COURT OF CHANCERY

OF THE

STATE OF DELAWARE

ANDRE G. BOUCHARD

CHANCELLOR

LEONARD L. WILLIAMS JUSTICE CENTER

500 N. KING STREET, SUITE 11400

WILMINGTON, DELAWARE 19801-3734

Date Submitted: May 15, 2018

Date Decided: August 31, 2018

Sean T. O’Kelly, Esquire

Ryan M. Ernst, Esquire

O’Kelly Ernst & Joyce, LLC

901 North Market Street, Suite 1000

Wilmington, DE 19801

Michael W. McDermott, Esquire

Sean A. Meluney, Esquire

Berger Harris LLP

1105 North Market Street, 11th Floor

Wilmington, DE 19801

RE: Jennifer L. Stritzinger v. Dennis Barba, et al. 

Civil Action No. 12776-CB

Dear Counsel:

This letter constitutes the court’s decision on defendants’ motion to dismiss 

the Second Amended Complaint, which asserts a claim for breach of fiduciary duty 

and seeks the appointment of a receiver. For the reasons explained below, the 

motion to dismiss is granted.

I. Background

The facts recited in this letter decision are drawn from the Verified Second 

Amended Derivative Complaint (the “Second Amended Complaint”) filed on 

February 16, 2018, and documents incorporated therein.

1

 Any additional facts are 

either not subject to reasonable dispute or subject to judicial notice. 

 

1 See Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013) (citations omitted) 
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A. The Parties

Plaintiff Jennifer L. Stritzinger is a stockholder, but not a dues-paying 

member, of nominal defendant Newark Country Club (the “Club”). 

Defendants are the twelve members of the Club’s board of directors (the 

“Board”): Dennis Barba, Ron Holliday, Michael Barrow, Cheree McPhee, Fred 

Mink, Fritz Land, Todd Ladutko, Bob Kennedy, Charlotte Short, Chris Scherf, Tom 

Hall, and Jim Brown (the “Director Defendants”). Barba was the president of the 

Club during the relevant period and Scherf is the current president.

B. The Club Faces Financial Difficulties 

The Club was formed in 1921. It is a private corporation governed by the 

Delaware General Corporation Law, 8 Del. C. § 101 et seq., that operates as a 

country club, with a club house, a golf course, and related operations in Newark, 

Delaware. The Club’s most meaningful asset is the land it owns. Before the 

transaction at issue in this case, there were three mortgages on that property totaling 

approximately $1.8 million. 

 

(“[P]laintiff may not reference certain documents outside the complaint and at the same 

time prevent the court from considering those documents’ actual terms” in connection with 

a motion to dismiss).
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Over the years, developers have approached the Club and the Board with 

proposals to purchase and develop the Club’s land. The Board has rejected all such 

proposals, despite the Club having “operated at a deficit for years,” including net 

losses of $266,252 in 2014, $242,154 in 2015, and $416,392.70 in 2016.2 According 

to Stritzinger, the “decisions to reject these proposals were not done in the interests 

of protecting the value belonging to the Club and its equity stockholders, but instead 

were done with the goal of maintaining control of the country club and allowing its 

club members to enjoy its recreational offerings and facilities.”3

C. The Newark Country Club Mortgage Company

On May 21, 2016, one of the defendants, Ladutko, emailed his fellow Board 

members a proposal to relieve the pressure on the Club’s “cash flow problems.”4 

Specifically, Ladutko suggested that members of the Club create a limited liability 

company to loan money to the Club, with the loan to be secured by another mortgage 

on the Club’s property (the “Loan”). The Board was receptive to the idea, and Barba 

sent an email to the Club’s members regarding the proposed plan to raise financing 

for club operations. 

 

2 Second Am. Compl. ¶ 31. 

3

Id. ¶ 39.

4

Id. ¶ 41.
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On June 16, 2016, the Club held a “town hall meeting” at which its members 

discussed the Club’s long-term plans. The Club’s members discussed four options: 

(i) merging with another club; (ii) selling the Club to a land broker, but allowing the 

Club to continue its operations for ten years; (iii) working with the city of Newark 

for it to purchase the development rights of the property; and (iv) forming Newark 

Country Club Mortgage Company, LLC (the “Mortgage Company”) to make the 

Loan to the Club.5 The Board chose to pursue the Mortgage Company option. 

