Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Beck v. Greim

Court of Chancery of Delaware

October 11, 2018

Andrea C. Beck, Plaintiff,
v.
John A. Greim c/o Bombay Woods Maintenance Corporation, Defendant.

          Date Submitted: March 8, 2018

          Draft Report: May 21, 2018

          Andrea C. Beck, PRO SE, Smyrna, Delaware, Plaintiff.

          Brian T. McNelis, of YOUNG & MCNELIS, Dover, Delaware, Counsel for Defendant

          MASTER'S REPORT

          GRIFFIN, MASTER

          This action involves a dispute between a homeowner, who has served as a director and officer of the homeowner's association, and the homeowner's association and its president, concerning alleged violations of Delaware General Corporation Laws and the association's failure to enforce deed restrictions under 10 Del. C. § 348. Based upon the evidence presented at trial, I recommend that the Court find the homeowner was properly removed as an officer, but invalidate her removal as director or member of the board. Further, I recommend the Court order that the association remedy the situation by conducting a special meeting of its members to vote on the director's removal, or holding an annual election of its board of directors, or by following the Delaware Uniform Common Interest Ownership Act ("DUCIOA") procedures for removal of a board member, within 60 days following the date this report becomes final. And, I recommend that the Court conclude that the association's deed restrictions have not been violated under 10 Del. C. §348. This is a final report.

         I. Background

         Andrea Beck ("Beck") is a homeowner in the Bombay Woods subdivision in Smyrna, Delaware (the "Development"), who has served as director or member of the Bombay's board of directors (the "Board"), and treasurer[1] of Bombay Woods Maintenance Corporation ("Bombay"). John Greim ("Greim") is also a homeowner in the Development and the president of Bombay.

         Beck was elected to the Board through an election of the board of directors ordered by the Court of Chancery under 8 Del. C. § 215(d) and held on May 25, 2013.[2] Beck and two other homeowners in the Development were elected as Board members, and the other two resigned from the Board immediately. Subsequently, Greim and Jeffrey Horvat ("Horvat") were appointed as members of the Board and as president and vice president/secretary, respectively.[3] Beck was also appointed to serve as treasurer.[4]

         Beck was purportedly removed from the Board as director, and as an officer, at a Board meeting on February 23, 2014.[5] The minutes from that meeting indicate that Greim and Horvat requested that Beck resign from the Board at that meeting and, when she declined, they voted, by majority vote, to remove her from the Board and as treasurer.[6] The minutes also state that Greim and Horvat asked Beck to hand over the community books by March 2, 2014 so they could be given to the new treasurer. Beck declined to accept her removal.[7]

         The following summer, the Board sought to confirm Beck's removal by seeking Bombay members' vote on her removal as a part of the annual meeting process. The Board followed its standard procedure for seeking action by Bombay members, which included posting a notice about the annual meeting in the Development and mailing a notice that specifically identified Beck's removal as a topic, and ballots, to all Bombay members.[8] After a meeting in August of 2014, at which there were insufficient ballots submitted for a quorum, the Board went door-to-door in the Development seeking to collect ballots to obtain a quorum.[9] The Board sent a notice to Beck on October 20, 2014 notifying her that a majority of Bombay members had voted to remove her as a director.[10]

         On October 10, 2014, Beck filed a pro se complaint against Greim and Bombay, alleging that Greim and Bombay acted improperly by transferring funds without legal authority or approval from the director, disregarding proper budgeting and accounting procedures, violating Bombay's bylaws, maintenance declaration and the Delaware General Corporation Law, removing board members improperly, failing to enforce Bombay members' voting rights or to properly notify members of votes, retaining legal counsel using Bombay's funds without authority, and failing to maintain Bombay's landscaping, jogging trails, and storm water retention ponds under 10 Del. C. § 348.

