Stevanov v. O’Connor, No. 3820-VCP(Del. Ch., April 21, 2009), read opinion here.

Kevin Brady, a highly respected Delaware litigator, provides us with the benefit of his summary of this Delaware Chancery Court decision as follows:

Vice Chancellor Parsons granted in part and denied in part defendant – ex-husband’s motion for summary judgment with respect to his ex-wife’s claims for equitable and compensatory relief based on causes of action relating to breach of fiduciary duty, conversion, unjust enrichment, and fraud. While on its face, this is not your typical Court of Chancery case, the devil and the jurisdictional basis are in the details of this 40-page opinion.

Since the facts are long, complicated and “fuzzy” to quote the Vice Chancellor, what follows is a relatively brief overview. The dispute between the former spouses arises out of two failed intertwined relationships grounded in statutes — a marriage and a corporation. It’s a typical “boy meets girl, they get married, form a company,(he gets 80%, she gets 20% equity interest) they get divorced, and then they fight about splitting the assets and liabilities.”

The couple got married in 1990 and formed a corporation in 1992 to fabricate and manufacture air pollution equipment (the “Company”). The parties then bought land personally and leased it back to the Company. As a condition of some loans for the Company, the banks required guarantees and mortgages from the parties. Then, “things get fuzzy.” The ex-husband apparently arranged for a contract that the Company had with one of the Company’s major customer to be transferred to a new business run by the husband, but owned by his son from a different marriage (the Air Clear Contract”). In 2003, the parties got divorced. Two years later the Company was sued in federal court in South Dakota and a large default judgment was entered against the Company.

In January 2005, the Family Court entered an Order with a series of factual findings and legal determinations including approving the husband’s new business venture based on the apparent insolvency of the Company. The Family Court also awarded the wife 55% and the husband 45% of the marital assets. Thereafter, the husband terminated the lease agreement for the land, terminated the wife’s employment with the Company, and stopped paying debts of the Company including franchise taxes.

The ex-wife filed her complaint in June 2008 alleging: (i) breach of fiduciary duty; (ii) conversion of jointly owned assets; (iii) unjust enrichment; and (iv) fraud. She also sought an accounting. The ex-husband counterclaimed seeking (i) damages; (ii) an accounting for lost income and property: (iii) a determination that her conduct has been in breach of  fiduciary duties, imposition of an equitable lien upon all interests in an entity he purchased after they were divorced as well as a constructive trust upon all assets improperly removed from the company by her, and all financial accounts into which any monies improperly removed from the company were deposited. Cross-motions for summary judgment were filed.

Vice Chancellor Parsons discussed in great detail a multitude of topics related to the allegations including direct vs. derivative claims, laches, statute of limitations, preclusion, collateral estoppel, fraud, and conversion. In the end, the Court granted summary judgment in favor of the ex-husband with respect to the breach of fiduciary duty claims based on actions that occurred before the Family Court entered its January 2005 Order or that occurred before the complaint was filed with respect to certain contracts mentioned in the Family Court Order. The Court also granted summary judgment on the claim for conversion for those portions of that count that were based on the use of the land purchased individually by the parties in September 1995, and on the fraud claim.