Villages of Five Points Ventures, LLC v. The Villages of Five Points Property Owners Association, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
VILLAGES OF FIVE POINTS )
VENTURES, LLC, a Delaware )
Limited Liability Company, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0094-KSJM
)
THE VILLAGES OF FIVE POINTS )
PROPERTY OWNERS )
ASSOCIATION, INC., a Delaware )
Corporation, JOHN EIKREM, )
CYNTHIA CAMPBELL, MIKE )
SOUTH, DAVID ZELIKOFF, )
CAROLE KOHR, BRENDA )
STOVER, and TINA DOWNS, )
)
Defendants. )
ORDER GRANTING MOTION TO DISMISS
1. The Villages of Five Points R.P.C. (the “Villages”) is a community in
Sussex County, Delaware governed by a Declaration of Covenants, Conditions and
Restrictions dated as of August 13, 2001 (the “Declaration”).1
2. Plaintiff Villages of Five Points Ventures, LLC (“Plaintiff”) owns a
shopping center in the Villages called the “Villages Shopping Center.”
1
C.A. No. 2019-0094-KSJM, Docket (“Dkt.”) 39, Verified Am. Compl. for Breach of
Fiduciary Duty/Declaratory J. (“Am. Compl.”) Ex. A. The Declaration has been amended
three times. See Am. Compl. Exs. B, C, D.
3. Defendant Villages of Five Points Property Owners Association, Inc.
(the “Association”) is a Delaware corporation formed “for the purpose of providing
for the operation, maintenance, repair and replacement of the common areas and
facilities to the Villages.”2
4. The individual defendants comprised the Association’s board of
directors (the “Board”) at relevant times. 3
5. This dispute concerns Plaintiff’s payments toward the Association’s
Common Expenses incurred in maintaining the Villages’ common areas. The
Declaration defines “Common Expenses” as:
[A]ctual and estimated expenses incurred by or on behalf
of the Association in accordance with the provisions and
intent of this Declaration and shall include amounts
necessary to establish and maintain reserve fund(s)
determined to be necessary and appropriate by the Board
of Directors. 4
6. Section 7.3.3.3 of Declaration requires that Class C Members must
contribute 10% of the budgeted amount of Common Expenses up to a cap of
2
Am. Compl. ¶ 5.
3
It is unclear whether Plaintiff intended to sue the individual defendants. Although they
are named in the caption and in the Amended Complaint, counsel for Plaintiff suggested
that Plaintiff did not intend to sue the individual defendants during oral argument. Dkt. 55,
Tr. of Aug. 20, 2020 Oral Arg. (“Oral Arg. Tr.”) at 22:12–20.
4
Am. Compl. Ex. A art. I.
2
$40,000. Plaintiff is the only Class C Member, 5 so Plaintiff’s contribution to the
budget is capped at $40,000. Section 7.3.3.3 provides:
Class C Members shall be assessed ten percent (10%) of
the total budget amount. Notwithstanding this Assessment
allocation and any other provisions contained in this
Declaration, the total Annual Assessment for the Class C
Members, excluding the Initial Assessment and any duly
authorized Special Assessment, shall not exceed Forty
Thousand Dollars ($40,000.00) . . . . This specific
limitation may not be amended without the consent of the
Class C Members.6
7. The Board began planning the Villages’ 2019 operating budget in the
summer of 2018, and the first budget proposal contemplated total assessments of
$810,263, including a $36,225 assessment on Plaintiff as a Class C Member. 7 Then,
in 2018 and early 2019, the Board received grievances from homeowners who felt
that they were shouldering an unfair portion of the Common Expenses. The Board
developed a proposal to address those concerns, which it sent to Defendant by a
letter dated January 24, 2019.8
5
See Am. Compl. Ex. D ¶ 6 (“The Class C Member shall be the Owner(s) of the Village
Shopping Center.”).
6
Am. Compl. Ex. A § 7.3.3.3. The omitted language, which appears to establish an initial
period for the $40,000 cap and a limit on increasing the assessment after that initial period,
is not relevant to the instant dispute.
7
See Dkt. 1, Verified Compl. for Breach of Fiduciary Duty/Declaratory J. (“Verified
Compl.”) Ex. E. A review of the 2019 budget reveals that the Villages split the $40,000
assessment with another party, which contributed the remaining $3,775. See id.
8
Am. Compl. Ex. F at 1.
