Court of Chancery affirms limitations on expense reimbursement in partition actions

Court of Chancery affirms limitations on expense reimbursement in partition actions

On February 17, 2014, Master Abigail M. LeGrow of the Court of Chancery issued her Final Report in the matter of Nancy Weber v. Joan Weber, a partition action regarding a desirable plot of waterfront property in Rehoboth Beach, Delaware. The property was originally purchased by Eugene Weber Jr. in 1995. A year later, Eugene retitled the property in the names of himself and his wife Nancy Weber as tenants by the entirety. Seven years later, Eugene decided to bequeath a 50% interest in the property to his daughter Joan Weber, while still retaining himself and Nancy as partial owners.

After Eugene passed away in September 2011, a dispute arose between Nancy and Joan regarding who owned the property, how the property was titled, and the respective interests of each owner. After the parties were unable to agree on equal ownership of the property, Nancy filed a partition suit with the Court of Chancery, requesting that the property be sold at auction and that the proceeds be split evenly among the two owners. Joan filed a counterclaim asserting that she owned 75% of the property, and also seeking reimbursement of approximately $62,000 in alleged maintenance and upkeep of the property, $10,000 in reimbursement for her labor estimates, $18,000 in reimbursement for her son’s labor estimates, and other associated expenses. Joan requested that these expenses be reimbursed to her out of the sale proceeds after the property was sold at auction.

The property sold at auction on March 22, 2013 for $400,000. The Court of Chancery held a hearing on June 21, 2013 to determine each party’s legal interest in the property and whether or not Joan was entitled to reimbursement for her claimed expenses. Joan argued that she owned either 75% or 66% of the property based on ambiguities in the 2003 deed. The 2003 deed vested title to the Property in: AEugene Weber, Jr., and Nancy Weber (as to an undivided 50% interest) and Joan Weber (as to an undivided 50% interest), as joint tenants with right of survivorship . . .@ According to Joan, this deed granted Eugene a 25% interest in the property, and that 25% interest passed directly to Joan through Eugene’s Will, leaving Joan with 75% ownership. Alternatively, Joan argued that the deed granted all three parties an equal 33% interest, and Eugene’s 33% passed to Joan upon his death, leaving Joan with 66%.

Nancy’s position on interpreting the deed was that Nancy and Eugene owned an undivided 50% interest as tenants by the entirety, and by operation of law Nancy retained that 50% ownership after her husband passed away, leaving Nancy with 50% and Joan with 50%.

Master LeGrow ultimately agreed with Nancy’s argument and declared the property was owned equally by Nancy and Joan. Master LeGrow opined that, while there is no Delaware case law directly on point, it is possible that a tenancy by the entireties can exist within a larger form of ownership. In this case, a tenancy by the entireties existed within a larger joint tenancy with right of survivorship, an issue of first impression in Delaware law, having only previously been indirectly considered in dicta by the Delaware Supreme Court nearly fifty years ago.

After concluding that the parties owned equal interests in the property, the focus next turned to whether or not Joan was entitled to reimbursement or contribution for expenses. Nancy conceded that she was personally responsible for a mortgage taken out against the property in 2003 because her name was on the document, but objected to the remainder of Joan’s requested expenses. Nancy further argued that she was essentially kicked out of the property in February 2011 by Joan and her son, and that Nancy was not responsible for any expenses incurred after that date. Nancy’s ultimate position was that the only expense she was liable for was the 2003 mortgage.

A large portion of the hearing centered around Joan’s requested reimbursement for materials and labor totaling approximately $62,000. These expenses included materials purchased to work on the home, contractors hired to work on the home, taxes, insurance, utility bills, electric bills, cable bills, payments made towards the mortgage, and rough estimates of labor costs for both Joan and her son Scott. At the hearing, Joan admitted to having very little documentation to substantiate her claimed expenses. Joan conceded that she did not actually keep time records when working on the property, and that her request for $10,000 to herself and $18,000 to her son were arbitrary sums calculated in her head during the litigation.

Ultimately, Master LeGrow excluded the majority of Joan’s requested expenses for repairs, improvements, and bills. The Court relied on the well-known principle that Aa cotenant in sole possession is not entitled to contribution from the other cotenants for repairs to the property.@ Thus, Joan was not entitled to contribution for any of her claimed repair materials or labor. The Court also rejected Joan’s claimed improvements, citing the Delaware partition statutes: Ato the extent those improvements have enhanced the value of the property, the improving cotenant will be compensated proportionally out of the proceeds of the sale.@ Having concluded that Joan did not even make an attempt to prove that her work enhanced the value of the property, the Court ruled that Joan was not entitled to contribution for any improvements.

The Court further opined that Joan’s estimates for repairs and improvements were simply not reliable measures of expenses. Joan and her son provided only vague, round-number estimates for their labor and for many of the expenses. They admitted these estimates were prepared many months later, and that actual time records and receipts were not being kept. Finally, regarding the few receipts that Joan did provide, the Court found many of those to be duplicative and not readily identifiable as expenses associated with the property. Taking all these reasons into consideration, Master LeGrow ruled that AJoan failed to carry her burden of proof with respect to contribution for repairs, improvements, and utilities.@ and awarded Joan reimbursement only for mortgage payments, county taxes, and homeowner’s insurance.

In total, the Court of Chancery declared that the property was owned equally by Nancy and Joan, and awarded Joan reimbursement for previous payments on the mortgage, taxes, and insurance for the property. Weber v. Weber affirmed one important aspect of Delaware partition law: that expense contribution will be assessed against the other property owner only if there is clear documentation and receipts and only upon a showing that these expenses enhanced the value of the property. Many routine expenses such as cable bills, phone bills, lawn care expenses, and labor expenses do not enhance the value of the property and cannot be retroactively assessed against a co-owner through a partition sale.

Nancy Weber was represented in this action by David J. Ferry, Jr. and Brian J. Ferry, of Ferry Joseph, P.A.  If you are considering a partition action, have questions about partitions of real estate, or have questions about the Weber v. Weber case, please contact Ferry Joseph, P.A. for further information.