REDUS Peninsula Millsboro, LLC v. Mayer and

COURT OF CHANCERY
OF THE
STATE OF DELAWARE

JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179

July 13, 2015

Katharine L. Mayer, Esquire Robert J. Valihura, Jr., Esquire
McCarter & English LLP The Law Office of Robert J. Valihura, Jr.
405 North King Street, 8th Floor 1203 North Orange Street
Wilmington, DE 19801 Wilmington, DE 19801

Chad J. Toms, Esquire Brian L. Kasprzak, Esquire
Whiteford Taylor & Preston LLC Marks, O’Neill, O’Brien,
405 North King Street, Suite 500 Doherty & Kelly, P.C.
Wilmington, DE 19801 300 Delaware Avenue, Suite 900
Wilmington, DE 19801

Re: REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
Date Submitted: March 30, 2015

Dear Counsel:

This letter opinion addresses two actions related to telecommunications

services that homeowners in a community known as The Peninsula were required

to purchase through covenants in the community’s real estate development

documents. In the first action, filed on August 23, 2013, Plaintiffs REDUS
REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
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Peninsula Millsboro, LLC (“REDUS”) and Wells Fargo Bank, N.A. (“Wells

Fargo”) seek summary judgment to enjoin arbitration demanded by homeowner

Defendants Neal M. Mayer, John Gee, Don Dieringer, David Harrod, John

Shanaphy, Marc Stanley, Chuck Burrall, and Deb Putt (the “Eight Homeowners”).1

In the second action, Plaintiff James W. Williams, IV (“Williams”), individually

and derivatively on behalf of the homeowners’ association, The Peninsula

Community Association, Inc. (the “PCA”), brings fiduciary duty claims against

Defendants REDUS, REDUS Properties, Inc.,2 and Wells Fargo.3 REDUS and

Wells Fargo have moved for summary judgment in the first action and to dismiss

the second action. The Court addresses these motions in turn.

1
C.A. No. 8835-VCN.
2
According to Williams, REDUS Properties, Inc. is the Wells Fargo subsidiary
that controls REDUS. Verified Compl. for Injunctive Relief (“Williams Compl.”)
¶¶ 7, 9. The Court acknowledges that REDUS Properties, Inc. is not a party to the
first action, but subsumes REDUS Properties, Inc. into the term “Wells Fargo” as
relevant to the second action for convenience.
3
C.A. No. 10228-VCN.
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*****

A. The Arbitration Action

The arbitration dispute (the “Arbitration Action”) centers on whether the

Court or an arbitrator must decide the claims brought by the Eight Homeowners

under the Agreement to Obtain Communications Services (the “PCA-PIM

Agreement”).4 The critical grounds for the Court’s decision, therefore, are the

language of that agreement and the claims stated in the Eight Homeowners’

complaint in arbitration.5 Covenants for The Peninsula created a framework under

which The Peninsula’s original developers established Peninsula Infrastructure

4
Aff. of William Emil Honaker in Supp. of Mot. for Prelim. Inj. (“Honaker Aff.”)
Ex. B (“PCA-PIM Agreement”). The Court has previously denied REDUS and
Wells Fargo’s motion to dismiss several counterclaims filed in this action. See
REDUS Peninsula Millsboro, LLC v. Mayer, 2014 WL 4261988 (Del. Ch. Aug. 29,
2014).
The Eight Homeowners do not concede that the PCA-PIM Agreement is valid.
In fact, they argue that if their validity challenges succeed, the arbitration
proceedings would become moot. Defs.’ Opp’n to Pls.’ Mot. for Summ. J. to
Enjoin Arbitration (“SJ Opp’n Br.”) 2 n.3. Nonetheless, the parties have framed
the arbitrability debate for this motion, and that is what the Court addresses.
5
See Honaker Aff. Ex. F (“Arbitration Compl.”). The Eight Homeowners filed a
complaint and an amended complaint, but the Court’s analysis is directed at the
amended complaint.
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Management, LLC (“PIM”)6 and PIM entered into the PCA-PIM Agreement to

provide telecommunications services at The Peninsula.7 The covenant to pay for

such services “runs with the land and [is] secured by a lien on each Owner’s Lot or

