IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
) Elmer Fannin and Sugar Loaf Farms, Inc. ) C.A. No. 9404-MA ) Plaintiffs, ) v. ) ) Ivy Tree Meadows, LLC, ) Defendant. )
MASTER’S REPORT
Date Submitted: August 5, 2016 Draft Report: November 28, 2016 Final Report: April 21, 2017
In October 2013, the owner of a 54-acre farm (“the Property”) in Kent County,
Delaware executed an agreement to sell the Property for $1,150,000 to a limited
liability company based in New Jersey. The contract was a cash contract, and the
only explicit contingency beyond good title was if there were hazardous substances
on the Property. The original closing date was extended to December 19 th, but on
that date the buyer canceled the contract claiming that it could not develop 153
building lots on the Property due to the presence of wetlands and wetland buffers.
After unsuccessfully trying to close the deal, the seller of the Property filed a
complaint seeking specific performance of the contract. Pending before me are cross-
motions for summary judgment. For the reasons that follow, I recommend that the
Court grant summary judgment on the seller’s request for specific performance of the
Page 1 of 18 contract, but deny summary judgment on the seller’s request for attorney’s fees and
costs.
Factual Background1
Plaintiff Sugar Loaf Farms, Inc. (“Sugar Loaf”) is the owner of three parcels of
land in Kent County totaling approximately 54 acres. Plaintiff Elmer Fannin is the
president of Sugar Loaf. Although the Property was not listed for sale, during the
late summer of 2013, Fannin was contacted by Jeanne Palumbo, a New Jersey real
estate agent and broker for Quinrick Realty, LLC, (“Quinrick Realty”) who was
acting on behalf of a client potentially interested in buying the Property. Palumbo
traveled to Kent County, visited the Property, and met with Fannin. Fannin provided
Palumbo with a copy of a 2005 sketch plan (“the Sketch Plan”) showing a proposed
layout of 153 lots, which had been prepared the purpose of applying to the county’s
sewage disposal district for an allocation of sewer capacity. The Sketch Plan
contained contour lines clearly indicating the existence of wetlands, which Fannin
brought to Palumbo’s attention. Fannin also informed Palumbo that the Sketch Plan
had not been approved by Kent County for anything other than an equivalent
dwelling unit (EDU) allocation so the Property could be connected to sewer, if and
when the Property was approved for development. Fannin gave Palumbo a copy of
the Kent County Sewage Disposal District Map (“District Map”) showing the
Page 2 of 18 Property in a proposed expansion of the county’s sewage disposal system. Sewer was
approved for 145 proposed lots depicted on the Sketch Plan.
On September 17th, Palumbo, acting as an agent for Defendant Ivy Tree
Meadows, LLC (“Ivy Tree”), sent Fannin a proposed agreement of sale to purchase
the Property for $818,018, subject to a contingency allowing termination in the event
any hazardous substances, floodplains or wetlands were discovered on the Property
during an inspection. Fannin rejected the offer because the price was too low and
because Palumbo was aware there were wetlands on the Property. On September
24th, Fannin sent Palumbo a five-page document by facsimile, identifying “153 paper
lots” and listing the improvements to the Property and personalty located thereon.
Fannin offered to sell the Property with its improvements for $1,350,000 and the
personalty for $85,000. Palumbo countered with offer to purchase the Property with
its improvements for $919,018. Fannin revised the proposed agreement by
eliminating the contingency related to floodplains and wetlands and increasing the
sales price to $1,150,000, and on October 2nd, he signed the revised agreement of sale
and sent it to Palumbo. On October 4 th, Christine Beikman, managing member of Ivy
Tree, signed the revised agreement of sale. Ivy Tree then paid a deposit of $10,000 to
Quinrick Realty, to be held in escrow. Since the contract was a cash contract that did
1 The factual background is taken from the undisputed allegations of the Amended Complaint and the affidavits supporting the cross-motions for summary judgment. Page 3 of 18 not contain a financing contingency, the closing date stated in the contract was
November 19, 2013.
