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Adler v. Hummock Island Shellfish, LLC

Superior Court of Delaware

January 7, 2019

JOSHUA ADLER, Plaintiff,

          Date Submitted: October 9, 2018




         Hummock Island Shellfish, LLC (Hummock Island) is a Delaware LLC with its principal place of business in Westport, Connecticut. Hummock Island began operations in 2014. In an effort to raise capital, Hummock Island and Joshua Newman on behalf of Outlier Capital, LLC began negotiations for Outlier to invest in Hummock Island. Hummock Island and Outlier entered into a Note Purchase Agreement (NPA) on February 15, 2014. Under the NPA various convertible promissory notes were issued. The only convertible promissory note in the record is a note for the amount of $50, 000, dated February 15, 2014, hereinafter labeled the "Note." The Note before the Court is a convertible promissory note, payable to the order of Outlier Capital. The Note is convertible into a membership interest unit in Hummock Island upon certain conditions. The NPA specifies the mechanics of conversion as well as the right to convert the Note.

         Prior to the issuance of the Note, Outlier invested a total of $15, 000 in Hummock Island. This investment was used by Hummock Island for the purchase of seedlings for its shellfish business.[1]

         Joshua Adler (Plaintiff) had his own relationship with Outlier and Newman, wholly unrelated to the Outlier/Hummock Island relationship. On March 16, 2015, Plaintiff filed a civil complaint in this Court against Outlier Capital and Newman individually.[2] That action sought damages for breach of contract, and guarantor obligations. On May 14, 2015, default judgment was entered in favor of Plaintiff against Newman and Outlier in the amount of $127, 396.51. On July 31, 2015 a Writ of Attachment Fieri Facias was issued by the Court ordering Hummock Island, as garnishee, to declare and retain "all money, goods, credits and effects, stocks, bonds, personal property, and/or real estate" belonging to Outlier.

         On August 28, 2017 Plaintiff and Newman, on behalf of Outlier, entered into a Settlement Agreement by which Newman purported to assign the Hummock Island NPA, a $100, 000 convertible promissory note, and a $50, 000 promissory note in satisfaction of the Judgment against Outlier.

         Parties Assertions

         Adler asserts the assignability of a right to damages for breach of contract permits bringing this action in his own name. Plaintiff argues he has the right to bring an action to enforce all of the rights and interests previously held by Outlier.

         Plaintiff argues he is entitled to partial Summary Judgment on his breach of contract claim for the amount of the initial investment made by Outlier. Plaintiff claims the NPA and the Note are valid and enforceable contracts, under which all conditions precedent have been satisfied. Plaintiff alleges Hummock's failure to repay any sum owed on the Note constitutes a default, entitling him to recover 1) the unpaid principal indebtedness of $15, 000 paid by Outlier, 2) accrued interest thereon, and 3) all of his reasonable legal expenses, including attorney's fees pursuant to the NPA.

         In the alternative, Plaintiff argues, under a theory of unjust enrichment he is entitled to the initial investment plus accrued interest. Plaintiff argues Hummock Island retained the benefit of the Outlier funds, and has not repaid any principal or accrued interest, to his detriment.

         Hummock Island contends Plaintiff's Motion is based on the flawed predicate that the Note and NPA were validly assigned to Plaintiff. Defendant argues Outlier failed to substantially comply with its obligations under either the NPA or the Note, therefore Plaintiff cannot recover under a theory of breach of contract.

         Defendant states the Note and NPA create a membership interest in the LLC, and that a Transfer of a membership interest not in accordance with the terms of the LLC operating agreement is null and void. In support, Defendant argues the Note imposed an obligation on Outlier to surrender the Note to Defendant in order to effect a transfer to another party. Defendant asserts that the Note was not surrendered in accordance with this obligation.

         Defendant additionally raises an issue with the reasonableness of Plaintiff's reliance on the factual representations made by Newman in assigning his rights under the Note and NPA. Defendant claims the Settlement Agreement purports to assign the $50, 000 Note in the record as well as the superseded $100, 000 note. Furthermore, Defendant points to Plaintiff's Demand for Arbitration of the dispute with Outlier. Defendants argue Plaintiff's own characterization of Newman as a "con man" in ...

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