Opinion
C.A. No. 19557-NC
Submitted: September 11, 2002
Decided: January 24, 2003
Samuel L. Guy, Esquire of The Law Office of Samuel L. Guy, Wilmington, Delaware, Attorney for Plaintiffs.
David J. Ferry, Jr., Esquire and Rick S. Miller, Esquire of Ferry, Joseph Pearce, P.A., Wilmington, Delaware, Attorneys for Defendant.
MEMORANDUM OPINION
This unusual case involves membership on the board of directors of Defendant West Center City Neighborhood Planning Advisory Committee, Inc. ("WCCNPAC"), a not-for-profit Delaware corporation, established, inter alia, as a conduit for the allocation and distribution of grant funds for several neighborhoods in the City of Wilmington (the "City"). The Plaintiffs in this action, brought under 8 Del. C. § 225, are Bessie C. Ashe ("Ashe"), Dwight L. Davis ("Davis"), Harold Chambers, Jr. ("Chambers"), Rhonda M. Davis, Frauline Trotter ("Trotter"), Mercedes Fields ("Fields"), John McNeil ("McNeil"), and Caren Turner ("Turner") (collectively, the "Individual Plaintiffs"), who, along with Plaintiff West Center City Neighborhood Association, Inc. ("WCCNA"), a not-for-profit Delaware corporation (collectively with the Individual Plaintiffs, the "Plaintiffs"), assert the rights of the Individual Plaintiffs to hold office as directors on the WCCNPAC board of directors (the "Board"). This post-trial memorandum opinion sets forth my findings of fact and conclusions of law.
Because Rhonda M. Davis failed to pursue her claim, it was dismissed at trial.
I. BACKGROUND
The facts set forth in this memorandum opinion are the product of my best attempt to overcome a poor evidentiary record. I note two serious obstacles: first, the testimony of witnesses often not only conflicted with other witnesses' testimony on the most basic of facts, but also was internally inconsistent; second, the parties were unable to produce many of the material records and documents.
The overriding aspect of this controversy, and thus the logical starting point for any discussion of it, is WCCNPAC's mission of public service. WCCNPAC, which serves the West Center City Analysis Area (the "WCCAA"), represents a link in the chain of entities designed to deliver government funding aimed at urban development. WCCNPAC consists primarily of three geographic constituencies: Quaker Hill, Trinity Vicinity, and West Center City. Each of these neighborhoods is served by its own neighborhood association: Quaker Hill Neighborhood Association, Trinity Vicinity Neighborhood Association, and WCCNA, respectively (collectively, the "Neighborhood Associations").
The WCCAA embraces that area of the City "as bounded by Tatnall Street on the east to Seventh Street, west on Seventh Street to West Street, north on West Street to Ninth Street, west on Ninth Street to Jefferson Street, north on Jefferson Street to Delaware Avenue, along Delaware Avenue to Adams Street, south on Adams Street to Front Street, east on Front Street to Washington Street, north on Washington Street to Second Street and east on Second Street to Tatnall Street." Bylaws of West Center City Neighborhood Planning Advisory Committee, Inc., Def.'s Ex. ("DX") 1 (hereinafter the "Bylaws"), Art. II.
WCCNA serves the WCCAA except for the Quaker Hill and Trinity Vicinity neighborhoods. I note that there is evidence that would support the inference that WCCNA's mission involves all of the WCCAA.
Title I of the Housing and Community Development Act of 1974 was amended in 1977 to add the Urban Development Action Grant ("UDAG") Program. Under the UDAG Program, "urban development action grants [are made] to cities and urban counties which are experiencing severe economic distress to help stimulate economic development activity needed to aid in economic recovery." To administer the UDAG funds granted to the City, a chain of entities was created. The City established the Wilmington UDAG Corporation ("WUC"), a not-for-profit Delaware corporation; UDAG grants, which flow through WUC, provide most of the funding for WCCNPAC. This relationship was formally established when, in 1984, WCCNPAC and WUC entered into the UDAG Agreement. Therefore, for the residents of the WCCAA, WCCNPAC is a critical and proximate link in the chain to distribute UDAG funds to enhance their community's economic and social well-being.
