Opinion
C.A. No. 3110-VCL.
Submitted: July 8, 2008.
Decided: September 24, 2008.
Karen L. Valihura, Esquire, Brian G. Lenhard, Esquire, Marion M. Quirk, Esquire, Sarah S. Kang, Esquire, SKADDEN ARPS SLATE MEAGHER FLOM LLP, Wilmington, Delaware, Attorneys for the Plaintiff.
Ronald G. Poloquin, Esquire, YOUNG MALMBERG HOWARD, P.A., Dover, Delaware, Attorney for Defendant Robert A. Cooke. Gary R. Dodge, Esquire, LAW OFFICES OF GARY R. DODGE, P.A., Dover, Delaware, Attorney for Defendant Terri Lynn Cooke.
Timothy A. Reisinger, Esquire, TIMOTHY A. RESINGER, P.A., Dover, Delaware, Attorney for Defendant State Street Realty, LLC.
MEMORANDUM OPINION AND ORDER
This case concerns claims of financial exploitation of a Vietnam veteran by a marijuana dealer with whom he shared a close friendship over a period of years. The evidence adduced during discovery and at trial was marked by half-truths and distortions. The plaintiff's own trial testimony was largely incredible. Weighing all the evidence and circumstances, the court concludes that the plaintiff has failed to establish any basis for relief. Thus, judgment will be entered in favor of the defendants and against the plaintiff on all counts.
I.
A. The Parties
Lesley R. Stephenson, the plaintiff, is a decorated veteran of the Vietnam War, having served in a regiment of the United States Marine Corps that saw consistent combat. As a result of his service, Stephenson suffered physical injuries. He was also later diagnosed with, and continues to suffer from, severe post-traumatic stress disorder.
Robert A. Cooke, the principal defendant, was Stephenson's close friend during the time relevant to this action. Terri Lynn Cooke, also a defendant, is Robert Cooke's wife, and served as Stephenson's realtor in connection with the 2005 sale of his home. Terri Cooke worked at the real estate brokerage firm of State Street Realty, LLC, also named as a defendant.
B. Procedural History
On July 20, 2007, Stephenson filed his verified complaint asserting claims for breach of fiduciary duty, aiding and abetting breaches of fiduciary duty, breach of contract, fraud, equitable fraud, unjust enrichment, constructive trust, civil conspiracy, and vicarious liability. These claims all arise out of the complex financial relationship that developed during the course of the friendship between Stephenson and Cooke. As the court will discuss in this opinion, Stephenson both gave Cooke control over large amounts of his money and also relied heavily on Cooke to advance him money when he was without funds. Stephenson premises his complaint against Cooke on two principal theories. First, Stephenson contends that Cooke was his fiduciary to whom he entrusted his finances and that Cooke acted in breach of his fiduciary duties in a number of ways that caused a diversion of his money to Cooke's use. Second, Stephenson contends that, in 2005, Cooke, with the help of Terri Cooke and due to the negligence of State Street Realty, tricked him into signing a mortgage and bond in order to misappropriate more than $58,000 that he would have otherwise received when he sold his home.
The parties conducted extensive discovery and a three-day trial was held in July 2008. This is the court's post-trial opinion.
C. Overview Of The Facts
At this point in the opinion, the court will only briefly outline the facts in order to put the issues raised in context. Certain matters will be addressed in more detail in the court's discussion of the legal claims raised.
Cooke and Stephenson met while working together at a car dealership. They eventually found that they had a common link binding them together — illegal drugs. Cooke testified at trial that from 1988 until April 2005 he sold marijuana to a regular base of clients. Although no details were given at trial, it is uncontested that, during this same period of time, Stephenson regularly used drugs, including drugs other than marijuana. He may also have assisted Cooke in some aspects of Cooke's illegal activities. Over time, the two became close friends-at least one witness characterized them as being like an old married couple-and they came to help each other with money and drug deals. The two did not socialize publicly, but both Cooke and Stephenson testified that they were best of friends.
For instance, Stephenson testified that he did not want to elaborate on what kind of favors he did for Cooke because he might incriminate Cooke. Cooke recounted a time Stephenson accompanied Cooke to Philadelphia to consummate a drug deal, stating that Stephenson always had his back.
Stephenson received monthly benefits from the United States Department of Veterans Affairs (the "VA"). In July 1999, for reasons that will be discussed later in this opinion, Stephenson authorized the VA to begin depositing his monthly disability check into one of Cooke's bank accounts (the "Discover Bank Account"). Stephenson stopped this automatic deposit in August 2000, but resumed the practice in February 2002. Stephenson again instructed the VA to stop making those deposits in October 2004. In total, $104,639 of Stephenson's disability payments were deposited into the Discover Bank Account.
Initially, Stephenson was not considered fully disabled, and received only 15-20% of the disability payments available to veterans. However, in 1997, Stephenson became eligible for 100% of the disability payments. As a result, Stephenson received a lump sum of $52,217 from the VA on September 8, 1997. Cooke testified that Stephenson gave him $10,000 of this money as partial payment towards Stephenson's debt to him. Cooke also testified that he helped Stephenson get a certificate of deposit for $30,000 so that Stephenson would not spend that this money on illegal drugs. However, according to Cooke, Stephenson obtained a line of credit secured by the CD, and spent the money. From September 1997 forward, Stephenson received increased monthly payments. Stephenson received $2,068 in July 1999, and by October 2004 this amount had increased to $2,325.
