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Morgan v. Carpenter

Court of Chancery of Delaware

December 18, 2014

KATHLEEN MORGAN, Plaintiff,
v.
DAVID CARPENTER, Defendant.

Submitted: September 30, 2014

Kathleen Morgan, prose, Plaintiff.

James S. Green, Sr., Esquire and Jared T. Green, Esquire, of SEITZ VAN OGTROP & GREEN, P.A., Wilmington, Delaware; Attorneys for Defendant.

MASTER'S REPORT (Motion to Dismiss)

LEGROW, Master

The plaintiff, whose wholly-owned corporation previously owned three successful sandwich franchises in Delaware, alleges that a former business associate breached an oral agreement, committed fraud, was unjustly enriched, and interfered with her business relations, among other things. The plaintiff, however, seeks only monetary damages and all but one of her claims are legal in nature. Because I conclude that the plaintiff fails to state a claim as to the only equitable claim alleged in the complaint, I recommend that the Court dismiss that claim with prejudice and dismiss the remaining claims without prejudice so the plaintiff may transfer the case to the Superior Court.

BACKGROUND

The following facts are drawn from the complaint and its exhibits, giving the plaintiff the benefit of all reasonable inferences. The plaintiff, Kathleen Morgan, is the sole shareholder of Turkeys Inc. ("Turkeys"), a Delaware corporation that - before the events at issue in this case - owned three Capriotti's franchises: Capriotti's Newark, Capriotti's Kirkwood, and Capriotti's Hockessin.[1] The defendant, David Carpenter, was a business associate of Ms. Morgan. Mr. Carpenter is one member of BDK Enterprises LLC ("BDK"), which is a Delaware limited liability company.[2] Mr. Carpenter previously invested in Turkeys' franchises and was a partner with Ms. Morgan and/or Turkeys in two Capriotti's franchises in Sussex County.[3]

The allegations underlying Ms. Morgan's current complaint (the "Complaint") arise from earlier litigation in this Court involving Ms. Morgan, another individual, Marc Ham, and their respective entities (the "APA Litigation"). In May 2011, Mr. Ham and an entity called Ham & Turkeys, LLC ("H&T") filed an action against Ms. Morgan and Turkeys seeking specific performance of an asset purchase agreement (the "APA").[4] Under the APA, Turkeys and Ms. Morgan purportedly agreed to transfer to H&T all of Turkeys' assets, including the three Capriotti's franchises, in exchange for $750, 000 and a 49% stake in H&T.[5] Shortly after the APA Litigation was filed, Turkeys and Ms. Morgan entered into third party funding agreement (the "TPF Agreement") with BDK, under which BDK agreed to pay up to $250, 000 to fund the defense of the APA Litigation.[6] In return for BDK's agreement to fund the litigation, Turkeys and Morgan executed a promissory note, secured by Turkeys' assets, along with an option (the "Option") that gave BDK a right

to purchase the Kirkwood Highway and Limestone Road franchises (each a „Target Store' and collectively the „Target Stores') including all assets of each Target Store (e.g., physical assets and equipment, accounts receivable, property leases, franchise rights, etc.), up to a maximum purchase price of $1, 000, 000 in the aggregate, inclusive of any funds advanced for litigation or other expenses.[7]

Ms. Morgan alleges that this Option was the product of a misunderstanding between herself and BDK, because Ms. Morgan thought the Option gave BDK the right to purchase one, rather than two, of Turkeys' franchises.[8] She asserts that she and Mr. Carpenter entered into a verbal agreement (the "Oral Agreement") on August 1, 2011 whereby Mr. Carpenter agreed to cancel the TPF Agreement, including the Option, if Ms. Morgan paid Mr. Carpenter $110, 409.50 and also paid the attorneys' fees BDK owed under the TPF Agreement.[9] Ms. Morgan contends the TPF Agreement, including the Option, was "legally annulled" by this Oral Agreement and that she relied on the Oral Agreement when she settled the APA Litigation on August 15, 2011.[10] The stipulated settlement signed by the parties to the APA Litigation required Turkeys and Ms. Morgan to pay Mr. Ham and H&T $1, 050, 000.00 in exchange for Turkeys retaining 100% ownership of its assets.[11]

Shortly after the settlement of the APA Litigation, Ms. Morgan contends she tendered payment to Mr. Carpenter as required by their Oral Agreement, but Mr. Carpenter refused to accept the payment and later enforced the Option, acquiring control of Turkeys' Newark and Kirkwood Highway franchises.[12]

Ms. Morgan alleges in the Complaint seven causes of action and seeks monetary damages in the amount of $3.5 million, plus such other and further relief as the Court deems just. The counts of the Complaint may be summarized as follows:

- Count I, although styled as a claim for "Breach of Contract Specific Performance, " does not actually seek specific performance and instead is a standard breach of contract claim in which Ms. Morgan alleges Mr. Carpenter breached their Oral Agreement to cancel the TPF Agreement and owes her damages caused by that breach.[13]
- In Count II, Ms. Morgan alleges that Mr. Carpenter tortiously interfered with her "business relations" by causing "the termination of the expected relationship with Diane Rizzo and expected settlement outcome of return of all three franchises to [Ms. Morgan]."[14] According to Ms. Morgan, she had the "assurance and confidence in Diane Rizzo as source of strong arm, witness and money, should the need arise, to meet terms of ā€˛Settlement Term Sheet'" in the APA Litigation, but Mr. Carpenter interfered with that ...

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