On July 21, 2016, Barba solicited a $100,000 bridge loan to cover the Club’s 

“annual shortfall.”6 Barba referenced the proposed Mortgage Company in his 

request for additional funds from Artisan’s Bank, a bank with which the Club already 

had a $150,000 line of credit. The Board set a deadline of September 30, 2016 for 

Club members and equity holders to participate in the Mortgage Company through 

the sale of membership interests, with the proceeds to be loaned to the Club. The 

interest rate on the Loan would be 5.75% per annum, paid bi-annually, and the Club 

would grant the Mortgage Company a mortgage on the Club’s property.

Some Club members raised concerns about the proposed transaction. In 

response, the Board circulated answers to “Frequently Asked Questions” on 

 

5 Second Am. Compl. ¶ 46.

6 Second Am. Compl. ¶ 49.
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September 26, 2016. This document described how the proceeds of the Loan would 

be used. Specifically, it stated that the funds would be used to repay certain of the 

Club’s short-term obligations but would not secure the long-term financial future of 

the Club. 

On December 4, 2016, the Board formally adopted a financing agreement with 

the Mortgage Company. Five of the twelve members of the Board—Kennedy, 

Ladutko, Scherf, Short, and Land—invested in the Mortgage Company. They all 

recused themselves from the Board vote authorizing the transaction. 

On January 4, 2017, the Mortgage Company loaned the Club $399,000 at an 

interest rate of 5.75%.

7

 The proceeds of the Loan allegedly were used to pay off the 

Club’s line of credit with Artisan’s Bank and a portion of back taxes it owed.8

II. Procedural History

On September 27, 2016, after serving a books and records demand on the Club 

a few months earlier, Stritzinger filed her initial complaint along with a motion for 

expedited proceedings and a motion for a temporary restraining order seeking to 

enjoin the Club from closing the Loan transaction. Two days later, Stritzinger 

withdrew her motion for a temporary restraining order.

 

7 Second Am. Compl. ¶¶ 60-61.

8 Second Am. Compl. ¶ 61.
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On October 28, 2016, Stritzinger again sought expedition. On November 3, 

2016, the court denied the renewed motion for expedition based on, among other 

things, Stritzinger’s failure to demonstrate a sufficient threat of irreparable harm

given the availability of a damages remedy. Over ten months later, on September 

14, 2017, Stritzinger amended her complaint, which defendants moved to dismiss. 

In lieu of briefing that motion, Stritzinger amended her complaint a second time

without opposition from defendants. 

On February 16, 2018, Stritzinger filed the Second Amended Complaint, 

asserting two claims. On February 21, 2018, defendants moved to dismiss these 

claims under Court of Chancery Rules 23.1 and 12(b)(6) for failure to make pre-suit 

demand on the Board and failure to state a claim for relief.

III. Analysis

Count I of the Second Amended Complaint asserts a claim for breach of 

fiduciary duty against the Director Defendants. Count II seeks the appointment of a 

receiver for the Club. I address defendants’ motion to dismiss with respect to each 

claim, in turn, below.
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A. Plaintiff Has Failed to Establish that Making a Demand Would 

Have Been Futile With Respect to Count I

Count I asserts that the Director Defendants breached their fiduciary duty by 

approving the Loan with the Mortgage Company.9 This claim, which seeks an award 

of compensatory damages to be paid to the Club, is asserted derivatively on behalf 

of the Club. 

“[S]tockholders may not prosecute a claim derivatively on behalf of a 

corporation unless they: (1) make a pre-suit demand by presenting the allegations 

to the corporation’s directors, requesting that they bring suit, and showing that they 

wrongfully refused to do so, or (2) plead facts showing that demand upon the board 

would have been futile.”10 Stritzinger did not make a demand on the Board, so she 

must demonstrate that a majority of the members of the Board when this action was 

filed was “incapable of making an impartial decision regarding such litigation.”11

The parties agree that the test articulated in Aronson v. Lewis12 applies in this 

case to determine whether demand would have been futile with respect to Count I.

13

 

9 Second Am. Compl. ¶¶ 72-78.

10 Carr v. New Enter. Assocs., Inc., 2018 WL 1472336, at *12 (Del. Ch. Mar. 26, 2018) 

(citations and internal quotations omitted).

11 Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993).

12 473 A.2d 805 (Del. 1984).

13 Defs.’ Opening Br. 8-14 (Dkt. 32); Pl.’s Answering Br. 11-15 (Dkt. 35). 
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This is the correct standard because (i) Count I challenges an affirmative decision of 

the Board, i.e., the decision for the Club to enter into the Loan transaction with the 

Mortgage Company, and (ii) a majority of the directors who made that decision 

remained in office at the time this suit was filed.