Society Hill Towers Owners' Ass'n v. Rendell, 20 F. Supp.2d 855, 863 (E.D.Pa. 1998) (citing 42 U.S.C. § 5301 et seq.; HCDA, Pub.L. No. 95-128, § 110(b); 91 Stat. 1125, codified as amended at 42 U.S.C. § 5318).
The funds granted pursuant to the UDAG Agreement have not been insubstantial. WCCNPAC has received funding of approximately $300,000 annually in UDAG grants. Thus, by early 1997, "over $2 million [had] been spent by WCCNPAC." Letter from The Hon. James Baker to Ms. Brenda Phillips, received Feb. 20, 1997 (hereinafter "Letter from The Hon. James Baker"), at 1. As a consequence of the UDAG Agreement, WCCNPAC is subject to numerous conditions and reporting requirements.
A motivational force behind the creation of WCCNPAC, with its more focused geographical scope, was the expectation that a more responsive and efficient program would evolve. In order to fulfill its role of fairly and efficiently distributing UDAG funds to its WCCAA constituency and representing the residents' interests, WCCNPAC needed to acquire and convey information accurately to WUC and other City and State bodies. Both the information-gathering and decision-making functions required a process that accounted for the interests of the community. That could best be achieved if the governing body of WCCNPAC, at least in a general sense, was representative of the community. Accordingly, such democratic ideals were expressly set forth in the Bylaws, Article III of which provided:
The 1982 City Council resolution creating WCCNPAC (the "City Council Resolution") expressly noted the information-gathering function that WCCNPAC was to serve in the WCCAA: "WHEREAS, it is anticipated that this coalition of civic organizations will provide first-hand advisory information to the City regarding.. . matters regarding the future growth and direction of the West Center City neighborhood." City Council Resolution (June 10, 1982), Def.'s Answering Post-Trial Mem. Ex. A at 1. In a sense, one of WCCNPAC's primary purposes was to serve as an "umbrella" organization to coordinate and reconcile the interests of the various civic groups within the WCCAA. See id. Although not presented as an exhibit at trial, I take judicial notice of the City Council Resolution. See D.R.E. 201.
The objectives of WCCNPAC shall be:
Section 1. To promote, in any way consistent with applicable Federal, State, and Local standards, the common good and general welfare of the residents of the WCCAA.
Section 2. To serve as liaison between the several departments of the City of Wilmington or the State of Delaware and residents of WCCAA.
Section 3. To represent residents of the WCCAA in appropriate matters which arise requiring discussion or negotiation between the City of Wilmington or the State of Delaware and any interests within the WCCAA.
Section 4. To establish and maintain the means for collecting any funds flowing from the City of Wilmington to WCCNPAC or otherwise granted to WCCNPAC from any other source.
Thus, the concept of democratic representation goes to the very essence of WCCNPAC. If "form ever follows function," one would a that the structure of WCCNPAC, through its certificate of incorporation and the Bylaws, would seek to guarantee that its directors are representative of the constituencies that they are selected to serve.
Louis Henri Sullivan, quoted in JOHN BARTLETT, BARTLETT'S FAMILIAR QUOTATIONS 681 (15th ed. 1980).
B. The Structure of WCCNPAC
The internal structure of WCCNPAC was designed to achieve these lofty goals of representation and public service. The Fourth Article of the WCCNPAC certificate of incorporation provides:
FOURTH: The corporation shall not have any capital stock, and the conditions of membership shall be stated in the ByLaws of the Corporation.
DX 10 at 2.
The Bylaws establish the right of various WCCAA civic organizations, including WCCNA, to participate in the governance of WCCNPAC. As "[c]omplete control of WCCNPAC" is "vested in the Board," the proper designation of those WCCNPAC directors is of paramount importance in assuring that the purposes of WCCNPAC are met.
Bylaws, Art. IV, § 1.
