Opinion
No. 2049-S.
Submitted: February 28, 2003.
Decided: November 26, 2003.
David N. Rutt, Esquire of MOORE RUTT, Georgetown; Attorney for Plaintiff.
John A. Sergovic, Esquire of SERGOVIC, ELLIS SHIREY, Georgetown, Delaware; Attorney for Defendants.
MEMORANDUM OPINION
Pending is an action to partition real property that was purchased by the developer of a proposed senior housing development together with certain investors in that project. The housing development was never built and the relationship between the parties broke down. The parties now agree that the property should be partitioned, but they cannot agree upon how the partition proceeds should be allocated as among themselves. This Opinion determines how the partition proceeds should be allocated.
The Plaintiff, Kenneth S. Woodring, Jr. ("Woodring"), brought this action to partition the property; named as defendants were Louis M. Vaughn and his wife, Idell R. Vaughn (the "Vaughns"), and their son, Kenneth G. Vaughn. Woodring and the Vaughns hold title to the property, which is located in Sussex County, Delaware, as tenants in common. The Vaughns hold a three-quarter share, and Woodring holds the remaining one-quarter interest. Although this action takes the form of a partition of real estate, in reality it involves the disposition of all the economic interests in the failed business venture between Woodring and the Vaughns.
Kenneth G. Vaughn is now deceased.
A trial on the merits was held on November 15 and 16, 2002. This is the Opinion of the Court following post-trial briefing. I conclude, for the reasons set forth below, that the proceeds of the partition sale should be distributed in proportion to the parties' expected return on their investment in the business venture had that venture succeeded.
I. FACTS
A. The Parties and the Land
During the summer of 1997, the Vaughns received an offer to purchase property in Alabama that Louis Vaughn had previously inherited. In anticipation of receiving funds from the sale of this inherited property, the Vaughns looked for opportunities to invest those funds. In late summer 1997, the Vaughns contacted Woodring, who is a real estate broker and developer from Silver Spring, Maryland
The Vaughns met with Woodring in his Maryland office on September 13, 1997, to discuss a purchase of real estate as a way to invest the anticipated proceeds of the sale of their Alabama property. During the meeting, the discussion focused on the development of senior housing near Fenwick Island in Sussex County, Delaware. Woodring explained that he planned to purchase approximately thirty-one (31) acres of raw land, located near Routes 20 and 54, that was owned by Mrs. Gladys Swann ("Swann"), on which he would build one hundred eighty (180) senior housing units. Woodring initially named the property "Swann Village," but in early 1998 renamed it "Ashley Manor."
B. The Parties Agree to Invest in Ashley Manor
After the September meeting, the parties continued to discuss the proposed development of senior housing on the Swann tract. In November of 1997, the Vaughns and Woodring agreed to enter into a business relationship for the purpose of developing that property. In essence, the agreement was that (1) the Vaughns would contribute $300,000 of the proceeds from the sale of their inherited property, and that (2) Woodring would invest the balance of the purchase price, pay all the costs of the zoning approval process and site engineering, and obtain the construction financing. As consideration for their investment, the Vaughns would receive the return of their $300,000 invested principal, eight percent interest on their capital for two and one-half years, plus $1,500 for each unit sold. Woodring, in turn, would retain all remaining profits from the venture. The parties agreed that Woodring would make an offer to buy the Swann property after the Vaughns' Alabama property was sold.
JX 2 (November 1997 "Swann Village" Pro-Forma Sheet).
Ultimately, Woodring's investment totaled $262,976.61.
JX 2.
On November 28, 1997, the Vaughns sold their Alabama property for $500,000. To avoid capital gains taxation, the Vaughns escrowed the sale proceeds as required by the guidelines for a like-kind exchange under 26 U.S.C. § 1031 of the Internal Revenue Code ("Section 1031"). To receive the benefits of a like-kind exchange, the Vaughns were required to identify and settle on a property that was classified as a "like-kind exchange" within one hundred eighty (180) days.