3
8. The Association proposed to amend the Declaration to add a new
Section 5.2.6 (the “Proposed Amendment”). The Proposed Amendment provided
the Association with the right “to charge a use fee on all the visitors, invitees, guests,
customers and delivery services to the Village Shopping Center.” 9 The Proposed
Amendment further provided that the use fee would not exceed $80,000 per year and
that it would be “fixed in the budget of the Association.”10
9. Plaintiff responded through counsel by a letter dated January 30,
2019. 11 The letter stated Plaintiff’s view that the Proposed Amendment constituted
an end-run around and violation of Section 7.3.3.3 and that Plaintiff would refuse to
approve the budget.12 The letter further threatened that Plaintiff would “do
everything necessary to protect the existing assessment cap.”13 Plaintiff reiterated
its belief that it “receive[d] very little in return for [its] assessment.”14
10. On February 8, 2019, Plaintiff filed this lawsuit. Two days later, a
representative of the Association emailed a representative of Plaintiff to state that
there had been a meeting of some Board members, they “all agree[d] that [Plaintiff]
9
Id.
10
Id.
11
Am. Compl. Ex. H.
12
See id. at 2.
13
Id.
14
Id.
4
[was] in compliance with what [Plaintiff] signed up for,” that they need to “figure
out how to correct this imbalance among all of the shareholders,” but that they would
“not pursue a course of action without further discussion with [Plaintiff].” 15 It is
unclear whether the Association was aware of the lawsuit when this communication
went out due to the usual delays in service of process. 16
11. After Defendants were served with the complaint, they requested that
Plaintiff withdraw the lawsuit and engage in discussions to resolve the dispute.17
Plaintiff responded by requesting that the Association’s counsel contact Plaintiff’s
counsel so that the parties could “come up with an agreement” and “put this to
bed.” 18 That did not transpire, and the litigation continued.
15
Am. Compl. Ex. I.
16
There is another litigation pending concerning the allocation of Association expenses to
Class A Association members, which was filed by homeowner Joseph Rolla. See Rolla v.
The Vill. of Five Points Prop. Owners Ass’n, Inc., C.A. No. 2019-0986-PWG. Plaintiff
argues that the fact of the Rolla action “creates greater pressure upon [the Association] to
attempt to violate Section 7.3.3.3.” Dkt. 43, Pl.’s Answering Br. in Opp’n to Defs.’ Mot.
to Dismiss Pl.’s Am. Compl. (“Pl.’s Answering Br.”) at 24. After Plaintiff filed its
Answering Brief, the parties to the Rolla action agreed on terms of a settlement. As
explained by counsel during oral argument, Plaintiff at first interpreted aspects of the
settlement as resolving Plaintiff’s claims, Oral Arg. Tr. at 31:3–32:19, but a challenge to
the settlement along with actions and statements by the Association made Plaintiff rethink
that conclusion. See id. at 32:12–19, 34:1–17. So, it is unclear whether the Rolla action
has any bearing on the instant matter.
17
See Am. Compl. Ex. K.
18
Id.
5
12. Apparently, the Association did not wish to litigate with Plaintiff. On
March 23, 2019, the Board adopted the following resolution (the “Resolution”):
RESOLVED, that the [Board] hereby ratifies the
President’s decision, made by him immediately following
the meeting with the representative Class C Members
[Plaintiff], to not consider pursuing, through a vote of the
members or otherwise, a proposed amendment to the
Declaration which would allow the Association to charge
a use fee on visitors to the Village Shopping Center.19
13. The Association filed its Answer in March 2019 and its Amended
Answer in April 2019. 20 The Amended Answer attached the Resolution.21
14. The Resolution did not allay Plaintiff’s concerns, but from that point
forward, the litigation largely focused on whether the Resolution resolved the
controversy. Defendants first attempted to tee-up this question by moving for
judgment on the pleadings.22 The parties subsequently stipulated to allow Plaintiff
to amend and supplement its complaint,23 which Plaintiff did on November 21,
2019. 24 As amended and supplemented, the complaint referenced and challenged
19
Am. Compl. Ex. C.
20
See Dkt. 6, Def. The Villages of Five Points Property Owners Association, Inc.’s Answer
to the Compl.; Dkt. 10, Def. The Villages of Five Points Property Owners Association,
Inc.’s Am. Answer to the Compl. (“Am. Answer”).
21
See Resolution.
22
See Dkt. 16, Def. The Villages of Five Points Property Owners Association, Inc.’s Mot.
for J. on the Pleadings.
