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REDUS Peninsula Millsboro, LLC. v. Mayer

Court of Chancery of Delaware

August 29, 2014

REDUS Peninsula Millsboro, LLC
v.
Mayer

Submitted: March 4, 2014

Katharine L. Mayer, Esquire, McCarter & English LLP

Robert J. Valihura, Jr., Esquire, The Law Office of Robert J. Valihura, Jr.

Chad J. Toms, Esquire Whiteford Taylor & Preston LLC

Brian L. Kasprzak, Esquire Marks, O’Neill, O’Brien

Dear Counsel:

Defendants/Counterclaim Plaintiffs, Neal M. Mayer, John Gee, Don Dieringer, David Harrod, John Shanaphy, Marc Stanley, Chuck Burrall, and Deb Putt (the "Homeowners"), own homes in The Peninsula, a Sussex County residential development.[1] In their counterclaims, they challenge the mandatory bundled internet and basic cable services supply agreement that binds their lots with its $90 monthly fee and which may last for many decades, as well as the conduct of the entities benefiting from this contract. The Homeowners became obligated, through the acquisition of their real estate in the development, to purchase these telecommunications services from the Peninsula Community Association, Inc. ("PCA"), a neighborhood group in which they are required to be members. PCA purchases those services through Peninsula Infrastructure Management, LLC ("PIM"), which was formed by The Peninsula's original developers to manage the telecommunications services.

The developers of The Peninsula formed PCA before the sale of any lots in the development. PCA, which was always controlled by the developers, entered into an Agreement to Obtain Communications Services (the "PCA-PIM Agreement") with PIM in 2004. The PCA-PIM Agreement provided that PIM would manage telecommunications services for PCA for twenty-five years, and that the agreement would automatically renew for four additional ten-year periods, unless PIM decided not to extend the arrangement. In 2005, Verizon Services Corporation ("Verizon") agreed with PIM to provide services to the 1, 404 units to be constructed at The Peninsula at a monthly price of $58.95 per unit. Thus, through this arrangement the original developer was able to capture the monthly difference of $31.05 per unit; this payment stream could conceivably be extended to a total term of sixty-five years. The Homeowners assert that employees and directors of the original developer and PCA, at annual PCA meetings, told them on numerous occasions that the $90 fee they were obligated to pay was a "pass through" arrangement.

The original developer encountered financial problems. In 2009, LandTech Receiver Services, LLC and LandTech, Inc. (collectively, "LandTech") were appointed the Receiver to assume control of The Peninsula, at the request of Plaintiff/Counterclaim Defendant Wells Fargo Bank, N.A. ("Wells Fargo"), the principal lienholder of The Peninsula at Longneck LLC. Thereafter, through a foreclosure sale, Wells Fargo obtained certain property and contractual rights at The Peninsula. Plaintiff/Counterclaim Defendant REDUS Peninsula Millsboro LLC ("REDUS"), a wholly owned subsidiary of Wells Fargo, assumed control of PIM. The Homeowners assert that Verizon also paid PIM, and now pays REDUS, $425 for each residence in The Peninsula which is wired for telecommunications services.

The Homeowners recently learned that the monthly $90 they pay to PIM is not a pass through and sought to adjust the terms of their payments. After the Homeowners wrote to the PCA Board, then directed by LandTech, a Senior Vice President of Wells Fargo responded, on behalf of REDUS and Wells Fargo, that alterations to the PCA-PIM Agreement were unlikely to occur. The Homeowners sought arbitration, which is permitted by the PCA-PIM Agreement, but the arbitration has been stayed in favor of their counterclaims in this proceeding.

The Homeowners, through their counterclaims, seek to invalidate the PCA-PIM Agreement as an unlawful contract, an unconscionable contract, and void against public policy. They also allege that breaches of fiduciary duty committed by the original developers should be imputed to REDUS and Wells Fargo, which have been unjustly enriched as a result of those breaches of fiduciary duty. REDUS and Wells Fargo have moved to dismiss the counterclaims by arguing that the Homeowners lack standing to challenge the PCA-PIM Agreement and that all of their claims fail on the merits.

REDUS and Wells Fargo have moved to dismiss under the familiar standard of Court of Chancery Rule 12(b)(6), which requires that the Court accept all well-pleaded facts as true and draw all reasonable inferences in favor of the Homeowners.[2] Even vague allegations in the counterclaim will be accepted as well-pleaded if REDUS and Wells Fargo were provided notice of the claim.[3] The motion to dismiss will be denied if the Homeowners' well-pleaded factual allegations would entitle them to relief under a reasonably conceivable set of circumstances.[4] The reasonable conceivability standard asks whether a possibility of recovery exists. Finally, the Court may reject conclusory allegations that are not supported by specific facts, and unreasonable inferences may not be drawn in favor of the Homeowners.[5]

A. Standing

REDUS and Wells Fargo contend that the Homeowners lack standing to challenge the PCA-PIM Agreement because they are not parties to the contract and are not creditor or donee beneficiaries of it. They argue that the Homeowners are not donee beneficiaries because they did not have "someone else's performance donated to [them] as a gift secured by the promisee's consideration."[6] They also assert that the Homeowners are not creditor beneficiaries because REDUS and Wells Fargo are not promisees who "owe[] a duty or liability to the ...


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