Bank of Delmarva v. South Shore Ventures, LLC, Del. Super., C.A. No. S13C-05-008 THG (Oct. 21, 2014)

by Morris James LLP
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The Superior Court granted the Bank of Delmarva’s (“Bank”) motion for summary judgment as to each of Defendant John E. O’Brien’s (“Defendant”) counterclaims.  In 2005, Defendant along with South Shore Ventures, LLC (“Shore”) and Clayton Evans (“Evans”) (collectively “the Defendants”), secured a loan from the Bank to develop a piece of property known as “The Cove.”  As per the loan agreement, Defendants executed a bond for $500,000, the original principal amount, in favor of the Bank.  In 2010, the Bank and Defendants also negotiated modifications to the loan agreement, but those modifications were never enacted.  Defendants subsequently defaulted on the loan agreement.

Defendant counterclaimed that the Bank breached fiduciary duties owed to Defendants when the Bank failed to notify Defendants that the Bank had made a claim under the Bank’s title insurance policy due to a defect in a property’s title.  Defendant also claimed that the Bank’s conduct constituted a breach of the covenant of good faith and fair dealing.  Finally, Defendant claimed that the Bank was negligent in its handling of the original property appraisal.

First the Court granted summary judgment as a matter of law on Defendant’s counterclaim that the Bank breached a fiduciary duty that was created by the loan agreement and insurance policy.  For one, although commercial relationships may implicate fiduciary duties, the mere existence of a commercial relationship does not automatically implicate such duties.  But, more importantly, under Delaware law, the Court of Chancery has exclusive jurisdiction over equitable causes of action such as breach of fiduciary duty.  Relying on Reybold Venture Grp. XI-A, LLC v. Atl. Meridian Crossing, LLC, 2009 WL 143107, at *2 (Del. Super. Jam. 20, 2009), the Court found it lacked subject matter jurisdiction and granted the Bank summary judgment on the counterclaim.

The Court next granted summary judgment on Defendant’s counterclaim that the Bank breached the covenant of good faith and fair dealing.  The covenant of good faith and fair dealing is implied in every contract, and requires a party to refrain from arbitrary or unreasonable actions that would frustrate the ultimate purpose of the contract or disadvantage an opponent.  The doctrine is most often asserted to prevent a party from taking an action that they would have sought to prevent at the time of contract, had they anticipated such conduct at the time. The Court found no breach because the loan agreement, which required Defendant to take out an insurance policy naming the Bank as a beneficiary, did not require the Bank to then keep Defendant apprised of any subsequent claims on the policy.  The Court also found that, even if there was merit to Defendant’s bad faith counterclaim, the counterclaim was barred by the relevant statute of limitations, three years for a contract claim.

Finally, the Court found that Defendant’s negligence claim, which was also subject to a three-year statute of limitations, was also time-barred. Defendant had argued that the statute of limitations should have been tolled because of the “time of discovery rule.”  The rule permits tolling where no observable facts alert a party of the injury such that the complaining party is “blamelessly ignorant” of the injury.  In such a case, the statute of limitations is tolled until the complaining party discovers the alleged wrong.  The Court declined to toll the statute of limitations, however, because it found that Defendant was not “blamelessly ignorant.”  Rather, the record revealed that Defendant not only owned the property, but also acted as the closing agent and was, at the time, a Delaware attorney.  These facts together indicated that the Defendant understood the importance of an accurate appraisal, and should have been aware of the alleged negligent appraisal when it was conducted in 2005.  For all the reasons stated above, the Court granted the Bank’s motion for summary judgment in its entirety.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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