Patel v. Sunvest Realty Corporation

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SAMIR PATEL, AJAY BHATT, )
MING YE, JOSEPH SHAN, PETER )
SZETO, GENE LOU, JOSEPH )
SHAN, NIRVA VYAS, and )
NORMAN NELSON, )
)
Plaintiffs, )
)
v. ) C.A. NO.: N18C-01-185 AML
)
SUNVEST REALTY )
CORPORATION d/b/a RE/MAX )
SUNVEST REALTY, RE/MAX, )
LLC, AND RE/MAX HOLDINGS, )
INC. )
)
Defendants. )
Submitted: July 2, 2018
Decided: October 15, 2018
Upon Defendants’ Motion to Dismiss: Granted in part, denied in part
Upon Defendants’ Motions to Strike: Granted in part, denied in part
MEMORANDUM OPINION
Julia B. Klein, Esquire of KLEIN, LLC, Wilmington, Delaware, Attorney for
Plaintiffs.
Eric J. Monzo, Esquire, and Brenna A. Dolphin, Esquire of MORRIS JAMES,
LLP, Wilmington, Delaware, Attorneys for Sunvest Realty Corporation, Raymond
W. Cobb, Esquire of O’HAGAN MEYER, LLC, Wilmington, Delaware, Attorney
for RE/MAX, LLC and RE/MAX Holdings.
LeGrow, J.
This case arose from alleged fraud committed by a real estate broker
formerly employed by a franchise branch of a nationally-recognized real estate
firm. Plaintiffs allege the broker embezzled funds Plaintiffs entrusted to him for
the purpose of investing in real property. Beginning in summer 2017, the broker
defaulted on Plaintiffs’ promissory notes, and he filed for bankruptcy a few months
later. Plaintiffs now bring claims of vicarious liability, common law negligence,
negligent hiring, retention, and supervision, breach of contract, and fraud against
the franchisee and franchisor.
Plaintiffs’ claims present questions of franchisor and vicarious liability for
conduct of a franchisee’s agent. Although the complaint adequately pleads
vicarious liability claims against both defendants, the adequacy of its direct
liability claims is more limited. As to those direct claims, Plaintiffs fail to plead
claims that depend on allegations that the franchisor employed the broker. Some
of Plaintiffs’ other direct claims survive under the low pleading standard applicable
to this motion, although Plaintiffs’ ultimate likelihood of success on those claims
seems marginal at best. In sum, notwithstanding the exhausting length and rhetoric
of Plaintiffs’ complaint, Plaintiffs barely make out fraud, negligence, and contract-
based claims under agency principles, but those claims may not withstand a closer
look after discovery.
1
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are drawn from the amended complaint.1 Carl Chen
worked as a real estate broker from 1986 until 2017 when his real estate license
was terminated. According to the complaint, Chen worked for more than two
decades at RE/MAX Sunvest Realty (“Sunvest”), a franchisee of RE/MAX, LLC
(“RE/MAX”) (collectively with Sunvest, the “Defendants”). Beginning in 1991,
Chen convinced several friends and acquaintances to invest in real property in
return for monthly interest payments. Chen continued to enter into these
promissory notes up to October 2016. In May 2017, Chen failed to make the
monthly interest payment to one of his noteholders, Norman Nelson. Nelson later
was informed that Chen no longer worked at Sunvest. On October 24, 2017, Chen
filed for bankruptcy. Around this time, the noteholders learned most of their funds
never were invested in real property.
On January 17, 2018, several noteholders (“Plaintiffs”) brought this action
against Sunvest and RE/MAX to recover the funds they invested with Chen.2
1
The Complaint contains 104 paragraphs and spans 62 pages. It includes headshots, website
screen shots, and numerous irrelevant, if not entirely conjectural, musings. The brevity of this
factual background demonstrates Plaintiffs’ unnecessary expenditure of resources in drafting the
Complaint, to say nothing of Defendants’ and the Court’s resources in reviewing and responding
to it. At some point during the drafting process, Plaintiffs lost sight of Rule 8’s direction that a
complaint shall contain a “short and plain statement of the claim.” Plaintiffs should not interpret
the Court’s partial denial of the motions to dismiss as an endorsement of this drafting style.
