New Start Holdings, LLC v. Zi Jun Zhou
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
NEW START HOLDINGS, LLC., ) including protected series 22 6th ) Series and 804 Marshall Series and ) CHENXI LI, ) ) Plaintiffs/Counterclaim ) Defendants, ) ) v. ) C.A. No. 2019-0831-MTZ ) ZI JUN ZHOU, and MARVIN ) DANIELS, as Trustee of the 804 ) Marshall Trust and the 22 Sixth ) Avenue Trust, ) ) Defendants/Counterclaim ) Plaintiffs. ) ) ) ZI JUN ZHOU, and MARVIN ) DANIELS, as Trustee of the 804 ) Marshall Trust and the 22 Sixth ) Avenue Trust, ) ) Third-Party Plaintiffs, ) ) v. ) ) US DOUBLE FOREST ) ENTERPRISE INC., ) ) Third-Party Defendant. )
MEMORANDUM OPINION Date Submitted: April 5, 2024 Date Decided: September 4, 2024 John L. Williams, Brian C. Crawford, THE WILLIAMS LAW FIRM, P.A., Wilmington, Delaware, Attorneys for Plaintiffs/Counterclaim Defendants, New Start Holdings, LLC, and Chenxi Li, and Third-Party Defendant US Double Forest Enterprise, Inc.
Zi Jun Zhou, Defendant/Counterclaim Plaintiff and Third-Party Plaintiff, pro se.
Marvin Daniels, Defendant/Counterclaim Plaintiff and Third-Party Plaintiff, pro se.
ZURN, Vice Chancellor. A lie rarely goes undetected. It grates against the truth with a telling scratch
or squeal. When a plaintiff comes to this Court with claims based on lies, trial sets
the lie against the truth, and—we hope and intend—gives the lie away. When that
happens, the doors of this Court of equity close against the plaintiff.
So here. Plaintiff Chenxi Li (“Ci Ci”) and her holding company New Start
Holdings, LLC (“New Start,” and together with Ci Ci, “Plaintiffs”) approached this
Court insisting New Start had purchased two residential rental properties from
defendant Zi Jun Zhou (“Wallace”).1 Ci Ci described Wallace as her real estate
agent and property manager. She insisted her parents’ role from China was limited
to bankrolling her own endeavors. According to Ci Ci, she was ready, willing, and
able to close on the two properties, but Wallace absconded with the roughly
$180,000 her family sent him to purchase those two properties. She came to this
Court seeking specific performance and damages.
Nuances of the transactions do not make sense under Plaintiffs’ story.
Wallace came to trial with an explanation. Wallace maintained he had teamed up
with Ci Ci’s father, Shuanglin Li, in a broader enterprise to operate rental properties
and to resell residential properties to overseas investors. Li promised Wallace a
1 Because this action involves two members of the Li family, to avoid confusion, I use Ci Ci’s chosen English name, which she used on many of the documents in this case, and Shuanglin Li’s family name. I use Wallace’s chosen English name out of parity. I intend no familiarity or disrespect. share in the profits. But at every turn, Li diverted the enterprise’s profits to Ci Ci
and refused to perform his obligations that would benefit Wallace. Realizing Li
would never give Wallace his cut, Wallace walked away from the venture with two
of his properties not yet diverted to Ci Ci.
Ci Ci came to this Court to present backdated contracts, evasive testimony,
half-truths, and lies. The lies in her story grate against the truth in Wallace’s. Her
unclean hands in her approach to this Court are dispositive: this Court will not
interfere on her behalf. For their part, the defendants have proven the contracts
concerning the two disputed properties are unenforceable. The defendants are
entitled to declaratory relief, restitution from unjust enrichment, and reasonable
attorneys’ fees and costs.
I. BACKGROUND2
Finding Wallace’s story to be the truth and Ci Ci’s to be false, and concluding
Ci Ci came to Court with unclean hands, is dispositive of Plaintiffs’ claims. The
2 Citations in the form of “Am. Compl.” refer to the plaintiffs’ verified amended complaint, available at docket item (“D.I.”) 29. Citations in the form of “Defs. Ans.” refer to the defendants’ answer to the verified amended complaint, available at D.I. 33. Citations in the form of “Countercl.” refer to the counterclaim plaintiffs’ verified counterclaim and third-party complaint, available at D.I. 33. Citations in the form of “PreTB” refer to plaintiffs’ and third-party defendant’s pretrial brief, available at D.I. 72. Citations in the form of “PTO” refer to the plaintiffs and third-party defendant’s pretrial order, available at D.I. 81. Citations in the form of “Tr. (Name of speaker)” refer to the trial transcript, available at D.I. 84 and D.I. 85. Citations in the form of “PostTB” refer to the plaintiffs’ and third-party defendant’s post-trial brief, available at D.I. 89.
2 factual findings are therefore outcome-determinative in this case. “My duty is to
make findings of fact based on the preponderance of the evidence the parties
present.”3 “Proof by a preponderance of the evidence means proof that something
is more likely than not.”4 The parties have the burden of proving their respective
claims, and each “must explain why its version of the facts is the more plausible in
a way comprehensible and convincing to the trier of fact; if not, it has failed to carry
its burden, and the judge’s duty is accordingly clear.”5 Conflicts are resolved by
credibility determinations.
Before I proceed to my factfinding mission, I note I have already deemed
some facts admitted. The defendants went to trial without legal representation. They
did not follow the scheduling order or participate in the drafting of the pretrial order
or exhibit list.6 And there were indications the defendants failed to meet their
discovery obligations.7 Plaintiffs and third party defendant US Double Forest
Enterprise, Inc. (“Double Forest” or “Third Party Defendant”) requested their
proposed facts in the pretrial order be deemed admitted without proof, and that the
3 Lynch v. Gonzales, 2020 WL 4381604, at *4 (Del. Ch. July 31, 2020). 4 Id. at *30 (quoting Martin v. Med-Dev Corp., 2015 WL 6472597, at *10 (Del. Ch. Oct. 27, 2015)). 5 In re Appraisal of Ancestry.com, Inc., 2015 WL 399726, at *1 (Del. Ch. Jan. 30, 2015). 6 D.I. 80 at 1–2. 7 Id. at 1; D.I. 83 at 5; D.I. 67, Ex. A at 1–2.
3 trial record be limited to their submitted list of exhibits and witnesses.8 At the
pretrial conference on January 29, 2024, I advised the defendants they had until 5:00
p.m. February 1 to file any opposition to deeming Plaintiffs’ proposed facts as
admitted without proof, and to limiting documents at trial to those Plaintiffs placed
on the joint exhibit list.9 The defendants did not meet this deadline, and on February
2, I granted Plaintiffs’ request and entered their proposed pretrial order, deeming the
proposed facts admitted, precluding the defendants from using any documents at
trial not identified on the joint exhibit list, and prohibiting the defendants from
calling any witnesses.10
At trial, it became clear Plaintiffs’ story that they had urged me to deem
admitted was false. Ci Ci refused to answer questions,11 feigned ignorance of crucial
details,12 acknowledged she failed to produce her text and WeChat communications
with Wallace,13 and did not provide at trial key documents that would have supported
8 D.I. 73 at Ltr.; id. at Ex. A. 9 D.I. 83 at 15–16. 10 D.I. 80; PTO. 11 See, e.g., Tr. (Ci Ci) at 108; id. (Ci Ci) at 165; id. (Ci Ci) at 182. 12 See, e.g., id. (Ci Ci) at 182–83; id. (Ci Ci) at 183; compare id. (Ci Ci) at 206, with id. (Ci Ci) at 98, 160–62. 13 Id. (Ci Ci) at 184–85.
4 her story.14 She repeatedly lied on the stand.15 When confronted with her lies, she
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
NEW START HOLDINGS, LLC., ) including protected series 22 6th ) Series and 804 Marshall Series and ) CHENXI LI, ) ) Plaintiffs/Counterclaim ) Defendants, ) ) v. ) C.A. No. 2019-0831-MTZ ) ZI JUN ZHOU, and MARVIN ) DANIELS, as Trustee of the 804 ) Marshall Trust and the 22 Sixth ) Avenue Trust, ) ) Defendants/Counterclaim ) Plaintiffs. ) ) ) ZI JUN ZHOU, and MARVIN ) DANIELS, as Trustee of the 804 ) Marshall Trust and the 22 Sixth ) Avenue Trust, ) ) Third-Party Plaintiffs, ) ) v. ) ) US DOUBLE FOREST ) ENTERPRISE INC., ) ) Third-Party Defendant. )
MEMORANDUM OPINION Date Submitted: April 5, 2024 Date Decided: September 4, 2024 John L. Williams, Brian C. Crawford, THE WILLIAMS LAW FIRM, P.A., Wilmington, Delaware, Attorneys for Plaintiffs/Counterclaim Defendants, New Start Holdings, LLC, and Chenxi Li, and Third-Party Defendant US Double Forest Enterprise, Inc.
Zi Jun Zhou, Defendant/Counterclaim Plaintiff and Third-Party Plaintiff, pro se.
Marvin Daniels, Defendant/Counterclaim Plaintiff and Third-Party Plaintiff, pro se.
ZURN, Vice Chancellor. A lie rarely goes undetected. It grates against the truth with a telling scratch
or squeal. When a plaintiff comes to this Court with claims based on lies, trial sets
the lie against the truth, and—we hope and intend—gives the lie away. When that
happens, the doors of this Court of equity close against the plaintiff.
So here. Plaintiff Chenxi Li (“Ci Ci”) and her holding company New Start
Holdings, LLC (“New Start,” and together with Ci Ci, “Plaintiffs”) approached this
Court insisting New Start had purchased two residential rental properties from
defendant Zi Jun Zhou (“Wallace”).1 Ci Ci described Wallace as her real estate
agent and property manager. She insisted her parents’ role from China was limited
to bankrolling her own endeavors. According to Ci Ci, she was ready, willing, and
able to close on the two properties, but Wallace absconded with the roughly
$180,000 her family sent him to purchase those two properties. She came to this
Court seeking specific performance and damages.
Nuances of the transactions do not make sense under Plaintiffs’ story.
Wallace came to trial with an explanation. Wallace maintained he had teamed up
with Ci Ci’s father, Shuanglin Li, in a broader enterprise to operate rental properties
and to resell residential properties to overseas investors. Li promised Wallace a
1 Because this action involves two members of the Li family, to avoid confusion, I use Ci Ci’s chosen English name, which she used on many of the documents in this case, and Shuanglin Li’s family name. I use Wallace’s chosen English name out of parity. I intend no familiarity or disrespect. share in the profits. But at every turn, Li diverted the enterprise’s profits to Ci Ci
and refused to perform his obligations that would benefit Wallace. Realizing Li
would never give Wallace his cut, Wallace walked away from the venture with two
of his properties not yet diverted to Ci Ci.
Ci Ci came to this Court to present backdated contracts, evasive testimony,
half-truths, and lies. The lies in her story grate against the truth in Wallace’s. Her
unclean hands in her approach to this Court are dispositive: this Court will not
interfere on her behalf. For their part, the defendants have proven the contracts
concerning the two disputed properties are unenforceable. The defendants are
entitled to declaratory relief, restitution from unjust enrichment, and reasonable
attorneys’ fees and costs.
I. BACKGROUND2
Finding Wallace’s story to be the truth and Ci Ci’s to be false, and concluding
Ci Ci came to Court with unclean hands, is dispositive of Plaintiffs’ claims. The
2 Citations in the form of “Am. Compl.” refer to the plaintiffs’ verified amended complaint, available at docket item (“D.I.”) 29. Citations in the form of “Defs. Ans.” refer to the defendants’ answer to the verified amended complaint, available at D.I. 33. Citations in the form of “Countercl.” refer to the counterclaim plaintiffs’ verified counterclaim and third-party complaint, available at D.I. 33. Citations in the form of “PreTB” refer to plaintiffs’ and third-party defendant’s pretrial brief, available at D.I. 72. Citations in the form of “PTO” refer to the plaintiffs and third-party defendant’s pretrial order, available at D.I. 81. Citations in the form of “Tr. (Name of speaker)” refer to the trial transcript, available at D.I. 84 and D.I. 85. Citations in the form of “PostTB” refer to the plaintiffs’ and third-party defendant’s post-trial brief, available at D.I. 89.
2 factual findings are therefore outcome-determinative in this case. “My duty is to
make findings of fact based on the preponderance of the evidence the parties
present.”3 “Proof by a preponderance of the evidence means proof that something
is more likely than not.”4 The parties have the burden of proving their respective
claims, and each “must explain why its version of the facts is the more plausible in
a way comprehensible and convincing to the trier of fact; if not, it has failed to carry
its burden, and the judge’s duty is accordingly clear.”5 Conflicts are resolved by
credibility determinations.
Before I proceed to my factfinding mission, I note I have already deemed
some facts admitted. The defendants went to trial without legal representation. They
did not follow the scheduling order or participate in the drafting of the pretrial order
or exhibit list.6 And there were indications the defendants failed to meet their
discovery obligations.7 Plaintiffs and third party defendant US Double Forest
Enterprise, Inc. (“Double Forest” or “Third Party Defendant”) requested their
proposed facts in the pretrial order be deemed admitted without proof, and that the
3 Lynch v. Gonzales, 2020 WL 4381604, at *4 (Del. Ch. July 31, 2020). 4 Id. at *30 (quoting Martin v. Med-Dev Corp., 2015 WL 6472597, at *10 (Del. Ch. Oct. 27, 2015)). 5 In re Appraisal of Ancestry.com, Inc., 2015 WL 399726, at *1 (Del. Ch. Jan. 30, 2015). 6 D.I. 80 at 1–2. 7 Id. at 1; D.I. 83 at 5; D.I. 67, Ex. A at 1–2.
3 trial record be limited to their submitted list of exhibits and witnesses.8 At the
pretrial conference on January 29, 2024, I advised the defendants they had until 5:00
p.m. February 1 to file any opposition to deeming Plaintiffs’ proposed facts as
admitted without proof, and to limiting documents at trial to those Plaintiffs placed
on the joint exhibit list.9 The defendants did not meet this deadline, and on February
2, I granted Plaintiffs’ request and entered their proposed pretrial order, deeming the
proposed facts admitted, precluding the defendants from using any documents at
trial not identified on the joint exhibit list, and prohibiting the defendants from
calling any witnesses.10
At trial, it became clear Plaintiffs’ story that they had urged me to deem
admitted was false. Ci Ci refused to answer questions,11 feigned ignorance of crucial
details,12 acknowledged she failed to produce her text and WeChat communications
with Wallace,13 and did not provide at trial key documents that would have supported
8 D.I. 73 at Ltr.; id. at Ex. A. 9 D.I. 83 at 15–16. 10 D.I. 80; PTO. 11 See, e.g., Tr. (Ci Ci) at 108; id. (Ci Ci) at 165; id. (Ci Ci) at 182. 12 See, e.g., id. (Ci Ci) at 182–83; id. (Ci Ci) at 183; compare id. (Ci Ci) at 206, with id. (Ci Ci) at 98, 160–62. 13 Id. (Ci Ci) at 184–85.
4 her story.14 She repeatedly lied on the stand.15 When confronted with her lies, she
doubled down.16 By contrast, defendants Wallace and the trustee for the disputed
properties, Marvin Daniels (together with Wallace, “Defendants”), were
straightforward, consistent, and credible.
As Ci Ci’s story spun out of control, the equities undergirding my decision to
deem Plaintiffs’ proposed facts as admitted changed dramatically. Some of those
“facts” were lies.17 What was meant to prevent prejudice threatened to deliver
injustice.18 I have therefore revisited my decision to admit Plaintiffs’ proposed facts
14 See, e.g., id. (Ci Ci) at 182–85; id. (Ci Ci) at 63; id. (Plaintiff’s counsel) at 102. 15 By way of example, Ci Ci got caught in lies about whether Wallace withheld a commission for a particular property, compare id. (Ci Ci) at 49–50, with id. (Ci Ci) at 182, and how and whether she sent purportedly signed and sent copies of agreements to Wallace, compare id. (Ci Ci) at 29, with id. (Ci Ci) at 174–75, and id. (Ci Ci) at 192. 16 For example, on the topic of why a particular purchase fell through, Ci Ci testified that the property was too large for her. Id. at 177. Wallace pointed out that the home Ci Ci then purchased was even larger. Id. (Wallace) at 195. Ci Ci responded along the lines that her taste had changed, as the subsequent purchase was two years later. Id. (Ci Ci) at 196. But it wasn’t: it was eight months later. Id. (Wallace) at 196; see JX 4 at -0490; Id. (Ci Ci) at 29–30, 174. 17 E.g., PTO ¶¶ 18, 20–21, 29. 18 See Taylor v. Jones, 2006 WL 1510437, at *6 (Del. Ch. May 25, 2006) (“The ‘law of the case’ doctrine requires that issues already decided by the same court should be adopted without relitigation” but “[t]he Court is not without some discretion in determining the applicability of ‘law of the case’ doctrine . . . [and] it is not an absolute bar to reconsideration of a prior decision that is clearly wrong, produces an injustice, or should be revisited because of changed circumstances.” (footnote omitted)); Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 39 (Del. 2005).