See JX 6 (November 24, 1998 Letter to Tommy Roberts from Kenneth Vaughn, on behalf of the Vaughns).
JX 4 (Deferred Property Exchange Agreement, dated November 21, 1997)
C. Woodring Enters into a Contract to Purchase the Swann Acreage
On December 1, 1997, Woodring submitted to Swann an offer to purchase the undeveloped thirty-one acres. Woodring's offer proposed a $325,000 purchase price, contingent on the receipt of sewer, water, and zoning approval for one hundred eighty (180) units. On December 18, 1997, after a series of negotiations, a $400,000 purchase price for the land was agreed upon. Woodring's contract with Swann provided that the sale was contingent on receiving zoning approval for one hundred eighty (180) units and that Woodring would pay all the zoning and engineering costs associated with the development of what was to be called Ashley Manor.
JX 8 (Contract for Sale of Lots between Mrs. Gladys Swann and Kenneth Woodring, Jr. executed December 1, 1997).
JX 13 (Agreement of Purchase and Sale between Gladys Swann and Kenneth Woodring, Jr., dated December 18, 1997).
D. The Rezoning Process
After the contract for the purchase of Ashley Manor was executed, Woodring began the process to rezone Ashley Manor from an agricultural/residential district to a high-density district capable of sustaining one hundred eighty (180) residential units. To assist him in the rezoning process, Woodring retained the legal services of D. Stephen Parsons, Esquire. He also retained Mr. Jeffrey A. Clark as the engineer/site planner. Mr. Clark advised Woodring that Ashley Manor would sustain only one hundred thirty-five (135) units — forty-five (45) units less than the parties had contemplated. In addition, because of the complexity of the process, the zoning application for Ashley Manor could not be filed with the Sussex County Council before June 1, 1998. Given that delay, Woodring proposed an alteration to the settlement plan to protect the Vaughns' escrowed $300,000 from federal capital gains taxation.
JX 17 (Letter to Stephen Parsons, Esq. from Kenneth Woodring, Jr., dated January 21, 1998).
JX 21 (Letter to Jeff Clark, Land Tech Inc. from Kenneth Woodring, Jr., dated April 24, 1998).
To guarantee that settlement would occur on or before May 27, 1998 (which was the deadline date to complete a like-kind exchange under Section 1031), Woodring waived the zoning, water and sewer contingencies in his agreement with Swann. That waiver enabled the settlement on that agreement for Ashley Manor to occur on May 23, 1998. The deed to Ashley Manor from Swann conveyed a one-quarter interest to Woodring and the remaining three-quarters interest to the Vaughns. In payment of the purchase price for Ashley Manor, the Vaughns contributed $300,000 and Woodring executed a Promissory Note to Swann for the $100,000 balance, to be repaid in a single balloon payment on February 23, 1999. To secure Woodring's $100,000 debt to Swann, Woodring and the Vaughns executed a mortgage upon Ashley Manor in favor of Swann at the closing.
JX 22 (Addendum to First Mortgage/Deed of Trust executed April 27, 1998).
JX 35 (Deed, executed May 23, 1998).
JX 36 (Note executed by Kenneth Woodring, Jr., May 23, 1998).
JX 37 (Mortgage, executed May 23, 1998).
E. The Agreement of Understanding
Immediately after the settlement on Ashley Manor, the Vaughns and Woodring formalized their relationship by executing an Agreement of Understanding ("Agreement"), which provided that zoning for senior home development on Ashley Manor would be requested for one hundred thirty-five (135) units. The Agreement also set forth the "expected return on investment" for the Vaughns. Specifically, the Agreement provided that the Vaughns would receive the return of their initial $300,000 capital investment, plus eight percent interest per year for two and one-half years, plus $3,000 for each unit sold. The Agreement also provided that the Vaughns would not be required to "sign or co-sign for any financing of the project, nor will they be personally liable." Woodring and the Vaughns also agreed that Woodring would pay all of the costs to obtain zoning approvals and construction financing for Ashley Manor.
