Grunstein v. Silva, C.A. No. 3932-VCN (Del. Ch. Jan. 31, 2011). The several prior decisions in this matter where highlighted on this blog here.
Issue Presented: This 40-page Court of Chancery decision addressed whether defendant’s motion for summary judgment on the alleged breach of oral partnership agreement regarding a $2.2. billion acquisition of a company, as amended, should be granted. The motion was denied.
Legal Principles Addressed:
Res judicata. The Delaware Supreme Court recognizes “the transactional view” of res judicata which prohibits litigation between the same parties “if the claims in the later litigation arose from the same transaction that formed the basis for the prior adjudication”. See footnote 72. Res Judicata is related to the public policy against “claim splitting” which may bar a subsequent claim “if a Plaintiff was able to present it, in its entirety, in the prior forum.” See footnote 73.
The Court rejected argument that unclean hands barred claims for promissory estoppel or unjust enrichment. That is, claims that Plaintiff, as a New York attorney, violated legal ethics rules by not getting a waiver before taking an interest in a client transaction, was not a basis for the trial court to impose a penalty. Only the Delaware Supreme Court has power to enforce legal ethics rules unless, unlike this case, “the challenged conduct prejudices the fairness of the proceedings, such that it adversely affects the fair and efficient administration of justice.” See footnote 81. This holding is consistent with many Chancery decisions that reject efforts to inject claims for a breach of legal ethics into a case as a means of impacting the substantive legal analysis or as a means to influence the result of a case, unless a rather high threshold is met as referenced above.
The Court also discussed the amorphous standard that allows for the creation of a partnership under DRUPA without any written agreements; and based on, for example, the parties’ actions, dealings, conduct and admissions. See footnote 87. But, there must be material terms to have enforceable partnership agreement. See footnote 89. Multiple unsigned draft agreements do not prevent a finding of an oral agreement. Due to issues of material facts, summary judgment motion was denied. In essence, this allowed the claims to proceed to trial
The motion was also denied on the promissory estoppel claim due to issues of material fact. Notably, the Court previously denied a motion to dismiss this same claim. See footnotes 100 to 104. Compare the doctrine of “Sham Affidavit” that conflicts with prior sworn testimony. See footnotes 97 and 98 and 110.
Moreover, a fraud claim was allowed to proceed due to the same factual issues that led to denial of motion to dismiss this claim. An unjust enrichment claim was allowed to proceed despite an alleged contract, due to factual issues and based on the validity of the contract being in doubt. See footnote 130.