14

 In fact, the same twelve 

individuals who approved the Loan transaction constituted the Board when this 

litigation was filed and Count I was first asserted.

Under the Aronson test, “to show demand futility, [a] plaintiff[] must provide 

particularized factual allegations that raise a reasonable doubt that (1) the directors 

are disinterested and independent [or] (2) the challenged transaction was otherwise 

the product of a valid exercise of business judgment.”15

With respect to the first prong of the Aronson test, Vice Chancellor Lamb 

summarized the nature of the inquiry based on the precise text of Aronson as follows:

Disinterested “means that directors can neither appear on both sides of 

a transaction nor expect to derive any personal financial benefit from it 

in the sense of self-dealing, as opposed to a benefit which devolves 

upon the corporation or all stockholders generally.” “Independence 

means that a director’s decision is based on the corporate merits of the 

 

14 See Rales, 634 A.2d at 933-34 (citations omitted) (Aronson test does not apply “(1) where 

a business decision was made by the board of a company, but a majority of the directors 

making the decision have been replaced; (2) where the subject of the derivative suit is not 

a business decision of the board; and (3) where, as here, the decision being challenged was 

made by the board of a different corporation”). 

15 In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 120 (Del. Ch. 2009)

(citation and internal quotations omitted).
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subject before the board rather than extraneous considerations or 

influences.”16

 

Amplifying on the concept of independence, this court has explained that the 

“inquiry asks whether the uninterested members of the board are dominated or 

beholden to the interested members in such a way that their independence and 

objectivity is questionable.”17

With respect to the second prong of the Aronson test, this court recently 

explained the pleading burden on plaintiff, in relevant part, as follows:

Under the second prong of Aronson, the “plaintiff[ ] must plead 

particularized facts sufficient to raise (1) a reason to doubt that the 

action was taken honestly and in good faith or (2) a reason to doubt that 

the board was adequately informed in making the decision.” In order 

to raise a reason to doubt good faith, “the plaintiff must overcome the 

general presumption of good faith by showing that the board’s decision 

was so egregious or irrational that it could not have been based on a 

valid assessment of the corporation’s best interests” and was 

“essentially inexplicable on any ground other than bad faith.” This 

requires a pleading of “particularized facts that demonstrate that the 

directors acted with scienter; i.e., there was an ‘intentional dereliction 

of duty’ or a ‘conscious disregard’ for their responsibilities.” This is a 

high burden, requiring an “extreme set of facts.” The most salient 

examples include (1) “where the fiduciary intentionally breaks the 

law”; (2) “where the fiduciary intentionally acts with a purpose other 

than that of advancing the best interests of the corporation”; or (3) 

“where the fiduciary intentionally fails to act in the face of a known 

 

16 In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 821 (Del. Ch. 2005) 

(quoting Aronson, 473 A.2d at 812, 816).

17 TVI Corp. v. Gallagher, 2013 WL 5809271, at *8 (Del. Ch. Oct. 28, 2013).
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duty to act.” While “aspirational goals of ideal corporate governance 

practices” may be “highly desirable,” to the extent they “go beyond the 

minimal legal requirements of the corporation law,” they “do not define 

standards of liability.”18

The Second Amended Complaint pleads, and defendants do not dispute, that 

five of the twelve members of the Board had a personal financial interest in the Loan 

transaction due to their investments in the Mortgage Company that made the Loan. 

As to the remaining seven directors, the Second Amended Complaint does not plead 

facts suggesting that any of them had a personal financial interest in the Loan 

transaction, or that any of them were beholden to any of the five directors who did

so as to call into question their independence. Thus, Stritzinger has failed to plead 

particularized facts sufficient to raise a reason to doubt that a majority of the Board 

was disinterested and independent, as those terms are defined above. Accordingly, 

Stritzinger necessarily would fail to satisfy the first prong of the Aronson test if the 

scope of its inquiry is limited in the manner articulated above.

