Court Opinion

ID: 4553159
Source: CourtListenerOpinion
Date Created: 2020-08-04 20:02:51.465105+00
Date Added: 2024-06-11T13:07:05.321349
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ANTHONY NIEVES, KRISTIN                    )
CUIFFO, DENNIS HUTH, PENNY                 )
HUTH, ANTHONY RAIA, PATRICIA               )
LAVOOK, MARTIN MURDOCH and                 )
PAULA MURDOCH,                             )
                                           )
                   Plaintiffs,             )
                                           )
       v.                                  ) C.A. No. 2019-0464-SG
                                           )
INSIGHT BUILDING CO., LLC, DBA             )
INSIGHT HOMES, 36 BUILDERS,                )
INC. DBA INSIGHT HOMES, INC.,              )
INSIGHT HOMES, INC., HANDLER               )
CORPORATION DBA HANDLER                    )
HOMES, SEVEN BRANCH, LLC,                  )
CANNON ROAD INVESTMENTS,                   )
LLC and INDIAN MISSION                     )
INVESTMENTS, LLC,                          )
                                           )
                   Defendants.             )

                         MEMORANDUM OPINION

                         Date Submitted: May 19, 2020
                         Date Decided: August 4, 2020

Julia B. Klein, of KLEIN, LLC, Wilmington, Delaware, Attorney for Plaintiffs.

Curtis J. Crowther and William E. Gamgort, of YOUNG CONAWAY STARGATT
& TAYLOR, LLP, Wilmington, Delaware, Attorneys for Defendants Handler
Corporation dba Handler Homes, Seven Branch, LLC, Cannon Road Investments,
LLC and Indian Mission Investments, LLC.

Nicholas G. Kondraschow and William J. Rhodunda, Jr., of RHODUNDA,
WILLIAMS & KONDRASCHOW, Wilmington, Delaware, Attorneys for Insight
Building Co., LLC dba Insight Homes, 36 Builders, Inc. dba Insight Homes, Inc.,
and Insight Homes, Inc.

GLASSCOCK, Vice Chancellor
         Indian Mission Church was founded in 1881 by and to serve the Nanticoke

Indian people of Sussex County. 1 As is typical in Sussex County, the church has

lent its name to the crossroads at which the church building was constructed, and the

surrounding area, as well.

         Sussex County itself is a poorly-drained plain, with many wetlands, areas of

saturated soils and pocosins.2 It is kept farmable and habitable, in part, by a network

of tax ditches and private drainage ditches that carry water, ultimately, to nearby

tidal creeks. The Indian Mission area of the County is no different. It lies in the

drainage basin of the Hopkins Prong of Herring Creek, a tributary of Rehoboth Bay.

Because of its low elevation and flat topography, the area draining to Herring Creek

is prone to drainage problems. This case highlights one such; it is not the first over

which I have presided. 3

         The drainage qualities of the Indian Mission area were of little moment prior

to the last thirty years. Since then, however, the proximity of the locale to the area

beaches have made it, while still rural in character, attractive to residential

1
  See The Nanticoke Indian Tribe, Indian Mission                  United   Methodist    Church,
www.nanticokeindians.org/page/indian-mission-church.
2
 The “Delmarva (or Carolina) ‘Bays.’” See Robinson v. Oakwood Vill., LLC, 2017 WL 1548549,
at *1 (Del. Ch. Apr. 28, 2017). Pocosin itself is a Delaware Indian word meaning “upland swamp.”
Pocosin, Merriam-Webster’s Online Dictionary, https://www.merriam-webster.com/dictionary/
pocosin (“an upland swamp of the coastal plain of the southeastern U.S.”).
3
    See Robinson, 2017 WL 1548549.
development. Any such development must consider storm run-off, 4 and comply

with Delaware stormwater management law 5 and County drainage regulations.6

          Perhaps one-half a mile south of Indian Mission crossroads lies a creek,

Philips Branch, on the south side of which is a new large housing development called

by its creators Stonewater Creek. This development is in the process of being

completed. The Plaintiffs here are homeowners and residents of Stonewater Creek.

Defendant Indian Mission Investments, LLC developed the property and Defendant

Insight Homes, Inc. constructed the homes. 7 The Plaintiffs allege that the defective

drainage system for Stonewater Creek, the improper construction and grading of

their home sites, or a combination of the two, has led to numerous problems, for

which they seek relief here.

          The complaint describes those problems in colorful fashion. Generations of

young congregants at the Indian Mission Church have no doubt learned about the

seven plagues described in the biblical book of Exodus; if the complaint is true,

conditions in Stonewater Creek rival those inflicted on those ancient Egyptians. The

complaint8 describes homes that are unlivable because infested with molds and

4
    See generally id.
5
    Notably, the Delaware Stormwater Management Act, 7 Del. C. § 4001 et. seq.
6
    See Sussex Cty. C. §§ 90-1 through 90-5.
7
    There are other entity Defendants, as described below.
8
 While I accept the allegations of the complaint as true for purposes of this pleadings-stage motion,
they remain only that, allegations.

                                                  2
allergy-causing pests. Homes have been “covered by frogs,” and those frogs have

not been idle, because homesites are afflicted with schools of “frolic[some]”

tadpoles.       Swarms of mosquitos “transmit[]” “disease,” and apparently attract

“armies of spiders.”9

          The Plaintiffs seek an injunction forcing Indian Mission Investments, LLC

and Insight Homes, Inc. to comply with the Delaware Stormwater Management Act

to remedy these problems. They also seek damages under theories of negligence

and breach of fiduciary duty, as well as breach of contract and warranty, and fraud.