Article IV of the Bylaws, which establishes the manner in which the directors are to be designated, provides in part:
Article IV — Board of Directors
* * *
Section 2. Board of Directors. The Board of Directors shall include not less than six (6) and not more than nineteen (19) voting directors appointed from categories 1, 2, 3, 4 and 5 below. The Board of Directors may also include up to three (3) non-voting directors from category 6 below. Beginning in 1986, the non-profit agency in this category shall be recognized by the Board of Directors biannually to serve for a term of two (2) years.
1. First Category. Four (4) residents from [WCCNA]; these residents may not hold or be registered as a candidate for election to any elective public office or hold any paid appointive City office.
2. Second Category. Four (4) residents from the Trinity Vicinity Neighborhood Association; these residents may not hold or be registered as a candidate for election to any elective public office or hold any paid appointive City office.
3. Third Category. Four (4) residents from the Quaker Hill Neighborhood Association; these residents may not hold or be registered as a candidate for election to any elective public office or hold any paid appointive City office.
4. Fourth Category. One (1) resident from each of five (5) recognized block clubs within the WCCAA; these residents may not hold or be registered as a candidate for election to any elective public office or hold any paid appointive City office. The recognized block clubs are identified in Appendix A attached hereto and made a part hereof.
5. Fifth Category. One (1) representative from one (1) recognized non-profit agency resident in the WCCAA. The non-profit agency of this category shall be recognized by [the] Board of Directors annually to serve for a term of one year. The recognized non-profit agency is identified in Appendix A attached hereto and made a part hereof.
6. Sixth Category. Any member of City Council representing any portion of the affected neighborhoods may, upon written request and with the approval of the voting members of the Board, serve as an Ex-Officio Director, but Ex-officio Directors shall have no voting right.
Appendix A to the Bylaws lists the "recognized block clubs" as: i) Penn Square Association, ii) Madison Lane Block Club, in) Ninth Street Block Club, iv) 800 Block W. 5th Street Block Club, and v) 200 Block Club (collectively, the "Block Clubs").
An amendment, dated November 25, 1996, added a sixth block club, West Village Neighborhood Association. Thus, a total of 19 voting director slots are to be filled. It is not clear from the record why these six Block Clubs were those granted the authority to designate members of the Board. In addition to the designation process, the Bylaws, in Article V (Membership), set forth other qualifications to serve as a director by implicitly imposing on directors the requirements of WCCNPAC membership. Article V directs one to Appendix B; Appendix B requires voting members, inter alia, to "have their primary residence within the WCCAA" and to "submit [a] written application for membership."
The operative power to designate WCCNPAC directors is found in Article IV, Section 3 of the Bylaws, which provides in pertinent part:
Section 3. Appointment and Term of Office. Residents in the first, second, third and fourth categories shall be selected by their respective neighborhood organizations and shall serve for a term of two (2) years, unless removed pursuant to Section 8 of Article IV or until residence in the neighborhood has ceased.
A director may be removed by a greater than two-thirds vote of the Board "whenever, in [the Board's] judgment, the best interests of... WCCNPAC would be served thereby, but removal shall be without prejudice to the rights of the neighborhood association, block club, or agency experiencing the removal." Additionally, "any Director not attending three (3) consecutive meetings may be considered to have abandoned his membership on the Board of Directors and may be removed by a two-thirds (2/3) plus one (1) vote of the Board."
Bylaws, Art. IV § 8.
Id.
C. Problems Develop
By the mid-1990s, however, WCCNPAC was beset by problems, problems so severe that the City and WUC threatened to halt funding of WCCNPAC. In February 1997, the then-City Council President wrote a letter in which he complained that "the members of WCCNPAC [have] had a great deal of difficulty organizing themselves into a well functioning administrative operation." After severely criticizing WCCNPAC, the City Council President turned to WCCNA:
Letter from The Hon. James Baker at 1.
West Center City Neighborhood Association is dead, with hardly anyone being involved. I have met with the board, committees, single board members, groups of board members but to no avail. They listen, nod their heads and go back to business as usual. I want to make it clear, the board members intend to do well and want to make their community better, but are confused as to how to do it"
Id.
