R. Keating & Sons, Inc. v. Chiselcreek Development, LLC ( 2020 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
R. KEATING & SONS, INC., )
Plaintiff, )
)
v. )
)
CHISELCREEK DEVELOPMENT, LLC, ET )
AL., )
Defendants. )
)
CHISELCREEK DEVELOPMENT, LLC, )
Crossclaim Plaintiff, )
)
v. ) C.A. No. N17C-05-195 VLM
)
DARYL HUBER and NANCY HUBER, )
Crossclaim Defendants. )
)
NANCY FORSHA-HUBER and DARYL )
HUBER, )
Counterclaim Plaintiffs, )
)
v. )
)
CHISELCREEK DEVELOPMENT, LLC, a )
Delaware limited liability company, )
Counterclaim Defendant, )
)
v. )
)
SARDO PROPERTIES, LLC, a Delaware )
limited liability company and DAVID D. )
SARDO, individually, )
Third Party Counterclaim )
Defendants. )
1
ORDER
Submitted: July 10, 2020
Decided: October 30, 2020
Upon Consideration of Counterclaim Defendants’ Motion to Dismiss,
DENIED.
Jonathan M. Stemerman, Esquire of Elliot Greenleaf, P.C., Wilmington, Delaware.
Attorney for Defendants, Crossclaim Defendants and Counterclaim Plaintiffs.
Nicholas Kondraschow, Esquire of Rhodunda, Williams & Kondraschow,
Wilmington, Delaware. Attorney for Counterclaim Defendants.
MEDINILLA, J.
2
AND NOW TO WIT, this 30th day of October, 2020, upon consideration of
Counterclaim Defendants Chiselcreek, LLC, Sardo Properties, and David D. Sardo’s
Motion to Dismiss, Counterclaim Plaintiffs’ Response in Opposition, oral
arguments, and supplemental briefing, IT IS HEREBY ORDERED that
Counterclaim Defendants’ Motion is DENIED for the following reasons:
Factual Background
1. On or about October 2, 2014, Nancy and Daryl Huber (the Hubers)
entered into a written agreement with Chiselcreek Development LLC (Chiselcreek)1
through its President David D. Sardo (Sardo), to construct their new house in
Kennett Square, Pennsylvania,2 at a contract price of $746,475.00.3
2. Sardo is a Pennsylvania resident, the named president of Chiselcreek,
and a managing member of Sardo Properties. Chiselcreek and Sardo Properties are
Delaware limited liability companies with principal places of business in Delaware.
Both operated and provided invoices to the Hubers under the name Chisel Creek
Construction Company.4
3. In September of 2014, Sardo Properties and Sardo presented a Builder
Information Sheet to the Hubers’ lender, Fulton Bank, indicating that there were no
1
Though exhibits presented provide a different spelling for Chiselcreek (i.e., Chisel Creek), the
Court will use the spelling in the court caption as provided by the parties.
2
Counterclaim Defendants’ Second Motion to Dismiss, D.I. 61, at 1-2 [hereinafter D.I. 61].
3
See Counterclaim Plaintiff’s Amended Complaint, D.I. 44, at Ex. A [hereinafter D.I. 44].
4
Chisel Creek Construction is not a named Counterclaim Defendant.
3
outstanding judgments against either Sardo or Sardo Properties.5 Unbeknownst to
the Hubers, a judgment had been entered against Sardo Properties on July 18, 2014,
in the amount of $295,584.27.6
4. On November 10, 2014, building permits were issued, and work began
for a contract completion date of August 7, 2015.7 Chiselcreek or Sardo Properties
enlisted the services of Plaintiff Keating & Sons, Inc. (Plaintiff), as well as other
subcontractors.8 The work was not completed as planned.9 Chiselcreek abandoned
the project in November 201510 and ordered its subcontractors, including Plaintiff to
cease work—uncompensated for the work performed.11 The Hubers attempted to
enter into agreements with the subcontractors to finish the construction but contend
that Defendants prevented them from doing so.
5. When Defendants abandoned the project in November 2015, the
Hubers and Fulton Bank had already paid Defendants a sum of $741,254.00 under
the contract.12 Coincidentally, the Sardo Properties judgment was satisfied by
February 4, 2016. However, the subcontractors were not paid and they filed liens
5
D.I. 44, ¶ 12.
6
Id. ¶ 10.
7
Id. ¶ 20.
8
Id. ¶ 19.
9
Id. ¶ 21.
10
Id.
11
Id. ¶ 33.
12
Id. ¶ 23.
4
against the Hubers’ property.13 This caused the Hubers to default on the mortgage
they owed to Fulton Bank.14 In addition, Plaintiff filed this civil action against the
Hubers.
