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Emory Hill and Co. v. Mrfruz LLC

Superior Court of Delaware, New Castle

September 24, 2013

Emory Hill and Company, Plaintiff,
v.
MRFRUZ LLC and Christiana Mall, LLC, Defendants.

Date Submitted: August 21, 2013

Upon Defendant Christiana Mall, LLC's Motion to Vacate Default Judgment – DENIED

Scott T. Earle, Esquire, Cohen, Seglias, Pallas, Greenhall & Furman, PC, Nemours Building, Attorney for Plaintiff.

Thomas C. Marconi, Esquire, Losco & Marconi, P.A., Attorney for Christiana Mall, LLC.

OPINION

Jan R. Jurden, Judge

Before the Court is a Motion to Vacate Default Judgment filed by Christiana Mall, LLC ("Christiana" or "Mall"). Pursuant to Superior Court Civil Rule 60(b), Christiana moves the Court to vacate on grounds of excusable neglect and because the judgment is void.

FACTS

Plaintiff Emory Hill and Company ("Emory Hill"), filed a Complaint and Statement of Mechanics' Lien ("Complaint") against Defendants on October 17, 2012, alleging that Mrfruz, LLC ("Mrfruz") failed to pay for construction materials and services provided by Emory Hill in connection with a "fit-out" of Mrfruz's yogurt stand at the Christiana Mall.[1] Emory Hill seeks to impose a mechanics' lien on the lands and premises which comprise a portion of Christiana Mall, and seeks to recover directly from Christiana based on quantum meruit, quantum valebant, and unjust enrichment.[2]

Christiana's registered agent was served in Delaware with the summons and Complaint on November 7, 2012.[3] On November 8, 2012, the registered agent forwarded a copy of the Complaint to Christiana's offices in Chicago, Illinois.[4]The Complaint was immediately sent to Christiana's managing agent, General Growth Properties, Inc. ("GGP").[5] On November 9, 2012, Frank Francone of GGP's legal department sent a copy of the Complaint to Christiana's tenant, MRF Atlantic, LLC, also known as Mrfruz, along with a demand that Mrfruz defend and indemnify Christiana in accordance with the terms of the lease between Christiana and Mrfruz.[6] Mrfruz accepted its responsibility to defend and indemnify Christiana by signing and returning Francone's demand letter.[7]

On November 16, 2012, Mrfruz's counsel, David M. Shafkowitz, Esquire, copied Francone on an email sent to Emory Hill's counsel, Scott Earle, Esquire.[8]In that email, Shafkowitz took issue with some of the expenses Emory Hill claimed, and stated: "… I want to confirm that you agreed to provide the appropriate extension of time to respond to the filing in this case…."[9]

On November 21, 2012, Earle responded to Shafkowitz's November 16, 2012 email stating, in pertinent part:

This email confirms that Mr. Fruzz [sic] has an extension to answer the complaint and no default judgment will be taken against Mr. Fruzz [sic].[10]

Francone was not copied on this email, and Shafkowitz did not forward it to him. Shafkowitz did, however, respond to a November 27, 2012 email from Francone requesting an update, stating:

Looks like they are reviewing our settlement proposal. He granted the necessary extensions of time to answer. If we do not have it resolved shortly I expect to have it removed for an arbitration. I will keep you posted.[11]

On December 11, 2012, Francone sent Shafkowitz another email requesting another update.[12] Shafkowitz did not respond to this request.[13] In his supplemental affidavit, Francone states that he has no recollection (or documentation) of taking any action after Shafkowitz failed to respond to his December 11th email.[14] Francone was not concerned, however, because he believed: (1) Christiana's interests were adequately protected based on Mrfruz's defense and indemnification agreement, (2) Shafkowitz's assurances that Mrfruz was engaged in settlement discussions, and (3) Shafkowitz's representations that Earle had granted the necessary extensions of time to answer the Complaint.[15]