A week before the settlement date, Fannin’s attorney sent a letter to Ivy Tree’s
attorney regarding settlement matters. In response, on November 15, 2013, the
attorney informed Fannin’s attorney that Ivy Tree would not be able to complete
closing on November 19th because it had decided to obtain financing of a portion of
the purchase price. Although Fannin was ready, willing and able to complete
settlement on November 19th, based on Ivy Tree’s representation that the delay in
closing would only be two weeks, Fannin agreed to extend the closing date from
November 19 to December 19, 2013, without modifying any other contract terms.
In mid-December, Ivy Tree or Palumbo contacted Fannin directly to request a
second extension of the closing date from December 19 to January 30, 2014, and
offered to make partial payment of the purchase price in the amount of $200,000 if
Fannin would agree to this extension request. Fannin agreed to extend the closing
date a second time in exchange for the partial payment of $200,000, and signed a
second Contract Addendum extending the closing date to January 30 th. Although
Fannin was verbally informed that Ivy Tree was going to sign the second addendum
and wire the $200,000 to Fannin’s attorney on December 19th, Ivy Tree sent a letter to
its realtor on December 19th, stating that it was cancelling the contract based on the
belief it could not develop the Property into 153 building lots due to wetlands and
Page 4 of 18 wetlands buffers. On December 20th, Fannin’s attorney sent Ivy Tree’s realtor a letter
directing her not to refund the $10,000 deposit to Ivy Tree, and informing the realtor
of her obligation to pay the deposit to Fannin based on Ivy Tree’s default and breach
of contract. Despite Fannin’s attempt to resolve this matter by granting an extension
until February 21, 2014, for Ivy Tree to complete its purchase of the Property, Ivy
Tree never completed the purchase of the Property or expressed any intent to do so.
Procedural Background
On February 28, 2014, Plaintiff2 filed a complaint in this Court seeking specific
performance of the contract and damages. The complaint was amended on April 14,
2014, and on May 7th, Ivy Tree filed its answer to the amended complaint. After
some discovery issues were resolved, the case stalled for nearly a year, prompting the
Court to threaten dismissal under Court of Chancery Rule 41(e). Shortly thereafter,
on May 16, 2016, Plaintiff filed a motion for summary judgment, and on June 20 th,
Ivy Tree filed its cross motion for summary judgment. Both motions now have been
fully briefed.
Issues
Plaintiff argues that it is undisputed the parties had a valid enforceable contract
to purchase the Property. After engaging in several rounds of negotiations, Ivy Tree
accepted Plaintiff’s offer to sell the Property for $1,150,000, and signed the revised
2 Plaintiff refers to both Fannin and Sugar Loaf unless otherwise indicated. Page 5 of 18 agreement of sale. Ivy Tree’s deposit of $10,000 was further proof that it intended to
be bound by the contract. According to Plaintiff, the terms of the written agreement
were sufficiently definite, and did not contain any contingencies related to the
number of lots, financing, or the existence of wetlands or wetland buffers. Ivy
Tree’s subsequent notice of intent to cancel was an anticipatory breach or repudiation
of the contract, and Ivy Tree’s subsequent refusal to perform the contract resulted in a
breach. The reason for repudiating the contract, i.e., Ivy Tree’s inability to develop
153 lots due to the existence of wetlands and wetland buffers, was not a valid reason
for repudiating the contract. At all times Ivy Tree had been aware that the “153 paper
lots” listed on the Sketch Plan meant proposed lots, and not lots applied for or
approved by any governmental entity. Most significantly, the agreement of sale did
not contain any contingencies related to wetlands or wetland buffers, or the number
of lots that could be developed. Plaintiff argues that Ivy Tree’s unjustified
repudiation of the contract constitutes bad faith entitling Plaintiff to attorney’s fees
and costs. Finally, Plaintiff argues that it was ready, willing and able to perform
under the contract at all times.