         A discovery dispute ensued and Master Ayvazian issued a final report on February 23, 2016, in which she recommended dismissing the complaint because she found that Beck was asserting derivative claims on behalf of Bombay against Greim for alleged corporate misconduct and she must be represented by counsel.[11] Beck filed exceptions to the Master's report and, in a July 22, 2016 letter opinion, Vice Chancellor Montgomery-Reeves agreed with the Master's conclusion that Beck's purported corporate mismanagement or misconduct claims against Greim and Bombay are derivative claims and that Beck must be represented by counsel to pursue them.[12] However, the Vice Chancellor also held that if Beck wishes to pursue purported 8 Del. C. § 225 claims, including challenging her removal from the Board and whether Greim and Horvat (then Bombay's vice president) were properly elected to the Board, she may proceed pro se.[13] She remanded for the Master's initial determination whether Beck's claims regarding the alleged failure to maintain the Development's common interest areas may be pursued by Beck pro se under 10 Del. C. § 348.

         In considering that issue on remand, Master Ayvazian, in a final report issued on March 2, 2017, determined that Beck's complaint did not set forth a valid claim under 10 Del. C. § 348 because she was not seeking enforcement of the Development's deed restrictions, but rather, reciting her claims regarding the common interest areas as examples of corporate misconduct and mismanagement, which are derivative claims and cannot be pursued pro se.[14] Beck filed exceptions to the March 2, 2017 Master's report and Vice Chancellor Montgomery-Reeves granted the objections to the report, concluding that Beck may proceed pro se with her claims to enforce deed restrictions as described in her complaint.[15]

         After Master Ayvazian's retirement, the case was reassigned to me. Trial was scheduled for January 22, 2018, but rescheduled at Beck's request for medical reasons, and held on March 8, 2018.[16] I reserved my decision and issued my draft report on May 21, 2018, setting forth my findings on the issues remaining under consideration in this case - Beck's claims under 8 Del. C. § 225, focusing on whether Beck was improperly removed from the Board and as treasurer, and whether Greim and Horvat were properly elected to the Board; and under 10 Del. C. § 348, addressing the maintenance of the Development's common interest area that directly impacts Beck and her property, including dead trees in the woods behind her house, the jogging path, and the storm water catch basin on or near her property.

         Beck took exceptions to my draft report, which have been fully briefed. I reviewed the exceptions and believe that they, for the most part, repeat arguments that were adequately addressed in the draft report. Where appropriate, I have addressed the exceptions briefly in this report. This is my final report.

         II. Analysis

         A. Beck's claims under 8 Del. C. § 225

         The Court of Chancery has authority to determine "the validity of any election, appointment, removal or resignation of any director or officer of any corporation, and the right of any person to hold such office," pursuant to 8 Del. C. §225.[17] Beck challenges her removal as an officer and director of the Board and seeks reinstatement. As a plaintiff in a 8 Del. C. §225 action, Beck bears the burden of proving by a preponderance of the evidence that she is entitled to relief - that her removal as an officer or director should be invalidated.[18] In considering Beck's claims, the "relative weight given to any particular piece of evidence, and particularly witness testimony" is determined by the Court.[19]

         Since Bombay is a common interest community as defined under the Delaware Uniform Common Interest Ownership Act ("DUCIOA"), applicable DUCIOA provisions, along with Bombay's Bylaws and other governing documents, need to be analyzed related to each of Beck's claims. [20] Bombay predates the enactment of DUCIOA, so it is a pre-existing common interest community.[21] DUCIOA provides that only specified DUCIOA sections apply to pre-existing communities.[22] If a DUCIOA section applies to a pre-existing community, then DUCIOA controls if there is a conflict between the DUCIOA provisions and the community's bylaws or other governing documents. But, if a DUCIOA section does not apply to a preexisting community, then DUCIOA controls only if the matter at issue is not expressly addressed in the community's governing documents.[23]

         1. Beck's removal as an officer of Bombay

         Beck argues that her removal as an officer was invalid because it was not on the agenda for the February 2014 Board meeting, and because Beck and Greim were not properly elected to the Board and, therefore, did not have the authority to remove her. I find that Greim and Horvat, acting as a majority of the Board, properly removed Beck as an officer in February of 2014.