JX 33 (Agreement of Understanding between Kenneth Woodring, Jr. and The Vaughn Family, dated May 23, 1998).
Id.
F. The Rezoning and Delays in the Development of Ashley Manor
On August 28, 1998, Woodring filed an application in Sussex County to rezone Ashley Manor for one hundred thirty-five (135) senior housing units. On November 12, 1998, the Sussex County Planning and Zoning Commission ("Commission") held a hearing and recommended that Ashley Manor be rezoned for one hundred thirty-five (135) units. But the Sussex County Council ("County Council"), at a hearing held on February 23, 1999, voted to rezone Ashley Manor for a maximum of only ninety-five (95) units — forty (40) units less than contemplated by the Agreement. The County Council also conditioned the rezoning on Woodring obtaining approval to expand the Fenwick Island Sanitary Sewer District to include Ashley Manor and final site plan approval by the Commission.
JX 44 (Letter and Zoning Application to Lawrence Lank from Jeff Clark, Land Tech, Inc., dated August 28, 1998).
JX 46 (Sussex County Ordinance No. 1289 with Conditions, dated February 23, 1999).
These conditions caused the project to be considerably delayed, which in turn resulted in Woodring being unable to make his mortgage payment to Swann. That led Woodring to request, and receive, a six-month extension from Swann for payment of his $100,000 promissory note for his share of the Ashley Manor purchase price.
JX 52 (Letter to Gladys Swann from Kenneth Woodring, Jr., dated January 14, 1999).
The County Council's decision to rezone Ashley Manor for only ninety-five (95) units caused the Vaughns' expected return on their investment to be decreased by approximately $120,000. To compensate for the decrease in the parties' expected return on investment as set forth in the Agreement, Woodring caused new plans to be drawn up. The new plans placed the ninety-five (95) units on one portion of the land, leaving room for a possible later addition of the forty (40) excluded units. If the excluded units could later be added, that would enable the Vaughns to receive their entire originally expected return on investment. At that point, although the Vaughns became concerned that their $300,000 was at risk, they did not make an effort to get out of the business venture.
JX 55 (Letter to Jeff Clark, Land Tech Inc. from Kenneth Woodring, Jr. dated March 1, 1999).
F. The Construction Loan
To secure financing for the construction of Ashley Manor, Woodring submitted a loan request to Key Bank in the spring of 1999. The financial documents in Woodring's loan request projected gross sales volume for the one hundred thirty-five (135) units at $14,971,500, and estimated profits of $1,557,813. On May 10, 1999, Key Bank approved the construction loan application and issued loan commitments. Woodring planned to use a portion of the construction loan to satisfy his $100,000 obligation to Swann, and to use the balance to finance the construction of the Ashley Manor development. Although the parties had agreed the Vaughns would not incur any personal liability, Woodring nonetheless assumed the Vaughns would co-sign the construction financing agreement with Key Bank.
JX 24 (Loan Request, dated May 6, 1998).
JX 63 (Letter to Kenwood Development Company from Key Bank and Trust, dated May 10, 1999).
G. The Dissolution of the Business Venture
During the summer of 1999, delays in the development of Ashley Manor continued, which required Woodring to request another extension on his mortgage payments to Swann. On October 20, 1999, Swann granted another six-month extension, but through her counsel advised Woodring that she would grant no further extensions. Although the Vaughns were concerned that their $300,000 was at risk because they had co-signed Woodring's mortgage to Swann, again they made no effort to modify or terminate the project.
JX 78 (Letter to Gladys Swann from Kenneth Woodring, Jr., dated August 25, 1999).
JX 87 (Letter to Kenneth Woodring from Gladys Swann dated October 20, 1999).
JX 88 (Letter to Kenneth Woodring, Jr., from Raymond Tomasetti, Esquire, dated October 21, 1999).
