Court Opinion

ID: 4184966
Source: CourtListenerOpinion
Date Created: 2017-07-10 20:06:46.819479+00
Date Added: 2024-06-11T09:21:41.358026
License: Public Domain

COURT OF CHANCERY
                                   OF THE
 SAM GLASSCOCK III           STATE OF DELAWARE                  COURT OF CHANCERY COURTHOUSE
  VICE CHANCELLOR                                                        34 THE CIRCLE
                                                                  GEORGETOWN, DELAWARE 19947

                           Date Submitted: May 26, 2017
                            Date Decided: July 10, 2017

 Dean A. Campbell, Esquire                      Paul Brown, Esquire
 Law Office of Dean A. Campbell LLC             Chipman Brown Cicero & Cole LLP
 20175 Office Circle                            1313 N. Market Street, Suite 5400
 Georgetown, DE 19947                           Wilmington, DE 19801

              Re:    Beach to Bay Real Estate Center LLC et al. v. Beach to Bay
                     Realtors Inc. et al., Civil Action No. 10007-VCG

Dear Counsel:

      In Yoknapatawpha County, Faulkner tells us, the “past is never dead. It’s not

even past.” It must be so in Sussex, if this case is any indication. This matter

involves a Sussex-centered real estate sales venture, ultimately unsuccessful and,

according to the Plaintiffs, giving rise to a dog’s breakfast of claims and accountings,

mostly concerning acts taking place during the time of the administration of the

second President Bush. The Defendants moved to dismiss three of the Counts.

Three years ago. The matter was fully briefed in 2014, and oral argument had been

scheduled. I continued the argument, at the parties’ request, because they were

“exploring” settlement.

      Outside the litigation, the world continued to turn. Births and deaths occurred,

heartaches were endured, aspirations were pursued, wars were fought. Inside the
litigation, in the micro-world of Beach to Bay v. Beach to Bay, time stood still. Apart

from rousing themselves to answer, in desultory fashion, occasional proddings from

this Court (themselves, I admit, less than energetic), the parties were content in a

world slowed to the pace of matter chilled to near-absolute zero. Eventually,

following a mandatory appearance of counsel at a call of the calendar, sufficient

thaw set in to revive consideration of this partial motion to dismiss. The parties

consented—that is, impliedly consented by failing to respond to a letter from the

Court—to consideration of the briefs without amendment or update, and sans oral

argument. Therefore, I have addressed the issues as fixed in the briefs from 2014

like flies in amber.

       For the reasons that follow, Count II, and what I have termed in this Letter

Opinion “Alias Count VI” of the Complaint, are dismissed. The Complaint, among

other idiosyncrasies, contains two Counts V; a part of one of those Counts is

dismissed as well.1 The other Counts remain to be litigated.2

                                          I. FACTS3

       This dispute arises from the winding-down of a limited liability company

formed as a real estate sales venture between two realtors. The Complaint in this

1
  See infra Section I.C.
2
  That is, “remain to be litigated” as an existential matter. These Counts, like the earth (or The
Dude) abide. It remains to be seen if the parties will be inspired to actually litigate them as
scheduled in November.
3
  The facts, except where otherwise noted, are drawn from the well-pled allegations of Plaintiffs’
Verified Complaint (the “Complaint” or “Compl.”) and exhibits or documents incorporated by

                                                2
matter is somewhat difficult to follow. Compounding the lack of clarity of the

allegations in the Complaint is the absence of written documents ordering the affairs

of the parties and entities. That is, there is no written operating agreement for the

LLC; instead, according to the Complaint, a series of promises and assurances,

mostly oral, were made that purport to govern the parties’ relationships. Also

problematic, the alleged promises and assurances, and Plaintiffs’ theory of the case,

appear to be in tension with the sole written document. The Plaintiffs seek two

primary recoveries: a truing-up of contributions and loans to the entity, and recovery

for conversion of assets and confidential information. In pursuit of these recoveries

the Plaintiffs offer variegated allegations and theories, some of which are the subject

of this Partial Motion to Dismiss.