          The Defendants have moved to dismiss the equitable claims. 10                    This

Memorandum Opinion sets out my decision on those motions, below.

                                       I. BACKGROUND 11

          A. The Parties

          Plaintiffs Anthony Nieves, Kristin Cuiffo, Dennis Huth, Penny Huth, Anthony

Raia, Patricia Lavook, Martin Murdoch, and Paula Murdoch are residents of the

Stonewater Creek development (“Stonewater Creek”) in Sussex County. 12

9
    Thus far, there are no reports of the stormwater run-off turning to blood.
10
     Insight Homes, Inc. has also moved to dismiss the Plaintiffs’ claim for fraud.
11
   I draw all facts from the Plaintiffs’ First Amended Complaint, Docket Item (“D.I.”) 30 (“Am.
Compl.”) and documents incorporated therein. See in re Morton’s Rest. Grp., Inc. S’holder Litig.,
74 A.3d 656, 658–59 (Del. Ch. 2013) (permitting consideration of documents incorporated into
complaint in motion to dismiss). As discussed further below, all well-pled facts are considered
true for the sake of this motion.
12
     Am. Compl., ¶¶ 1–8.

                                                   3
          Defendant Insight Building Co., LLC dba Insight Homes is a Delaware

limited liability company. 13 36 Builders, Inc. dba Insight Homes, Inc. is a Delaware

corporation.14 Insight Homes, Inc. is a Delaware corporation. 15 I refer to Insight

Building Co., LLC, 36 Builders, Inc., and Insight Homes, Inc. collectively as

“Insight.”

          Defendant Handler Corporation dba Handler Homes (“Handler”) is a

Delaware corporation. 16

          Defendant Indian Mission Investments, LLC (“Indian Mission”), is a

Delaware limited liability company. 17

          Non-parties Seven Branch, LLC (“Seven Branch”) and Cannon Road

Investments, LLC (“Cannon Road”), are Delaware limited liability companies that

were formerly defendants but were voluntarily dismissed from this Action.18

13
     Id. ¶ 9.
14
     Id. ¶ 10.
15
     Id. ¶ 11.
16
     Id. ¶ 12.
17
     Id. ¶ 15.
18
     Id. ¶¶ 13–14; D.I. 63.

                                         4
           According to the First Amended Complaint (the “Amended Complaint”),

Indian Mission conveyed the lots to Insight; Insight then built the houses and sold

the lots to the Plaintiffs. 19

           B. Factual Background

                  1. The Stonewater Creek Development and Handler’s Relationship to
                  Indian Mission

           Indian Mission developed the Stonewater Creek development, where the

Plaintiffs reside.20       Handler, a builder and developer in Delaware, is Indian

Mission’s parent. 21 Handler typically develops properties through affiliates such as

Indian Mission.22 Normally, the assets of each Handler affiliate company are the

plots that the affiliate develops. 23 Thus, per the Amended Complaint, as plots sell,

the assets held by the affiliate diminish.24 The affiliates, including Indian Mission,

are bonded, but the bonds are posted to the Sussex Conservation District, and thus

unavailable as a remedy to homeowners.25

19
  Am. Compl., ¶ 117 (“The lots on which Plaintiffs had their homes constructed all were conveyed
to their homebuilder by Indian Mission.”); see id. ¶ 59 (“Indian Mission retained ownership of the
plots until a few months before Plaintiffs took possession of their respective homes.”).
20
     Id. ¶¶ 28, 30.
21
     Id.
22
     Id. ¶ 28.
23
     Id. ¶ 36.
24
 Id. The mechanism by which this “diminishes” the company’s assets is not described in the
Amended Complaint. Presumably, lots are exchanged for cash, an asset.
25
     Id.

                                                5
          Handler personnel enact business for the affiliates. For example, Handler’s

Vice President, Robert Allen, Jr., is an “authorized signatory” for Indian Mission,

and he has signed documents on behalf of Indian Mission.26 Allen uses his Handler

email when conducting business for Indian Mission.27              Likewise, Handler’s

President, Mark Handler, conducts business on behalf of various Handler affiliates

through his Handler email. 28 The Sussex Conservation District’s only contact

information for Stonewater Creek’s developers are the Handler emails of Allen and

Mark Handler.29

                 2. The Plaintiffs Contract with Insight to Build Their Homes in
                 Stonewater Creek

          Although Indian Mission developed the plots in Stonewater Creek, the

Plaintiffs contracted with Insight to construct their homes and provide landscaping.30

Insight offers prospective homeowners base models that the homeowners can then

modify and upgrade. 31        Insight holds itself out as a premier energy efficient

homebuilder.32 As a part of its marketing plan, Insight offers an “extensive warranty

26
     Id. ¶¶ 31–32.
27
     Id. ¶ 32.
28
     Id. ¶ 33.
29
     Id. ¶ 34.
30
     Id. ¶ 18.
31
     Id. ¶ 23.
32
     Id. ¶¶ 24–27.

