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Judge Carpenter Orders New Trial on Damages in Fraudulent Misrepresentation Case and Clarifies Availability of "Benefit-of-the-Bargain" Damages in Fraud Case

February 21, 2020

In LCT Capital, LLC, v. NGL Energy Partners LP and NGL Energy Holdings, LLC., C.A. No. 15C-08-109 WCC [CCLD], defendants NGL Energy Partners LP and NGL Energy Holdings, LLC purchased a company and plaintiff LCT Capital, LLC played a pivotal role in facilitating the acquisition. Accordingly, LCT Capital sought a substantial fee for its services, representing a sum greater than what is normally used in the industry. When NGL refused to pay, LCT Capital filed suit, alleging claims including breach of contract, unjust enrichment, fraudulent misrepresentation, and a quantum meruit.

The breach of contract and unjust enrichment claims were dismissed, and LCT Capital ultimately took the quantum meruit and fraudulent misrepresentation claims to trial. The jury returned a verdict in LCT Capital’s favor, awarding $4 million for the quantum meruit claim and $29 million for the fraudulent misrepresentation claim. After trial, NGL moved for judgment as a matter of law or, in the alternative, for a new trial.

Although NGL argued that the court should have dismissed the fraudulent misrepresentation claim at summary judgment, Judge Carpenter disagreed. Despite NGL’s arguments to the contrary, Judge Carpenter explained that under Delaware law, the representation at issue need not be made overtly; “[r]ather, a defendant’s deliberate concealment of a material fact or silence in the face of a duty to speak is sufficient for the claim of intentional misrepresentation.”

NGL next argued that it was entitled to a new trial on damages, contending that LCT Capital failed to present separate damage theories for its quantum meruit and fraudulent misrepresentation claims. Additionally, NGL disputed the extent to which LCT Capital was entitled to so-called benefit-of-the-bargain damages representing what LCT Capital should have received in facilitating the acquisition. In other words, NGL argued that the jury awarded LCT Capital damages reflecting a bargain that NGL never entered.

Judge Carpenter reviewed Delaware authority examining whether an enforceable contract was a predicate to recovering benefit-of-the-bargain damages in a fraud scenario, and concluded that the question was unsettled. Looking to other jurisdictions, he found that most courts have concluded that “where there is a formal contractual relationship between the parties, benefit-of-the bargain damages can be obtained.” He explained that such a bargain must be “created and formalized” so as to prevent parties from relying upon their negotiating positions to seek benefit-of-the-bargain damages before a formal contract was formed.

Agreeing with NGL that the trial court should have only allowed a single damage award because LCT Capital did not present separate damage theories for its quantum meruit and fraudulent misrepresentation claims, Judge Carpenter found that he could not consequently take the jury’s verdict sheet and apportion damages fairly. Accordingly, Judge Carpenter ordered a new trial specifically to determine the “real value of the services” LCT Capital provided to NGL under the benefit-of-the-bargain analysis he adopted.

Before concluding, Judge Carpenter lamented about forcing the parties to relitigate the issue of damages, acknowledging that damages issues constituted a substantial part of trial. He nevertheless admonished NGL and LCT Capital for taking “unreasonable positions that have not helped resolve this dispute.”

Analysis: The CCLD has become a favored venue for litigating fraud cases, and such cases have sometimes resulted in large damages awards. Bracket Holding Corp. v. Express Scripts, Inc., C.A. No. N15C-02-233 WCC CCLD (jury award of 82.1 million). In this particular case, Judge Carpenter clarified the standard under which benefit-of-the-bargain damages can be obtained in fraud cases, clarifying an unsettled area of Delaware law.

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