         DUCIOA does not specifically address the removal process for officers, so no specific DUCIOA requirements apply here.[24] Bombay's governing documents consist of its Certificate of Incorporation, Declaration of Restrictions, and Bylaws of the Bombay Maintenance Corporation (the "Bylaws"). Only the Bylaws address the removal of officers.[25] They provide that the Board has the authority to choose the officers, including a president, one or more vice presidents, secretary, treasurer and can remove any officer, that it chose or appointed, "with or without cause at any time by the affirmative vote of a majority of the whole Board of Directors."[26] Under the Bylaws, the Board could appoint or remove officers at a Board meeting, and there is no requirement that advance notice of Board meetings be provided to all Bombay members. The Bylaws require that notice of Board meetings be provided to all Board members, but not that a specific Board meeting agenda be provided in advance of, or followed at, the meeting.[27] DUCIOA's advance notice requirements for meetings of the executive board of a common interest community do not apply to Bombay, a preexisting community.[28]

         Beck's removal as treasurer took place at the February 23, 2014 Board meeting. All three members of the Board - Beck, Greim, and Horvat - attended that meeting and Beck was removed as an officer at that meeting by Greim and Horvat.[29]Under the Bylaws, Greim and Horvat, voting as a majority of the Board, had the authority to remove Beck as an officer, with or without cause, if the meeting was conducted consistent with the Bylaws. The Board members were provided advance notice about that meeting, although Beck's removal was not included as a topic on the proposed agenda.[30] It is not clear from the evidence whether all Bombay members were notified about this meeting, or its agenda, in advance.[31] But, the Bylaws do not require that notice of Board meetings be provided to all Bombay members, or that a specific agenda be provided in advance of, and followed at, the meeting. And DUCIOA's notice provisions do not apply in this instance. Therefore, the Board's February 23, 2014 meeting satisfied the Bylaws' notice requirements.

         Since Beck has not met her burden of proving by a preponderance of the evidence that she was improperly removed as an officer, I conclude the Board's removal of Beck as an officer at the February 23, 2014 Board meeting was valid.

         2. Beck's removal as director or Board member

         Beck also argues that her removal as a director or member of the Board in February 2014 was invalid because it was not on the agenda for the February 2014 Board meeting, and Bombay members were not notified about the special meeting and did not participate in the meeting to vote on her removal. She further claims that the subsequent community vote on her removal in the fall of 2014 was held by ballot, contrary to the voting process specified in the Bylaws.[32]

         Greim and Bombay assert that Beck was properly removed as director in February 2014 but, even if the Court finds that her removal as a director at that time was improper, her removal was confirmed by community vote in the fall of 2014. A community vote was held concerning Beck's removal from the Board during the summer and fall of 2014.[33] Notice about the meeting was posted and sent to all Bombay members, and the use of ballots for that vote is consistent with the voting process followed by Beck and others previously for Bombay member actions, including for the May 23, 2013 election through which Beck was elected to the Board.[34] Greim and Bombay claim the Board complied with the Bylaws "whether in spirit or the letter of the law."[35] They further argue that, given Beck's removal occurred more than four years ago and the Board has continued its work during the intervening period, the only possible relief, if her removal is determined to be improper, is to order a new election of the Board.[36]

         I conclude the Board's removal of Beck as a director in February 2014, and through the community vote removing her in the fall of 2014, were both invalid.

         The Bylaws state that "the number of directors who shall constitute the whole board shall be such number as the Board of Directors shall determine, from time to time, by resolution of the Board of Directors," and that "[a]ny Director may be removed from the Board, with or without cause, by a majority vote of the Members of the Corporation."[37] The Bylaws further provide that annual meetings will be held at which Bombay members elect the Board each year and transact other business, and that special meetings of the members may also be held.[38] Written notice of member meetings shall be mailed to each member entitled to vote, with the notice specifying the place and time of the meeting and, "in the case of a special [members'] meeting, the purpose of the meeting."[39] The Bylaws state that a quorum of 51% of members entitled to vote must vote at a meeting, either in person or by proxy, for members to take action at that meeting.[40]

         DUCIOA also addresses the removal of directors in section 81-323 of title 25 of the Delaware Code. Section 81-323 applies to pre-existing communities, such as Bombay, so DUCIOA controls if there is a conflict between the Bylaws and DUCIOA.[41] DUCIOA provides that a Board member can be removed with or without cause, "notwithstanding any provision of the declaration or bylaws to the contrary" and without a quorum, if the specified process for voting at the special meeting is followed.[42] So, a Bombay Board member may be removed, consistent with DUCIOA's procedures, even if the Bylaws' procedures are not followed.

