Title: Reserves Development LLC v. Crystal Properties, LLC

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
RESERVES DEVELOPMENT LLC and 
) 
THE RESERVES DEVELOPMENT  
)  No. 56, 2008 
CORPORATION,  
 
 
 
) 
 
 
 
 
 
 
 
)  Court Below:  Superior Court 
 
 
Plaintiffs-Below,  
 
)  of the State of Delaware in 
 
 
Appellants,  
 
 
)  and for Sussex County 
 
 
 
 
 
 
 
) 
CRYSTAL PROPERTIES, LLC, 
 
)  C.A. No. 05c-11-011 
BELLA VIA, LLC, WILLIAM ESHAM, 
) 
WILLIAM BUCHANAN, JR., EYAL 
 
) 
ELBOIM and YITSHAK REFAELI,  
) 
 
 
 
 
 
 
 
) 
 
 
Defendants-Below, 
 
) 
 
 
Appellees.  
 
 
) 
 
Submitted:  July 8, 2009 
Decided:  November 4, 2009 
 
STEELE, Chief Justice, HOLLAND and BERGER, Justices. 
 
 
Upon appeal from the Superior Court.  AFFIRMED in part and 
REVERSED in part. 
 
 
Edward M. McNally and Fotini A. Antoniadis, Morris James LLP, 
Wilmington, Delaware for appellants. 
 
 
Richard E. Berl, Jr., Smith O’Donnell Feinberg & Berl, LLP, Georgetown, 
Delaware, attorney for appellees. 
 
 
 
 
 
 
STEELE, Chief Justice: 
2 
 
 
In this second appeal from the Superior Court, Reserves1 seeks a reversal of 
the trial judge’s reduction in damages awarded to Reserves for breach of contract 
and misrepresentation.  Reserves argues that the trial judge erred when he offset 
damages based on conclusions that were unsupported by the record and the product 
of an illogical deductive process.  With the exception of the offset of $5,461.37 for 
landscaping and street lighting costs, which we now REVERSE, the record reflects 
Reserves overpaid for incomplete work on the development.  Because the trial 
judge’s decision to reduce the damages award by the amounts overpaid was the 
product of a logical deductive process, we AFFIRM the remaining offsets.  
Reserves further contends that the damages award for misrepresentation was 
inadequate given that the trial judge failed to consider Bella Via’s agreement to 
contribute its pro rata share of development costs.  Because the damages award 
adequately reflects the post-trial stipulated amounts for those costs, the judgment 
of the Superior Court is AFFIRMED.    
FACTS AND PROCEDURAL HISTORY 
A. 
The Rise and Decline of a Contractual Relationship 
 
 
Sussex County approved Reserves’ application to develop a 185 home 
residential community.  Reserves and Crystal entered into a Purchase and Sale 
                                                 
1 Reserves Development LLC and The Reserves Development Corporation (collectively known 
as Reserves and solely owned by Abraham P. Korotki). 
3 
 
agreement for thirty unimproved residential lots located in Phase II of the 
development.  Pursuant to the Agreement, Crystal agreed to pay a pro rata share of 
the development costs.2  Reserves assumed sole responsibility for any costs not 
associated with the thirty lots.  
 
Before closing, Crystal assigned its rights and obligations under the 
Agreement to Bella Via.3  Bella Via secured a loan from Severn Savings Bank to 
cover the purchase price, closing costs, and development costs.4  The Purchase and 
Sale Agreement closed on October 6, 2004.  Following closing, Reserves 
unilaterally hired a project manager, Obrecht-Phoenix, Inc., and a site contractor, 
Fresh Cut.  To expedite matters, Reserves posted $2.5 million in cash to obtain a 
line of credit from Wilmington Trust Company to satisfy Sussex County’s 
construction bond requirement.   
 