6. To add insult to injury, in 2016, the Hubers learned that the work
performed by Defendants was defective.15 Among those defects were plumbing
issues, failure to install insulation for the HVAC unit as was required by the contract,
the exhaust from the fan in the kitchen directed the exhaust into the basement, and
the electrical, soil erosion, and control work did not pass inspection. 16 As a result,
the Hubers were unable to obtain a certificate of occupancy (CO).17 They claim they
incurred additional costs to obtain a CO and complete the construction of their house
as intended under the contract.
Relevant Procedural Background
7. As stated, on May 17, 2017, Plaintiff filed its suit against the Hubers
and Chiselcreek. Chiselcreek filed its Answer and Cross-Claimed the Hubers. The
Hubers also filed their Answer to Plaintiff’s Complaint and Chiselcreek’s Cross-
13
Id. ¶¶ 33-34.
14
Id. ¶ 34.
15
Id. ¶ 41.
16
Id.
17
Id. ¶ 42.
5
Claim. In their Answer, the Hubers asserted Counterclaims against Chiselcreek and
filed a Third Party Complaint against Sardo Properties and Sardo.18
8. On July 20, 2018, Defendants filed a Motion to Dismiss the Original
Counterclaim seeking dismissal of all claims minus the breach of contract claim. 19
On October 7, 2019, the Court entered an Order granting Defendants’ Motion to
Dismiss (Order) as unopposed,20 and later allowed the Amended Counterclaim21 to
proceed.22
9. The Amended Counterclaim alleges breach of contract against
Chiselcreek (Count I), Fraudulent Inducement against Defendants (Count II),
Fraudulent Misrepresentation against Chiselcreek and Sardo (Count III), Negligence
against Chiselcreek (Count IV), Breaches of Implied Warranty of Workmanship and
Habitability against Chiselcreek (Count V and VI). Against all Defendants, the
Hubers allege Tortious Interference (Count VII), Conversion and/or violation of 10
18
The Hubers’ Counterclaims and Third Party Complaint made claims for breach of contract,
fraudulent inducement, fraudulent misrepresentation, negligence, breach of implied warranty of
workmanship and habitability, tortious interference, conversion, intentional infliction of emotional
distress, and loss of consortium (the Original Complaint).
19
The Honorable John A. Parkins was the assigned judicial officer and scheduled a hearing for
October 15, 2018. After a series of continuances sought by the parties, and the passing of J.
Parkins, the matter was assigned to this Court on April 15, 2019. See D.I. 60 for additional
procedural history.
20
See D.I. 60 for additional procedural history.
21
The Amended Counterclaim replaced the claims for loss of consortium and intentional
infliction of emotional distress with claims under the Pennsylvania Unfair Trade Practices and
Consumer Protection Law (UTPCPL) and the Delaware Consumer Fraud Act.
22
See R. Keating & Sons, Inc. v. Huber, 2020 WL 975435 (Del. Super. Feb. 27,
2020)(ORDER)(clarifying that although the Original Counterclaim was dismissed, the Hubers
could pursue their claims under the Amended Counterclaim).
6
Del. C. § 3501 et seq. (Count VIII), and violations under the Pennsylvania Unfair
Trade Practices and Consumer Protection Law (UTPCPL), 73 P.S. § 201 et seq.
(Count IX), and the Delaware Consumer Fraud Act under 6 Del. C. § 2513 et seq.
(Count X). Through these various legal theories, they seek to hold Defendants liable
for damages of over $250,000 to include legal fees.
10. On March 10, 2020, Counterclaim Defendants filed this Motion to
Dismiss.23 The Hubers filed a Response in Opposition24 with oral arguments heard
on June 17, 2020. The Court reserved its decision on the matter and requested
supplemental briefing on the issue. On July 10, 2020, supplemental briefing
concluded. The matter is ripe for review.
Contentions of the Parties
11. Maintaining that this is a straight-forward breach of contract claim,
Defendants argue the remaining claims should be dismissed as duplicative of the
breach of contract claim, redundant, barred by the economic loss doctrine, and/or
fail to state a claim.25 They assert that the Hubers’ fraud claims fail to satisfy the
particularity requirements of Superior Court Civil Rule 9(b),26 or are barred by the
Statute of Limitations.27 Finally, Defendants argue the Hubers fail to allege facts that
23
D.I. 61.
24
Counterclaim Plaintiffs’ Response to Counterclaim Defendants’ Motion to Dismiss, D.I. 63
[hereinafter D.I. 63].
25
D.I. 61 at 3.
26
Id. at 5.
27
Id.
7
satisfy the requirements of personal jurisdiction over Sardo,28 or to state a claim that
Sardo acted outside the scope of his employment.29
12. Defendants concede that the economic loss doctrine does not bar the
Hubers’ negligence claim under 6 Del. C. § 3652.30 Accordingly, they acknowledge
that the negligence claim is not duplicative of the Hubers’ breach of contract claim. 31
Therefore, the Court does not consider dismissal of the breach of contract (Count I)
or negligence (Count IV) claims.