Unit.”8 The PCA-PIM Agreement provides for arbitration of pricing disputes:

During the term of this Agreement, the costs of each of the Platform
Services shall not exceed an amount equal to the rate charged by the
Comparable Provider for similar Platform Services of equal quality as
required under this Agreement . . . determined once a year at the time
PIM announces the annual rate structure. . . . PIM will not raise or
lower its prices more than once during a calendar year and the [PCA]
will accordingly adjust the Homeowner assessment. Any Homeowner
may challenge the pricing as violating this Section. Such Homeowner
shall bring an action within six (6) months of the effective date of the
new rates in accordance with the dispute resolution process described
in Section 8.1 below. If such action is successful, Homeowners shall
be entitled to a rebate or credit (at PIM’s election) of the difference
between the rate actually charged and the maximum rate allowable
under this Section.9

6
Honaker Aff. ¶ 12; Answer & Countercl., Countercls. (“Countercl.”) ¶ 6; Answer
to Countercl. ¶ 6.
7
See Honaker Aff. Ex. A (Declaration of Covenants, Conditions and Restrictions
for The Peninsula), Art. XV.
8
Aff. of Joseph A. Yablonski (“Yablonski Aff.”) Ex. E (Memorandum and Notice
of Homeowner Requirements for the Peninsula on the Indian River Bay) ¶ 6. This
memorandum was filed with the Sussex County Recorder of Deeds in
August 2005.
9
PCA-PIM Agreement § 5.7. “Comparable Providers” is defined as
“communications service providers that provide residential services in Sussex
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Section 8.1 elaborates that “[w]henever [the PCA-PIM] Agreement requires the

use of Dispute Resolution, the [negotiation and arbitration] process contained in

this Section shall be used. . . . Unless otherwise stated or modified, all other

applicable rules of the [American Arbitration Association (the “AAA”)] shall

apply.”10

PIM signed a Bulk Services Agreement (for video and internet services)

with Verizon Services Corp. (“Verizon”) on May 17, 2005.11 The Eight

Homeowners have been charged $90 per month for services since 2005,12 while

Verizon has charged only $58.95 for the services.13

County, Delaware and who have similar technical service and performance
abilities and who offer reputable levels of customer service as required in this
Agreement.” Id. § 1.1.
10
Id. § 8.1.
11
Yablonski Aff. ¶ 18 & Ex. F (“Bulk Services Agreement”).
12
The Eight Homeowners state that they have paid the PCA, which paid PIM
through June 2012. SJ Opp’n Br. 7. Thereafter, Verizon was instructed to invoice
REDUS, instead of PIM. See Yablonski Aff. ¶ 16 & Ex. D, at DEV00001053,
DEV00001081 (correspondence about billing).
13
Countercl. ¶¶ 11, 16; Answer to Countercl. ¶¶ 11, 16; see also Bulk Services
Agreement 16.
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The Eight Homeowners were notified on or around January 1, 2013, “that

the price for Platform Services for 2013 would be $90 per month.” 14 They

(individually and on behalf of the other homeowners) initially filed a Demand for

Arbitration with the AAA and sent copies to REDUS, Wells Fargo, and the

original developers in late June 2013.15 The complaint in arbitration asserts a right

