Cynthia R. Kane v. NVR, Inc.

• Court: Court of Chancery of Delaware
• Decided: February 6, 2020
• Docket: C.A. No. 2019-0569-PWG
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE PATRICIA W. GRIFFIN CHANCERY COURTHOUSE MASTER IN CHANCERY 34 The Circle GEORGETOWN, DELAWARE 19947

Final Report: February 6, 2020 Draft Report: Date Submitted: December 17, 2019

Steven Schwartz, Esquire Schwartz & Schwartz 1140 South State Street Dover, DE 19901

Scott G. Wilcox, Esquire Moore & Rutt, P.A. The Mill 1007 North Orange Street, Suite 437 Wilmington, DE 19801

RE: Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG

Dear Counsel:

This action involves a homeowner seeking equitable rescission of the sale of

a house to her by the homebuilder, and cancellation of the deed, based upon

intentional misrepresentation and trespass related to defective conditions in the

home, including mold contamination and high levels of volatile organic

compounds. Pending before me is the builder’s motion to dismiss, which argues

that the Court of Chancery lacks subject matter jurisdiction because the Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

homeowner has an adequate remedy at law, and that she has failed to plead

sufficient facts to support claims of intentional misrepresentation or trespass. I

recommend the Court deny the motion to dismiss for lack of subject matter

jurisdiction because the evidence is not sufficient to show the homeowner has an

adequate remedy at law, and also deny the motion to dismiss for the failure to state

a claim related to the intentional misrepresentation and trespass upon which relief

can be granted. This is a final report.

I. Background

On January 18, 2019, Plaintiff Cynthia Kane (“Kane”) purchased a property

(“Property” or “house”) located at 36391 Tee Box Boulevard, Frankford, Delaware

from Defendant NVR, INC., trading as Ryan Homes (“Ryan Homes”). The deed

conveying title to Kane was recorded.1 Kane alleges that, at the pre-settlement

inspection on January 18, 2019, David Marshall (“Marshall”), Kane’s son, noticed

water around the foundation and reiterated previously expressed concerns to Ryan

Homes’ project manager about mold in the house, based upon Marshall’s and

Kane’s medical conditions. Kane asserts that Ryan Homes’ project manager

provided assurances that the crawlspace design ensured there would be no mold.2

The defects disclosure form completed by Ryan Homes at settlement replied “no,”

1 Docket Item 6, ¶ 12. 2 Id., ¶¶ 7, 9.

2 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

to the question of whether the seller was aware of anything else it should disclose

to the buyer that “may materially and adversely affect the property.” 3 Following

the January 18, 2019 settlement on the Property, Kane and Marshall stayed at the

house until January 20, 2019. Kane subsequently returned to the house on several

occasions until January 29, 2019, when, while at the house, she discovered workers

underneath the house removing insulation and spraying the chemical Microban.

Kane alleges that the workers told her the house had tested positive for mold and

they had been hired by Ryan Homes to remediate it. She contacted Ryan Homes’

project manager who advised that “due to increased rainfall, a few houses in the

development tested positive for mold and he had the mold remediation company

check [Kane’s] house while they were in the neighborhood and it too had tested

positive for mold.”4 According to Kane, air quality testing conducted inside the

house on February 20, 2019 disclosed the presence of elevated levels of volatile

organic compounds (VOC’s) higher than environmentally acceptable; testing on

July 29, 2019 showed levels of VOC’s acceptable to an average person but that

would act as respiratory irritants to a person with Kane’s sensitivities; and air

quality and surface testing on September 16, 2019 disclosed the presence in the air

3 Id., Ex. B. 4 Id., ¶ 24.

3 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

and on surfaces of elevated levels of mold in the kitchen and crawlspace requiring

remediation.5

On July 23, 2019, Kane filed a complaint for equitable rescission of the

contract in which she purchased the Property from Ryan Homes, and for

cancellation of the deed. On October 2, 2019, Kane filed an amended complaint,

in which she claims that, at the time of purchase, Ryan Homes knew of, and

fraudulently concealed from her, the existence of possible or actual mold

contamination in her house. And, that its contractor entered onto the Property after

settlement to inspect for mold contamination and to perform temporary

remediation work without her consent. She also asserts that, prior to, and at,

settlement, Ryan Homes was made aware of her particular concerns regarding

mold contamination in the house, given her and Marshall’s medical conditions.