2
The complaint included RE/MAX Holdings as a named defendant. At oral argument, however,
Plaintiffs conceded that all claims against RE/MAX Holdings should be dismissed. Accordingly,
only claims against Sunvest and RE/MAX remain.
2
Sunvest and RE/MAX filed separate motions to dismiss the original complaint, and
Plaintiffs then filed an amended complaint containing counts against each
defendant for vicarious liability, common law negligence, negligent hiring,
retention, and supervision, breach of contract, and fraud. Defendants filed motions
to dismiss the first amended complaint (“the Complaint”) and the parties briefed
and argued those motions.
The Parties’ Contentions
In its motion to dismiss, Sunvest first argues the Court should dismiss
Plaintiffs’ claims under Rule 19 because the parties cannot join Chen who, Sunvest
maintains, is an indispensable party. Sunvest contends complete relief cannot be
granted to the parties without Chen’s joinder because Chen’s conduct is the basis
of Plaintiffs’ action. Sunvest acknowledges the automatic stay prevents Chen’s
joinder in this case while the bankruptcy case is litigated, but Sunvest asserts all
Plaintiffs’ claims can be litigated in the bankruptcy action. Apart from this
procedural argument, Sunvest also maintains the Complaint should be dismissed
for failure to state a claim. Sunvest contends Plaintiffs only made conclusory
statements in support of their vicarious liability, negligent hiring, retention and
supervision, breach of contract, and fraud claims.
In a separate motion, RE/MAX argues the Complaint fails to allege the
existence of any legally-cognizable relationship between Chen and RE/MAX.
3
RE/MAX notes the Complaint alleges claims against “RE/MAX,” but fails to
specify which claims are asserted against which defendants. RE/MAX contends
the Complaint fails to make any connection between Sunvest and RE/MAX and
does not allege an employment or agency relationship with RE/MAX. Finally, like
Sunvest, RE/MAX argues the Complaint fails to plead fraud with sufficient
particularity.
In response to Sunvest’s motion, Plaintiffs argue Chen is not an
indispensable party because the parties may obtain discovery from him without
joining him to this action. Additionally, Plaintiffs assert they have pleaded fraud
and the other claims with sufficient particularity and have pleaded sufficient facts
to put RE/MAX on notice that they intend to show RE/MAX exerted control over
Chen.
ANALYSIS
On a motion to dismiss, the Court must determine whether the “plaintiff
‘may recover under any reasonably conceivable set of circumstances susceptible of
proof.’”3 “If [the plaintiff] may recover, the motion must be denied.”4 A court
may grant the motion if “it appears to a reasonable certainty that under no state of
facts which could be proved to support the claim asserted would plaintiff be
3
Holmes v. D’Elia, 2015 WL 8480150, at *2 (Del. Dec. 8, 2015) (quoting Spence v. Funk, 396
A.2d 967, 968 (Del. 1978)).
4
Deuley v. DynCorp Int’l, Inc., 2010 WL 704895, at *3 (Del. Super. Feb. 26, 2010) (citing
Parlin v. DynCorp Int’l, Inc., 2009 WL 3636756, at *1 (Del. Super. Sept. 30, 2009) (quoting
Spence, 396 A.2d at 968)), aff’d, 8 A.3d 1156 (Del. 2010).
4
entitled to relief.”5 When applying this standard, the Court will accept as true all
non-conclusory, well-pleaded allegations.6 In addition, “a trial court must draw all
reasonable factual inferences in favor of the party opposing the motion.”7
A. Chen is not an indispensable party under Rule 19(a).
Sunvest first argues the amended complaint should be dismissed because
Chen allegedly is an indispensable party who cannot be joined in this action.