under the PCA-PIM Agreement “to challenge the prices paid for

[telecommunications] services.”16 It requests a return of $31.05 to each

homeowner for each month from January 2013 until the date of the arbitration

award, as well as a cease and desist order against charging more than the price

14
Honaker Aff. ¶ 23.
15
Id. ¶ 24 & Ex. D, at 10-11 (indicating attempts at service of the initial arbitration
complaint).
On May 4, 2012, Wells Fargo and REDUS executed a Foreclosure Bill of Sale
and Assignment, which purported to transfer to REDUS “all rights of PIM under
the [PCA-PIM] Agreement” and related agreements. See Honaker Aff. ¶ 13; see
also Countercl. Ex. A (Foreclosure Bill of Sale and Assignment). The Eight
Homeowners argue, however, that the PCA-PIM Agreement can only be amended
by the PCA and PIM, SJ Opp’n Br. 5 (citing PCA-PIM Agreement § 8.11), and
that real estate interests could not have changed hands through a UCC foreclosure.
Id. at 6 n.4. For the present purposes, the Court assumes that REDUS and Wells
Fargo have some ownership rights in the PCA-PIM Agreement.
16
Arbitration Compl. 2; see also id. ¶ 23 (noting participation “in Mr. Mayer’s
overcharge claim”).
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Verizon bills.17 REDUS and Wells Fargo filed the Arbitration Action on

August 23, 2013, primarily asking the Court to enjoin arbitration. The Eight

Homeowners then filed counterclaims essentially seeking rescission of the PCA-

PIM Agreement, a return of their excess payments, and an injunction against

further excess receipts.

*****

The parties’ arguments have narrowed significantly over the course of

briefing and oral argument. The only remaining, developed dispute is whether the

Eight Homeowners have presented a comparable pricing dispute for arbitration. At

oral argument, the Eight Homeowners acknowledged that they seek the Court’s

decision on arbitrability of their claims.18 The Eight Homeowners also did not

mention further discovery.19 As such, REDUS and Wells Fargo’s relevant

contentions are that the Eight Homeowners’ claims are not arbitrable because the

17
Id. at 10.
18
Oral Arg. Pls.’ Mot. for Summ. J. and to Enjoin Arbitration in C.A. #8835-VCN
Defs.’ Mot. to Dismiss in C.A. #10228-VCN (“Oral Arg. Tr.”) 16-17.
19
In their opposition brief, the Eight Homeowners had argued that they needed
more time to take discovery “before the March 3, 2015 discovery cutoff date in the
Second Amended Scheduling Order.” SJ Opp’n Br. 1, 19-23.
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applicable arbitration provision covers only comparable pricing disputes, and a

claim to recover gross profits does not fall within those bounds. They emphasize

that the Eight Homeowners have failed to allege that the $90 price is not

comparable with other retail (as opposed to wholesale) prices. The Eight

Homeowners respond that they state a pricing dispute because the “costs” charged

to them exceed the price charged by Verizon, a comparable provider20—a

comparable pricing dispute by the plain language of the PCA-PIM Agreement.21

*****

The Court grants summary judgment “if the pleadings, depositions, answers

to interrogatories and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that the moving party is

entitled to a judgment as a matter of law.”22

20
It is not disputed that Verizon is a comparable provider. Oral Arg. Tr. 6, 22.
21
In addition to advancing their interpretation of the PCA-PIM Agreement’s plain
language, the Eight Homeowners contend that ambiguity should be interpreted in
their favor because REDUS and Wells Fargo are successors to the drafter.
SJ Opp’n Br. 18-19.
22
Ct. Ch. R. 56(c).
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*****

The Eight Homeowners argue that REDUS and Wells Fargo (ultimately) are

charging them more than Verizon charges, violating Section 5.7, with the terms

“prices” and “costs” used interchangeably. REDUS and Wells Fargo highlight

their business judgment, disclosure, and a difference in position to explain why the

Eight Homeowners do not raise a comparable pricing dispute.23 To determine

whether a claim is arbitrable, the Court looks at (1) whether the parties’ agreement

to arbitrate is broad or narrow, and (2) whether the claim fits within the scope of