She argues that she has suffered damages, including the cost of the house, its

diminution in value, maintenance costs and costs for substitute housing, because

she is unable to reside in the house due to the contamination and the house is

effectively unmarketable for sale.

On October 31, 2019, Ryan Homes filed a motion to dismiss the action

under Court of Chancery Rule 12(b)(1) arguing that Kane is not seeking equitable

relief but has an adequate remedy at law for monetary damages based upon breach

5 Id., ¶¶ 30, 31. 4 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

of contract. Ryan Homes also moved to dismiss Kane’s claims regarding

intentional misrepresentation or trespass under Court of Chancery Rule 12(b)(6),

arguing that Kane has not plead sufficient facts to show the elements required for

intentional misrepresentation, or damages resulting from the trespass.

On December 2, 2019, Kane responded that she cannot be made whole with

money damages or through an action at law since the Superior Court cannot

compel payment to the mortgagee, a non-party, which would leave her subject to

personal liability claims. She also asserts that the Superior Court cannot cancel a

deed, causing a multiplicity of lawsuits, and pursing the case in the Superior Court

would burden her because she would be forced to collect on the judgment. She

also refutes that she has not provided sufficient factual support for her claims of

intentional misrepresentation or for trespass.

Ryan Homes’ December 17, 2019 reply brief reiterated that the Superior

Court can award Kane full, fair and complete relief through money damages for

mold remediation and other damages and that remediation will eliminate the need

to cancel the sale or deed. Ryan Homes also argues that the need for post-trial

execution to collect the judgment does not give the Court of Chancery jurisdiction,

and equitable rescission cannot make Kane whole because she would remain

subject to the mortgage.

5 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

II. Analysis

A. Does Kane have an adequate remedy at law for her rescission claim?

Ryan Homes argues that this action should be dismissed under Rule 12(b)(1)

for lack of subject matter jurisdiction because Kane has an adequate remedy at law

in the form of monetary damages based upon breach of contract, and she has not

shown the Property is unmarketable. Kane seeks rescission of her purchase of the

Property from Ryan Homes and cancellation of the deed transferring the Property,

alleging she was induced to complete the purchase based upon Ryan Homes’

intentional misrepresentations.

The Court of Chancery is a “court of limited jurisdiction” and acquires

subject matter jurisdiction in cases where there is a “request for an equitable

remedy when there is no adequate remedy at law.”6 If a plaintiff has a full,

adequate and complete remedy at law, the Court of Chancery does not have subject

matter jurisdiction.7 In determining whether equitable jurisdiction exists, the Court

focuses on “the allegations of the complaint in light of what the plaintiff really

6 Yu v. GSM Nation, LLC, 2017 WL 2889515, at *2 (Del. Ch. July 7, 2017) (citation omitted); see also Athene Life & Annuity Co. v. Am. Gen. Life Ins. Co., 2019 WL 3451376, at *4 (Del. Ch. July 31, 2019). 7 Yu, 2017 WL 2889515, at *3 (citation omitted); Russell v. Universal Homes, Inc., 1991 WL 94357, at *2 (Del. Ch. May 23, 1991).