Ivy Tree argues that Plaintiff is not entitled to summary judgment in its favor
because Plaintiff misrepresented to Ivy Tree the number of lots that were available
for development. Plaintiff gave Ivy Tree’s agent, Palumbo, a plan showing a total of
153 lots available for development, and the contract between the parties referred
Page 6 of 18 specifically to a sketch plan showing “Sugar Loaf Farms” consisting of the 153 lots.
According to Ivy Tree, Plaintiff’s misrepresentation concerning the number of lots
materially altered the contract so that Ivy Tree’s notice of its intent to cancel was not
an anticipatory breach or repudiation of the contract. Ivy Tree could not perform
under the contract because there were significantly fewer lots to develop; thus, a
material term of the contract had changed. Since Plaintiff concedes that the existence
of wetlands and wetland buffers could affect the number of lots that could be
developed, Ivy Tree argues that Plaintiff appears to concede that there was a material
mistake of fact that may be grounds for rescission of the contract. Furthermore,
Plaintiff was not ready, willing and able to perform because it could not deliver a
property that would yield 153 lots for development.
In its cross-motion for summary judgment, Ivy Tree argues that Plaintiff’s
misstatements or misrepresentations concerning the number of lots available to be
developed are grounds for rescission of the contract. According to Ivy Tree, its
decision to purchase the Property was based, in part, on what appeared to be 153 lots
available for development. Now, it appears that the number of lots will be fewer
than 153 due to the existence of wetlands and wetland buffers. If this discrepancy is
not a material misrepresentation by Plaintiff, then it is evidence of a mutual mistake
of fact by the parties. Furthermore, Ivy Tree did not assume the risk of a mistake
because the contract was silent as to the risk of mistake.
Page 7 of 18 In response, Plaintiff argues that there was no misrepresentation or mistake
because Ivy Tree was at all times aware that the “153 paper lots” listed on the Sketch
Plan meant only proposed lots, and the Sketch Plan clearly identified the wetlands
information. Ivy Tree was in possession of this document prior to signing the
contracts of sale and, therefore, had notice of the existence of wetlands and wetland
buffers and their potential impact on the number of developable lots that may
ultimately be realized on the Property. Plaintiff argues that there was never an
assumption that the land would be approved for 153 lots, and Ivy Tree knew it had
limited knowledge with respect to the number of developable lots. Since Ivy Tree did
not request any further information from Plaintiff and did not seek any survey or
delineation report regarding the wetlands and/or wetland buffers and the number of
developable lots, the risk of mistake should be allocated to Ivy Tree.
Standard of Review
The Court shall grant a motion for summary judgment when, “after reviewing
the pleadings, depositions, answers to interrogatories and admissions on file, together
with the affidavits,” the record shows that there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of law. 3 Where cross
motions for summary judgment are pending, and “the parties have not argued that
there is an issue of fact material to the disposition of either motion,” then they are
Page 8 of 18 deemed by the Court to be the equivalent of a stipulation for decision on the merits
based on the record submitted with the motions.4
Analysis
In support of its motion for summary judgment, Plaintiff submitted the
following documents: (a) the agreement of sale dated October 4, 2013; (b) Ivy Tree’s
proposed agreement of sale dated September 17, 2013; (c) several emails from or to
Palumbo; (d) Ivy Tree’s Exclusive Buyer Agency Agreement with Palumbo; (e)
excerpts from Palumbo’s deposition transcript; (f) portions of the Sketch Plan and the
District Map; (g) letters from the parties’ counsel; (h) addendum to the agreement of
sale dated November 19, 2013; and (i) excerpts from Ivy Tree’s responses to
interrogatories. Plaintiff also supported its motion for summary judgment with
Fannin’s four-page affidavit. Ivy Tree supported its motion for summary judgment
with Palumbo’s affidavit. Plaintiff contends that it is entitled to summary judgment
on its request for specific enforcement of the contract while Ivy Tree contends that it
is entitled to summary judgment on its request for rescission of the contract.
