IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

TWo FARMS, INC.,
Piaintiff, C. A. No. K17C-09-010 NEP

In and F or Kent County

DAVIS, BOWEN & FRIEDEL,

INC., and SILICATO-WOOD

PARTNERSHIP, LLC,
Defendants.

VVVVVVVV

Submitted: May 18, 2018
Decided: June 4, 2018

OPINION

Before the Court is the motion of Plaintiff Two Farms, Inc. (hereinafter “Two
Farms”), to dismiss counterclaims asserted by Defendant Silicato-Wood
Partnership, LLC (hereinafter “Silicato”). Silicato’s counterclaims seek damages for
allegedly libelous accusations included in Plaintiffs complaint, attomeys’ fees
pursuant to the bad faith exception to the American Rule, and declaratory judgment.

For the reasons stated herein, TWo Farms’s Motion to Dismiss is GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts recited here are those as admitted or alleged by Silicato in its answer

and counterclaims1

 

1 On a motion to dismiss, all Well-pleaded factual allegations are accepted as true. Savor, Inc. v.
FMR Corp., 812 A.2d 894, 896 (Del. 2002).

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K17C-09-010 NEP
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In 2010, TWo Farms and Silicato signed a contract of sale (hereinafter the

“Contract”) in Which Two Farms agreed to purchase a property from Silicato located
in Milford, Delaware (hereinafter the “Property”) adjacent to Delaware Route l
(hereinafter “SR l”). Silicato hired co-defendant Davis, Bowen & Friedel, Inc.
(hereinafter “DBF”), to perform Work to obtain approval of a five-lot subdivision
plan and conditional use approval so that the Property could be used as a
convenience store With gas pumps. Silicato submitted a conceptual plan to the City
of Milford. Later, Two Farms brought suit against Silicato and DBF alleging that a
direct access entrance from SR l (hereinafter the “Entrance”) Was temporary and
W`as being closed by the Delaware Department of Transportation; that DBF failed to
indicate that the Entrance Was temporary in the final plan, and that Silicato failed to
instruct or require DBF to do so; and that the value of the Property Was greatly
diminished due to the temporary nature of the Entrance. Further, TWo Farms alleged
that Silicato knew that the Entrance Was temporary and concealed that information
from TWo Farms so as to sell the Property to Two Farms at an unfairly high price.
In its Counterclaims, Silicato alleges that Two Farms’s complaint made three
false statements about Silicato, specifically that: (l) Silicato “knew that the SR l
entrance Was temporary;” (2) Silicato “made false and/or misleading statements
regarding the temporary nature of the SR l entrance;” and (3) Silicato “intended to
induce [TWo Farms] to purchase the Property in reliance on [the] misrepresentations
and/or material omissions regarding the temporary nature of the SR l entrance.”
Silicato contends that because these statements falsely accuse Silicato of fraud and
Were filed in the public domain, they constitute libel per se against Silicato. Silicato
also contends that because the allegations in Tvvo Farms’s complaint are unfounded
and frivolous, Silicato is entitled to attorneys’ fees under the bad faith exception to

the American rule. Finally, Silicato petitions the Court to enter declaratory judgment

Two Farms, Inc. v. Dav/`s, Bowen & Friedel, Inc., et a/.

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in its favor because the Contract was fully integrated, and Two Farms’s fraud claim

improperly relies on representations and omissions outside the bounds of the

Contract.
II. DISCUSSION

On a motion to dismiss, the moving party bears the burden of demonstrating
that “there are no material issues of fact and that he is entitled to judgment as a matter
of law.”2 Upon this Court’s review of a motion to dismiss, “(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 non-moving 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.”3

When matters outside the pleadings have been presented along with a motion
to dismiss, the Court generally has full discretion either to reject the extraneous
submissions, or to convert the motion to a motion for summary judgment and
consider the additional submissions4 However, there is an exception to this rule: the
Court may consider undisputedly authentic documents that are “integral to a

plaintiffs claim and [are] incorporated into the complaint by reference.”5 Here,

 

2 Daisy Constr. Co. v. W.B. Venables & Sons, Inc., 2000 WL 145818, at *1 (Del. Super. Jan. 14,
2000).

3 Savor Inc., 812 A.2d at 896-97.

4 Doe 30's Mother v. Braa'ley, 58 A.3d 429, 444 (Del. Super. 2012).

5 Furman v. Delaware Department of T ransportation, 30 A.2d 771 (Del. 2011) (citing
Vana'erbilt Income and Growth Associates v. Ar'vida/JMB Managers, 691 A.2d 609, 613 (Del.
1996)). “Otherwise, a plaintiff with a legally deficient claim could survive a motion to dismiss
simply by failing to attach a dispositive document on which it relied.” Goodwin v. Elkins & Co.,
730 F.2d 99, 104 n. 9 (3d Cir.), cert. denied, 469 U.S. 831 (1984).