13. The Hubers argue that in Delaware and Pennsylvania, the economic
loss doctrine does not bar claims for fraudulent inducement of contract,32 fraudulent
misrepresentation,33 tortious contract interference,34 negligent misrepresentation,35
or implied warranties of workmanship and habitability. 36 They also suggest that the
doctrine does not bar conversion claims in Delaware,37 is inapplicable to private
actions under the Pennsylvania UTPCPL, and that the same rule should apply to the
Delaware Consumer Fraud Act.38 Moreover, the homeowners argue that their claims
28
Id. at 6.
29
Id.
30
Defendants’ Letter dated June 30, 2020, D.I. 67 [hereinafter D.I. 67].
31
Id.
32
D.I. 63 at 2.
33
Id. at 3.
34
Id. at 4.
35
Id. at 3.
36
Id. at 4-5.
37
Id. at 4.
38
Id. at 1-2.
8
are not statutorily barred,39 and that the Court has personal jurisdiction over Sardo.40
In the alternative, they request jurisdictional discovery.41
Standard of Review
14. On a Motion to Dismiss for failure to state a claim under Superior Court
Civil Rule 12(b)(6), all well-pleaded allegations in the complaint must be accepted
as true.42 Even vague allegations are considered well plead if they give the opposing
party notice of a claim.43 The Court must draw all reasonable inferences in favor of
the non-moving party.44 However, it will not “accept conclusory allegations
unsupported by specific facts,” nor will it “draw unreasonable inferences in favor of
the non-moving party.”45 The Court will grant the motion to dismiss “only if it
appears with reasonable certainty that the plaintiff could not prove any set of facts
that would entitle [the plaintiff] to relief.”46
39
Id. at 5-6.
40
Id. at 6.
41
Id.
42
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
43
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Savor,
Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
44
Id.
45
Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citation omitted).
46
Sliney v. New Castle Cty., 2019 WL 7163356, at *1 (Del. Super. Dec. 23, 2019).
9
Discussion
A. The Fraud Claims (Inducement and Misrepresentation)
I. The Fraud claims are not duplicative
15. To be clear, the breach of contract claim against Chiselcreek focuses on
its failure to complete construction of the house, missing delivery dates, not
constructing to the specification of drawings and not obtaining the documentation
necessary to obtain a CO.47
16. The allegations of fraud, on the other hand, are not only against
Chiselcreek but rather all three Defendants and involve a different set of facts. These
claims focus on false statements memorialized in the Builder Information Sheet that
allegedly led the Hubers to enter into the contract. It is alleged that Defendants,
individually or combined, further falsely represented that payments made by the
Hubers would be applied to construct their house, and were used instead to satisfy
Defendants’ unrelated debts.
17. Defendants’ reliance on Khushaim v. Tullow Inc.48 is misplaced. The
Khushaim Court determined that plaintiff’s claims were barred by the economic loss
doctrine because plaintiff failed to claim a duty independent of the duties imposed
47
D.I. 44, ¶ 56.
48
Khushaim v. Tullow Inc., 2016 WL 3594752 (Del. Super. June 27, 2006).
10
by the contract.49 Further, the economic loss doctrine does not always bar fraud
claims, even where purely economic losses are asserted.50 A plaintiff must allege
the defendant’s breach of duty independent from the contract in order to assert both
contract and tort claims in an action.51
18. Here, as to the fraudulent inducement claim, it is neither redundant nor
barred by the economic loss doctrine. Claiming Defendants breached the duty
independent of the duties imposed by the contract in their counterclaims, i.e, that
Defendants had a duty to be truthful in the Builder Information Sheet,52 these
allegations directly relate to the inducement of the contract, instead of the
performance of the contract, and thus establish an independent tort claim.53
Pennsylvania has similarly held that the economic loss doctrine may not be applied
to fraudulent inducement claims.54 Therefore, dismissal is not appropriate.
49
Id. at *4-5, 7-8 (applying the economic loss doctrine for negligence and conversion). Though
“[t]he economic loss doctrine was adopted to prohibit a plaintiff from bringing a tort claim where
overlapping claim based in contract adequately address the injury alleged,” the Court made clear
that “a tort and contract claim might co-exist if the defendant breached a duty that is independent
of the duties imporsed by the contract. Id. at *4 (internal quotations omitted) (emphasis in
original).
50
See Brasby v. Morris, 2007 WL 949485, at *6-7 (Del. Super. Mar. 29, 2007); see also Kuhn
Constr. Co. v. Ocean & Coastal Consultants, Inc., 844 F. Supp. 2d 519, 529 (D. Del. 2012); Cavi
v. Evolving Sys., Inc., 2017 WL 658470, at *7 (D. Del. Feb. 17, 2017).