He concluded: "New leadership, new direction is absolutely necessary for a better future of a once great community." The WUC board of directors also sent a letter to the Board, dated October 22, 1998, noting "growing concerns regarding [WCCNPAC]" which caused WUC to be "suspect of WCCNPAC's ability to carry out its commitment and fiduciary responsibilities to the residents of the [WCCAA] and the City."
Id.
DX 13 at 1. This letter informed the Board that the WUC board of directors was "prepared to take action... to suspend UDAG repayment funds until certain conditions have been met." Id. WUC further recommended that, inter alia, "WCCNPAC undertake (a) a third party evaluation of the organization's programs...; [and] (b) evolve a newly formed (or reconfirmed) Board." Id. at 2.
In response to these criticisms, WCCNPAC and WUC hired a consulting firm to recommend changes in order to increase efficiency. Among the improvements suggested were strict enforcement of the attendance policy for directors and elimination of the Block Clubs because the presence of the Block Clubs resulted in a disproportional representation of WCCNA. Furthermore, the consultant characterized the Block Clubs as unrepresentative of the constituencies they were supposed to serve, as many of the Block Club designees were selected in an undemocratic fashion. Finally, the consultant recommended rotating directorships to combat a perceived entrenchment problem.
Most of the Block Clubs, including those represented in this proceeding, are within the area served by WCCNA.
WCCNPAC then sought to implement the recommended changes. It began to enforce the attendance policy against its absent directors, and a unanimous decision was made to remove non-attending directors. WCCNPAC then sought from the Neighborhood Associations and the Block Clubs information about their selection processes and meetings, an effort that was largely unproductive. The Board also attempted to improve WCCNPAC's effectiveness through several amendments to the Bylaws, including a reduction in the number of directors. However, the procedures employed for achieving these changes in the Bylaws were deficient, and this Court declared those amendments invalid.
Thus voting for the removal of the non-attending directors was Davis.
The three Individual Plaintiffs removed for this reason on November 5, 1999, Trotter, Fields, and Turner, subsequently sought re-appointment to the Board. Their attempts were rebuffed by letters dated February 22, 2000, and the Board directed their respective Block Clubs to appoint different candidates. No new candidates emerged. No challenge is presented here to the validity of their removal in November 1999. Not all directors appointed by the Block Clubs were removed for poor attendance. For example, the designee of the 800 Block West 5th Street Block Club remained on the Board since her record of attendance was not deficient.
See West Center City Neighborhood Ass'n, Inc. v. West Center City Neighborhood Planning Advisory Comm., 2002 WL 1403322 (Del.Ch. June 20, 2002).
Other problems also arose. For example, in July 2000, Davis was suspended after the Board received a letter from an attorney representing a clerical employee of WCCNPAC who set forth a complaint of sexual harassment against Davis. Davis was suspended by a unanimous vote at a special meeting; although Davis was notified of the special meeting and afforded the opportunity to state his position on the matter, he did not attend. Since the suspension, no formal process for resolving Davis' status has been implemented.
Davis had been previously removed from the Board for seeking his political party's nomination to run for New Castle County Council. He was reinstated after he lost.
D. The February Appointments
On February 6, 2002, a portion of the WCCNA board of directors (the "WCCNA board") met (the "February Meeting") and selected Ashe, Davis, Rhonda M. Davis and Chambers to be the WCCNA designees to the Board. Before the February Meeting, the WCCNA designees to the Board had been Jacqueline B. Watson ("Watson"), Zachariah Lingham ("Lingham"), Davis and Ashe. The details of the February Meeting have been disputed by the parties. They debate whether the February Meeting was properly convened and conducted according to WCCNA's bylaws. However, what is certain is that the only notice of the meeting was provided by Davis to eight people (Ashe, Trotter, Fields, McNeil, Turner, Bertha Lingham, Derrick El, and Marla Garris). Thus, Watson and Lingham, who were serving as directors of WCCNA and as representatives of WCCNA on the Board before the February Meeting, did not receive notice of the February Meeting.