23
They argue that a proper challenge aims to ensure that “the retail price . . . paid
by Homeowners within The Peninsula does not exceed the retail price at which
comparable services are available to similarly situated consumers outside The
Peninsula.” Pls.’ Reply Br. in Supp. of Their Mot. for Summ. J. to Enjoin
Arbitration (“SJ Reply Br.”) 10.
REDUS and Wells Fargo cite Marshall v. Priceline.com Inc. (“Priceline I”), in
which the Superior Court dismissed claims that Priceline charged service fees that
“had no rational relationship to the costs incurred” because those fees were within
Priceline’s business judgment, not limited by contract, and had been disclosed to
consumers. 2006 WL 3175318, at *4 (Del. Super. Oct. 31, 2006). Priceline’s
situation may be distinguishable, however, because the Eight Homeowners were
required to accept charges as part of their property ownership and were told that
the fee arrangement was a “pass through.” Cf., e.g., Marshall v. Priceline.com Inc.
(“Priceline II”), 2010 WL 1068197, at *6 (Del. Super. Mar. 8, 2010) (“Reasonable
users of this service would appreciate that Priceline is in the business of profiting
from these transactions . . . .”), aff’d, 7 A.3d 485 (Del. 2010) (TABLE).
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the agreement.24 “If the court is evaluating a narrow arbitration clause, it will ask

if the cause of action pursued in court directly relates to a right in the contract.”25

The question here is whether the Eight Homeowners’ claims relate directly to the

narrow right to arbitrate a comparable pricing dispute.26 When interpreting a

contract, the Court seeks to determine the parties’ intent from the plain language of

their agreement.27 The contract is viewed as a whole and “so as not to render any

part of the contract mere surplusage.”28 “Summary judgment is appropriate only if

the contract . . . is unambiguous.”29

The plain language of Section 5.7 of the PCA-PIM Agreement allows a

homeowner to challenge a rate within six months of implementation through

arbitration. Section 5.7 states that “the costs of each of the Platform Services shall

not exceed an amount equal to the rate charged by the Comparable Provider for

24
Parfi Hldg. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155 (Del. 2002).
25
Id.
26
Section 8.1 applies when the PCA-PIM Agreement calls for “Dispute
Resolution,” and the Eight Homeowners only purport to arbitrate under
Section 5.7.
27
E.g., Rossi v. Ricks, 2008 WL 3021033, at *2 (Del. Ch. Aug. 1, 2008).
28
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010).
29
Rossi, 2008 WL 3021033, at *2.
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similar Platform Services of equal quality.”30 The Court sees no apparent

distinction between the use of “prices” and “costs” in this Section, and they are not

defined terms in the overall agreement. There is no language about retail and

wholesale, and REDUS and Wells Fargo at most offer a facially reasonable

contract interpretation that goes to the merits of the claim.31 The Eight

Homeowners’ arbitration claims directly relate to the rights in Section 5.7 (and

Section 8.1) and state a comparable pricing claim. Which inputs to compare would

be a decision for the arbitrator. Thus, the motion for summary judgment is denied

30
PCA-PIM Agreement § 5.7.
31
The retail-wholesale distinction could be significant because the PCA-PIM
Agreement technically obligates PIM to acquire services for the PCA (as opposed
to the individual homeowners) but allows an individual homeowner to bring a
comparable price dispute. See Oral Arg. Tr. 22-23. REDUS and Wells Fargo
emphasize that PIM was able to negotiate for a lower wholesale rate because of the
volume of its business and the access to infrastructure it could offer Verizon.
SJ Reply Br. 9-10 (citing Priceline II, 2010 WL 1068197, at *6 (“[T]he fact that
Priceline as a business entity is able to obtain a greater discount for a room . . . due
to the volume of business it generates and the advantages it can offer hotels by
selling surplus capacity does not obligate it to disclose the transactional profit it
will make . . . .”)).
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(except to the extent that the parties have agreed that the Court should determine

substantive arbitrability).32

B. The Fiduciary Duty Action

Williams, apart from the Eight Homeowners, but on his own and on behalf

of the PCA, asserts fiduciary duty claims against REDUS and Wells Fargo for

collecting the $90 telecommunications fee after they gained control over The

Peninsula and the PCA through “a May 12, 2014 foreclosure on liens which Wells

Fargo had on the record owner of the property at the Peninsula.”33 A somewhat

broader recital of facts is necessary to gain context for Williams’s complaint,

although it arises from largely the same events as the Arbitration Action.