51
Brasby, 2007 WL 949485, at *7; McKenna v. Terminex Int’l Co., 2006 WL 1229674, at *2
(Del. Super. Mar. 13, 2006).
52
See D.I. 44, ¶¶ 60-62.
53
Id.
54
See Price v. Freeze & Fizz Inc., 11 Pa. D. & C.5th 486, 492 (Pa. Com.Pl. 2009).
11
19. On the fraudulent misrepresentation claim, the Court reaches the same
conclusion and remains unpersuaded by the Khushaim decision. There, the Court
found against the plaintiff where “the [c]omplaint support[ed] its fraud claim with
nothing more than [the defendant]’s alleged intention not to follow through with its
contractual obligations under the [contract].”55 “Merely stating that [the defendant]
never intended to comply with the [contract] when the parties entered into it does
not satisfy fraud’s pleading requirement.”56 Noting that the alleged damages for the
fraud claim were identical to the breach of contract claim, 57 the Khushaim Court
dismissed the fraud claim.58 Again, this case is distinguishable.
20. Notably, the Hubers allege fraudulent misrepresentation against all
three Defendants. They do not allege breach of contract claims against Sardo or
Sardo Properties. Therefore, any alleged damages for the fraud claim, if identical,
would only apply to Chiselcreek since the breach of contract claim is only against
this entity. Perhaps with further discovery, the economic loss doctrine will bar a
fraudulent misrepresentation claim against Chiselcreek. However, the Court must
draw all reasonable inferences in favor of the non-moving party. The Hubers allege
that Chiselcreek and Sardo Properties operated and provided invoices to the Hubers
55
Khushaim v. Tullow Inc., 2016 WL 3594752, at *6 (Del. Super. June 27, 2006).
56
Id.
57
Id.
58
Id. at *7.
12
under the name Chisel Creek Construction Company. At this juncture, it is unclear
what role Sardo or Sardo Properties played in the alleged misrepresentations,
independent or in conjunction with Chiselcreek.
21. In sum, the fraud claims are not barred by the economic loss doctrine
because the inducement claims are independent from the breach of contract claims
under either Delaware or Pennsylvania law, and no claims for breach of contract
exist to trigger the doctrine for the misrepresentation claims as to Sardo or Sardo
Properties. Therefore, dismissal is not appropriate. Defendants may seek to move
for summary judgment after discovery has provided more information as to
Defendants.
II. The Fraud claims are stated with particularity.
22. Under Superior Court Civil Rule 9(b), claims of fraud must “be stated
with particularity.”59 The claim must also “detail the ‘time, place and content’ of
the alleged misconduct and the identity of the alleged bad actor.”60 The Hubers
allege that Defendants knew that the Hubers would only agree to contract with
59
DEL. SUPER. CT. CIV. R. 9(b).
60
Khushaim, 2016 WL 3594752, at *5 (quoting Universal Capital Mgmt. v. Micco World, Inc.,
2012 WL 1413598, at *4 (Del. Super. Feb. 1, 2012)). Noting, a plaintiff should plead facts showing
an inference that:
(1) [the defendant] falsely represented or omitted facts that it had a duty to disclose; (2)
[the defendant] knew or believed that the representation was false or made the
representation with a reckless indifference to the truth; (3) [the defendant] intended to
induce [the plaintiff] to act or refrain from acting; (4) [the plaintiff] acted in justifiable
reliance on the representation; and (5) [the plaintiff] was injured by his reliance.
13
Chiselcreek if the Builder Information Sheet submitted satisfied the lender.61 The
Hubers allege Defendants had a duty to provide true facts in a Builder Information
Sheet;62 they knowingly or recklessly put false representations in the sheet in
September of 2014 to induce the Hubers into entering into the contract on October
2, 2014;63 they justifiably relied on the representation; and were injured by the
reliance.64 This Court finds the claim is particular under Rule 9(b) demonstrating
details of time, place, and content of the alleged wrongful act.65 Dismissal is not
appropriate.
III. The Fraud claims are not barred by the Statute of Limitations
23. Defendants contend that the fraudulent inducement claim is barred by
the statute of limitations66 under 10 Del. C. § 8106. Accordingly, under 10 Del. C.
§ 8106, the statute of limitations for fraud is three years, and it begins to run when a
plaintiff’s claim accrues, which occurs at the moment of the wrongful act.67
24. Though the statute may be tolled, it is plaintiff’s burden to plead facts
to establish a basis to do so.68 The statute of limitations can only be tolled until the
61
D.I. 44, ¶ 60.
62
See id. ¶¶ 60-62.
63
Id. ¶¶ 12, 14.