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while the Contract was not attached to the initial complaint or the counterclaim as

an exhibit, its authenticity is not disputed, and the Court considers the Contract
integral to and incorporated by reference into the counterclaim for declaratory
judgment, as that claim petitions the Court to determine the rights and relations
between the parties to this contract.6 Therefore, the Court shall consider the Contract
for the limited purpose of deciding Two Farms’s motion to dismiss the claim for
declaratory judgment-but shall not otherwise consider extraneous submissions nor

convert the motion to a motion for summary judgment.7

A. Silicato’s Libel Counterclaim

An “absolute privilege” protects the statements of parties to litigation from
actions for defamation8 A party claiming the privilege must demonstrate that the
statements were “issued as part of a judicial proceeding and were relevant to a matter
at issue in the case.”9

Here, the allegedly defamatory statements were made as part of a judicial
proceeding: the statements were written in the complaint. Further, it is evident that
they are relevant to a matter at issue in this case, as these allegedly false statements

regarding Silicato’s knowledge and fraudulent inducement of Two Farms constitute

 

6 See Pension Ben. Guar. Corp. v. VWcite Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993) (considering a purchase contract referenced but not attached to complaint) (cited with
approval by In re Santa Fe Pacific Corp. Shareholder Litigation, 669 A.2d 59, 69 (Del. 1995)).
7 The Court’s consideration of the Contract shall not prejudice either party, as both have cited it
in their submissions, and as Silicato relies upon the language of the Contract in its declaratory
judgment counterclaim. The reason that a court must convert a motion to dismiss to a summary
judgment motion if it considers extraneous evidence submitted by the defense is to afford the
non-moving party an opportunity to respond. See Pension Ben. Guar. Corp., 998 F.2d at 1196-
97 (“When a complaint relies on a document, however, the plaintiff obviously is on notice of the
contents of the document, and the need for a chance to refute evidence is greatly diminished.”).
8 Barker v. Huang, 610 A.2d 1341, 1344 (Del. 1992).

9 Id. at 1345.

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the very allegations on which the claims of misrepresentation and fraud are

predicated. Finally, Silicato’s argument that the privilege may not be raised in a
motion to dismiss is mistaken: Silicato cites a decision holding that a qualified
privilege defense should be a matter for trial, not the absolute privilege, as is asserted
here.10 The Court therefore finds that Silicato is not entitled to recover as a matter of

law, and dismissal of the libel claim is appropriate.

B. Silicato’s Bad Faith Counterclaim

The so-called American Rule provides that, in most cases, parties to litigation
are to bear their own costs and attomey’s fees.ll There is, however, an exception to
this rule: Delaware courts may_-in extraordinary cases_shift the burden of
attomeys’ fees to the losing party where that party “acted in bad faith, vexatiously,
wantonly, or for oppressive reasons.”12 Examples of bad faith conduct include cases
where “parties have unnecessarily prolonged or delayed litigation, falsified records,
or knowingly asserted frivolous claims[,] . . . mis[led] the court, alter[ed] testimony,

or chang[ed] position on an issue.”13 A party seeking to shift its costs to the opposing

 

10 Klein v. Sunbeam Corp., 47 Del. 526, 539, 94 A.2d 385, 392 (1952), opinion adhered to on
reargument, 47 Del. 575, 95 A.2d 460 (1953) (“we think the question of qualified privilege is a
matter for defense depending upon the facts and circumstances . . . . it may not be raised by a
motion to dismiss under Rule 12(b)(6) but should be made a matter of answer to be supported by
proof at the trial.”).

11 Slawik v. Szaze, 480 A.2d 636, 639 (Del. 1984). See also superior Court Civil Rule 54(1) (“No
appearance fees for attorneys will be permitted or taxed as costs in any action or cause in the
Superior Court.”).

12 Id. at 639 n. 5 (quoting F.D. Rich Co., Inc. v. United States, Industrial Lumber Co., Inc., 417
U.S. 116, 129 (1974),

13 Dover Historical Soc., Inc. v. City ofDover Planning Comm'n, 902 A.2d 1084, 1093 (Del.
2006) (quoting Beck v. Atlantic Coast PLC, 868 A.2d 840, 850-51 (Del. Ch. 2005)).

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party “bears the stringent evidentiary burden of producing ‘clear evidence’ of bad-
faith conduct.”14

Silicato’s second counterclaim alleges that Two Farms acted in bad faith
because it “did not research and performed no diligent analysis before filing an
Amended Complaint” and asserted claims “without any reasonable, good faith basis
in fact or law.” The Court interprets the counterclaim as advancing a theory that Two
Farms “knowingly asserted frivolous claims.”