5 as admitted without requiring proof.19 I will find the facts based on the evidence
presented at trial.
Having weighed the evidence and evaluated the credibility of the witnesses, I
find the following facts were proven by the preponderance of the evidence.
A. Ci Ci Initiates Business Conversations With Wallace.
Wallace first entered the real estate business in 2010 or 2011 as a realtor.20
But he soon determined he did not enjoy being a real estate agent and stopped
accepting new clients in or around 2013.21 By 2015, his real estate license had
expired, and he had pivoted to being a landlord.22 When Ci Ci and Wallace’s paths
crossed in 2015, Wallace was making his living by acquiring properties and renting
them out.23
19 Hamilton v. State, 831 A.2d 881, 887 (Del. 2003) (“The law of the case doctrine is not intended to preserve error or injustice . . . . [It] does not apply when the previous ruling was clearly in error or there has been an important change in circumstances, in particular, the factual basis for issues previously posed.”); Kenton v. Kenton, 571 A.2d 778, 784 (Del. 1990) (“The ‘law of the case’ is established when a specific legal principle is applied to an issue presented by facts which remain constant throughout the subsequent course of the same litigation.”). 20 Tr. (Wallace) at 221. 21 Id. (Wallace) at 222. 22 Id. (Wallace) at 223, 233, 238. 23 Id. (Wallace) at 238.
6 In 2015, Ci Ci was 22; she had graduated college and moved from Beijing,
China to Delaware without her family.24 She returned to her family in China for the
summers, and they frequently visited her in the United States.25 She enrolled at the
University of Delaware, taking classes in the English Language Institute for one
year, then entering its master’s in business administration program for hospitality
and restaurant management.26
When Ci Ci first arrived in the United States, she rented a home. The landlord
and property manager was Wallace’s business colleague,27 and Wallace had helped
him acquire and manage Ci Ci’s rental.28 In 2015, Ci Ci shared with her landlord
that she was interested in buying residential properties in the United States, and her
landlord introduced her to Wallace before Ci Ci went to China for the summer.29 Ci
Ci told Wallace she would discuss the matter with her family.30
24 Id. (Ci Ci) at 5–6. 25 See id. (Ci Ci) at 7, 51; see also id. (Wallace) at 144 (discussing one of Ci Ci’s parents’ visits to the United States); id. (Ci Ci) at 188 (same). 26 Id. (Ci Ci) at 5. 27 Id. (Ci Ci) at 6. 28 Id. (Ci Ci) at 6, 159. 29 Id. (Ci Ci) at 6–7. 30 Id. (Ci Ci) at 7.
7 B. Li And Wallace Agree To Collaborate And Share Profits.
After visiting her parents that summer, Ci Ci returned to Delaware with her
parents.31 Li met with Wallace, wanting to buy residential real estate.32 With Ci Ci
being a full-time student, Li instructed Wallace that Wallace would be dealing
directly with him.33 Li and Wallace negotiated heavily.34 They orally agreed upon
a two-pronged enterprise: (1) selling several of Wallace’s rental properties to Li for
Ci Ci’s benefit, and earmarking their rental income for her, and (2) acquiring higher-
priced homes and reselling them to Chinese investors at a profit, to be split between
Li and Wallace.35 The first rental prong benefitted Ci Ci at Wallace’s expense. Ci
Ci would own the rental properties and receive the rent, which would cover her living
expenses in view of difficulties in wiring cash from China.36 After closing, Wallace
would pay Ci Ci the rental amount if the properties were ever unoccupied, and would
31 Id. (Ci Ci) at 7, 15; see also id. (Wallace) at 95 (indicating Li visited annually). 32 Id. (Wallace) at 224, 236, 238; D.I. 79, Ex. A at 26:16–22 (indicating Wallace met with Ci Ci’s parents in the late summer of 2015). Because Wallace is pro se and Ci Ci has proven to be less than forthright in the materials she submitted to this Court, I have looked to Wallace’s sworn deposition testimony to fill in holes in my factfinding. See Ct. Ch. R. 32(a)(3)(E). 33 Id. (Wallace) at 257; id. (Wallace) at 316–17 (“[H]e wanted to make sure we do not interrupt Ci Ci’s college education, because she was a full-time student . . . . He wanted to make sure that . . . whatever we do will be time-efficient and not to keep . . . bothering his daughter and ask her to do things for us.”). 34 Id. (Wallace) at 236. 35 Id. (Wallace) at 236, 239, 245, 262, 326–38. 36 Id. (Wallace) at 245; id. (Ci Ci) at 78.
8 pay for any repairs or maintenance of the property.37 Wallace would also serve as
the property manager at no cost to Ci Ci.38 If the rental properties were ever sold,
Wallace and Li would split the profits.39
The rental prong had little to no benefit for Wallace.40 But if he performed on
the rental prong, Li promised the two would resell homes together.41 Li conditioned
the second prong on the first occurring; and Wallace conditioned the first prong on
the second.42 More to the point: Wallace agreed to the unfavorable rental prong
because the resale prong promised great returns.43 The men agreed that Li would
fund the purchase of higher priced homes, and they would resell the homes to
37 Id. (Wallace) at 148–49, 236, 239, 327–38. 38 Id. (Wallace) at 245; id. (Ci Ci) at 11. 39 Id. (Wallace) at 245, 263. 40 Id. (Wallace) at 239, 327; see id. (Ci Ci) at 26. 41 Id. (Wallace) at 234–36. 42 Id. (Wallace) at 238–39;); see JX 7 at -1570, -1588, -1606 (memorializing these terms in later agreements of sale); see also JX 18 at -2080 (indicating Wallace did not replicate these terms in other purchase agreements with a different, more arm’s-length buyer); JX 23 at -0359 (same). 43 Tr. (Wallace) at 239; id. (Wallace) at 149 (“[W]hat kind of agreement [do] you think that was? Like, if your dad did not make his, you know, business plan sound so good, why on earth [would] anyone . . . be like, hey, I’m okay, you know, when you guys have seven properties, the rents are, you know, 5 [for] $10,000 a month. Even if the tenants are not paying, I [will] still pay. Even if your property gets damaged, [I] will take money out of my pocket to fix your damage. Who does that?”); id. (Wallace) at 150 (“Yes, I did sign all of that . . . . But at the same time, d[id] you ever wonder why on earth I would [sign the agreements]? It’s only because your dad promised that he will sell or buy ten properties from me each . . . month, and that’s why I did that.”); id. (Wallace) at 88–91.
9 Chinese investors for a profit, which Wallace and Li would split.44 Wallace regarded
Li as a great businessman and believed Li could take Wallace’s business skills “to
the next level.”45
Wallace was no longer licensed as a realtor and believed he was required to
be “in order to help them” obtain properties.46 To solve this problem, even though
Wallace usually held on to his rental properties, he sold four of his own rental
properties (the “Initial Properties”) to Li “for sale by owner,” which would not
require Wallace to have a license.47 Wallace provided rental income to Ci Ci on the
Initial Properties, which assisted with her living expenses.48 Sometime in August,
Li entered into agreements with Wallace to purchase the Initial Properties.49 Before
and during trial, Plaintiffs’ counsel consistently referenced the Initial Properties’
44 Id. (Wallace) at 238. 45 Id. (Wallace) at 141. Wallace testified that Li regarded himself as a good businessman, and Wallace as beneath him. See id. (Wallace) at 146. 46 Id. (Wallace) at 224. 47 Id. (Wallace) at 238 (“I was always a landlord . . . . I never sell. I only want to rent to people.”); id. (Wallace) at 224. 48 Id. (Wallace) at 245; Tr. (Wallace) at 328 (“Because, in China, . . . we [are] only allowed to send $50,000. So, by [Ci Ci] going to college, paying for tuition, and living here, renting, $50,000 might not be enough to cover the whole year.”). 49 PreTB at 7 (indicating the parties entered agreements of sale to purchase the Initial Properties “[o]n or around August of 2015”); Tr. (Wallace) at 238 (“[Li] told me, he said, ‘Wallace, you sell me these properties . . . .’”); id. (Wallace) at 256 (“Li just put up the money and g[a]ve us instructions on what to do. And me and Ci Ci [would] just go execute it. We just go follow his instruction.”).
10 purchase agreements and maintained they exist.50 But these agreements were not
included in Plaintiffs’ exhibit list.51
The evidence at trial shows Wallace’s agreement with Li was broader than the
purchase of the Initial Properties. According to Plaintiffs’ counsel, the purchase
agreements provided a purchase price of $50,000 for each of the Initial Properties.52
Li ultimately paid Wallace far more: $500,000 in cash, which Wallace received in
full by October or November.53 Wallace’s obligations to cover the rent, serve as
50 See, e.g., id. (Ci Ci) at 15; id. (Plaintiffs’ counsel) at 236; PreTB at 7. Although Plaintiffs’ counsel asserted the purchase agreements existed and conveyed the properties, Ci Ci maintained that December trust agreements conveyed the Initial Properties from Wallace. See Tr. (Ci Ci) at 10 (“I didn’t even sign any, like the contract . . . . I just went to [Wallace’s] house, and he showed me documents that I need to sign. So I signed, I believe, something called a trust, and that’s it.”); id. (Ci Ci) at 14 (discussing why Wallace purportedly instructed her to put the properties in trust rather than purchase them outright and explaining “I thought this is the way that people are buying real estate in America”); id. (Ci Ci and Wallace) at 125 (“‘Is that the same [agreement of sales] I used [for the Initial Properties]?’ ‘No. You were using the trust agreement.’ ‘So you’re saying we don’t have a legal, binding, signed purchase agreement, we only had a trust agreement? What happens if I prove to the judge we d[id] sign the purchase agreement?’ ‘We did sign the contracts you sent to me, including the trust.’”). As explained infra note 73, those trust agreements cannot have conveyed the properties from Wallace to Ci Ci or New Start. 51 D.I. 73, Ex. A; Tr. (Plaintiffs’ counsel) at 102 (asserting “the first four contracts are not in the joint exhibits, the ones he is trying to find”). 52 Tr. (Plaintiffs’ counsel) at 236 (“[T]he contracts -- which we don’t have here today . . . [,] didn’t [they] specify $50,000 on each of the four properties as the sale price?”). 53 Id. (Ci Ci) at 10; id. (Wallace) at 236; see id. (Ci Ci) at 14–15 (indicating the payment was made in cash before closing and she signed agreements of purchase around October or November); id. (Ci Ci) at 181 (indicating Wallace was paid in full before the purchase agreements were signed).
11 property manager, and pay for repairs and maintenance were not memorialized in
the Initial Properties’ purchase agreements, but Wallace performed them anyway.54
With the Initial Properties and their income stream conveyed to Ci Ci, Wallace
and Li began their resale enterprise for higher priced homes, which they referred to
as “wholesaling.”55 Wallace was to identify ten homes, and enter into a contract
with Wallace “and/or assigns” as the buyer so Wallace would have the option to
assign the contract to Li or his designee.56 Li would then find an overseas cash
buyer; because cash-only purchases do not require an appraisal, Li promised he
could sell those properties for more than the local residential market would support.57
The purchase amount would be contributed by a group of individuals who would
each wire Wallace $50,000.58
Wallace identified the first property to wholesale. His neighbor at 210
Peoples Way (“Peoples Way”) was looking to sell.59 Li instructed Wallace to
54 Id. (Plaintiffs’ counsel and Wallace) at 240 (“‘But on the first four contracts, paragraph 32 did not have the language we were reading yesterday, right?’ ‘Correct.’”); see JX 7 at -1570, -1588, -1606 (memorializing these terms in subsequent agreements of sale); see Tr. (Ci Ci) at 11 (indicating she received rent on the Initial Properties from Wallace and that he managed them); PTO ¶¶ 29–30; see, e.g., JX 13 at -0478. 55 Tr. (Wallace) at 203–04, 251. 56 Id. (Wallace) at 226, 257–58; id. (Ci Ci and Plaintiffs’ counsel) at 19–20. 57 Id. (Wallace) at 239–40. 58 Id. (Ci Ci) at 78; see, e.g., JX 2. 59 Tr. (Ci Ci) at 20, 83.
12 purchase Peoples Way and assign the executed purchase agreement to Ci Ci.60 They
would then sell Peoples Way at a profit: Li would find an overseas buyer, and
Wallace would serve as the realtor.61 Instead of receiving a commission, Wallace
would share in the profits from the sale.62 To serve as realtor, Wallace asked his old
brokerage firm to reactivate his realtor’s license.63
In November, the Peoples Way sellers agreed to sell the property to Wallace
for $795,000 in cash.64 So that Wallace could assign the agreement to Ci Ci,65 the
contract identified the buyer as “Zi Jun Zhou and or assigns.”66 Wallace signed the
contract on November 27, 2015, and a $10,000 nonrefundable deposit was tendered
that day.67 Neither Wallace nor the seller were represented by a realtor.68 The Li
family began wiring the funds for Peoples Way to Wallace on September 24 in
60 Id. (Wallace) at 226; see JX 4 at -0492. 61 Tr. (Wallace) at 223, 226. 62 JX 38 at 13. 63 Tr. (Wallace) at 223–26, 233. 64 JX 4 at -0484 § 3; but see JX 29 at -2361 (Ci Ci representing to Wallace’s property manager that her family attempted to purchase Peoples Way Property at “840k”). 65 Tr. (Wallace) at 225–26. 66 JX 4 at -0484 § 1; Tr. (Wallace) at 258. 67 JX 4 at -0484 § 3, -0492. 68 Id. at -0490 § 28.
13 $50,000 increments to comply with China’s restrictions on individual wire
payments.69 Both prongs of the enterprise were underway.
C. Li Causes The Initial Properties To Be Put In Trust.
By December, Li realized he needed Wallace to be able to sign contracts for
him and Ci Ci because Li could not easily enter agreements from China, and Ci Ci
was frequently unavailable.70 Wallace spoke with his attorney, who suggested a
trust.71 On December 2, four trusts were created, one to hold each of the four Initial
Properties.72 Conveyance to Ci Ci as trustee was recorded on December 4.73
69 JX 2; JX 3; PostTB at 4; Tr. (Wallace) at 328 (discussing $50,000 annual restriction for individual wire payments); id. (Daniels and Plaintiffs’ counsel) at 206. 70 Tr. (Wallace) at 237. 71 Id.; see also id. at 317 (explaining that with his partner Siew as trustee, he and Siew could sign on Ci Ci’s behalf). 72 JX 1. 73 New Castle Cty., Del., Parcel # 1001020626, NEWCASTLEDE.GOV, https://www3.newcastlede.gov/parcel/Details/Default.aspx?ParcelKey=85504 (last visited August 30, 2024); New Castle Cty., Del., Parcel # 0703940240, NEWCASTLEDE.GOV, https://www3.newcastlede.gov/parcel/Details/Default.aspx?ParcelKey=36794 (last visited Aug. 30, 2024); New Castle Cty., Del., Parcel # 0703940277, NEWCASTLEDE.GOV, https://www3.newcastlede.gov/parcel/Details/Default.aspx?ParcelKey=36831 (last visited Aug. 30, 2024); New Castle Cty., Del., Parcel # 2604110062, NEWCASTLEDE.GOV, https://www3.newcastlede.gov/parcel/Details/Default.aspx?ParcelKey=178984 (last visited Aug. 30, 2024). I take judicial notice of these December 4 conveyances to Ci Ci as trustee. See Fortis Advisors LLC v. Allergan W.C. Hldg. Inc., 2019 WL 5588876, at *4 (Del. Ch. Oct. 30, 2019) (“Delaware courts have taken judicial notice of publicly available documents that ‘are required by law to be filed, and are actually filed, with federal or state officials.’” (quoting In re Rural Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec. 17, 2013)); Sunrise Ventures, LLC v. Rehoboth Canal Ventures, LLC, 2010 WL 3638445, at *10 n.58 (Del. Ch. Jan. 27, 2010) (taking judicial notice of the fact that loans and mortgages were satisfied as of a certain date, as was recorded in the Recorder of
14 Wallace’s business partner Kien Bien Siew was the trustee and Ci Ci was the
beneficiary.74 Each trust gave the trustee authority to purchase real property on its
behalf; assume mortgages on trust property; sell or dispose of trust property; rent or
lease trust property; repair, alter, or tear down trust property; and make rent
collections and all other payments that may be due and payable to the trust.75 In
other words, Wallace, through Siew, could now enter various agreements for the Li
family.
D. Li Backs Out Of Peoples Way; Wallace Keeps The Funds.
By the end of December, Li and Wallace’s relationship began to deteriorate.
