Opinion
C.A. No. 08L-04-047 FSS.
Submitted: October 2, 2009.
Decided: January 29, 2010.
Upon Movants' Motion to Set Aside Sheriff's Sale — DENIED
Upon Intervenor, Bernardon Haber Holloway Architects, P.C.'s, Motion for Declaratory Judgment.MEMORANDUM OPINION AND ORDER
This Motion to Set Aside Sheriff's Sale, stemming from a failed golf course development, has a complex history. The issue is whether certain neighboring homeowners were entitled to individual, written notice by certified mail of the sheriff's sale. The simple answer, under the circumstances, is no. Even if the movants were entitled to more formal notice, which they were not, movants have not shown prejudice, as they do not allege that they would have bid on the parcel.
I.
Middletown Greenways, LLC, conveyed property to Defendant, Saint Annes Club, LLC, on September 29, 2004. That day, Wilmington Savings Fund Society, FSB and Defendant entered into a mortgage and security agreement. After Defendant defaulted, WSFS foreclosed on April 11, 2008. On May 28, 2008, WSFS moved for default judgment, pursuant to Superior Court Civil Rule 55(b)(1), due to Defendant's failure to answer or appear. Judgment was subsequently entered against Defendant.
On August 1, 2008, WSFS's counsel mailed a "Notice to Lienholders and Tenants, Record Owners and Persons Having an Interest of Sheriff's Sale" by certified mail, with return receipts requested, explaining that a sheriff's sale of the undeveloped golf course was to take place on August 12, 2008. The notice was sent to the following: "Occupant/Tenant" at 1100 St. Annes Boulevard, Middletown, Delaware 19709; Middletown Greenways, LLC; Department of Finance; Bernardon Haber Holloway Architects, PC; Saint Annes Development Associates LLC; WSFS; GL Cornell Company; and Saint Annes Club, LLC. Three days later, the notice was also posted on the common entrance door of a building on the Saint Annes property.
In an affidavit regarding the notice, WSFS's counsel stated that "the identity of lienholders and tenants has been ascertained by the following reasonably diligent efforts: Transnation Title Insurance Company, a certified title searching company, searched the following: records of the Recorder of Deeds of New Castle County; Judgment records in the Superior, Chancery and District Courts of Delaware; Addressing the Notice to 'Occupant/Tenant.'"
Also on August 1, 2008, counsel for WSFS informed the court that WSFS and Middletown Greenways, an intervening party, had settled. After the court entered an order on August 4, Defendant's counsel claimed that WSFS had failed to notify approximately 200 members of the Saint Annes Homeowner's Association, Inc., of the upcoming sheriff's sale.
On August 11, 2008, Eugene F. Kirchner, a member of the Saint Annes Homeowner's Association, filed a motion to set aside the sheriff's sale under Superior Court Civil Rule 69(g). On August 12, 2008, Defendant filed for bankruptcy under Chapter 11 of the Bankruptcy Code, resulting in a temporary stay of the instant lawsuit. The bankruptcy proceeding was dismissed on June 23, 2009, and the sheriff's sale was rescheduled for August 11, 2009.
Once the sheriff's sale was rescheduled, WSFS's counsel sent notice almost identical to the previous "Notice to Lienholders and Tenants, Record Owners and Persons Having an Interest of Sheriff's Sale" on July 22, 2009. In this second notice, WSFS notified several additional companies, and "Occupant/Tenant" at 150 Wiggins Mill Road, Townsend, Delaware 19734. The August 11, 2009 sheriff's sale was held, and WSFS was the only bidder, bidding $1,250,000.00. Movants have not alleged that they would have bid against WSFS, much less that they would have topped the WSFS bid.
On August 21, 2009, Kirchner, on his behalf and on behalf of "certain similarly-situated homeowners, including John Ledden, Sam Peppelman, Joel Ashkenase, and Bud Moore," filed an amended motion to set aside the sheriff's sale. After a hearing on September 8, 2009, Kirchner and Ledden filed a supplemental memorandum.
II.