23
Dkt. 38, Granted Stipulation and Order Consented by Both Parties ¶ 1.
24
Am. Compl.
6
the effect of the Resolution in part. Defendants then moved to dismiss the Amended
Complaint under Court of Chancery Rule 12(b)(6), and the parties fully briefed that
motion by January 30, 2020.25 The court held oral argument on August 20, 2020. 26
LEGAL ANALYSIS
15. Under Rule 12(b)(6), the court may grant a motion to dismiss if the
complaint “fail[s] to state a claim upon which relief can be granted.”27 “[T]he
governing pleading standard in Delaware to survive a motion to dismiss is
reasonable ‘conceivability.’” 28 When considering such a motion, the court must
“accept all well-pleaded factual allegations in the [c]omplaint as true . . . , draw all
reasonable inferences in favor of the plaintiff, and deny the motion unless the
plaintiff could not recover under any reasonably conceivable set of circumstances
susceptible of proof.”29 The court, however, need not “accept conclusory allegations
unsupported by specific facts or . . . draw unreasonable inferences in favor of the
non-moving party.” 30
25
See Dkt. 41, Opening Br. in Supp. of Defs.’ Mot. to Dismiss (“Def.’s Opening Br.”);
Pl.’s Answering Br.; Dkt. 44, Reply Br. in Supp. of Defs.’ Mot. to Dismiss.
26
See Oral Arg. Tr.
27
Ct. Ch. R. 12(b)(6).
28
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
29
Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
30
Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v.
Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by
Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018).
7
16. The Amended Complaint contains four causes of action, which this
decision refers to as Counts I through IV:
• In Count I, Plaintiff seeks a declaratory judgment that the
Proposed Amendment violates Section 7.3.3.3.31
• In Count II, Plaintiff claims that Defendants breached their
fiduciary duties by proposing the Proposed Amendment. 32
• In Count III, Plaintiff claims that Defendants “have or will
breach the Declaration by enacting Section 5.2.6 or any similar
Resolution and/or Amendment designed to circumvent Section
7.3.3.3.”33
• In Count IV, Plaintiff seeks injunctive relief requiring
Defendants to “operate the Villages of Five Points in a manner
consistent with the Declaration.”34
17. At the core of each of Plaintiff’s claims is the contention that the
Proposed Amendment would have breached a limitation in the Declaration for which
Plaintiff specifically negotiated—Section 7.3.3.3.35 Plaintiff’s claims, and claims of
this nature generally, sound in contract. 36 There is no theoretically cognizable claim
31
Am. Compl. ¶¶ 29–30.
32
Id. ¶¶ 31–33.
33
Id. ¶ 36.
34
Id. ¶ 38.
35
Am. Compl. Ex. H (explaining that the $40,000 cap “was an item negotiated with the
original developer” and a “key provision upon which [Plaintiff] relied in going forward
with its purchase”).
36
See Seabreak Homeowners Ass’n v. Gresser, 517 A.2d 263, 269 (Del.
Ch. 1986) (holding that claims related to restrictive covenants in homeowners
association’s declaration of restrictions was “contractual in nature”); Cove on Herring
Creek Homeowners’ Ass’n v. Riggs, 2005 WL 1252399, at *1 (Del. Ch. May 19, 2005)
(holding that claims related to restrictive covenants in homeowners association’s
8
for breach of fiduciary duty. Because the Proposed Amendment was never acted on,
Plaintiff cannot demonstrate any contractual breach. Because the Association issued
the Resolution expressly abandoning the Proposed Amendment, Plaintiff cannot
demonstrate any probability of a future breach. Plaintiff therefore fails to state a
claim, as discussed more fully below.
18. Count I challenges the Proposed Amendment under a breach of contract
theory. It is deficient because there is no justiciable controversy concerning the
Proposed Amendment. Plaintiff effectively concedes that there has been no actual
breach by seeking declaratory relief as a means of “preventative justice.”37 It is true
that the Delaware Declaratory Judgment Act “enables the courts to advance the stage
at which a matter traditionally would have been justiciable,”38 and “[p]arties to a
contract can seek declaratory judgment to determine ‘any question of construction
or validity’ and can seek a declaration of ‘rights, status or other legal relations
declaration of covenants, easements, and restrictions was “contractual in nature”); see also
First Fed. Sav. & Loan Ass’n of Charleston v. Bailey, 450 S.E.2d 77, 79 (S.C. Ct. App.