       A. The Parties

       The Plaintiffs in this matter consist of two Delaware limited liability

companies, Beach to Bay Real Estate Center, LLC, (“Center”), AJ Realty, LLC

(“AJ”), and an individual associated with each entity, Anthony Kulp.4 AJ is the

managing member of Center, and holds a majority interest in Center.5 Kulp “is the

reference therein, which are presumed true for purposes of evaluating the Defendants’ Partial
Motion to Dismiss.
4
  Compl. ¶¶ 1–3.
5
  Id. at ¶ 2.

                                             3
agent for AJ acting as managing member of” Center, and has been a Delaware

licensed real estate broker and agent at all times relevant to this action.6

        There are several Defendants in this action. Defendant Beach to Bay Realtors,

Inc. (“Realtors”) is a Delaware Corporation owned by Defendant Andy Staton.7

Defendant Realtors is a minority member of Plaintiff Center.8 The Complaint

indicates that Staton was also a member of Plaintiff Center.9 Staton is a Delaware

licensed real estate agent who heads “The Andy Staton Team.”10 Defendant G.R.

Peter Karsner was a member of Defendant Realtors through “at least” 2009.11

        Staton and his team of realtors are currently affiliated with Defendant

Prudential Gallo Realtors of Rehoboth (“Prudential Gallo”).12 Defendants Rick

Allamong and John Marino are both realtors who are associates with “The Andy

Staton Team.”13

6
  Id. at ¶¶ 3, 13.
7
  Id. at ¶¶ 5–6.
8
  Id. at ¶ 5.
9
  Id. at ¶ 6.
10
   Id. at ¶ 14.
11
   Id. at ¶¶ 7, 17.
12
   See id. at ¶¶ 8–10, 14, 24.
13
   Id. at ¶¶ 9–10.

                                           4
        B. Center’s Development

                  1. Beach to Bay Real Estate Center’s Origins

        In April 2005 Staton, Kulp and a third party formed “The Beach to Bay

Team.”14 The Beach to Bay Team was “a real estate entity created for the purpose

of marketing and selling real estate” in southern Delaware.15 Eventually, in February

2006 “Kulp, by and through AJ, and Staton, by and through [Realtors], merged the

Beach to Bay Team into [Center].”16 At this time, AJ was a member of Center

holding a 51% interest and Realtors was a member of Center holding a 49%

interest.17 The Complaint is silent as to whether this was the time when Center was

officially formed as a LLC. Apparently, there was no operating agreement for

Center drafted at this time, or any subsequent time.

        The Complaint alleges that between February 2006 and October 2006,

“AJ/Kulp continued to make capital contributions” to Center but that

“Realtors/Staton ceased making capital contributions.”18 To address the different

capital contributions, on October 24, 2006 “Kulp and . . . Realtors/Staton executed

an agreement whereby it was agreed that . . . Realtor’s [sic] /Staton’s interest would

be reduced to twenty-two percent (22%) and which further authorized Kulp to

14
   Id. at ¶ 15.
15
   Id.
16
   Id. at ¶ 16.
17
   Id.
18
   Id. at ¶ 18.

                                             5
continue making capital contributions in exchange for a further reduction of . . .

Realtor’s [sic] /Staton’s interest.”19 The October 24, 2006 agreement (the “2006

Agreement”), attached as an exhibit to the Complaint, is the only written document

before the Court memorializing the parties’ relationship.20

       Beyond permitting dilution for unequal capital contributions, the 2006

Agreement provides further content and context not clearly explained in, or omitted

from, the Complaint. The recitals to the agreement indicate that Kulp and Realtors/

Staton “verbally agreed to enter into the real estate business together” and formed

Center on June 1, 2005 “based on” such oral agreement.21 Via the verbal agreement

Staton and Kulp “anticipated and agreed that each party would contribute

approximately fifty percent” of the capital needed to run Center.22 Further, the

recitals to the 2006 Agreement make clear that “no written operating agreement for