32
At oral argument, REDUS and Wells Fargo argued that Wells Fargo is not
subject to arbitration. Oral Arg. Tr. 22. This was not an argument emphasized in
the papers. The Eight Homeowners originally brought arbitration claims against
both Wells Fargo and REDUS. REDUS and Wells Fargo, because of Wells
Fargo’s control of REDUS, share common interests. It, of course, may be that
only REDUS would be bound by the outcome of the arbitration, but the Court does
not make that conclusion yet.
33
Williams Compl. ¶ 3.
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Williams purchased property and became a member of the PCA in January

2007.34 As such, he became bound by the covenants to pay for

telecommunications services. The original developers of The Peninsula created the

PCA and PIM. When the PCA and PIM executed the PCA-PIM Agreement, the

original developers controlled both entities. Under the PCA-PIM Agreement, PIM

“is to serve as the agent for the [PCA] to arrange for the provision of

telecommunication[s] services for a term of 25 years, to be renewed automatically

for four successive ten (10) year periods” absent notice by PIM.35 PIM engaged

Verizon to provide these services on May 17, 2005, through the Bulk Services and

Marketing Agreements.

From 2005 to the present, homeowners in The Peninsula have paid $90 per

month for these services. Plaintiffs had been “repeatedly told . . . that the $90 per

month payment was a ‘pass through’” to Verizon.36 In reality, Verizon had only

billed $58.95 per month for those services. Neither PIM nor REDUS nor Wells

Fargo has provided services to account for the $31.05 differential. Rather, Verizon

34
The facts have been drawn from Williams’s complaint.
35
Id. ¶ 15 (emphasis omitted).
36
Id. ¶ 19.
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has provided the services and PCA employees have handled administrative tasks,

such as collecting payments. Williams, the other homeowners, the PCA’s

administrative employees, and Wells Fargo did not know about the price disparity

until 2012.

At Wells Fargo’s request, the Court appointed a receiver for The Peninsula

in October 2009. On May 4, 2012, Wells Fargo conducted a UCC lien foreclosure

sale in which it sold itself “rights” in the PCA-PIM Agreement (and its payment

arrangement) and then transferred those rights to REDUS.37 Wells Fargo

foreclosed on its lien on The Peninsula’s real estate in September 2013, and the

sale was confirmed on May 12, 2014. Wells Fargo assigned that interest to

REDUS as well. Wells Fargo and REDUS then placed (or kept) three allegedly

conflicted directors on the four-member PCA board: PCA President Wade Adler

(“Adler”), Sarah Wicker (“Wicker”), and H.B. “Chuck” Munn, Jr. (“Munn”).

Adler and Munn were employed by the firm that REDUS and Wells Fargo engaged

to manage The Peninsula. It is therefore alleged that each kept his job and board

37
Id. ¶ 23. There is debate over whether proper notice was given, but it is
immaterial to the Court’s decision.
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seat at REDUS and Wells Fargo’s behest. Wicker was an employee of REDUS

and Wells Fargo.

Since May 2014, REDUS and Wells Fargo have done nothing to change the

fee. Instead, they “have entered into a tentative agreement to sell [The Peninsula’s

real estate] to a third-party developer, and . . . have carved out the PCA-PIM

Agreement.”38 Williams filed his complaint on October 13, 2014.39 The complaint

asserts that REDUS and Wells Fargo violated fiduciary duties to Williams and the

PCA by “allowing [the PCA-PIM Agreement], through direct and indirect action,

to continue to be imposed upon the [PCA] and its members.”40 REDUS and Wells

Fargo are said to have owed fiduciary duties because of REDUS’ “control of the

[PCA]” (and Wells Fargo’s control over REDUS).41

38
Id. ¶ 34 (emphasis omitted). This agreement has since been finalized, although
its details have not been presented to the Court. See infra text accompanying
note 57.
39
The scheduling deadline in the Arbitration Action for amending the complaint or
adding parties was May 9, 2014.
40
Williams Compl. ¶ 68.
41
Id. ¶ 62.
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*****