1994) (“Covenants requiring the payment of maintenance assessments are contractual in
nature and bind the parties to the covenants in the same manner as other contracts.”).
Plaintiff seems to concede as much in its brief. See Pl.’s Answering Br. at 39 (“A
declaration is a contract between a homeowner and a maintenance corporation.” (quoting
Kirkwood Knoll Maint. Corp. v. Warren, 2016 WL 8999315, at *5 (Del. Com. Pls. Apr. 21,
2016)).
37
See Pl.’s Answering Br. at 29.
38
Energy P’rs, Ltd. v. Stone Energy Corp., 2006 WL 2947483, at *6 (Del. Ch. Oct. 11,
2006).
9
thereunder.’” 39 Yet “[a]n actual controversy must exist for declaratory judgment
jurisdiction.” 40 For an “actual controversy” to exist, the following prerequisites must
be met:
(1) It must be a controversy involving the rights or other
legal relations of the party seeking declaratory relief; (2) it
must be a controversy in which the claim of right or other
legal interest is asserted against one who has an interest in
contesting the claim; (3) the controversy must be between
parties whose interests are real and adverse; (4) the issue
involved in the controversy must be ripe for judicial
determination.41
19. “Generally, a dispute will be deemed ripe if litigation sooner or later
appears to be unavoidable and where the material facts are static.”42 A claim is not
ripe “if the action requires the occurrence of some future event before the action’s
factual predicate is complete,” unless “the probability of that future event occurring
is real and substantial, of sufficient immediacy and reality.” 43
39
Id. (quoting 10 Del. C. § 6502). Under the Declaratory Judgment Act, “[a] contract may
be construed either before or after there has been a breach thereof.” 10 Del. C. § 6503.
40
Energy P’rs, 2006 WL 2947483, at *6 (citing Gannett Co. v. Bd. of Managers of the Del.
Crim. Just. Info. Sys., 840 A.2d 1232, 1237 (Del. 2003)).
41
XL Specialty Ins. Co. v. WMI Liquid. Tr., 93 A.3d 1208, 1217 (Del. 2014).
42
Id. (internal quotation marks omitted).
43
See Energy P’rs, 2006 WL 2947483, at *7 (holding that an actual controversy can exist
where a plaintiff demonstrates “the probability of that future event occurring is real and
substantial, of sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.” (quoting Anonymous v. State, 2000 WL 739252, at *4 (Del. Ch. June 1, 2000)
(internal quotation marks omitted))).
10
20. Here, the claim is not ripe because Plaintiff has not pled facts sufficient
to show the probability of a future event occurring. This court “will not entertain
suits seeking an advisory opinion or an adjudication of hypothetical questions.”44
Plaintiff argues that this claim “is based on an actual controversy that is not resolved,
and is likely to recur in the future,”45 but the facts alleged give rise to the opposite
inference. The Amended Complaint alleges that the Board proposed but never took
action on the amendment, tried to reach a resolution, and, when that failed, resolved
that it would not pursue the Proposed Amendment. 46 Plaintiff effectively asks the
44
Leonard Loventhal Acct. v. Hilton Hotels Corp., 2000 WL 15228909, at *10 (Del. Ch.
Oct. 10, 2000); see also Stratton v. Am. Indep. Ins. Co., 2010 WL 3706617, at *9 (Del.
Super. Sept. 16, 2010) (holding that, in determining ripeness of a claim, “the Court must
ask: can this controversy be resolved without engaging in a series of hypothetical
scenarios?”); Crowhorn v. Nationwide Mut. Ins. Co., 2002 WL 1767529, at *9 (Del. Super.
July 10, 2002) (“To obtain a declaratory judgment ‘[t]here must be in existence a factual
situation giving rise to immediate, or about to become immediate, controversy between the
parties.’” (alteration in original) (quoting Ackerman v. Stemerman, 201 A.2d 173, 175
(Del. 1964)).
45
Pl.’s Answering Br. at 33.
46
Plaintiff cites to Bank of Delaware v. Allstate Insurance Co. for the proposition that
“[t]he mere existence of a cloud of denial of right, assertion of unsound claim, existence of
conflicting claims, or uncertainty or insecurity occasioned by new events creates a cause
of action for declaratory judgment.” Id. at 30 (quoting 448 A.2d 231, 233 (Del. Super.
