Title: Brooks-McCollum v. Emerald Ridge Board of Directors

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
CATHY D. BROOKS-
McCOLLUM,  
 
Plaintiff Below- 
Appellant, 
 
v. 
 
EMERALD RIDGE BOARD OF 
DIRECTORS,  
 
           Defendants Below- 
Appellees. 
§ 
§  No. 104, 2011 
§ 
§ 
§  Court Below-Court of Chancery 
§  of the State of Delaware 
§  C.A. No. 147 
§   
§ 
§ 
§ 
§ 
§ 
 
                                         Submitted: September 23, 2011 
 
 
 
 
   Decided: October 5, 2011 
 
Before STEELE, Chief Justice, HOLLAND and BERGER, Justices 
 
 
 
 
 
 
O R D E R  
 
 
This 5th day of October 2011, upon consideration of the briefs of the 
parties and the record below, it appears to the Court that: 
 
(1) 
The plaintiff-appellant, Cathy D. Brooks-McCollum, filed an 
appeal from the Court of Chancery’s January 31, 2011 order granting the 
motion of the defendants-appellees, the Emerald Ridge Service Corporation 
Board of Directors (the “Board”), for judgment on the pleadings.1  We find 
no merit to the appeal.  Accordingly, we affirm. 
                                                 
1 The President Judge of the Superior Court was designated to hear and determine all 
issues in this case pursuant to an Order dated May 3, 2005. 
 
2
 
(2) 
Emerald Ridge Service Corporation (the “Service Corporation”) 
is a maintenance corporation that serves the Emerald Ridge housing 
development, located in Bear, Delaware.  On January 2, 2004, Brooks-
McCollum, then a property owner in the Emerald Ridge development and a 
member of the Board, filed what purported to be a derivative action on 
behalf of the Service Corporation against the Board in the Court of 
Chancery.  On January 15, 2004, Brooks-McCollum resigned from the 
Board.  Thereafter, the Board moved for judgment on the pleadings.  In 
response, Brooks-McCollum filed a motion for advancement of expenses, 
which the Court of Chancery denied on July 29, 2004.  This Court refused 
her interlocutory appeal from the Court of Chancery’s order.2   
 
(3) 
Brooks-McCollum then filed a motion to remove her case to the 
United States District Court for the District of Delaware and filed a new 
complaint in that court.  Ultimately, her motion was denied and the 
complaint was dismissed.  The Third Circuit Court of Appeals affirmed the 
District Court. Thereafter, the United States Supreme Court denied Brooks-
McCollum’s petition for a writ of certiorari.  In the meantime, on October 5, 
2005, Brooks-McCollum sold her property in the Emerald Ridge 
development.  On March 17, 2006, the Board renewed its motion for 
                                                 
2 Brooks-McCollum v. Shareef et al., Del. Supr., No. 294, 2004, Holland, J. (Sept. 30, 
2004). 
 
3
judgment on the pleadings, which the Court of Chancery ultimately granted 
on January 31, 2011.     
 
(4) 
In this appeal from the Court of Chancery’s January 31, 2011 
order, Brooks-McCollum makes numerous claims that may fairly be 
summarized as follows: a) the Board violated the Service Corporation’s 
charter and by-laws and the Delaware Corporation Law, and that resulted in 
damage to the Service Corporation; b) she is entitled to the appointment of 
counsel to pursue her claims on behalf of the Service Corporation; c) she is 
entitled to indemnification for all actions taken on behalf of the Service 
Corporation; d) she has standing to maintain this derivative action despite 
having sold her property in the Emerald Ridge development; e) she was 
deprived of her right to a jury trial in the Superior Court on her defamation 
claim against the Board; f) in addition to defamation, the Board committed 
other acts against her personally, including improperly removing her as 
secretary and treasurer of the Service Corporation, failing to permit her to 
inspect the books and records of the Service Corporation and failing to 
reimburse her for certain expenses; g) the Board’s attorneys should be 
disciplined for actions taken in this litigation; and h) State Farm Insurance 
Company should be added as a party to the derivative action because it 
defrauded the Service Corporation. 
 
4
 
(5) 
Court of Chancery Rule 12(c) provides that the Court of 
Chancery will grant a motion for judgment on the pleadings when, viewing 
the claims in the light most favorable to the non-moving party, there are no 
material issues of fact and the movant is entitled to judgment as a matter of 
law.3  When considering a motion for judgment on the pleadings, the court 
must accept all well-pleaded allegations in the complaint as true, and assume 
that evidence would be presented to support those allegations.4  If matters 
outside the pleadings are presented to the court, the motion shall be treated 
as one for summary judgment pursuant to Rule 56.  Under Rule 56(c), 
summary judgment will be granted if, viewing the evidence in the light most 
favorable to the non-moving party, there is no genuine issue as to any 
material fact and the moving party is entitled to judgment as a matter of 
law.5 
(6) 
The Court of Chancery’s grant of a motion for judgment on the 
pleadings or a motion for summary judgment involves a question of law 
which this Court reviews de novo.6  In so doing, this Court applies the 
                                                 
3 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund II, L.P., 624 A.2d 1199, 
1205 (Del. 1993). 
4 Id. 
5 Judah v. Del. Trust Co., 378 A.2d 624, 632 (Del. 1977).  The Court of Chancery applied 
the summary judgment standard in those instances where material outside the pleadings 
was considered. 
6 Cerberus Intern., Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1153 (Del. 2002); Desert 
Equities, Inc. v. Morgan Stanley Leveraged Equity Fund II, L.P., 624 A.2d at 1204. 
 