[Center] h[ad] been drafted or signed by the parties.”23 The 2006 Agreement adds

that for the 2005 tax year Kulp benefited from 51% of Center’s losses whereas Staton

claimed 49%.24 The recitals further add that Staton has not contributed capital in

19
   Id. at ¶ 19.
20
   Id. at Ex. A. But see Defs’ Opening Br. Ex. A. The Defendants’ attached to their opening brief
a so-called “Commission Agreement” between Staton, Kulp, and a third-party executed on August
19, 2004. Id. It is not clear at this stage what role, if any, such agreement plays in this matter.
21
   Compl. Ex. A at 1.
22
   See id.
23
   See id.
24
   See id.

                                                6
proportion to his percentage interest but instead contributed only 22% of Center’s

needed capital despite getting the tax benefit of 49% of Center’s losses.25

        Due to the unequal contributions of capital the operative portion of the 2006

Agreement provides that Staton would assign 27% of his 49% interest to Kulp.26

Further, the operative portion of the Agreement permits Kulp “in his sole and

absolute discretion” to make future capital contributions to Center and that when

such contributions are made Staton is to be notified in writing of the contribution

and given ninety days from the notification to pay the portion of the contribution

that corresponds to his ownership interest in Center.27 If Staton failed to contribute

the required amount within the required timeframe, his ownership interest in Center

“shall automatically . . . be reduced to a percentage equivalent” of Staton’s capital

contributions to Center relative to Kulp’s.28 The operative provisions further add

that Kulp “may, at any time and [his] sole option, either contribute capital to

[Center], or loan funds at a commercially reasonable rate of interest to [Center] . . .

.”29 The 2006 Agreement was executed by Kulp individually, and by Staton

individually and on behalf of Realtors as its sole shareholder and President.30

25
   See id.
26
   See id. at 2.
27
   See id.
28
   See id.
29
   See id.
30
   See id. at 3.

                                          7
               2. Events Following Center’s Formation and the 2006 Agreement

       Between February 2005 and March 6, 2008 “Realtors/Staton” made

contributions to Center totaling $110,600.31 During a similar period ending February

25, 2008, “AJ/Kulp” contributed $399,300.32 From May 27, 2008 to April 16, 2015

“AJ/Kulp made contributions or loans to [Center] in the amount of $379,770.05.”33

       In 2009 Staton affiliated himself as an agent with Prudential Gallo forming

the Andy Staton Team which consisted of himself, Allamong, and Marino. Prior to

July 17, 2013, “Realtors/Staton” never attempted to terminate the relationship with

Center.34 Also prior to July 17, 2013 “Staton had access to [Center’s] client

information, asset information, and other confidential information.”35

       The Complaint asserts that there was an agreement, apparently orally, among

the members of Center “that all loans to [Center] would be accounted for and paid

upon closing of the business of [Center], in proportion to each member’s interest.”36

The Complaint further alleges that between 2009 and July 2013 Realtors/Staton

“made payments on third-party loans” made to Center “in recognition and

conformity with” the alleged oral agreement regarding loans.37 The Complaint,

31
   Compl. ¶ 20.
32
   Id. at ¶ 21.
33
   Id. at ¶ 22 (emphasis added).
34
   Id. at ¶ 23.
35
   Id. at ¶ 29.
36
   Id. at ¶ 25.
37
   Id. at ¶ 26.

                                         8
however, is silent as to what particular loans were paid, and whether Realtors/Staton

were paying such loans in full in their individual capacity, or in accordance with

their current percentage interest in Center.