Sunvest argues Chen’s conduct forms the basis for Plaintiffs’ claims and therefore
he is an indispensable party under Rule 19. Because the automatic stay imposed
by the bankruptcy action prevents the parties from joining Chen, Sunvest argues
the Complaint should be dismissed.
Under Rule 19(a), joinder is mandatory when: (1) complete relief cannot be
afforded without the absent party’s participation, or (2) the absent party claims an
interest in the subject of the action. Specifically, the rule provides, in relevant part:
A person who is subject to service of process and whose
joinder will not deprive the Court of jurisdiction over the
subject matter of the action shall be joined as a party in
the action if (1) in the person’s absence complete relief
cannot be accorded among those already parties, or (2)
the person claims an interest relating to the subject of the
action and is so situated that the disposition of the action
5
Fish Eng’g Corp. v. Hutchinson, 162 A.2d 722, 724 (Del. 1960) (citing Danby v. Osteopathic
Hosp. Ass’n of Del., 101 A.2d 308, 315 (Del. Ch. 1953), aff’d, 104 A.2d 903 (Del. 1954)); Nero
v. Littleton, 1998 WL 229526, at *3 (Del. Ch. Apr. 30, 1998).
6
Pfeffer v. Redstone, 965 A.2d 676, 683 (Del. 2009).
7
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005) (citing Ramunno v. Cawley, 705 A.2d 1029, 1034
(Del. 1998) (citing Solomon v. Pathe Commc’ns Corp., 672 A.2d 35, 38 (Del. 1996)) (other
citations omitted)).
5
in the person’s absence may (i) as a practical matter
impair or impede the person’s ability to protect that
interest or (ii) leave any of the persons already parties
subject to a substantial risk of incurring double, multiple,
or otherwise inconsistent obligations by reason of the
claimed interest. If the person has not been so joined, the
Court shall order that the person be made a party.8
Rule 19(a)(2) is not implicated here because none of the parties argues Chen
has an interest in the subject of the action or that litigation without Chen would
impair his ability to protect his interests. As to Rule 19(a)(1), on which Sunvest
relies, complete relief can be accorded to all named parties without Chen’s joinder.
Sunvest argues Chen is indispensable because his conduct forms the basis for
Plaintiffs’ claims. Chen’s likely role as an essential factual witness, however, does
not compel the conclusion that joinder is necessary to accord relief to all the named
parties. The parties may subpoena Chen, take discovery from him, and compel
him to testify. Thus, Plaintiffs’ claims do not require Chen’s joinder for
evidentiary purposes. Additionally, Chen’s joinder is not required to determine
liability because Plaintiffs do not claim Chen or either defendant was
comparatively or contributorily negligent. Accordingly, Chen is not an
indispensable party under Rule 19(a).
8
Super. Ct. Civ. R. 19(a).
6
B. Count I of the Complaint adequately pleads Chen committed fraud and
that he was Sunvest’s employee.
Count I of the Complaint alleges Sunvest vicariously is liable for Chen’s
fraud. Sunvest argues the Complaint fails to plead fraud with particularity and
fails adequately to allege Chen was Sunvest’s employee or agent.
1. The Complaint adequately alleges Chen committed fraud.
According to Superior Court Civil Rule 9(b), “[i]n all averments of fraud, . .
. the circumstances constituting fraud . . . shall be stated with particularity.” 9 The
rule requires a plaintiff to “allege circumstances sufficient to fairly apprise the
defendant of the basis for the claim.”10 The elements of fraud are:
(1) defendant’s false representation, usually of fact, (2)
made either with knowledge or belief or with reckless
indifference to its falsity, (3) with an intent to induce the
plaintiff to act or refrain from acting, (4) the plaintiff's
action or inaction resulted from a reasonable reliance on
the representation, and (5) reliance damaged the
plaintiff.11
Plaintiffs’ Complaint alleges Chen falsely claimed to invest significant funds
in real estate on Plaintiffs’ behalf.12 The Complaint describes how Chen developed
a reputation as a seasoned real estate broker and alleges that several plaintiffs were
friends with Chen for many years before they entrusted their money to him. The
Complaint includes the following exchange that occurred at a creditors’ meeting
9
Super. Ct. Civ. R. 9(b).