                                             6
program” that includes, among other things, warranties related to the grading around

the homes, settling around the foundation, drainage, and swales. 33 The Plaintiffs

allege that these marketing campaigns, in part, induced each of them to select Insight

as their homebuilder.34

          On October 21, 2018, Plaintiffs Nieves and Cuiffo (together, the “Nieveses”)

signed a contract for Insight to build their home in Stonewater Creek.35 The

Nieveses closed on the home in March 2019.36 A home inspection commissioned

after the closing revealed “numerous structural defects,” most having to do with

mold and drainage. 37 When the Nieveses informed Insight about the mold, Insight

sponsored and participated in a mold remediation, which the Nieveses found

inadequate. 38 The Nieveses then allege they discovered improper grading, swales,

and drainage on their lot and surrounding lots that created severe water problems

that attracted pests and caused Cuiffo to have allergic reactions. 39

33
     Id. ¶¶ 19–20.
34
     Id. ¶ 22.
35
     Id. ¶ 37.
36
     Id. ¶ 38.
37
     Id. ¶ 39.
38
     Id. ¶¶ 40–43.
39
     Id. ¶¶ 44–47.

                                            7
                  3. The Stormwater Management System and Related Problems

          In developed areas of the County, stormwater management systems control

stormwater runoff.40 Delaware enacted Chapter 40, Title 7 of the Delaware Code

(the “Stormwater Management Act” or the “Act”) to require any “person” who

engages in “land disturbing activities” to submit “a sediment and stormwater

management plan . . . and obtain[] a permit to proceed.” 41 Land disturbing activities

requiring such a permit include:

          any land change or construction activity for residential, commercial,
          industrial, or institutional land use which may result in soil erosion from
          water or wind or movement of sediments or pollutants into state waters
          or onto lands in the State, or which may result in accelerated stormwater
          runoff, including clearing, grading, excavating, transporting, and filling
          of land. 42

          Sussex County, based on authority from the Act, enacted the Sediment

Control and Stormwater Management Ordinance of Sussex County, Delaware (the

“Stormwater Ordinance”) in the Sussex County Code to protect public health and

the environment. 43 The Stormwater Ordinance provides Sussex County with the

power to withhold building permits until the Sussex Conservation District approves

a stormwater management plan.44 The Sussex Conservation District, in turn, has

40
     Id. ¶ 48.
41
     Id.; 7 Del. C. § 4003(a).
42
     Am. Compl., ¶ 49; 7 Del. C. § 4002(4).
43
     Am. Compl., ¶ 50; Sussex Cty. C. §§ 90-1 through 90-2.
44
     Am. Compl., ¶ 51; Sussex Cty. C. §§ 90-1 through 90-5.

                                                8
authority to request suspension or revocation of building permits in the case of

absent or inadequate stormwater management plans. 45 Sussex County amended the

Stormwater Ordinance in 2017 to provide “technical drainage and grading

requirements.”46

          Stonewater Creek has been developed in several “phases.” Prior to the

construction of any homes in the relevant phase—“Phase 5.3”—Indian Mission

submitted a stormwater management plan for Phase 5.3 (the “Stormwater

Management Plan”) to Sussex County. 47 According to the Plaintiffs, the Stormwater

Management Plan failed to account for the construction of any future homes; in other

words, it provided for adequate stormwater runoff only for the development free of

houses.48 In addition, the Plaintiffs allege that Indian Mission’s actual development

of the plots did not conform to its own Stormwater Management Plan, and that both

Indian Mission and Insight foresaw problems with drainage.49

          Indian Mission maintained ownership of the Plaintiffs’ plots “until a few

months before Plaintiffs took possession of their respective homes.” 50 Although

45
     Sussex Cty. C. §§ 90-1 through 90-6; Am. Compl., ¶ 52.
46
     Sussex Cty. Ordinance No. 2489 (March 28, 2017), at 1; Am. Compl., ¶ 53.
47
     Am. Compl., ¶ 54.
48
     Id. ¶¶ 54–56.
49
     Id. ¶ 57.
50
   Id. ¶¶ 58–59. As noted, it appears from the Amended Complaint that Indian Mission sold the
lots to Insight, who then built the homes and sold the lots to the Plaintiffs. Id. ¶ 117 (“The lots on

                                                  9
Indian Mission remains responsible for the engineering of a surface water runoff

system, it delegated final work on that system to Insight.51 The Plaintiffs allege that

Insight then conducted the work without the required oversight from Sussex County

or the Delaware Department of Natural Resources and Environmental Control

(DNREC). 52 The Plaintiffs allege, supported by several examples, that the actual

development of Phase 5.3 of Stonewater Creek was done out of sync not only with

Indian Mission’s own Stormwater Management Plan, but in violation of the

requirements of the Stormwater Management Act, to disastrous results.53

Specifically, the Plaintiffs allege that the grading on the lots is inconsistent with “the

easement appearing thereon,” 54 that the Defendants used faulty construction with

regard to the main infiltration ditches,55 that swales fail to drain,56 that the infiltration

basin ditches and driveway pipes are improperly placed,57 that the project lacked

supervision by an engineer,58 and that the Defendants’ ad hoc remedies were

which Plaintiffs had their homes constructed all were conveyed to their homebuilder by Indian
Mission.”).
51
     Id. ¶ 60.
52
     Id.
53
     Id. ¶¶ 61–70.
54
     Id. ¶ 60
55
     Id. ¶ 62.
56
     Id. ¶ 63.
57
     Id. ¶ 64.
58
     Id. ¶ 66.