See Pls.' Ex. ("PX") 3 (hereinafter the "February 6th Minutes") at 2. Ashe, Davis and Chambers assert that they are directors of WCCNPAC by virtue of their selection as WCCNA designees.
Watson, who is the President of WCCNPAC, also claims to be President of WCCNA as the successor to Umar Khalif Hassan-El.
There remains a question whether Ashe is an alternate member of the Board or is now a current Board member, after having succeeded her husband who was a WCCNA representative on the Board.
In addition, at the February Meeting, a motion was made to revive the WCCNA corporate charter, which had lapsed for nonpayment of franchise taxes. February 6th" Minutes at 2. A motion also passed to reestablish monthly meetings of WCCNA, "recognizing that there had not been a meeting called in quite some time." Id. at 1.
Thereafter, WCCNA forwarded to WCCNPAC a copy of a resolution, dated February 25, 2002, endorsing the designees chosen at the February Meeting to serve as WCCNA representatives on the Board. In a letter, dated April 15, 2002, WCCNPAC informed WCCNA and its designees that WCCNPAC "does not recognize those individuals listed on the February 25th Resolution [as the representatives of WCCNA] as members of the Board... and will not seat them." The Individual Plaintiffs then met in order to consider what further steps should be taken, ultimately agreeing upon initiating litigation. As a result, the Plaintiffs have brought this suit seeking a declaration that the Individual Plaintiffs are entitled to be seated on the Board as representatives of WCCNA and the Block Clubs.
PX 4 (hereinafter the "February 25th Resolution"). The February 25th Resolution purports merely to reiterate any resolution adopted earlier at the February Meeting. However, discrepancies exist between the two documents. See infra notes 29 and 31.
It should be noted that while the February 25th Resolution lists only those designees properly selected by WCCNA, the February 6th Minutes also purport to designate, in the "[r]esolution to appoint, " Trotter, Fields, Tumer and McNeil. Compare February 25th Resolution at 1 with February 6th Minutes at 2. Even more puzzling is that the designation of these representatives, who should properly be appointed by their respective Block Clubs, seemingly asserts that these nominees are also from WCCNA. In the February 6th Minutes, the names of Board designees are followed by the name of the civic organization which purportedly nominated them. However, the names of Trotter, Fields, Turner, and McNeil are followed by, in addition to their respective Block Club, "WCCNA" in parentheses. See February 6th Minutes at 2. I note that WCCNA has no authority to appoint the Board representatives from the Block Clubs.
PX 2 at 2.
By this time, the Penn Square Association, the 200 Block Club, the Ninth Street Block Club, and the Madison Lane Block Club were operating under the umbrella of WCCNA. See February 25th Resolution at 1 (WCCNA "welcomes [these four] organizations in West Center under the structure of the WCCNA"). However, no such welcoming of these Block Clubs appears in the February 6th Minutes. Compare February 25th Resolution at 1 with February 6th Minutes.
II. CONTENTIONS
The Plaintiffs commenced this action under 8 Del. C. § 225, seeking a declaration that the Individual Plaintiffs are entitled to serve on the Board. The Plaintiffs claim that "[o]ver the years [WCCNPAC] has engaged in a pattern and practice of usurpation and failure to honor the selection of members to the Board by neighborhood organizations." Furthermore, the Plaintiffs argue that "[t]he method of selection is a matter of the internal affairs of the selecting organization. WCCNPAC . . . has no authority or standing to interfere or officiously intermeddle into selection matters." Therefore, according to the Plaintiffs, because the Individual Plaintiffs were selected in a manner consistent with the claimed practices of their respective neighborhood organizations, WCCNPAC should respect their appointments and recognize them accordingly.
Pls.' Opening Br. at 2.
Pls.' Bylaws Resp. at 2.