10
H-M Wexford, LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003).
11
Stephenson v. Capano Development, Inc., 462 A.2d 1069, 1074 (Del. 1983).
12
Am. Compl. ¶¶ 6-13.
7
for the bankruptcy action between Chen, the debtors’ trustee, Alfred Giuliano, and
Plaintiffs’ attorney, Julia Klein:
CHEN: Yeah, we – we borrowed the money – the intention was to invest in
real estate, but then I ended up using that to take care of my negative cash
flow.
GIULIANO: Is that what you told them? You told them it was to invest in
real estate?
CHEN: In the very beginning, yes. Later on when they –
GIULIANO: Like the million seven, when you borrowed the million seven,
what did you tell those folks?
CHEN: Yeah, to invest in real estate.
GIULIANO: To invest in real estate. But you did not invest it in real estate,
you used it to cover the cash flow?
CHEN: Yeah.
...
KLEIN: What did you – so, just so I understand the money that you received
from Mr. B[h]at, the $200,000, those went to pay interest payments of other
noteholders or what did you use the money for?
CHEN: I – I used the money for – to take care of negative cash flow for
Chen-MAX, both of the Chen-MAX Properties, Inc.
KLEIN: Okay. Did you use the money you received from him to invest in
any property, any real property or rental property?
CHEN: No.
KLEIN: Okay. Were you supposed to under the promissory note?
8
CHEN: Yeah, yeah.13
From this exchange, it is reasonable to infer that: (1) Chen falsely
represented that he would invest Plaintiffs’ funds in real estate; (2) Chen knew his
representations were false; (3) Chen intended to induce Plaintiffs to invest their
funds through him; (4) Plaintiffs reasonably relied on Chen’s representations; and
(5) Plaintiffs suffered damages.14 In other words, the Complaint fairly appraises
Defendants of the basis for the claim.15 Accordingly, the Complaint alleges with
sufficient particularity that Chen committed fraud.
2. The Complaint adequately alleges Chen was Sunvest’s
agent/employee.
In Delaware, “the party asserting an agency relationship has the burden of
proving it.”16 An agency relationship “results from the manifestation of consent by
one person to another that the other shall act on his behalf and subject to his
control, and consent by the other so to act.”17 A plaintiff may sue an employer for
the actions of an employee under principles of vicarious liability if the actions
occurred within the scope of employment.18
13
Id. at ¶ 47 (emphasis in the original).
14
Id. at ¶ 48 (“Chen knew that Plaintiffs expected their funds to be used to purchase, improve,
and maintain real property. Chen over the years locally [sic] had established a reputation for
being a fine real estate broker and assured Plaintiffs that their funds would be used for precisely
that purpose: invest in and manage real property and ensure a steady return on investment.
Based on these representations, Plaintiffs parted with their money.”).
15
Id. ¶¶ 6-13.
16
F.E. Myers Co. v. Pipe Maintenance Services, Inc., 599 F. Supp. 697, 702 (D. Del. 1984).
17
RESTATEMENT (SECOND) OF AGENCY § 1 (AM. LAW INST. 2006).
18
Fisher v. Townsends, Inc., 695 A.2d 53, 58 (Del. 1997).
9
It is reasonable to infer from the Complaint that Chen was Sunvest’s
employee or agent. Chen acted as a real estate broker, which is Sunvest’s regular
business. Chen worked at Sunvest’s office on Kirkwood Highway, and Plaintiffs
signed the promissory notes in that office.19 Additionally, the Complaint alleges
Chen worked at Sunvest for twenty years. Because Chen worked at Sunvest as a
real estate broker, and the Complaint’s allegations permit a reasonable inference
that Chen’s fraud occurred within the scope of his employment at Sunvest, the
Complaint adequately pleads Sunvest vicariously is liable for Chen’s conduct.