Stephenson's name was added to the account, but Stephenson never bothered to take the steps needed to give him authority to withdraw funds from the account or to receive duplicate account statements.
In addition, from July 2001 until November 2004, Stephenson gave Cooke $13,846 in checks other than his VA benefit checks to deposit in an account Cooke maintained at Wilmington Trust Company (the "WTC Account"). Approximately $6,800 of that money was deposited between September 2000 and January 2002, when Stephenson was not depositing his disability payments into the Discover Bank Account.
Both Cooke and Stephenson testified that when Stephenson's disability checks were being deposited in the Discover Bank Account, Stephenson would contact Cooke at the beginning of the month to discuss the bills he owed. Cooke would then give Stephenson a portion of the monthly disability payment, by either writing a check or giving Stephenson cash, after which Stephenson would either mail the check or pay the vendor in person. Cooke and others testified that he would also give Stephenson more money thereafter over the course of the month.
In May 2000, Stephenson bought a house located at 1852 Bryn Zion Road in Smyrna, Delaware (the "Property") for a purchase price of $110,000. The seller was Cooke's then-girlfriend, Mary Ann Bolles, from whom Stephenson had been renting the house for approximately one year. In 2004, Stephenson decided to sell the Property and, on November 17, 2004, he and State Street entered into an exclusive listing agreement for that purpose. On February 2, 2005, Stephenson and the buyers signed an agreement of sale for the Property in the amount of $215,000. Terri Cooke, for State Street, acted as his agent.
On May 30, 2000, Stephenson used a $110,000 mortgage obtained from American SkyCorp, Inc. to purchase Bolles's house. For reasons that were never convincingly explained, Bolles turned over the net proceeds of this sale ($24,595) to Cooke, who then gave her $3,000. Bolles, Stephenson, and Cooke told three different accounts of this transaction. Bolles testified that she had arranged with Cooke and Stephenson to have this amount go to Cooke in order to relieve some of Stephenson's debt to Cooke. According to Bolles, she was content to give Cooke almost $22,000 because they were in a long-term relationship, she was no longer living in the house, and she was more interested in selling the house than making a profit from its sale. She characterized the decision as the result of stupidity and testified she would not make the same decision again. Stephenson denied the existence of any debt owed to Cooke, and testified that he fully expected to receive the check for $24,595 upon closing, although he never explained why he-the buyer-would be entitled to any part of the sales proceeds. Undercutting his account, Stephenson admitted he never attempted to obtain the surplus money from Bolles. Cooke testified that he received the money as repayment of a debt Stephenson owed him, although he made no effort to explain why or how his receipt of the net equity from the sale that obviously belonged to Bolles should serve to reduce Stephenson's debt to him. As there is no reason to believe that the house was not worth $110,000 at the time of the sale, it would seem that the money belonged to Bolles, not Cooke.
On March 7, 2005, Stephenson signed a mortgage and bond that reflected a $62,000 debt owed to Cooke, and secured by the Property. Cooke then recorded this mortgage. Shortly before the closing was scheduled to take place, Cooke was arrested by federal authorities on drug dealing charges and released on bail.
On March 31, 2005, Stephenson closed on the sale of the Property. At closing, a check for $58,150 made payable to Cooke was delivered to Terri Cooke in satisfaction of the recorded mortgage in favor of her husband. Immediately after the closing and in Stephenson's presence, Terri Cooke gave this check to Cooke, and it was later deposited into an account in the Cookes' joint names.
This amount represented the purchase price minus the payoff of a mortgage Stephenson had taken out from Option One Mortgage Company on April 29, 2004 and settlement charges, less $3,850 (see note 19, infra).
Cooke later told Stephenson that he would no longer be his friend and refused to give him any of the money from the closing. This led Stephenson to raise objections to Cooke's receipt of the net proceeds from the sale of the Property and eventually resulted in the filing of this lawsuit.
II.
A. Existence Of A Fiduciary Duty
As this court has explained in Faraone v. Kenyon:
Courts have been reluctant to draw bright lines that cast in immovable stone a precise point where a fiduciary relationship will (or will not) be found to exist. . . . Nonetheless, it may fairly be stated as a rule of thumb, that where one party has a relationship of superiority to another, and the other party's protections are based on investing trust and confidence in the person holding the superior position, those circumstances will give rise to a fiduciary relationship.
2004 WL 550745, at *8-9 (Del.Ch. Mar. 15, 2004) (citation omitted).
Three cases — Swain v. Moore, Heston v. Miller, and Coleman v. Newborn — are instructive. In Swain:
71 A.2d 264 (Del.Ch. 1950).
1979 WL 174446 (Del.Ch. Oct. 11, 1979).
948 A.2d 422, 431 (Del.Ch. 2007).
An elderly man (Swain), who lived alone and was in poor health, gifted his car and a substantial portion of his property to a young couple, based on an oral agreement whereby Swain would live with the couple in their home. The parties became estranged and Swain moved out. This Court found that, due to their superior position and the relationship of trust and confidence, the young woman and her husband were fiduciaries of Swain. The Court ordered the couple to return Swain's car and property.