The deed from Middletown Greenways to Defendant states that "[t]he lands and premises being conveyed herein are . . . subject to a Declaration of Covenants, Conditions and Restrictions[.]" This Declaration, dated September 30, 2004, states in pertinent part:
The Owner . . . of a Lot shall be a Resident Social Member (as defined by the Club Declarant in its Membership Plan) of such Golf Club to be developed by the Club Declarant. . . . As a Resident Social Member of the Golf Club, the Owner of each Lot shall be entitled to use only of those Golf Facilities that are available for dining and beverages in accordance with the Membership Plan (but not any other Golf Facilities) and shall be subject to the usage charges and/or prices imposed by the Golf Club for the use of the clubhouse facilities.
The Declaration continues:
Club Declarant, its successors or assigns or other parties or entities may from time to time provide Golf Facilities are [sic] adjacent to the Lots (including without limitation a golf course, practice facility clubhouse, tennis courts and swimming pool), which are separate from any and all common areas within the Property.
Notably, the Declaration further states: "Ownership of a Lot does not give any vested right or easement, prescriptive or otherwise, to use the Golf Facilities and does not grant any ownership or membership interest in the Golf Facilities."
Furthermore, when applying for membership to The Saint Annes Club, applicants signed a membership agreement and paid a fee of $20,000. The agreement states in pertinent part:
The undersigned hereby acknowledges and understands that The Saint Annes Club, LLC, doing business as The Saint Annes Club (collectively, the "Club"), will own the Club Facilities to be provided at The Saint Annes Club. The undersigned further acknowledges that Membership to the Club permits the undersigned to use the Club Facilities, but is not an investment in the Club or the Club Facilities provided at The Saint Annes Club, nor does Membership confer on the undersigned any equity or ownership interest or any other property interest in the Club or the Club Facilities provided at The Saint Annes Club. The undersigned only obtains a non-exclusive revocable license to use the Club Facilities provided at The Saint Annes Club in accordance with the Membership selected and the terms and conditions of the Membership Plan and Rules Regulations, as it may be amended from time to time.
III.
Movants contend that "[a]s the owners of lots covered by the Declaration [of Covenants, Conditions and Restrictions], the Homeowners are the beneficiaries of certain restrictive covenants contained in the Declaration and are vested with certain rights and easements to use the Property." Accordingly, movants claim that because they "had both equitable and legal interests in the Property that ran with the land, they were entitled to actual notice of the Sheriff's Sale under Superior Court Rule 69(g)(4)."In response, WSFS contends that "[n]otice was sent to the lienholders and owner of the golf course." WSFS further claims that "[t]he golf club members and homeowners have neither an equitable or legal interest of record in the property upon which WSFS is foreclosing and are, therefore, not entitled to receive notice of the sheriff's sale under the rule." Alternatively, WSFS asserts that, even if movants were entitled to notice, "the Movants had actual knowledge of the Sheriff's Sale." As WSFS points out, Kirchner stated in an affidavit, dated August 11, 2008, that he "became aware of the proposed sheriff's sale of land still under development by Saint Anne's [sic] Club, LLC for a third golf course when [he] spoke with one of [his] neighbors several weeks ago." Kirchner contends, however, that he did not receive "formal notice[.]"
WSFS also contends that "[t]he identities (and addresses) of the individuals . . . are not known, and cannot be known or reasonably ascertained by a creditor based on the public records or elsewhere." WSFS asserts that "the real property itself was also posted with the required Notice[,]" and that "many homeowners in the surrounding areas were also given actual notice of the Sheriff's Sale (and WSFS' intentions) at a meeting on July 9, 2009."
IV.
"The Superior Court has broad discretion to confirm or set aside a sheriff's sale. This equitable power derives from the inherent control of the court over its own process 'for the correction of abuses or the prevention of injury." "When the Superior Court reviews a sheriff's sale, . . . it must ascertain whether there was 'some defect or irregularity in the process or mode of conducting the sale, or . . . neglect of duty, or misconduct on the part of the Sheriff or some other sufficient matter . . . whereby the rights of parties to, or interested in the sale are, or may have been, prejudiced." As a matter of law, failure to give notice to an interested party may amount to a fatal defect or irregularity in the process. But, a defect is not necessarily fatal in every case.