After reviewing the construction expenses, Bella Via determined that 
Reserves had exclusive responsibility to pay certain costs.  Bella Via discussed that 
determination with Reserves and asked Reserves to set aside its exclusive costs in 
                                                 
2  Initially, Phase II consisted of sixty-seven lots; later, the project expanded to include seventy-
one lots.  Crystal Properties pro rata share was 30/71 or 42.25%. 
3  William Esham, William Buchanan, Jr., Eyal Elboim, and Yitzhak Rafaeli created Bella Via, 
LLC to acquire the thirty lots.   
4  Severn retained $1.45 million of the loan in a Construction Trust for Bella Via’s share of 
development costs.  For Reserves’ share, $1.5 million of the purchase price was escrowed at 
MBNA.   
4 
 
order to assure payment.  Reserves reiterated that it would pay its exclusive costs, 
stated its intention to continue billing Bella Via for its proportionate share of the 
nonexclusive costs, but refused to set aside a sum certain as its “exclusive costs.”  
Bella Via found this arrangement unacceptable and refused to contribute its share 
of development costs until they and Reserves reached a more acceptable 
arrangement.  Reserves continued to pay Fresh Cut and Obrecht for their services 
without any contribution from Bella Via. 
B. 
Reserves Files Suits in Superior Court and Court of Chancery 
In December 2005, Reserves filed an action for damages against Crystal and 
Bella Via in Superior Court alleging breach of contract and misrepresentation.  
Reserves contemporaneously sought equitable relief against Severn Savings Bank 
in the Court of Chancery.5  A Vice Chancellor found that Reserves had established 
its claims of unjust enrichment and equitable estoppel and directed Severn to 
disburse $316,941.87 to Reserves for Bella Via’s share of the infrastructure costs.   
In the Superior Court action, the trial judge adopted the Vice Chancellor’s 
previous Findings of Fact 1 through 20, to which the parties stipulated, and 
awarded Reserves $603,959.12.6  The trial judge used the $2,835,810.70 figure 
                                                 
5  Reserves Dev. LLC v. Severn Savs. Bank, FSB, 2007 A.2d 4054231 (Del. Ch. Nov. 09, 2007). 
6  Reserves Dev. LLC v. Crystal Props. LLC, 2009 WL 1514929 (Del. Super. May 18, 2009). 
5 
 
Reserves claimed it spent developing the community as a base figure and then 
made several adjustments:   
(i) $95,880 reduction for non-conforming pond, (ii) $750,000 reduction for 
the overvalue of lots used in the land-swap agreement, (iii) $103,000 
reduction for remedial work on roads, (iv) $128,311 reduction for failure to 
adequately prove damages associated with a mulch fire, (v) $310,0007 
reduction for failure to provide a central water source, and (vi) $5,461.37 
reduction for unapproved landscape and architectural services. 
 
With respect to Reserves’ misrepresentation claim, the trial judge found that 
the members of Bella Via did have the financial ability and capacity to develop the 
property and did not commit fraud.8  Reserves appealed the damages award and the 
misrepresentation determination.  We remanded the case for further findings of 
fact regarding Bella Via’s alleged misrepresentation.     
 
F. 
Superior Court Opinion on Remand 
 
On remand, the trial judge found that Bella Via had $1,450,000 available in 
a trust account for Bella Via’s share of the infrastructure costs; thus, Bella Via 
possessed ample funding to fulfill its obligations.9   
The trial judge found that two 
Bella Via members, Elboim and Esham, promised to contribute their share of costs 
but never intended to fulfill that promise.  Rather, they intended to gain leverage 
                                                 
7  After arriving at an adjusted figure of $1,453,157.70, the trial judge found Bella Via’s share to 
be $613,959.12 (42.25% of the total amount).  Then, the trial judge deducted an additional 
$10,000 for failure to provide a central water source on Lot 6, owned by Crystal. 
8 Reserves Dev. LLC v. Crystal Props. LLC, C.A. No. 05C-11-011 (Del. Super. Jan. 3, 2008). 
9 Reserves, 2009 WL 1514929, at *11.   
6 
 
over Reserves in the dispute over exclusive costs.10  Elboim and Esham also used 
those promises to induce Reserves to obtain letters of credit and pay the 
management fees.11  As a result, the trial judge rejected Reserves’ broad-based 
attack on all members of Bella Via, modified his earlier bench ruling, and entered a 
judgment in personam against Esham and Elboim, jointly and severally, for 
$152,434.54.12   
STANDARD OF REVIEW 
 
