United States District Court, D. Delaware
EDSON R. ARNEAULT, et al., Plaintiffs,
DIAMONDHEAD CASINO CORPORATION., Defendant.
HONORABLE LEONARD P. STARK UNITED STATES DISTRICT JUDGE.
Wilmington this 4th day of June,
before the Court is Plaintiffs Edson R. Arneault, Kathleen
Devlin, James Devlin, J. Steven Emerson, Emerson Partners, J.
Steven Emerson Roth IRA, Steven Rothstein, Barry Stark, and
Irene Stark's (collectively, “Plaintiffs”)
Motion for Summary Judgment (D.I. 39) against Defendant
DiamondHead Casino Corporation (“DiamondHead” or
“Defendant”) on Plaintiffs' cause of action
for breach of the debenture agreement and Defendant's
counterclaim for damage to Defendant as a result of
Plaintiffs' breaches. Having reviewed the parties'
briefs and accompanying declarations and exhibits (D.I. 40,
41, 42, 44, 45, 46) and having heard oral argument on April 2
(see D.I. 55), IT IS HEREBY ORDERED
that Plaintiffs' motion is DENIED for
the following reasons:
Under Rule 56(a) of the Federal Rules of Civil Procedure,
“[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of
law.” The moving party bears the burden of
demonstrating the absence of a genuine issue of material
fact. See Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 585-86 (1986). An assertion
that a fact cannot be - or, alternatively, is - genuinely
disputed must be supported either by “citing to
particular parts of materials in the record, including
depositions, documents, electronically stored information,
affidavits or declarations, stipulations (including those
made for purposes of the motion only), admissions,
interrogatory answers, or other materials, ” or by
“showing that the materials cited do not establish the
absence or presence of a genuine dispute, or that an adverse
party cannot produce admissible evidence to support the
fact.” Fed.R.Civ.P. 56(c)(1)(A) & (B). If the
moving party has carried its burden, the nonmovant must then
“come forward with specific facts showing that there is
a genuine issue for trial.” Matsushita, 475
U.S. at 587 (internal quotation marks omitted). The Court
will “draw all reasonable inferences in favor of the
nonmoving party, and it may not make credibility
determinations or weigh the evidence.” Reeves v.
Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150
defeat a motion for summary judgment, the nonmoving party
must “do more than simply show that there is some
metaphysical doubt as to the material facts.”
Matsushita, 475 U.S. at 586; see also Podobnik
v. U.S. Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005)
(stating party opposing summary judgment “must present
more than just bare assertions, conclusory allegations or
suspicions to show the existence of a genuine issue”)
(internal quotation marks omitted). The “mere existence
of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary
judgment;” a factual dispute is genuine only where
“the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
“If the evidence is merely colorable, or is not
significantly probative, summary judgment may be
granted.” Id. at 249-50 (internal citations
omitted); see also Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986) (stating entry of summary judgment is
mandated “against a party who fails to make a showing
sufficient to establish the existence of an element essential
to that party's case, and on which that party will bear
the burden of proof at trial”). Thus, the “mere
existence of a scintilla of evidence” in support of the
nonmoving party's position is insufficient to defeat a
motion for summary judgment; there must be “evidence on
which the jury could reasonably find” for the nonmoving
party. Anderson, 477 U.S. at 252.
Court ADOPTS Plaintiffs' Statement of
Undisputed Material Facts (D.I. 41), which Defendant does not
dispute. The following facts in this paragraph are pertinent
and undisputed: The First Tranche Debentures and Second
Tranche Debentures have the following identical notice
SECTION 7.3. Notice. Where this
Debenture provides for notice of any event,
such notice shall be given (unless otherwise herein expressly
provided) in writing and either (i) delivered personally,
(ii) sent by certified, registered or express mail, postage
prepaid or (iii) sent by facsimile or other electronic
transmission, and shall be deemed given when so delivered
personally, sent by facsimile or other electronic
transmission (confirmed in writing) or mailed.
Notices shall be addressed, if to
Holder, to the address of Holder appearing in the Debenture
register referred to in Section 7.1 or, if to the
Company, to its principal office. However, to
the extent any notice required pursuant to this Debenture is
also furnished to stockholders of the Company, the Company
will furnish to Holder all such notices and materials as and
when and in the same manner in which such notices and
materials are furnished to its stockholders.
(D.I. 23-2 at 11, 22) (emphasis added) The debentures also
have identical cure provisions, which provide Defendant with
a cure period of 30 days “after there has been given to
the Company by the Holder a written notice specifying such
default and requiring it to be remedied.” (Id.
at 10, 21) On August 17, 2016, Jeffrey Wurst of Ruskin Moscou
Faltis Chek P.C. (the “Ruskin Firm”) sent a
letter on behalf of Plaintiffs to Defendant - addressed to
the attention of Deborah Vitale, President, at 1866 Carpenter
Road, Alexandria, Virginia 22314 (the “Carpenter Road
address”) - advising Defendant that it had failed to
pay interest to Plaintiffs on March 1, 2016 as obligated
under the debentures and notifying Defendant that “the
outstanding principal plus all accrued and unpaid interest
under each of their Debentures is now due and payable.”
(D.I. 42-5) (the “August 2016 Letter”) On
February 12, 2018, a second notice of default was sent to
Defendant, addressed to the attention of Deborah Vitale,
President, at 1013 Princess Street, Alexandria, Virginia
22314 (the “Princess Street address”) and at 1301
Seminole Boulevard, Largo, Florida 33770 (the “Largo
address”). Defendant remains in default of its
obligation to make the March 1, 2016 interest payment and
each payment thereafter.
