Delaware Court of Chancery Awards Damages in Chevelle Case Based on Unjust Enrichment

By Jay McMillan

An unmarried couple, Kim and Terry, agreed to buy a classic muscle car, have it restored, show it, and eventually sell it for a profit. After a prolonged search, they purchased a 1970 Chevelle. Kim paid for the car, but Terry put the title in his name. Kim also paid storage and restoration costs, for a total of $66,890.47, while Terry contributed a total of only $1,200.00. After Kim caught Terry cheating on her (twice), the couple broke up. Terry claimed full ownership of the Chevelle and tried to sell it. Kim brought suit in the Delaware Court of Chancery to recover the money she spent on the car, storage and restoration, based on several different theories. Jackson v. Nocks, 2018 Del. Ch. LEXIS 130 (Apr. 24, 2018).

First, Kim argued that she and Terry formed a partnership. In Delaware, a partnership is formed through “the association of 2 or more persons (i) to carry on as co-owners a business for profit . . . whether or not the persons intend to form a partnership . . . .” Id. at *13 (quoting 6 Del. C. § 15-202(a)). An essential element of a partnership is that there must be “a common obligation to share losses as well as profits.” Id. at *14. Vice Chancellor Montgomery-Reeves concluded after trial that there was no evidence of such a common obligation. Throughout more than 150 pages of text messages, 31 pages of e-mails, and 22 pages of other documents related specifically to the Chevelle, there was no mention of an agreement to share in potential losses or to split profits. In fact, the couple discussed using the proceeds of a sale of the Chevelle to help fund Terry’s son’s college education. Because there was no common obligation to share profits and losses, the Court rejected Kim’s partnership argument.

Second, Kim argued that she should recover damages for breach of contract. She maintained that she and Terry had a legally enforceable oral agreement “(1) to co-own, restore, show, and eventually sell the Car; (2) split profits 50/50; and (3) split costs associated with the purchase and renovation 50/50.” She sought an order of specific performance of the alleged contract, which would require Terry to repay half the expenses and turn over half the profits from a sale of the Chevelle. In Delaware, “a valid contract exists when (1) the parties intended that the contract would bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties exchange legal consideration.” Id. at *17-18. An intent to be bound requires that the parties to the contract assent to all material terms of the contract. Here, as with the partnership argument, the Court found that there was no agreement to be bound by the alleged terms to share profits and losses. The Court therefore rejected Kim’s contract argument.

Third, Kim argued that if there was no partnership and no contract, she should be entitled to specific performance of a promise under a theory of promissory estoppel. “To state a claim for promissory estoppel, Plaintiff must prove 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 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.” Id. at *22. The Court found that the first element was not present because there was no evidence that Terry had made a promise to share costs and profits. Therefore, Kim’s promissory estoppel argument was also rejected.

Fourth and finally, Kim argued that she was entitled to recover under a theory of unjust enrichment. To state a claim for unjust enrichment, a plaintiff must prove (1) that the defendant was enriched, (2) that the plaintiff was impoverished, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law. Terry argued that the fourth element, the absence of justification, was not present because Kim had given him the Chevelle as a gift; therefore, his enrichment and her impoverishment were justified. This time the Court rejected Terry’s argument. Although Kim had indeed given Terry expensive gifts, including a Nissan Maxima, which he traded for a Lexus, a motorcycle, several watches, clothes, “lavish trips,” and a $200 “weekly allowance,” the evidence showed that the couple had consistently referred to the Chevelle as “ours” and “our girl.” Id. at *23. The Court found that Kim did not have “donative intent” to make a gift of the Chevelle. The Court concluded that “[f]inding for Plaintiff on the basis of unjust enrichment is the equitable remedy here,” and awarded “damages in full,” including all expenditures Kim made on the Chevelle.

Ordinarily, an action solely for money damages cannot be brought in the Court of Chancery because Delaware law provides that the Court of Chancery has jurisdiction over “matters and causes in equity” and does not have jurisdiction to determine matters where a sufficient remedy may be had in any other Delaware state court. 10 Del. C. §§ 341-42. As a court of equity (as opposed to a court of law), the Court of Chancery lacks jurisdiction over the subject matter of a case when there is a sufficient remedy at law—money damages are available in an action at law in the Delaware Superior Court or other Delaware courts.

But based on Jackson v. Nocks, where there is no partnership, no written or oral contract, and no promise made, it is still possible for an aggrieved party to get an award of money damages in the Delaware Court of Chancery based on a theory of unjust enrichment. The Court noted, however, that Terry failed to address the fifth element of an unjust enrichment claim, which is the absence of a remedy at law, and therefore the Court did not discuss it. Unjust enrichment is not in itself an equitable remedy that confers subject matter jurisdiction on the Court of Chancery. Indeed, in Crosse v. BCBSD, Inc., 836 A.2d 492, 496-97 (Del. 2003), the Delaware Supreme Court rejected the argument that an unjust enrichment claim for money damages confers equity jurisdiction on the Court of Chancery without a plea for an equitable remedy. In Jackson v. Nocks, the defendant did not contest the Court of Chancery’s subject matter jurisdiction and the Court did not raise it on its own.

James G. (Jay) McMillan is a partner in the Wilmington, Delaware office of Halloran Farkas + Kittila LLP. He concentrates his practice in complex corporate and commercial matters, with a particular focus on litigation in the Delaware Court of Chancery. For more information on the firm, visit hfk.law.

 

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