Faraone, 2004 WL 550745, at *9.
Similarly, in Heston:
An elderly mother in poor health gave her daughter a portion (and loaned her the rest) of the proceeds from the sale of her home. In exchange, the daughter orally promised to care for and support the mother for the rest of her life. A dispute arose, and the mother was forced to move out of her daughter's home. The daughter (and son-in-law) refused to repay the loan or return the gift. Given the daughter's superior position, the mother's dependency, her lack of legal representation, and the decidedly beneficial nature of the transaction to the daughter, this Court found that the daughter was a fiduciary of her mother and granted relief.
Id. at *8.
And in Coleman, this court found a fiduciary relationship to exist between two sisters where one sister's physical and psychological problems rendered her "unstable, immobile, and incapable" of managing her affairs, becoming reliant on the assistance of others. The court went on to note that "[h]er dependency and vulnerability was intensified due to a lack of a stable, meaningful relationship with anyone other than [the alleged fiduciary]."
Id.
Although it seems clear that Cooke's assistance with Stephenson's money management had a salutary effect on Stephenson, the facts, as found based on the credible evidence, do not support a finding of a fiduciary relationship between these two men. In significant part, this conclusion is based on the observation that in many important aspects Stephenson's testimony at trial was incredible. This includes his testimony about the reasons for establishing the depositary relationship at Discover Bank, the Onyx transaction discussed later in this opinion, the circumstances surrounding his execution of a series of notes in favor of Cooke, including the March 2005 bond and mortgage, and his state of mind at the March 30, 2005 closing. Notably, even after Stephenson's testimony was largely contradicted by the other witnesses, he did not take the stand to offer any rebuttal testimony, further undermining his credibility.
There are also serious questions regarding the honesty and truthfulness of Cooke, a confessed drug dealer who spent many years engaged in illegal activities. Moreover, as Stephenson's counsel pointed out, Cooke's interrogatory answers and deposition testimony were, in important respects, replete with half-truths and inconsistencies. Nonetheless, for the most part, Cooke appeared to testify with a greater degree of candor and completeness at trial, and the court places greater weight on his testimony than on Stephenson's.
Stephenson testified that Cooke began helping him with his finances because he suffered a series of hospitalizations in the 1990s and was diagnosed with post-traumatic stress disorder. As a result, Stephenson claims to have become unable to manage his own finances and, following his doctors' advice to reduce the amount of stress in his life, began depositing his disability payments into the Discover Bank Account. He asserts that this evidence of incapacity, dependency, and reliance gave rise to a broad fiduciary relationship between the two men. While there is probably some truth to the idea that Stephenson's disorders and his drug use made him irresponsible with his money, the credible evidence, taken as a whole, does not support Stephenson's assertion that those circumstances led to the Discover Bank depositary arrangement with Cooke.
Cooke did not deny that Stephenson deposited his disability payments into the Discover Bank Account, or that he helped Stephenson pay his bills. Cooke denied, however, that he was Stephenson's fiduciary, and denied that Stephenson initially entrusted his finances to Cooke because he was unable to manage them himself. Rather, Cooke testified, Stephenson began depositing the disability payments into the Discover Bank Account because Stephenson wanted to rent the Property from Bolles. According to Cooke, Bolles was uneasy about renting the property to Stephenson because he had a history of not paying his bills on time, if at all. The solution worked out between the three of them was that Stephenson would redirect his monthly disability payments into an account controlled by Cooke, and Cooke would then ensure that Bolles was paid the rent. Thus, Cooke's testimony was that Stephenson began depositing his disability payments in the Discover Bank Account in order to rent a house, not because Stephenson was dependant upon Cooke to manage his finances. Bolles's testimony on this point supported Cooke's account.
The circumstantial evidence also supports Cooke's account. Stephenson moved into Bolles's house in the first month he deposited his disability payments into the Discover Bank Account-July 1999. Moreover, he stopped depositing his disability payments into the Discover Bank Account in August 2000, two months after he purchased Bolles's house. From this, the court concludes that Stephenson did not turn to Cooke to manage his finances because he was unable to do so and Cooke did not agree to do more than pay the rent and give the rest of the money to Stephenson. Rather, it simply made Stephenson's life easier and allowed him to rent a house he would not have otherwise been able to rent. These facts do not give rise to a broad fiduciary relationship.
This conclusion is reinforced by the fact that Stephenson only deposited his disability payments into the Discover Bank Account sporadically, first from July 1999 to August 2000, and then from February 2002 until October 2004. Although it appears that Cooke wrote approximately $2,600 in checks payable to Stephenson during the gap period, nothing suggests that Stephenson relied on Cooke to pay bills during the gap period in the way he did during the period he was depositing disability payments into the Discover Bank Account. Rather, it appears that during this gap time, Stephenson managed the use of his primary source of income, i.e. his disability payments. This mitigates against any conclusion that Stephenson was dependent upon Cooke.