                                             10
ineffective and insufficient. 59 Allegations of “homes overnight being covered by

frogs,” “frolicking tadpoles,” “[d]isease-transmitting mosquitos” and “armies of

spiders” populate the Amended Complaint. 60

           In March 2018, the Sussex Conservation District failed Stonewater Creek’s

storm management inspection and withheld further building permits as a result. 61 It

issued permits again after Indian Mission promised to attempt remediation.62

Remediation plans were delayed, or attempted and failed, until April 2019, when the

Sussex Conservation District again withheld building permits as a result of the

drainage problems. 63 In May 2019, Indian Mission met onsite in Stonewater Creek

with engineers to discuss remediation.64 The Sussex Conservation District released

building permits on the day that remediation efforts began in July, but according to

some residents, efforts were ineffective or aggravated the problem. 65

           The Plaintiffs allege, based on newspaper articles, Sussex County Council

comments, a response from the Sussex Conservation District, resident complaints,

59
     Id. ¶ 65.
60
     Id. ¶¶ 61–70.
61
     Id. ¶ 71.
62
     Id.
63
     Id. ¶¶ 72–74.
64
     Id. ¶¶ 74–75.
65
     Id. ¶¶ 76–79.

                                           11
and inspections failures that Indian Mission has been aware of the stormwater and

drainage issues for years and has responded inadequately or ignored the problem. 66

                 4. The Plaintiffs’ Claims

          In Counts I and II, the Plaintiffs seek injunctive relief against Indian Mission

and Insight for breach of the Stormwater Management Act.67 In Count III, the

Plaintiffs seek a declaratory judgment that Indian Mission and Insight violated the

Stormwater Management Act.68 Count IV alleges a breach of fiduciary duty on the

part of Indian Mission in its role as developer of Stonewater Creek.69 Count V

alleges negligence against Indian Mission and Insight for their roles in the

development and construction of the Plaintiffs’ homes. 70 In Count VI, the Plaintiffs

seek to pierce the corporate veil and hold Handler liable for the actions of its affiliate,

Indian Mission. 71 In Counts VII and VIII, the Plaintiffs allege breach of contract

and implied warranties against Insight regarding its construction of their homes.72

66
     See id. ¶¶ 85–91.
67
  Id. ¶¶ 92–108. Count I was originally brought against Seven Branch and Cannon Road as well,
the adjacent developers, but the claims against these two entities have been dismissed. D.I. 63.
68
     Am. Compl., ¶¶ 109–15.
69
     Id. ¶¶ 116–20.
70
  Id. ¶¶ 121–27. The Amended Complaint styles this as “Willful and Malicious Negligence,” but
the Plaintiffs’ request for punitive damages was struck from the Amended Complaint on May 19,
2020. D.I. 63.
71
     Am. Compl., ¶¶ 128–37.
72
     Id. ¶¶ 138–54.

                                              12
Count IX alleges negligent construction against Insight.73 The following Count,

which is also labeled Count IX, but which I refer to as “alias Count X” for the sake

of clarity, alleges fraudulent concealment and misrepresentation against Insight. 74

          C. Procedural History

          The Plaintiffs filed their Verified Complaint for Preliminary and Permanent

Injunction, Declaratory Judgment, and Related Relief (the “Initial Complaint”) on

June 18, 2019. 75 All Defendants moved to dismiss the Initial Complaint on July 9

and July 19, 2019. 76 The Plaintiffs filed the Amended Complaint on September 2,

2019. 77 Defendants Handler, Seven Branch, Cannon Road, and Indian Mission

moved to dismiss the Amended Complaint and to strike the Plaintiffs’ request for

punitive damages on September 27, 2019 (the “Indian Mission Motion to

73
     Id. ¶¶ 155–60.
74
     Id. ¶¶ 161–65.
75
     Verified Compl. for Prelim. and Permanent Inj., Declaratory J., and Related Relief, D.I. 1.
76
    Def.’ Seven Branch LLC, Handler Corporation dba Handler Homes and Indian Mission
Investments, LLC’s Mot. to Dismiss Verified Compl. for Prelim. and Permanent Inj., Declaratory
J., and Related Relief and to Strike Certain Relief Sought Therein, D.I. 16; Defs. Insight Building
Co., LLC, 36 Builders, Inc. dba Insight Homes, and Insight Homes, Inc.’s Mot. to Dismiss, D.I.
23.
77
  First Am. Compl., D.I. 30. The Plaintiffs then filed an amended motion to expedite claims
against the Insight Defendants only. Pls.’ Am. Mot. to Expedited Claims (against Insight Defs.
only), D.I. 35. Insight opposed this motion. Insight Defs.’ Response to Pls.’ Am. Mot. for
Expedited Proceedings and Trial Date, D.I. 42. Ultimately, I heard both motions to dismiss at the
same time.

                                                  13
Dismiss”).78 The Insight Defendants moved to dismiss the same day (the “Insight

Motion to Dismiss”). 79

          I heard argument on both motions to dismiss on May 12, 2020.80 Based on

my partial ruling from the bench, the parties stipulated to dismiss Seven Branch and

Cannon Road and to strike the Plaintiffs’ request for punitive damages.81 I issued

an order dismissing those defendants and striking the punitive damages request on

May 19, 2020, and I took the remainder of the matter under consideration on that

date.

                                          II. ANALYSIS

          The Defendants have moved to dismiss this action under Chancery Court Rule

12(b)(6). In considering such a motion,

          (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. 82

78
   Defs.’ Handler Corporation DBA Handler Homes, Seven Branch, LLC, Cannon Road
Investments, LLC and Indian Mission Investments, LLC’s Mot. to Dismiss First Am. Verified
Compl. and to Strike Request for Punitive Damages Therein, D.I. 38.
79
     Insight Defs.’ Mot. to Dismiss, D.I. 40.
80
     D.I. 60.
81
  Order (a) Dismissing Defs. Seven Branch, LLC and Cannon Road Investments, LLC, with
Prejudice, and (b) Striking Demand for Punitive Damages from Am. Compl., D.I. 63.
82
  Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotations
omitted).