Stritzinger argues, however, for a broader inquiry under the first prong of 

Aronson. Specifically, she argues that the first prong of Aronson is satisfied because

 

18 Lenois v. Lawal, 2017 WL 5289611, at *10 (Del. Ch. Nov. 7, 2017) (citations omitted).
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(i) five members of the Board benefited personally from the Loan transaction19 and 

(ii) the remaining seven members of the Board were not disinterested because they 

acted in bad faith when they approved the Loan transaction and thus face a 

substantial threat of personal liability for taking that action.20 As I understand her 

position, Stritzinger asserts the same theory of bad faith as the basis for her argument 

that the second prong of Aronson has been satisfied.21 

There appears to be some confusion in our law whether the “substantial 

likelihood of liability” theory used to challenge the impartiality of a director for 

demand futility purposes fits within the analysis contemplated by the first or second 

prong of Aronson. As a leading treatise explains:

Whether a director is “interested” for demand futility purposes because

he or she faces “a substantial likelihood of liability” is typically 

considered by courts in the Rales context . . . . In some cases, the Court 

of Chancery has also considered whether a director faces a “substantial 

likelihood of liability” in determining whether the first prong of 

Aronson is satisfied, while other courts have referred to this phrase in 

the context of Aronson’s second prong. In one case, the Court of 

Chancery explained that while “substantial likelihood of liability” is not 

the “pertinent question” under the Aronson test, a “crucial factor” 

 

19 Stritzinger asserts that the five members who invested in the Mortgage Company were 

“not independent.” Pl.’s Answering Br. 10. The correct characterization under our law is 

that they were not disinterested. 

20 Pl.’s Answering Br. 10-13.

21 Id. 13-15.
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underlying Aronson “would seem to be questions of the potential for 

personal liability which affect capacity to consider demand.”22

The briefing in this case is far too undeveloped for me to attempt to provide clarity 

on this issue. Fortunately, it is not necessary to do so because, as discussed below,

the Second Amended Complaint fails to plead particularized facts that any of the 

seven members of the Board who approved the Loan—all of whom are exculpated 

from monetary liability for breaches of the duty of care23—acted in bad faith.

The gravamen of the Second Amended Complaint is that these seven directors 

acted in bad faith because their approval of the Loan served the interests of the 

Club’s dues-paying members (some of whom are stockholders) who use its facilities 

to the detriment of the Club as an entity and those stockholders who do not use the 

Club’s facilities. As alleged in the Second Amended Complaint:

The Company continually operates at a loss and seeks to borrow 

increasing amounts of capital without actually devising or executing a 

plan to increase revenue. Whenever the Board is presented a financial 

opportunity that entails a change to the Club’s functions and a 

 

22 3 FOLK ON THE DELAWARE GENERAL CORPORATION LAW (Edward P. Welch et al. eds., 

6th ed. 2018) § 327.04[B][4][n] (citations omitted).

23 See Defs.’ Opening Br. Ex. 1. 
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disruption to the members’ enjoyment of their beloved facilities, the 

Board rejects it in favor of continuing operations at a loss.24

. . . .

. . . [T]he act of entering into the Mortgage transaction – which 

drained the equity of the Company to pay outstanding bills, with no 

plan to turn around the Club’s finances – is improper. The Mortgage 

only provided short-term breathing room, not a long-term solution.25

In my opinion, Stritzinger has not plead the type of extreme set of facts 

necessary to support a reasonable inference that the seven members of the Board

who approved the Loan transaction acted in bad faith. To start, the Second Amended 

Complaint does not challenge the commercial reasonableness of the terms of the 

Loan, which include a 5.75% interest rate and security in the form of a mortgage on 

the Club’s property that is subordinated to the Club’s other debt. To the contrary, 

Stritzinger tacitly concedes that the terms of the Loan are commercially reasonable.26

The Second Amended Complaint also does not plead facts suggesting that the 

members of the Board intentionally disregarded their fiduciary obligations as to the 

process they undertook in considering the Loan transaction. Rather, the Second 

Amended Complaint acknowledges that the Club held a “town hall meeting” where 

 

24 Pl.’s Answering Br. 13-14 (citing Second Am. Compl. ¶¶ 30-40, 46-49).

25 Id. at 14-15.

26 See Pl.’s Answering Br. 14 (“The terms of the Mortgage, however, are not what make it 

unreasonable.”).
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at least three options were discussed other than the Loan transaction, including 

selling the Club, and that the five members of the Board with an interest in the Loan 

“recused themselves from the Board vote authorizing the transaction.”