Mrfruz was served with process on December 10, 2012.[16] Coincidentally, on December 11, 2012, the same day Francone emailed his second status request, Earle emailed Shafkowitz, informing him that Emory Hill believed Mrfruz was not acting in good faith and had until December 31, 2012 to answer the Complaint.[17]Earle stated in that same email:

The Christiana Mall LLC, the owner, has been served and has not yet answered the Complaint and Statement of Mechanics Lien and the time period for the owner to answer is now past due. The owner has never requested an extension of time to answer. Please advise through your client that the owner is required to answer the complaint, otherwise, default judgment will be taken against the owner.[18]

Francone was not copied on this email and there is no evidence to suggest that Shafkowitz forwarded it to him.[19]

There is no evidence of communication between Francone and Shafkowitz, or Francone and Earle, between December 10, 2012 and February 12, 2013. According to Francone, he was "heavily engaged in other work throughout the month of December" and then took a vacation during the holidays.[20] Francone returned to work on January 10, 2013, and called Shafkowitz sometime during that week to check on the case's status.[21] Shafkowitz assured Francone that "the status of the matter was unchanged" and he "expected a resolution in the near future."[22]

On January 30, 2013, both Defendants having failed to answer the Complaint, Emory Hill filed a Direction for Entry of Default Judgment against Mrfruz and Christiana.[23] Christiana was notified of the default on February 13, 2013.[24] Francone immediately engaged counsel and e-mailed Shafkowitz, demanding that the default judgment be dismissed. [25] Christiana's counsel entered an appearance the next day and filed the instant motion on April 26, 2013.[26]Notably, on March 4, 2013, Plaintiff's counsel filed a Suggestion of Bankruptcy as to Mrfruz.[27]

The Court heard oral argument on May 15, 2013, and granted Christiana leave to supplement Francone's affidavit in order to clarify what actions Francone took after his December 11, 2012 email went unanswered. The Court granted further supplemental briefing and held a second oral argument on August 21, 2013.

PARTIES' CONTENTIONS

Christiana argues the default judgment should be lifted and the case pursued on its merits based on Christiana's excusable neglect pursuant to Superior Court Civil Rule 60(b)(1). Christiana asserts its neglect is excusable because it acted promptly by tendering the Complaint to its tenant, Mrfruz, who accepted the obligation to defend and indemnify Christiana.[28] Christiana also claims excusable neglect based on Christiana's reliance on Shafkowitz's assurances.[29] Additionally, Christiana argues it can overcome Plaintiff's claims on the merits because the mechanic's lien is "fatally defective, "[30] Christiana did not receive a benefit from Plaintiff's work, [31] and vacating the judgment will not prejudice Plaintiff.[32] As a fallback, Christiana argues that the default judgment is void under Superior Court Civil Rule 60(b)(4) because Plaintiff failed to comply with Superior Court Civil Rule 4(f)(4).[33]

Plaintiff counters by arguing that Christiana's reliance on Shafkowitz was "foolish, " and "[a]lthough it had Delaware counsel, the Mall failed to properly answer…the Complaint, did not have its Delaware counsel enter its appearance, took no effort to confirm an extension with Plaintiff's counsel, and did not require verification" that the Mall had an extension of time to answer.[34] Moreover, Plaintiff argues that the improvements made on Mall premises, including HVAC, electrical, and plumbing work, inure to Christiana and Christiana will be unjustly enriched if the judgment is vacated.[35] Because the improvements were approved by Christiana and made in accord with the Christiana –Mrfruz lease, Plaintiff claims it will be inequitable for Christiana to maintain the benefits without compensating Emory Hill.[36] Plaintiff also argues it will be substantially prejudiced because any amendment to the mechanic's lien (to overcome Christiana's "numerous 'hyper-technical' arguments alleging [lien] defect") will be time-barred.[37] Lastly, Plaintiff argues that Christiana's Rule 4(f)(4) argument misconstrues the law and this case's facts.[38]