The Court finds that this second counterclaim is both premature and
procedurally improper. The Bad Faith Exception to the American Rule is typically
asserted in a motion for litigation expenses,15 similar to a 10 Del. C. § 5101 motion
for costs, rather than a unique cause of action. Upon this Court’s diligent review, the
Court can find no authority indicating the existence of such a cause of action in
Delaware. Further, the claim appears to be, at least in part, a disguised claim of
malicious prosecution, a tort viewed with disfavor in Delaware because of its
“undesirable tendency to unduly discourage citizens from seeking redress in the
courts.”16 If the Court were to consider the second counterclaim to be a malicious
prosecution claim, dismissal would also be warranted, as this proceeding has not yet
terminated in Silicato’s favor.17 For these reasons, dismissal of this claim is
warranted.

Silicato is, of course, free to bring its arguments concerning the alleged

frivolousness of Two Farms’s complaint in the form of a motion for attorney’s fees

 

14 Beck, 868 A.2d at 851 (citations omitted).

15 See e.g., Beck, 868 A.2d at 851 (granting defendant’s motion for attomey’s fees pursuant to
the bad faith exception to the American Rule); Lawson v. State, 91 A.3d 544, 553 (Del. 2014)
(affirming Superior Court’s denial of plaintiff s motion for expenses, applying the bad faith
exception to the American Rule).

16 Alexander v. Petly, 108 A.2d 575, 577 (Del. Ch. 1954).

17 See Nix v. Sawyer, 466 A.2d 407, 411 (Del. Super. 1983).

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at a later date. The Court, however, would defer ruling on such a motion until the

conclusion of the case.
C. Silicato’s Counterclaim for Declaratory Judgment

In Delaware, courts shall enforce the parties’ agreements to identify the
particular information on which they have relied and foreclose reliance on other
information.18 ln other words, the contract may establish the limited “universe of
information on which [each] party relied” and thus the “universe of information that
is in play for purposes of a fraud claim.”19

Silicato’s counterclaim for declaratory judgment argues that an integration
clause and anti-reliance provision in the Contract (hereinafter the “Integration
Clause”) bars Two Farms’s fraud claim. Silicato argues that Two Farms’s fraud
claim is premised on representations other than those included in the Contract and
that, due to the lntegration Clause, Two Farms cannot have justifiably relied on
representations other than those in the Contract. Further, Silicato argues that the
Contract’s due diligence provision (hereinafter the “Due Diligence Provision”),
placed the duties and risk of obtaining government approval of the plans on Two
Farms_not Silicato.

In Delaware, a “standard integration clause alone, which does not contain

explicit anti-reliance representations . . . will not suffice to bar fraud claims.”20 Here,

 

18 RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d 107, 118-19 (Del. 2012).

19 Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 52-53 (Del. Ch. 2015).

20 Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004). See Alltrista Plastics, LLC v.
Rockline Indus., Inc., 2013 WL 5210255, at *5 (Del. Super. Sept. 4, 2013) (denying motion to
dismiss fraud claim based on anti-reliance clause in contract where the agreement stated that
“The Agreement sets forth the entire understanding between the Parties with respect to the
subject matter herein, and supersedes and replaces the terms of any and all prior discussions,
agreements or understanding between the parties. There are no covenants, promises, agreements,

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the contract’s integration clause reads that the “Contract contains the final and entire
Agreement between the parties hereto, and neither they nor their agents shall be
bound by any terms, conditions, or representations not herein written.” The Contract
does not indicate that Two Farms “contractually promised that it did not rely upon
statements outside the contract’s four corners in deciding to sign the contract.”21
Therefore, the Court finds that the Contract does not bar the fraud claim.

Additionally, the Due Diligence Provision is not relevant to Two Farms’s
fraud claim. Two Farms is not suing Silicato for failing to acquire city approval for
the Entrance, but for making fraudulent misrepresentations regarding an imminent
condemnation proceeding and failing to provide documents reflecting this.

Therefore, the Court finds as a matter of law that Two Farms’s fraud claim is
not barred by the Contract, and dismissal of the counterclaim for declaratory
judgment is warranted.

WHEREFORE, for the foregoing reasons, Two Farms’s motion to dismiss
Silicato’s Counterclaims is GRANTED.

 

IT IS SO ORDERED.
/s/ Noel Eason Primos
JUDGE
NEP/sz
Via File & ServeXpress

oc: Prothonotary

cc: Shawn P. Tucker, Esquire
Richard L. Abbott, Esquire
Patrick McGrory, Esquire

 

warranties, representations, conditions or understandings, either oral or written, between the
Parties with regard to the subject matter herein other than as set forth in the agreement.”).
21 Kronenberg, 872 A.2d at 593.