WCCNPAC argues that the Individual Plaintiffs are not qualified under the Bylaws to serve as directors on the Board. WCCNPAC contends that the Individual Plaintiffs were not duly selected by WCCNA or their respective Block Clubs. It specifically asserts that the February Meeting "was not validly conducted and therefore all actions taken at such meeting are null and void." Ultimately, WCCNPAC claims that, although "there is a paucity of case law" to guide the Court, "[l]ogic and common sense dictate that a community organization with the significant responsibilities of WCCNPAC must be permitted to demand of its constituent organizations that which is demanded of itself: that they be representative of the community." WCCNPAC also interposes the equitable defense that the Plaintiffs are guilty of unclean hands.
Answer to Verified Compl. ¶ 21.
Def.'s Answering Post-Trial Mem. at 4.
III. ANALYSIS
A. The Right of WCCNPAC to Question the Selection Processes of the Neighborhood Organizations
The Plaintiffs initially challenge the right of WCCNPAC to dispute the selection processes employed by the neighborhood organizations or to contest the designations of the Individual Plaintiffs by their respective nominating entities to serve on the Board. In substance, the Plaintiffs argue that the various organizations are given the right and the power to designate Board members and that the processes which each employs is of no concern to WCCNPAC.
The simple answer to the Plaintiffs' argument is that it is their burden in this action to demonstrate that the Individual Plaintiffs are entitled to serve on the Board. In this instance, the Plaintiffs must demonstrate that the Individual Plaintiffs were duly selected by their respective neighborhood organizations. As an adverse party, WCCNPAC is free to question and to challenge whether the Plaintiffs can meet their burden.
Rohe v. Reliance Training Network, Inc., 2000 WL 1038190, at * 16 (Del.Ch. July 21, 2000).
I reject the Plaintiffs' arguments to the extent they implicate the concept properly called "standing." "`The concept of "standing," in its procedural sense, refers to the right of a party to invoke the jurisdiction of a court to enforce a claim or redress a grievance. It is concerned only with the question of who is entitled to mount a legal challenge and not with the merits of the subject matter of the controversy.'" Committee of Merchants and Citizens Against the Proposed Annexation, Inc. v. Longo, 669 A.2d 41, 44 (Del. 1995) (quoting Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378, 1382 (Del. 1991)). WCCNPAC is neither asserting a claim nor asking the Court to redress any grievance.
Moreover, at the core of WCCNPAC's existence is the need for the Board to be fairly representative, in a general sense, of the WCCAA community. If the processes used by the constituent organizations are so closed to their respective constituencies as to preclude any semblance of community involvement, WCCNPAC cannot credibly carry out its important public service functions. Thus, because the selection processes employed by the various nominating entities implicate important interests of WCCNPAC, it has the right to challenge whether its directors have been designated through a process that is inconsistent with the purposes for which it was formed as manifested in its corporate governance documents.
B. The Selection Process
The Plaintiffs seek a declaration that the Individual Plaintiffs are entitled to serve on the Board. This Court may determine the right of each of the Individual Plaintiffs to hold the office of director of WCCNPAC, a corporation without capital stock. However, "although [plaintiffs] may obtain a personal benefit if their claims to office are sustained, a § 225 proceeding has long been recognized as serving the interests of the corporation as a whole." The purpose of § 225 "is to right wrongs done to a corporation, not to its individual stockholders, through the unlawful usurpation of its management and offices by persons not entitled thereto." Thus, this litigation not only can be viewed as vindicating the rights of the Individual Plaintiffs to hold office, but also may be more broadly perceived as protecting against possible wrongs to WCCNPAC and its mission.
8 Del. C. § 225.
Kirby v. Kirby, 1987 WL 14862, at *7 (Del.Ch. July 29, 1987).
Fleer v. Frank H. Fleer Corp., 125 A. 411, 416 (Del.Ch. 1924), quoted in Kirby, 1987 WL 14862, at *7Z.
