Delaware Business Litigation Report

Superior Court Sustains Certain Contract Claims in Dispute over Post-Acquisition Operation of Resort and Timeshare Business

CRE Niagara Holdings, LLC v. Resorts Group, Inc., C.A. No. N20C-05-157 PRW CCLD (Del. Super. Ct. May 31, 2022)
After acquiring a resort and timeshare business in 2017, plaintiffs brought claims of fraudulent inducement, breach of contract, and declaratory judgment against the seller. The seller filed claims in federal courts and in New York state court, and then separately filed parallel claims as counterclaims and a third-party complaint in Delaware. The seller alleged that plaintiffs did not adhere to past practices in operating the business post-acquisition, that they made the acquisition to loot the business, and that, as a consequence, the seller suffered from a diminution in value of the payment streams from certain contracts. The plaintiffs moved to dismiss the seller’s counterclaims and third-party complaint.

The Court held that seller had pled detailed factual allegations regarding the materiality of past practices and how buyers’ departure from those practices reduced collections and customer satisfaction, infringed on members’ use and enjoyment of their property, improperly raised maintenance fees, and curtailed important programs or protocols for reservations, referral, and rentals. Similarly, the Court sustained the seller’s implied covenant claim that alleged the new operator had used its discretion to manage the property and performed collections in bad faith. The Court did, however, dismiss other contract claims that the seller had brought redundantly in Delaware to guard against the chance that a New York court would find those claims should not proceed there. Since the New York court subsequently determined that the claims properly belonged in New York, the Court dismissed the parallel Delaware claims with prejudice. The Court also dismissed the seller’s tortious interference claim for failure to provide more than generalized and conclusory allegations regarding conduct and causation, and also dismissed the seller’s fraudulent inducement claim for failure to plead specific facts that lead to a reasonable inference that the promisor had no intention of performing its promises. Having dismissed these underlying tort claims, the Court also dismissed the seller’s dependent civil conspiracy claim.

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