                                                14
However, I do not need to accept “conclusory allegations unsupported by specific

fact” as true, nor must I “draw unreasonable inferences” in the Plaintiffs’ favor.83 I

may consider facts in documents incorporated into the Amended Complaint.84

          A. Defendant Indian Mission’s Motion to Dismiss Count IV for Breach of
          Fiduciary Duty is Granted

          In Count IV, the Plaintiffs bring a claim for breach of fiduciary duty against

Indian Mission in its role as developer of Stonewater Creek. 85 As noted, the

pleadings do not allege that the Plaintiffs purchased their lots directly from Indian

Mission or otherwise had a contractual or commercial relationship with Indian

Mission.86 The Plaintiffs, however, allege that “Indian Mission owes a common law

fiduciary duty to Plaintiffs” because “Plaintiffs reposed a special trust in and reliance

on the judgment of the developer. . .” 87

          Fiduciary relations are special, equitable relationships of trust.             Under

Delaware law, a fiduciary relationship arises “where one person reposes special trust

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

83
  Thermopylae Capital Partners, L.P. v. Simbol, Inc., 2016 WL 368170, at *9 (Del. Ch. Jan. 29,
2016) (quoting Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011)).
84
  See In re Morton’s Rest. Grp., Inc. S’holder Litig., 74 A.3d 656, 658–59 (Del. Ch. 2013); In re
Martha Stewart Living Omnimedia, Inc. S’holder Litig., 2017 WL 3568089, at *3 (Del. Ch. Aug.
18, 2017).
85
     Am. Compl., ¶¶ 116–20.
86
     Id. ¶ 117.
87
     Id. ¶ 118.

                                               15
of one person to protect the interests of another.”88 The fact that a relationship

involves “trust in the specialized knowledge or skill of one party,” however, does

not turn it into a fiduciary relationship.89 Rather, a fiduciary relationship “requires

confidence reposed by one side and domination and influence exercised by the

other.”90 The equitable concept of the fiduciary relationship developed as an

incident of the law of trusts. The hallmark of a fiduciary relationship is illustrated

by the trustee/beneficiary relationship: for such a relationship to prevail, both parties

must have the same end in mind—the good of the beneficiary—and the trustee must

pursue this end to the exclusion of any other interests. 91                  Because fiduciary

relationships thus are straitened by the imposition of special duties, a legal regime

imposing broadly such relationships, by definition, would hamstring parties’ ability

to self-order, with perverse effects on efficiency and the right to contract. Broadly

88
  Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012) (quoting Metro Ambulance, Inc. v.
E. Med. Billing, Inc., 1995 WL 409015, at *2 (Del. Ch. July 5, 1995)).
89
  Prestancia Mgmt. Grp., Inc. v. Virginia Heritage Found., II LLC, 2005 WL 1364616, *6 n.50
(Del. Ch. May 27, 2005).
90
  Id. at *6 (emphasis added) (citing Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 625
(Del. Ch. 2005)).
91
  Wal-Mart Stores, 872 A.2d at 626 (“the concept of a fiduciary relationship, which derives from
the law of trusts, is more aptly applied in legal relationships where the interests of the fiduciary
and the beneficiary incline toward a common goal in which the fiduciary is required to pursue
solely the interests of the beneficiary in the property.” (quoting Crosse v. BCBSD, Inc. 836 A.2d
492, 495 (Del. 2003))), aff’d in pertinent part 901 A.2d 106 (Del. 2006).

                                                16
imposing such relationships would be inimical to commercial affairs, and fiduciary

duties are thus narrowly implied, arising only in the conditions described above.92

          The Plaintiffs cite to Delaware cases in which this Court has found that

developers owed fiduciary duties to homeowners.93 However, in these cases, the

developers retained control of (or acted in lieu of) a homeowners association and

used this control to extract benefits for themselves.94 A role on the board or as

controller of a homeowners association invokes fiduciary duty because of the ability

to exercise “domination and influence” over the homeowners, particularly in the

form of imposing rules and extracting assessments, and because, as the controller or

director of such board, the goal of any action must be in the interests of the

92
     See id. at 624–25.
93
  REDUS Peninsula Millsboro, LLC v. Mayer, 2014 WL 4261988 (Del. Ch. Aug. 29, 2014);
Phillips v. Yingling, 1982 WL 149636 (Del. Ch. Apr. 23, 1982).
94
  See REDUS, 2014 WL 4261988, at *3 (noting that “[a]s alleged, the developer was the controller
of the association which would owe duties to its members, the lot owners, including the
Homeowners.”); Phillips, 1982 WL 149636, at *1 (property owners sued controlling developer to
enjoin collection of assessments and require developer to establish a board of directors for the
homeowners association). The Plaintiffs also cite to cases outside this jurisdiction to allege that
developers generally owe fiduciary duties to lot owners. Although the Plaintiffs find some
language generally amenable to their proposition, I find these cases align with the context
described above, where the developer maintains a role in the homeowners association. See
Walbeck v. I’On Co., LLC, 827 S.E.2d 348, 359 (S.C. Ct. App. 2019) (South Carolina Court of
Appeals recognizing “the fiduciary duty a developer owes to homeowners as the development’s
promoter” while also recognizing “that a fiduciary duty arose from the developer’s control of the
villa owners’ association.”); Raven’s Cove Townhomes, Inc. v. Knuppe Dev. Co., 114 Cal. App.
3d 783, 799 (Ct. App. 1981) (California court stating that “[i]n most jurisdictions, the developer is
a fiduciary acting on behalf of unknown persons who will purchase and become members of the
association” in the context of a case where “[t]he uncontroverted evidence established that the
Developer and its employees (who were the incorporating directors and initial officers) totally
controlled the [homeowners’] [a]ssociation”).