         Beck's purported removal as a director on the Board took place at the February 23, 2014 Board meeting, during which Greim and Horvat voted to remove Beck both as an officer and a director. The Bylaws authorize Bombay members to remove directors.[43] The Board does not have the authority to remove Beck as a director, since that power was not delegated to it by the Bylaws.[44]

         The Bylaws do not expressly state any procedure or timing for the removal of a director. However, they provide that Bombay members can vote at an annual or special meeting (and that directors are elected at the annual meeting). The evidence does not show that Bombay members voted on Beck's removal in February 2014, or that they were notified in advance about the meeting at which the Board purportedly removed her. Since the Board did not have the authority to remove Beck as a director, I recommend the Court invalidate the Board's removal of her as a director in February 2014.[45]

         Following the February 2014 Board meeting, the Board sought Bombay members' approval of Beck's removal as a director during the summer and fall of 2014.[46] Greim testified that the Board followed its standard procedures for seeking action by Bombay members, including posting notice about the meeting in the Development and mailing out notices to all Bombay members, which specifically identified Beck's removal as a topic, and ballots for Bombay members to fill out and return to vote on Beck's removal.[47] The evidence indicated there was a Board meeting in August 2014, but it was not clear whether that meeting was actually a membership meeting.[48] Regardless, a quorum was not obtained at that meeting, and the Board subsequently went door-to-door in the Development seeking to collect ballots in order to obtain the quorum needed. Greim testified that it took several months - into the fall of 2014 - for a sufficient number of ballots, representing a majority of Bombay members, to be submitted to achieve a quorum, in order to confirm Beck's removal as a director.[49] Greim also testified this process has been utilized for many years to ensure community participation since it is impossible to get a quorum at a membership meeting.[50] Beck confirmed that the process of canvassing Bombay members to ask them to complete ballots on Bombay business was used regularly to satisfy the quorum requirement for membership votes.[51] In fact, ballots had been used related to Beck's election to the Board in May 23, 2013.[52]

         In this case, Bombay members have the authority to remove Beck as a director. However, the process followed to seek Beck's removal as director during the summer and fall of 2014 did not satisfy the Bylaws' requirement that a quorum of Bombay members vote in person or by proxy at a meeting. The Bylaws authorize the Bombay members to take action in meetings and that members are "entitled to vote in person or by proxy," but do not authorize the taking of actions by members outside of meetings, such as through ballots obtained by door-to-door canvassing.

         Nor did the voting process comply with DUCIOA's special meeting procedures for removing a director, which allow for voting by electronic or written ballots and a voting quorum less stringent than that required by the Bylaws.[53] Therefore, because of procedural irregularities in the voting process, I recommend that the Court invalidate the 2014 Bombay members' vote removing Beck, which also eliminates any possibility of that vote ratifying the Board's February 2014 action to remove her.

         If the Board's and Bombay's actions removing Beck as a director are invalidated without the Court taking additional action, Beck would be returned to a position on the Board to which she was elected in May 2013, or more than five years ago. Her purported removal as a director occurred four years ago, leaving Bombay members with no certainty as to Board membership during that period. Further, the Board has continued to conduct business since that time and it is not appropriate, after such a long period, to reinstate her to the Board. The Court, when determining whether the removal of a director is valid, is authorized to "make such order or decree . . . as may be just and proper."[54] Therefore, I recommend that the Court order that Bombay conduct a special meeting of its members to vote on Beck's removal, or hold an annual election of its Board ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.