Adler v. Hummock Island Shellfish, LLC

Citation: Not availableDocket: N17C-10-255 CLS

Court: Superior Court of Delaware; January 6, 2019; Delaware; State Appellate Court

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Hummock Island Shellfish, LLC (Hummock Island), a Delaware LLC based in Connecticut, began operations in 2014 and sought capital through a Note Purchase Agreement (NPA) with Outlier Capital, LLC, represented by Joshua Newman. The NPA, dated February 15, 2014, involved the issuance of various convertible promissory notes, including a $50,000 note payable to Outlier Capital, convertible into a membership interest in Hummock Island. Prior to this, Outlier had invested $15,000 in Hummock Island for purchasing seedlings.

Joshua Adler, the Plaintiff, had an independent relationship with Outlier and Newman and filed a civil complaint against them on March 16, 2015, claiming breach of contract, resulting in a default judgment of $127,396.51 in his favor on May 14, 2015. A Writ of Attachment was issued on July 31, 2015, ordering Hummock Island to retain assets belonging to Outlier.

On August 28, 2017, Adler and Newman entered a Settlement Agreement wherein Newman assigned rights related to the Hummock Island NPA and related notes to Adler as satisfaction of the judgment against Outlier. Adler asserts he has the right to enforce the rights previously held by Outlier, seeking partial Summary Judgment for the $15,000 initial investment plus accrued interest and legal fees due to Hummock Island's alleged default.

Hummock Island contends that Adler's claims are based on an invalid assignment of the Note and NPA, arguing that Outlier did not meet its obligations under these agreements, and thus Adler cannot succeed on his breach of contract claim. Furthermore, Hummock Island asserts that any transfer of membership interest not conducted per the LLC's operating agreement is void.

Defendant contends that the Note required Outlier to surrender it for a valid transfer to another party, which did not occur. Additionally, Defendant challenges Plaintiff's reliance on Newman’s factual representations regarding the assignment of rights under the Note and NPA, arguing that the Settlement Agreement inaccurately assigns both the $50,000 and superseded $100,000 Notes. Defendant highlights Plaintiff's prior characterization of Newman as a “con man,” suggesting that this undermines any reasonable reliance on misrepresentations.

The Court’s standard for granting summary judgment requires that no genuine issue of material fact exists, with the moving party initially bearing this burden. If met, the burden shifts to the non-moving party to demonstrate disputed facts. The Court must view the record favorably towards the non-moving party and will deny summary judgment if further factual inquiry is warranted.

In assessing the breach of contract claim, Plaintiff asserts that all conditions precedent have been met. However, Adler has not demonstrated that Outlier fulfilled its obligations regarding the issuance of the Note, creating a material factual dispute about the contract’s formation. Furthermore, Adler has not proven a valid transfer by Outlier/Newman as required by the Note’s terms. Consequently, Plaintiff’s motion for summary judgment on this claim is denied.

Regarding the unjust enrichment claim, which requires showing that the Defendant retained a benefit at the Plaintiff's expense, Plaintiff's assertion as Outlier’s assignee presupposes the assignment's validity. Defendant raises factual disputes about this assignment and Plaintiff’s reliance on the Settlement Agreement, leading to genuine issues that must be resolved. Therefore, summary judgment on this claim is also denied.

Consequently, Defendant’s Motion for Partial Summary Judgment is denied.