 
We review questions of fact for abuse of discretion, and accept a trial 
judge’s findings unless they are clearly wrong.13  We review questions of law de 
novo.  Issues A, C, and D below are questions of fact; issue B is a mixed question 
of fact and law; and issue E is a question of law. 
                                                 
10 Id. at *12.   
11 Id. 
12 Id. at *16.  The consequential damages award of $152,434.54 includes $71,466.83 for Bella 
Via’s share of the Wilmington Trust letters of credit and $80,967.71 for Bella Via’s share of the 
Obrecht management fees. 
13 Levitt v. Bouvier, 287 A.2d 671, 673 (Del. 1972). 
7 
 
 
DISCUSSION 
A. 
The Trial Judge’s Reduction of Damages for Breach of Contract 
 
 
 
In a breach of contract action, we determine plaintiff’s damages as if the 
parties had fully performed the contract.14 
 
 
i. 
Offset for Pond Liners 
The trial judge deducted $95,880 from the damages award because Reserves 
overpaid Fresh Cut for incomplete work on water retention ponds.  The 
overpayment resulted from Fresh Cut’s failure to line the ponds with clay as the 
contract between Fresh Cut and Reserves required.  Representatives from Obrecht 
confirmed that Fresh Cut had not lined the ponds correctly and that remedial work 
would cost $95,880.  Reserves disregarded Fresh Cut’s failure to perform correctly 
and paid Fresh Cut anyway.   
The record supports the trial judge’s orderly and logical determination that 
the ponds did not meet the contractual requirements and that Reserves overpaid for 
non-conforming work.  The trial judge appropriately deducted $95,880 from the 
damage award. 
                                                 
14 Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 146 (Del. 2009). 
8 
 
 
 
 
ii. 
Offset for Road Compaction Issues 
 
For similar reasons, the trial judge deducted $103,000 from the award for 
incomplete work on certain roads.  Obrecht’s unrebutted testimony demonstrates 
that (i) Fresh Cut failed to perform the necessary compaction test studies before 
installing stone on the roadways, (ii) the roads failed inspection, and (iii) it cost 
$103,000 to remedy the errors.  Despite these shortfalls, Reserves paid Fresh Cut 
as billed.  Given this evidence, the trial judge justifiably reduced the damage award 
by $103,000. 
 
 
iii. 
Offset for Land Transfer 
 
The trial judge deducted $750,000 from the damages award because of a 
three-party land contract gone awry.  Reserves transferred lots, arguably worth 
$1,500,000, to Christopher Glenn, and in return, Glenn agreed to assume Reserves’ 
payment obligations to Fresh Cut.  Glenn only paid Fresh Cut $750,000.  A 
Bankruptcy Court stipulation confirmed that the lots were worth $750,000 each – 
only $750,000 reached Fresh Cut.  Reserves admits that payment to Glenn did not 
constitute payment to Fresh Cut.  Accordingly, the trial judge justifiably reduced 
the damage award by $750,000. 
9 
 
 
iv. 
Offset for Failure to Provide a Central Water Source 
 
 
The trial judge reduced the damages award by $300,000, or $10,000 for each 
of Bella Via’s 30 lots, and offset an additional $10,000 for Crystal’s Lot 6.  The 
Agreement required Reserves to provide a central water source that each lot would 
tap for geothermal heating and cooling.  Remedial measures cost an additional 
$11,000 per lot.  While there is a difference between the actual amount reduced 
($10,000) and the testified cost for each lot ($11,000), the trial judge’s 
determination is not clearly erroneous, and is supported by the record. 
 