5
appropriate standard for judgment on the pleadings and/or summary 
judgment as well as the applicable substantive law.7   
 
(7) 
In order to determine whether a lawsuit is derivative in nature, 
the Court of Chancery must determine the nature of the wrong as well as the 
party entitled to the relief requested.8  A derivative action is “one brought by 
a stockholder on behalf of the corporation” to obtain “relief in favor of the 
corporation and all similar stockholders so as to compensate the corporation 
for some wrong done to it as a whole.”9  A plaintiff who brings a derivative 
action on behalf of a corporation must remain a shareholder or member 
throughout the litigation.10  Once a plaintiff ceases to be a member or 
shareholder, he or she loses standing to maintain the lawsuit.11  
 
(8) 
It is undisputed that Brooks-McCollum sold the property she 
owned in the Emerald Ridge development on October 5, 2005.  
Consequently, as of that date, she ceased to be a member of the Service 
Corporation and lost her standing to pursue a derivative suit on behalf of the 
Service Corporation.  As such, the Court of Chancery correctly determined 
that all the derivative claims purportedly made by Brooks-McCollum on 
behalf of the Service Corporation during the course of this litigation must be 
                                                 
7 Cerberus Intern., Ltd. v. Apollo Mgmt., L.P., 794 A.2d at 1153. 
8 Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004). 
9 Reeves v. Transport Data Communications, Inc., 318 A.2d 147, 149 (Del. Ch. 1974). 
10 Lewis v. Ward, 852 A.2d 896, 900-01 (Del. 2004). 
11 Id. 
 
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dismissed, including her claims of impropriety on the part of the Board and 
her claims of entitlement to counsel and to indemnification in connection 
with bringing those claims.   
 
(9) 
The Court of Chancery also correctly determined that Brooks-
McCollum’s defamation claim, as well as her contention that she was 
deprived of her right to a jury trial on that claim, were without merit.  The 
record reflects that Brooks-McCollum failed to preserve her right to a jury 
trial on her common law defamation claim in either her complaint or her 
amended complaint filed in the Court of Chancery in January and February 
2004.12  Even if Brooks-McCollum had properly preserved her right to a jury 
trial on that claim, and requested that claim to be transferred to the Superior 
Court for a jury trial, it would never have been presented to a Superior Court 
jury.  As the Court of Chancery correctly determined, Brooks-McCollum’s 
conclusory allegations against the Board failed to make out a prima facie 
case of defamation and, therefore, the claim would never have survived a 
pre-trial motion to dismiss in the Superior Court.13 
                                                 
12 Getty Refining and Marketing Co. v. Park Oil, Inc., 385 A.2d 147, 150-52 (Del. Ch. 
1978), aff’d 407 A.2d 533 (Del. 1979); Del. Code Ann. tit. 10, §369.  While Brooks-
McCollum notified the Court of Chancery in March 2004 that she reserved her right to 
assert a claim of “advertising injury” under the Federal statutes in either the United States 
District Court or the Superior Court, there was no mention of her common law 
defamation claim. 
13 Spence v. Funk, 396 A.2d 967, 971-72 (Del. 1978); Spanish Tiles, Ltd. v. Hensey, 2005 
WL 3981740 (Del. Super. 2005) (a prima facie case of defamation requires these 
 
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(10)   The Court of Chancery also correctly determined that Brooks-
McCollum’s non-derivative claims against the Board were meritless.  It is 
undisputed that she was removed by the Board as secretary and treasurer.  
However, that action was within the authority of the Board under Section 8 
of the Service Corporation’s by-laws and was properly ratified by the Board 
on March 2, 2004.  Moreover, when Brooks-McCollum sold her property in 
Emerald Ridge, she was no longer a member of the Service Corporation and, 
therefore, had no right to inspect its books and records.14  Finally, the record 
reflects that Brooks-McCollum never presented documentation to the Board 
supporting her demand for reimbursement of expenses, rendering that claim 
insufficient.   
(11) Brooks-McCollum’s last two claims regarding the Board’s 
attorneys and State Farm do not appear to have been presented to the Court 
of Chancery in the first instance.  At the very least, they were never fully 
adjudicated by the Court of Chancery.  As such, we decline to consider the 
claims for the first time in this appeal.15  Because the Court of Chancery 
committed no legal error in granting the Board’s motion for judgment on the 
                                                                                                                                                 
elements: a) the defamatory character of the communication; b) publication; c) reference 
to the plaintiff; d) understanding by third parties of the defamatory character of the 
communication; and e) injury).   
14 Del. Code Ann. tit. 8, §220. 
15 Supr. Ct. R. 8. 
 
8
pleadings, we conclude that the judgment of the Court of Chancery must be 
affirmed.   
NOW, THEREFORE, IT IS ORDERED that the judgment of the 
Court of Chancery is AFFIRMED. 
 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/ Randy J. Holland 
 
 
 
 
 
 
 
Justice