Greenpoint Mortgage Funding, Inc. v. McCabe, 2006 WL 3604784, at *1 (Del. Super. Nov. 27, 2006), aff'd, Pac. West Group, Inc. v. Greenpoint Mortgage Funding, Inc., 2007 WL 2457556 (Del. Supr. Aug. 28, 2007).
Burge v. Fid. Bond Mortgage Co., 648 A.2d 414, 419 (Del. 1994) (quoting Petition of Adair, 190 A. 105, 107 (Del. Super. 1936)); see also Household Bank, F.S.B. v. Daniels, 2005 WL 1953035, at *2 (Del. Super. July 14, 2005).
Daniels, 2005 WL 1953035, at *2 ("Failure to provide notice of sale, either through the Sheriff or through advertising the sale 'are perhaps among the most usual grounds on which sales are set aside.'").
Superior Court Civil Rule 69(g) states:
No sheriff's sale of real estate shall be held unless at least seven (7) days before the sale the plaintiff or his counsel of record shall send by certified mail, return receipt requested to . . . persons having an equitable or legal interest of record . . . at least thirty (30) days prior to such sale a notice consisting of a Notice to Lien Holders, Tenants, Record Owners and Persons Having an Interest of Sheriff's Sale of Real Estate . . . and a copy of the advertisement of the sale posted in accordance with § 4973 of Title 10. . . . The notice shall be addressed to persons having an equitable or legal interest of record at the last known available or reasonably ascertainable address of such person[.] . . . No sheriff's sale shall be held in such action unless the plaintiff or his counsel of record or a representative of the plaintiff or his counsel of record shall file with the Court and deliver to the sheriff conducting the sale a copy of proof of the mailing and posting of such notice which shall consist of the usual receipt given by the post office of mailing to the person mailing the certified article and a copy of the Notice to Lien Holders, Tenants, Record Owners and Persons Having an Interest mailed with such notice together with an affidavit made by plaintiff or his counsel of record[.]
Typically, the issue of whether there was a potential lack of notice under Rule 69(g) arises regarding lienholders and record owners of property.
See, e.g., McCabe, 2006 WL 3604784 (analyzing whether Rule 69(g)'s notice requirement was satisfied for a lienholder); Daniels, 2005 WL 1953035 (regarding record owner of property); PNC Bank, N.A. v. GMAC Mortgage Corp., 2004 WL 1427019 (Del. Super. June 16, 2004) (regarding lienholder); New Castle County v. Gallen, 2003 WL 21739069 (Del. Super. May 27, 2003) (regarding home owners); Fortunato Constr. Co., Inc. v. Juvenile Awareness Educ. Program, Inc., 1992 WL 91137 (Del. Super. Apr. 13, 1992) (regarding lienholders).
V.
As presented above, the membership agreement states that membership in the Club does not "confer on the undersigned any equity or ownership interest or any other property interest in the Club or the Club Facilities provided at The Saint Annes Club. The undersigned only obtains a non-exclusive revocable license to use the Club Facilities[.]" Furthermore, the Declaration clearly states: "Ownership of a Lot does not give any vested right or easement, prescriptive or otherwise, to use the Golf Facilities and does not grant any ownership or membership interest in the Golf Facilities." This clear language means that movants do not have a property interest-equitable, legal, or otherwise-in the land on which the golf course was to be built.Notwithstanding the documents, movants argue that they are "the beneficiaries of certain restrictive covenants contained in the Declaration and are vested with certain rights and easements to use the Property." Specifically, movants claim that provisions contained in the Declaration "create an affirmative obligation on the part of the owner to develop the land as a golf course for the benefit of the Homeowners, and prohibit any other use of the Property."
First, the law disfavors restrictions on land. And, as to that, movants' view of the Declaration is particularly problematic. Moreover, while the Declaration contemplated that the golf course would be built for use by golf club members, it does not follow that, ipso facto, the members had any interest in the land warranting notice by certified mail in the event of a sheriff's sale. Finally, apart from any benefits the Declaration bestows on movants, the Declaration, by its terms, does not amount to a restrictive covenant running with the land. The Declaration appears to have been drafted so as to preclude the claims that movants are making here.