6 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

seeks to gain by bringing his or her claim.”8 “[T]he appropriate analysis requires a

‘realistic assessment of the nature of the wrong alleged and the remedy available in

order to determine whether a legal remedy is available and fully adequate.’”9

Rescission seeks to ‘unmake’ or ‘cancel’ an agreement and to return the

parties to the status quo ante.10 “Common grounds for rescission of a contract for

the sale of real property include fraud, misrepresentation and mistake.”11

Rescission can be sought at law or in equity. Equitable rescission “is a form of

remedy that provides equitable relief beyond a judicial declaration of contract

invalidity or award of money or property and seeks to restore the plaintiff to his

original condition.”12 Quoting Chancellor Allen:

A court of law may, upon adjudication of a contract dispute, determine, where the elements of the claim are proven, that a contract 8 Candlewood Timber Grp., LLC v. Pan Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004). 9 Id. (citation omitted); Prestancia Mgmt. Grp., Inc. v. Virginia Heritage Found., II LLC, 2005 WL 1364616, at *3 (Del. Ch. May 27, 2005) (“In determining whether equitable jurisdiction exists, this Court will look beyond the language of a complaint and examine the substance and nature of the relief being sought.”). 10 See Norton v. Poplos, 443 A.2d 1, 4 (Del. 1982); Ravenswood Inv. Co., LP v. Estate of Winmill, 2018 WL 1410860, at *21 (Del. Ch. Mar. 21, 2018), as revised (Mar. 22, 2018), reargument denied, 2018 WL 1989469 (Del. Ch. Apr. 27, 2018), and aff’d, 210 A.3d 705 (Del. 2019); Catamaran Acquisition Corp. v. Spherion Corp., 2001 WL 755387, at *4 (Del. Super. May 31, 2001). 11 Norton, 443 A.2d at 4; Wilson v. Pepper, 1989 WL 268077, at *2 (Del. Ch. Dec. 21, 1989), dismissed, 1991 WL 89895 (Del. Super. May 3, 1991), rev’d, 608 A.2d 731 (Del. 1992). 12 Creative Research Mfg. v. Advanced Bio-Delivery LLC, 2007 WL 286735, at *7 (Del. Ch. Jan. 30, 2007).

7 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

has been rescinded, and enter an order restoring plaintiff to his original condition by awarding money or other property of which he had been deprived. Equitable rescission, on the other hand, which is otherwise known as cancellation, is a form of remedy in which, in addition to a judicial declaration that a contract is invalid and a judicial award of money or property to restore plaintiff to his original condition is made, further equitable relief is required. Thus, the remedy of equitable rescission typically requires that the court cause an instrument, document, obligation or other matter affecting plaintiff's rights and/or liabilities to be set aside and annulled, thus restoring plaintiff to his original position and reestablishing title or recovering possession of property.13

To determine whether equitable jurisdiction exists here, I consider the true

nature of Kane’s claim, or what she really seeks to gain by bringing her claim.

Kane seeks to rescind the agreement based upon Ryan Homes’ alleged intentional

misrepresentations, or fraudulent concealment, about whether the Property was

subject to mold contamination, the return of the monies paid for the Property, and

other damages. Complicating factors include that there is a recorded deed

conveying the Property to Kane, and that Kane executed a mortgage, encumbering

the Property. Kane seeks relief beyond that available through legal rescission,

which would allow for the invalidation of the sale of the Property and the return of

the money, because she seeks to cancel the deed transferring the Property to her,

which would reestablish title to the Property in Ryan Homes, and would affect

13 E.I. Du Pont De Nemours & Co. v. HEM Research, Inc., 1989 WL 122053, at *3 (Del. Ch. Oct. 13, 1989).

8 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

legal rights to the Property, including those of a third party, the mortgagee.14

There is not sufficient evidence that the Superior Court can afford a complete

remedy if Kane’s claims are ultimately proven, under the circumstances.15

Alternatively, the Court of Chancery can provide full, fair and complete relief. I

recommend that the Court deny the motion to dismiss under Rule 12(b)(1) because

the Court of Chancery has subject matter jurisdiction over Kane’s equitable

rescission claim.