Court further finds, based on copious evidence, that
Defendant's principal office address is the Princess
Street address and that Plaintiffs were fully aware of
Defendant's principal office address at the time that the
August 2016 Letter was sent to the Carpenter Road address.
The cover pages of Defendants' public annual and
quarterly reports filed with the U.S. Securities and Exchange
Commission, which requires the filer to list the address of
principal executive offices, lists the Princess Street
address. (See D.I. 44-4, 44-5) The Private Placement
Memorandum, Offering documents, and Offers to Amend also list
the Princess Street address and no other address.
(See D.I. 44-6 at 32; D.I. 44-7 at 1) The cover
letters addressed to Plaintiffs that accompanied the April
20, 2015 interest payments were written on Defendant's
stationary listing the Princess Street address and no other
address. Moreover, there is evidence that the Ruskin Firm,
who sent the August 2016 Letter, had previous knowledge of
Defendant's principal office address. (See D.I.
44 at 9-10) There is no genuine dispute that the Carpenter
Road address is a private residence and was never used for
business purposes. There is no evidence that makes
Defendant's principal office address - or Plaintiffs'
knowledge of it - genuine issues in dispute.
While Ms. Vitale admits that she eventually saw the August
2016 Letter sometime “after the thirty day cure period
had come and gone, ” there is no evidence of when she
received, opened, or read the August 2016 Letter - other than
it being on some unspecified date - between August 17, 2016
and October 18, 2018 (the date of her declaration). (D.I.
44-3 at 5)
Defendant argues that Plaintiffs failed to satisfy material
conditions precedent in the debentures in two ways: (1)
“by wrongly accelerating the amount due by including
principal as well as interest in their demand for payment,
” and (2) by failing to provide notice to Defendant at
its principal office address with an opportunity to cure.
(D.I. 44 at 13) The Court concludes that Plaintiffs have not
breached the debentures by demanding payment of both interest
and principal. Section 6.2 of the debentures provides that in
the Event of Default, Plaintiffs “may declare the
Debenture to be due and payable immediately” and demand
payment of “the outstanding principal amount . . . plus
all accrued and unpaid interest.” (D.I. 23-2 at 9)
Having already determined that the Princess Street address is
Defendant's only principal office address, the Court now
concludes that Plaintiffs failed to literally comply with the
notice provision in the debentures. This does not end the
analysis because Delaware courts sometimes hold that
substantial compliance with a contractual notice provision is
appropriate in order to avoid harsh results where the purpose
of the notice requirements has otherwise been met. See,
e.g., Gildor v. Optical Sols., Inc., 2006 WL
4782348, at *7-8 (Del. Ch. June 5, 2006). Substantial
compliance is achieved when, “despite deviations from
contract requirements, [the notice] provides the important
and essential benefits of the contract.” Id.
at 8 (internal quotation marks omitted). Courts have found
substantial compliance even when the notice contained the
wrong address. See, e.g., Food Auth., Inc. v.
Sweet & Savory Fine Foods, Inc., 2011 WL 477714, at
*3 (E.D.N.Y. Feb. 4, 2011) (finding substantial compliance
when notice was actually received even though it listed
incorrect address); Ray v. Metropolitan Life Ins.
Co., 858 F.Supp. 626, 628 (S.D. Tex. 1994) (finding
“receipt of the notice at the wrong address was
substantial performance”). However, in those cases,
actual notice had been achieved before the lawsuit was filed.
Here, by contrast, there is a genuine issue of material fact
regarding when Defendant actually received and read
Plaintiffs' written notice (i.e., before or after the
complaint was filed) and, therefore, whether Plaintiffs'
August 2016 Letter can be found to constitute substantial
compliance with Plaintiffs' notice obligations.
Moreover, as Delaware courts have recognized, filing a
complaint is not itself adequate notice of an Event of
Default, because “accepting this argument would
effectively read the notice provision straight out of the
[contract].” U.S. Bank Nat'l Ass'n v. U.S.
Timberlands Klamath Falls, L.L.C., 2004 WL 1699057, at
*3 (Del. Ch. July 29, 2004) (granting defendant's motion
to dismiss, because contract provisions “clearly
evidence an intent that litigation be pursued only after
notice and an opportunity to cure, ” so plaintiff
“did not have authority to bring these claims when it
did”). Accordingly, Plaintiffs' complaint does not
qualify as notice under the debentures.
the alternative, Plaintiffs argue that proper notice would
have been futile, because “Defendant is without
resources to pay its day-to-day expenses, ” as a result
of its substantial debt and insolvency. (D.I. 45 at 5-6)
“The contractual obligation to provide pre-suit notice
and opportunity to cure may be excused where such notice
would be futile in achieving its intended purpose. Our courts
generally have recognized that the law does not require a
futile act.” Cornell Glasgow, LLC v. LaGrange
Props., LLC, 2012 WL 6840625, at *13 (Del. Super. Ct.
Dec. 7, 2012) (internal quotation marks omitted). The Court
finds that there is a genuine issue of material fact as to
whether notice before the complaint was filed would have been
futile. While Plaintiffs set forth Defendant's
“dire financial status” in their reply brief
(D.I. 45 at 6-7), Defendant's Director, Gregory Harrison,
attests that “notice to the Company would not have been
futile” because he “was in a position to pay the
interest due on the debentures [on behalf of the Company] and
[he] would have done so.” (D.I. 44-2 at 3) Mr. Harrison
states that he actually “loaned and advanced ...