In February of 2000, when Woodring's payment on the Swann mortgage fell due, Woodring contacted Key Bank to obtain a settlement date for the construction loan. At that time, counsel for the Vaughns informed Woodring that the Vaughns had decided not to co-sign for the construction loan. That decision precluded any approval of the financing for the construction of Ashley Manor. At trial, the Vaughns testified that they refused to co-sign for the construction loan because they feared taking on additional personal liability, which the Agreement specifically stated they were not required to do.
JX 120 (Letter to David Hackett, Esquire from Kenneth Woodring, Jr. in reference to loan closing, undated).
JX 121 (Letter to Stephen Parsons, Esquire from John Sergovic, Esquire, dated February 25, 2000).
Because Woodring needed to use a portion of the construction loan to pay off the Swann note, Woodring told Swann he could not make the payment due on the promissory note and that he would not seek another extension. Despite the halt in construction plans, the County Council, on March 21, 2000, granted the rezoning final approval for Ashley Manor to build up to ninety-five (95) units.
JX 140 (Letter to Raymond Tomasetti, Esquire from Kenneth Woodring, Jr., dated March 30, 2000).
JX 144 (Minutes of Sussex County Council Hearing, dated March 21, 2000, adoption and resolution).
H. Foreclosure on the Note
Because Woodring could not pay his promissory note, the Vaughns purchased the note from Swann for $134,000 to protect their $300,000 investment from the risk of a mortgage foreclosure sale. To avoid "any type of legal ramification" the Vaughns then caused Swann to assign the note and the mortgage to the Vaughns' son, Kenneth Vaughn, on March 30, 2000. In a letter dated April 4, 2000, the Vaughns' counsel advised Woodring that the note and mortgage were in default and demanded payment within thirty (30) days. On April 9, 2000, Kenneth Vaughn passed away and the mortgage and note were assigned to Louis Anthony Vaughn, Kenneth's brother.
JX 152 at A-15 (Trial Transcript of foreclosure action, Superior Court of Delaware, Sussex County, January 7, 2002, testimony of Louis Vaughn).
JX 141 (Assignment of Mortgage, dated March 30, 2000; JX 36, Addendum to Promissory Note).
JX 145 (Letter to Calvert Steuart, Esquire from John Sergovic, Esquire, dated April 4, 2000).
JX 152 at A-27.
Woodring then filed this action, and the mortgage and note remained unsatisfied during the ensuing ten months. Woodring then requested from the Vaughns a pay-off figure for the note on February 20, 2001, again on March 16, 2001, and again in April of 2001. On all three occasions, the Vaughns' counsel refused to supply the figures. Woodring then tendered an estimated payoff of $150,550 to the Vaughns' counsel. That payment was refused, and the funds remained in Woodring's attorney's escrow account. Thereafter, on May 16, 2001, Louis Anthony Vaughn instituted a Superior Court foreclosure action, which was tried on January 7-8, 2002.
Id. at A-36-7.
JX 153 at A-6 (Transcript of Superior Court Order, dated January 8, 2002).
At the conclusion of the trial, the Court ordered Louis Anthony Vaughn to accept $151,561.37 (the amount tendered plus the interest that had accrued while the funds remained in escrow) in full payment of the note and satisfaction of the mortgage obligation. As a consequence of the foregoing, Woodring now holds a one-quarter interest in the undeveloped land, and the Vaughns own a three-quarter interest.
Id. at A-8.
H. The Appraisal of Ashley Manor
Woodring and the Vaughns no longer desire to continue their business venture. They seek a decree of partition by this Court to divide the proceeds of the anticipated partition sale of Ashley Manor. At trial, Woodring and the Vaughns presented testimony by two real estate appraisers about their respective opinions of the value of Ashley Manor. Woodring's appraiser determined that the rezoned property was worth approximately $1,500,000, but without zoning approvals, the raw and unimproved land would be worth approximately $650,000. The Vaughns' appraiser, while agreeing the rezoned property was worth $1,500,000, testified the raw and unimproved property would be worth $873,000.
JX 169 (Appraisal, McCain).