1.77 Acres of Land v. State ex rel. State Highway Dep't, 241 A.2d 513, 515 (Del. 1968).
VI.
Even if movants had a cognizable interest in the non-existent golf course's land, which they do not, they were on notice of both sheriff's sales. First, as presented above, Kirchner admitted it in his affidavit. Second, notice was posted on the entrance of a building at Saint Annes before each sheriff's sale. Third, albeit least significantly, the notice was mailed via certified mail to "Occupant/Tenant" at the Saint Annes property before each sheriff's sale. Taking all of this into account, the movants, particularly Kirchner, knew in advance that the sheriff's sales were to take place.
Finally, and most importantly, movants have not alleged that they suffered real prejudice by any infirmity in the process. Movants do not contend that they would have been ready, willing, and able to out-bid WSFS had they received timely notice by certified mail. Nor do they allege other, specific prejudice. Thus, it cannot be said that sending movants notice by certified mail of the August 2009 sheriff's sale would have made a difference. Holding a new sale would not correct an injury or abuse to movants. Accordingly, setting aside the sale will not be in anyone's interest.
See Felton Bank v. Wicks, 1998 WL 283377, at *2 (Del. Super. Feb. 3, 1998) (holding that a sheriff's sale could not be set aside "on the mere speculative possibility that there may have been prejudice[]").
VII.
For the foregoing reasons, the motion to set aside the sheriff's sale is DENIED. The sale is CONFIRMED. IT IS SO ORDERED. This case is about the priority of several construction loans, a purchase money mortgage, and a mechanic's lien. The parties seemingly agree that generally, a purchase money mortgage comes first, but a purchase money mortgage can be voluntarily subordinated. The core question, therefore, is whether the mechanic's lien qualifies as a mortgage under the subordination clause in the purchase money mortgage here. Because the clause specifically refers to "the lien of any mortgage," not all liens, and because subordination clauses are strictly construed, the court concludes that the purchase money mortgage is not subordinate to the mechanic's lien. Even though mortgages and mechanic's liens have similarities, they are not the same.
I.
Middletown Greenways, LLC, conveyed property to Defendant, Saint Annes Club, LLC, on September 29, 2004. Defendant paid the purchase price largely with a non-recourse note for $1,574,560.75, secured by a purchase money mortgage. Additionally, Wilmington Savings Fund Society, FSB, loaned Defendant $3,000,000.00, secured by a mortgage.
On March 6, 2006, WSFS increased its loan to Defendant to $3,500,000.00. On May 18, 2006, WSFS further increased the loan to $4,000,000.00, and made an additional loan of $1,600,000.00 to Defendant.
Bernardon Haber Holloway Architects, P.C., an architectural services provider, entered into an agreement with Signature Golf Management, LLC, to assist in constructing a golf course on Defendant's property. Beginning in May 2005, Bernardon designed two buildings for Defendant's golf course. Signature Golf failed to pay Bernardon's fee of $522,349.79, resulting in Bernardon's filing of a Complaint and Statement of Claim for Mechanics' Lien on September 1, 2006.
After Defendant defaulted on its mortgage, WSFS foreclosed on April 11, 2008. On May 28, 2008, WSFS moved for default judgment, and judgment was subsequently entered against Defendant.
On May 30, 2008, Greenways moved to intervene as a party defendant to protect the priority of its purchase money mortgage. Under Delaware law, a purchase money mortgage has "priority over any judgment against the mortgagor or any other lien created or suffered by him." Bernardon also intervened as a party defendant on June 19, 2008. On July 23, 2008, a mechanic's lien in favor of Bernardon was entered for $175,000.00, which relates back to May 20, 2005.
See 25 Del. C. § 2108.
See Di Mondi v. S. S. Builders, Inc., 124 A.2d 725, 728 (Del. 1956) ("[A] judgment for the plaintiff in a mechanics' lien proceeding shall be a lien upon the structure relating back to the day when the furnishing of labor or material was commenced."); 25 Del. C. § 2718(a).