Even by Stephenson's own testimony, any dependancy he had on Cooke was limited in scope. He used a day planner to keep track of when certain bills were coming due, and paid the vendors himself. Cooke merely gave Stephenson money to pay the bills. Thus, at most, it appears that Stephenson relied on Cooke to keep money out of his hands so he could not spend it improvidently. Surely, Cooke had a duty not to misappropriate Stephenson's money, but the facts in this case, unlike those found in Heston, Coleman, and Swain, do not evince the dependance and superiority necessary to give rise to a fiduciary relationship that made Cooke responsible for all of Stephenson's finances or make Cooke responsible in this case to account to Stephenson as a fiduciary.
B. The Discover Bank Account
During the time he directed his VA benefits for deposit to Cooke's bank account, Stephenson never asked to receive and did not receive any account statements. He also never completed the paperwork needed to obtain the right to withdraw funds from that account. Stephenson does not suggest that Cooke interfered in any way with his gaining access to information or the funds themselves. Rather, it seems that Stephenson was content to use Cooke's account as his own and, due to their friendship, expected Cooke to treat him fairly.
Apparently, it was only after he began to explore litigation against Cooke following the sale of the Property that Stephenson first considered whether he had obtained the full benefit of the VA checks that were deposited in Cooke's bank account. When this subject was raised in discovery in 2007, Cooke no longer had any of his old bank records. Those records had either been seized by the federal government in connection with the criminal charges brought against him or later thrown out by him. Thus, only partial records that the parties were able to get from the bank are available. Of particular note, Cooke's journal of debts owed by Stephenson is no longer available for inspection.
At trial, in order to prove damages relating to the VA benefits and related cash flow issues, Stephenson introduced the expert report and expert testimony of Ernest L. Ten Eyck, a senior managing director of FTI Consulting, Inc. Ten Eyck is a Certified Public Accountant and a Certified Fraud Examiner with more than 36 years of experience. As his report relates to the Discover Bank Account, Ten Eyck reports that he and his staff reviewed account records covering the periods December 18, 2000 to April 16, 2003 and November 2003 through November 17, 2005. Ten Eyck opined that Cooke withdrew or applied to his own benefit $32,300 of Stephenson's VA benefits. After reviewing other transactions between Stephenson and Cooke involving two other accounts, Ten Eyck opined that Stephenson benefitted in the amount of $4,774. Netting these two figures and applying an interest figure, Ten Eyck testified that Cooke owes Stephenson $42,305.
Ten Eyck makes a number of assumptions that are detailed in his report. Many of these appear to be quite conservative. For example, since he had no bank records covering the first period in which VA benefits were deposited into the Discover Bank Account, he excluded those deposits from his consideration. There is one assumption he makes, however, that has a materially positive affect on his finding of damages. As described at paragraph 26 of his report, Ten Eyck acknowledges Cooke's deposition testimony to the effect that approximately $35,000 of checks drawn on his WTC Account made payable either to cash or to Cooke himself were actually used to obtain cash for Stephenson. But, since Ten Eyck saw no other evidence that the proceeds of those checks were used for Stephenson's benefit, he disregarded them in his analysis. If those checks were in fact used to benefit Stephenson, Ten Eyck's assessment of damages from these aspects of the Stephenson/Cooke relationship would be reduced to zero.
A difficult aspect of this case is that it involves an extended period of dealings between two friends, both engaged in illegal or illicit activities and neither of whom kept normal records of their financial dealings. It is, frankly, impossible for either of the parties or the court to fully explain or understand the cash flows from the Discover Bank Account or, for that matter, other transfers of funds between Stephenson and Cooke.
There is no question that Stephenson habitually asked Cooke for money. Many witnesses testified plausibly about Stephenson's frequent visits to Cooke's home or place of business when Stephenson was in need of cash. This testimony established that Cooke both obtained cash from his WTC Account in order to give it to Stephenson and also loaned money to Stephenson from stockpiles of cash kept either at Cooke's home or in his car in connection with his drug dealing activities. Stephenson admitted receiving cash from Cooke, but could not estimate the amount.
There is also no evidence from Stephenson suggesting that he ever, during this time period, kept any sort of account of how much money he was getting from Cooke, either on account of his VA benefits or as loans. Stephenson and Cooke occasionally discussed the fact that Stephenson was indebted to Cooke, but those discussions were apparently based only on Cooke's "crib sheet" and the men's recollections. As will be discussed later, the only written evidence of Stephenson's indebtedness is the series of notes he executed in Cooke's favor.
In the circumstances, the court is unable to agree with Ten Eyck's decision to disregard the $35,000 in checks written on Cooke's WTC Account made payable to Cooke or to cash in calculating the "balance of payments" between the two men. Cooke's testimony is that he frequently drew funds from that account when Stephenson came to his place of business looking for money because there was a branch nearby. This testimony was believable and was not contradicted by Stephenson. Thus, the court cannot rely on Ten Eyck's conclusion that $32,300 of Stephenson's VA benefits were used by Cooke for his own benefit. While it seems plausible, given the laxity of the arrangements between these two men, that Cooke may have come out ahead in these dealings, there is no way of establishing that as a fact.