The parties do not dispute that a valid contract was created. Nevertheless, Ivy
Tree is seeking rescission of the contract. A party is entitled to rescission of a
contract for the sale of real property on the basis of fraud, misrepresentation, or
3 Twin Bridges Ltd. P’ship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14, 2007) (citing Ct. Ch.R. 56(c)). 4 Ct.Ch.R. 56(h). Page 9 of 18 mistake.5 Here, Ivy Tree claims that Plaintiff misrepresented the number of lots that
were developable on the Property and, because of the existence of wetlands, 153 lots
cannot be developed on the Property. However, there is no evidence of any
misrepresentation by Plaintiff. Before the agreement of sale was executed, Ivy Tree’s
agent was informed of the existence of wetlands on the Property, and the agent knew
that the 153 lots shown on the Sketch Plan were only proposed or paper lots laid out
for the sole purpose of applying for sewer allocation.6 The agent knew that the
proposed 153 lots shown on the Sketch Plan had not been approved for development.
The agent’s knowledge may be imputed to her principal, Ivy Tree.7
The record shows that Palumbo and a colleague visited the Property before
meeting with Fannin and declined an opportunity to make another site visit with
Fannin. Palumbo was informed of the presence of wetlands on the Property during
the meeting, and was again informed of the existence of wetlands when Fannin
refused to sign the proposed agreement of sale that contained an explicit contingency
for wetlands.8 Palumbo sent Fannin a second proposal that no longer contained any
contingencies related to the discovery of floodplains or wetlands, which is further
5 Liberto v. Bensinger, 1999 WL 1313662, at * 5 (Del. Ch. Dec. 28, 1999). 6 Appendix to Plaintiffs’ Opening Brief in Support of Motion for Summary Judgment (“A-#”), at pp. 19, 40. 7 Williams v. White Oak Builders, Inc. 2006 WL 1668348, at *6 n. 91 (citing In re HealthSouth Corp. S’holders Litig., 845 A.2d 1096, 1108 n.22 (Del. Ch. 2003) (noting general rule that the knowledge of an agent is imputed to its principal)). 8 A-4-7. Page 10 of 18 evidence of Palumbo’s awareness of the presence of wetlands on the Property.9
Palumbo was given copies of: (1) the Sketch Plan, which depicts both “404 wetland
lines” and “100 year flood plain limits” on the Property; 10 and (2) the District Map
showing the proposed sewer extension to the Property if it was subsequently
approved for development.11
Palumbo returned to her office with the paperwork she had received from
Fannin. Palumbo drafted the proposed agreement of sale, and in her draft Palumbo
described the property to be sold as follows:12
(a) The land and all the buildings, other improvements and fixtures to the land; (b) all of the Seller’s rights relating to the land; (c) all personal property specifically made reference to in this contract. The sale excludes any and all equipment, which is to be removed by seller through auction or other means within ninety (90) days from date of settlement. The real property to be sold is commonly known as: Parcel # 3-00-05600-01-0200-00101 at 6952 Pearsons Corner Road, town of Hartley (Dover Metro area), County of Kent, state of Delaware. The land consists of 53.98 acres. There exists a site plan sketch for “Sugar Loaf Farms” which consists of 153 building lots. The sale also includes ownership rights in any and all municipal/governmental approvals obtained that run with the land.13
9 A-1-3. 10 A-14-17 11 A-18, 45. Sewer had been approved for 145 of the proposed lots depicted on the Sketch Plan. Affidavit of Elmer G. Fannin, at ¶ 6. 12 A-12, 19. 13 A-1,4. Page 11 of 18 Although Palumbo included a reference to the Sketch Plan in her proposed agreement
of sale, she omitted any reference to the District Map. Nevertheless, Palumbo knew
that the Sketch Plan showed only proposed lots, as opposed to approved lots.
Palumbo knew that there was a map showing the approved sewage disposal capacity
for the Property. Palumbo also knew that there were wetlands on the Property.