The points of contention for Williams’s direct and derivative42 fiduciary duty

claims also have shifted throughout the briefing and argument. REDUS and Wells

Fargo’s argument for dismissal initially focused on a lack of standing to challenge

the underlying wrongs but evolved into an argument that there is no liability for

continued consequences of conduct that occurred in 2004 and 2005.43 REDUS and

42
There has been no serious challenge to Williams’s demand futility assertions. At
oral argument, REDUS and Wells Fargo suggested that they will provide evidence
to show that they had not placed anyone on the board. Oral Arg. Tr. 43-44. That
argument comes too late for consideration on this motion.
43
The Court will consider the latter argument sufficiently timely. REDUS and
Wells Fargo acknowledged the irrelevance of successor liability arguments during
oral argument. See id. at 25.
In their reply brief, REDUS and Wells Fargo argued that they did not owe
fiduciary duties to the PCA and its members. They also contended that Williams
had not alleged an unfair price (as opposed to an unfair profit). They did not focus
on these arguments in oral argument.
Fiduciary duties are not limited to those that run from a corporate board to a
shareholder. At least for the purposes of the motion to dismiss, the Court accepts
the possibility that the PCA’s directors and controller(s) owed fiduciary duties to
the PCA and its members with respect to the telecommunications services
arrangement. See, e.g., Restatement (Third) of Property (Servitudes) § 6.20 & cmt.
a (2000) (listing duties of developers in control of community associations and
explaining that “[i]nstead of broadly characterizing the developer as a fiduciary,
the rules stated in this section identify areas where protection of the members is
particularly needed and can be afforded without unduly limiting the developer’s
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Wells Fargo conceded at oral argument that their focus is on dismissal pursuant to

Court of Chancery Rule 12(b)(6) instead of Rule 23.1.44 Their second primary

argument is that Williams needed to join the Arbitration Action and cannot avoid

the associated deadlines without a showing of “excusable neglect.”45 Williams’s

responses focus on the acts (or deliberate inaction) that occurred after REDUS and

Wells Fargo assumed control over the PCA and had rights to the PCA-PIM

Agreement. These actions are said to warrant entire fairness review and

Williams’s requested remedies.

*****

The Court grants a motion to dismiss if, after “accept[ing] all well-pleaded

factual allegations . . . as true, accept[ing] even vague allegations . . . as ‘well-

pleaded’ if they provide . . . notice of the claim, [and] draw[ing] all reasonable

inferences in favor of the plaintiff, . . . the plaintiff could not recover under any

flexibility, or ability to realize a profit on its investment”). Additionally, the
pleading that $90 was charged for services billed at $58.95 provides sufficient
notice of an unfair price claim.
44
Oral Arg. Tr. 44.
45
Defs.’ Opening Br. in Supp. of Mot. to Dismiss (“MTD Opening Br.”) 13-14
(citing cases and Ct. Ch. R. 6(b)).
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reasonably conceivable set of circumstances susceptible of proof.”46 As a general

matter under Rule 23.1, a plaintiff shareholder or member who seeks “to enforce a

right of a corporation or of an unincorporated association” must “allege that the

plaintiff was a shareholder or member at the time of the transaction of which the

plaintiff complains.”47 Under this formulation, Williams would not have standing

for a challenge to the agreements crafted in 2005, before he became a member of

the PCA. That does not necessarily preclude a derivative action either because of

the continuing nature of the wrong and the unusual circumstances of this case or

because of the much more recent conduct of REDUS and Wells Fargo.48

46
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
536 (Del. 2011).
47
Ct. Ch. R. 23.1(a). Additionally, at this stage, the Court assumes that an injury
to the members of the PCA is an injury to the PCA.
48
In addition, Williams seeks to assert his direct claims based on the requirement
that he pay the $90 per month fee. His standing to assert an individual claim, if he
has an individual claim, is not contested.
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*****