C. The Onyx Check
In 2004, Stephenson refinanced the mortgage on the Property, obtaining a larger mortgage from Option One Mortgage Company. As part of this refinancing, Stephenson consolidated certain debts, including one with Onyx Acceptance Corporation that related to a car that had been repossessed a year earlier. To satisfy the Onyx debt, Stephenson received a check made payable to "Onyx Acceptance Corp." in the amount of $3,646, dated May 5, 2004 (the "Onyx Check"). He was expected to send that check to Onyx in satisfaction of his debt. Instead, the Onyx check was improperly negotiated by Cooke, using his WTC Account. In this case, Stephenson sues to recover the amount of the check plus damages.
Stephenson testified implausibly that he gave the Onyx Check to Cooke and expected Cooke to mail the check to Onyx. Instead, according to Stephenson, Cooke signed his own name to the back of the check and, on May 14, 2004, went to the bank alone and deposited the check into his WTC Account and did not give any of the proceeds to Stephenson. The Onyx loan was never paid and remained outstanding against Stephenson. Onyx eventually sued Stephenson in the Court of Common Pleas to collect the unpaid debt, plus interest and attorney fees, and in April 2005 obtained a default judgment against Stephenson in the amount of $8,024.76. WTC charged the check back against Cooke, who was required to reimburse the bank the full amount.
Cooke gave conflicting accounts of what he did with the Onyx Check. At trial, he testified that he paid Stephenson $400 or $600 the day they cashed the check at the bank and a couple days later, after the check cleared, gave him the rest of the money. Based on the deposition testimony and observation of the witnesses at trial, the court finds, as before, that Cooke's trial testimony was more credible than Stephenson's. Therefore, the court finds that Stephenson accompanied Cooke when Cooke cashed the Onyx Check, and that Cooke gave Stephenson most of that money, keeping only a small portion for his involvement in this scheme.
First, Cooke claimed in an interrogatory response that he had never endorsed the Onyx Check. At his March 6 deposition, Cooke was shown a copy of the Onyx Check, which has his signature on its back. Cooke then claimed that he withdrew $3,400 from his WTC Account to give Stephenson in exchange for the $3,646 Onyx Check. However, he later stated variously that he gave Stephenson $3,400 pulled from a store of cash he kept in his Jeep or a box in his closet.
D. Stephenson's Debt To Cooke
While there is no "transparent set of . . . records" kept of Stephenson's finances, Cooke testified that Stephenson incurred a substantial debt to him over the time period from 1999 to 2005. According to Cooke, Stephenson continually asked him for money after his monthly VA payments were used up, and he gave Stephenson money-including sums of up to $3,000 at a time-with the expectation of being repaid. In support, Cooke points to a series of debt instruments Stephenson signed between 2002 and 2004 — a 2002 promissory note evidencing a $50,000 debt, a 2004 mortgage and bond evidencing a $62,000 debt, and the virtually identical mortgage and bond signed on March 7, 2005.
Estate of Carpenter v. Dinneen, 2008 WL 859309, at *13 (Del. Ch. Mar. 26, 2008). Cooke testified that in October 2006 he destroyed his financial records at a celebratory "record destruction" party he threw once he learned he was not going to jail.
Stephenson asserts that he never incurred a debt to Cooke. In addition, Stephenson denies that he signed any of the debt instruments knowing that they evidenced a debt to Cooke. With respect to the 2002 promissory note, Stephenson testified he was about to have a major surgery, and realized that he had not adequately prepared for the care of his 11 year old daughter in the event of his death. According to Stephenson, he spoke with Cooke about different ways to leave his daughter money, and the two of them decided to leave Cooke $50,000 to hold in trust for Stephenson's daughter in the event of his death. Stephenson testified that he went to Staples and purchased the promissory note. He then signed the note, expecting that it would allow Cooke to recover $50,000 from the equity in the Property for the benefit of his daughter.
Stephenson also denied that he intended to sign a mortgage and bond in either 2004 or 2005. With respect to the 2004 mortgage and bond, Stephenson testified that he again believed he was signing a testamentary document to benefit his daughter. According to Stephenson, Cooke had reservations about the ability of the 2002 promissory note to provide for Stephenson's daughter and arranged for him to see Melvin Soll, Cooke's attorney, to draw up more formal papers for his signature. Stephenson testified that he went to Soll's office and, before signing, asked Soll if he should sign the document that was drafted at Cooke's request. According to Stephenson, Soll responded "Cooke is your friend isn't he?" and he signed the papers without reading them, believing that he had no reason to distrust Cooke, his fiduciary.
Soll passed away on May 8, 2007.
Stephenson's testimony about the 2005 mortgage and bond followed a different path. Rather than testifying that he thought he was signing documents providing for his daughter in the event of his death, Stephenson testified that Terri Cooke and Robert Cooke concocted an elaborate scheme to trick him into signing the 2005 mortgage and bond. Stephenson testified that he was under immense pressure in the early days of March 2005. According to Stephenson, he was several months in arrears on his Option One mortgage payments, and was worried that Option One would bring foreclosure proceedings after March 31, 2005. In other words, Stephenson testified that he was afraid he might lose his equity in the Property if the closing did not occur by March 31, 2005. As Stephenson further testified, Terri and Robert Cooke were well aware of his financial pressure, and schemed to use this pressure to defraud him of the equity proceeds from the sale of the Property.