JX 165 (Randall Handy Report).
II. THE PARTIES' CONTENTIONS AND THE ISSUES PRESENTED
The failure of the parties' business venture has resulted in both sides asking this Court to determine how the proceeds from the partition sale of Ashley Manor should be distributed. The issue is on what basis that distribution should be made.Woodring argues that the proceeds from the partition sale should be distributed according to what the parties' respective shares would have been under the Agreement as modified to reflect the decreased zoning entitlement. Specifically, Woodring argues that the Vaughns should receive their $300,000 capital investment, plus $60,000 in interest, plus $3000 for each of ninety-five (95) units that could be built under the final zoning limitation. That is, Woodring contends that the division should be based upon the (hypothetical) completion of ninety-five (95) units, not the one hundred thirty-five (135) units originally contemplated by the Agreement. That approach is fair, Woodring claims, because at all times the Vaughns were willing to abide by the terms of the Agreement until they refused to co-sign for the Key Bank construction loan — almost one year after the Vaughns learned that Ashley Manor would be zoned for only ninety-five units. Because the Vaughns considered the Agreement to control their business relationship until the Key Bank loan disagreement, it is fair that the Vaughns' anticipated return on investment be determined as of the time the relationship was terminated. At that time, only ninety five could be built because of the zoning decision.
Alternatively, Woodring claims that even if the proceeds from the partition sale are divided according to the parties' respective interests under the deed (three quarters vs. one quarter), he is also entitled to receive the increase in value resulting from his efforts (and the expense he incurred) to rezone the property. Woodring, in essence, is arguing that the rezoning of the property is an "improvement" of the land that he created. Accordingly, Woodring argues, he is entitled to receive all proceeds from the partition sale above $650,000 (the amount for which Ashley Manor was valued without the zoning approvals) plus one-quarter of the first $650,000 — Woodring's interest as established by the deed.
The Vaughns' position is that the proceeds from the sale of Ashley Manor should be divided according to the parties' respective shares as established by the deed to the property. Thus, the Vaughns would receive three-quarters of the sale proceeds and Woodring would receive one-quarter. That method of distribution, the Vaughns urge, is the most equitable because it accurately represents the parties' interests in the land, and because the Agreement should not control or in any way govern the distribution, since the Agreement was never fully performed.
The Agreement no longer governs the parties' relationship, the Vaughns argue, because Woodring failed to accomplish a rezoning of Ashley Manor for one hundred thirty-five (135) units, as the Agreement contemplated. To state it differently, the Vaughns claim that the return on investment calculations contained in the Agreement were conditioned on Ashley Manor being rezoned for one hundred thirty-five (135) units. Because Ashley Manor was rezoned for only ninety-five (95) units, a material condition of the Agreement was not fulfilled. Therefore, the Agreement failed, leaving the deed as the only document that establishes a legal basis to define the parties' respective interests in the business venture. This result is fair, the Vaughns contend, because they bore most of the financial risk in developing Ashley Manor: they contributed $300,000 of the $400,000 land purchase cost, and Woodring did not risk personal financial loss, since he signed a promissory note for his share of the purchase price and secured his obligation with the deed to Ashley Manor, three-quarters of which was paid for by the Vaughns.
The Vaughns also argue that the zoning and sewer district approvals do not constitute "improvements" to the land for which Woodring should receive distribution credit, because those approvals are not permanent, physical modifications to real estate. Not being improvements, the zoning and sewer district approvals should not be recognized in the partition proceeding as a basis to adjust one co-tenant's share of the proceeds relative to the other. Finally, the Vaughns argue, even if the approvals were found to constitute an improvement on the land, Woodring has not established any legal basis or formula that would entitle him to a disproportionate share of the partition proceeds.
These contentions are addressed in the analysis that follows.
III. ANALYSIS
Having considered the parties' positions, the Court concludes that the most fair and equitable method to distribute the proceeds of the partition sale is on the basis of the parties' original expected return on their investments under the Agreement. My reasons follow.