64
Id. ¶ 63.
65
Id. ¶¶ 61-63.
66
D.I. 61, at 5.
67
Van Lake v. Sorin CRM USA, Inc., 2013 WL 1087583, at *6 (Del. Super. Feb. 15, 2013); see
also 10 Del. C. § 8106(a).
68
Van Lake, 2013 WL 1087583, at *7.
14
plaintiff “discovers the facts constituting a basis for the cause of action, or knows
facts sufficient ‘to put a person of ordinary intelligence . . . on inquiry, which, if
pursued, would lead to the discovery of such facts.’”69 “Inquiry notice does not
require a plaintiff to have actual knowledge of a wrong, but simply an objective
awareness of the facts giving rise to the wrong.”70 The Court must see if there were
any “red flags that clearly and unmistakably would have led a prudent person of
ordinary intelligence to inquire and if pursued, would have led to discovery of the
elements of the claim being asserted.”71
25. It is true that if the alleged fraudulent inducement occurred on
September 2, 2014, and the Hubers filed their original complaint on June 12, 2018,
they are outside of the three-year statutory timeframe after the alleged wrongful act
occurred.72 The Hubers made payments of over $740,000 in 2015. Yet, it was not
until 2016 that the Hubers learned that Defendants had not paid the subcontractors
despite having received all disbursements for the work completed.73 This appears to
be the first “red flag.” Following this information, they obtained the Builder
Information Sheet from Fulton Bank in October of 2017 and discovered that Sardo’s
69
Id. (quoting Russum v. Russum, 2011 WL 4731120, at *2 (Del. Super. Sept. 28, 2011)).
70
Id. (quoting E.I. duPont de Nemours and Co. v. Medtronic Vascular, Inc., 2013 WL 261415, at
*11 (Del. Super. Jan. 18, 2013)).
71
Id. (quoting Coleman v. Price Waterhouse Coopers LLC, 854 A.2d 838, 842 (Del. 2004))
(internal quotations omitted).
72
D.I. 61, at 5.
73
D.I. 44, ¶ 33.
15
statements were false.74 Accepting they were first placed on notice in 2016, the
Hubers timely filed their claims. Dismissal on this basis is not appropriate.
B. The Breach of Implied Warranty Claims (Workmanship and
Habitability)
26. No authority is provided to support Defendants’ request for dismissal
of the implied warranty claims based solely because it is duplicative of a breach of
contract claim.75 Moreover, the Hubers claim that Delaware and Pennsylvania
courts require construction contractual privity between the parties for a plaintiff to
claim implied warranties.76
27. At this juncture, the Court accepts the reasoning in Ellixson v. O’shea
against dismissal.77 There, the Court of Common Pleas ruled in favor of plaintiffs
finding that the defendants breached the sales contract, the implied warranty of good
quality and workmanship, and the express warranty contained in the contract.78
Following Malinak v. Kramer, the court noted there must exist a builder-customer
contractual relationship between the parties for an implied warranty to bind. 79 And
in Pennsylvania, the Supreme Court in Conway v. Cutler Group, Inc. established the
requirement of a builder-customer contractual relationship between parties to permit
74
Id. ¶¶ 13, 64.
75
Counterclaim Plaintiffs’ Letter dated July 20, 2020, D.I. 71, at 2.
76
Id. at 3.
77
See Ellixson v. O’Shea, 2003 WL 22931339, at *1 (Del. Com. Pl. Nov. 20, 2003).
78
Id. at *4.
79
Malinak v. Kramer, 2012 WL 174958, at *2 (Del. Com. Pl. Jan 5, 2012).
16
a breach of an implied warranty claim action.80 Thus, where in both Delaware and
Pennsylvania, implied warranty arises by operation of law, not by a contract,81
dismissal of the implied warranty claims is not appropriate.
C. The Tortious Interference Claim
28. In Delaware, tortious interference with contractual relations is an
exception to the economic loss doctrine.82 If the claimed duty is independent from
the duties imposed by the contract, the tortious interference claim should survive. In
Pennsylvania, the economic loss doctrine will not bar a claim for tortious
interference if the interference was intentional.83
29. Here, after Chiselcreek told the Hubers that it would not complete the
construction work, the homeowners attempted to enter into a contract with the
subcontractors.84 If the Hubers can establish that Defendants took actions to prevent
the subcontractors from agreeing to complete the construction work and suffered
damages as a result, these claims would be independent of the contract.
30. In other words, if a duty existed for Defendants not interfere with the
possible contract between the subcontractor and the Hubers, it did not arise from any
80
Conway v. Cutler Group, Inc., 99 A.3d 67, 69 (Pa. 2014).
81
Marcucilli v. Boardwalk Builders, Inc., 2002 WL 1038818, at *4 (Del. Super. May 16, 2002);
Tyus v. Resta, 476 A.2d 427 (Pa. Super. 1984).
