Carbaugh v. Woods on Herring Creek

• Court: Supreme Court of Delaware
• Decided: January 14, 2015
• Docket: 288, 2014
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

H. CLARK CARBAUGH and § ELIZABETH D. CARBAUGH, § No. 288, 2014 § Plaintiffs Below- § Appellants, § § v. § Court Below: Court of Chancery § of the State of Delaware, WOODS ON HERRING CREEK § C.A. No. 8715-VCN HOMEOWNERS ASSOCIATION § and SUSSEX COUNTY COUNCIL, § § Defendants Below- § Appellees. §

Submitted: November 21, 2014 Decided: January 14, 2015

Before STRINE, Chief Justice, HOLLAND, and VAUGHN, Justices.

ORDER

This 14th day of January 2015, upon consideration of the parties’ briefs and

the record on appeal, it appears to the Court that:

(1) The plaintiffs-appellants, Clark and Elizabeth Carbaugh (“the

Carbaughs”), filed this appeal from the Court of Chancery’s order, dated April 29,

2014, dismissing their complaint on the ground that it was barred by the doctrine of

laches. After careful consideration, we find no merit to the appeal. Accordingly,

we affirm the Court of Chancery’s judgment. (2) Clark Carbaugh was the president of Utility Systems, Inc. (“USI”).

USI entered into an agreement in 1985 to provide wastewater disposal services to

the Woods on Herring Creek community (“WOHC”). Problems arose with the

wastewater disposal system (“the System”) during the 1990s, and the residents of

WOHC were not willing to fund the necessary improvements. In 2003, the

Carbaughs loaned USI almost $250,000 to meet the costs of improving the System.

They were not repaid by USI. In May 2004, the Homeowners Association for

WOHC (“the Association”) took over the System and refused to make further

payments to USI.1 USI, through counsel, filed a complaint against the Association

in 2004, alleging conversion and breach of contract, among other things. In 2005,

the Delaware Public Service Commission found that USI had abandoned the

System and imposed significant penalties.2 In 2006, USI filed for bankruptcy

protection. The bankruptcy Trustee eventually abandoned as worthless all of

USI’s wastewater treatment systems.3 In 2008, the Association transferred the

system at no cost to Sussex County. In 2011, Sussex County incorporated the

System into the Angola Neck Sanitary Sewer District.

1 A detailed discussion about the relationship between USI and the Association can be found in the Court of Chancery’s opinion in Public Serv. Comm’n v. Util. Sys., Inc., 2010 WL 318269 (Ch. Ct. Feb. 18, 2010). 2 Id. 3 Id.

2 (3) In July 2013, the Carbaughs filed a complaint in the Court of

Chancery against the Association and Sussex County seeking restitution damages

in excess of $400,000 under the equitable doctrines of quantum meruit and unjust

enrichment. The Court of Chancery dismissed the complaint, finding it time-

barred under the doctrine of laches. This appeal followed.

(4) The gist of the Carbaughs’ argument on appeal is that the Court of

Chancery erred in considering either 2004 (when the Association took over the

System) or 2008 (when the System was transferred to Sussex County), as the only

appropriate dates for determining whether the Carbaughs’ claims were time-barred.

The Carbaughs assert that their cause of action against Sussex County for unjust

enrichment did not accrue until July 1, 2011, when Sussex County incorporated the

System into a new sewer district. They argue that, because they filed their

complaint within two years of July 1, 2011, the defendants did not have a valid

basis to assert laches as a defense.

(5) We disagree. Laches is an equitable defense that requires proof of

three things: knowledge by the plaintiff; unreasonable delay in asserting a claim;

and resulting prejudice to the defendant.4 In this case, the Carbaughs loaned

$250,000 to USI in 2003 to fund improvements to the System. In 2004, the

Association took over the System from USI and refused to make further payments

4 Osborn v. Kemp, 991 A.2d 1153, 1162 (Del. 2010).

3 to USI. USI filed a lawsuit against the Association in 2004 seeking recovery of the

same money that is at issue in the current lawsuit.5 The Carbaughs were aware of

their own potential claim against the Association in 2004, when the Association

took over the System. Neither the Association’s transfer of the System to Sussex

County in 2008 nor Sussex County’s incorporation of the System into a new sewer

district in 2011 restarted the time period for determining the reasonableness of the

Carbaughs’ delay in asserting their claim to recoup funds they loaned USI to

improve the System in 2003. Under the circumstances, we find no error in the

Court of Chancery’s ruling that the Carbaughs’ complaint was barred by laches.

NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of

Chancery is AFFIRMED.

BY THE COURT: /s/ Leo E. Strine, Jr. Chief Justice

5 USI sought bankruptcy protection in 2006, and its lawsuit against the Association ultimately was closed in 2011 for failure to prosecute.