Under Delaware law, a tenant in common has an absolute right to petition this Court for a partition of the commonly held real property. Recognizing the unique characteristics of real property, Delaware "continues the common law preference for a physical in kind, division" of real property. Despite that statutory preference, however, in certain circumstances this Court may partition property by a sale of the entire property and a division of the proceeds. In cases where the parcel cannot be reasonably divided or where a partition in kind would be detrimental to the interests of one or more of the parties, this Court is vested with the power to determine the division of the proceeds in accordance with equitable principles. The partition statute vests the Court of Chancery with general equity powers concerning joint estates and partition and "authority to make any order or decree . . . which the right or justice of the cause may demand"
25 Del. C. § 721(a), 724, 729; Oldham v. Taylor, 2003 WL 21786217 (Del.Ch. 2003).
Peters v. Robinson, 636 A.2d 926, 929 (Del. 1994).
25 Del. C. § 721(c); Peters, 636 A.2d at 930; Hamilton v. Hamilton, 597 A.2d 586, 859 (Del.Fam.Ct. 1990).
See, e.g., Oldham at * 6-7; Holladay v. Flinn, 149 A. 307, 311 (Del.Ch. 1929); Marshall v. Rench, 3 Del. Ch. 239, 1868 WL 1259, 7 (1868); see also Wilson v. Lank, 107 A. 772, 773 (Del.Ch. 1919).
Because all owners agree the partition of Ashley Manor should take the form of a sale, the Court will not override their wishes by attempting a physical division of the property. Accordingly, the only decision to be made is how the proceeds from the sale of that property should be distributed. The parties' contentions generate three possibilities: (1) a division in proportion to the parties' interests as reflected by the deed to Ashley Manor, (2) a division based upon the parties' expected return on investment under the Agreement, assuming a zoning for (and the construction of) only 95 units, and (3) the same as (2) but assuming a zoning for (and the construction of) 135 units.
A. Distribution Based Upon The Deed
I first consider whether the proceeds from the partition sale should be divided according to the parties' interests as established by the Ashley Manor deed. Because the Agreement does not reflect the parties' legal relationship — that is, because the Agreement does not create a partnership, joint venture or other recognized form of business relationship — the Vaughns argue that the deed is the only remaining document that establishes the parties' interest in the land Therefore, the deed should control how the proceeds from the sale of Ashley Manor are distributed.
If the proceeds from the partition sale were divided on that basis, then Woodring would receive one-quarter of the proceeds and the Vaughns would receive the remaining three-quarters. Assuming that Ashley Manor were sold for its appraised value of $1,500,000, Woodring would receive $375,000 and the Vaughns would receive the remaining $1,125,000. In this Court's view, that method of distribution would be inequitable and would result in the Vaughns being unjustly enriched.
It is the case that the Vaughns paid most of the purchase price and assumed most of the risk in purchasing the Ashley Manor parcel. But it is also true that Woodring spent over $260,000 for his one-quarter share of the Ashley Manor property and to defray the costs of zoning applications, engineering and site design fees, and other related expenses. Moreover, Woodring (unlike the Vaughns) was the active partner seeking to rezone and develop Ashley Manor. As a result, he expended substantial time and effort for that purpose. The Vaughns' proposed method of distribution is flawed because it does not take Woodring's investment or his time and effort into account.
That is important here, because the parties' business relationship, no matter how it is characterized, involved far more than mere co-ownership of a parcel of raw, undeveloped land The Agreement establishes that neither party considered the deed as controlling how the profits of the business venture (of which the land was but one element) would be distributed. Given those realities, and taking into account the financial contributions of each side and the time and effort expended by Woodring, this Court is unable to conclude that a three quarters — one quarter division of the partition sale proceeds would be equitable. That is, it would be inequitable for this Court to distribute the proceeds of the sale in a manner that does not reflect the parties' interest in the larger business venture of which the ownership interests in the land was to be but one element. That determination makes it unnecessary to decide whether Woodring is entitled to the value created by rezoning Ashley Manor (i.e., whether the rezoning is an "improvement").
