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Bank of Delmarva v. South Shore Ventures, LLC

Superior Court of Delaware, Sussex

October 21, 2014

Bank of Delmarva
v.
South Shore Ventures, LLC

Dear Parties:

This is yet another casualty of the boom-bust real estate economy of the last several years. Before the Court is the Bank of Delmarva's ("Bank") motion for summary judgment as to all of Defendant John E. O'Brien's ("Defendant") counterclaims. Defendant alleges Bank breached fiduciary duties owed to Defendant by failing to notify Defendant of its submission of a claim under Bank's title insurance policy regarding a defect in the property's title. Defendant also claims Bank breached the implied covenant of good faith and fair dealing by failing to inform Defendant of Bank's insurance claim. Lastly, Defendant asserts Bank was negligent because it failed to select a competent appraiser and improperly reviewed and verified the information contained in the appraisal of the property.[1] For the following reasons, Bank's motion for summary judgment is GRANTED.

Facts

In 2005, Defendant, along with South Shore Ventures, LLC ("Shore") and Clayton Evans ("Evans) (collectively, "the Defendants") sought financing from Bank for a development project for property located in Greenwood, Delaware; the project was known as "The Cove." Defendants executed a bond in favor of Bank in the amount of $500, 000, the original principal amount. Defendants also took out a title insurance policy in favor of Bank from Old Republic Title Insurance Company, as per the loan agreement. Bank and the Defendants began negotiating modifications to the loan agreement in 2010, but due to several discrepancies with the property's title, the modifications never were executed. The Defendants ultimately defaulted on their obligations under the loan agreement.

Procedural History

On May 13, 2013, Bank filed an action for breach of a promissory note against Shore, Defendant, and Evans. Bank amended its complaint, and default judgment was entered against Evans. Shore and Defendant answered Bank's amended complaint and asserted counterclaims. Bank then moved for summary judgment on its claims against Shore and Defendant, which this Court granted. Shore failed to prosecute its counterclaims and its defense counsel moved to withdraw from representation. The Court permitted the withdrawal only if Shore obtained new counsel. When Shore failed to obtain new counsel, the Court dismissed its counterclaims with prejudice. Bank now moves for summary judgment against Defendant's counterclaims.

Standard of Review

This Court may grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."[2] However, a motion for summary judgment should not be granted when material issues of fact are in dispute or if the record lacks the information necessary to determine the application of the law to the facts.[3] A dispute about a material fact is genuine "when the evidence is such that a reasonable jury could return a verdict for the nonmoving party."[4] Therefore, the issue is "whether the evidence presents a sufficient disagreement to require submission to a [fact finder] or whether it is so onesided that one party must prevail as a matter of law."[5]

Although the moving party for summary judgment initially bears the burden of demonstrating that the undisputed facts support his legal claims, once the movant makes this showing, the burden "shifts" to the non-moving party to demonstrate there are material issues of fact for resolution by the ultimate fact-finder.[6] When considering a motion for summary judgment, the Court must view the evidence in the light most favorable to the nonmovant.[7]

Discussion

Counterclaim I: Breach of Fiduciary Duty

A fiduciary relationship is formed when one person bestows a special trust in another or where a special duty exists on the part of one person to protect the interests of another.[8] The relationship connotes one party's trust, reliance, and dependancy on another.[9] While Delaware case law has recognized that certain aspects of a commercial relationship implicate fiduciary duties between the parties, the mere existence of a commercial relationship does not mean a party owes such obligations.[10]

In Delaware, the Court of Chancery has exclusive jurisdiction to adjudicate claims for breach of a fiduciary duty.[11] Chancery maintains jurisdiction over such claims because equity, not law, is the source of the asserted right.[12] In Reybold Venture Group XI-A, LLC v. Atl. Meridian Crossing, LLC, plaintiff claimed it was entitled to $1, 500, 000 in deposits tendered by defendant under contracts for the purchase of two residential communities.[13] Defendant counterclaimed it was entitled to a refund of those deposits because it was excused from closing due to plaintiff's breach of fiduciary duties.[14] As with Defendant's counterclaim in the instant case, defendant in Reybold argued that because it was only seeking monetary damages, a legal remedy, Superior Court had jurisdiction to hear the dispute.[15] Superior Court refused to exercise jurisdiction, finding that Delaware case law clearly established that a breach of a fiduciary duty is an equitable cause of action and Chancery Court has exclusive jurisdiction over such claims, regardless of the remedy sought.[16]

If a fiduciary relationship was formed between Bank and Defendant regarding the loan agreement and insurance policy, this Court is unable to entertain Defendant's claim. Summary judgment is appropriate as to Defendant's first counterclaim because the Court lacks subject matter jurisdiction. Violations of fiduciary relationships are purely equitable causes of actions, even if the only remedy sought is one of ...


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