The settlement date for Peoples Way was set for February 1, 2016.76 But even before
the new year, Li asked to postpone settlement several times.77 Then Li did not
Deeds of Sussex County, Delaware); Branch Baking & Tr. Co. v. Eid, 2013 WL 3353846, at *3 (Del. Super. June 13, 2013) (taking judicial notice of a real property assignment filing with the New Castle County Recorder of Deeds). At trial, Ci Ci maintained these trust agreements conveyed the Initial Properties from Wallace to the trusts in October or November. Tr. (Ci Ci) at 13–15. These instruments cannot have conveyed the Initial Properties from Wallace, at that time or at all. They were signed on December 3, 2015. See, e.g., JX 1 at -1101. They make no mention of Wallace as seller. They expressly indicate that “no consideration was paid by [Ci Ci] for such conveyance.” Id. at -1096. I do not rely on the trust instruments as the contracts by which Wallace sold the Initial Properties to Li or Ci Ci. 74 E.g., JX 1 at -1096. 75 See, e.g., id. at -1097 § 5.c. 76 JX 4 at -0486 § 7. 77 Am. Compl. ¶ 21 (taking the position that her family attempted to postpone closing a few times).
15 respond to Wallace for two weeks.78 Wallace “start[ed] getting worried” and
reached out to Ci Ci, who helped reinitiate communication between Li and
Wallace.79 The Lis had changed their minds on purchasing Peoples Way, and
Wallace and Li fell out.80 Wallace retained roughly $300,000 the Li family had
wired him.81
E. Ci Ci Forms New Start; Wallace Reengages; Li Forms Double Forest.
In May of 2016, with Wallace and Li at odds, Ci Ci formed New Start.82
Neither Wallace nor his associates participated.83 Ci Ci met with an attorney on her
Ci Ci tried to take sole ownership of the decision not to purchase Peoples Way, telling a tale that it was going to be her primary residence but that she decided it was too large for her. Tr. (Ci Ci) at 177. This was not credible. See supra note 16. The preponderance of the credible evidence shows the decisionmaker was Li, or at most Ci Ci’s family. Tr. (Ci Ci) at 21; id. at 177–78; PostTB at 4. 78 Tr. (Wallace) at 136. 79 Id. 80 Id. (Ci Ci) at 21, 177. 81 Id. at 85, 263. 82 JX 5 at -0946. 83 Tr. (Ci Ci) at 176, 190–91.
16 own and transferred the Initial Properties held in the four trusts to New Start.84 This
transfer effectively eliminated Siew and Wallace’s authority over those properties.85
In September of 2016, Ci Ci’s parents returned to the United States.86 They
visited Wallace’s house and the families had an extended conversation regarding the
fallout.87 Ci Ci facilitated the conversation, insisting the pair could “fix the
mistakes” and “still move forward together.”88 Wallace was “upset for what [Li] did
to [him],” and Wallace informed Li that “if [Li] want[ed] to continue to play games
like that, being dishonest,” then Wallace would rather take the matter to court.89 This
comment upset Li, and the meeting ended without any resolution.90
A few days later, Li again approached Wallace and “brought up the idea of
continu[ing] to work” together. 91 Li promised “to buy properties from [Wallace],”
to keep his word.92 Wallace and Li reconciled and resumed their joint enterprise.
84 Id. (Ci Ci) at 176, 190–91. 85 See, e.g., JX 1 at -1096 § 5. 86 Id. (Ci Ci) at 51–52. 87 Id. (Wallace) at 137–38. 88 Id. (Wallace) at 141. 89 Id. (Wallace) at 137. 90 Id. (Wallace) at 137–38. 91 Id. (Wallace) at 138. 92 Id.
17 Wallace helped Li form and incorporate Double Forest to assume Li’s
obligations in the enterprise.93 The company’s name was meant to signify Li’s
collaboration with Wallace.94 On September 26, Wallace spent an entire day, from
morning until 10:00 p.m., meeting with Li and accompanying him to the meetings
necessary for creating Double Forest.95 Ci Ci had no part in these meetings or in
Double Forest’s incorporation.96 Double Forest was established with Li as the sole
stockholder.97 Instead of Wallace and Li sharing profits, Wallace would share them
with Double Forest.98 Wallace and Li handwrote their plan to continue working
together in Chinese in Li’s notebook.99 Ci Ci urged modifications to the Wallace-
Li agreement to split the profits equally between them, rather than Li receiving sixty
percent and Wallace receiving forty.100 At some point and without Wallace’s
knowledge, Li transferred ownership of Double Forest to Ci Ci.101
93 Id. at 104–105, 151; JX 6. 94 Tr. (Wallace) at 151. 95 Id. (Wallace) at 104–05; JX 6. 96 Tr. (Wallace) at 104. 97 Id. at 103–104. 98 Id. (Wallace) at 242. 99 Countercl. ¶ 5; Tr. (Wallace) at 141, 242. 100 Tr. (Wallace) at 242. 101 See, e.g., id. (Wallace) at 151; JX 14 at -1952.
18 F. The Wallace-Li Enterprise Restarts.
The Wallace-Li enterprise restarted just as it had begun, with two arms:
Wallace offered to sell more rental properties to the Li family and pay rental income
to Ci Ci, while Wallace and Li pursued another high-priced home to resell.
For the first prong, Li and Wallace agreed that the $300,000 Wallace had
retained from the failed Peoples Way transaction would be applied to Ci Ci’s
acquisition of three rental properties Wallace owned: 13 9th Avenue (“9th
Avenue”), 22 6th Avenue (“6th Avenue”), and 804 Marshall Street (“Marshall
Street”).102 New Start would be the buyer.103
On October 24, Wallace drafted an agreement for each rental property, signed
all three, and emailed them to Li and Ci Ci.104 Each agreement identifies New Start
as the buyer, and does not include an “and/or assigns” clause.105 9th Avenue was
priced at $120,000; 6th Avenue at $110,000; and Marshall Street at $100,000.106
The agreements contain language providing “time is of the essence” and establish
final settlement shall be held “within 30 days of acceptance, or before if mutually
agreed upon,” or “a reasonable time” after to provide time for “secur[ing] a survey,
102 See, e.g., JX 7 at -1563, -1581, -1599; Tr. (Ci Ci) at 23, 85. 103 JX 7 at -1563 § 1, -1581 § 1, -1599 § 1. 104 Id. at -1562. 105 See, e.g., id. at -1563. 106 See, e.g., id. at -1563 § 3, -1581 § 3, -1599 § 3.
19 or prepar[ing] . . . legal and financial settlement documents.”107 In addition, all three
agreements repeated the Initial Properties’ terms benefitting Ci Ci: Wallace agreed
to pay Ci Ci rent on each property if it was ever unoccupied, to pay for any repairs
or maintenance, and to serve as its property manager at no cost to Ci Ci.108 Each
contract specifies these additional terms and conditions would continue until (1)
October 31, 2019 or (2) the property was sold to another party and Wallace was
released from management, whichever happened first.109
Ci Ci never signed any of these agreements.110 The parties never went to
closing. But by November 2016, Wallace was paying Ci Ci the rent on those three
107 Id. at -1565 §§ 7–8, -1583 §§ 7–8, -1601 §§ 7–8. 108 Id. at -1570 § 32, -1588 § 32, -1606 § 32; see Tr. (Wallace) at 245, 327. 109 JX 7 at -1570, -1588, -1606 (stating under “Additional Terms and Conditions” that “Seller agrees to be responcible [sic] for all maintenance and repair costs as well as the reimbursement of all rents when the current tenants do not pay as long as the property stays under the sellers [sic] property management. All terms and conditions are effective until October 31, 2019.”). 110 Ci Ci’s effort to create credible evidence that she signed them failed. She produced agreements bearing her signature for 6th Avenue and Marshall Street. JX 11; JX 12. Wallace had not seen these agreements countersigned before this lawsuit. Tr. (Wallace) at 311, 324. Ci Ci did not produce an executed agreement for 9th Avenue. See JX 7 at -1563– 1580 (9th Avenue agreement signed by Wallace but not by New Start). As it turned out, Wallace sold 9th Avenue to Ci Ci’s friend in March 2017, via an agreement between Wallace as seller and Ci Ci’s friend as buyer. JX 18 at -2072, -2090. Wallace could not have sold 9th Avenue in 2017 if he had sold it to New Start in 2016. Perhaps this is why Ci Ci did not produce an agreement by which New Start purchased 9th Avenue. Ci Ci also failed to consistently testify about the circumstances in which she delivered executed copies of these agreements to Wallace. Ci Ci testified she signed the
20 properties anyway, to keep his promises to Li and keep the wholesaling enterprise
going.111 Wallace testified that while Ci Ci had not executed the agreements, “[he]
always believed what Mr. Li [said]. [And Li] said that this time he [was] going to
do everything right.”112 Wallace believed they were “going to have a real[ly]
successful business [and] . . . split profits 50/50.”113
Li reengaged Wallace in purchasing a large residential property. Wallace and
Li pursued a large estate from a third party at 32 and 34 Darien Road (“Darien
Road”).114 At the time, Wallace understood from Li that Darien Road would be
purchased to replace Peoples Way,115 and would be “used to court prospective
buyers.”116
three agreements on October 30, 2016, and hand-delivered them to Wallace that day. Tr. (Ci Ci) at 175. She contradicted herself as to whether she scanned and emailed the three agreements in addition to hand-delivering them: in her morning testimony, she said she had scanned and emailed them, and by the afternoon she was adamant she had not. Compare id. (Ci Ci) at 29–30, with id. (Ci Ci) at 174–175, and id. (Ci Ci) at 192; see also id. (Ci Ci) at 183–84 (acknowledging she did not give her lawyer the emails by which she allegedly transmitted the scanned signed copies of the disputed agreements to Wallace). I conclude New Start did not sign the agreements in 2016, and that JX 11 and JX 12 are backdated and created for this litigation. 111 See, e.g., Tr. (Wallace) at 238–39; id. (Ci Ci) at 32. 112 Id. (Wallace) at 262. 113 Id. 114 Id. (Ci Ci) at 54; D.I. 79, Ex. A at 86:6–23. Tr. (Wallace) at 308 (explaining they purchased “Darien Road instead of Peoples 115
Way”). 116 Countercl. ¶ 7; D.I. 79, Ex. A at 86:6–23 (discussing during deposition the initial plan as articulated by Li for Darien Road).
21 Wallace understood Li was effectively the buyer of Darien Road.117 At some
point, Li chose Double Forest to be the buyer.118 Wallace served as Double Forest’s
realtor.119 While Ci Ci insists she was the buyer and driver for the Darien Road
transaction,120 the record shows she acted on Li’s behalf.121
Double Forest agreed to purchase Darien Road for $604,071.03.122 Li
borrowed around $250,000 from Wallace for the purchase and repaid him just before
closing.123 On February 16, 2017, Double Forest closed on Darien Road, with
117 Tr. (Wallace) at 256 (“Li just put up the money and g[a]ve [Wallace] and Ci Ci instructions on what to do. [Wallace] and Ci Ci [would] just go execute it. [They’d] just go follow his instruction.”). 118 See JX 14 at -1953; JX 15 at -0215. 119 Tr. (Wallace) at 100 (declaring to Ci Ci that for Darien Road, “your father told me to be his realtor, and I did. I did it for your father.”); id. (Wallace) at 223. 120 See, e.g., id. (Plaintiffs’ Counsel and Ci Ci) at 54 (“‘And who helped you buy the 34- 34 Darien Road Property?’ ‘[Wallace] . . . he was my realtor.’”); id. (Ci Ci) at 186 (“I need[ed] to close my primary residence, 34-32 Darien Road.”). 121 As the mechanics for the Darien Road purchase unfolded, the buyer needed to complete certain paperwork. JX 14 at -1954. But Wallace explained on the buyer’s behalf that this was not possible because the buyer was in China and unable to sign or send documents. JX 14 at -1954. At this point, Li decided Double Forest would purchase Darien Road. JX 14 at -1953. Ci Ci was included on this email exchange and participated in it, offering to sign certain documents. JX 14 at -1952. By Ci Ci’s availability to sign and send documents, contrasted to the buyer’s purported inability to sign and send documents, I conclude Li was the buyer and Ci Ci merely assisted him. 122 JX 15 at -0215; JX 14 at -1952–1956 (identifying the buyer as Double Forest in January 2017); Plaintiffs have not produced the Darien Road purchase agreement. 123 Tr. (Wallace) at 264 (indicating Li asked to borrow money from Wallace for purchasing the Darien Road Property).
22 Double Forest listed as the borrower on the settlement statement.124 Thereafter,
Wallace and Li would use Darien Road to “court prospective property
purchasers.”125
G. Li Demands More For Ci Ci.
Wallace did not know Li also intended Darien Road to benefit Ci Ci. Wallace
later discovered Li intended it to be Ci Ci’s primary residence.126 Ci Ci testified she
understood Darien Road was bought for her and that she currently resides there.127
Around this time, Ci Ci was in her last semester before graduation and asked
Wallace to train and mentor her in the residential real estate business.128 The two
met frequently, and Wallace shared everything he knew.129 While Ci Ci was learning
the ropes from Wallace, she identified a friend as a buyer for Wallace’s 9th Avenue
property—which Wallace had not yet sold to New Start.130 Again, against Wallace’s
preference of holding rather than selling, Li instructed Wallace to sell 9th Avenue to
124 JX 15 at -0215. 125 Countercl. ¶ 8; D.I. 79, Ex. A at 86:6–16 (indicating “Li claimed that he will buy [Darien Road] . . . so that he can bring clients from China to live in” and that Wallace later “found out . . . it was just a house for [Ci Ci] to live in. It wasn’t, like her dad said, to use for business purposes.”). 126 Countercl. ¶¶ 7–8; D.I. 79 at 86:6–16. 127 See, e.g., Tr. (Ci Ci) at 174. 128 Id. (Wallace) at 257; id. (Ci Ci) at 90. 129 Id. (Wallace) at 257. 130 Id. (Ci Ci) at 183.
23 Ci Ci’s friend.131 In March, Wallace and Ci Ci’s friend entered an agreement of sale
for $150,000.132
Li wanted “to encourage and motivate [his] daughter” as she neared attaining
her real estate license.133 She had located a buyer for 9th Avenue, and the transaction
had closed; Ci Ci was expecting some recognition.134 At Li’s direction, Wallace
emailed Ci Ci on March 13, congratulating her on closing her first deal.135 Li went
further: he instructed Wallace to give the $150,000 purchase price to Ci Ci,
promising to repay Wallace his share the next time Li was in the United States.136
“On May 5, 2017, after receiving the sale proceeds directly to his personal bank
account, Wallace transferred the entirety of the purchase price, $150,000.00, to [Ci
Ci].”137 Wallace had no legal obligation to pay Ci Ci; she knew he “voluntarily”
wrote her the check.138 While knowing the money came from his “pocket,” she
happily accepted it without any question or surprise.139
131 Id. (Wallace) at 238, 145, 251. 132 JX 18 at -2073; JX 20. 133 Tr. (Wallace) at 145. 134 Id. (Ci Ci) at 91–93. 135 JX 18 at -2072; Tr. (Wallace) at 328–29. 136 See, e.g., id. (Wallace) at 249, 322. 137 PTO ¶ 26. 138 Tr. (Ci Ci) at 50. 139 Id. (Ci Ci) at 91–93.
24 Wallace still owned 6th Avenue and Marshall Street (the “Disputed
Properties”), but he was sending Ci Ci all their rental income. In the summer of
2017, Ci Ci identified another buyer for 6th Avenue.140 Her cousin Yuci Wang was
interested in purchasing 6th Avenue, and Ci Ci was interested in receiving the
proceeds from that sale as well.141 Wallace owned 6th Avenue, and Wallace had not
yet agreed to sell it to Wang. Wang paid the Li family $160,000 for 6th Avenue in
June.142 In August, Wang visited the United States with Ci Ci’s parents and viewed
the property.143 On August 15, 2017, Wallace and Wang entered an agreement of
sale for 6th Avenue, to close within thirty days.144 Wallace and Wang agreed to
extend closing until November 30.145 Wallace’s agreement with Wang makes no
reference to any agreement between Wallace and New Start.146
140 Id. (Ci Ci) at 188; JX 23 at -0360. 141 Tr. (Ci Ci) at 188. 142 Am. Compl. ¶ 49; JX 23; JX 31 at -0871 (“NOW THEREFORE, in exchange for the sum of ONE HUNDRED SIXTY THOUSAND DOLLARS ($160,000.00) already delivered to 22 6th Series and other good and valuable consideration, the parties agree as follows: Wang hereby agrees to purchase the Property . . . .”). 143 Tr. (Ci Ci) at 188; JX 23 at -0360. 144 JX 23 at -0354, -0360. 145 See JX 24. 146 See JX 23.