               3. The Winding Down of Center

       In early 2013 “Kulp, as managing member of [Center], commenced the

winding down of [Center].”38 During the winding down process Kulp informed

Staton that Staton owed Kulp “approximately $105,744 in contributions and loans

which were made by Kulp” during the period when Staton did not make

contributions.39 In an allegation contrary to the mechanism for automatic dilution

provided by the sole written governing document, the 2006 Agreement, the

Complaint alleges that up until July 17, 2013 Staton “represented to Kulp that the

inequitable balance of contributions and loans by members would be settled when

the business of [Center] ceased.”40

       Staton notified Kulp that neither he nor Realtors would pay the amount

demanded on July 17, 2013.41 Following the refusal to pay, the Plaintiffs began to

investigate Staton’s conduct while he was a member of Center.42 The Complaint

alleges the investigation revealed that Staton used Center resources in 2009 to fund

38
   Id. at ¶ 27.
39
   Id.
40
   Id. at ¶ 28 (emphasis added).
41
   Id. at ¶ 30.
42
   See id. at ¶ 31.

                                          9
advertising for himself while he was associated with Prudential Gallo and that Staton

“copied and removed client lists from [Center]” which he used to “foster

relationships” to benefit Prudential Gallo, Allamong, and Marino.43 Further, the

investigation allegedly revealed that Staton “copied and removed e-mail lists from

[Center]” and used the lists to “communicate with clients, vendors and associates to

the benefit of himself, Prudential Gallo, Allamong and Marino.”44

       C. Procedural History

       This matter has not proceeded with alacrity. The Plaintiffs filed the Complaint

on August 5, 2014.45 The Defendants filed an answer and counterclaim, along with

the presently pending Partial Motion to Dismiss on September 8, 2014.46 The parties

briefed the Partial Motion to Dismiss, with the Defendants submitting a reply brief

on December 5, 2014.47 Oral argument on the pending Motion was scheduled for

February 24, 2015.48 However, that argument was removed at the request of the

parties and this matter was stayed to facilitate settlement discussions.49 Those

settlement discussions, it appears, proved unsuccessful.            The matter was

substantively inactive as a series of extensions to the stay were requested and

43
   See id.
44
   See id.
45
   Dkt. No. 1.
46
   Dkt. Nos. 7, 8. The Plaintiffs have answered the counterclaim.
47
   See Dkt. No. 21.
48
   See Dkt. No. 22.
49
   Dkt. No. 23.

                                               10
granted. Ultimately, I wrote the parties on June 20, 2016 asking why the matter

should not be dismissed due to inactivity.50                 This prompted unfortunate and

accusatory finger-pointing from each side regarding the source of the delay.51

        Eventually this case was included in a call of the calendar held on February

27, 2017. By letter following that hearing the parties indicated that there were no

other outstanding issues that required briefing, other than the Partial Motion to

Dismiss. Because the briefing in this matter was completed in December 2014, I

offered the parties the opportunity to supplement their submissions, however, the

parties did not respond to this offer. Similarly, I offered the parties the opportunity

to present oral argument on the outstanding motion. No response was received by

the Court-imposed deadline so I again wrote the parties on May 26, 2017 informing

them I considered the matter submitted, without argument or supplement, as of that

date.

50
   Dkt. No. 34.
51
   Compare Dkt. No. 35 with Dkt. No. 36. See Dkt. No. 35 at 3 (indicating in a letter from
Plaintiffs’ counsel that “[t]his attorney . . . wrongly assumed that Defendant would take the point
in preparing a scheduling order . . . . Accordingly, nothing was placed on my calendar regarding
same.”); Dkt. No. 36 at 5 (stating in a letter from Defendants’ counsel that they believed the
Plaintiffs would prepare a schedule to move their matter forward, that there was no basis to assume
Defendants’ would “take the point in preparing a scheduling order,” and that “Plaintiffs should be
able to manage this litigation without assistance from opposing counsel.”); see also Dkt. No 36. at
6 (“If Defendants’ counsel is guilty of anything, it is not a lack of professionalism—perhaps they
are guilty of too much optimism in believing that the massive delays in prosecution were
attributable to a good faith interest in settlement, as opposed to seriatim delays to avoid substantive
work while keeping the threat of litigation hanging over Defendants’ heads.”).