Whether Plaintiffs can prove Chen was acting within the scope of his employment
is a distinct question, but Plaintiffs need not meet that burden of proof at the
pleadings stage.
C. Count II of the Complaint adequately pleads a vicarious liability claim
against RE/MAX.
Count II of the Complaint alleges RE/MAX vicariously is liable for Chen’s
fraudulent conduct because RE/MAX is Sunvest’s franchisor. RE/MAX argues the
Complaint fails sufficiently to allege that Chen or Sunvest was RE/MAX’s agent
or that RE/MAX benefited from Chen’s conduct. As discussed in Section B.2, the
Complaint adequately alleges Chen was Sunvest’s employee. The adequacy of
Count II, therefore, depends on whether RE/MAX, as Sunvest’s franchisor, may be
held vicariously liable for Chen’s fraud.
19
Am. Compl. at ¶ 34.
10
A plaintiff may hold a franchisor vicariously liable by establishing the
franchisor had an actual or apparent agency relationship with its franchisee. In
order to establish actual agency between a putative franchisor and franchisee, a
plaintiff must show the franchisor has the right to control the franchisee’s
business.20 An agency relationship exists if the franchisor has the right to exercise
control over the franchisee’s daily operations.21 Evidence of such control includes,
among other things, a franchisor’s power to regulate advertising, office procedures,
staff procedures, accounting, insurance, and maintenance of the premises.
Here, the Complaint fails to allege RE/MAX exerted control over Sunvest’s
daily operations. Although the Complaint alleges RE/MAX is a very large and
well-advertised realty company, the Complaint does not allege RE/MAX
controlled Sunvest’s operations, and actual agency therefore is not sufficiently
pleaded.
Alternatively, the principle of apparent agency focuses on the apparent
relationship between a principal and an agent.22 In Billops v. Magness
Construction Co., the Delaware Supreme Court examined the rule for apparent
agency in a franchise relationship and held that apparent agency depends on a third
party’s reasonable reliance on an alleged principal’s manifestations of the agent’s
20
Billops v. Magness Const. Co., 391 A.2d 196, 197 (Del. 1978).
21
Id.
22
Id. at 198.
11
authority to bind the principal.23 The Billops Court explained that the
manifestations “may be made directly to the third party, or may be made to the
community in general, for example, by way of advertising.”24 An agent’s apparent
authority is a question of fact typically left to the jury.25
In Billops, the plaintiffs sued several Hilton Hotels entities as the franchisors
of Brandywine Hilton Inn for the tortious conduct of the inn’s banquet director.26
The Court held the plaintiffs showed ample evidence indicating the inn was the
franchisor’s apparent agent.27 Among the factors considered by the Court were the
inn’s use of Hilton’s logo and signage at the exclusion of all other logos28 and the
requirement that the inn identify itself completely with the Hilton system,
including color scheme and interior design.29 The Court also relied on the fact that
the defendants admitted there was no basis for a reasonable person to distinguish
the inn from any other Hilton Hotels corporation,30 and the plaintiffs stated they
put their faith and trust in the inn because Hilton “was a major hotel.”31
23
Id.
24
Id. at 198-99.
25
Id.
26
Id.
27
Id.
28
Id. at 199.
29
Id.
30
Id.
31
Id.
12
Accordingly, the Court found the plaintiffs relied on the Hilton name and the
quality it represents.32
Plaintiffs’ Complaint sufficiently alleges that RE/MAX had apparent
authority over Sunvest. RE/MAX’s logo and trademark was featured prominently
in the office and on Sunvest’s website. Sunvest’s signs, email signatures, and
documents all bore RE/MAX’s name and/or trademark. The Complaint also
alleges Plaintiffs reached out to RE/MAX’s franchises because they thought the
franchises would be backed by RE/MAX and “its philosophy of caring for
customers.”33 The Complaint therefore alleges Plaintiffs relied on RE/MAX’s
name and brand quality. Accordingly, it is reasonable to infer from the Complaint
that Sunvest was RE/MAX’s apparent agent.