25 H. Wallace Walks Away.
Sometime before September 15, before 6th Avenue’s closing date, Wallace
walked away from his venture with Li. Wallace and his ex-wife met with Ci Ci, her
parents, and Wang at Darien Road.147 Wallace and Li had a lengthy private
discussion.148 Wallace had performed all his promises to Li; but Li had not fulfilled
one to Wallace, and Wallace was losing money.149 Li asked Wallace to have
patience with him, and recommitted to his promise to buy ten properties from
Wallace.150
Wallace agreed to move forward with the enterprise again, but he wanted to
be repaid his share of the 9th Avenue proceeds.151 Li was incredulous. He
emphasized the opportunity he had given Wallace to do business with him, and
expressed his business prowess over Wallace’s.152 Li declared that his promise to
repay Wallace’s share from 9th Avenue was never reduced to writing, and that as far
147 Tr. (Wallace) at 142–47. 148 Id. 149 Id. (Wallace) at 327 (“[O]ver the years, I’ve put up all my money for the repairs, for the rents, even though the properties was vacant. I was already in the negatives.”). 150 Id. (Wallace) at 144. 151 Id. (Wallace) at 144–45, 247; JX 7 at -1563 § 3; JX 18 at -2073. 152 Tr. (Wallace) at 145–46.
26 as he or Ci Ci were concerned, they did not owe Wallace anything.153 Li denied all
promises he had made to Wallace.154
This confrontation was the final straw for Wallace, and it ended the
relationship.155 Wallace promptly blocked Ci Ci and her parents from all means of
communicating with him.156 That night was the last time Wallace met with Ci Ci or
her parents until this litigation.157
I. Wang’s 6th Avenue Purchase Fails To Close. 6th Avenue was never transferred from Wallace to Wang.158 By October,
Wang had returned to China.159 The settlement attorney tried for months to
accomplish closing, with Ci Ci speaking for Wang and Siew speaking for Wallace.
Ci Ci separately tried to reach Wallace in furtherance of keeping Wang’s $160,000
payment.160 Ci Ci expected Wallace to pay her that entire purchase amount.161 But
Wallace was finished with Li and Ci Ci, and never responded to her.
153 Id. (Wallace) at 146. 154 Id. (Wallace) at 145–47, 323–24. 155 Id. (Wallace) at 144–47, 323–24. 156 Id. (Wallace) at 150–51, 250. 157 Id. (Wallace) at 143–44, 323. 158 Id. (Wallace) at 327–29. 159 JX 25 at -0458 (indicating Wang was in China by October 13, 2017). 160 Tr. (Ci Ci) at 68, 142–43 (indicating Ci Ci continued trying to reach Li in order to purchase 6th Avenue but that he never responded). 161 Id. (Ci Ci) at 188.
27 And so Ci Ci became nonresponsive and uncooperative in the settlement
process, failing to provide the settlement attorney with the documents required from
Wang and pushing out the settlement date.162 A final December settlement date
passed without the deal closing.163 Wallace never received Wang’s funds that Ci Ci
held.164
J. Wallace Moves On; Ci Ci Moves On The Attack.
Wallace moved on. By December, Wallace stopped sending rent payments to
Ci Ci for 9th Avenue and Marshall Street.165 His participation in the Li venture was
over.
But Ci Ci was not done with Wallace—she would continue to pursue revenue
from Wallace’s properties. In November 2017, Ci Ci had obtained her real estate
license, which she used to keep tabs on Wallace’s properties.166 In February 2018,
Wallace retained Delaware Premier Property Management, LLC (“DPPM”) to
manage his rental properties.167 Ci Ci contacted DPPM just one month later for
162 JX 25 at -0458; JX 26 at -2169–71; JX 27 at -0467–68. Ci Ci testified the settlement fell through because Wallace was nonresponsive. Tr. (Ci Ci) at 67–69. The overwhelming balance of the evidence shows the settlement fell through because of Ci Ci’s inability or refusal to supply what was required from Wang. 163 JX 27 at -0470–71. 164 See Am. Compl. ¶¶ 49, 51; JX 31 at -0871. 165 PTO ¶ 30(xiv). 166 Tr. (Ci Ci) at 26, 178–79. 167 JX 28 at -2338.
28 information about the Disputed Properties.168 She introduced herself as Wallace’s
friend and as the owner of the Initial Properties and the Disputed Properties.169 Ci
Ci expressed to DPPM that Wallace had “told [her] . . . he [now] let[s] [DPPM]
manage all the properties.”170 But Wallace had not communicated with Ci Ci for
roughly a year.171 Ci Ci then asked DPPM for an update on all rental payments;
DPPM gave her one and told her that the February rent had been mailed out.172
In April, Ci Ci e-mailed DPPM again, asking about the Disputed Properties’
rental payments and expressing she had not been paid.173 On April 18, DPPM
responded tersely, informing Ci Ci that the public records reflected Wallace owned
the two properties, and that DPPM had contacted Wallace about Ci Ci.174 On April
20, Ci Ci replied with a lengthy defense of her position and a proactive attack on
Wallace, declaring she would be suing Wallace for breach of contract, and asking
168 Id. 169 Id. 170 Id. 171 Wallace did not tell Ci Ci DPPM was managing his properties. See Tr. (Ci Ci) at 69, 134–35. 172 JX 28 at -2338. 173 JX 29 at -2362. 174 Id. at -2361.
29 DPPM not to send him any rent payments.175 DPPM did not respond. Wallace was
now aware Ci Ci was planning a lawsuit against him.
On August 25, 2018, Wallace took out a $100,000 mortgage on Marshall
Street.176 It was recorded on September 14, and Ci Ci discovered the mortgage while
tracking the property on the Multiple Listing Service (the “MLS”).177
Wallace consulted his friend and fellow real estate investor, Jason Williams,
about Ci Ci’s threat of litigation.178 Williams recommended Wallace put all his
properties in a trust to protect them and offered to do it for him.179 Williams prepared
the trusts and deeds.180 On February 7, 2019, Wallace transferred each Disputed
Property to a trust, with Daniels as trustee.181 Williams notarized Wallace’s
signature on February 7, 2019.182 Wallace testified he formed the trusts for
“privacy” and protective purposes.183 Wallace did not record the deeds until
175 Id. 176 JX 30 at -0722. 177 Id.; Tr. (Ci Ci) at 81, 178–79. 178 Id. (Wallace) at 270; id. (Daniels) at 213. 179 Id. (Wallace) at 270; id. (Daniels) at 213. 180 Id. (Wallace) at 268. 181 JX 33 at -0586; JX 34 at -0582. 182 JX 33 at -0589; JX 34 at -0585. 183 Tr. (Wallace) at 268.
30 February 5, 2020; Ci Ci was only able to observe this transaction on the MLS after
that date.184
K. Ci Ci Agrees To Sell 6th Avenue To Wang. Ci Ci and Wang still had unfinished business; Ci Ci had not returned Wang’s
$160,000 payment for 6th Avenue. On May 30, 2019, Ci Ci entered an agreement
to sell 6th Avenue to Wang once New Start acquired it from Wallace.185 That
agreement provides that “Wallace did not have the power to assign the [f]irst
184 Id. (Daniels and Plaintiffs’ counsel) at 213; id. (Ci Ci) at 66. Plaintiffs argue that the discrepancy between the February 2019 signature and February 2020 recording date indicates Wallace backdated the signatures and actually moved each Disputed Property into a trust after this litigation was filed; Plaintiffs’ post- trial brief declares Wallace admitted to backdating the deeds. PostTB at 14. I do not find either backdating or any admission of backdating to be supported by a preponderance of the evidence. Beginning with the admission: counsel did not ask Wallace if he backdated the signature to the deeds, or why there was a discrepancy with the dates, but rather only asked if “it was done after this lawsuit was filed.” Tr. (Plaintiffs’ counsel) at 269. Wallace was credibly confused by opposing counsel’s insinuation that the delay in recording was “dishonest.” Id. (Wallace) at 274–75. While Wallace recorded the deeds after the lawsuit was filed, there is no basis to conclude he backdated the signature. Williams was not called as a witness. By February of 2018, Wallace knew Ci Ci was keeping tabs on his properties. JX 29 at -2362. Wallace also knew Ci Ci was threatening litigation as early as April 20, 2018. Id. at -2361. Wallace explained he transferred the properties to a trust for “privacy purposes.” Tr. (Wallace) at 268. Daniels testified he had “no clue” about the timing of the transfer and the recording of it. Id. (Daniels) at 213–14. All Daniels could contribute was that Wallace approached him asking for assistance, “wanting to transfer a couple properties” to Daniels in his name, and Daniels “was just aware of helping him as a friend, as a favor.” Id. (Daniels) at 210– 11. I found Daniels to be a forthright witness whose goal at trial was to testify honestly about his limited role as trustee. It is more likely than not that Wallace moved the properties into trusts in 2019, but withheld recording the deeds to maintain his privacy. 185 JX 31 at -0871.
31 [p]urchase [a]greement” to Wang, and that that agreement was “the only legal
document for the future right to purchase the property.”186 Because Ci Ci did not
own 6th Avenue, she could not supply the property to Wang.
L. Ci Ci Files This Action.
On October 17, 2019, Ci Ci and New Start filed this action, seeking to force
Wallace to convey the Disputed Properties to New Start.187 She produced executed
agreements between New Start and Wallace for the Disputed Properties, dated
October 30, 2016. She argues these agreements give her the right to close on the
Disputed Properties any time until October 31, 2019.188 I have concluded Ci Ci did
not sign those agreements in October 2016 and backdated them for purposes of this
litigation.189
Wallace filed a pro se answer on December 6, 2019, and explained his side of
the story: he contended the agreements for the Disputed Properties had never been
countersigned until this litigation; asked for his “pay back for all the repairs, the
monthly rents, even the big damages your tenants created after eviction that [Li]
asked us to put up with our company money to fix and [n]ever pay us back;”
186 Id. § 2. Wang’s agreement with Ci Ci incorrectly characterizes Wang’s 2017 purchase agreement with Wallace as an assignment. Id.; see also JX 7 at -1581–1598. 187 See D.I. 1. 188 See JX 11 at -0843 § 32, -0851; JX 12 at -0861 § 32, -0868. 189 See supra note 110.
32 explained he never received any of the profits from 9th Avenue; took umbrage at Li
walking away from the Peoples Way transaction; and contended Li never performed
his commitment to buy properties from Wallace.190
Wallace retained counsel and moved to dismiss, declaring his pro se answer a
“nullity.”191 I concluded Wallace’s pro se filing should be treated as a statement
under oath, but not an answer that precluded moving to dismiss.192 I also converted
Wallace’s motion to one for summary judgment.193 And I encouraged the parties to
consider mediation.194
Because Plaintiffs’ original complaint sought specific performance from
Wallace, not the trusts holding the properties, Plaintiffs filed an amended complaint
on May 4, 2021, against Wallace and Daniels as trustee of the Disputed Properties’
trusts (together the “Defendants”).195 Plaintiffs’ amended complaint alleges Wallace
refused to close on the Disputed Properties and to give her the rental income in the
meantime, and Daniels participated in a scheme that interfered with her contractual
rights.196 Plaintiffs seek declaratory judgments confirming the agreements of sale
190 D.I. 4. 191 D.I. 21 at Brief 2. 192 D.I. 28 at 4, 13. 193 Id. at 5. 194 Id. at 18–19. 195 See D.I. 29. 196 Am. Compl. ¶¶ 75–99.
33 concerning the Disputed Properties (the “Disputed Agreements”) are valid and
binding contracts, and they seek specific performance, including conveyance of title
and satisfaction of past-due rental payments for the two properties.197
On September 27, 2021, Defendants filed their answer, raising eleven
affirmative defenses.198 Among their several affirmative defenses, Defendants
contend “Plaintiffs have engaged in inequitable conduct, and their claims are barred
under the doctrine of [u]nclean [h]ands.”199 Defendants also filed a verified
counterclaim and third-party complaint, asserting four counterclaims and one
alternative claim against New Start, Ci Ci, and Double Forest as a third-party
defendant.200 Wallace and Daniels assert (1) a partnership existed between Wallace
and Double Forest; (2) Double Forest owed duties of loyalty to Wallace and
breached them by refusing to share profits; (3) the partnership requires judicial
dissolution and judicial supervision in its winding-up; (4) the agreements Plaintiffs
seek to enforce are invalid; and (5) without valid agreements, there is no justification
for Plaintiffs’ retention of the rents paid by Wallace, so the counterclaim defendants
197 Id. at 24–25; PTO ¶ 1. 198 Defs. Ans. at 36–37. 199 Id. at 37. 200 Countercl. ¶¶ 33–73.
34 were unjustly enriched.201 Wallace and Daniels seek declaratory judgments, judicial
dissolution of the partnership, damages for Plaintiffs’ unjust enrichment, and
feeshifting.202
Trial was held on February 5 through February 6, 2024.203 On March 7,
Plaintiffs informed the Court that Defendants did not intend to participate in the post-
trial briefing.204 On April 5, Plaintiffs submitted their post-trial opening brief.205 I
took the matter under advisement on April 8.206
201 Id. Wallace and Daniels also pled a sixth claim in the alternative. But, because judgment is entered in favor of counts IV and V, I do not reach count VI. 202 Id. at 50–51. 203 D.I. 82. 204 D.I. 87 at Ltr. 205 D.I. 89. 206 D.I. 92.
35 II. ANALYSIS
Plaintiffs’ claims are barred by this Court’s defense of unclean hands. As to
Defendants in their posture as counterclaim plaintiffs, I decline Plaintiffs’ request to
apply unclean hands to bar Defendants’ claims for relief. Defendants thus bear the
“burden of proving their respective claims by a preponderance of the evidence.”207
Defendants failed to meet their burden in proving the Wallace-Li enterprise
constituted a partnership, so judgment is entered for Third Party Defendant as to
Defendants’ counts I, II, and III. But, no enforceable agreement of sale exists
between Wallace and New Start for the Disputed Properties, so I enter judgment in
favor of Defendants on their count IV. And I find Plaintiffs have been unjustly
enriched and thus find in favor of Defendants on count V. Defendants are entitled
to restitution and an award shifting their fees and costs incurred in this litigation.
A. Plaintiffs’ Claims Are Barred By Their Unclean Hands.
“The guiding doctrine in this case is the equitable maxim that ‘he who comes
into equity must come with clean hands.’”208 “The doctrine of unclean hands
provides that a litigant who engages in reprehensible conduct in relation to the matter
in controversy forfeits his right to have the court hear his claim, regardless of its
207 Lynch, 2020 WL 4381604, at *30. 208 Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945).
36 merit.”209 “The Court invokes the doctrine when faced with a litigant whose acts
threaten to tarnish the Court’s good name. In effect, the Court refuses to consider
requests for equitable relief in circumstances where the litigant’s own acts offend
the very sense of equity to which he appeals.”210 My analysis of Plaintiffs’ claims
is precluded by their conduct in this litigation. 211
Defendants invoked the doctrine of unclean hands as an affirmative
defense.212 This Court also has the inherent discretion to refuse to assist an unclean
litigant.213 The doctrine “is designed primarily to protect courts of equity from being
misused by a party who has not acted fairly and without fraud or deceit as to the
controversy in issue.”214 Thus, “to the extent it is a defense, it is a defense belonging,
209 Am. Healthcare Admin. Servs., Inc. v. Aizen, 285 A.3d 461, 494 (Del. Ch. 2022) (emphasis omitted) (quoting Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 81 (Del. Ch. 2008)). 210 Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 522 (Del. Ch. 1998). 211 Gallagher v. Holcomb & Salter, 1991 WL 158969, at *4 (Del. Ch. Aug. 16, 1991) (“[The doctrine of unclean hands] is a rule of public policy to protect the public and the court against misuse by persons who, because of their conduct, have forfeited the right to have their claims considered.” (citing Skoglund v. Ormand Indus., Inc., 372 A.2d 204, 213 (Del. Ch. 1976))), aff’d sub nom. New Castle Ins., Ltd. v. Gallagher, 692 A.2d 414 (Del. 1997) (TABLE). 212 Defs. Ans. at 37. 213 Bodley v. Jones, 59 A.2d 463, at 492–93 (Del. 1947) (“The Court is so jealous in guarding itself against such misuse that it will sua sponte apply the maxim whenever it discovers the unconscionable conduct.”); Precision Instrument Mfg., 324 U.S. at 815 (acknowledging a wide range to the equity court’s use of discretion in refusing to aid the unclean litigant); Patel v. Dimple, 2007 WL 2353155, at *12 (Del. Ch. Aug. 16, 2007) (applying the doctrine of unclean hands despite the defendant’s failure to raise it). 214 Patel, 2007 WL 2353155, at *12.
