
form is not a remedy available to plaintiffs who merely wish to hold another entity
liable in addition to the one with whom they contracted. 101
The Plaintiffs offer two theories to reach through Indian Mission’s corporate
form and hold Handler liable.
First, the Plaintiffs point out that Handler’s principals, Mark Handler and
Allen, conduct business for Indian Mission, and that in doing so, they use their
Handler email accounts.102 As noted, overlapping or identical personnel does not by
itself warrant ignoring the corporate form. The bare assertion that personnel use
email accounts associated with one entity while conducting the business of another
does not indicate fraud and cannot by itself support an allegation that Mark Handler
and Allen were using Indian Mission to perpetrate fraud.
Second, the Plaintiffs allege that Indian Mission is undercapitalized.103
Undercapitalization is a factor courts consider in determining whether an entity is in
fact a sham. 104 Equity will not permit the use of a sham or fraudulent corporation
100
PR Acquisitions, LLC v. Midland Funding, LLC, 2018 WL 2041521, *15 (Del. Ch. Apr. 30,
2018) (quoting Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d
1175, 1184 (Del. Ch. 1999)).
101
Wenske, 2018 WL 5994971, *5.
102
Am. Compl., ¶¶ 31–34.
103
Id. ¶ 36.
104
See Connecticut Gen. Life Ins. Co. v. Pinkas, 2011 WL 5222796, at *2 (Del. Ch. Oct. 28, 2011)
(noting that undercapitalization is a “shortcoming[] frequently found when the ‘veil is pierced’”);
Mason v. Network of Wilmington, Inc., 2005 WL 1653954, at *3 (Del. Ch. July 1, 2005) (piercing
20
form solely as a vehicle to avoid liability. 105 But the Plaintiffs’ assertion on this
point is unsupported by adequate factual allegations. The Plaintiffs allege that
Indian Mission’s assets—i.e., the plots it develops—diminish as it sells those plots
to future homeowners. 106 But the proceeds of the sale, in that case, are equivalent
assets held by Indian Mission. The Amended Complaint does not allege how this
fact makes Indian Mission a vehicle for fraud. The Plaintiffs also point out that
while Indian Mission is bonded with respect to drainage deficiencies, those bonds
are posted to the Sussex Conservation District and are thus unavailable to
homeowners as damages.107 But the fact that Indian Mission has not created a bond
in favor of homeowners, where one is not required by some duty, is not indicative
of fraud. These allegations are insufficient to support an allegation that Indian
Mission was “[in]adequately capitalized for the corporate undertaking,” let alone
that the LLC was created as a sham to further fraud. 108
The Plaintiffs have not alleged facts in the Amended Complaint from which I
can infer that Indian Mission has defaulted on its obligations, that it is unable to
the veil analysis “include[s] whether the corporation was adequately capitalized for the corporate
undertaking. . .” (quoting United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 (D. Del.
1988))).
105
See Mason, 2005 WL 1653954, at *2–4.
106
Am. Compl., ¶ 36.
107
Id.108
Mason, 2005 WL 1653954, at *3.
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operate, that it is a shell entity, or even that it will be unable to satisfy any recovery
the Plaintiffs seek. The Plaintiffs’ response brief exaggerates the allegations pled in
the Amended Complaint on these points. In briefing, the Plaintiffs contend that
“[t]he [Amended] Complaint contains the following facts: . . . Indian Mission is . . .
unable to pay its creditors,” and “Indian Mission is insolvent because it is unable to
pay its debts as they become due. . .” 109 But these allegations are not reasonably
inferable from the Amended Complaint. The Plaintiffs cite only to paragraph 36 of
the Amended Complaint. Paragraph 36 posits the theory, described above, of why
Indian Mission could eventually become insolvent: “with each plot developed and
sold, the assets of [Indian Mission] diminish, while the risk of potential liabilities
increases.”110 That paragraph contains no factual allegations that Indian Mission has
been unable to pay any creditor, that it is insolvent, or that it is unable to pay any
debt. Nor does any other part of the Amended Complaint contain such factual
allegations in a non-conclusory fashion. Rather, the Plaintiffs’ allegation is
essentially that Indian Mission is closely tied to its parent company Handler, and
that Handler has more money to rectify the Plaintiffs’ alleged harm than does Indian
Mission. Accepting the Plaintiffs’ non-conclusory allegations as true, Indian
109
Pls.’ Br. in Opp’n to Mot. by Defs. Handler Corporation DBA Handler Homes, Seven Branch,
LLC, Cannon Road Investments, LLC and Indian Mission Investments, LLC to Dismiss First Am.
