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Morgan v. Scott

Supreme Court of Delaware

September 22, 2014

KATHLEEN MORGAN, Plaintiff-Below, Appellant,
GEOFFREY SCOTT, Defendant-Below, Appellee.

Submitted: June 27, 2014

Court Below: Superior Court of the State of Delaware, in and for New Castle County C.A. No. N11C-12-066

Before STRINE, Chief Justice, HOLLAND, and RIDGELY, Justices.


Leo E. Strine, Jr. Chief Justice

This 22nd day of September 2014, upon consideration of the parties' briefs and the record on appeal, it appears to the Court that:

(1) The defendant-appellant, Kathleen Morgan, filed this appeal from a Superior Court order dated October 17, 2013, which granted the plaintiff-appellee, Geoffrey Scott's, motion for judgment as a matter of law.[1] Among other things, the Superior Court entered judgment against Morgan in the amount of $298, 000. We find no basis to overturn the judgment on appeal. Accordingly, we affirm.

(2) Scott filed a complaint against Morgan in December 2011 seeking to recover money he gave to Morgan under an oral agreement. Scott and Morgan have known each for several decades. Beginning in 1991, Scott occasionally would loan money to Morgan and her business entities, Turkeys, Inc. and Cindee, Inc., [2] to assist in their acquisition or operation of several Capriotti's Sandwich Shop franchises in Delaware. Sometimes the parties would reduce the loan agreement to writing; sometimes they would not. Sometimes the loan agreement only required Morgan to pay back the principle loan amount in monthly installments; other loan agreements guaranteed that Scott would receive a minimum monthly payment amount of principle or a monthly payment of 3% of the gross sales of the store for which the loan was given, whichever amount was greater.

(3) In 2011, Morgan and Turkeys, Inc. entered into an asset purchase agreement ("APA") with Marc Ham. The APA purportedly required Turkeys, Inc. to transfer 100% of its assets (including its three Capriotti's franchises located in Newark and Hockessin and on Kirkwood Highway) to a new entity called Ham & Turkeys, Inc. The APA provided that Ham would own 51% of Ham & Turkeys, Inc. and Morgan would own 49%. Ultimately, Ham sued Morgan and Turkeys, Inc. on May 17, 2011 in the Court of Chancery seeking, among other things, specific performance of the APA.

(4) On May 25, 2011, Morgan entered into a third-party litigation funding agreement with BDK Enterprises, LLC, which is owned and operated by David Carpenter. Under that agreement, BDK agreed to advance money to Morgan up to $250, 000 to fund her litigation with Ham. The agreement also gave BDK the option to purchase two of the Capriotti's franchises.[3] In August 2011, Ham and Morgan reached a settlement agreement.

(5) On August 15, 2011, Scott wired $298, 000 into the escrow account of Morgan's attorney. Scott testified that he had borrowed the $298, 000 from WSFS Bank by securing mortgages on his home in Wilmington and his home in Rehoboth. He testified that he loaned the money to Morgan because the two were romantically involved at that point in time and were talking about marriage. He stated that he trusted her to pay back the money as she had done with past loans. He believed that Morgan needed the $298, 000 to pay her attorneys to allow her to continue pursuing the Ham litigation. Scott testified that Morgan had agreed to make interest payments on the loan while the Ham litigation was ongoing and that she agreed to pay off the loan balance when the litigation was over. The agreement was never reduced to writing.

(6) In the month following her receipt of the $298, 000, Morgan made an interest-only payment on the loan. The next month, Morgan did not make any payment. Scott testified that he first learned in October that the Ham litigation had been dismissed with prejudice based on the parties' settlement. Scott filed a complaint against Morgan and Turkeys, Inc. in December 2011 in the Superior Court seeking over $565, 000 in damages. The complaint was later amended to reduce the amount of damages to $318, 000, which represented a $20, 000 loan made solely to Turkeys, Inc. and the $298, 000 loan to Morgan and Turkeys, Inc. relating to the Ham litigation.

(7) On the eve of the September 2013 trial date, Morgan filed a motion to dismiss for lack of jurisdiction or, alternatively, to transfer the litigation to the Court of Chancery. On September 18, 2013, Morgan and Turkey's, Inc. filed a complaint against Scott, David Carpenter, and BDK in the Court of Chancery. Among other things, Morgan and Turkey's, Inc. sought reformation of the agreement with Scott concerning repayment of the $298, 000. Morgan asserted that she was entitled to reformation of the agreement to reflect the parties' true intent that the money advanced by Scott was intended to be an investment, not a loan, upon which a return would be realized by Scott only if Morgan retained control of at least two of the Capriotti's franchises.

(8) The Superior Court did not rule on Morgan's motion to dismiss or transfer immediately. Instead, Scott's complaint proceeded to a jury trial that was held on September 23-25, 2013. Scott testified at trial that the $298, 000 was intended to be a loan that Morgan would pay back after the Ham litigation was resolved. Scott testified that repayment of the loan was not conditioned on the outcome of the Ham litigation.

(9) Morgan testified to the contrary. She testified that the money was an investment by Scott and that the parties had agreed that Scott would only be repaid the $298, 000 if, at the conclusion of the Ham litigation, she retained control of at least two of the Capriotti's franchises. Morgan testified that Scott participated in settlement discussions regarding the Ham litigation, and he understood that the ...

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