Lost in Rehoboth, LLC v. Broadpoint Construction, LLC

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

LOST IN REHOBOTH, LLC, )
a Delaware Limited Liability Company )
)
Plaintiff, )
v. )
)
BROADPOINT CONSTRUCTION, LLC, )
a Delaware Limited Liability Company )
) C.A. No. S21C-03-021 MHC
AND )
)
FISHER ARCHITECTURE, LLC )
a Maryland Limited Liability Company, )
)
Defendants. )

OPINION AND ORDER

Submitted: February 28, 2025
Decided: May 22, 2025

Upon Plaintiff’s Motion to Amend and Motion to Reargue, DENIED.

Edward Seglias, Esquire, COHEN, SEGLIAS, PALLAS, GREENHALL &
FURMAN, P.C., Wilmington, Delaware, 19801, Attorney for Plaintiff Lost in
Rehoboth, LLC.

Eric Scott Thompson, Esq., FRANKLIN & PROKOPIK, Newark, Delaware, 19711,
Attorney for Defendant Broadpoint Construction, LLC.

Aaron E. Moore, Esquire, M. Claire McCudden, Esquire, MARSHALL
DENNEHEY, P.C., Wilmington, Delaware, 19899, Attorneys for Defendant Fisher
Architecture, LLC.

CONNER, J.

1
INTRODUCTION

This case involves a series of claims related to a failed plan to build a

restaurant on an undeveloped plot of land. The land is owned by 232 Rehoboth

Avenue, LLC (“232 Rehoboth”), who is not a party to this suit. Plaintiff Lost in

Rehoboth, LLC (“LIR”) entered into an agreement (the “Ground Lease”) with 232

Rehoboth to develop, operate, and lease a restaurant. LIR contracted with a general

contractor, Defendant Broadpoint Construction, LLC (“Broadpoint”) to build the

restaurant. Broadpoint subcontracted with Defendant Fisher Architecture, LLC

(“Fisher”) for architectural plans. After the plan fell through, allegedly due to

Broadpoint and Fisher’s malfeasance, LIR and 232 Rehoboth entered into a contract

(“the Liquidating Agreement”) that allegedly entitled LIR to pursue claims on behalf

of 232 Rehoboth.

This opinion and order addresses a series of legal questions raised by motions

brought in the wake of a previous order1 issued May 23, 2024, (the “Partial Summary

Judgment Order”). The Court found the Liquidating Agreement did not enable LIR

to claim lost rental income on behalf of 232 Rehoboth against Fisher and accordingly

granted Fisher partial summary judgment. The Partial Summary Judgment Order

declined to decide whether Delaware recognizes “liquidation agreements,” also

1
Lost in Rehoboth, LLC v. Broadpoint Constr., LLC, 2024 WL 2560982 (Del. Super. May 23,
2024).
2
known as “pass-through agreements” (hereinafter referred to as “liquidation

agreements”). Even if Delaware were to apply the rules of jurisdictions recognizing

liquidation agreements, the Liquidating Agreement did not allow 232 Rehoboth to

bridge two degrees of contractual separation to reach privity against Fisher.

In response to the Partial Summary Judgment Order, LIR moved to amend its

complaint attempting to revive 232 Rehoboth’s lost rent claim. LIR contends that

the Liquidating Agreement enables LIR to bring 232 Rehoboth’s lost rent claim

against Fisher because LIR is a third-party beneficiary to the contract between

Broadpoint and Fisher. LIR also moved to reargue the liability determination of the

Partial Summary Judgment Order in accordance with this new theory.

Since LIR’s legal theory is contrary to Delaware law, the motion to amend the

complaint and motion to reargue are DENIED.

FACTUAL AND PROCEDURAL HISTORY

LIR sought to construct and operate a restaurant on property owned by 232

Rehoboth. LIR and 232 Rehoboth entered into a ten-year Ground Lease which

defined the rental terms including an option to renew the lease for four additional

five-year terms. LIR hired Broadpoint, the general contractor, to build the restaurant

on the property. Broadpoint then contracted with Fisher, the subcontractor, to design

the restaurant. Due to the alleged malfeasance of Broadpoint and Fisher, LIR

3
terminated the project on June 19, 2020. This termination constituted a breach of

the Ground Lease.