Again, the parties join argument over the issues of (1) whether Williams can

state a fiduciary duty claim based on a contractual payment system set years before

his chosen timeframe and (2) whether Williams needed to have participated in the

Arbitration Action. First, REDUS and Wells Fargo emphasize that they cannot be

liable for merely maintaining a system that existed before they gained control over

the PCA. They cite several cases finding that a plaintiff cannot recover for wrongs

that occurred before she became a shareholder, despite later flowing

consequences.49 Ownership for standing purposes is measured at the time “when

the specific acts of alleged wrongdoing occur, and not when their effect is felt.”50

Policy concerns about buying causes of action and interfering with what a plaintiff

fairly expected when acquiring her shares are prevalent.51 REDUS and Wells

49
See MTD Opening Br. 8-9.
50
Schreiber v. Bryan, 396 A.2d 512, 516 (Del. Ch. 1978).
51
See, e.g., Brown v. Automated Mktg. Sys., Inc., 1982 WL 8782, at *1-2 (Del. Ch.
Mar. 22, 1982) (“The policy embodied in this section [327] is the prevention of the
evil of purchasing stock in order to maintain a derivative action designed to attack
a transaction which occurred prior to the purchase of the stock.”). There is also a
concern about upsetting other expectations and obligations. See Elster v. Am.
Airlines, 100 A.2d 219, 224 (Del. Ch. 1953) (“[I]t does not follow that [the
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Fargo, however, do not provide authority for specifically analyzing the

Rule 12(b)(6) aspect of the asserted duty to undo a system that underlies later

contested conduct.

Approaching the allegations from a Rule 12(b)(6) standpoint, the Court has

not been persuaded that one can never state a fiduciary duty claim for continuing

an arrangement, particularly when a fiduciary benefits from an agreement with

allegedly unconscionable aspects. According to the Restatement (Third) of

Property (Servitudes), a developer in control of a community association owes a

fiduciary duty “to comply with and enforce the terms of . . . governing

documents,” among others.52 A reasonably conceivable breach of fiduciary duty

exists if (as must be accepted at this stage) homeowners informed Wicker of the

possible violation of the PCA-PIM Agreement and REDUS and Wells Fargo

individual defendants] committed any wrong in carrying out the contract once it
had been made. Indeed, had they not done so, the Corporation would presumably
have been subject to liability for breach of contract.” (internal quotation marks
omitted)), disapproved of on other grounds by Tooley v. Donaldson, Lufkin &
Jenrette, Inc., 845 A.2d 1031 (Del. 2004).
52
Restatement (Third) of Property (Servitudes) § 6.20(5) (2000). The PCA-PIM
Agreement arguably is not a “governing document,” but a full merits analysis is
not necessary at this time.
REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
July 13, 2015
Page 21

affirmatively “‘instigat[ed] . . . and defend[ed]’” the self-serving arrangement,

including by attempting to carve out the PCA-PIM Agreement benefits while

selling The Peninsula.53

The cases cited on the standing issue do not rule out the ability to challenge

“any breach of duty that occurs while [plaintiffs] are shareholders.”54 Furthermore,

the typical policy concerns do not color this action: Williams and other

homeowners had not known about the price differential until long after they had

purchased their property, and a breach of contract claim for decreasing the price is