 
v.  
Offset for Cost of Landscaping and Street Lights 
 
The trial judge incorrectly reduced $5,461.37 from the damages award.  He 
reasoned that Reserves failed to show that Bella Via or Crystal agreed to pay for 
Landscape Architectural Services and EBL Engineers.  However, paragraph 3(c) of 
the Agreement clearly obligates the purchaser [Bella Via and Reserves] to “obtain 
and pay for the installation of . . . street lights, utilities . . . landscaping and other 
site improvements.”15   
EBL Engineers were responsible for the electrical plan, development, and 
upgrading electrical service for the 71 lots.  Landscape Architectural Services was 
responsible for the planning and installation of the streetlights and other 
                                                 
15 Pl. Tr. Ex. # 2. 
10 
 
infrastructure that the Agreement required.  All payments to EBL and Landscape 
Architectural Services were part of the Agreement.  The record does not support 
the trial judge’s finding that the parties did not agree to pay directly for EBL’s and 
Engineers and Landscape Architectural Services’ costs for those services. 
B. 
The Trial Judge’s Finding of Personal Liability 
 
 
A claim for misrepresentation requires: (1) a false representation of fact; (2) 
made either with knowledge or belief or reckless indifference to its falsity, (3) with 
an intent to induce the plaintiff to act or refrain from acting, (4) the plaintiff’s 
action or inaction resulting from a reasonable reliance on defendant’s 
representation, and (5) resulting damages from the reliance.16  Reasonable reliance 
is equivalent to justifiable reliance.17 
i. 
The Trial Judge’s Finding of an Unconditional Promise 
 
 
Bella Via argues that the trial judge based his misrepresentation findings on 
a single email sent by Esham.  Bella Via argues that by focusing on a single line in 
a single email, the trial judge failed to consider a chain of emails that reveal that 
Bella Via and its principals made no unequivocal promises. 
 
Bella Via misstates the trial judge’s opinion on remand.  The trial judge 
notes that Elboim spoke with Reserves and agreed that Bella Via would pay its 
                                                 
16 Browne v. Robb, 583 A.2d 949, 955 (Del. 1990). 
17 Hasse v. Grant, 2008 WL 372471 at *2 n.16 (Del. Ch. Feb. 7, 2008). 
11 
 
share, and Esham’s conduct, when he promised that Bella Via would pay its share 
and do so immediately.  While the trial judge focuses on the June 7th email, he 
hardly focuses on a single line.  Several lines in that email refute Bella Via’s 
argument that no promise was made.  For example,  
“We are prepared to perform in the same manner as [Reserves] in reference 
to the letter of credit with Wilmington Trust . . . Our monies will be wired to 
meet our obligations . . . .  We will pay our pro-rated share of the monies 
needed be deposited for the letter of credit; the letter of credit fee; the lender 
fees; the permit fees; construction management fees; any other pro-ratable 
fees. . . .  We are ready to perform now.”18   
 
Not only did Esham and Elboim promise to contribute their share of the costs 
associated with obtaining the letters of credit and management fees, but Esham 
also testified that he never intended to contribute Bella Via’s share of costs.19  
Ample evidence supports the trial judge’s determination that Esham and Elboim 
made a promise and never intended to fulfill that promise. 
 
 
ii. 
The Trial Judge’s Damages Award 
 
The trial judge modified his previous bench ruling by adding an in personam 
judgment against Elboim and Esham for $152,434.54.  That amount consists of 
                                                 
18 Pl. Tr. Ex. ## 10-11.  
19 Reserves Dev. LLC v. Crystal Properties, LLC, C.A. No. 05C-11-011, at 133:8-13 (Del. Super. 
Jan. 3, 2008) (TRANSCRIPT) 
THE COURT:  Am I getting out of that, if you had the wiring instructions, you would have 
wired the money?  THE WITNESS:  No sir.  Because that’s why I say if he’d let me tell the 
rest of the story.  I wouldn’t have. 
12 
 
$71,466.83 for Bella Via’s share of the costs associated with the Wilmington Trust 
letters of credit and $80,967.71 for Bella Via’s share of Obrecht’s management 
fees.  Reserves argues that the damages award is inadequate.  Particularly, 
Reserves argues that the damages award should have included 42.25% of the 
$2,216,233 that it paid in cash for the letters of credit, or $936,358. 
 
