Judge awards Schaeffer $31,000 in real estate battle

Breach of contract claims dismissed
January 7, 2022

A Delaware Court of Chancery has awarded Sussex County Councilman Mark Schaeffer $31,200 after a three-year legal battle against a former business partner.

Vice Chancellor Morgan Zurn ruled Nov. 30 that Schaeffer was entitled to a finder’s fee for his role in a Milton real estate deal he was in with then-partner Don Lockwood, but that he did not prove he had a contract with Lockwood that would entitle him to profits from the Deep Branch Woods development. 

The case dates back to 2015, when Schaeffer, a real estate broker of 40 years’ experience, was approached by Maryland-based Cecil Bank to purchase or develop Deep Branch Woods, a 30-acre subdivision Cecil Bank had foreclosed on. 

According to Zurn’s decision, Schaeffer was interested in the project, but needed additional financial backing. So he approached former attorney John O’Brien and Lockwood, a real estate developer. The three men had worked together before, and had traded stakes in other ventures to compensate one another in other deals. 

The three men agreed to purchase the property for $265,000, under the understanding they would be equal partners in an LLC that would purchase Deep Branch Woods, but that LLC was never formed. 

Then things got complicated. According to Zurn’s decision, Schaeffer, Lockwood and O’Brien did not have cash on hand to fund the project. Cecil Bank received a higher offer from Insight Homes, and tried to renegotiate the deal with Schaeffer, Lockwood and O’Brien. Lockwood enlisted attorney Constantine Malmberg to help hold Cecil Bank to its original price. According to Zurn, Malmberg and Lockwood had a long business relationship, but Schaeffer and Malmberg had been at odds for years, even prior to Schaeffer’s lawsuit. Malmberg insisted he would not take part in any business deal with Schaeffer.

Still, Schaeffer pursued the project on Lockwood’s behalf, with threats of litigation against Cecil Bank. Eventually, the parties settled on a $390,000 purchase price, with Schaeffer leaving funding up to Lockwood and O’Brien. Zurn said at this point, Lockwood turned from Schaeffer and O’Brien as partners, and instead partnered with Malmberg, and together they formed an LLC, arranged for financing and purchased Deep Branch Woods. 

Their company, Deep Branch Creek, entered into an exclusive listing agreement with Berkshire Hathaway HomeServices Gallo Realty. Ruby Schaeffer, Mark’s wife, who worked at Gallo Realty with her husband, was the exclusive listing agent, with the promise of a stake of Gallo’s 8 percent commission on each lot. 

At a February trial, Lockwood and Malmberg testified that choosing Ruby Schaeffer as the listing agent was compensation for Mark Schaeffer’s role in the subdivision, though Schaeffer did not agree to this arrangement and the Schaeffers remained uncompensated even after Ruby Schaeffer got the listing. 

Lockwood and Schaeffer would soon have a falling out, with the result being Lockwood looking for partners to buy out Schaeffer and O’Brien’s profit interests. When that plan fell through, Lockwood and Malmberg struck a deal where Lockwood would give up his interest in Deep Branch Woods, and would receive an interest in another property Malmberg owned, and settle other debts and obligations.

Schaeffer and O’Brien were not privy to this swap; O’Brien was later paid for his efforts in the deal. Malmberg eventually sold the lots in Deep Branch Woods, and neither he nor Lockwood has any more financial interest in the subdivision.

Schaeffer filed a lawsuit in December 2018 for breach of contract and unjust enrichment. Zurn ruled against breach of contract claims because Schaeffer did not prove he had an enforceable contract for profits from Deep Branch Woods or that Lockwood had made definite promises of profits from the project. 

However, Zurn did agree with Schaeffer’s claims of unjust enrichment, saying that Schaeffer was entitled to some compensation for his efforts in securing the subdivision for Lockwood. Zurn awarded Schaeffer 8 percent commission on Lockwood and Malmberg’s $390,000 purchase of Deep Branch Woods, which works out to $31,200. Each side is responsible for their own attorneys’ fees.

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