82
Commonwealth Constr. Co. v. Endecon, Inc., 2009 WL 609426, at *5 (Del. Super. Mar. 9,
2009).
83
Paola Amico v. Radius Commc’n, 2001 WL 1807924, at *3 (Pa. Com. Pl. Jan. 9, 2001).
84
D.I. 44, ¶ 97.
17
duty owed under the contract. This alleged duty is independent and not barred by
the economic loss doctrine. Of course, if Pennsylvania law applies, the economic
loss doctrine does not bar intentional tortious interference, as alleged in the
Amended Complaint. Dismissal of the tortious interference claim under Rule
12(b)(6) is inappropriate.
D. The Conversion Claim
31. To plead conversion, a plaintiff must show “any distinct act of
dominion wrongfully exerted over the property of another, in denial of a plaintiff’s
right, or inconsistent with it.”85
32. Here, the Hubers claim that the conversion is based on the rights from
a statute, specifically 6 Del. C. § 3501 et. seq.86 Specifically, the Hubers point to §§
3502 and 3503 of the statute.87 Section 3502 states that all funds received by a
contractor for the construction of a building are “trust funds in the hands of the
contractor.”88 Section 3503 states that a contractor who receives funds under § 3502
must first be used to pay “the full amount of all moneys due and owing by the
85
Khushaim v. Tullow, Inc., 2016 WL 3594752, at *7 (Del. Super. June 27, 2016) (quoting Data
Mgmt. Internationale, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del. Super. July 25, 2007))
(internal quotations omitted).
86
Counterclaim Plaintiffs’ Letter dated July 2, 2020, D.I. 68, at 3-4.
87
Id.
88
6 Del. C. § 3502.
18
contractor to all persons . . . furnishing labor or material” for the construction of any
building.89
33. The Hubers allege Defendants committed a statutory violation when
they used funds from the Hubers and Fulton Bank to pay unrelated debts instead of
the subcontractors.90 The claim for conversion arises from an independent duty other
than the duty under the contract where Defendants allegedly divested or
misappropriated funds held in trust in violation of the statutory provisions under 6
Del. C. § 3501 et. seq. Therefore, the conversion claim survives.
E. The UTPCPL Claim
34. The Pennsylvania UTPCPL prohibits “[m]aking repairs,
improvements, replacements on . . . real or personal property, of a nature or quality
inferior to or below the standard of that agreed to in writing[,]”91 and “[e]ngaging in
any other fraudulent or deceptive conduct which creates a likelihood of confusion or
of misunderstanding.”92
35. The claims are that Defendants’ plumbing, HVAC equipment, exhaust
for the fan, and certain control work were inferior to the standard agreed to in
writing.93 The Hubers also claim that Defendants engaged in fraudulent
89
Id. § 3503.
90
D.I. 44, ¶¶ 109-113.
91
73 PA. STAT. ANN. § 201-2(4)(xvi) (West).
92
Id. § 201-2(4)(xxi).
93
D.I. 44, ¶ 123.
19
misrepresentations on the Builder Information Sheet, which created “a likelihood of
misunderstanding that the Defendants were in compliance with the requirement for
the lender to make disbursements.”94 Further, that these misrepresentations created
“a likelihood that the Hubers would believe that their house would qualify for a
[certificate of occupancy].”95 Lastly, Defendants allegedly falsely represented how
they would use the funds, misusing them to pay debts not relevant to the contract.96
Any argument that these claims are barred by the economic loss doctrine is
unpersuasive for the reasons previously stated.
36. Further, in Toth v. Northwest Savings Bank, the Pennsylvania Court of
Common Pleas held that the economic loss doctrine does not apply to private action
under the Pennsylvania UTPCPL.97 The court explained that while the economic
loss doctrine is case law, the UTPCPL contains the Legislature’s will.98 Unless
legislation violates the Constitution, Court-created law may not interfere with
legislation.99 The Toth court acknowledged that the clear language of the law
“provide[d] for any victims of consumer fraud to recover, not only actual damage,
but also punitive damages and counsel fees.”100
94
Id. ¶ 124.
95
Id. ¶ 125.
96
Id. ¶ 126.
97
Toth v. Northwest Sav. Bank, 2013 WL 8538695, at *3-4 (Pa. Com. Pl. Mar. 1, 2013).
98
Id. at *4.
99
Id.
100
Id. at *3.
20
37. The Hubers have made out a viable claim under the Pennsylvania
UTPCPL. As noted in Toth, the economic loss doctrine does not bar a claim under
the Pennsylvania UTPCPL. This claim survives.