On September 14, 2020, LIR and 232 Rehoboth entered into the Liquidating

Agreement, which includes the following provisions:

3. Acknowledgment of Liability. LIR/AMG acknowledge liability to
232 Rehoboth for the Landlord Claims that could be asserted by 232
Rehoboth against LIR/AMG, and which 232 Rehoboth represents to
include any and all claims on behalf of 232 Rehoboth against
LIR/AMG, which Claims shall be fully liquidated as provided in the
agreement as set forth herein….
4. Assignment of Landlord Claims and Representation of 232 Rehoboth
Regarding Non-Assignment of Claims. 232 Rehoboth hereby forever
assigns and transfers all of its rights and interests in the Landlord
Claims to LIR to be pursued and liquidated in accordance with this
Agreement….2

In the Liquidating Agreement, LIR acknowledged liability to 232 Rehoboth

for the breach of the Ground Lease giving rise to the claim for lost rental income.3

Additionally, the Liquidating Agreement assigned 232 Rehoboth’s rights and

interests in the lost rent claims arising from the breached Ground Lease to LIR, the

breaching and admittedly liable party.4 The Liquidating Agreement further clarified

that 232 Rehoboth and LIR agree to split the proceeds of the lost rental income

2
Liquidating Agreement at 6–7.
3
Id. at 6.
4
Id. at 7.
4
claims fifty-fifty.5 An expert witness opined the lost rental income owed by LIR to

232 Rehoboth ranges from $518,205 to $4,413,009.6

Ordinarily, the theory of liability would be that 232 Rehoboth would sue LIR

for lost rental income, and then LIR would interplead Broadpoint, the general

contractor. This is because 232 Rehoboth never contracted directly with Broadpoint,

and does not have a direct cause of action, instead requiring LIR’s contractual links

with both to serve as the proverbial “middleman” to establish privity. In an ordinary

case regarding liquidation agreements, a liquidation agreement would cut out the

need for a middleman, whom in this case would be LIR. Thus, 232 Rehoboth was

supposed to sue Broadpoint to recover lost rental income.

Instead, LIR brought this suit in which 232 Rehoboth has never been a party.

Almost half a decade later and near trial, it is too late for 232 Rehoboth to join.

Furthermore, LIR settled its direct claims against Broadpoint, although Broadpoint

remains a party defending crossclaims by Fisher. Thus, LIR has been trying to

recover lost rent claims against Fisher.

The Partial Summary Judgment Order addressed LIR’s first gameplan. LIR’s

first theory was:

“. . . (1) LIR has admitted liability to 232 Rehoboth for breach of the
Ground Lease, (2) LIR and 232 Rehoboth have agreed to liquidate that
liability to the amount recovered in this action, and (3) LIR has agreed

5
Id. at 9.
6
Def. Fisher Architecture, LLC’s Mot. for Partial Summ. J., Ex. F at 10.
5
to pass through the recovery to 232 Rehoboth, LIR can recover
damages for lost rent [against Fisher].”7

The Partial Summary Judgment Order rejected this theory of recovery, finding that

even if liquidation agreements are presumptively valid under Delaware law, the

Liquidation Agreement could not be used to bridge the two degrees of contractual

separation from 232 Rehoboth to LIR to Broadpoint to Fisher.8 After this ruling,

LIR moved to reargue and amend the complaint, which are the subject of this opinion

and order.