37 not to any defendant, but to the court of equity itself.”215 This Court refuses to
reward plaintiffs who are dishonest in their approach to this Court. 216 “While
extensive, the discretion of the Court is by no means absolute,”217 and whether the
doctrine applies to bar a litigant’s claims is a gating inquiry.218 “Doctrinally there
are a number of limitations on the application of the maxim.”219
First, it is an “equitable doctrine,”220 and so a court must look to the relief
sought to determine whether its equitable powers have been invoked.221 The
doctrine is generally unavailable for defeating legal claims, but when a litigant
“invoke[s] the [C]ourt’s equitable powers,” she opens the door to an application of
unclean hands, even if the relief sought is not purely equitable.222
215 In re Niki and Darren Irrevocable Tr., 2020 WL 8421676, at *5 (Del. Ch. Feb. 4, 2020). 216 See Lynch, 2020 WL 4381604, at *46–47, *49 (applying unclean hands where plaintiff fraudulently induced defendant to execute sham documents and presented those sham documents to justify the relief he sought); see also In re Silver Leaf, L.L.C., 2005 WL 2045641, at *12–13 (Del. Ch. Aug. 18, 2005) (applying unclean hands where the parties premised their entire argument on a lie). 217 Nakahara, 718 A.2d at 522–23 (“[T]he decisional authority is almost universal in its acceptance that courts of equity have extraordinarily broad discretion in application of the doctrine.”). 218 Aizen, 285 A.3d at 485. 219 Nakahara, 718 A.2d at 523. 220 Gallagher, 1991 WL 158969, at *4. 221 Aizen, 285 A.3d at 493 (“[A] defense of unclean hands is generally unavailable to defeat a legal claim, but becomes available if the plaintiff seeks equitable relief.”). 222 Id. (acknowledging the plaintiffs sought both legal and equitable relief, and holding they opened the door to an assertion of unclean hands when they sought specific performance); Nakahara, 718 A.2d at 522 (“[T]he Court refuses to consider requests for equitable relief
38 Second, “the inequitable conduct must have an ‘immediate and necessary’
relation to the claims under which relief is sought.”223 It does not apply to “all
‘sinners’ and does not comprehend all ‘moral infirmities.’”224 The equity-seeking
litigant does not “have [to] le[a]d [a] blameless li[fe],’ as to other matters[;] it
require[s] that [the litigant] shall have acted fairly and without fraud or deceit as to
the controversy in issue.”225 It must “be directed at, or be the concern of, an
interested party (as opposed to any third party).”226 At the same time, the inequitable
conduct does not need to be “of such a nature as to be punishable as a crime or as to
justify [any] legal proceedings . . . . Any willful act concerning the cause of action
which . . . transgress[es] equitable standards of conduct is sufficient cause for the
invocation of the maxim.”227
Finally, application of the doctrine is limited by equity itself. “[T]he greatest
limitation on the doctrine is the widely accepted exception that since [the doctrine]
is ultimately based on public policy . . . a stronger public policy may be at work
in circumstances where the litigant’s own acts offend the very sense of equity to which he appeals.”). 223 Nakahara, 718 A.2d at 523 (quoting Kousi, 1991 WL 248408, at *3). 224 Aizen, 285 A.3d at 485 (quoting 27A Am. Jur. 2d Equity § 21 (footnotes omitted), Westlaw (database updated Nov. 2022)). 225 Precision Instrument Mfg., 324 U.S. at 814–15 (quoting Keystone Driller Co., 290 U.S. at 247). 226 Nakahara, 718 A.2d at 523. 227 Precision Instrument Mfg., 324 U.S. at 815.
39 giving the unclean litigant fortuitous reprieve from the doctrine’s otherwise
potentially preclusive effect.”228 “This court has consistently refused to apply the
doctrine of unclean hands to bar an otherwise valid claim of relief where the doctrine
would work an inequitable result.”229
Plaintiffs have invoked this Court’s equitable powers by seeking specific
performance under the Disputed Agreements.230 “[They] are not solely seeking legal
relief in the form of money damages or a declaratory judgment.”231 Plaintiffs have
opened the door for the doctrine’s application to their legal and equitable claims.232
Plaintiffs have acted inequitably, and the inequitable conduct is immediately
and necessarily related to the claims under which relief is sought. Plaintiffs came to
this Court seeking specific performance of Wallace’s purported agreements to sell
6th Avenue and Marshall Street to New Start, in a vacuum and at arm’s length. By
Ci Ci’s telling, she was naively starting out in the real estate business;233 Wallace
was her realtor, property manager, and mentor; 234 and she purchased the Initial
228 Nakahara, 718 A.2d at 523 (footnote omitted). 229 Portnoy, 940 A.2d at 81 (quoting Dittrick v. Chalfant, 2007 WL 1039548, at *5 n.18 (Del. Ch. Apr. 4, 2007)). 230 Am. Compl. ¶¶ 75–81; PostTB at 15–21. 231 Aizen, 285 A.3d at 493. 232 Id. 233 Tr. (Ci Ci) at 89–93, 107, 126. 234 Id. (Ci Ci) at 90, 126.
40 Properties and Disputed Properties from him and accepted the terms he suggested
from his position of superior knowledge.235 By Ci Ci’s telling, the transactions
between New Start and Wallace were unusual not because they were part of a
broader arrangement with Li, but because Wallace was both underhanded and
inexplicably foolish at the same time. Ci Ci acknowledged she did not know what
kind of seller would agree to Wallace’s rental payments and repair obligations, but
contends they were Wallace’s choice as the drafter,236 and that his payment to her of
$150,000 in 9th Avenue proceeds was voluntary.237 Ci Ci’s story omits Li
altogether: she insists that she was Wallace’s counterpart and Li was only
bankrolling from the sidelines.238
Ci Ci’s story is premised upon three primary lies: that the Disputed
Agreements were executed in 2016, that Wallace was Ci Ci’s realtor in those
transactions, and that the primary relationship giving rise to the transactions was
between Wallace and herself, omitting her father.239 The preponderance of the
evidence indicates Wallace and Li’s collaboration gave rise to a series of real estate
235 Id. (Ci Ci) at 93, 126. 236 Id. (Ci Ci) at 53; id. (Ci Ci and Plaintiffs’ counsel) at 149. 237 Id. (Ci Ci and Plaintiffs’ counsel) at 50. 238 Id. (Ci Ci) at 8,14, 22–23, 40, 51; Am. Compl. ¶¶ 11, 20. 239 See, e.g., id. (Ci Ci) at 53, 149, 184–85; see also supra note 77; infra note 256 (indicating Ci Ci’s persistent effort to erase her parents’ decisional involvement in the transactions).
41 transactions including the Disputed Properties,240 Ci Ci was privy to and involved in
parts of their work together,241 and Wallace assumed whichever roles Li dictated,
but was only ever a realtor for Darien Road.242
In bringing this story to the Court, Ci Ci falsified documents by backdating
her signature on the very agreements underpinning her claims.243 Ci Ci did not
countersign the agreements to sell the Disputed Properties at the time; she backdated
them for the purpose of asking this Court to enforce them.
Her interactions with this Court were also unclean. She made sworn
statements for inclusion in a pretrial order and stipulated facts, then sought to have
those statements deemed admitted before the Court. But her sworn statements
included lies that: (1) Ci Ci was at all times “the sole officer, director and
shareholder of Double Forest”; (2) Wallace served as Ci Ci’s realtor for the Peoples
Way transaction; (3) Li traveled to the United States for the sole purpose of
demanding Wallace return the $300,000; (4) Wallace refused to return the money
and frightened Ci Ci, thus coercing her to agree purchase three more properties from
him so as not to lose the $300,000; and (5) Ci Ci signed and delivered the agreements
240 E.g., JX 2; JX 7 (indicating Wallace sent agreements for Disputed Properties to Li and Ci Ci); JX 16; Tr. (Wallace) at 238. 241 JX 7; Tr. (Wallace) at 141, 256. 242 Tr. (Wallace) at 223–24, 256. 243 See supra note 110.
42 for the Disputed Properties and 9th Avenue.244 But in fact, (1) Li was Double
Forest’s owner until he transferred it to Ci Ci;245 (2) Wallace was the buyer on behalf
of the Wallace-Li enterprise for the Peoples Way transaction;246 (3) Li travelled to
the United States annually, and the summer after Peoples Way fell through met with
Wallace to apologize and make amends;247 (4) Li asked Wallace to resume their joint
enterprise, which required Wallace to perform unfavorable obligations to benefit Ci
Ci, including offering her three more rental properties;248 and (5) Ci Ci never signed
the agreements to those properties until she produced them for the two Disputed
Properties in this litigation.249 Including these lies in a pretrial order undermined the
very purpose of that pretrial order and stipulated facts.250 Urging the Court to deem
244 See, e.g., PTO ¶¶ 6, 11, 17, 18, 21, 23. 245 Tr. (Wallace) at 103–04, 151; see JX 14 at -1952. 246 JX 4 at -0484 §1; Tr. (Wallace) at 225–26. 247 See Tr. (Ci Ci) at 7, 51; id. (Wallace) at 144 (discussing Wang’s visit to the United States with Ci Ci’s parents); id. (Ci Ci) at 188 (the same); see id. (Wallace) at 138. 248 Id. at 137–38, 141, 242; Countercl. ¶ 16. 249 Ci Ci’s testimony about executing the agreements for the Disputed Properties was rife with inconsistency. Compare Tr. (Ci Ci) at 29–30, with id. (Ci Ci) at 174–175, and id. (Ci Ci) at 192. 250 The pretrial order is meant to be an “efficacious” and “salutary” aid for the Court “toward sifting the issues in order that the suit will go to trial only on questions involving honest disputes of fact or law.” Itron, Inc. v. Consert Inc., 109 A.3d 583, at 587 n.3 (Del. Ch. Jan. 15, 2015) (quoting Fed. Deposit Ins. Corp. v. Glickman, 450 F.2d 416, 419 (9th Cir. 1971); Lynch v. Call, 261 F.2d 130, 132 (10th Cir. 1958)) (collecting cases); see 88 C.J.S. Trial § 53, Westlaw (database updated May 2024) (explaining the purpose of a pretrial order and stipulated facts is to “facilitate the correct determination of the
43 those lies as facts for which no proof would be necessary, due to a lack of
participation by a pro se defendant, shocks the conscience.251
Ci Ci’s lies mounted at trial. She persistently perjured herself on the stand on
key precepts of her case: Wallace’s status as her realtor,252 his conveyance of the
Initial Properties to her by December trust agreements;253 her purported hand-
delivery of the allegedly countersigned sales agreements for the Disputed
Properties;254 her father’s lack of involvement;255 and her ignorance of Wallace’s
relationship with her father.256
issues . . . , promote judicial economy, . . . [and] prevent injustice and a waste of judicial resources . . . .”). Plaintiffs’ application for a pretrial order and to deem the facts admitted was signed and submitted by counsel. D.I. 73 at Ltr.; PTO at 5. Rule 11 provides that “[b]y presenting to the Court a pleading, written motion, or other paper—whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person’s knowledge, information, and belief” that the motion is not being “presented for any improper purpose” and that “the factual contentions have evidentiary support.” Ct. Ch. R. 11(b). 251 D.I. 73 at Ltr. 252 Tr. (Ci Ci) at 8, 14, 124, 126, 181–82; see id. (Wallace) at 99–100, 124, 223–24, 233– 24; JX 4 at -0492. 253 Tr. (Ci Ci) at 10, 13–15. 254 Compare id. (Ci Ci) at 29–30, with id. (Ci Ci) at 174–175, and id. (Ci Ci) at 192. 255 See id. (Ci Ci) at 177–78 (testifying she, not her father, was the sole decisionmaker in deciding not to close on Peoples Way); id. (Ci Ci) at 152 (testifying she had no “previous knowledge or understanding of [Wallace and Li] set[ting] up” Double Forest); id. (Ci Ci) at 51 (indicating she changed her mind about purchasing Peoples Way, she only spoke with her father about it to seek his advice, and her parents came to the United States to help her get the money back). 256 Id. (Ci Ci) at 52, 141–42.
44 Plaintiffs’ request for equitable relief from this Court is based on a fictional
story and falsified documents. Ci Ci’s “entire case was an attempt to hold [Wallace]
to sham documents [s]he knew presented lies,” and she seeks an undeserved windfall
from these documents at Wallace’s expense.257 Plaintiffs have engaged in
reprehensible conduct that threatens this Court’s integrity and “offend[s] the very
sense of equity to which [they] appeal.”258 Their conduct in approaching this Court
disqualifies them from seeking relief.
This case presents no countervailing reason not to apply the doctrine of
unclean hands. “The public policy against the assertion and enforcement
of . . . claims infected with fraud and perjury is too great to be overridden . . . .”259
And as to whether Ci Ci’s conduct disqualifies her from seeking relief, it matters not
if Wallace’s hands are dirtier, or if they are dirty at all.260 The application of this
257 Lynch, 2020 WL 4381604, at *49; see also Silver Leaf, 2005 WL 2045641, at *12–13; Patel, Inc., 2007 WL 2353155, at *13 (“[T]his Court of equity has no proper role in helping [one party] secure an unfair windfall at [the other’s] expense.”). 258 Aizen, 285 A.3d at 485 (quoting Merck & Co. v. SmithKline Beecham Pharms. Co., 1999 WL 669354, at *45 (Del. Ch. Aug. 5, 1999), aff’d, 746 A.2d 277 (Del. 2000) (TABLE). 259 Precision Instrument Mfg., 324 U.S. at 819. 260 Patel, 2007 WL 2353155, at *12 (“[T]he unclean hands doctrine is not about whose hands are dirtier” because “it is designed primarily to protect courts of equity from being misused by a party who has not acted fairly and without fraud or deceit as to the controversy in issue.”); Gallagher, 1991 WL 158969, at *4 (“The equitable doctrine of unclean hands is not strictly a defense to which a litigant is legally entitled. Rather, it is a rule of public policy to protect the public and the court against misuse . . . . The question raised by a plea
45 defense is to protect the Court, not Defendants. Plaintiffs forfeited the right to have
their claims considered, regardless of their merits. Judgment on Plaintiffs’ counts is
entered in Defendants’ favor.
B. Defendants’ Claims
As a gating matter, Plaintiffs and Double Forest assert the unclean hands
doctrine precludes this Court from aiding Defendants. They are incorrect. I then
proceed to the merits of Defendants’ claims against Plaintiffs and Double Forest,
which meet mixed results.
1. Unclean Hands Defendants have not committed misconduct giving rise to unclean hands.
Plaintiffs have identified several instances of misconduct. I address only those that
could possibly be material or significant.
Plaintiffs argue Wallace backdated the deeds transferring the Disputed
Properties into trusts, and admitted backdating them. As explained above, I found
he did neither: I found Wallace intentionally delayed recording the deeds in view of
Ci Ci’s pursuit of the properties, but saw no basis to conclude he backdated them.261
Wallace did not admit to backdating them.262
of unclean hands is whether the plaintiff’s conduct is so offensive to the integrity of the court that his claims should be denied, regardless of their merit.” (citation omitted)). 261 See supra note 184. 262 Id.
46 Next, Plaintiffs argue Wallace’s partnership theory is baseless and in bad faith
because there is no documentary evidence of it.263 It is well established that a
partnership agreement may be oral and does not require documentary evidence.264
And an unsupported argument, without more, falls far short of unclean hands.265
Finally, Plaintiffs assert Wallace lied in court.266 While cross-examining Ci
Ci, Wallace dramatically insisted that his signature on the 6th Avenue agreement with
Wang was forged.267 He repeated this declaration when he was under oath;268 then,
he recanted it, explaining someone from his office authorized to act on his behalf
signed it.269 This dalliance with an untruth concerned an expired agreement with a
nonparty.270 Wallace has not asked this Court for relief under this disputed agreement
with Wang, and Plaintiffs are not parties to it.271 It did not concern the causes of
263 PostTB at 28. 264 Eisenman v. Seitz, 25 A.2d 496, 496 (Del. Ch. 1942); Handler v. Centerview P’rs Hldgs. L.P., 2024 WL 1775269, at *9 (Del. Ch. Apr. 24, 2024) (stating a partnership can be written, oral, or implied). 265 See In re Estate of Zamichieli, 2024 WL 1480370, at *10 (Del. Ch. Apr. 5, 2024) (acknowledging the “[p]etitioner’s quest for a surcharge . . . was suspect and ultimately proved largely unsupported” but findingg the petitioner’s conduct was not “so offensive to the integrity of the court that his claims should be denied, regardless of their merit.” (quoting Salter, 1991 WL 158969, at *4)). 266 PostTB at 28–29. 267 Tr. (Wallace) at 155–56. 268 Id. (Wallace) at 260. 269 Id. (Wallace) at 283, 320–21. 270 JX 23; see Aizen, 285 A.3d at 485. 271 JX 23; see generally Countercl.
47 action for which Wallace sought relief.272 Neither Plaintiffs nor Double Forest as
third-party defendant have proven this lapse in honesty was directed at or of any
concern to them.273 It is not immediate or necessary to Defendants’ claims, and it
does not merit the unclean hands defense.
2. Defendants’ Third Party Claims Against Double Forest
Defendants’ Counts I, II, and III against Double Forest concern Wallace’s
alleged partnership with Li and Double Forest. Count I seeks a declaratory judgment
that a partnership exists between Wallace and Double Forest.274 Count II seeks a
determination that Double Forest owed and breached its fiduciary duty of loyalty to
Wallace.275 And Count III seeks a judicial dissolution and supervised winding up of
the partnership with Double Forest.276 Judgment is entered in favor of Double Forest
to Counts I, II, and III.