D. Count III of the Complaint adequately alleges Sunvest negligently
retained Chen.
Count III of the Complaint includes claims of common law negligence and
negligent hiring, retention, and supervision against Sunvest. Plaintiffs largely base
this claim on the fact that Chen and Sunvest were named as co-defendants in
several real estate-related legal actions beginning in 2007. Plaintiffs contend these
lawsuits put Sunvest on actual or constructive notice of Chen’s fraudulent conduct.
Sunvest argues the Complaint only makes conclusory statements regarding its
32
Id.
33
Am. Compl. at ¶ 26 (“Real estate purchasers and investors, including Plaintiffs, reach out to
RE/MAX franchisees because they trust those franchises are backed by RE/MAX and its
philosophy of caring for customers.”).
13
alleged negligent hiring, retention, and supervision of Chen. As discussed in
Section B.2, it is reasonable to infer from the Complaint that Sunvest employed
Chen, and Plaintiffs therefore may maintain adequately pleaded claims of common
law negligence and negligent hiring, supervision, and retention.
Plaintiffs’ amended Complaint, however, does not adequately plead claims
for common law negligence or negligent hiring and supervision. The elements of
common law negligence in Delaware are duty, breach, causation, and harm.34 The
Complaint fails to allege Sunvest had any duty to Plaintiffs, and Plaintiffs therefore
have failed to allege common law negligence against Sunvest. Similarly, “[a]n
employer is liable for negligent hiring or supervision where the employer [was]
negligent . . . in the employment of improper persons involving risk of harm to
others or in the supervision of the employee’s activit[ies].”35 The plaintiff must,
however, allege the employer was on notice of the employee’s risk of tortious
behavior at the time the employer hired the employee.36 Here, the Complaint fails
to allege facts that would show Sunvest was on notice of the risk of Chen’s tortious
conduct at the time of his hiring. At most, the Complaint alleges Sunvest was or
should have been aware of Chen’s misconduct in 2007, well after Sunvest hired
him.37
34
Hudson v. Old Guard Ins. Co., 3 A.3d 246, 250 (Del. 2010).
35
Simms v. Christina School District, 2004 WL 344015, at *8 (Del. Super. Jan. 30, 2004).
36
Fanean v. Rite Aid Corp. of Delaware, Inc., 984 A.2d 812, 826 (Del. Super. 2009).
37
See Am. Compl. ¶ 22.
14
The Complaint does, however, adequately allege a claim for negligent
retention, which considers an employer’s actions or omissions after an employee’s
hiring.
An action for negligent supervision is based upon the
employer’s negligence in failing to exercise due care to
protect third parties from the foreseeable tortious acts of
the employee.
...
The deciding factor is whether the employer had or
should have had knowledge of the necessity to exercise
control over its employee. Thus, existence of duty under
a negligent supervision theory depends upon whether the
risk of harm from the dangerous employee was
reasonably foreseeable as a result of the employment.38
The amended Complaint alleges “Sunvest had constructive, if not actual,
notice that Chen may [have been] engaging in conduct that [wa]s legally
actionable.”39 Plaintiffs allege Sunvest regularly was named as Chen’s co-
defendant and garnishee in debt and breach of contract actions relating to his real
estate investments. Plaintiffs also generally allege Sunvest knew or should have
known Chen was using his Sunvest position and office to facilitate his fraud.
Again, Plaintiffs will need substantially more to prevail on this claim at trial, but at
the pleadings stage, and drawing all reasonable inferences in Plaintiffs’ favor, there
is a reasonably conceivable set of circumstances under which Plaintiffs could
prevail on a claim against Sunvest for negligent retention.