DISCUSSION

Standard

Pursuant to Superior Court Civil Rule 60(b), the Court may relieve a defendant of a default judgment if the defendant can show either excusable neglect or that the judgment is void.[39] Delaware courts look favorably on motions to vacate default judgments "because they promote Delaware's strong judicial policy of deciding cases on the merits."[40] Accordingly, Rule 60(b) should be construed liberally to give effect to that underlying policy. [41] For this Court to grant relief from a default judgment because of excusable neglect, the defendant must show: "(1) excusable neglect in the conduct that allowed the default judgment to be taken; (2) a meritorious defense to the action that would allow a different outcome to the litigation if the matter was heard on its merits; and (3) [] that substantial prejudice will not be suffered by the plaintiff if the motion is granted."[42] The defendant must first establish excusable neglect before this Court will consider whether a meritorious defense or prejudice to the plaintiff exists.[43]

Excusable Neglect

Excusable neglect is neglect that "might have been the act of a reasonably prudent person under the circumstances."[44] Doubt should be resolved in favor of the movant, [45] but "litigants and their counsel may not be allowed with impunity to disregard the process of the Court."[46] "A mere showing of negligence or carelessness without a valid reason may be deemed insufficient."[47] Ultimately, a motion to vacate default judgment pursuant to Rule 60(b)(1) "is addressed to the sound discretion of the trial court."[48]

Christiana concedes that it was negligent[49] and that in "hindsight, " it was "foolish for [Christiana] to believe that Mr. Shafkowitz was looking out for Christiana's interest[s….]"[50] The issue is whether Christiana's admitted negligence is excusable under the circumstances presented here. Christiana did not engage or consult with its own counsel upon receipt of the Complaint because it relied on Mrfruz, pursuant to Mrfruz's obligation to defend and indemnify Christiana. Francone believed, based on that obligation and Shafkowitz's November 27, 2012 email, that Mrfruz was engaged in good faith negotiations with Emory Hill and that both Christiana and Mrfruz had an extension of time to answer.[51] The question becomes, then, was it reasonable for Francone to rely on Shafkowitz's assurances, especially after Shafkowitz failed to respond to Francone's December 11, 2012 email?

When Shafkowitz failed to respond to Francone's December 11, 2012 email, Francone should have followed up immediately with Shafkowitz and/or engaged Christiana's retained counsel immediately if Shafkowtiz was not responding. Instead, Francone ignored the Complaint for weeks and went on vacation. He did so without knowing how long an extension Shafkowitz had obtained and whether Emory Hill knew Shafkowtiz was purportedly representing Christiana. Emory Hill contends that Francone never made contact with Shafkowitz in mid-January, despite Francone's affidavit saying that to the best of his knowledge he did.[52] Doubts about excusable neglect are resolved in favor of the movant, [53] so the Court will assume that Shafkowitz assured Francone in mid-January that Emory Hill and Mrfruz were still pursuing settlement, and that everything was fine. Additionally, the Court will resolve doubts about warning signs of Mrfruz's insolvency in favor of Christiana because Emory Hill has not offered any proof about when Christiana's problems with Mrfruz began.[54]

For approximately two and a half months after Christiana was required to answer the Complaint, it was only minimally involved in resolving the dispute because counsel for the party responsible for defending and indemnifying Christiana assured Christiana that he was engaged in the process of settlement and impliedly represented that an extension had been granted to both parties.[55]Christiana reasonably expected its tenant to resolve the situation with Emory Hill because its tenant had a legal duty to defend and indemnify Christiana.[56]

As soon as notice of the default was communicated to Christiana, Christiana contacted Mrfruz's counsel, [57] engaged its own counsel, and entered an appearance with the Court.[58] Christiana was negligent, but its actions did not amount to "sheer indifference" or "without reason."[59] Here, Christiana's failures were ultimately based upon Mrfruz's agreement to defend and Shafkowitz's representations. Resolving doubts in Christiana's favor, and based upon the facts of this case, the Court finds that Christiana's neglect was excusable.[60]