B. Distribution Based upon The Agreement And the Actual Rezoning for 95 Unites
Next considered is Woodring's claim that the proceeds from the partition sale of Ashley Manor should be distributed as set forth in the Agreement, but assuming the development of the 95 units permitted by the actual rezoning. Specifically, Woodring contends that under the Agreement, the Vaughns should receive the return of their $300,000 investment, plus interest, plus $3,000 for each of the ninety-five (95) units that County Council authorized to be developed. That would amount to a distribution of $645,000 to the Vaughns and $855,000 to Woodring, again assuming that the Ashley Manor property was sold for $1,500,000.
The difficulty with this position is that at the time the Agreement was executed, all parties expected that one hundred thirty-five (135) units would be developed on Ashley Manor — forty (40) more than the number of units argued for by Woodring. If the proceeds from the partition sale were distributed as Woodring urges, the Vaughns would receive $120,000 less than the amount contemplated by the Agreement, and Woodring would receive $120,000 more than he originally expected from the business venture, assuming that venture had been totally successful. Because the Agreement allocated to Woodring the responsibility to obtain the necessary zoning approvals, he must bear the risk of receiving less than all the approvals called for by that Agreement. On that basis, it would be inequitable to allow Woodring to derive an unanticipated $120,000 from the business venture, at the expense of the Vaughns, based on Ashley Manor being rezoned for only ninety-five (95) units rather than the 135 units contemplated by the Agreement.
C. Distribution Based Upon the Agreement and the Expected Rezoning for 135 Units
Having rejected the first two allocation rationales, the Court turns to the third. It finds that the most equitable distribution principle is to divide the proceeds of the partition sale on the basis of the parties' expectations at the time they memorialized their business venture in the Agreement. The Agreement specifies the Vaughns' expected return on their investment, but it does not identify Woodring's expected benefit from the venture. But, by considering both the Agreement and the Key Bank loan documents, the Court is able to determine Woodring's expectations as well.
To formalize their business relationship, the parties executed the Agreement. That Agreement does not an accurately reflect each parties' specific ownership interest in the Ashley Manor land, but it does establish that the Vaughns expected to receive a return of their $300,000 investment, with interest, for two and one half years plus and $3,000 for each of the one hundred thirty-five (135) units sold. The Vaughns thus expected, to receive a total of $765,000 as a return on their $300,000 investment in the development of Ashley Manor.
To determine what Woodring expected to benefit from that project, the Court must consider the loan request Woodring submitted to Key Bank on May 6, 1998. In the financial data submitted with the loan request, Woodring projected the gross sales for the one hundred thirty-five (135) units at $14,971,500, and the projected profit to the developers at $1,557,813. Because under the Agreement the Vaughns expected a return of $765,000, it follows that Woodring would have expected a return of $792,813 (i.e., the balance of the $1,557,813). On that basis, at the time the parties formalized their intention to invest in the development of Ashley Manor, the Vaughns expected to receive approximately forty-nine percent (49%) of the profits, and Woodring expected to receive fifty-one percent (51%).
$1,557,813 projected profit — $765,000 = $792,813.
The Court concludes the parties' original expected return on their investments, assuming the full development of one hundred thirty-five (135) units, is the most equitable basis for distributing the proceeds from the partition sale. That approach does not deny Woodring credit for the value of his efforts to obtain rezoning and construction financing for the project, nor does it give either side a windfall. Moreover, it is fair to the Vaughns, because it gives them precisely the return they would have received had the project been zoned for one hundred thirty-five (135) units and otherwise been successful. That represents the maximum that the Vaughns could have expected to receive.
Accordingly, the Vaughns shall receive forty-nine percent (49%) of the net proceeds from the sale of Ashley Manor and Woodring shall receive fifty-one percent (51%). The parties shall submit an Order within ten (10) business days, implementing the rulings in this Opinion.