                                                 11
      The Complaint pleads Six Counts. To avoid confusion on the part of the

parties and other readers of this Letter Opinion, and to ameliorate confusion on my

part, it is useful to note as follows: The Counts in the Complaint contain several

idiosyncrasies in numbering. There are two Counts titled Count V. Oddly, in my

experience, there is a Count titled Count IV that follows the two Counts titled Count

V. In an attempt to avoid confusion, I will refer to the first Count V as “Alias Count

IV,” the second Count V as “Alias Count V,” and the Count following both Counts

labeled V as “Alias Count VI.” Also unusual, in my experience, is that several of

the paragraph numbers are repeated in the Complaint. For example, there are two

paragraphs fifty-nine, and two paragraphs sixty, located on different pages of the

Complaint, containing different factual allegations. This problem occurs for several

other paragraph numbers. This adds a certain frisson of excitement to the jurist to

whom Counts and paragraphs are referred in briefing, but like all good things comes

at a price; here, clarity. I can think of no simple way to clarify the paragraph

numbering in my citations, so the reader will be left to guess, as the Court was in

briefing, to which of the repetitively numbered paragraphs I refer.

      The Defendants’ Motion seeks dismissal of three of the Counts: Count II

asserting a breach of fiduciary duty claim, Alias Count V asserting a “breach of

implied contract/estoppel” claim and, Alias Count VI asserting a constructive trust

                                         12
claim.52 The Defendants have not moved to dismiss Counts I, III and Alias Count

IV which assert claims regarding conversion of trade secrets, piercing the corporate

veil, and conversion, misappropriation, and restitution of Center’s funds,

respectively.

                                       II. ANALYSIS

       The standard of review for a motion to dismiss pursuant to a Court of

Chancery Rule 12(b)(6) motion is well settled:

       (i) all well-pleaded factual allegations are accepted as true; (ii) even
       vague allegations are well-pleaded if they give the opposing party
       notice of the claim; (iii) the Court must draw all reasonable inferences
       in favor of the nonmoving party; and (iv) dismissal is inappropriate
       unless the plaintiff would not be entitled to recover under any
       reasonably conceivable set of circumstances susceptible of proof.53

Despite the lenient pleading standard, the Court “is not, however, required to accept

as true conclusory allegations ‘without specific supporting factual allegations.’”54

Further, “a trial court is required to accept only those ‘reasonable inferences that

logically flow from the face of the complaint’ and ‘is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.’” 55 For the

reasons discussed below, Defendants’ Motion is granted in part.

52
   Dkt. No. 8.
53
   Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotations
omitted).
54
   In re Gen. Motors (Hughes) S'holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting In re Santa
Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 65–66 (Del. 1995)).
55
   Id. (quoting Malpiede v. Townson, 780 A.2d 1075, 1083 (Del.2001)).

                                               13
       A. The Breach of Fiduciary Duty Count

       To recover for a breach of fiduciary duty, a plaintiff must prove two basic

elements: that the defendant owed a fiduciary duty and that the defendant breached

the duty owed.56 Thus, to survive a motion to dismiss, this Complaint must

sufficiently plead the existence of a fiduciary duty, and a breach of such a duty. Set

out in full below are the four paragraphs of the breach of fiduciary duty Count of the

Complaint:

        “Plaintiffs repeat and incorporate the foregoing paragraphs.”57

        “As a member of [Center], [Realtors]/Staton owed a fiduciary duty of

           loyalty to [Center].”58

        “[Realtors]/Staton engaged in a course of self-dealing using [Center] assets

           for financial gain of Staton, Prudential Gallo, Allamong and Marino.”59

        “As a result of the breach of fiduciary duty, [Center] has been damaged.”60

       The Defendants seek dismissal of this Count arguing that the Complaint fails

to adequately allege the existence of a fiduciary duty. The Defendants observe that

the Plaintiffs have failed to locate a single case holding that minority members of a

56
   See, e.g., ZRii, LLC v. Wellness Acquisition Grp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept.
21, 2009).
57
   Compl. ¶ 42.
58
   Id. at ¶ 43 (emphasis added).
59
   Id. at ¶ 44.
60
   Id. at ¶ 45.