F. The Delaware Consumer Fraud Act Claim
38. For the same reasons above, this Court will not dismiss the claim
alleging violations of Delaware Consumer Fraud Act. The Act states that:
“[t]he act, use or employment by any person of any deception,
fraud, false pretense, false promise, misrepresentation, or the
concealment, suppression, or omission of any material fact with
intent that others rely upon such concealment, suppression or
omission, in connection with the sale, lease or advertisement of
any merchandise, whether or not any person has in fact been
misled, deceived or damaged thereby, is an unlawful practice.”101
39. Defendant offers no Delaware authority to support their argument for
dismissal. The Court in Bromwich v. Handy noted that “[t]he Consumer Fraud Act
parallels common law fraud but does not require proof of (1) intent to make a
deceptive or untrue statement, (2) actual reliance by the plaintiff, or (3) intent to
induce reliance.”102 Since the fraudulent inducement claim is not barred by the
economic loss doctrine, and where the Consumer Fraud Act is parallel to common
law but with less proof requirements, the same result is reached here. This Court
agrees with the reasoning of the Toth court. Like the UTPCPL, the Delaware
101
6 Del. C. § 2513.
102
Bromwich v. Hanby, 2010 WL 8250796, at *7 (Del. Super. July 1, 2010) (citing Pack &
Process, Inc. v. Celotex Corp., 503 A.2d 646, 658 (Del.Super.1985)).
21
Consumer Fraud Act is a legislative creation whereas the economic loss doctrine is
judicially created.103 Absent a constitutional violation, and in the absence of any
authority, the Court will not apply a judicially created doctrine over legislation.104
This claim also survives.
G. Personal Jurisdiction over Sardo
40. Finally, the Court turns to the individual claims against Sardo. The
principal place of business for both Chiselcreek and Sardo Properties is Delaware.
Sardo is the president and the managing member of those entities, respectively.
Defendants assert that the Amended Complaint fails to allege facts that satisfy the
requirements of personal jurisdiction over Sardo that requires dismissal under Rule
12(b)(2).105 Specifically, that being a president or a managing member of a
Delaware entity, without more, does not provide a basis for jurisdiction under
Delaware’s long-arm statute.106
41. When determining whether to dismiss an action for lack of personal
jurisdiction under Superior Court Civil Rule 12(b)(2), the Court performs a two-
prong analysis.107 The Court first considers “whether Delaware’s long-arm statute
103
See Brasby v. Morris, 2007 WL 949485, at *6 (Del. Super. Mar. 29, 2007) (stating that the
economic loss doctrine is judicially created).
104
See Schoon v. Smith, 953 A.2d 196, 205 (Del. 2008) (implying that judicially created law may
not overrule a statute).
105
See D.I. 61, at 5-6.
106
Id. at 6.
107
Sparebank 1 SR-Bank ASA v. Wilhelm Maass GMBH, 2019 WL 6033950, at *2 (Del. Super.
Nov. 5, 2019).
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is applicable, recognizing that 10 Del. C. § 3104(c) is to be broadly construed to
confer jurisdiction to the maximum extent possible under the Due Process
Clause.”108 The Court then must “evaluate whether subjecting the nonresident
defendant to jurisdiction in Delaware violates the Due Process Clause of the
Fourteenth Amendment (the so-called ‘minimum contacts’ requirement).”109 The
burden of showing a basis for a trial court’s personal jurisdiction over a nonresident
defendant rests with a plaintiff.110 Where the defendant does not have minimum
contacts with Delaware, the Court may only assert personal jurisdiction if the State’s
implied consent statute allows.111 The Hubers assert implied consent confers
jurisdiction over Sardo. This Court agrees.
42. Defendants cite to Harstel v. Vanguard Group., Inc., where the Court
of Chancery granted dismissal of individual defendants112 and noted “[t]he mere fact
that [the individual defendants] are employed by a Delaware entity does not, without
more, provide a basis for jurisdiction under § 3104(c)(3).”113 However, this case is
108
Hercules Inc. v. Leu Tr. and Banking (Bahamas) Ltd., 611 A.2d 476, 480 (Del. 1992) (citation
omitted).
109
AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., 871 A.2d 428, 438 (Del. 2005).
110
Id. at 437.
111
Assist Stock Mgmt. LLC, v. Roshem, 753 A.29 974, 978 (Del. Ch. 2000).
112
Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *28 (Del. Ch. June 15, 2011), aff'd, 38
A.3d 1254 (Del. 2012).
113
Id., at *14 n.85; 10 Del. C. § 3104. 10 Del. C. § 3104 is Delaware’s long-arm statute. In
subsection (c)(3), it is written that “(c) As to a cause of action brought by any person arising
from any of the acts enumerated in this section, a court may exercise personal jurisdiction over
any nonresident, or a personal representative, who in person or through an agent: . . . (3) Causes
tortious injury in the State by an act or omission in this State[.]”
