Delaware Business Litigation Report

Superior Court Finds that Plaintiff Had Security Interest in Certain Items Formally Owned by Restaurant Owner that Defaulted on Loan, But Not in Fixtures Placed in Restaurant

Wilmington Savings Fund Society v. Chillibilly's, Inc., C.A. No. 03C-11-021 THG, 2005 WL 730060 (Del. Super. Ct. March 30, 2005), aff'd, 886 A.2d 1279 (Del. 2005). Wilmington Savings Fund Society ("WSFS"), the plaintiff, sought replevin of certain collateral it claimed pursuant to a contract it held with Chillibilly's Incorporated ("Chillibilly's") and Joseph Jeffery Stein Corporation ("Stein Corp.") WSFS also alleged fraud, misrepresentation, and various other claims. Essentially, WSFS argued that it was induced into extending a loan to Chillibilly's based on certain misrepresentations by the principal of Stein Corp., Jeffrey Stein. Stein Corp. moved for summary judgment. The Court denied the motion as to replevin of items Stein Corp. had earlier conceded belonged to WSFS pursuant to its security interest. However, the court granted summary judgment as to the other claims. In 1997, Stein Corp. purchased a building at 330 Rehoboth Avenue from the Wilmington Trust Company. Between 1997 and 2001, Stein Corp leased the premises to two separate tenants, and both tenants opened restaurants that eventually failed. In 2002, the principals of Chillibilly's negotiated a lease with Stein, and they obtained two loans from WSFS. In late 2002, following cost overruns in the renovations of the property, Chillibilly's failed. Chillibilly's defaulted on its lease and on its loans. WSFS sought to satisfy the loans by obtaining certain collateral and business assets at the restaurant. However, Stein Corp. argued that certain items that WSFS sought were actually fixtures, which attached to the property pursuant to the lease agreement between Stein Corp. and Chillibilly's. The court denied the portion of Stein Corp.'s motion that dealt with property Stein Corp. had originally not disputed belonged to WSFS pursuant to Chillibilly's agreements with WSFS. However, the court limited WSFS to obtaining Chillibilly's inventory, chattel paper, accounts, equipment and general intangibles, in which WSFS took a security interest. The court rejected WSFS's argument that it was also entitled to any other items the loans had purchased. Additionally, the Court found that WSFS had no interest in the electrical, plumbing, or air conditioning systems on the property because they were fixtures. Finally, the court rejected WSFS's fraud claim, finding that it had not reasonably relied on misrepresentations by Stein if they had been made. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share