                                               14
Delaware LLC owe fiduciary duties by default.61 Delaware LLCs are known for

their contractual flexibility; however, our Courts have interpreted the Delaware LLC

Act to imply default fiduciary duties to managers of a LLC unless such duties are

clearly disclaimed.62 The Plaintiffs concede, as they must, that Kulp exclusively

manages and controls Center and that it is well settled that only managing members

or controllers owe fiduciary duties by default in LLCs.63 On the face of the

Complaint, minority membership is the sole allegation that purports to create the

fiduciary duty.64 That is insufficient as a matter of law. Thus the pleading that

Realtors or Staton owed fiduciary duties to Center falls short.

       In briefing, the Plaintiffs attempt to change tack, accusing the Defendants of

error for focusing on “default duties” in their opening brief.65 This focus by the

Defendants, however, was warranted given that the pleading of the duty owed only

refers to membership.66 The Plaintiffs advance in briefing that the duty owed here

instead arises from access to confidential information, an allegation absent from their

61
   Defs’ Reply Br. 4.
62
   See, e.g., Kelly v. Blum, 2010 WL 629850, at *10 (Del. Ch. Feb. 24, 2010); see also Feeley v.
NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012) (“the Delaware Limited Liability Company
Act . . . contemplates that equitable fiduciary duties will apply by default to a manager or managing
member of a Delaware LLC.”); H.B. 126, 147th Gen. Assemb. (Del. 2013).
63
   See Pls’ Answering Br. 9.
64
   See Compl. ¶ 43.
65
   See Pls’ Answering Br. 9–11.
66
   Compl. ¶ 43. (“As a member of [Center], [Realtors]/Staton owed a fiduciary duty of loyalty to
[Center].”).

                                                15
Complaint.67 Having responded in 2014 to the Partial Motion to Dismiss, rather than

seeking to amend in response, the Plaintiffs are limited to the allegations of the

Complaint here.

        In any event, even a complaint encompassing the Plaintiffs allegations made

in briefing would be insufficient to avoid dismissal. Courts in our State recognize

that “[a] fiduciary relationship is a situation where one person reposes special trust

in and reliance on the judgment of another or where a special duty exists on the part

of one person to protect the interest of another.”68 Conclusory statements that

someone or something is “a fiduciary” in a complaint will not suffice—instead there

must be an allegation of an agreement supplying such a duty or a special relationship

creating such a duty. Such allegations, to make it reasonably conceivable that a duty

is owed, are absent from this Complaint.69 While the Defendants may have acted

wrongfully in allegedly converting the secrets of Center, an allegation for which the

Plaintiffs seek relief at law,70 that does not create a fiduciary relationship; in fact, in

my experience, thieves and their victims rarely consider their relationship equitable

on account of that status alone. Rather, there must be some repose of special trust

67
   See Pls’ Answering Br. 10–11.
68
   Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012) (citations omitted).
69
   I note, in their answering brief, the Plaintiffs point to Count I as supplying the factual allegations
creating the fiduciary duty—there is no citation to Count II, the breach of fiduciary duty count.
See Pls’ Answering Br. 12–13 (citing Compl. ¶¶ 34, 37, 39). Count I and the portions referenced
in briefing plead a Count seeking statutory relief for conversion of trade secrets.
70
   See Compl. Count I.