1982)). But that case involved an insurance contract, where the denial of a “claim” on
insurance standing alone creates an actionable wrong, and the language that Plaintiff quotes
is a direct quote from an insurance law treatise. See Bank of Del., 448 A.2d at 233. Plaintiff
also relies on Delaware Building & Construction Trades Council, AFL-CIO v. University
of Delaware for the proposition that “voluntary compliance does not ipso facto resolve all
disputes.” See Pl.’s Answering Br. at 35 (quoting 2015 WL 884058, at *5 (Del. Super.
Feb. 20, 2015)). This proposition is true in a general sense, but does not overcome
Plaintiff’s ripeness deficiencies in this case. Further, that case involved a situation in which
11
court to determine whether an abandoned idea would be compliant with Section
7.3.3.3. Plaintiffs have not pled facts from which the court can infer the probability
of a future event occurring, so there is no actionable controversy under Delaware
law. Count I is therefore dismissed.
21. Count II challenges the Proposed Amendment under a fiduciary duty
theory. It is deficient because Plaintiff does not appear to desire to sue the individual
defendants. 47 More problematic, what Plaintiff casts as a fiduciary claim in Count II
is, in substance, a claim to enforce Section 7.3.3.3. A fiduciary duty claim “may not
proceed in tandem with [a] breach of contract claim[] absent an ‘independent basis
for the fiduciary duty claim[] apart from the contractual claim[].’” 48 That is to say,
where fiduciary claims are duplicative of contractual claims, it is appropriate to
dismiss the former. 49 In addition, the Amended Complaint makes no meaningful
effort to plead facts sufficient to show that Defendants actually breached any duty
of care or loyalty in proposing the amendment (and then abandoning it). Count II is
therefore dismissed.
“there [was] evidence of past non-compliance.” Id. at *3. Plaintiffs have not pled past
noncompliance by Defendants.
47
See supra note 3.
48
MHS Cap. LLC v. Goggin, 2018 WL 2149718, at *8 (Del. Ch. May 10, 2018) (quoting
Renco Gp., Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *7 (Del. Ch.
Jan. 29 2015)).
49
See, e.g., id.
12
22. Count III recasts its challenge to the Proposed Amendment, arguing that
the newly proposed Section 5.2.6 is invalid because it is designed to circumvent
Section 7.3.3.3.50 Like Count I, Count III is deficient because there is no justiciable
controversy concerning the Proposed Amendment. Count III is therefore dismissed.
23. Count IV seeks injunctive relief requiring Defendants to operate the
Villages in a manner consistent with the Declaration. To obtain a permanent
injunction, Plaintiff must demonstrate success on the merits of its claims, among
other things. 51 As discussed above, Plaintiff has not succeeded on the merits because
Counts I through III of the Amended Complaint fail to state a claim on which relief
can be granted. Thus, Plaintiff’s request for injunctive relief lacks a valid predicate.
Count IV is therefore dismissed. 52
50
Plaintiff also argues in connection with Count III that Defendants’ conduct amounted to
anticipatory breach of contract. See Pl.’s Answering Br. at 37–42. As Plaintiff
acknowledges, anticipatory breach “is a manifestation by one party to a contract of an intent
not to perform its contractual duty when the time comes for it to do so even if the other
party has by then rendered full and complete performance.” Pl.’s Answering Br. at 39
(quoting Horizon Pers. Comm’ns, Inc. v. Sprint Corp., 2006 WL 2337592, at *25 (Del. Ch.
Aug. 4, 2006)). Defendants did not manifest an intent not to perform. Defendants did the
opposite—they passed a Resolution stating that they had no intent to pass the Proposed
Amendment. See Resolution. Defendants’ conduct therefore did not amount to
anticipatory breach.
51
See Sierra Club v. Del. Dept. of Nat. Res. & Env’t Control, 919 A.2d 547, 555 (Del.
2007).
52
In briefing, Plaintiff argues that it has met the standard for seeking a preliminary
injunction, which asks whether Plaintiff has “a reasonable probability of success on the
merits.” Pls.’ Answering Br. at 50 (quoting Rowe v. Everett, 2000 WL 1655233, at *5
(Del. Ch. Oct. 25, 2000)). The standard, which is not the appropriate standard to apply at
13
CONCLUSION
24. For the foregoing reasons, Defendants’ motion to dismiss is granted.
/s/ Kathaleen St. J. McCormick
Vice Chancellor Kathaleen St. J. McCormick
Dated: November 13, 2020
this stage, also cannot be met because the Amended Complaint fails to state a claim on
which relief can be granted for the reasons set forth in this Order.
14