A hearing was held on July 25, 2008 regarding the priority of WSFS's construction loans and the Greenways purchase money mortgage. On August 1, 2008, WSFS and Greenways settled. As a result, Greenways withdrew its answer and counterclaim, and allowed its claim-that it had complete priority over WSFS's loans-to be dismissed with prejudice. In exchange, WSFS purchased the Greenways mortgage.
After the court approved the settlement on August 4, 2008, counsel for Defendant claimed that WSFS had failed to notify approximately 200 members of the Saint Anne's Homeowner's Association, Inc. of an August 12, 2008 sheriff's sale of the undeveloped golf course. Subsequently, certain Saint Annes homeowners filed a motion to set aside the sheriff's sale for allegedly failing to properly notify the homeowners under Superior Court Civil Rule 69(g). This is discussed in the companion decision issued in this case today. Meanwhile, on August 12, 2008, Defendant filed for bankruptcy under Chapter 11 of the Bankruptcy Code, resulting in a temporary stay of the instant lawsuit.
Bernardon filed an answer and counterclaim on August 26, 2008, requesting that the court declare Bernardon's mechanic's lien senior to the mortgages. A hearing was held on April 24, 2009. Following the hearing, supplemental memoranda were submitted by Bernardon and WSFS.
The bankruptcy proceeding was dismissed on June 23, 2009, and the sheriff's sale was rescheduled for August 11, 2009. The sheriff's sale was held, and WSFS was the only bidder, bidding $1,250,000.00. On October 22, 2009, Bernardon and WSFS presented oral argument regarding the priority of their interests.
II.
Bernardon concedes that WSFS's original $3,000,000.00 loan from September 29, 2004, has first priority. Bernardon contends, however, that its mechanic's lien, relating back to May 20, 2005, should be next in line, followed by WSFS's additional $2,600,000.00 in loans from March and May 2006, and then comes the September 29, 2004 Greenways purchase money mortgage. Bernardon tacitly concedes that, by operation of 25 Del. C. § 2108, the purchase money mortgage could be superior. Bernardon counters, however, that "due to the subordination agreement[,] . . . Greenways waived any super priority it may have had under 25 Del. § 2108."
Before it makes its core argument, Bernardon asserts that, because Greenways's claim was dismissed with prejudice, the Greenways purchase money mortgage is junior to Bernardon's lien. In Bernardon's words: "Greenways subordinated purchase money mortgage is junior to the entirety of the WSFS loan proceeds." Furthermore, Bernardon argues that "[t]he doctrine of 'the law of the case' precludes reconsideration of issues previously decided in this case. . . . So, as between the remaining litigants, WSFS cannot now argue that the Greenways PMM is senior to any part of the $5.6M."
In response, WSFS claims that its original loan and the purchase money mortgage have priority over the mechanic's lien. WSFS contends that it is irrelevant whether WSFS's loan or the purchase money mortgage is "first" because WSFS purchased the Greenways mortgage. WSFS claims that both are superior to the mechanic's lien. Furthermore, WSFS contends that "[t]he Dismissal . . . did not operate as an adjudication of the merits of the dispute between Greenways and Bernardon because Bernardon never staked a claim in briefing or in pleadings and asserted its priority as to the purchase money mortgage."
A. Does a voluntary dismissal with prejudice act as an adjudication on the
merits?
"As a general rule, a dismissal with prejudice has the effect of a final adjudication on the merits." "If the parties voluntarily dismissed the action, knowing that they either received the full relief to which they were legally entitled, or that they waived their rights to seek further relief, the dismissal is tantamount to a judgment on the merits." Accordingly, a party "will be barred from ever reasserting this claim against these parties."While a dismissal with prejudice generally amounts to a final adjudication on the merits, it typically precludes one party from reasserting the same type of claim against the same opponent. Here, however, the settlement was between Greenways and WSFS. The current dispute is instead between WSFS and Bernardon, and so, Greenways is not reasserting any claims. This is unique in that WSFS purchased Greenways's purchase money mortgage, and has, in a sense, stepped into the shoes of Greenways.
See id.