Because the structure of WCCNPAC is established by WCCNPAC's certificate of incorporation and the Bylaws, any determination of whether the Individual Plaintiffs are entitled to seats on the Board necessitates an analysis of those documents. "It is a fundamental principle that the rules used to interpret statutes, contracts, and other written instruments are applicable when construing corporate charters and bylaws." Therefore, in construing the Bylaws, "[f]irst I look to the four corners of the [Bylaws] and, applying a common sense analysis, determine whether the [Bylaws are] reasonably subject to more than one interpretation.' "When the contract language, read in the context of the entire contract, is not reasonably susceptible to more than one meaning, this "objective meaning will govern." If the language of the Bylaws is susceptible to only one meaning, I must confine my review to the face of the document." In addition, the Bylaws "should be read as a whole and, if possible, interpreted to reconcile all of the provisions of the document." With this in mind, I turn to the specific text of the Bylaws.
Gentile v. SinglePoint Fin., Inc., 788 A.2d 111, 113 (Del. 2001); see also Harrah's Entertainment, Inc. v. JCC Holding Co., 802 A.2d 294, 309 (Del.Ch. 2002).
Supermex Trading Co. v. Strategic Solutions Group, Inc., 1998 WL 229530, at *2 (Del.Ch. May 1, 1998).
Bell Atl. Meridian Systems v. Octel Communications Corp., 1995 WL 707916, at *6 (Del.Ch. Nov. 28, 1995) (citations omitted).
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997); McIlquham v. Feste, 2002 WL 244859, at *5 (Del.Ch. Feb. 13, 2002).
Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del. 1996).
I acknowledge that applying the principles and spirit of the Delaware General Corporation Law to resolve a dispute concerning the non-profit entity before me creates some tension. Typically, corporate directors are selected by shareholders who base their decisions, in large part, upon their own economic self-interest. Here, the neighborhood organizations have no direct economic interest in WCCNPAC; they have been assigned the task of designating directors who can represent the interests of the neighborhood organizations and the residents of the neighborhoods in making decisions critical to the community. Thus, the interests which they may claim in the selection of WCCNPAC directors are different from those of shareholders who have invested in what they hope will be "for profit" corporations.
Article IV, Sections 2 and 3 of the Bylaws entitles WCCNA and the Block Clubs to designate a certain number of directors to serve on the Board. Article IV, Section 2 provides that the Board shall be comprised of "voting directors appointed from categories 1, 2, 3, 4, and 5. Article IV, Section 3 directs that residents in the WCCNA, Trinity Vicinity Neighborhood Association, Quaker Hill Neighborhood Association, and the Block Clubs "shall be selected by their respective neighborhood organizations., " The By laws provide no express guidance or restrictions upon how the neighborhood organizations are to fulfill their role to "select" those representatives to serve on the Board. However, this seemingly unfettered grant of authority must not be interpreted in isolation, because the Bylaws are to be read as a whole. Therefore, Article IV, Section 3 must be interpreted in harmony with the other provisions of the Bylaws. The public character of WCCNPAC, as proclaimed in Article III, must not be forgotten amidst efforts to interpret the provisions of Article W. To achieve its goals, WCCNPAC must fulfill one of its expressly stated purposes, that is, "[t]o represent residents of the WCCAA in appropriate matters which arise requiring discussion or negotiation between the City of Wilmington or the State of Delaware and any interests within the WCCAA." Thus, the entitlement bestowed upon the neighborhood organizations by Article IV, Section 3 cannot be read so broadly as to permit actions by those neighborhood organizations in abrogation of the stated goal of representing the residents of the WCCAA. In sum, I conclude the unambiguous language conferring a right upon the neighborhood organizations to "select" directors to serve on the Board carries with it, by force of the Bylaws when read as a whole, the duty to employ democratic processes in exercising that power to "select" directors.
Emphasis added.
Emphasis added.
Bylaws, Art. Ill, § 3 (emphasis added).
This is not to say that the selection process must comport with the fullest procedural strictures of, say, an election for state-wide office. I recognize that the size and character of the Block Clubs do not allow for such a requirement. Clearly, a variety of processes are scattered across the spectrum of possible methodologies that would lead to a representative selection. I venture no judgment as to the specific processes that must be followed by any particular neighborhood organization.