38
Matthews v. Booth, 2008 WL 2154391, at *3 (Del. Super. May 22, 2008).
39
Am. Compl. ¶ 76.
15
E. Count IV of the Complaint fails to adequately plead common law
negligence and negligent hiring, supervision, or retention against
RE/MAX.
Count IV of the Complaint alleges claims of common law negligence and
negligent hiring, supervision, and retention against RE/MAX. Plaintiffs argue
RE/MAX had the duty to ensure its agents “are of such qualification and character
that they will not . . . harm its customers.”40 Plaintiffs also claim RE/MAX has a
duty to review its agents’ qualifications and character regularly. In response,
RE/MAX argues the Complaint fails to allege facts to support Plaintiffs’
negligence claims.
Similar to their claims against Sunvest for common law negligence and
negligent hiring and supervision, Plaintiffs also fail adequately to plead those
claims against RE/MAX. Regarding the negligent retention claim, however, and
unlike their adequately-pleaded claims against Sunvest, Plaintiffs fail to allege
facts to support a negligent retention claim against RE/MAX. The Complaint
refers to Chen as Sunvest’s employee, rather than RE/MAX’s employee.41
Although the Complaint alleges RE/MAX “benefited” from Chen’s employment
with Sunvest, it does not allege or permit a reasonable inference that Chen was
RE/MAX’s employee.42 The Complaint fails to allege that RE/MAX consented to
40
Id. at ¶ 80.
41
Id. ¶ 2.
42
Id.
16
have Chen act on its behalf or be subject to RE/MAX’s control. In their reply
brief, Plaintiffs state they are uncertain of the nature of Chen’s relationship with
RE/MAX and concede the Complaint is vague in this regard.43 Plaintiffs, however,
maintain Chen’s employment status may be inferred from RE/MAX’s website and
ask for leave to amend the Complaint.44 Although I am skeptical that Plaintiffs
will be able to plead that Chen is RE/MAX’s employee, Count IV is dismissed
without prejudice to Plaintiffs filing an amended Complaint within twenty days.
F. Count V of the Complaint adequately pleads a breach of contract claim
against Sunvest.
Count V of the Complaint alleges a breach of contract claim against Sunvest
because Sunvest has not paid the interest due on Plaintiffs’ promissory notes. The
Complaint claims Sunvest is bound by the notes because Chen signed the notes as
Sunvest’s agent. In response, Sunvest argues the Complaint fails to allege
Plaintiffs ever entered into a contract with Sunvest.
When an agent enters into a contract with actual authority on behalf of a
disclosed principal, the principal is a party to the contract.45 The elements of a
breach of contract claim are: (1) a contractual obligation; (2) a breach of that
obligation; and (3) resulting damages.46
Here, it is reasonable to infer Chen entered into contracts with Plaintiffs on
43
Pl.s’ Resp. to RE/MAX’s Mot. Dismiss at ¶ 4.
44
Id.; see also Am. Compl. at ¶ 22.
45
RESTATEMENT (THIRD) OF AGENCY § 6.01 (AM. LAW INST. 2006).
46
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
17
Sunvest’s behalf. The Complaint alleges Chen was Sunvest’s employee and
entered into promissory notes with each plaintiff. The Complaint contained
exhibits showing Chen signed promissory notes with plaintiffs Patel, Bhatt, and
Ye. Chen’s signature block presented Chen as a broker and president of Sunvest. 47
Further, the Complaint adequately alleges the promissory notes are in default. The
notes promise to pay the holders monthly interest payments, and neither Chen nor
Sunvest has made interest payments on the notes since 2017. Accordingly, the
Complaint adequately pleads a breach of contract claim against Sunvest.
G. Count VI of the Complaint adequately pleads a breach of contract claim
against RE/MAX.