                                                17
membership. Such corporate-board involvement is inherently equitable in nature.

Here, according to the Amended Complaint, Indian Mission developed Stonewater

Creek, including the Stormwater Management Plan for Phase 5.3, then “[t]he lots on

which Plaintiffs had their homes constructed all were conveyed to their homebuilder

by Indian Mission.”95 The drainage issues here do not involve actions of Indian

Mission with respect to any homeowners association at Stonewater Creek.96

         There is, I suppose, some quantum of trust inherent in every commercial

relationship, if indeed such a relationship can be said to have existed between Indian

Mission and the Plaintiffs. But that proves too much—equity may not impinge on

every such relationship as a result. The duties owed by Indian Mission are imposed

by common and statutory law. Indian Mission’s interest is as a for-profit land

developer, the Plaintiffs’ interests were in contracting to purchase, at one remove,

residential property developed by Indian Mission. The relationship here was not one

of trust, and the ends sought by the parties were not identical. At its heart, as alleged,

the relationship was one of ordinary care, and equitable duties do not apply. The

facts alleged appear to support a claim in tort for negligence, which the Plaintiffs

95
     Am. Compl., ¶¶ 117.
96
   The Plaintiffs’ only allegation regarding Indian Mission’s involvement with the homeowners
association is that one of Handler’s principals, Allen, “directly instructs the HOA’s president, Rick
Goldberg, what to tell Stonewater Creek residents about the drainage crisis there.” Id. ¶ 32. The
Amended Complaint does not allege facts from which I can conclude that Indian Mission controls
Goldberg or the homeowners association; more fundamentally, the Amended Complaint does not
allege wrongdoing via such control.

                                                18
have alleged in Count V and which Indian Mission has not moved to dismiss. In

sum, I cannot reasonably infer from the facts pled that Indian Mission’s role as a

land developer put it in the position of a fiduciary to the buyers of lots in Stonewater

Creek, and I therefore grant the motion to dismiss Count IV of the Amended

Complaint.

           B. Defendant Handler’s Motion to Dismiss Count VI is Granted

           In Count VI, the Plaintiffs seek to “pierce the corporate veil” and hold Handler

liable for the actions of its subsidiary, Indian Mission.97 In other words, the Plaintiffs

seek to hold Handler liable for any money damages Indian Mission incurs in this

action. Handler is Indian Mission’s corporate parent, and the Plaintiffs state no case

against Handler other than that assertion. Delaware law presumes respect for the

corporate form: “A subsidiary corporation is presumed to be a separate and distinct

entity from its parent corporation.”98 Similarities between entities, such as overlap

of personnel, do not negate this basic principle: “This rule applies even where one

corporation wholly owns another and even though the entities have identical officers

and directors.”99 To pierce the corporate veil, a plaintiff must adequately allege facts

from which the court may conclude that the subsidiary is “a sham and exist[s] for no

97
     Id. ¶¶ 128–37.
98
  Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971, at *6 n.44 (Del. Ch. Nov. 13, 2018)
(quoting 1 Fletcher Cyclopedia of the Law of Corporations § 26, at 82, 84–85).
99
     Id.

                                              19
other purpose than as a vehicle for fraud.” 100 Judicial disregard for the corporate

form is not a remedy available to plaintiffs who merely wish to hold another entity

liable in addition to the one with whom they contracted. 101

          The Plaintiffs offer two theories to reach through Indian Mission’s corporate

form and hold Handler liable.

          First, the Plaintiffs point out that Handler’s principals, Mark Handler and

Allen, conduct business for Indian Mission, and that in doing so, they use their

Handler email accounts.102 As noted, overlapping or identical personnel does not by

itself warrant ignoring the corporate form. The bare assertion that personnel use

email accounts associated with one entity while conducting the business of another

does not indicate fraud and cannot by itself support an allegation that Mark Handler

and Allen were using Indian Mission to perpetrate fraud.

          Second, the Plaintiffs allege that Indian Mission is undercapitalized.103

Undercapitalization is a factor courts consider in determining whether an entity is in

fact a sham. 104 Equity will not permit the use of a sham or fraudulent corporation

100
   PR Acquisitions, LLC v. Midland Funding, LLC, 2018 WL 2041521, *15 (Del. Ch. Apr. 30,
2018) (quoting Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d
1175, 1184 (Del. Ch. 1999)).
101
      Wenske, 2018 WL 5994971, *5.
102
      Am. Compl., ¶¶ 31–34.
103
      Id. ¶ 36.
104
   See Connecticut Gen. Life Ins. Co. v. Pinkas, 2011 WL 5222796, at *2 (Del. Ch. Oct. 28, 2011)
(noting that undercapitalization is a “shortcoming[] frequently found when the ‘veil is pierced’”);
Mason v. Network of Wilmington, Inc., 2005 WL 1653954, at *3 (Del. Ch. July 1, 2005) (piercing