27

 

What Stritzinger’s grievance boils down to is a disagreement with the 

substance of the decision the Board made to approve the Loan transaction. Her 

pleading makes clear that she disagrees with the Board’s decision to borrow funds 

to address the Club’s near-term financial pressures so that the Club could continue 

to operate—as it has for generations—as a country club. Stritzinger, who does not 

use the Club’s facilities, wanted the Board to reject the Loan, even if that meant 

liquidating the Club and selling off its land.28 In short, Stritzinger’s disagreement 

with the Board concerns quintessential matters of business judgment concerning the 

strategic management of the Club’s affairs. What her allegations do not do, 

however, is provide particularized facts from which the court reasonably could infer 

that the decision to enter into the Loan was so egregious or irrational that it could 

not have been based on a valid assessment of the Club’s best interests, or that the 

 

27 Second Am. Compl. ¶¶ 46, 60.

28 According to defendants, Stritzinger and her husband have tried for over a decade to 

build homes on the Club’s land. Defs.’ Reply Br. 10-11 & Ex. A (Dkt. 37). Defendants 

thus argue that Stritzinger would not be an adequate derivative plaintiff if this case 

proceeds. I do not need to reach this issue given my conclusion that this case must be 

dismissed for the reasons explained above.
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directors who approved the Loan otherwise acted with the requisite intent to 

disregard their obligations. 

Given that the Second Amended Complaint fails to plead particularized facts 

sufficient to raise a reason to doubt that a majority of the Board (i.e., the seven 

directors who approved the Loan) (i) had no personal financial interest in the Loan

transaction, (ii) were independent, and (iii) acted in good faith, Stritzinger has failed 

to establish demand futility. This is true whether plaintiff’s contention that these 

individuals face a substantial threat of personal liability is analyzed under the first 

or second prong of Aronson. Accordingly, Count I must be dismissed based on 

Stritzinger’s failure to make a pre-suit demand on the Board. 

B. Count II Fails to State a Claim for Relief

Count II of the Amended Complaint seeks the appointment of a receiver “to

manage” the Club.29 Without relying on any statutory basis, Stritzinger seeks this 

relief on the theory that the “Director Defendants have recklessly mismanaged the 

corporate business of [the Club] by approving the financing transaction and failing 

to devise, let alone execute, a[] strategy to stop the [Club] from losing money every 

year.”30 

 

29 Second Am. Compl. ¶ 83.

30 Second Am. Compl. ¶ 81.
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Defendants have moved to dismiss Count II under Court of Chancery Rule 

12(b)(6). The standards governing a motion to dismiss for failure to state a claim 

for relief are well-settled: “(i) all well-pleaded factual allegations are accepted as 

true; (ii) even vague allegations are ‘well-pleaded’ if they give the opposing party 

notice of the claim; (iii) the Court must draw all reasonable inferences in favor of 

the non-moving party; and ([iv]) dismissal is inappropriate unless the ‘plaintiff

would not be entitled to recover under any reasonably conceivable set of 

circumstances susceptible of proof.’”31

Using its equitable powers, the court may appoint “a custodian or receiver 

upon a showing of fraud, gross mismanagement, positive misconduct by corporate 

officers, breach of trust, or extreme circumstances showing imminent danger of great 

loss which cannot otherwise be prevented.”32 “The appointment of a custodian or 

receiver on the ground of mismanagement calls for a cautious exercise of discretion 

of the Court. Such form of relief is radical and should be granted grudgingly.”33

Even viewing the factual allegations pled in the light most favorable to 

Stritzinger, she has not come close to alleging grounds for the court to take the 

 

31 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (citations omitted).

32 Zutrau v. Jansing, 2013 WL 1092817, at *5 (Del. Ch. Mar. 18, 2013).

33 Barry v. Full Mold Process, Inc., 1975 WL 1949, at *2 (Del. Ch. June 16, 1975) (citations

omitted).
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extraordinary step of displacing the Board from managing the Club’s affairs by

appointing a receiver. As discussed above, the allegations of the Second Amended 

Complaint do not raise a reason to doubt the good faith of the directors who approved 

the Loan transaction. Apart from criticizing the Loan transaction, Stritzinger’s 

allegations concerning the Board’s historical management of the Club are wholly 

conclusory and unsubstantiated. Stritzinger has not even alleged that the Club is 

insolvent or that insolvency is imminent due to the Board’s mismanagement of the 

Club. In short, based on the facts pled, there is no reasonably conceivable basis on 

which the court would exercise its discretion to appoint a receiver for the Club. 

Accordingly, Count II fails to state a claim for relief.

IV. Conclusion

For the reasons explained above, defendants’ motion to dismiss the Second 

Amended Complaint with prejudice is GRANTED.

IT IS SO ORDERED.

Sincerely,

/s/ Andre G. Bouchard

Chancellor

AGB/gm