Verified Compl. and to Strike Request for Punitive Damages Therein, D.I. 50 (“Pls.’ Indian
Mission Answering Br.”), at 6–7.
110
Am. Compl., ¶ 36.
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Mission owned the property that is now Stonewater Creek, and has exchanged some
of those land assets for cash. From those facts alone, I may not reasonably infer that
Indian Mission is a fraudulent or sham entity.
In conclusion, I find that the Plaintiffs’ alleged facts do not support a claim
that Indian Mission’s corporate form should be disregarded in this instance. I
therefore grant the motion to dismiss Count VI of the Amended Complaint, which
entails dismissing Handler from this Action.
C. Judgment is Deferred on Counts I-III Related to the Stormwater
Management Act and Alias Count X for Fraud against Insight
As noted, the parties stipulated to the dismissal of Seven Branch and Cannon
Road from this Action. Above, I have dismissed fiduciary claims against Indian
Mission and all claims against Handler. This pares the Amended Complaint to two
remaining tranches: (1) claims for equitable and declaratory relief related to the
Stormwater Management Act, which both remaining Defendants have moved to
dismiss; and (2) tort and contract claims, on which Insight has moved to dismiss the
Plaintiffs’ claim for fraud only, but which otherwise neither remaining Defendant
has moved to dismiss. 111 At this juncture, I conclude that efficiency will be served
through deferring judgment on the remainder of the motions to dismiss and giving
111
I note that the Amended Complaint does not seek equitable relief to remedy any common-law
ongoing torts, such as nuisance or trespass. Such torts are not alleged here.
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the parties the opportunity to confer on the best way to proceed, with the guidance
offered below.
The Stormwater Management Act provides this Court with statutory
jurisdiction to grant injunctive relief in relation to the Act.112 Here, the Plaintiffs
seek two forms of equitable relief: first, Indian Mission should be enjoined from
selling any additional lots until the Stonewater Creek Stormwater Management Plan,
as implemented, is in compliance with the Act;113 second, Insight should be enjoined
from building any additional homes in Stonewater Creek until compliance occurs.114
While the Amended Complaint paints a compelling portrait of the Plaintiffs’
need for relief, the injunctive relief actually sought by the Plaintiffs presents
difficulties that may obstruct granting the requested relief if the litigation proceeds,
during which I would require further briefing assistance from the parties. As the
Plaintiffs concede, remediation efforts, if slow, are ongoing.115 That process is being
112
7 Del. C. § 4016 (“any aggrieved person who suffers damage or is likely to suffer damage
because of a violation or threatened violation of this chapter may apply to the Chancery Court for
injunctive relief. Among any other appropriate forms of relief, the Chancery Court may direct the
violator to restore the affected land or water impacted area to its original condition.”).
113
Am. Compl., ¶ 97.
114
Id. ¶ 105. The Plaintiffs also contend that I should issue a declaratory judgment under 10 Del.
C. § 6501 “that Indian Mission and Insight (a) have failed to but (b) are required to comply and
(c) must be compelled to comply with the Stormwater Management Act and Stormwater
Management Plan.” Id. ¶ 113. It is a mystery why declaratory relief is necessary in this action
seeking also injunctive relief and damages, but in any event declaratory relief is available at law
or in Chancery, and the presence of a claim for such relief is irrelevant to the calculous I have
limned, below.
115
See Pls.’ Indian Mission Answering Br., at 9–11.
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monitored by the Sussex Conservation District.116 The Plaintiffs essentially argue
that the Sussex Conservation District has inadequate enforcement mechanisms, and
that the heat of an injunction is necessary to light a fire under the Defendants’ feet.