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in line with Assist Stock Management L.L.C. v. Rosheim,114 where the Court of
Chancery denied dismissal for lack of personal jurisdiction. There, both parties
agreed that the manager defendant had no contact with Delaware other than his
involvement as founder and manager of the Delaware limited liability company.115
Under the “implied consent” statute, 6 Del. C. § 18-109, Delaware courts had
jurisdiction over the manager defendant in an action properly alleging a breach of
fiduciary duty in his managerial capacity.116
43. The “implied consent” statute reads:
A manager . . . of a limited liability company may be served with process . . .
in all civil actions or proceedings brought in the State of Delaware involving
or relating to the business of the limited liability company or a violation by
the manager . . . of a duty to the limited liability company. . . .117
44. Here, the Hubers allege that Chiselcreek entered into the contract with
the Hubers through Sardo. He is the common denominator and at the center of the
agreement in dispute. As president of Chiselcreek and a managing member of Sardo
Properties,118 he played an instrumental role. Under both LLC’s, he represented that
Sardo Properties had no outstanding judgments against it or himself, as its principal
owner.119
114
Assist Stock Mgmt, L.L.C., 753 A.2d at 983.
115
Id. at 978.
116
Id. at 981.
117
Id. at 978 (citing 6 Del. C. § 18-109).
118
D.I. 44, ¶ 5.
119
See id. ¶¶ 60-63.
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45. Delaware has a strong interest in providing a forum for disputes relating
to the managers of Delaware LLCs. The instant civil suit is related to the business
of the limited liability company under the provisions of 6 Del. C. § 18-109. In his
capacity of the Delaware LLCs, he impliedly consented to being sued in a Delaware
court regarding the companies’ civil suits when he personally engaged in the
wrongful conduct as alleged by the Hubers.120 Thus, Delaware courts have personal
jurisdiction over Sardo. Dismissal on jurisdictional grounds is denied.
H. The Sardo Claims
46. Defendants lastly move under Rule 12(b)(6) for failure to state a claim
against Sardo in his individual capacity because the Amended Complaint fails to
show that he acted outside the scope of his employment.121
47. The Restatement (Third) of Agency § 7.01, followed by our courts,122
states that “[u]nless an applicable statute provides otherwise, an actor remains
subject to liability although the actor acts as an agent or an employee, with actual or
120
Defendants cited to Amaysing Techs. Corp. v. Cyberair Comm’ns, Inc., 2005 WL 578972,
(Del. Ch. Mar. 3, 2005) arguing that the implied consent statute would not apply. There, the
court reasoned that the third-party defendant, a corporate officer, in that case had signed two
previous agreements, but had not signed the agreement in dispute where the third-party plaintiff
alleged the fraudulent misrepresentation. The court found that because the third-party defendant
was not involved with the actual agreement in dispute, the nexus between him and the alleged
fraudulent misrepresentation was “tenuous at best.” The Court finds Defendants case is
distinguishable.
121
D.I. 61, at 5-6.
122
See Hughes v. Imperial Home Remodeling LLC, 2018 WL 2264413, at *1 (Del. Super. May
17, 2018).
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apparent authority, or within the scope of employment.”123 Thus, while a limited
liability company’s corporate veil may shield a managing member or officer from
individual liability for damages caused by the company, it will not shield the
managing member “from his own torts, whether committed in his individual capacity
or as an agent for his . . . company.”124
48. The claims against Sardo may go beyond his role as president of
Chiselcreek and a managing member of Sardo Properties. They allege individual
liability for his conduct: that he fraudulently misrepresented that neither he nor
Sardo Properties had outstanding judgments against them;125 that he, along with both
limited liability companies, kept the subcontractors from agreeing to the possible
contract between the Hubers and the subcontractors;126 and diverted payments
received from the Hubers and/or the lender.127 Therefore, the Hubers have made out
a viable claim against Mr. Sardo, whether he was acting as an agent or in an
individual capacity. For the reasons stated above, dismissal is also not appropriate.
123
RESTATEMENT (THIRD) OF AGENCY § 7.01 (AM. LAW INST. 2006).
124
Hughes, 2018 WL 2264413, at *1; see, e.g., State ex rel. Brady v. Preferred Florist Network,
Inc., 791 A.2d 8, 21-22 (Del. Ch. 2001) (finding defendant was not shielded from liability
“simply because he was acting in a corporate capacity” when engaged in alleged deceptive
business practices).
125
See D.I. 44, ¶¶ 60-63.
126
See id. ¶¶ 97-102.
127
See id. ¶¶ 110-114.
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 Conclusion
For all of the foregoing reasons, Counterclaim Defendants’ Motion to Dismiss
is DENIED.
/s/ Vivian L. Medinilla
Judge Vivian L. Medinilla
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