A. Standard of Review under Court of Chancery Rule 12(b)(6)

On a motion to dismiss under Rule 12(b)(6) for failure to state claim upon

which relief can be granted, the Court accepts all well pleaded factual allegations

as true, with even vague allegations considered as “well pleaded” if they give the

opposing party notice of the claim.16 All reasonable inferences are drawn in favor

14 The effect of the mortgage on the rescission claim remains to be addressed, including whether the mortgagee for the Property, NVR Mortgage Finance, Inc., needs to be joined in the action under Court of Chancery Rule 19. 15 Ryan Homes argues that Kane has not shown that the house is unmarketable to demonstrate that money damages are insufficient, to which Kane responds that she is seeking equitable rescission and not the costs for making the house marketable. The issue of the marketability of the Property is not addressed here. Kane also argues that she does not have an adequate remedy at law because she would have to execute on a Superior Court judgment. However, I do not find that argument as relevant to determining the adequacy of Kane’s remedy at law in this case. 16 See RBC Capital Markets, LLC v. Educ. Loan Tr. IV, 87 A.3d 632, 639 (Del. 2014) (citation omitted); In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)); Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 49 (Del. Ch. 2015) (citation omitted). 9 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

of the non-moving party, and the Court should “deny the motion unless the

plaintiff could not recover under any reasonably conceivable set of circumstances

susceptible of proof.”17 Conclusions in the complaint are not accepted as true

without allegations of facts to support them, although a broad brush is used in

determining sufficiency of claims – whether the plaintiff may recover under any

reasonably conceivable set of circumstances susceptible of proof. If the plaintiff

pleads any set of facts that would entitle her to relief, then the motion to dismiss

fails.

B. Does Kane fail to state a claim for intentional misrepresentation upon which relief can be granted?

Ryan Homes seeks to dismiss Kane’s claims regarding intentional

misrepresentation under Rule 12(b)(6), arguing that Kane has not plead sufficient

facts to show the elements required for intentional misrepresentation. Kane seeks

equitable rescission because she claims intentional misrepresentations by Ryan

Homes’ agents about whether the house was subject to actual or possible mold

contamination induced her to purchase the Property.

Generally, a party asserting intentional misrepresentation, or fraudulent

concealment, must prove: “(1) Deliberate concealment by the defendant of a

17 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 536 (Del. 2011); see also In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 168; Kuroda v. SPJS Holdings, LLC, 971 A.2d 872, 880 (Del. Ch. 2009).

10 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

material past or present fact, or silence in the face of a duty to speak; (2) That the

defendant acted with scienter; (3) An intent to induce plaintiff's reliance upon the

concealment; (4) Causation; and (5) Damages resulting from the concealment.”18

A misrepresentation “may arise through words, deliberate concealment of material

facts or silence in light of a duty to speak.”19 Further, under Court of Chancery

Rule 9(b), fraud must be plead with particularity. To satisfy Rule 9(b), the factual

circumstances of the fraud in the complaint must “refer to the time, place, and

contents of the false representations; the facts misrepresented; the identity of the

person(s) making the misrepresentation; and what that person(s) gained from

making the misrepresentation.”20

Ryan Homes argues that Kane has not sufficiently plead three of the

elements of fraudulent concealment – deliberate concealment of possible mold

contamination, scienter or intent to induce reliance on concealment. Kane’s

complaint details specific discussions about Kane and Marshall’s sensitivities to

mold contamination interactions between Ryan Homes’ agents and Kane and

Marshall, occurring both pre-construction and immediately preceding settlement;

18 Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987). 19 Messick v. Moore, 1994 WL 643188, at *5 (Del. Ch. Oct. 26, 1994). 20 Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 207-08 (Del. Ch. 2006), aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007); see also Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *7 (Del. Ch. Apr. 30, 2014) (citations omitted).

11 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

that Ryan Homes’ agents responded with assurances that the house’s crawlspace

design would prevent the occurrence of moisture and mold contamination; the

defects disclosure form completed at settlement, in which Ryan Homes denied

awareness of anything it should disclose to the buyer that “may materially and

adversely affect the property”; the existence of standing water around the house’s

foundation at the time of settlement; Ryan Homes’ admission that the house had

mold contamination and completion of mold remediation work 11 days after

settlement, without advising Kane of the existence of mold or its intent to perform

remediation. Drawing all inferences in Kane’s favor, I find the elements of

intentional misrepresentation, or fraudulent concealment, have been sufficiently

plead to survive a motion to dismiss, and that Rule (9) standards have been met.21

I recommend the Court deny the motion to dismiss Kane’s equitable rescission

claim for failure to state a claim upon which relief can be granted.