LIR’s second gameplan is to amend the complaint to replead the liquidation

agreement claim through a theory of contractual third-party beneficiaries. LIR seeks

to assert itself as an intended third-party beneficiary of the contract between

Broadpoint and Fisher, and thus able to bring claims on behalf of 232 Rehoboth

through the Liquidating Agreement. LIR argues that this theory only uses two

contractual relationships, namely the Liquidating Agreement and the third-party

beneficiary status of the Broadpoint-Fisher contract. LIR argues this solves the issue

of two degrees of contractual separation that warranted the Partial Summary

Judgment Order’s dismissal of the lost rent claim. However, in LIR’s Opening Post-

7
Pl.’s Resp. in Opp’n to Def. Fisher Architecture, LLC’s Mot. For Partial Summ. J. at 19.
8
Lost in Rehoboth, LLC v. Broadpoint Constr., LLC, 2024 WL 2560982, at *3 (Del. Super. May
23, 2024).
6
Argument Brief, LIR concedes:

Here, 232 Rehoboth had no contract with Fisher. Nor is there any
language in the Fisher Contract to indicate that 232 Rehoboth was an
intended third-party beneficiary of the Fisher Contract. Accordingly,
232 Rehoboth was not a third party beneficiary of the Fisher Contract.
. . . Thus, 232 Rehoboth had no ability to bring a direct claim against
Fisher.9

LIR originally moved to amend the complaint on July 26, 2024. After the

parties submitted briefings, oral argument was held on December 19, 2024. After

oral argument, the Court requested additional briefing of the parties. Briefs were

submitted timely, with LIR’s final reply brief filed February 28, 2025.

ANALYSIS

Under Superior Court Civil Rule 15, the Court is directed to liberally grant

amendments when justice so requires.10 In the absence of prejudice to another party,

this Court is required to exercise its discretion in favor of granting leave to amend.11

Fisher’s primary argument is that LIR should have raised the third-party beneficiary

claim in response to Fisher raising it as an affirmative defense three years ago,

calling this a delaying tactic for trial.12 However, LIR and Fisher explored the

affirmative defense in discovery and LIR extensively identified the material it plans

to rely upon at trial to establish that LIR is a third-party beneficiary of the contract

9
Pl.’s Opening Post-Arg. Br. in Supp. of Mot. for Leave to File Am. Compl. at 14.
10
Mullen v. Alarmguard of Delmarva, Inc., 625 A.2d 258, 263 (Del. 1993).
11
Id.
12
See Def., Fisher Architecture, LLC’s Answering Br. to Pl’s Opening Br. in Supp. of Their
Mot. for Leave to File Am. Compl. at 8–11.
7
between Fisher and Broadpoint.13 LIR further concedes that 232 Rehoboth is not a

third-party beneficiary to the contract between Fisher and Broadpoint.14 Fisher did

not identify any further discovery needed and essentially has been given LIR’s

gameplan in the briefings for this motion.

However, the real legal question for this motion is whether a third-party

beneficiary may raise claims against a subcontractor on behalf of a party who is

neither a party nor a third-party beneficiary based on a liquidation agreement, also

known as a “pass-through agreement.” The Court still does not need to address the

novel issue of Delaware’s recognition of liquidation agreements since LIR’s theory

of liability runs contrary to existing law regarding third-party beneficiaries.

“A ‘liquidation agreement’ is a type of settlement agreement wherein the

contracting parties liquidate or settle the dispute between them and agree to pass

through some or all of the claims to a third party.”15 The intent is that “[r]ather than

having one dispute between the subcontractor and general contractor and another

between the general contractor and the owner, a bargain is struck permitting the

subcontractor to prosecute its claim directly against the owner with the general

contractor acting as a conduit.”16 “[Liquidation agreements] are premised on a

13
See Pl.’s Opening Br. in Supp. of Mot. for Leave to File Am. Compl. at 6–11.
14
Pl.’s Opening Post-Arg. Br. in Supp. of Mot. for Leave to File Am. Compl. at 14.
15
3 Bruner & O’Connor on Construction Law § 8:59.
16
Id.
8
contractor’s liability to its subcontractor; therefore, the contractor must have some

liability upon which to base the [liquidation agreement].”17 The underlying policy

justification in recognizing liquidation agreements is to bridge gaps in privity and

reduce litigation by allowing liability to one another to be resolved in one suit instead

of two.18

All of this is to say that liquidation agreements do not create new forms of

liability but rather reduce litigation when there is a straightforward chain of liability.

This is reflected by Texas requiring that liquidation agreement claims must be

presented through an intervening party who has a contractual relationship with both

parties19. Both New York and New Jersey require the imposition of liability upon a

party for a third-party’s increased costs, thereby providing the first party with a basis

for legal action against the party at fault.20 In short, there must be valid legal claims

underlying a liquidation agreement for the liquidation agreement to be effective.