According to Stephenson, on March 7, 2005, Terri Cooke called to tell him she had not received the payoff from Option One and that he had to sign a document as soon as possible in order for the closing of the sale to proceed on March 31, 2005 as planned. She allegedly told him she had given Cooke the necessary paperwork, and instructed Stephenson to meet Cooke at Cooke's place of employment, a car dealership in Dover. As requested, Stephenson went to the dealership.
As Stephenson tells it, Cooke was busy with work and hurriedly handed him papers to sign. Relying on Terri Cooke's representations that he was signing payoff authorization forms, and claiming to feel intense pressure that he might lose his house in the next three weeks, Stephenson testified that he signed the papers without reading them. When asked how he did not notice that the document was titled "Mortgage" in bold, upper-case letters, Stephenson testified that he could not see the first three pages of the mortgage or the top of the bond because the pages were folded over to the signature page. Stephenson then demonstrated to the court how the papers were folded. According to Stephenson, Cooke kept the papers, and ultimately recorded the mortgage. Stephenson further testified that he called Option One after he signed the documents at the dealership to report that Terri Cooke would be sending a payoff authorization form shortly. However, Option One told him they already had the information. Surprised, Stephenson claims that he called Terri Cooke to tell her that the mortgage company already had all the necessary information, and Terri Cooke explained that she had found and forwarded it.
A few days before closing, Terri Cooke called and told Stephenson that the closing check was going to be made out to Cooke. Stephenson testified that he balked at the suggestion, and did not understand why the check should go to Cooke rather than to him. However, Stephenson said, he felt so pressured by the threat that Option One would institute foreclosure proceedings on the Property if the sale did not close by March 31, 2005 that he acquiesced once Cooke assured him that he would write him a check for the equity proceeds once the closing was finished.
At closing, a check for $58,150 was given to Cooke. Stephenson testified that he asked Cooke to give him a check in an equivalent amount as promised, but Cooke told him he had forgotten his checkbook and to call him the next day. He further testified that when he called Cooke, Cooke refused to give him any money, and told him the friendship was over. On April 1, 2005, Terri Cooke and Robert Cooke deposited the check into a jointly-owned account with the Delaware State Police Federal Credit Union.
Cooke testified that he agreed to reduce the amount of the mortgage from $62,000 to $58,150 because the sale would not close unless he did so; if Stephenson had to pay off the $62,000 amount he would have had to bring $3,850 to the closing. At trial, Stephenson attempted to make it seem as if Cooke agreed to lower this amount to assure that his fraud would not be derailed. A more plausible explanation is that in light of Cooke's recent arrest, he simply wanted to end his relationship with Stephenson, even if it meant lowering the amount of his mortgage by $3,850.
As further evidence of the purported fraud, Stephenson points to a document in the record titled "Payoff Information Form" dated March 4, 2005 and signed by him. This form authorized the release of funds from the sale of the Property to those, such as Option One, who had a financial interest in the Property. The completed form was found only in Terri Cooke's files, not State Street's or those of the buyer's attorney, Mark Sisk. More notably, on the Payoff Information Form, Terri Cooke included a handwritten entry naming "Robert Cooke" as a second mortgage, and made a note to "See mortgage attached" on the line requesting the account number. The document is dated March 4, 2005, even though all parties agree Stephenson did not sign the 2005 mortgage and bond until March 7, 2005. Stephenson testified that he did not believe he signed the document, and that he was sure he never saw the form with a reference to a second mortgage. According to Stephenson, this document establishes that the Cookes tried to defraud him of the equity proceeds from the sale of the Property.
Cooke testified that Stephenson understood the nature of each of the debt instruments he signed. Cooke testified credibly that the 2002 promissory note evidenced a $50,000 debt owed by Stephenson as of 2002. According to Cooke, he discussed with Stephenson that he owed a large amount of money, and that, at the time, mutual friends who abused drugs had recently died. As a result, Cooke insisted that Stephenson sign the promissory note before he would loan Stephenson any more money. Stephenson needed a loan, so he prepared and signed the promissory note, gave it to Cooke, and then borrowed more money. Also, according to Cooke, he became uneasy with the rather informal promissory note Stephenson had executed in 2002 and, in 2004, asked Stephenson to sign more formal papers before lending him any more money. To that end, Cooke testified that he asked Stephenson to go to Soll's office and execute the 2004 mortgage and bond. Stephenson went to Soll's office and signed the mortgage and bond, but Cooke never received an executed copy, and assumed Stephenson had kept it. Finally, in contrast to Stephenson's complex explanation for why he signed the 2005 mortgage and bond, Cooke provided a simple explanation — he distrusted the validity of the 2002 promissory note, and had never received a copy of the 2004 mortgage and bond, yet Stephenson was about to sell the Property and was asking to borrow more money, so he asked Stephenson to sign a new mortgage and bond.