Count VI of the Complaint claims RE/MAX is in breach of contract because
Chen signed Plaintiffs’ promissory notes as RE/MAX’s actual or apparent agent.
As discussed above, the Complaint fails to allege Chen was RE/MAX’s employee
or actual agent, but sufficiently alleges Sunvest was RE/MAX’s apparent agent and
that Sunvest’s employees, including Chen, had apparent authority to contract on
RE/MAX’s behalf. Under Delaware law, an apparent agent has authority to bind a
47
Ye’s promissory note lists “Chenmax properties Inc., a Company of Carl Chen” as the note
buyer. Ex. C. to Am. Compl. It is reasonable to infer, however, that Chen acted with apparent
authority from Sunvest due to his signature. See RESTATEMENT (THIRD) OF AGENCY § 6.01 (AM.
LAW INST. 2006).
18
principal to a contract.48 Whether Plaintiffs ultimately may prove the necessary
elements of this claim is a matter for another day.
H. Count VII of the Complaint fails to adequately plead common law fraud
against Sunvest & RE/MAX.
Count VII of the Complaint pleads a common law fraud claim against both
Sunvest and RE/MAX based on Chen’s tortious conduct. Plaintiffs argue Chen’s
conduct is imputed to Sunvest and RE/MAX because Chen acted as their actual or
apparent agent. Count VII does not, however, allege Sunvest or RE/MAX
committed fraud through any conduct other than Chen’s. As noted previously, the
Complaint sufficiently pleads Sunvest and RE/MAX vicariously may be liable for
Chen’s fraud because he acted as their actual or apparent agent. Because the
Complaint fails to allege Sunvest or RE/MAX committed fraud directly, the
Complaint fails to plead a fraud claim against Sunvest and RE/MAX distinct from
the vicarious liability claims alleged in Counts I and II.
I. Defendants’ motions to strike are granted in part.
In its motion to dismiss, RE/MAX argued that, if the Court does not dismiss
the Complaint in its entirety, it should strike paragraphs 21, 26, 27, and 32 under
Superior Court Civil Rule 12(f). Each of the allegations in those paragraphs,
48
International Boiler Works Co. v. General Waterworks Corp., 372 A.2d 176, 177 (Del. 1977);
Giangrant v. Richard A. Parsons Agency, Inc., 1988 WL 40023, at * 2 (Del. Super. Apr. 22,
1988); Sarissa Capital Domestic Fund LP v. Innoviva Inc., 2017 WL 6209597, at *19 (Del. Ch.
Dec. 8, 2017) (“even if a person lacks actual authority to bind an entity to a contract with a third
party, the person still may have apparent authority to do so.”); RESTATEMENT (THIRD) OF
AGENCY § 6.01 (AM. LAW INST. 2006).
19
however, relate – directly or indirectly – to Plaintiffs’ agency theories and
therefore are relevant to Plaintiffs’ claims. In contrast, footnote 21 of the
Complaint is nugatory and therefore is striken.
Defendants also moved to strike exhibits Plaintiffs attached to their
opposition brief, arguing those exhibits introduced matters outside the pleadings
and therefore could not be considered by the Court in resolving the motions to
dismiss. Plaintiffs contend those exhibits were offered for the limited purpose of
supporting Plaintiffs’ argument that any dismissal should be without prejudice. I
agree with Defendants that the exhibits may not properly be considered by the
Court, and the motion to strike therefore is granted as to those exhibits. Because
the only claim dismissed with prejudice is the duplicative Count VII, Plaintiffs’
reliance on those exhibits to support their request to amend the Complaint is
unnecessary.
CONCLUSION
For the foregoing reasons, Defendants’ Motions to Dismiss are DENIED as
to Counts I, II, III, V, and VI, are GRANTED without prejudice as to Count IV,
and are GRANTED with prejudice as to Count VII. RE/MAX Holdings, Inc.’s
Motion to Dismiss is GRANTED as to all counts. IT IS SO ORDERED.
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