                                                  16
in the Defendants or reliance on the Defendants, not alleged here. It is conceivable

that in certain circumstances a minority member of an LLC, with access to

confidential information, could stand in a fiduciary relationship to the entity or other

members. Non-conclusory allegations in support of a relationship creating such a

duty are lacking on the face of the Complaint here, however.71 Defendants’ Motion

is granted with respect to Count II.72

       B. The Breach of an Implied Contract/Estoppel Claim

       The Defendants have moved to dismiss Alias Count V of the Complaint. Alias

Count V alleges that there was an “understanding that each member would be

responsible for its/his share of the contributions to the business in amounts equal to

its/his share of interest in [Center].”73 It seeks relief on two independent grounds,

implied contract and promissory estoppel. Candidly, I am confused by the pleading

and argument surrounding this Count of the Complaint. The Complaint is unclear

as to the theory underlying the Count, and, frankly, the Count itself references almost

nothing in the way of factual support for the claims asserted;74 as for the parties’

71
   In fact, there are no such allegations, conclusory or otherwise, in Count II, the Count alleging a
breach of fiduciary duty. See id. at ¶¶ 42–45.
72
   Although this result is compelled by the allegations of the Complaint, I note to the extent
Plaintiffs’ grievances are about removal of cash or secrets from Center, Counts addressing those
issues remain.
73
   Id. at ¶ 55 (emphasis added).
74
   See id. at ¶¶ 54–54. I note this citation is misleading. Alias Count V actually contains six
separate paragraphs. Both the first and last paragraph of Alias Count V are labeled fifty-four,
however.

                                                17
briefing, it reprises Arnolds darkling plain where ignorant armies clash by night. I

begin with a discussion of the implied contract theory of recovery.

         The Defendants argue that the allegations of Alias Count V are at odds with

the 2006 Agreement which, to their minds, provides a mechanism for automatic

dilution in the event of capital calls, and permitted discretionary loans by Kulp with

no reciprocal obligation by the Defendants with regards to loans. According to the

Defendants, this implied contract claim is preempted by the express contract

providing for automatic dilution in the event of failed capital calls, and silence as to

the allocation of liability for loans. Since the agreement is silent as to loans, the

Defendants argue the LLC Act defaults control—that members are not personally

liable for the debts of the LLC. The Defendants further point out that the Plaintiffs

again pad their answering brief to bolster the cursory and missing allegations of the

Complaint.

         The Plaintiffs argue in briefing that the Defendants wrongly focus on the

single written contract—the 2006 Agreement—when the focus instead should be on

the alleged oral operating agreement.75 Under the Plaintiffs’ theory of the case, as I

understand it, there is an oral operating agreement, along with alleged oral promises

and/or understandings regarding responsibility for loans and capital contributions.76

75
     See Pls’ Answering Br. 14–15.
76
     See Compl. ¶¶ 25, 28, Ex. A.

                                          18
All of these agreements represent an express contract or contracts, although

curiously, no count for breach of contract is stated. A contract may be implied under

our law where no express contract exists, but the circumstances demonstrate the

intent of the parties to be bound nonetheless. 77 Such a pleading is absent from the

Complaint. Indeed, the Plaintiffs recognize there is no recovery or cause of action

for an implied contract where express agreements exist covering the subject matter.78

They then argue an express oral contract: “[a]ccording to the operating agreement

as plead by Plaintiff [sic], repayment was to occur when [Center] ceased doing

business.”79 Simply, the Complaint alleges the existence of an express agreement,

and there is a complete absence of facts pled in the Complaint to make an implied

contract claim reasonably conceivable.

       I turn to an analysis of the promissory estoppel allegation of Alias Count V.

As this Court has explained “[u]nder the doctrine of promissory estoppel, a plaintiff

must show by clear and convincing evidence that: (i) a promise was made; (ii) it was

the reasonable expectation of the promisor to induce action or forbearance on the

77
   See, e.g., Creditors' Comm. of Essex Builders, Inc. v. Farmers Bank, 251 A.2d 546, 548 (Del.
1969) (“A contract will be implied in fact only when the Court may fairly infer such an intent from
the evidence; it represents the presumed intention of the parties as indicated by their conduct.”)
(citation omitted).
78
   See Pls’ Answering Br. 15.
79
   Id. at 15–16 (citing Compl. ¶¶ 25, 28 for the proposition that the alleged repayments were pled
in the Complaint “as a part of the operating agreement of the parties”). Paragraph 25 of the
Complaint pleads an affirmative agreement that loans would be paid upon a wind-down according
to members’ proportional interest. See Compl. ¶ 25; see also id. at ¶ 28; id. at Ex. A at 1.