An overwhelming preponderance of the credible evidence supports a finding that Stephenson incurred the debt to Cooke evidenced by Stephenson's signatures on a promissory note in 2002, a mortgage and bond in 2004, and a mortgage and bond in 2005. First, the documents themselves unambiguously evidence a debt. At the top of the promissory note, the words "Promissory Note" appear in bold, upper-case letters, and the form reads "For value received, the undersigned hereby jointly and severally promise to pay to the order of Robert Cooke the sum of Fifty-Thousand Dollars ($50,000)." The note does not provide for any interest to be paid on the balance, but Stephenson wrote in a blank on the form that the sum would be paid "[i]n cash, in the event of my death. Real estate equity on property located at 1852 Bryn Zion Rd., Smyrna De — 19977." In addition, Stephenson's signature appears directly above the word "Borrower." There is nothing ambiguous about this document.
TC 7. Stephenson handwrote the name "Robert Cooke," the words "Fifty-Thousand," and the amount "$50,000."
The 2005 mortgage and bond, which are identical to the 2004 mortgage and bond except for the dates identified in the documents, are similarly clear. The mortgage is titled "Mortgage" in bold, upper-case letters. It provides "[t]his indenture [is] made the 7[th] day of March, 2005, between Lesley R. Stephenson . . . and Robert Cooke . . ." and that Stephenson "stands firmly and truly bound unto [Cooke] in the sum of sixty two thousand ($62,000) dollars. . . ." It then describes the Property secured by the mortgage. The bond is equally clear, stating "know all men by these presents that I, Lesley R. Stephenson (Obligor) do hereby acknowledge that I am indebted to Robert Cooke (Obligee) . . . in the principle [sic] sum of sixty two thousand ($62,000) Dollars." Where, as here, there is nothing ambiguous about documents evidencing a debt, courts will enforce the plain meaning of those documents.
TC 14.
TC 13.
Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del.Ch. 2006) (applying the objective theory of contract interpretation to a promissory note); 59 C.J.S. Mortgages § 135 (noting that the general rules of contract interpretation apply to mortgages).
Second, Stephenson's testimony that he signed the documents only because Cooke, his alleged fiduciary, told him to do so was not credible. As an initial matter, the court has already found that Cooke was not Stephenson's fiduciary with respect to all of Stephenson's finances, including loans Cooke made to Stephenson. Therefore Stephenson would not have been justified in signing papers without reading them simply because Cooke told him to sign them.
More important, Stephenson's testimony as to how Cooke allegedly tricked and defrauded him was wholly unbelievable. For instance, one would expect that if, as Stephenson testified, the 2002 promissory note was to be a means for providing for his child in the event of his death, the document would make at least some mention of his daughter. There is none. Stephenson's testimony that he omitted any mention of his daughter because he was afraid that doing so would make it easier for his ex-wife to obtain the money was unreasonable and not credible. Cooke's testimony as to why Stephenson signed the 2002 promissory note, i.e. that some of their mutual friends had died of drug overdoses, Stephenson owed Cooke a lot of money, and Cooke wanted some protection of the debt, was much more credible.
Also, having observed the witnesses at trial, the court does not credit Stephenson's testimony that he never read the 2004 mortgage and bond and did not know what he was signing. In any event, the 2004 mortgage and bond has little bearing on the present case, as it was never recorded, no one appears to have a signed copy of it, and a signed copy has not been entered into the record. Thus, even if the court believed Stephenson's story about signing the 2004 mortgage and bond (which it does not), the outcome of this litigation would not change because there is better evidence of the debt Stephenson owed Cooke, namely the signed version of the superseding 2005 mortgage and bond in the record.
Blank versions of the 2004 mortgage and bond were found on Soll's computer by the receiver of Soll's law practice, Stephen Holfeld, and entered into the record.
Stephenson's testimony about why he signed the 2005 mortgage and bond was utterly unbelievable. To start with, Stephenson's demeanor at trial was not that of a person telling the truth; his demonstration of how the pages of the mortgage and bond were folded such that he could not see the front few pages rang hollow. Moreover, it is unbelievable that even if the documents were folded as Stephenson described that he would not have seen language indicating he was signing a debt instrument. For instance, in the mortgage, the paragraph immediately preceding Stephenson's signature reads "in Witness whereof, the said Mortgagor to these presents has caused this indenture to be executed under seal the day and year first above written," and the paragraph immediately below his signature describes the document as a "mortgage instrument." In the bond, Stephenson's signature appears directly above the word "obligor." Finally, it is simply not credible that a person as well-versed in mortgages as Stephenson could have mistaken the four-page mortgage, which required a notary and signatures of witnesses, for a payoff authorization form.
TC 14.
TC 13.
By 2005, Stephenson had obtained 5 mortgages, and worked for a mortgage company.
Additionally, Terri Cooke testified credibly that she never called Stephenson on March 7, 2005 to ask for the payoff authorization. Moreover, two other documents indicate Stephenson knew that he had signed a mortgage and bond — the settlement statement and the Payoff Authorization Form, both of which were signed by Stephenson and clearly note the existence of the 2005 mortgage and bond. And while Stephenson points to a motivation for the Cookes to have defrauded him in 2005, i.e., Cooke was planning a $60,000 drug deal and wanted to pay a debt to the IRS, he can point to no similarly nefarious motivation for why Cooke sought to obtain the 2002 promissory note or 2004 mortgage and bond.