C. Does Kane fail to state a claim for trespass upon which relief can be granted?

Kane’s trespass claim alleges that Ryan Homes caused the unauthorized

entry by mold remediation workers onto the Property without her knowledge or

consent. Ryan Homes seeks to dismiss Kane’s trespass claim under Rule 12(b)(6),

21 Although it “ultimately [may] prove impossible for the plaintiff to prove [her] claims at a later stage of a proceeding, . . . that is not the test to survive a motion to dismiss.” Cent. Mortg. Co., 27 A.3d at 536.

12 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

arguing that Kane has not plead sufficient facts to show damages resulting from the

trespass. It argues that there is no evidence that the mold remediation work, which

constituted the trespass, caused the mold contamination or damages by spraying

Microban, since the elevated levels of VOCs in the house initially shown

subsequently fell and did not exceed acceptable levels in testing occurring after

February of 2019. Kane responds that damages for trespass have been shown,

since she and Marshall have not been able to stay in the house following the

remediation work.

“In Delaware, an intentional trespass occurs when the plaintiff proves three

elements: (1) the plaintiff must have lawful possession of the land; (2) the

defendant must have entered onto the plaintiff's land without consent or privilege;

and (3) the plaintiff must show damages.”22 “[D]amages for trespass to land are

generally a calculation based on the difference between the value of the land before

the trespass occurred and the value of the land after the trespass occurred.”23

Using a broad brush to determine sufficient of Kane’s claim, I find that she has

sufficiently plead damages from the trespass to survive a motion to dismiss. She

has alleged that she and Marshall are not able to reside at the Property due, at least

22 Williams v. Manning, 2009 WL 960670, at *8 (Del. Super. Mar. 13, 2009). 23 J.S.F. Properties, LLC v. McCann, 2009 WL 1163494, at *2 (Del. Super. Apr. 30, 2009), aff’d, 985 A.2d 390 (Del. 2009); Williams, 2009 WL 960670, at *9 (citation omitted).

13 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

in part, to the levels of VOCs initially caused by the remediation efforts, which

could affect the value of the Property. The difficulty with the trespass claim is that

it does not serve as a basis for Kane’s equitable rescission claim and, as a separate

count in this action, it is not an equitable claim (since it can be remedied through

monetary damages). However, this Court can exercise its discretion to retain

jurisdiction over the trespass claim under the clean-up doctrine, which allows the

Court of Chancery to maintain jurisdiction over legal claims if they are part of the

same controversy as the claim providing equitable jurisdiction.24 I recommend the

Court deny the motion to dismiss Kane’s trespass claim for failure to state a claim

upon which relief can be granted, and invoke jurisdiction over that claim under the

clean-up doctrine.

III. Conclusion

For the foregoing reasons, I recommend the Court deny the motion to

dismiss of Defendant NVR, INC., trading as Ryan Homes, under Court of

Chancery Rule 12(b)(1) and under Rule 12(b)(6), finding that this Court has

24 Cf. In re Morrow Park Holding LLC, 2018 WL 2123280, at *2 (Del. Ch. Mar. 28, 2018); Organovo Holdings, Inc. v. Dimitrov, 2017 WL 2417917, at *8 (Del. Ch. June 5, 2017), judgment entered, (Del. Ch. 2017); Kraft v. WisdomTree Investments, Inc., 145 A.3d 969, 974 (Del. Ch. 2016).

14 Cynthia R. Kane v. NVR, Inc. C.A. No. 2019-0569-PWG February 3, 2020

subject matter jurisdiction over Plaintiff Cynthia Kane’s equitable rescission claim

and that her equitable rescission and trespass claims have been sufficiently plead to

survive a motion to dismiss. This is a final report and exceptions may be taken

under Court of Chancery Rule 144.

Respectfully,

/s/ Patricia W. Griffin

Patricia W. Griffin Master in Chancery