                                                19
part of the promisee; (iii) the promisee reasonably relied on the promise and took

action to his detriment; and (iv) such promise is binding because injustice can be

avoided only by enforcement of the promise.”80 Further the “the alleged promise

must be a real promise, not just mere expressions of expectation, opinion, or

assumption, and reasonably definite and certain.”81 Thus at the motion to dismiss

stage, a plaintiff must plead facts making it reasonably conceivable that they could

establish each required element upon a developed record.

       Here, the Defendants are correct that Alias Count V is a deficient pleading.

However, reading the Complaint as a whole, and such that all reasonable inferences

go in favor of the Plaintiffs, I find a promissory estoppel claim adequately alleged.

The Complaint alleges that Staton promised to repay any loans made by Kulp to

Center, upon dissolution of the LLC. This reasonably implies that the promise was

made to encourage such loans. In reliance, Kulp made additional loans, which are

not now recoverable from the LLC.82 He seeks recovery from Staton. This is

sufficient to state a claim for promissory estoppel, and Defendants’ Motion to

Dismiss Alias Count V is denied with respect to that theory.

80
   Black Horse Capital, LP v. Xstelos Holdings, Inc., 2014 WL 5025926, at *21 (Del. Ch. Sept.
30, 2014) (internal quotations omitted).
81
   Id. (internal quotations omitted).
82
   I note that reliance is actually plead in Alias Count VI, rather than in Alias Count V. See Compl.
¶ 58.

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       C. The Constructive Trust Claim

       Through Alias Count VI of the Complaint the Plaintiffs seek a constructive

trust. A constructive trust is a remedial measure and is targeted at redressing a

wrong.83 A constructive trust will be imposed “[w]hen one party, by virtue of

fraudulent, unfair or unconscionable conduct, is enriched at the expense of another

to whom he or she owes some duty . . . .”84 To impose a constructive trust, “[s]ome

fraudulent or unfair and unconscionable conduct is essential.”85 Additionally, a

constructive trust is only an available remedy in specific situations. That is, the trust

will only be imposed over specific property, identifiable proceeds of specific

property, and money if it resides in an identifiable fund “to which plaintiff claims

equitable ownership.”86 In the Complaint the Plaintiffs seek the remedy of a

constructive trust over money in the amount of $105,744 arising from Staton’s

failure to make capital contributions and repay loans.87 However, in their answering

brief the Plaintiffs make no mention of that claim and instead solely pursue a

constructive trust theory regarding sale commissions from the alleged improper use

of client lists.88 I therefore consider the particular constructive trust theory, as pled,

waived. To the extent the Plaintiffs seek to pursue a constructive trust theory over

83
   See Hogg v. Walker, 622 A.2d 648, 652 (Del. 1993).
84
   Id. (citations omitted) (emphasis added).
85
   Id. (citation omitted).
86
   Id. (citation omitted).
87
   Compl. ¶ 60.
88
   Pls’ Answering Br. 20.

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commissions on sales generated by the allegedly purloined client list, such a claim

is (1) untenable as a matter of trust theory and (2) subsumed within a claim at law—

the trade secrets claim not subject to this Motion to Dismiss—and thus unavailable

in equity. Accordingly, Alias Count VI is dismissed.

                                  III. CONCLUSION

       For the foregoing reasons the Partial Motion to Dismiss is granted in part and

denied in part. To the extent the foregoing requires an Order to take effect, IT IS

SO ORDERED.          To the extent an Order is appropriate to dismiss individual

Defendants from this action based on this Letter Opinion, the parties should supply

a form of order. The Plaintiffs should move within two weeks to amend the

Complaint to remove the numbering errors that would make intelligible discussion

of the issues in a post-trial decision difficult.

                                                    Sincerely,

                                                    /s/ Sam Glasscock III

                                                    Sam Glasscock III

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