Meritorious Defense

In addition to showing its neglect was excusable, Christiana must show that it has a meritorious defense and that the Emory Hill will not be substantially prejudiced if the judgment is vacated.[61] To assert a "meritorious defense, " Christiana need only show that there is a possibility of a different result.[62]

Christiana asserts six defenses to Emory Hill's claims.[63] While Emory Hill accuses Christiana of "misstat[ing] fact and misapply[ying] the law to create the appearance of several meritorious defenses, " it does not contest all of the defects alleged by Christiana.[64] In particular, Emory Hill does not dispute that its affidavit in support of the Statement of Mechanics' Lien[65] is avowed to be "true and correct to the best of [the affiant's] knowledge."[66] This Court has repeatedly found statements of mechanics' liens defective—and has not allowed plaintiffs to amend if the time period for filing has passed—when the accompanying affidavit includes qualifying language to the statutorily required avowal that the mechanics' lien claim is "true and correct."[67] Because at least one of the uncontested defects alleged by Christiana may result in dismissal of the claim, Christiana has shown a meritorious defense to the mechanics' lien claim.

Christiana also claims that it can defend itself against Emory Hill's claims of quantum meruit and quantum valebant, [68] and unjust enrichment[69] because Emory Hill outfitted Christiana's rental suite for the operation of a frozen yogurt business by Mrfruz, and Christiana has not received a benefit from any "improvements" made to the unit.[70]

To establish a claim of quantum meruit against Christiana, Plaintiff must show: (1) that the services were performed by Emory Hill with the expectations that "the recipient of the benefit would pay for them;" and (2) "that the services were performed. . . under circumstances which should have put the recipient of the benefit upon notice that the plaintiff expected to be paid."[71] A claim of quantum valebant is established by showing "that the defendant received materials from the plaintiff and enjoys the benefit of them."[72]

Christiana argues that the circumstances under which Emory Hill undertook fit-out work for Mrfruz were not such that Emory Hill could reasonably expect payment from Christiana.[73] Plaintiff correctly notes that recovery under a claim of quantum meruit is for the reasonable value of the services, not the value of the benefit received.[74] This argument, however, does not address Christiana's assertion that it was not reasonable for Emory Hill to expect Christiana to pay for fit-out work for a tenant's frozen yogurt stand. Christiana's argument may not be successful, but it does constitute a meritorious defense to Count VI of the Complaint.

"Unjust enrichment is defined as the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience." [75] It is "based on an unjustified enrichment of one party and resulting impoverishment of another party, in the absence of a remedy at law."[76] Emory Hill maintains that the work it completed (namely, installation of an HVAC system, electrical work, plumbing, and a fire sprinkler system) will benefit Christiana because the work involved generic improvements, completed in compliance with Christiana's own specifications.[77] Given this fact, Emory Hill asserts that Christiana's claim that the Mrfruz improvements are useless to the Mall is faulty and fails to allege a valid defense to unjust enrichment.[78] Christiana counters that it has not been enriched by the "improvements" to the rental space because it is not in the frozen yogurt business, and, once Mrfruz is evicted, Christiana will likely incur expenses removing the work in order to make way for a new tenant.[79] Christiana may not prevail in its argument that it has not been "enriched" by the work done by Emory Hill, but it has alleged a meritorious defense to Count V of the Complaint.

Substantial Prejudice

Christiana has alleged meritorious defenses to the Complaint's claims, however, it must also show that Emory Hill will not suffer substantial prejudice if the default judgment is vacated.[80] The mechanics' lien statute is strictly construed.[81] Failure to comply with the requirements of the mechanics' lien statute[82] means failure to assert a mechanics' lien claim.[83] Consequently, amendments to mechanics' lien claims are generally not allowed once the time for filing a statement of mechanics' lien has passed.[84] Emory Hill argues that it will be substantially prejudiced if the default judgment is vacated because it is now well past the statutory filing period.[85]

