Rainbow Mountain, Inc. v. Terry Begeman ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RAINBOW MOUNTAIN, INC., a )
Delaware corporation, )
)
Plaintiff/Counterclaim Defendant, )
)
v. )
)
TERRY BEGEMAN, ) C.A. No. 2018-0403-TMR
)
Defendant/Counterclaim Plaintiff )
and Third Party Plaintiff, )
)
v. )
)
JEFFREY BEGEMAN, SUSAN )
BEGEMAN, MYSTIE BEGEMAN, )
LAURIE LARIMAR, JASON )
BEGEMAN, MELANIE KETCHUM, )
TODD BEGEMAN, BONNIE )
BEGEMAN, JUSTIN BEGEMAN, )
COREY BEGEMAN, EMILY MCGEE, )
CINDY DALLWIG, ROGER )
DALLWIG, JENNIFER RAY, )
JEREMY NICHILO, CARLY )
NICHILO, JOSHUA NICHILO, and )
MARK BEGEMAN, )
)
Third-Party Defendants. )
ORDER DENYING MOTION TO DISMISS
WHEREAS, on June 4, 2018, Plaintiff Rainbow Mountain, Inc. (“RMI”) filed
a Complaint for Declaratory Relief (the “Complaint”);
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WHEREAS, on July 23, 2019, Terry Begeman (“Terry”) 1 filed Defendant
Terry Begeman’s Motion to Set Aside a Default Judgment or in the Alternative
Motion to Dismiss (the “Motion to Dismiss”);
WHEREAS, on August 30, 2019, RMI filed its Opposition to Terry’s Motion
to Dismiss (the “Opposition”);
WHEREAS, on September 16, 2019, Terry filed Defendant Terry Begeman’s
Consolidated Reply Brief to Plaintiff Rainbow Mountain’s Aug. 30, 2019
Opposition (the “Reply”);
WHEREAS, on October 15, 2019, the Court heard argument on the Motion;
NOW, THEREFORE, THE COURT HEREBY FINDS AND ORDERS AS
FOLLOWS:
1. This action represents the latest battle in a family feud between six
siblings who are members of RMI, a Delaware nonstock corporation. Some of the
members, including Terry, live on a portion of approximately 97 acres of land that
RMI owns in Montebello, Virginia.
2. On July 3, 2017, (the “July 3, 2017 Meeting”) a group purporting to be
RMI’s board of directors (the “Board”) allegedly terminated Terry’s membership in
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This order refers to Defendant Terry Begeman by first name because many relevant
parties in this litigation share the same last names. I intend no familiarity or
disrespect.
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RMI. Compl. ¶¶ 22, 34-39. On June 4, 2018, RMI filed a Complaint seeking a
declaratory judgment that the Board properly terminated Terry’s membership in
RMI.
3. On July 23, 2019, Terry filed a Motion to Dismiss under Court of
Chancery Rule 12(b)(6) for failure to state a claim from which relief can be granted.
First, Terry argues that the July 3, 2017 Meeting was invalid for the following
reasons: (a) the purported directors in attendance did not constitute RMI’s actual
Board; (b) there was insufficient notice of the meeting to at least one director; and
(c) the defect in notice was not cured by waiver. Answer ¶¶ 19, 22-23; Def.’s Mot.
to Dismiss 16-19; Def.’s Reply Br. 31-33. Second, Terry argues that even if the July
3, 2017 Meeting was a valid meeting, the action taken therein was invalid because
Terry was not terminated for “cause” as required under RMI’s bylaws. Answer 21;
Def.’s Mot. to Dismiss 19-20.
4. When considering a motion to dismiss for failure to state a claim under
Rule 12(b)(6), a court must accept all well-pled factual allegations in the complaint
as true, accept even vague allegations in the complaint as well-pled if they provide
the defendant notice of the claim, draw all reasonable inference in favor of the
nonmoving party, and deny the motion unless the plaintiff could not “recover under
any reasonably conceivable set of circumstances susceptible of proof.” Savor, Inc.
v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (quoting Kofron v. Amoco Chems.
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Corp., 441 A.2d 226, 227 (Del. 1982)) (citing Precision Air v. Standard Chlorine of
Del., 654 A.2d 403, 406 (Del. 1995); Rammuno v. Cawley, 705 A.2d 1029, 1034
(Del. 1998)). These “pleading standards for purposes of a Rule 12(b)(6) motion ‘are
minimal,’” and the operative test is “one of ‘reasonable conceivability,’” which asks,
“whether there is a ‘possibility’ of recovery.” In re China Agritech, Inc. S’holder
Deriv. Litig., 2013 WL 2181514, at *23-24 (Del. Ch. May 21, 2013) (quoting Cent.
Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011)).
5. RMI’s Complaint alleges that Terry engaged in multiple activities that
were disruptive to RMI. Compl. ¶ 19. The Board focused, in particular, on Terry’s
alleged failure to pay dues and taxes, which the Board argues provides “cause” under
RMI’s bylaws for termination of membership. Pl.’s Opp’n Br. 7-9. RMI further
argues that the termination occurred at a validly held meeting of the Board. Id. at 8-
10.
6. Terry argues that dismissal is appropriate for four reasons, but each fails
at this stage of the litigation. First, Terry argues that the purported directors in
attendance at the July 3, 2017 Meeting did not constitute RMI’s Board and, thus,
could not take the purported termination action. Def.’s Reply Br. 31. RMI alleges
that the members in attendance did constitute RMI’s Board. Compl. ¶¶ 22-36. The
resolution of the proper constitution of RMI’s Board is the dispute at the core of
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RMI’s Complaint seeking declaratory judgment and Terry’s Counterclaim seeking
declaratory judgment. Neither the legal arguments nor the facts are properly
presented to allow resolution of this issue at this stage. Second, Terry argues there
is not “clear and convincing” proof that all directors were properly served notice of
the July 3, 2017 Meeting. Def.’s Reply Br. 32. Specifically, Terry states that he was
not properly served notice because the notice was sent to his post office box that he
is unable to check daily. Id. RMI argues notice was properly sent to Terry’s address
on file with RMI at the time, the same address from which Terry has and continues
to accept and receive mail. Pl.’s Opp’n Br. 9. Resolution of this argument requires
the Court to resolve factual disputes regarding whether Terry was sufficiently
provided notice of the July 3, 2017 Meeting. Third, Terry argues that the defect in
notice of the July 3, 2017 Meeting was not cured by waiver. Def.’s Reply Br. 33.
Again, the Court would have to resolve the factual dispute regarding whether Terry
was sufficiently provided notice before determining whether waiver cured any defect
in notice. Fourth, and finally, Terry argues that even if the July 3, 2017 Meeting was
a valid meeting, the action taken therein was invalid because Terry was not
terminated for “cause” as required under RMI’s bylaws. Id. at 34-35. RMI asserts
that Terry had an obligation to pay dues and taxes. Pl.’s Opp’n Br. 8. Terry argues
that the Board never adopted a resolution requiring that he pay dues and taxes. Def.’s
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Reply Br. 35. This dispute requires the Court to resolve the factual question of
whether Terry was required to pay dues or taxes.
7. Because each of Terry’s challenges would require the Court to resolve
factual disputes, I deny Terry’s Motion to Dismiss. The challenges Terry raises are
best addressed after discovery concludes. Therefore, the Motion to Dismiss is
DENIED.
/s/ Tamika Montgomery-Reeves
Vice Chancellor
Dated: December 5, 2019
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