                                               20
form solely as a vehicle to avoid liability. 105 But the Plaintiffs’ assertion on this

point is unsupported by adequate factual allegations. The Plaintiffs allege that

Indian Mission’s assets—i.e., the plots it develops—diminish as it sells those plots

to future homeowners. 106 But the proceeds of the sale, in that case, are equivalent

assets held by Indian Mission. The Amended Complaint does not allege how this

fact makes Indian Mission a vehicle for fraud. The Plaintiffs also point out that

while Indian Mission is bonded with respect to drainage deficiencies, those bonds

are posted to the Sussex Conservation District and are thus unavailable to

homeowners as damages.107 But the fact that Indian Mission has not created a bond

in favor of homeowners, where one is not required by some duty, is not indicative

of fraud. These allegations are insufficient to support an allegation that Indian

Mission was “[in]adequately capitalized for the corporate undertaking,” let alone

that the LLC was created as a sham to further fraud. 108

            The Plaintiffs have not alleged facts in the Amended Complaint from which I

can infer that Indian Mission has defaulted on its obligations, that it is unable to

the veil analysis “include[s] whether the corporation was adequately capitalized for the corporate
undertaking. . .” (quoting United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 (D. Del.
1988))).
105
      See Mason, 2005 WL 1653954, at *2–4.
106
      Am. Compl., ¶ 36.
107
      Id.
108
      Mason, 2005 WL 1653954, at *3.

                                               21
operate, that it is a shell entity, or even that it will be unable to satisfy any recovery

the Plaintiffs seek. The Plaintiffs’ response brief exaggerates the allegations pled in

the Amended Complaint on these points. In briefing, the Plaintiffs contend that

“[t]he [Amended] Complaint contains the following facts: . . . Indian Mission is . . .

unable to pay its creditors,” and “Indian Mission is insolvent because it is unable to

pay its debts as they become due. . .” 109 But these allegations are not reasonably

inferable from the Amended Complaint. The Plaintiffs cite only to paragraph 36 of

the Amended Complaint. Paragraph 36 posits the theory, described above, of why

Indian Mission could eventually become insolvent: “with each plot developed and

sold, the assets of [Indian Mission] diminish, while the risk of potential liabilities

increases.”110 That paragraph contains no factual allegations that Indian Mission has

been unable to pay any creditor, that it is insolvent, or that it is unable to pay any

debt. Nor does any other part of the Amended Complaint contain such factual

allegations in a non-conclusory fashion.         Rather, the Plaintiffs’ allegation is

essentially that Indian Mission is closely tied to its parent company Handler, and

that Handler has more money to rectify the Plaintiffs’ alleged harm than does Indian

Mission.       Accepting the Plaintiffs’ non-conclusory allegations as true, Indian

109
  Pls.’ Br. in Opp’n to Mot. by Defs. Handler Corporation DBA Handler Homes, Seven Branch,
LLC, Cannon Road Investments, LLC and Indian Mission Investments, LLC to Dismiss First Am.
Verified Compl. and to Strike Request for Punitive Damages Therein, D.I. 50 (“Pls.’ Indian
Mission Answering Br.”), at 6–7.
110
      Am. Compl., ¶ 36.

                                           22
Mission owned the property that is now Stonewater Creek, and has exchanged some

of those land assets for cash. From those facts alone, I may not reasonably infer that

Indian Mission is a fraudulent or sham entity.

       In conclusion, I find that the Plaintiffs’ alleged facts do not support a claim

that Indian Mission’s corporate form should be disregarded in this instance. I

therefore grant the motion to dismiss Count VI of the Amended Complaint, which

entails dismissing Handler from this Action.

       C. Judgment is Deferred on Counts I-III Related to the Stormwater
       Management Act and Alias Count X for Fraud against Insight

       As noted, the parties stipulated to the dismissal of Seven Branch and Cannon

Road from this Action. Above, I have dismissed fiduciary claims against Indian

Mission and all claims against Handler. This pares the Amended Complaint to two

remaining tranches: (1) claims for equitable and declaratory relief related to the

Stormwater Management Act, which both remaining Defendants have moved to

dismiss; and (2) tort and contract claims, on which Insight has moved to dismiss the

Plaintiffs’ claim for fraud only, but which otherwise neither remaining Defendant

has moved to dismiss. 111 At this juncture, I conclude that efficiency will be served

through deferring judgment on the remainder of the motions to dismiss and giving

111
   I note that the Amended Complaint does not seek equitable relief to remedy any common-law
ongoing torts, such as nuisance or trespass. Such torts are not alleged here.

                                            23
the parties the opportunity to confer on the best way to proceed, with the guidance

offered below.

          The Stormwater Management Act provides this Court with statutory

jurisdiction to grant injunctive relief in relation to the Act.112 Here, the Plaintiffs

seek two forms of equitable relief: first, Indian Mission should be enjoined from

selling any additional lots until the Stonewater Creek Stormwater Management Plan,

as implemented, is in compliance with the Act;113 second, Insight should be enjoined

from building any additional homes in Stonewater Creek until compliance occurs.114

          While the Amended Complaint paints a compelling portrait of the Plaintiffs’

need for relief, the injunctive relief actually sought by the Plaintiffs presents

difficulties that may obstruct granting the requested relief if the litigation proceeds,

during which I would require further briefing assistance from the parties. As the

Plaintiffs concede, remediation efforts, if slow, are ongoing.115 That process is being