272 Nakahara, 718 A.2d at 523 (“The standard, as applied by the Court of Chancery, is that the inequitable conduct must have an ‘immediate and necessary’ relation to the claims under which relief is sought.” (quoting Kousi, 1991 WL 248408, at *3)); Countercl. ¶¶ 33– 67. 273 Nakahara, 718 A.2d at 523. Plaintiffs failed to prove their own legal entitlement to the Disputed Properties. See, e.g., supra note 110. 274 Countercl. ¶¶ 33–37. 275 Id. ¶¶ 38–44. 276 Id. ¶¶ 45–52.
48 Wallace claims he and Double Forest orally agreed to establish a
partnership.277 Wallace has the burden of proving each element of a partnership
agreement by a preponderance of the evidence.278 This standard of proof requires
that the evidence shows that the fact at issue is “more likely than not.”279 “Whether
a partnership, in the legal sense, exists, is a question of fact.”280 Where, as here, the
suit is between the parties as partners, the Court expects the purported partner will
“know the means whereby the fact of partnership may be proved.”281 And so, for
these suits, “stricter proof is required of the existence of a partnership than where
the action is by a third person.”282 Wallace has not met this burden.
A partnership is created by “any agreement, written, oral or implied, of the
partners as to the affairs of a limited partnership and the conduct of its business.”283
The “‘creation of a partnership is a question of intent[,]’ that is, whether the
purported partners intended to share losses and profits, control, and ownership.”284
277 Id. ¶¶ 33–37. 278 Grunstein v. Silva (Grunstein II), 2014 WL 4473641, at *16 (Del. Ch. Sept. 5, 2014), aff’d, 113 A.3d 1080 (Del. 2015), and aff’d sub nom. Dwyer v. Silva, 113 A.3d 1080 (Del. 2015). 279 Id. at *16. 280 Ellison v. Stuart, 43 A. 836, 838 (Del. Super. 1899). 281 Id. 282 Grunstein II, 2011 WL 378782, at *9 (quoting Grunstein v. Silva (Grunstein I), 2011 WL 378782, at *9 (Del. Ch. Jan. 31, 2011)). 283 6 Del. C. § 17-101(14). 284 Grunstein II, 2014 WL 4473641, at *16 (quoting Grunstein I, 2011 WL 378782, at *9).
49 “The evidence the Court may consider to determine whether such an obligation
existed includes the language of any agreement between the parties, and the parties’
acts, dealings, conduct, and admissions.”285 Where there is no written agreement
establishing a partnership, the Court can “base [a] decision[] [of its existence] solely
on the credibility of the [p]arties.”286
“[T]here is no singularly dispositive consideration that determines whether or
not a partnership existed between two parties.”287 But “[a]n intention or desire to
form a general partnership cannot bring the legal relationship into being,”288 and
“something more than a mere common enterprise, or joint undertaking, is necessary
to create” a partnership.289 “[T]he hallmark of a partnership is the ‘common
obligation to share losses as well as profits.’”290 Both are required; and so, even
285 Grunstein I, 2011 WL 378782, at *9 (citing Ramone v. Lang, 2006 WL 905347, at *12 (Del. Ch. Apr. 3, 2006)). 286 Jackson v. Nocks, 2018 WL 1935961, at *5 (Del. Ch. Apr. 24, 2018). 287 Ramone, 2006 WL 4762877, at *12. 288 Cochran v. Nagle, 1995 WL 819054, at *2 (Del. Ch. Feb. 27, 1996). 289 Garber v. Whittaker, 174 A. 34, 36 (Del. Super. 1934). 290 Grunstein II, 2014 WL 4473641, at *16 (quoting Ramone, 2006 WL 905347, at *12); Plunkett v. Dillon, 9 Del. 338, 384 (Del. 1872) (“The great test of the existence of a partnership between two or more persons is their participation both in profits and its losses . . . .”); Garber, 174 A. at 36 (“Under the rule applied in this state, it seems that in most cases, in order to constitute a partnership, as between the parties themselves, there must not only be an agreement to carry on some business or occupation jointly, but a like agreement, either express or implied, to share in business losses, as well as in business profits.”).
50 when a party “admit[s] he expected to share any profits,”291 “[w]here there is no
intent to share profits and losses, there can be no partnership.”292 “The sharing of
the profits without also sharing the loss will not constitute a partnership.”293 “The
absence of a sharing of expenses”294 or ownership and control295 may also be
considered evidence that a partnership does not exist.
Wallace claims he and Li entered a partnership agreement in 2015.296 The
Wallace-Li enterprise comprised two ventures: (1) supporting Ci Ci with rental
income and (2) reselling homes for profit for Li and Wallace.297 Wallace agreed to
unfavorable obligations to Ci Ci in exchange for sharing profits with Li.298 Wallace
291 Cochran, 1995 WL 819054, at *2 (explaining plaintiff’s admission of an agreement to share profits did not establish a partnership where “[t]he record indicate[d] [the plaintiff] did not intend to assume, nor did he ever assume, personal responsibility or liability for [the joint enterprise]” and there was a “conspicuous absence of an express, or implied, agreement to share in business losses.”). 292 Hill v. Harris, 1998 WL 960763, at *2 (Del. Super. Oct. 27, 1998). 293 Beecham v. Dodd, 3 Del. 485, 485 (Super. 1842); accord, Jackson, 2018 WL 1935961, at *5 (holding no partnership was proven where evidence is completely bereft of an agreement to share losses). 294 68 C.J.S. Partnership § 73, Westlaw (database updated May 2024) (“The absence of a sharing of expenses may be considered evidence that a partnership does not exist, but the sharing of certain specific expenses is not evidence of the sharing of profits and losses.”). 295 Grunstein II, 2014 WL 4473641, at *19–22 (finding a partnership did not exist where the parties had not agreed on the control and ownership of a venture to be carried on as co- owners of a business for profit). 296 See, e.g., Tr. (Wallace) at 236–39, 262, 326. 297 See, e.g., id. (Wallace) at 236–39, 262, 326. 298 Id. (Wallace) at 239–40 (detailing the unfavorable terms of the Initial Properties and Wallace explaining the only reason he agreed to them was because of the favorable
51 then alleges Double Forest assumed Li’s obligations in the partnership, and Li and
Wallace memorialized the terms in Li’s notebook.299
Wallace’s partnership claims fail because he has not established the parties
agreed to share control and ownership. Wallace had no control in his enterprise with
Li, or then with Double Forest. No matter how hard Wallace tried, he could not
close Peoples Way because Li stopped responding;300 Wallace surrendered his own
rental properties and the proceeds from their sale because Li told him to;301 Wallace
partnership benefits he would receive in flipping properties with Li and sharing their profits); id. (Wallace) at 150 (“[D]o you ever wonder why on earth I would do stuff like that? It’s only because your dad promised that he will sell or buy ten properties from me each . . . month . . . . Otherwise, do I look like somebody who has mental issues? Why would I do things to cause myself to lose money?”); id. (Wallace) at 164 (“[W]hat kind of agreement do you think that was? Do you think that was fair to me, or you think I am maybe mentally challenged to agree to those kind of unfair agreements between me and your dad?”); see JX 7 at -1570, -1588, -1606 (memorializing these terms in subsequently entered agreements of sale); see also JX 18 at -2080 § 32 (indicating Wallace did not continue these terms in other purchase agreements with Xiaohan Li); JX 23 at -0359 § 32 (indicating Wallace did not continue these terms in other purchase agreements with Wang). 299 Countercl. ¶ 5; Tr. (Wallace) at 103, 141, 151, 242, 306. 300 Tr. (Ci Ci) at 21 (indicating the Li family sought release from the Peoples Way contract around January 2016); id. (Wallace) at 137–38. 301 Id. (Wallace) at 88, 145, 238–40, 328.
52 acted as a buyer,302 seller,303 realtor,304 property manager,305 and rent subsidizer,306
all at Li’s direction;307 and Wallace paid for Li’s meals out308 and served as Li’s
chauffeur.309 Whatever Li directed, Wallace did, until he walked away. Wallace
had no legal authority or control with the purchase of Darien Road.310 Wallace
worked as Double Forest’s realtor and loaned Double Forest a substantial amount,
but did not participate in the transaction decisions.311 Li alone decided that Double
Forest would acquire Darien Road,312 and that Double Forest would give Darien
302 JX 4 at 0484; Tr. (Wallace) at 225–26. 303 Tr. (Wallace) at 238; JXs 7, 18, 23. 304 Tr. (Wallace) at 232–33, 223 (indicating that to help Ci Ci’s parents with Peoples Way, he asked his old brokerage firm how to reactivate his real estate license); JX 4 at -0492 (indicating Wallace entered the Peoples Way contract on November 27, 2015). 305 Tr. (Wallace) at 245. 306 Id. (Wallace) at 148–49, 263; JX 7 at -1570, -1588, -1606. 307 Tr. (Wallace) at 237 (“I had to follow her dad’s instruction.”); id. 249 (the same); id. (Wallace) at 329 (the same); id. (Wallace) at 256 (indicating Ci Ci and Wallace “just . . . follow[ed] [Li’s] instruction”). 308 Id. (Wallace) at 327 (“He never paid me anything. And he made me pay for breakfast, lunch, and dinner too.”); id. (Wallace) at 163 (“[Li] made me pay for everything.”). 309 Id. (Wallace) at 163 (indicating Wallace spent “months of [his] time driv[ing] [Li] around every single day . . . [and] 12 hours was [his] minimum shift . . . .”). 310 See, e.g., id. (Wallace) at 151, 224; JX 14 at -1952–54; see also Tr. (Wallace and Ci Ci) at 103–104. 311 Tr. (Wallace) at 224, 266–67; JX 14 at 001953–54. 312 JX 14 at -1953.
53 Road to Ci Ci, despite holding it out as a future showcase property for the Wallace-
Double Forest enterprise.313
Most importantly, Li never agreed to share losses with Wallace. Instead, Li
looked to Wallace to make up any rental shortfalls and provide Ci Ci with a steady
income stream. Li yoked Wallace with all the rental properties’ maintenance
expenses.314 And Li made Wallace pay for their daily expenses when they were
together.315 Wallace never identified a single piece of evidence that reflects any
negotiation, let alone any agreement, with Li to share losses. As to profits, Li made
Wallace give Ci Ci all the profits from selling his own property,316 and, when
Wallace asked for his share of the profits for one transaction, Li reprimanded him
and denied any agreements obligating Li or Ci Ci to do anything for Wallace.317
313 Countercl. ¶¶ 7–8; D.I. 79, Ex. A at 86:6–16 (indicating “Li claimed that he will buy [Darien Road] . . . so that he can bring clients from China to live in” and that Wallace later “found out . . . it was just a house for [Ci Ci] to live in. It wasn’t, like her dad said, to use for business purposes.”). 314 Tr. (Wallace) at 327 (“If they did sign the contract and not giv[e] me the money, . . . now I[] [was] going to be in even a bigger hole. Because over the years I’ve put up all my money for the repairs, for the rents, even though the properties was vacant. I was already in the negatives.”); id. (Wallace) at 149 (“Even if the tenants are not paying, I still pa[id]. Even if [the] property gets damaged, [I] . . . t[oo]k money out of my pocket to fix [the] damage. Who does that?”). 315 Id. (Wallace) at 163. 316 Id. (Wallace) at 249. 317 Id. (Wallace) at 145–46.
54 Wallace’s “partnership claim[s] must fail.”318 There was never an agreement
to share ownership and control in the alleged partnership business,319 and “there was
never ‘a common obligation to share losses as well as profits.’”320 Judgment on
counterclaim counts I, II, and III is entered in Third Party Defendant’s favor.
3. Defendants’ Counterclaims Against New Start
Counterclaim counts IV and V are against Ci Ci and New Start. Count IV
seeks a declaratory judgment that the Disputed Agreements are invalid.321 Count V
seeks damages for unjust enrichment.322 Judgment is entered in Defendants’ favor
for Counts IV and V. Count VI, for breach of contract, is pled in the alternative, and
I do not reach it.
a. Declaratory Judgment
Defendants seek a declaratory judgment that the contracts to sell the Disputed
Properties to New Start are invalid or unenforceable.323 I have found neither Plaintiff
signed those agreements at the time they were entered into, and that both were
backdated for purposes of this litigation.324 But Plaintiffs insist that “[r]egardless of
318 Jackson, 2018 WL 1935961, at *5. 319 Grunstein II, 2014 WL 4473641, at *22. 320 Jackson, 2018 WL 1935961, at *5 (quoting Ramone, 2006 WL 4762877, at *12). 321 Countercl. ¶¶ 53–59. 322 Id. ¶¶ 60–67. 323 Id. ¶ 59; 10 Del. C. § 6501. 324 See supra note 110.
55 this disputed issue, exceptions to the statute of frauds exist when the party admits to
an agreement or there is evidence of actual part performance of an oral
agreement.”325 And they argue “the Court can rely upon part performance to
establish that the parties agreed to the terms of the [Disputed Agreements].”326 As
an initial matter, for purposes of this analysis, I assume that Ci Ci accepted Wallace’s
offer by October 2016.327 But Wallace’s offer expired and the parties did not settle
within the agreed-upon timeframe, so specific performance of settlement is not
available.
“When interpreting a contract, the role of a court is to effectuate the parties’
intent.”328 “Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s
construction should be that which would be understood by an objective, reasonable
third party.”329 “When the contract is clear and unambiguous, [I] will give effect to
the plain-meaning of the contract’s terms and provisions”330 with the aid of
325 PostTB at 16. 326 Id. at 17. 327 PostTB at 16–17. 328 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006). 329 Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v. Paxson Commc’ns Corp., 2005 WL 1038997, at *5 (Del.Ch. Apr. 29, 2005)). 330 Osborn, 991 A.2d at 1159–60.
56 interpretive canons331 and will not “read a contract to render a provision or term
‘meaningless or illusory.’”332 I will instead “read the specific provisions of the
contract in light of the entire contract,”333 “giving meaning to each term,”334 and
preferring “an interpretation which gives a reasonable, lawful, and effective meaning
to all the terms . . . [over] an interpretation which leaves a part unreasonable,
unlawful, or of no effect.”335 Likewise, I “cannot countenance an absurd
interpretation of the contract.”336
Here, the disputed contracts are clear and unambiguous. The contracts have
identical provisions. Section 7 and Section 8 govern the time by which settlement
must occur. Section 7 requires that settlement occur “within 30 days of acceptance,”
or “if a longer time is necessary to secure a survey, or to prepare the necessary legal
and financial settlement documents,” then within a “reasonable time to effect these
331 Bouchard v. Braidy Indus., 2020 WL 2036601, at *9 (Del. Ch. Apr. 28, 2020) (“[T]he court evaluates the relevant provision’s semantics, syntax, and context, aided by interpretive canons.” (quoting JJS, Ltd. v. Steelpoint CP Hldgs., LLC, 2019 WL 5092896, at *5 (Del. Ch. Oct. 11, 2019))). 332 Osborn, 991 A.2d at 1159–60 (quoting Sonitrol Hldg. Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 1992)). 333 West v. Village Practice Mgmt. Co., LLC, 2023 WL 5447378, at *2 (Del. Ch. Aug. 24, 2023) (quoting Ray Beyond Corp. v. Trimaran Fund Mgmt., LLC, 2019 WL 366614, at *5 (Del. Ch. Jan. 29, 2019)). 334 Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 846 (Del. 2019). 335 Restatement (Second) of Contracts § 203 (1981). 336 Osborn, 991 A.2d at 1161.
57 conditions.”337 Section 8 specifies that “[o]ther than those limited conditions related
to settlement as noted in Paragraph 7 above, time is of the essence in this
[a]greement.”338 For these agreements, “[t]ime is of the essence means that the dates
and time frames agreed by the parties must be met. [And] [f]ailure to meet stated
dates or time frames may result in waiver of contractual rights or default under the
terms of th[e] [a]greement.”339
Ci Ci and New Start argue that Section 32 held open all terms and conditions,
including the timing to close, until October 31, 2019.340 According to Plaintiffs,
Section 32 allegedly required Wallace “to deliver the Disputed Properties to
Plaintiffs free and clear of liens and encumbrances” so long as Ci Ci pursued
settlement by October 31, 2019.341
Section 32 states:
Property is being sold in as-is condition. Seller will pay all closing costs including transfer taxes and any other fees or costs incurred. Seller agrees to be responcible [sic] for all maintenance and repair costs as well as the reimbursement of all rents when the current tenants do not pay as long as the property stays under the sellers [sic] property management. All terms and conditions are effective until October 31, 2019.342
337 JX 7 at -1583 § 7, -1601 § 7. 338 JX 7 at -1583 § 8, -1601 § 8. 339 JX 7 at -1583 § 8, -1601 § 8. 340 PreTB at 15, 18; PostTB at 19; Tr. (Ci Ci) at 172–73. 341 PreTB at 15. 342 See, e.g., JX 7 at -1570.
