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

July 13, 2015

Page 2

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.,2and 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.
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 3

*****

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.
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 4

Management, LLC (“PIM”)6and 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 
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 5

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.
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 6

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”).
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 7

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 PCAPIM 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.
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 8

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).
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 9

*****

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).
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 10

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.
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 11

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 . . . .”)).
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 12

(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.
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 13

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.
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 14

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.
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 15

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.
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 16

*****

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 
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 17

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 ‘wellpleaded’ 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)).
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 18

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.
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 19

*****

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 
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 20

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 . . . .”).