Moreover, by explicitly referring to the Sketch Plan in the proposed agreement of
sale, Palumbo incorporated this document into the parties’ executed contract.14 Not
only did the Sketch Plan depict wetlands contour lines throughout the proposed site
plan of 153 lots, it also contained the following notations:
Boundary information shown hereon was taken from a plat prepared by Earl D. Smith, Inc., Land Surveyor, titled “Sugar Loaf Stables,” dated 6-22-87 and is not the result of an actual field survey by Design Consultants Group, L.L.C. Wetlands information was obtained from public information on the Kent County, Delaware website, and is not the result of any delineation or survey. Layout may not reflect all code requirements of Kent County.15
A reasonably prudent buyer interested in developing the Property would have:
(a) taken the opportunity to inspect the Property and to obtain an official (as opposed
to approximate) wetlands delineation report; (b) contacted the Kent County Planning
and Zoning office regarding zoning or the developmental status of the Property; and
14 See McKinney Family Ltd. P’ship v. Stubbs, 2007 WL 1883121 (Del. July 2, 2007). Page 12 of 18 (c) contacted Kent County to confirm the sewage disposal capacity of the Property.
Despite having the information contained in the Sketch Plan and District Map, Ivy
Tree made no inquiries about zoning requirements or the presence of wetlands on the
Property before executing the contract on October 4, 2013.16
Even disregarding the imputed knowledge of its agent, if Ivy Tree believed that
the Property contained 153 developable lots because of the reference in the contract
to a “site plan sketch … which consists of 153 building lots,”17 the Sketch Plan itself
contained sufficient “qualifying information” to have cured such a mistaken belief. 18
Ivy Tree’s unjustified reliance on this statement in the contract drafted by its agent is
not a basis for rescission of the contract due to misrepresentation.
Nor is Ivy Tree entitled to rescission on the ground of mistake because in this
case, Ivy Tree bore the risk of mistake. Delaware courts follow the Restatement
(Second) of Contracts’ approach to determining which party bears the risk of a
mistake. Under Section 152 of the Restatement, a party bears the risk of mistake
when:
(a) The risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the fact to which the mistake relates but treats his limited
15 A-14. 16 A-34-35. 17 A-1. 18 Norton v. Poplos, 443 A.2d 1, 5 (Del. 1982). Page 13 of 18 knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable under the circumstances to do so.19
The record shows that Ivy Tree and Palumbo entered into an exclusive buyer agency
agreement on August 1, 2013, in which Palumbo agreed to search for, locate, and
purchase real estate in Kent County for Ivy Tree. 20 Sometime that summer, Palumbo
and a colleague visited the Property. They drove down a paved driveway, but did not
get out and walk around the Property. Nor did Palumbo take any pictures of the
Property.21 After Palumbo and her colleague talked with Fannin in his Milford
office,22 she returned to her office with the documents Fannin had provided. Palumbo
was not an engineer or developer; she was a realtor just looking for land that might be
developed.23 Palumbo did not even know to ask whether the Sketch Plan had
received any governmental approval.24 She admitted that she did not spend much
time looking at the Sketch Plan and that she did not read the notes on the Sketch
Plan.25 Palumbo did not report to anyone nor did anyone ask her for additional
information after she delivered the documents to Ivy Tree. 26
19 Darnell v. Myers, 1998 WL 294012, at *7 (Del. Ch. May 27, 1998) (quoting Restatement (Second) of Contracts § 152 (1981)). 20 A-9. 21 A-13. 22 A-12. 23 A-42-43. 24 A-43. 25 A-45. 26 A-13. Page 14 of 18 Palumbo transmitted Ivy Tree’s initial offer to purchase the Property to Fannin
on September 17th. Less than three weeks later, the parties signed the agreement of
sale – Fannin on October 2nd and Ivy Tree on October 4th - in which there were no
contingencies relating to wetlands, floodplains, the number of developable lots, or
financing. Ivy Tree was willing to proceed with the contract even though it was
aware that it had minimal information about the Property. Ivy Tree was willing to
proceed with the contract even though it was aware that its request for a contingency
relating to wetlands and floodplains had been rejected by the other party. In its haste
to acquire the land, Ivy Tree took the risk that it could be mistaken as to the number
of developable lots on the Property. As a result, Ivy Tree is barred from seeking
rescission of the contract on the grounds of mistake. And Plaintiff is entitled to
specific performance of its contract because at all times, it was ready, willing, and
able to convey 53.98 acres of land to Ivy Tree in exchange for $1,150,000, and the
contract did not contain a liquidated damages clause.