58 Plaintiffs would have me conclude that the provision’s final clause, “[a]ll terms and
conditions are effective until October 31, 2019,” broadly applies to all terms of the
contract, rather than narrowly to Section 32’s “terms and conditions.”343 Plaintiffs
conclude that after accepting the agreements in October 2016, “Plaintiffs could . . .
close on the Unsettled Properties at any time prior to October 2019,”344
notwithstanding the timing provisions in Sections 7 and 8.
This argument “an absurd, unfounded result” that not even Ci Ci can explain:
a three-year period to close on an otherwise unremarkable purchase of residential
rental properties.345 Ci Ci acknowledged her reading of Section 32 was unusual.346
And basic contract principles require that Section 32’s substantive content be
read as distinct from and additional to the other provisions. I must “lean in favor of
a construction which will render every word operative, rather than one which may
343 Tr. (Ci Ci) at 26 (“I have the ability to close the property at any time until October 31, 2019.”); id. (Ci Ci) at 180 (“So this sentence to me is showing if we sign this contract, I have the right to close anytime until October 31, 2019.”). 344 PostTB at 19; Tr. (Ci Ci) at 26, 180. 345 Osborn, 991 A.2d at 1160. 346 Tr. (Ci Ci) at 26 (indicating Ci Ci has never seen a provision like Section 32 in other real estate contracts).
59 make some idle and nugatory.”347 Under Plaintiffs’ interpretation, Section 32 would
completely consume Sections 7 and 8.
In addition, Section 32 falls under the title “additional terms and
conditions.”348 A section’s title “may be looked to in determining its meaning,
because headings and titles provide context and can inform the meaning of the
sections they label.”349 While “contract headings are not controlling evidence of the
meaning of a contract’s substantive provisions, they may be considered” to support
the interpretation of a substantive provision.350 Black’s Law Dictionary defines
“additional term” to be “a distinct, added term to a previous term,”351 and the
Cambridge dictionary defines “additional” as “more than what already exists.”352
And so, the title “additional terms and conditions” signals Section 32 is intended to
347 Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012) (quoting Thomas M. Cooley, A Treatise on the Constitutional Limitations Which Rest upon the Legislative Power of the States of the American Union 58 (1868)); see also Osborn, 991 A.2d at 1159. 348 See, e.g., JX 7 at -1570. 349 11 Richard A. Lord, Williston on Contracts § 32:15 (4th ed. 2023). 350 Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, at 581 n.35 (Del. Ch. July 12, 1998). The agreements contain no indication the headings should be given no effect in the construction or interpretation of the agreement. See, e.g., Wilm. Tr. Co. v. Tropicana Ent., LLC, 2008 WL 555914, at *2 n.15 (Del. Ch. Feb. 29, 2008) (refraining from employing a heading for interpretive value because, “by Section 13.13,” the parties agreed “headings . . . ha[d] been inserted for convenience of reference only, and [we]re not to be considered a part” of the contract). 351 Additional Term, Black’s Law Dictionary (12th ed. 2024). 352 Additional, Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/ essential-british-english/additional (last visited September 1, 2024).
60 supplement, not supplant or replace, the other provisions. The substantive content
that follows is intended to build upon what has already been expressed.
I read the final clause of Section 32, “[a]ll terms and conditions are effective
until October 31, 2019,” to modify only those terms and conditions expressed in
Section 32. The clause does not modify any terms or conditions not expressed in
Section 32.353 My interpretation gives meaning to all terms and provisions, does not
render any nugatory, and comports with Section 32’s title and signaled intent to
supply additional terms and conditions not yet expressed.
It is undisputed the parties did not settle the property within thirty days or even
six months of Ci Ci’s purported October 30, 2016, acceptance. Delaware courts
consider the circumstances of the transaction when determining what constitutes “a
reasonable time to perform.”354 Still, there are some generally applicable timeframes
for real estate transactions. A “one-month delay in settlement is, as a matter of law,
not unreasonable.”355 But “[a] delay of six months is not a usual or reasonable time
for the settlement of a real estate transfer.”356 Ci Ci complains Wallace obstructed
353 Were I to consider Ci Ci’s claims, this clause could mean she was entitled to receive rent payments for the properties until October 31, 2019. See, e.g., JX 7 at -1570. 354 Bryan v. Moore, 863 A.2d 258, 261 (Del. Ch. 2004). 355 Id. 356 Bernhardt v. Luke, 126 A.2d 556, 558 (Del. 1956); see Lewes Inv. Co., LLC v. Estate of Graves, 2012 WL 5287945, at *15 (Del. Ch. Sept. 24, 2012) (“[T]he [defendants] committed a material breach of the [a]greement when they were unable to convey good
61 her ability to settle the properties around 2018;357 Wallace asserts he blocked her
communications closer to October 2017.358 But even by then, Plaintiffs had failed
to close on the properties within a reasonable time of October 2016, and Ci Ci has
not even attempted to allege the delay was due to “the limited conditions related to
settlement.”359 The parties failed to settle within Section 7’s required time period.
Wallace’s offers of sale expired sometime in 2016. The terms and provisions in
Section 32 also expired on October 31, 2019.
The Disputed Agreements are unenforceable.360 Judgment will be entered in
favor of Defendants on their counterclaim Count IV.
b. Unjust Enrichment For Marshall Street and 6th Avenue Rental Income
Wallace also brings an unjust enrichment claim against Plaintiffs. Wallace
maintains he never would have provided Ci Ci with rental income for Marshall Street
and marketable title to [the property] for more than five months after the 30–day grace period had expired.”). 357 Tr. (Ci Ci) at 69. 358 Id. (Wallace) at 143–47, 323–24, 329–30. 359 JX 7 at -1583 § 8, -1601 § 8; see also JX 7 at -1583 § 7, -1601 § 7 (“It is expressly agreed if a longer time is necessary to secure a survey, or to prepare the necessary legal and financial settlement documents, the date of settlement shall be extended for a reasonable time to effect these conditions.”). 360 Cont’l Auto. Sys., Inc. v. Nokia Corp., 2023 WL 1370523, at *12 (Del. Ch. Jan. 31, 2023) (“The Court concluded that once the agreement expired” the agreement could no longer “be ‘specifically enforced as written . . . .’” (quoting All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *12 (Del. Ch. Aug. 9, 2004))), aff’d Layton v. All Pro Maids, Inc., 880 A.2d 1047 (Del. 2005) (TABLE).
62 and 6th Avenue but for her father’s promises to repay him in other transactions,
which never occurred. Plaintiffs have asserted a laches defense against this claim,
which I determine fails. I find in Wallace’s favor; Ci Ci and New Start have been
unjustly enriched at Wallace’s expense, and he is entitled to the amount of that
enrichment.
c. Ci Ci’s Laches Defense Fails.
Plaintiffs have suffered no prejudice by Wallace’s short delay in bringing his
counterclaim. “The equitable doctrine of laches prevents a plaintiff from exercising
unreasonable delay in bringing an action when that delay prejudices a defendant’s
rights.”361 “Although statutes of limitations always operate as a time-bar to actions
at law, they are not controlling in equity.”362 “Nevertheless, because equity
generally follows the law, ‘a party’s failure to file within the analogous period of
limitations will be given great weight in deciding whether the claims are barred by
laches.’”363
361 Deputy v. Deputy, 2020 WL 1018554, at *47 (Del. Ch. Mar. 2, 2020) (quoting Nationwide Mut. Ins. Co. v. Starr, 575 A.2d 1083, 1088 (Del. 1990)). 362 Whittington v. Dragon Grp., L.L.C., 991 A.2d 1, 8 (Del. 2009) (citing Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009)). 363 In re Ezcorp Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at *8 (Del. Ch. Jan. 25, 2016) (citing Whittington, 991 A.2d at 9).
63 “Under Delaware law, the statute of limitations for unjust enrichment claims
is three years.”364 Around December 2017, Wallace stopped paying Ci Ci rent on
Marshall Street and 6th Avenue,365 and he had already left the Wallace-Li enterprise
behind.366 Wallace did not file his counterclaims until three years and nine months
after this date.367 The legal statute of limitations passed nine months before Wallace
filed his counterclaims.
I still conclude laches is not invoked because Plaintiffs have suffered no
prejudice. While Wallace initially pursued a path of dismissing Plaintiffs’ claims
rather than launching his own, he raised his concern about the rent payments in his
2019 pro se answer, putting Plaintiffs on notice.368 Because of its procedural
deficiencies, I determined the pro se filing was not a formal answer and would not
preclude Defendants from pursuing a motion to dismiss.369 As the statute of
Buttonwood Tree Value P’rs, L.P. v. R. L. Polk & Co., Inc., 2023 WL 9053173, at *10 364
(Del. Ch. Dec. 29, 2023). 365 PTO ¶ 30(xiv). 366 Tr. (Wallace) at 147, 250. 367 PostTB at 51 (acknowledging counterclaims filed three years and nine months after final rent payment). 368 D.I. 4 (“[W]here is our pay back for all the repairs, the monthly rents . . .?”). 369 D.I. 28 at 4. If Wallace’s filing was a valid answer, his counterclaims may, under Court of Chancery Rule 15(c), relate back to the conduct raised in that answer, and place his claim back within the statute of limitations. See U.S. Borax & Chem. Corp. v. Szmokaluk, 1981 WL 404963, at *2 (Del. Super. Ct. June 23, 1981) (allowing counterclaim “to relate back to the filing of the timely answer by defendants” because plaintiff had “notice by virtue” of similar claims timely filed by other party), aff’d sub nom. Szmokoluk v. U.S. Borax & Chem. Corp., 474 A.2d 142 (Del. 1983); Ct. Ch. R. 15(c).
64 limitations came to a close at end of 2020, Defendants pursued a motion to dismiss
with newly retained counsel.370 Wallace counterclaimed promptly after it became
clear the matter was progressing forward. And Wallace’s claims arise from the same
facts as Plaintiffs claims. Indeed, the same contracts Plaintiffs asked this Court to
enforce set forth Wallace’s obligation to pay rental income. Thus, any “[c]oncerns
about lost evidence, faulty memories, or changing stories lack force.”371 Plaintiffs
have suffered no prejudice at Wallace’s nine-month delay.
I conclude Defendants’ unjust enrichment claim is not barred by laches.
d. Unjust Enrichment Is Not Barred By Contract.
I now turn to the merits of Wallace’s claim that Plaintiffs were unjustly
enriched by Wallace’s payment to them of the monthly rent for the two Disputed
Properties. The claim faces the initial hurdle of being brought in the context of a
purported agreement between Wallace and Li, and purported agreements with New
Start. Wallace agreed with Li he would pay Ci Ci the rent on the Disputed
370 D.I. 17. 371 W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 310 A.3d 985, 996 (Del. Ch. 2024); Daugherty v. Highland Cap. Mgmt., L.P., 2018 WL 3217738, at *7 (Del. Ch. June 29, 2018) (“The purpose for employing laches is partially similar to the purpose for respecting a limitations period at law: memories grow stale with time, evidence becomes lost, and individuals and entities are entitled to defend against claims in a reasonable amount of time, or not at all.”); see also Ord. of R.R. Telegraphers v. Ry. Express Agency, 321 U.S. 342, 348–49 (1944) (“Statutes of limitation, like the equitable doctrine of laches, in their conclusive effects are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.”).
65 Properties, and those rental obligations were reflected in the terms of the proposed
agreements to sell the Disputed Properties to New Start.372 Because unjust
enrichment “is an off-the-contract theory of recovery,”373 it is generally inapplicable
when the complained benefit is governed by a contract.374 But where the contract at
issue was itself the unjust enrichment, such an agreement’s putative governance will
not bar an unjust enrichment claim.375 “In other words, ‘[t]he contract itself is not
necessarily the measure of [the] plaintiff’s right where the claim is premised on an
allegation that the contract arose from wrongdoing (such as breach of fiduciary duty
372 See JX 11 at -0843 § 32 (“Seller agrees to be responcible [sic] for all maintenance and repair costs as well as the reimbursement of all rents when the current tenants do not pay as long as the property stays under the sellers [sic] property management.”); JX 12 at -0861 § 32 (same). 373 Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003). 374 LVI Grp. Invs., LLC v. NCM Grp. Hldgs., LLC, 2018 WL 1559936, at *17 (Del. Ch. Mar. 28, 2018) (“[W]hen the complaint alleges an express, enforceable contract that controls the parties’ relationship, . . . a claim for unjust enrichment will be dismissed.” (quoting Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL 3927242, at *18 (Del. Ch. Oct. 10, 2006))); Yangaroo Inv. v. Digit. Media Servs., Inc., 2024 WL 2791100 at *12 (Del. Super. May 30, 2024) (“[Defendants] argue [the plaintiff’s] unjust enrichment claim must be dismissed because this action is governed by [contract]. That is the general rule, but an exception applies here.”); see also Urvan v. AMMO, Inc., 2024 WL 863688, at *14 (Del. Ch. Feb. 27, 2024); Adviser Invs., LLC v. Powell, 2023 WL 6383242, at *8 (Del. Ch. Sept. 29, 2023). 375 LVI Grp. Invs., 2018 WL 1559936, at *17 (holding a contract did not control the parties’ relationship when the execution of that contract itself enabled the defendants to obtain benefits to which they were not entitled); McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008) (holding the unjust enrichment could be in the form of a contract for sale); see also Powell, 2023 WL 6383242, at *8 (declining to dismiss an unjust enrichment claim where the plaintiff alleged that the contract at issue itself arose from the defendants’ fraud).
66 or fraud) or mistake and the [defendant] has been unjustly enriched by the benefits
flowing from the contract.’”376
I begin with Wallace’s agreement with Li. Where one party never intended
to perform his promises, there could be no contract: there was instead a fraud.
Nonperformance of a promise for future action is fraudulent if the intention not to
perform exists when the promise is made.377 “[A] speaker’s intent not to perform
‘may be inferred from the circumstances,’”378 including evidence of “the promisor’s
subsequent conduct and speech.”379
Li’s repeated pattern with Wallace evidences Li made promises to Wallace
with the intent not to perform them, particularly around October 2016 when Wallace
signed the agreements containing his rental obligations. In 2015, Li promised to
resell homes with Wallace, if Wallace would provide Ci Ci rental income; Wallace
performed by transferring the Initial Properties to Ci Ci, but Li did not perform and
376 LVI Grp. Invs., 2018 WL 1559936, at *16 (quoting Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 12.01[b] (2016)). 377 See, e.g., Vituli v. Carrols Corp., 2015 WL 5157215, at *6 (Del. Super. May 15, 2015) (“A ‘contractual promise made with the undisclosed intention of not performing it is fraud.’” (quoting Rsrvs. Dev. LLC v. Crystal Props., LLC, 2009 WL 1514929, at *10 (Del. Super. Ct. May 18, 2009), aff’d in part, rev’d in part on other grounds, 986 A.2d 362 (Del. 2009))). 378 Id. (quoting Rsrvs. Dev., 2009 WL 1514929, at *9). 379 5 Am. Juris. Proof of Facts 3d 727 § 4, Westlaw (database updated Aug. 2024).
67 failed to close Peoples Way.380 By 2016, the Wallace-Li enterprise restarted and Li
again promised to resell homes, if Wallace would provide Ci Ci rental income.
Wallace again performed by signing agreements for Marshall Street and 6th Avenue,
and paying Ci Ci their rental income. But Li still did not perform any of his
promises. Indeed, around the same time Wallace signed the agreements, Li told
Wallace he wanted to buy Darien Road to court prospective buyers, but actually
bought it for Ci Ci’s benefit.381 This, along with Li’s prior behavior, reflects that Li
had no intention to perform his promises to Wallace in the fall of 2016. Thus, there
was no valid contract between Wallace and Li when they restarted their venture and
Wallace agreed to pay Ci Ci the rent on the Disputed Properties.
Any agreement Wallace made with New Start to make good on his promises
to Li was therefore itself an unjust enrichment. Wallace entered into that contract to
pay New Start the rent on the Disputed Properties because he promised Li he would,
in exchange for Li’s promises to buy properties, resell them, and split the profits.
Li’s promises were fraudulent when made. Because Wallace has shown the
380 See, e.g., Tr. (Ci Ci) at 21, 177. 381 Countercl. ¶ 7, 8 (“The Darien Mansion and Lot were purchased by Li Company to court prospective property purchasers as part of its shared endeavor with Wallace. Indeed, both Wallace and Mr. Li, acting on behalf of Li Company, courted prospective buyers there, for a limited time.”); D.I. 79, Ex. A at 86:6–16 (indicating “Li claimed that he will buy [Darien Road] . . . so that he can bring clients from China to live in” and that Wallace later “found out . . . it was just a house for [Ci Ci] to live in. It wasn’t, like her dad said, to use for business purposes.”).
68 agreements themselves “arose from [Li’s] fraud, the existence of that contract does
not bar the unjust enrichment claim.”382
Wallace’s unjust enrichment claim is not barred by any contract with New
Start or Ci Ci, or with Li.
e. Plaintiffs Were Unjustly Enriched.
