(satori13)

The feud between the founder of the popular Grotto Pizza chain and retired federal Judge Joseph J. Farnan Jr. has expanded from the Delaware Superior Court to the Court of Chancery.

After making fraud allegations against Farnan in a malpractice suit filed last fall against Duane Morris in the Superior Court, restaurateur Dominick Pulieri is now pursuing his own claims against the judge in Chancery Court in an effort to regain control of a Rehoboth Beach motel he sold to Farnan for $3.2 million in 2002.

Pulieri, who launched Grotto Pizza in 1960, filed a lawsuit, Pulieri v. Boardwalk Properties, earlier this month in the Chancery Court alleging that Farnan swindled him out of the Sunview Motel and later broke a promise to return the property. He has asked Chancery Court Chancellor Andre G. Bouchard, who is overseeing the dispute, to order Farnan to transfer the motel back to the corporation Pulieri formed to own the property. Specifically, Pulieri alleged breach of contract and specific performance claims.

In December 2002, Sunview Corp., the entity formed by Pulieri to own the motel, was facing financial difficulties and would be unable to make a balloon payment on the loan for the building, according to court documents. Farnan, who was involved with the management of Grotto Pizza and was Pulieri’s friend, allegedly advised that the financing bank, Wilmington Trust, would not refinance the loan. Farnan suggested Pulieri sell the property to Farnan-affiliated Boardwalk Properties LLC as part of a “friendly transaction” to generate funds, according to the Chancery Court complaint.

Pulieri sold the property to Boardwalk for $3.2 million in 2002 under Farnan’s assurances that the property would be returned upon request on a dollar-for-dollar basis, according to court documents. The plaintiff contends that he sold the property below its market value and did not list it for sale based on Farnan’s alleged promise to return the motel.

According to the lawsuit, Pulieri and Farnan had executed a similar transaction for a Dewey Beach property under a business arrangement the plaintiff described in court papers as “the friendly agreement.” The “friendly agreement” was also applied to the Sunview sale, Pulieri alleged.

“Despite the existence of alternatives which would have been more favorable to Sunview, Farnan once again used his fiduciary duty of trust and confidence to counsel and persuade Pulieri, as an officer of Sunview, to enter into the friendly agreement that elevated Farnan’s interests above those of Sunview and Pulieri,” said Kevin Gibson, an attorney with Gibson & Perkins who is representing Pulieri in the Chancery Court lawsuit.

On April 3, 2013, Pulieri notified Farnan that he was ready to have the motel transferred back to Sunview under the friendly agreement, but was ignored, according to the complaint. A second letter, drafted by Gibson, was sent to Farnan’s counsel March 11. The judge, through his counsel, Dion G. Rassias of The Beasley Firm, said he would not comply with the request. Rassias called Pulieri’s claims “flawed and extortionate” and accused the pizza magnate of “making things up out of thin air.”

Farnan served as a U.S. district judge for the District of Delaware from 1985 until 2010, including a four-year stint as the district court’s chief judge from 1997-2001. He currently operates his own firm, Farnan LLP.

The retired judge said he has not yet been served with the complaint, but denied Pulieri’s claims in an interview with Delaware Law Weekly.

“In the Chancery Court lawsuit, Pulieri continues to change his story about what the real events were and makes false allegations,” Farnan said.

Pulieri had also filed a motion in Chancery Court earlier this year to be appointed receiver of Sunview Corp. so he could pursue the specific performance claims against Boardwalk. Bouchard granted his motion.

Farnan referred to a letter drafted by his attorneys in the Chancery Court receivership action, Gregory P. Williams and Blake Rohrbacher, both of Richards, Layton & Finger.

In the letter, the attorneys claimed that the Sunview Motel resale agreement would be triggered when the company’s financial situation improved, but the plaintiff has made no claims that he is in better financial shape.

Farnan said his attorneys will respond to the current lawsuit once they have been served.

Pulieri’s Chancery Court action echoes similar themes he alleged in a Superior Court legal malpractice lawsuit against Duane Morris and three of its attorneys. The Superior Court case contends Pulieri sought to sue Farnan in 2009 after he discovered that a property the former judge told him had sold for only $1.7 million actually had a purchase price of $4.1 million. However, according to the lawsuit, the attorneys failed to file the action, causing the statute of limitations to run out and leaving Pulieri with a $425,000 legal bill.

Joshua Peck, a spokesman for Duane Morris, denied the allegations shortly after the lawsuit was filed. He said the firm “appropriately handled the matter and expects to prove that as the facts unfold.” Peck said July 25 that the firm stands by its September statement.

The Superior Court trial is scheduled to start in June 2015.

Gibson did not comment on the merits of the case, but said the main difference between the two lawsuits was that the Chancery litigation’s goal was to regain possession of the Sunview Motel and if Pulieri gets the motel back, it would lessen the request for damages against Duane Morris in Superior Court. Under Delaware law, only the Chancery Court can hear a specific performance contract case where monetary judgments cannot be obtained. 

Jeff Mordock can be contacted at 215-557-2485 or jmordock@alm.com. Follow him on Twitter @JeffMordockTLI.