Reserves’ view ignores the parties’ post trial stipulation.  In the stipulation, 
the parties agreed that Reserves paid $191,639.54 in bonding costs and fees, and 
$80,967.71 of that constituted Bella Via’s share.  Reserves also fails to support its 
contention that Bella Via promised to pay $936,358, or nearly two-thirds of their 
entire construction trust, to obtain a bond – an action never taken.  The trial judge 
justifiably relied on the post trial stipulation to determine the actual damages. 
 
C. 
The Trial Judge’s Denial of Attorney’s Fees  
Delaware follows the American Rule that ordinarily requires litigants to pay 
their own attorney’s fees, regardless of the outcome of the lawsuit.20  Crystal 
argues that the trial judge illogically denied attorney’s fees because he had 
previously awarded attorney’s fees to the defendants.  While the rulings may 
appear inconsistent, the determination of an award of attorney’s fees is within the 
discretion of the trial judge.  The trial judge’s determination that attorney’s fees 
should not be awarded on remand was not an abuse of discretion. 
                                                 
20 Alaska Elec. Pension Fund v. Brown, 941 A.2d 1011, 1015 (Del. 2007). 
13 
 
D. 
Denial of Crystal’s Trespass Claim  
Crystal argues that the trial judge erroneously allowed Reserves to continue 
using a construction entrance across Lot 6 of Crystal’s lands.  Crystal further 
contends that it considered Reserves’ use of the construction entrance temporary, 
when Crystal purchased the land, and that Reserves’ continued use constitutes a 
trespass. 
Crystal’s arguments are unpersuasive.  First, Crystal knew that Reserves 
used Lot 6 as a construction entrance when they purchased Lot 6.  Second, 
Reserves’ predecessors recorded conveyances reflecting the right of way.  Third, 
the recorded conveyance included Lot 6 and a declaration of restrictions that 
referred to earlier easements and rights of way on the property.  The trial judge 
correctly stated that Crystal’s injury “was self inflicted by their knowledge and 
failure to pay the expenses to develop the project to eliminate the need for 
access,”21 and he properly denied Crystal’s trespass claims.   
E. 
Entry of Judgment Against Bella Via and Crystal 
 
 
An obligor may delegate his duty to another unless the delegation 
contravenes public policy or the terms of the promise.22  Unless the obligee agrees 
                                                 
21 Reserves Dev. LLC v. Crystal Properties, LLC, C.A. No. 05C-11-011, at 1 (Del. Super. Jan. 
28, 2008). 
22 RESTATEMENT (SECOND) OF CONTRACTS § 318(1). 
14 
 
otherwise, neither delegation of performance, nor a contract to assume the duty 
discharges any duty or liability of the delegator-obligor.23 
 
Crystal argues that the trial judge incorrectly entered judgment against it, in 
light of the assignment24 of its obligations under the Agreement to Bella Via.  It is 
undisputed that Crystal assigned all of its rights and obligations under the 
Agreement to Bella Via.  It is also undisputed that Reserves assented to the 
assignment as required by the Agreement.  However, there is no evidence, by 
assenting to the assignment, that Reserves intended to accept Bella Via as the sole 
source of liability under the contract.  As it stands, Crystal still remained liable 
under the Agreement and stood as surety for Bella Via’s performance. 
III.  CONCLUSION 
 
For the foregoing reasons, we REVERSE the $5,461.37 damage reduction 
and AFFIRM the balance of the Superior Court’s judgment. 
 
                                                 
23 Id. § 318(3).  An obligor is discharged by the substitution of a new obligor only if the contract 
so provides or if the obligee makes a binding manifestation of assent, forming a novation.  
Otherwise, the obligee retains his original right against the obligor, even though the obligor 
manifests an intention to substitute another obligor in his place and the other purports to assume 
the duty. Id § 318, comment (d). 
24 We note that one can assign rights and delegate duties; however, one cannot assign duties.  
The parties, however, use the term, assignment, for both the transfer of rights and duties under 
the Agreement.