Unjust enrichment is the “unjust retention of a benefit to the loss of another,
or the retention of money or property of another against the fundamental principles
of justice or equity or good conscience.”383 To succeed on a claim for unjust
enrichment, a complainant must prove: “(1) an enrichment, (2) an impoverishment,
(3) a relation between the enrichment and impoverishment, [and] (4) the absence of
justification” for the benefit.384 “Technically, [impoverishment] is not a necessary
382 LVI Grp. Invs., 2018 WL 1559936, at *17; see also RCS Cred. Tr. v. Schorsch, 2018 WL 1640169, at *7 (Del. Ch. Apr. 5, 2018) (“[T]he advisory agreements (and the benefits they conferred on the Advisor Defendants) resulted from the Control Defendants’ breaches of fiduciary duty. The unjust enrichment claim is therefore not barred by the existence of binding contracts . . . .”); McPadden, 964 A.2d at 1276 (denying dismissal where “Plaintiff allege[d] that it is the letter of intent, itself, that is the unjust enrichment; that is, [Defendant’s] manipulative conduct . . . unjustly enriched him in the form of the contract . . . .”); Yangaroo, 2024 WL 2791100, at *12–13; see also Advanced Thermal Sci. Corp. v. Applied Mat’ls Inc., 2009 WL 10671186, at *8 (C.D. Cal. Oct. 2, 2009) (“[I]f [a] contract was procured by fraud, is unenforceable, or is otherwise ineffective, then an unjust enrichment claim may lie.”). 383 McPadden, 964 A.2d at 1276 (quoting Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988)). 384 State ex rel. Jennings v. Monsanto Co., 299 A.3d 372, 390 (Del. 2023).
69 element.”385 “The claim is about unjust enrichment, not impoverishment.”386 “A
person who is unjustly enriched at the expense of another is subject to liability in
restitution.”387
Wallace has proven Plaintiffs were enriched at his expense. Over the course
of several years, he paid Ci Ci or New Start approximately $22,017.50 in rental
income for Marshall Street and 6th Avenue. Either he or the company he wholly
owns directly provided Ci Ci and New Start the enriching contributions.388 And
there is an obvious and direct relationship between the enrichment and the
impoverishment. One caused the other.
Lastly, Wallace has proven Plaintiffs’ enrichment was unjustified. Ci Ci was
aware of her father’s false promises to Li. She initiated conversations with Wallace
in 2015, and introduced her father to him shortly afterwards. 389 Ci Ci was present
during certain negotiations and discussions between Wallace and Li; 390 she drove
her parents to and from Wallace’s home for certain meetings;391 and she served as
385 Principal Growth Strategies, LLC v. AGH Parent, LLC, 2024 WL 274246, at *12 (Del. Ch. Jan. 25, 2024). 386 Id. 387 Restatement (Third) of Restitution and Unjust Enrichment § 1, Westlaw (database updated Oct. 2023). 388 JX 13; JX 21. 389 Tr. (Wallace) at 105. 390 Id. (Ci Ci) at 141. 391 Id. (Ci Ci) at 105.
70 an intermediary for wire transfers from China.392 Ci Ci was instrumental in restoring
Wallace and Li’s relationship after they fell out the first time.393 Despite feigning
ignorance at trial about the nature of Wallace’s and Li’s business venture,394 Ci Ci
was aware Li and Wallace entered into a profit-sharing agreement. She even
advocated for Wallace and negotiated for equal profit sharing with Li. 395 Initially,
Li wanted to split profits 60/40 but “then Ci Ci said, you know what, I think 50/50
is fair.”396
Ci Ci may not have known every detail of Li and Wallace’s agreement. But
she knew enough. She knew Wallace agreed to fund her living expenses on the
condition her father resell homes with him and they split the profits equally.397 Ci
Ci benefited from Wallace continually performing his side of the bargain by paying
392 Id. (Ci Ci) at 78; see also JX 2. 393 Tr. (Wallace) at 136–41. 394 See, e.g., id. (Ci Ci and Wallace) at 141 (“‘I don't know the conversations between you and my dad.’ ‘But you were -- you were there --’”). Instead of admitting what she knew about the Li-Wallace enterprise, Ci Ci instead attempted to erase her father entirely. Id. (Wallace and Ci Ci) at 132 (“‘I just wanted to know, do you think I'm here telling the truth that I was with your dad 100 percent of the time, I was not with you? Am I lying or no?’ ‘You're lying.’”); see also supra notes 77, 255. 395 Tr. (Wallace) at 136–41. 396 Id. (Wallace) at 242. Ci Ci testified that she never had conversations with Wallace about profit sharing. Id. (Ci Ci) at 193–94. I find Wallace’s testimony more credible. 397 Id. (Wallace) 242, 141; id. (Wallace) at 322 (testifying, “me, you, and your daughter, we understand that crystal clear of a 50/50 split. Because in the beginning, we agreed, you get 60 percent, I get 40 percent. And then your daughter, [Ci Ci], saying it’s only fair when we do a 50/50.”).
71 her thousands of dollars a month, while neither Li nor Ci Ci provided anything in
return. Indeed, even before obtaining rental income for Marshall Street and 6th
Avenue, Ci Ci benefited from Wallace’s sale of the Initial Properties and their
subsequent rental income. She unquestionably accepted Wallace’s payment of the
9th Avenue proceeds, even though she knew she did not own that property; and she
accepted and retained Wang’s payment for 6th Avenue, knowing she did not own
that property either.398 Ci Ci knew the Peoples Way transaction fell through after Li
ignored Wallace for weeks. Ci Ci, who was paramount in Wallace and Li
reconciling,399 knew Wallace and Li reunited on the condition their profits-sharing
scheme continue. Despite this knowledge, she watched as Double Forest bought
Darien Road to benefit her instead of the Wallace-Li enterprise, as Wallace
believed.400
For over a year, Ci Ci watched as Wallace held up his end of the bargain while
Li ignored his. At bottom, the preponderance of the evidence shows that Ci Ci knew
Wallace acted on false and fraudulent promises. And yet Ci Ci happily pocketed the
398 Tr. (Ci Ci) at 89–91; Am. Compl. ¶ 49 (“In June of 2017, [Ci Ci] spoke to her cousin, Yuci Wang, who was interested in purchasing the 6th Avenue for $160,000. Yuci Wang paid the equivalent of $160,000 to [Ci Ci’s] family in China . . . .”); Tr. (Ci Ci) at 60–61. 399 Id. (Wallace) at 136–41. 400 JX 14 at -1953–54 (indicating Li was original buyer until buyer was switched Double Forest).
72 rental income from Marshall Street and 6th Avenue from November 2016 to
December 2017. Ci Ci’s acceptance was unjustified.
f. Damages
Having found Wallace is entitled to recover on his unjust enrichment claim, I
turn to the question of assessing his damages. “The most likely measure for damages
under an unjust enrichment claim would be the amount by which [Plaintiffs] w[ere]
unjustly enriched.”401 In other words, damages is measured “by [the beneficiary’s]
unjust enrichment, not by the [claimant’s] loss.”402 “This often involves quantifying
[the beneficiary’s] profits.”403 Benefits received may be “measured in different
ways,” including quantifying the increased assets, market value of services, the value
of any benefits received, and any gains realized upon the transfer or sale of an asset
received from the claimant.404 Wallace’s unjust enrichment damages includes rent
paid to Ci Ci for the 6th Avenue and Marshall Street properties, which amount to at
least $34,943.37.
401 Frye v. Estate of Raphaelson, 2023 WL 5624717, at *10 (Del. Ch. Aug. 31, 2023) (quoting Mehta v. Smurfit-Stone Container Corp., 2014 WL 5438534, at *6 (Del. Ch. Oct. 20, 2014)). 402 1 Dan. B. Dobbs, Law of Remedies: Damages—Equity—Restitution § 4.5(1), at 628 (2d ed. 1993) [hereinafter Dobbs]. 403 Schaffer v. Lockwood, 2021 WL 5579050, at *22 (Del. Ch. Nov. 30, 2021). 404 Dobbs § 4.1(4), at 566–67.
73 Defendants also seek pre- and postjudgment interest on any monetary
award.405 “Prejudgment interest is awarded as a matter of right. Such interest is to
be computed from the date payment is due,” in other words, from the date on which
the “damages began to accrue.”406 In fixing the interest rate, the Court has “broad
discretion, subject to principles of fairness.”407 “Under Delaware law, where neither
party submits evidence showing the appropriate rate of interest, the court typically
awards 5% over the Federal Reserve discount rate compounded quarterly.”408 “The
Court . . . has discretion to select the compounding interval.”409
Plaintiffs’ enrichment was unjustified the moment Wallace made payments to
them. Wallace is entitled to prejudgment interest at the legal rate, calculated with
respect to each unjustified payment from the date such payment was made.410 The
accrual dates and prejudgment calculations are as follows:411
405 Countercl. at 51. 406 Vivint Solar, Inc. v. Lundberg, 2024 WL 2755380, at *37 (Del. Ch. May 30, 2024) (quoting Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 826 (Del. 1992)); Am. Gen. Corp. v. Continental Airlines Corp., 622 A.2d 1, at 13 (Del. Ch. 1992). 407 Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, at 1190 (Del. Ch. 1999) (quoting Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del. 1988)). 408 Sweeney v. Sweeney, 2024 WL 3040424, at *14 n.172 (Del. Ch. June 18, 2024). 409 Vivint Solar, 2024 WL 2755380, at *37. 410 See id. at *37. 411 In the PreTB, Plaintiffs argue that any damages granted to Wallace for unjust enrichment should be setoff by amounts he retained from the Li family in connection with the failed purchase of Peoples Way. PreTB at 40. But Ci Ci seemingly abandoned this argument in her post-trial brief, so it is waived. Oxbow Carbon & Mineral Hldgs., Inc. v.
74 Date of Payment Month’s Amount Unjustly Total After 5% Rent Paid Prejudgment Quarterly Compounding Interest
November 1, 2016 November $2,050412 $3,252.38
January 20, 2017 December $2,050413 $3,204.31
March 12, 2017 February414 $2,050415 $3,264.04
April 5, 2017 March $2,050416 $3,271.67
Crestview-Oxbow Acq., LLC, 202 A.3d 482, 502 n.77 (Del. 2019) (“The practice in the Court of Chancery is to find that an issue not raised in post-trial briefing has been waived, even if it was properly raised pre-trial.”); SinoMab Bioscience Ltd. v. Immunomedics, Inc., 2009 WL 1707891, at *12 n.71 (Del. Ch. June 16, 2009) (“Before trial, Immunomedics also asserted claims against Leung for breach of his duty of loyalty and against all three defendants . . . . But, Immunomedics did not address those claims in post-trial briefing, and they are waived.”); In re IBP, Inc. v. S’holders Litig., 789 A.2d 14, 62 (Del. Ch. 2001) (determining arguments not presented in an opening post-trial brief to be waived). Even if Plaintiffs did not waive their setoff argument, it fails because the three-year statute of limitations for setoff has passed. 10 Del. C. § 8120; Finger Lakes Cap. P’rs, LLC v. Honeoye Lake Acq., LLC, 151 A.3d 450, 453 (Del. 2016) (“By statute, setoff is subject to a three-year statute of limitations, and cannot be used to raise from the dead the earlier amounts. This makes sense, as a claim unrelated to the suit brought by the plaintiff should not gain new life from the happenstance of the plaintiff having sued the defendant on an unrelated matter.” (footnote omitted)). 412 PTO ¶ 29; JX 13. I relied on contemporaneous documents where possible to determine the exact breakdown of rent. Where there are no contemporaneous documents, I have relied on Ci Ci’s breakdown of rents in the PTO. In the PTO, rent for 6th Avenue is listed as $1,100. PTO ¶ 29. Rent for Marshall Street is listed as $925-$975 a month. Id. I used the midpoint of $950. 413 PTO ¶ 29; JX 13 at -0478. 414 Ci Ci alleges no rent was paid for January. PTO ¶ 30. I am unaware of any documents rebutting this and therefore accept it as true. 415 PTO ¶ 29; JX 13 at -0525. 416 PTO ¶ 29; JX 13 at -0530.
75 April 30, 2017 April $1,822.50417 $2,908.60
June 1, 2017 May $1,822.50418 $2,908.60
July 1, 2017 June $1,822.50419 $2,911.79
August 1, 2017 July $2,050420 $3,275.26
September 5, 2017 August $1822.50421 $2,911.79
October 5, 2017 September $1822.50422 $2,863.47
November 5, 2017 October $1,822.50423 $2,863.47
December 5, 2017424 November $832.50425 $1,308.00
Total (with interest) $34,943.37
Wallace is entitled to postjudgment interest in accordance with 6 Del. C. §
2301(a).426 That statute is not cabined to the loan context but also “controls the
417 JX 13 at -0548; JX 22 at -0220. 418 JX 13 at -0580; JX 22 at -2213. 419 JX 13 at -0605; JX 22 -0223. 420 JX 13 at -0636. 421 Id. at -0647; JX 22 at -2214. 422 JX 13 at -0684; JX 22 -0225. 423 JX 13 at -0718; JX 22 at -0226. 424 PTO ¶¶ 29, 30(xiii). 425 JX 22 at -0226. 426 6 Del. C. § 2301(a).
76 calculation of judgment interest outside of [it].”427 Prejudgment interest is included
in the judgment that will bear postjudgment interest.428 Postjudgment interest
accrues from the date of judgment, and “[it] shall be compounded quarterly.”429
Plaintiffs will be responsible for determining the postjudgment interest and including
it in the amount paid to Wallace.
427 Noranda Aluminum Hldg. Corp. v. XL Ins. Am., Inc., 269 A.3d 974, at 978 (Del. 2021). 428 NGL Energy P’rs LP v. LCT Cap., LLC, 2024 WL 2716005, at *7 (Del. May 28, 2024). 429 Vivint Solar, 2024 WL 2755380, at *37.
77 g. Defendants Are Entitled To Attorneys’ Fees And Costs.
Defendants have requested fee shifting for “reasonable [a]ttorney [f]ees,
expert fees (if any), plus expenses and costs of suit.”430 “Under the American Rule
and Delaware law, litigants are normally responsible for paying their own litigation
costs.”431 But there are recognized exceptions.432 “One well-recognized exception
to the American Rule is where the ‘losing party has acted in bad faith, vexatiously,
wantonly, or for oppressive reasons’” in bringing the litigation or during the course
of it.433 “The purpose of this so-called ‘bad faith’ exception is to ‘deter abusive
litigation in the future, thereby avoiding harassment and protecting the integrity of
the judicial process.’”434 This Court may use its “equitable powers to award fees
outside of an express statutory authorization or a contractual fee-shifting provision .
. . where the judge concludes a litigant brought a case in bad faith or through h[er]
bad faith conduct increased the litigation’s cost.”435 Such an award is appropriate
here.
As explained, Plaintiffs brought this case premised on a lie and sought to
mislead the Court into believing it. Ci Ci falsified documents, withheld material
430 Countercl. at 51. 431 Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245 (Del. 2007). 432 Brice v. State, 704 A.2d 1176, 1178 (Del. 1998). 433 Kaung v. Cole Nat. Corp., 884 A.2d 500, 506 (Del. 2005) (quoting Brice, 704 A.2d at 1179); Lynch, 2020 WL 4381604, at *47 (“The Court recognizes an exception to this rule
78 communications, submitted false statements in a sworn filing and moved the Court
to adopt them as facts for which no proof was required, lied on the stand, and when
confronted with her lies, she lied more. Amid all that, she told this Court Wallace
“[was] lying” when he was not.436 She showed no regard for the judicial system in
bringing this action that has spanned almost five years. Her conduct is egregious.
Clear evidence supports a finding that Ci Ci initiated this action, brought her claims,
and ultimately litigated those claims in bad faith. Defendants are entitled to fees
they paid counsel while represented and their court costs under the bad faith
exception.
III. CONCLUSION
Judgment is entered in Defendants’ favor on Plaintiffs’ counts. Judgment is
entered in favor of Third Party Defendant for Defendants’ counterclaim Counts I, II,
and III. It is entered in favor of Defendants for counterclaim Counts IV and V.
Defendants are entitled to reasonable costs and fees incurred in litigating this action.
Within twenty days, Defendants shall submit an affidavit under Court of Chancery
where the Court finds that the litigation was brought in bad faith or that a party has acted with bad faith during the course of litigation.”). 434 Kaung, 884 A.2d at 506 (quoting Brice, 704 A.2d at 1179). 435 ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC, 2013 WL 5152295, at *6 (Del. Ch. Sept. 16, 2013) (quoting Burge v. Fid. Bond & Mortg. Co., 648 A.2d 414, 421 (Del. 1994)). 436 Tr. (Ci Ci) at 132.
79 Rule 88 itemizing the amount of reasonable attorneys’ fees and costs incurred. A
final order and judgment will follow.
Related
Cite This Page — Counsel Stack
New Start Holdings, LLC v. Zi Jun Zhou, Counsel Stack Legal Research, https://law.counselstack.com/opinion/new-start-holdings-llc-v-zi-jun-zhou-delch-2024.