Although this Court has allowed amendments when the amendment has not changed the nature of the claim, [86] generally, amendments are not permitted after the filing period has passed.[87] If this Court were to vacate the default judgment in this case, Emory Hill might successfully move to amend some of the alleged defects in its Complaint, but others, like the improper inclusion of the phrase "to the best of my knowledge, " in an otherwise valid affidavit, will almost certainly be fatal.[88]

The fact that Defendant has a defense that will almost certainly result in the dismissal of the claim is not ordinarily, in itself, a source of "prejudice" to the Plaintiff. It is the Plaintiff's responsibility to properly plead the claim. Nevertheless, Emory Hill argues the it would not be fair for Christiana to advance (and possibly prevail on) "hyper-technical" arguments at this stage.[89] Emory Hill filed its mechanics' lien claim well before the statutory period for filing had run.[90]If Christiana had responded to the Complaint in a timely manner, Emory Hill would have had approximately two full months left to amend the Complaint before the statutory filing period had run. The loss of the opportunity to amend technical defects in the strict, statutorily regulated mechanics' lien proceeding, due to the neglect of the opposing party, is substantially prejudicial to Emory Hill.

Unlike other situations where this Court may freely allow amendments to a statement of claim, [91] amendments to a statement of claim in mechanics' liens proceedings are not allowed after a certain time period has lapsed in the absence of statutory authority.[92] Authority to grant the right to amend, as equitable as it may be under these circumstances, "should come from the General Assembly in view of the passage of time, " not from this Court.[93] Thus, the question is, "under all of the circumstances of this case, would it be in furtherance of justice to open the default judgment and to permit the defendants to interpose a defense to the action?"[94]

Although Emory Hill's initial complaint does not strictly comply with the statutory requirements of the mechanics' lien statute, Christiana's neglect is the reason why Plaintiff lost its statutorily allowed opportunity to amend. Had Christiana answered the Complaint in a timely manner in compliance with 25 Del. C. § 2716 and Superior Court Rule 12(a), Emory Hill would have been able to amend.[95] By Christiana's own admission, had Emory Hill been able to amend, Defendant's defenses would be rendered invalid, resulting in a judgment for Emory Hill on the merits.[96] Considering all of the circumstances of this case, it would not be in the furtherance of justice to open this default judgment in light of the resulting substantial prejudice to Emory Hill.[97]

Voidness

Christiana argues that the default judgment is void because Emory Hill failed to comply with Superior Court Civil Rule 4(f)(4)[98] in two respects. First, Christiana argues that Plaintiff's affidavit fails to include proof that the Notice to Lien Holders and Tenants of Filing of Action was posted on the Mall's property.[99]Second, Christiana argues that Plaintiff failed to send a copy of the Notice to other tenants with leasehold interests.[100]

Initially, the Court notes that failure to provide case law in support of an argument "will result in the Court deeming such legal arguments waived, "[101] and that the default judgment here is potentially voidable, not void.[102] Although Christiana has offered no case law in support of its voidness arguments, the Court has considered them.

As to posting, the record reflects that the New Castle County Sheriff's Office filed an amended return of service, evidencing that the Notice to Lienholders was posted on Christiana Mall's "Zone A" on November 9, 2012.[103]The record further reflects that Plaintiff fully complied with the procedures set forth in Rule 4(f)(4). Therefore, the judgment is not voidable on this ground.

As to notice, Christiana's argument that Plaintiff failed to notify two additional lienholders is based on the Mall's 2003 deed, which includes two non-party entities as lienholders.[104] The two lienholders listed on the ten-years old deed are not part of the parcel's Title of Record, [105] and Christiana failed to rebut that. Moreover, on this Rule 4(f)(4) notice argument, Christiana lacks standing.[106]Therefore, the judgment is not voidable on this basis.

CONCLUSION

For the reasons set forth above, Defendant's Motion to Vacate Default Judgment is DENIED.

IT IS SO ORDERED.


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