If Greenways had, instead, settled with Bernardon, and Greenways's claims against Bernardon were dismissed with prejudice, it would be different. Greenways's settling with WSFS, however, does not automatically place the purchase money mortgage junior to all new intervening parties that come along.
B. Does the law of the case doctrine preclude consideration of WSFS's claims?
"The law of the case doctrine is designed to prevent relitigation of prior determinations and inconsistent judgments. The law of the case is established when the Court applies a legal principal to an issue based on facts remaining constant over the course of litigation." "A party seeking to have the Court reconsider the earlier ruling must demonstrate newly discovered evidence, a change of law, or manifest injustice."
E.I. du Pont de Nemours Co. v. Admiral Ins. Co., 711 A.2d 45, 55 (Del. Super. 1995) (citation omitted); see also Fanean v. Rite Aid Corp. of Del., Inc., 984 A.2d 812, 818 (Del. Super. 2009).
E.I. du Pont de Nemours Co., 711 A.2d at 55.
Here, the court is not faced with an issue already decided and is not reconsidering an earlier ruling. To the contrary, the court is analyzing a similar issue-priority of the interests against Defendant-but in the context of a more recent party to the litigation. Therefore, the priority of Bernardon's lien in relation to WSFS's and Greenways's mortgages has never been litigated, much less decided. Accordingly, there is no applicable law of the case.
C. Does the subordination clause render the purchase money mortgage
junior to the mechanic's lien?
Bernardon's final argument, the most substantive one, is that, through the subordination clause, Greenways waived the priority it would have had under 25 Del. C. § 2108. The Seller Subordinated Mortgage between Defendant and Greenways, dated September 29, 2004, states:
[I]t is hereby expressly provided and agreed that this mortgage shall, by its terms, be subordinated to the lien of any mortgage securing financing the proceeds of which are used by Saint Annes Club, LLC in the development of the Golf Course at Saint Annes.
As mentioned, generally, a purchase money mortgage will have "priority over any judgment against the mortgagor or any other lien created or suffered by him." "There is however, no prohibition against subordinating such a mortgage to an anticipated subsequent construction mortgage by a provision of the purchase money mortgage."
25 Del. C. § 2108.
Masten Lumber Supply Co. v. Suburban Builders, Inc., 269 A.2d 252, 253 (Del. Super. 1970).
Under Delaware law, when construing the terms of a purchase money mortgage's subordination clause, the agreement must be "strictly construed where [its] terms are unambiguous." A contract will not be considered "ambiguous simply because the parties do not agree upon its proper construction. Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." There is no ambiguity "where the court can determine the meaning of a contract 'without any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meaning depends.'"
Guarantee Bank v. Magness Constr. Co., 462 A.2d 405, 408-09 (Del. 1983).
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).
Id.
The subordination clause in Greenways's mortgage agreement is unambiguous. The clause clearly states that the purchase money mortgage "shall . . . be subordinated to the lien of any mortgage[.]" The clause does not broadly state that it will be subordinated to mechanic's liens or other types of liens, but specifies the lien of "any mortgage."
Mechanic's liens and mortgages are similar in that they are liens against the property and they protect those who rely on the property's credit, but they are different. "The general purpose of a mechanic's lien is to provide protection for contractors or other laborers who furnish labor or other services on a structure pursuant to a contract with its owners." Bernardon's mechanic's lien was obtained after the developer failed to pay for services rendered. The mortgages here were used to obtain and secure financing for the property's acquisition and development. There is no reason to believe that Greenways intended that its secured interest would be subordinate not only to the project's financiers, but also to every contractor who might work on the development. In any event, the subordination clause is clear.
Commonwealth Constr. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916, at *16 (Del. Super. Aug. 31, 2006); see also In re Long, 86 A. 104, 104 (Del. Super. 1913) ("Mechanic's lien laws are designed to protect builders and contractors and to secure them by giving them a specific lien against the building or structure for which materials have been furnished or on which labor has been expended.").
III.
For the foregoing reasons, Bernardon's mechanic's lien is junior to WSFS's original $3,000,000.00 loan and the $1,574,560.75 purchase money mortgage.IT IS SO ORDERED.