The rules regarding a contracting party’s liability to third-party beneficiaries

is well-settled law in Delaware.

As a general rule, a nonparty to a contract has no legal right to enforce
it. This general rule yields to the notion that intended third-party
beneficiaries have an enforceable right under contracts conferring a
benefit to them, even though they are not parties to those contracts. The
17
Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605, 619 (Tex. 2004).
18
See Morse/Diesel, Inc. Trinity Indus., Inc., 875 F.Supp. 165, 174–75, 174 n.13 (S.D.N.Y.
1994), rev’d on other grounds, 67 F.3d 435 (2d Cir. 1995).
19
See Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605, 610 (Tex. 2004).
20
See Toys R Us, Inc. v. Schimenti Const. Co., 2015 WL 7783615, at *2 (N.J. Super. Ct. App.
Div. Dec. 4, 2015).
9
general rule does apply, however, to prevent mere incidental
beneficiaries from claiming enforceable rights under a contract.21

If parties to the contract did not intend to benefit a third party but the third party

happens to benefit from the performance of the contract either indirectly or

coincidentally, such third person has no rights under the contract.22

Here, LIR concedes that 232 Rehoboth is not a third-party beneficiary to the

contract between Broadpoint and Fisher.23 Thus, the general rule applies that 232

Rehoboth is not allowed to raise claims for lost rent against Fisher for defective

performance under the Broadpoint-Fisher contract. LIR’s theory of the case would

permit 232 Rehoboth to enter into a contract allowing LIR to recover 232

Rehoboth’s damages against Fisher, even though 232 Rehoboth itself cannot assert

damages against Fisher. This would ignore fundamental limits to contractual

liability and therefore is contrary to Delaware law. The possibility that LIR may be

able to establish LIR as a third-party beneficiary does not change the fact 232

Rehoboth lacks third-party beneficiary status.

A fundamental rule to contract damages is that a breaching party is legally

responsible for the risks that it foresaw or reasonably should have foreseen at the

21
Comrie v. Enterasys Networks, Inc., 2004 WL 293337, at *2 (Del. Ch. Feb. 17, 2004)
(citations omitted).
22
Delmar News, Inc. v. Jacobs Oil Co., 584 A.2d 531, 534 (Del. Super. 1990) (citing Insituform
of N. Am., Inc. v. Chandler, 534 A.2d 257 (Del. Ch. 1987)).
23
Pl.’s Opening Post-Arg. Br. in Supp. of Mot. for Leave to File Am. Compl. at 14.
10
time the contract was made.24 LIR admitted that 232 Rehoboth is not a third-party

beneficiary to the contract between Broadpoint and Fisher and that 232 Rehoboth

could not bring a direct claim against Fisher. This is essentially an acknowledgment

that LIR has no evidence Fisher could reasonably foresee 232 Rehoboth’s lost rent

damages. Accordingly, Fisher should not be held liable for lost rent. LIR may not

use a liquidating agreement to extend contractual liability beyond the fundamental

limits of third-party beneficiary rules.

Even if this Court were to recognize the validity of liquidation agreements

today, the one who would be liable to 232 Rehoboth would be Broadpoint, not

Fisher. The fact that LIR settled with Broadpoint prior to any court rulings regarding

LIR’s novel arguments does not make Fisher any more liable. Further, the fact that

LIR and 232 Rehoboth agreed to split potential recovery against Fisher does not

make LIR and 232 Rehoboth automatically entitled to recovery against Fisher for

lost rents.

CONCLUSION

Ultimately, LIR is not allowed to assert lost rent claims suffered by 232

Rehoboth against Fisher. The motion to amend and motion to reargue are hereby

DENIED.

24
Honeywell Int’l Inc. v. Air Prods. & Chems., Inc., 872 A.2d 944, 953 (Del. 2005).
11
IT IS SO ORDERED.

/s/ Mark H. Conner
Mark H. Conner, Judge

cc: Prothonotary

12