But enjoining ongoing violation of a technical statute presents oversight issues: the
Court would have to determine when the Defendants have achieved compliance (and
thus when to lift the injunctive relief), but, as the Plaintiffs describe it, “[a]
stormwater management plan is a complex compilation of engineering data and
calculations: plats, graphs, and land use specifications . . . topography, stormwater
easements, pipe and swale profiles, manhole flow patterns, and trench details for
unpaved areas.”117
It is not clear how this Court’s oversight and coercion via the relief sought
could, as a practical matter, be achieved. Such relief, it appears, would also be
intrusive on the Sussex Conservation District’s ongoing (though allegedly dilatory)
oversight. The ongoing remediation raises issues of the ripeness of any request to
apply equitable relief. Moreover, some of the Plaintiffs’ requested relief—enjoining
Insight from building further homes—appears duplicative of the power the Sussex
Conservation District already wields, and in fact has applied here. The relief sought
may also interfere with existing Insight sales or construction contracts, which raises
116
Id. at 11–13.
117
Am. Compl., ¶ 51.
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questions of the necessity of those counterparties as parties here. Put simply, the
Plaintiffs are not asking for an injunction that the Defendants comply with the Act
with respect to their lots, by, for instance, “restor[ing] the [lots] to [their] original
condition.”118 Instead, they ask me to become involved in implementation of a
development-wide drainage plan currently under the remediation efforts of the
County. It is unclear at this stage of the proceedings if equity should, or as a practical
matter can, so act. Equity is, of course, practical and flexible; nothing herein should
be read to say that, if the facts ultimately so warrant, no relief in equity will be
available.
The issues identified above are not rulings on the motions to dismiss at issue
here, but I offer them as potential guidance as to what issues may arise if the
litigation proceeds. Aside from the relief related to the Stormwater Management
Act, the Plaintiffs’ remaining claims are legal: negligence, breach of contract, breach
of implied warranties, negligent construction, and fraud. Insight has moved to
dismiss the claim for fraud; otherwise, the Defendants have not moved to dismiss
these claims. While I struck the Plaintiffs’ request for punitive damages in this
Court, I did so without prejudice to the Plaintiffs’ ability to revive such a request in
a court of law, where such damages are properly entertained. 119
118
7 Del. C. § 4016.
119
See D.I. 63.
26
If I go forward to evaluate the Plaintiffs’ claims and—should I find them
proved—consider injunctive relief, I will retain this matter under “clean-up”
jurisdiction and resolve the legal claims regardless of whether equity is ultimately
invoked.120 If the Plaintiffs do not pursue the equitable claims, this matter belongs
in the Superior Court. I find it appropriate to defer judgment on the Motions to
Dismiss Counts I-III related to the Stormwater Management Act and alias Count X
for fraud. The parties should confer, and the Plaintiffs should inform me within two
weeks, given the course of litigation and the partial resolution of the motions
described in this Memorandum Opinion, whether they wish to pursue this litigation
in equity and have me resolve the remainder of the motions to dismiss, or if they are
willing to forgo injunctive relief and elect to transfer the remaining claims to the
Delaware Superior Court, where full relief for legal claims as well as punitive
damages are available.
III. CONCLUSION
Based on the foregoing, Count VI of the Amended Complaint is dismissed,
and Defendant Handler is thereby dismissed from this Action. Count IV of the
120
See Medek v. Medek, 2008 WL 4261017, at *3 (Del. Ch. Sept. 10, 2008) (“Once the Court
determines that equitable relief is warranted, 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.” (quoting
Prestancia Mgmt. Grp. v. Va. Heritage Found., II LLC, 2005 WL 1364616, at *11 (Del. Ch. May
27, 2005))).
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Amended Complaint for breach of fiduciary duty against Indian Mission is
dismissed. Judgment on the motions to dismiss Counts I-III against Indian Mission
and Insight, as well as judgment on the motion to dismiss alias Count X against
Insight is deferred. The Plaintiffs should inform me within two weeks whether they
wish to proceed in equity and desire resolution of the remainder of the motions to
dismiss or if they wish to transfer this Action. The parties should also submit an
appropriate form of order consistent with the partial rulings in this Memorandum
Opinion.
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