Stephenson sought to portray the closing as a harried event, with people signing documents in a rush to close before the close of the day, in order to justify his assertion that he did not review the settlement statement. Thus, Stephenson testified, he never saw that Cooke was receiving a check because Cooke held a mortgage and bond on the Property. The closing attorney, Mark Sisk, stated in his deposition that he never discussed with Stephenson the second mortgage evidenced on the settlement statement. However, Sisk also testified to the effect that the closing was a fairly relaxed event. Sisk 109:5-8 ("A. . . . As we sit here, I do recall Mr. Stephenson is a Vietnam veteran and we perhaps talked about that at the closing just in terms of passing the time of day."). Indeed, Stephenson can offer no reason for why this particular closing should have been so hectic and frenzied. Nothing in the record suggests that the March 31, 2005 closing was anything but a normal closing, and Stephenson's weak explanation that he did not read documents because he was pressured and rushed is not credible.
Terri Cooke testified credibly as to why the Payoff Authorization Form dated March 4, 2005 referred to a mortgage and bond signed on March 7, 2005. According to Terri Cooke, she and Stephenson discussed filling out the Payoff Authorization Form on March 3, 2005. At that time, there was no discussion that Stephenson was going to sign a new mortgage. However, that same day, Stephenson came to Cooke's house to ask for money. Cooke responded that he would not loan Stephenson any more money until he re-signed the mortgage and bond he had signed in 2004, but never given to Cooke. Stephenson agreed to sign the mortgage in the next few days, and Cooke informed his wife of the conversation. The next day, March 4, 2005, Stephenson came to Terri Cooke's office to sign the Payoff Authorization Form. The two discussed the mortgage Stephenson was to sign in the next few days, and included it on the Form. Stephenson then signed the paper, and Terri Cooke faxed it to the buyer's attorneys without attaching a copy of the 2005 mortgage and bond. Thus, the Payoff Authorization Form, although signed on March 4, 2005, referenced the 2005 mortgage and bond because all parties understood that Stephenson would be signing a mortgage in favor of Cooke within the next few days.
Finally, the evidence in the record establishes that Stephenson actually incurred a debt to Cooke, although there is no other clear evidence of the amount of that debt other than the notes Stephenson signed. Bolles, Terri Cooke, and, to a lesser extent, Tiffiani Miller (Cooke's daughter), testified credibly that Stephenson was constantly asking Cooke for money, and Cooke regularly gave him money. Cooke's testimony was to the same effect. In addition, there is reason to believe that much of that money came from Cooke, not from Stephenson's VA benefits. For example, Stephenson's bank statements from December 2004 to February 2005 show that Stephenson had withdrawn all of his disability payments by the end of the first week of the month.
E. Terri Cooke And State Street
Stephenson also brings claims against Terri Cooke and State Street. The parties have stipulated that State Street and Terri Cooke owed contractual and fiduciary duties to Stephenson. In addition, Stephenson correctly argues that Terri Cooke knew of the mortgage at the time she was representing him, and knew she stood to gain from it. At trial, Stephenson tried to prove that Terri Cooke never disclosed the existence of that conflict of interest, and, in fact, participated in Cooke's fraud by calling him on March 7, 2005 and advising him to go to Cooke's place of business to sign what she knew was a fraudulent mortgage. Stephenson's claims against State Street are premised on allegations that it failed to supervise Terri Cooke, its agent, and failed to investigate or remedy the fraud allegedly perpetrated on him even after he made State Street aware of it. Stephenson claims that he was defrauded of the equity proceeds from the sale of the Property as a result of this misconduct.
Terri Cooke knew that her husband's mortgage was for $62,000 because she forwarded a letter from Cooke to Sisk authorizing Sisk to release the proceeds of the 2005 mortgage and bond to her.
Stephenson testified that he took many steps to obtain the $58,150 after the closing. For instance, within days of the closing, he went to State Street's office and spoke to Terri Cooke and Martin Orlando. Also, on or about April 8, 2005, Stephenson went to the Delaware Department of Justice and spoke with an investigator about the closing. Stephenson then sought out counsel to bring a lawsuit.
The court, however, has found that Stephenson owed a debt and understood the nature of the mortgage and bond he signed in 2005. Therefore, Stephenson has not established that he suffered any damages arising from Terri Cooke's or State Street's possible breaches of contract, fiduciary duty, negligence, or fraud. Nor is the transaction voidable for lack of fairness. Stephenson does not claim that the sale price of the house was too low, only that his equity proceeds went to satisfy the mortgage held by Cooke. Yet, as already determined, there was nothing improper about that disposition of the sale proceeds. Further, Stephenson was at all times aware that Terri Cooke had a conflict of interest, but continued using her as his realtor. Thus, the transaction was entirely fair. As a result, Stephenson's remaining counts will be dismissed.
Carpenter, 2008 WL 859309, at *12 (stating that "self-interested transactions . . . are presumptively voidable unless [the fiduciary] can demonstrate their entire fairness"); see also Faraone, 2004 WL 550745, at *8.
III.
For the reasons stated herein, the court finds IN FAVOR of the defendants and AGAINST the plaintiff. IT IS SO ORDERED.