not a concern. The parties profiting from the PCA-PIM Agreement were

fiduciaries, those directly injured were required to become members of the PCA

53
Answering Br. of Pl. James W. Williams, IV in Opp’n to Mot. to Dismiss 29
(quoting Williams Compl. ¶ 70).
54
See Thorpe v. CERBCO, Inc., 1993 WL 35967, 18 Del. J. Corp. L. 1196, at 1200
(Del. Ch. Jan. 26, 1993); see also Brown, 1982 WL 8782, at *1 (“[I]t is not the
merger itself that constitutes the wrongful act of which plaintiff complains, but
rather it is the fixing of the terms of the transaction which will be finalized by the
consummation of the merger which provides the foundation for the suit.”);
Schreiber, 396 A.2d at 517 (“The 1972 amendments which plaintiff relies upon
served only to reconfirm the earlier agreement . . . without creating a new
agreement upon which a cause of action could be based.”); Elster, 100 A.2d at 224
(implying the possibility of a waste challenge, noting that “[t]he wrong or injury of
which plaintiff complains is the granting of the options, not the exercise thereof”).
REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
July 13, 2015
Page 22

and to pay for services by virtue of property ownership—not by meaningful

choice. There was a difference in bargaining power, the PCA-PIM Agreement was

adopted with a prospective term of 65 years, and the homeowners were led to

believe that their payments were all going to the service provider. There might be

some conceptual difficulties, and the fiduciary duty claims might not ultimately

succeed. However, it is at least reasonably conceivable that a fiduciary cannot take

advantage of a preexisting agreement under these unusual circumstances.

Second, REDUS and Wells Fargo contend that Williams needed to have

joined the Arbitration Action and cannot now maintain his complaint. Rule 6(b)

addresses the situation when a movant seeks to extend a deadline that has been set

through agreement of the parties or Court order. Once the prescribed period has

passed, “the Court for good cause shown may, at any time in its discretion . . .

permit the act to be done where the failure to act was the result of excusable

neglect.”55 Applying Rule 6(b) here rests on the assumption that Williams needed

to have participated in the Arbitration Action. At oral argument, REDUS and

Wells Fargo offered a sympathetic hypothetical that each homeowner in The

55
Ct. Ch. R. 6(b)(2).
REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
July 13, 2015
Page 23

Peninsula could hail them to court in individual proceedings. Regardless, that is

not the situation the Court has on hand. REDUS and Wells Fargo filed the

Arbitration Action to stop the Eight Homeowners, named as individuals, from

pursuing arbitration.56 Williams was not bound by that action, and he now presents

a direct and derivative action. There is no support for the argument that Williams

schemed to avoid deadlines, even if he retained the same attorney and complains

about the same underlying telecommunications arrangement. Furthermore, he

challenges events subsequent to the amendment deadline. Thus, this argument for

dismissal fails.

One last point bears mention. At oral argument, REDUS and Wells Fargo

confirmed that REDUS has completed the sale of The Peninsula to another

developer, although it maintains ownership of the telecommunications rights. 57 In

other words, the period of time when REDUS and Wells Fargo stood on both sides

of the PCA-PIM Agreement (Williams’s basis for his fiduciary duty claims) was at

56
Admittedly, the arbitration complaint was filed “on behalf of all Peninsula
homeowners.” Arbitration Compl. ¶ 23. REDUS and Wells Fargo’s complaint
also asks to enjoin others from joining the arbitration efforts and the Eight
Homeowners from acting on behalf of others.
57
Oral Arg. Tr. 27-28.
REDUS Peninsula Millsboro, LLC v. Mayer
C.A. No. 8835-VCN
Williams v. REDUS Peninsula Millsboro, LLC
C.A. No. 10228-VCN
July 13, 2015
Page 24

most approximately nine months. The parties have not framed a debate over which

remedies are still viable in this action in light of the change in ownership, but it

appears that certain remedies are no longer available due to the change in control

of the PCA.58 The motion to dismiss the fiduciary duty claims is otherwise denied.

*****
For the reasons and to the extent stated above, the Court denies the motion

for summary judgment and the motion to dismiss. Counsel are requested to confer

and to submit implementing forms of order.

Very truly yours,

/s/ John W. Noble

JWN/cap
cc: Register in Chancery-K

58
See id. at 35 (“[The case] attacks a time frame that . . . [is] only about nine
months . . . .”).