112
    7 Del. C. § 4016 (“any aggrieved person who suffers damage or is likely to suffer damage
because of a violation or threatened violation of this chapter may apply to the Chancery Court for
injunctive relief. Among any other appropriate forms of relief, the Chancery Court may direct the
violator to restore the affected land or water impacted area to its original condition.”).
113
      Am. Compl., ¶ 97.
114
   Id. ¶ 105. The Plaintiffs also contend that I should issue a declaratory judgment under 10 Del.
C. § 6501 “that Indian Mission and Insight (a) have failed to but (b) are required to comply and
(c) must be compelled to comply with the Stormwater Management Act and Stormwater
Management Plan.” Id. ¶ 113. It is a mystery why declaratory relief is necessary in this action
seeking also injunctive relief and damages, but in any event declaratory relief is available at law
or in Chancery, and the presence of a claim for such relief is irrelevant to the calculous I have
limned, below.
115
      See Pls.’ Indian Mission Answering Br., at 9–11.

                                                 24
monitored by the Sussex Conservation District.116 The Plaintiffs essentially argue

that the Sussex Conservation District has inadequate enforcement mechanisms, and

that the heat of an injunction is necessary to light a fire under the Defendants’ feet.

But enjoining ongoing violation of a technical statute presents oversight issues: the

Court would have to determine when the Defendants have achieved compliance (and

thus when to lift the injunctive relief), but, as the Plaintiffs describe it, “[a]

stormwater management plan is a complex compilation of engineering data and

calculations: plats, graphs, and land use specifications . . . topography, stormwater

easements, pipe and swale profiles, manhole flow patterns, and trench details for

unpaved areas.”117

          It is not clear how this Court’s oversight and coercion via the relief sought

could, as a practical matter, be achieved. Such relief, it appears, would also be

intrusive on the Sussex Conservation District’s ongoing (though allegedly dilatory)

oversight. The ongoing remediation raises issues of the ripeness of any request to

apply equitable relief. Moreover, some of the Plaintiffs’ requested relief—enjoining

Insight from building further homes—appears duplicative of the power the Sussex

Conservation District already wields, and in fact has applied here. The relief sought

may also interfere with existing Insight sales or construction contracts, which raises

116
      Id. at 11–13.
117
      Am. Compl., ¶ 51.

                                            25
questions of the necessity of those counterparties as parties here. Put simply, the

Plaintiffs are not asking for an injunction that the Defendants comply with the Act

with respect to their lots, by, for instance, “restor[ing] the [lots] to [their] original

condition.”118 Instead, they ask me to become involved in implementation of a

development-wide drainage plan currently under the remediation efforts of the

County. It is unclear at this stage of the proceedings if equity should, or as a practical

matter can, so act. Equity is, of course, practical and flexible; nothing herein should

be read to say that, if the facts ultimately so warrant, no relief in equity will be

available.

          The issues identified above are not rulings on the motions to dismiss at issue

here, but I offer them as potential guidance as to what issues may arise if the

litigation proceeds. Aside from the relief related to the Stormwater Management

Act, the Plaintiffs’ remaining claims are legal: negligence, breach of contract, breach

of implied warranties, negligent construction, and fraud. Insight has moved to

dismiss the claim for fraud; otherwise, the Defendants have not moved to dismiss

these claims. While I struck the Plaintiffs’ request for punitive damages in this

Court, I did so without prejudice to the Plaintiffs’ ability to revive such a request in

a court of law, where such damages are properly entertained. 119

118
      7 Del. C. § 4016.
119
      See D.I. 63.

                                            26
        If I go forward to evaluate the Plaintiffs’ claims and—should I find them

proved—consider injunctive relief, I will retain this matter under “clean-up”

jurisdiction and resolve the legal claims regardless of whether equity is ultimately

invoked.120 If the Plaintiffs do not pursue the equitable claims, this matter belongs

in the Superior Court. I find it appropriate to defer judgment on the Motions to

Dismiss Counts I-III related to the Stormwater Management Act and alias Count X

for fraud. The parties should confer, and the Plaintiffs should inform me within two

weeks, given the course of litigation and the partial resolution of the motions

described in this Memorandum Opinion, whether they wish to pursue this litigation

in equity and have me resolve the remainder of the motions to dismiss, or if they are

willing to forgo injunctive relief and elect to transfer the remaining claims to the

Delaware Superior Court, where full relief for legal claims as well as punitive

damages are available.

                                       III. CONCLUSION

        Based on the foregoing, Count VI of the Amended Complaint is dismissed,

and Defendant Handler is thereby dismissed from this Action. Count IV of the

120
    See Medek v. Medek, 2008 WL 4261017, at *3 (Del. Ch. Sept. 10, 2008) (“Once the Court
determines that equitable relief is warranted, even if subsequent events moot all equitable causes
of action or if the court ultimately determines that equitable relief is not warranted, the court retains
the power to decide the legal features of the claim pursuant to the cleanup doctrine.” (quoting
Prestancia Mgmt. Grp. v. Va. Heritage Found., II LLC, 2005 WL 1364616, at *11 (Del. Ch. May
27, 2005))).

                                                  27
Amended Complaint for breach of fiduciary duty against Indian Mission is

dismissed. Judgment on the motions to dismiss Counts I-III against Indian Mission

and Insight, as well as judgment on the motion to dismiss alias Count X against

Insight is deferred. The Plaintiffs should inform me within two weeks whether they

wish to proceed in equity and desire resolution of the remainder of the motions to

dismiss or if they wish to transfer this Action. The parties should also submit an

appropriate form of order consistent with the partial rulings in this Memorandum

Opinion.

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