Plaintiff is also seeking to shift its attorneys’ fees and costs to Ivy Tree
because of Ivy Tree’s alleged bad faith in repudiating and breaching the contract and
for asserting frivolous reasons for its anticipatory breach and repudiation. Ivy Tree
argues that Plaintiff has failed to demonstrate any strong public policy or any
egregious conduct that would justify an award of attorneys’ fees or costs. In
Page 15 of 18 particular, Ivy Tree argues that even if it had breached the contract, such conduct
would not amount to “vexatious, wanton, or oppressive conduct” in any way. 27
The bad-faith exception to the American Rule that each side bears its own
attorney’s fees does not apply to the conduct that gives rise to the claim itself,
although a court may consider the losing party’s conduct prior to litigation as
evidence for the purpose of determining whether the party defended the action in bad
faith.28 Nevertheless, the bad-faith exception may apply “where the pre-litigation
conduct of the losing party was so egregious as to justify an award of attorneys’ fees
as an element of damages.”29 Here, there is no indication that Ivy Tree
“‘unnecessarily prolonged or delayed litigation, falsified records, or knowingly
asserted frivolous claims[,] … mis[led] the court, alter[ed] testimony, or chang[ed]
position on an issue.’”30 There was nothing egregious about either the circumstances
surrounding Ivy Tree’s breach of contract or the ensuing litigation. Plaintiff has
failed to demonstrate as a matter of law any strong public policy in favor of awarding
attorneys fees in this case, or that it would be inequitable to require each party to bear
its own attorneys’ fees and costs. Therefore, I recommend that the Court deny
27 Answering Brief in Opposition to Plaintiffs’ Motion for Summary Judgment, at 10. 28 See Johnston v. Arbitrium (Cayman Islands) Handels AG, 720 A.2d 542, 546 (Del. 1998). 29 Choupak v. Rivkin, 2015 WL 1589610, at * (Del. Ch. April 6, 2015) (quoting Hardy v. Hardy, 2014 WL 3736331, at *17 (Del. Ch. July 2014)). Page 16 of 18 Plaintiff’s motion for summary judgment in part as to its request for an award of fees
and costs.
Exceptions Both parties have filed exceptions to the Draft Report. After reviewing the
parties’ briefs, I see no reason to modify my recommendation that the Court deny
Defendant’s cross-motion for summary judgment as to its request for rescission of
contract. Plaintiffs’ sole exception pertains to the Draft Report’s failure to include a
deadline for specific performance by Defendant. Therefore, I am modifying the Draft
Report by recommending that, in addition to granting Plaintiffs’ motion for summary
judgment as to its request for specific performance, the Court should require
Defendant to complete the purchase of the land and improvements which are the
subject of the cash contract at issue within sixty (60) days after this report becomes
final.
Conclusion
For the reasons stated above, I recommend that the Court grant summary
judgment in part in favor of Plaintiffs Elmer Fannin and Sugar Loaf Farms, Inc. as to
their request for specific performance within 60 days of the agreement of sale of the
Property for $1,150,000 to Defendant Ivy Tree Meadows, LLC, and deny
30 Dover Historical Soc., Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 1093 (Del. 2006) (quoting Beck v. Atlantic Coast PLC, 868 A.2d 840, 850-51 (Del. Page 17 of 18 Defendant’s motion for summary judgment as to its request for rescission of contract.
In addition, I recommend that Court deny summary judgment in part as to Plaintiffs’
request for an award of attorneys’ fees and costs. The parties are referred to Court of
Chancery Rule 144 for the process of taking exception to a Master’s Final Report.
Respectfully,
/s/ Kim E. Ayvazian
Kim E. Ayvazian Master in Chancery
KEA/kekz
Ch. 2005)). Page 18 of 18