1. Block Club Designees
As provided by Article IV, Section 2, Sub-Section 4 the Block Clubs are each entitled to one representative on the Board. Purportedly, the Ninth Street Block Club selected Trotter, the 200 Block Club selected Fields, the Madison Lane Block Club selected McNeil, and the Penn Square Association selected Turner. The Block Clubs are rather informal organizations established to address the needs of a small community of neighbors, perhaps those living in an area of no more than a block in size. Membership is a function of where one resides. The purposes and activities of the Block Clubs may range from the practical — community beautification efforts — to the political — assuring adequate governmental services. Because they are informal organizations, it is not reasonable to expect strict compliance with any formal set of rules for their governance. However, I find from the evidence presented at trial, that, with the exception of Trotter, the processes used in selecting the Block Club designees were so deficient that they fail to provide any reasonable assurance as to the representative nature of the director's selection, thereby violating the Bylaws.
a. Trotter
Trotter was removed from the Board on November 5, 1999, for missing three consecutive meetings. After informal attempts at reconciliation with the Board, she returned and met with the Ninth Street Block Club. The Ninth Street Block Club includes the residents of the sixth block of West Ninth Street and consists, according to the unchallenged estimates of Trotter, of only seven or eight members. Any meetings have been informal, occurring at Trotter's residence or the local community center; records are sporadically kept and could not be produced at trial. According to the uncontradicted testimony of Trotter, after she had been removed, a meeting at which she was reselected to represent the Ninth Street Block Club occurred in front of her house and was attended by five other constituents. Trotter claims she volunteered to represent the Ninth Street Block Club, and those present accepted her offer. Thus, I find that, while not adhering to the strictest of procedures, such actions were adequate to assure the representation of the constituency of the Ninth Street Block Club, particularly in light of the relatively high percentage of members who attended the meeting. As such, the selection of Trotter to be the Ninth Street Block Club representative did not violate the Bylaws, and Trotter is entitled to recognition as a member of the Board.
Trotter initially testified that the Ninth Street Block Club also indirectly included the 500 block of West Ninth Street. However, because she stated under cross-examination that the Ninth Street Block Club was limited to the sixth block, I shall consider the Ninth Street Block Club to encompass only the sixth block of West Ninth Street. Trotter's testimony identifies two recurring problems with the Block Clubs: what territory do they serve and who are their members?
Nor could Trotter produce the document from the Ninth Street Block Club she claimed to have presented to the Board to demonstrate that she was the proper representative. She claimed that the records, to the best of her knowledge, were destroyed in a flood which inundated the basement where they were stored.
Trotter could not remember its exact date. As no minutes or records were kept of this meeting, the date of this meeting and any details, other than the attendance and outcome of the vote as recalled by Trotter, are lost.
WCCNPAC argues that, even if Trotter was validly elected by her respective Block Club, since she has been previously removed from the Board, she is precluded from being renominated. I reject WCCNPAC's argument. Nothing in the WCCNPAC certificate of incorporation or Bylaws prevents the renomination of a once removed director. While one would question the collective logic of a community group that continually redesignates a representative who does not attend meetings of the governing body, that is not the question before me. Thus, Trotter is entitled to serve on the Board.
I also reject WCCNPAC's equitable defense of unclean hands. The doctrine of unclean hands applies "when a party who seeks relief in this Court 'has violated conscience or good faith or other equitable principles in his conduct, then the doors of the Court of Equity should be shut against him.'" E. J. Stephen, Inc. v. Ceccola, 1984 WL 8238, at *2 (Del.Ch. July 9, 1984) ( quoting Bodley v. Jones, 59 A.2d 463, 469 (Del. 1947)), quoted in SmithKline Beecham Pharms. Co. v. Merck Co., 766 A.2d 442, 449 (Del. 2000). Here, WCCNPAC has not produced any evidence that Trotter has not acted in good faith. Thus, pursuant to my broad discretion in applying the doctrine of unclean hands, I reject WCCNPAC's argument. See SmithKline Beecham Pharms. Co., 766 A.2d at 448 ("The Court of Chancery has broad discretion in determining whether to apply the doctrine of unclean hands.").
b. Fields
Fields is the purported President of the 200 Block Club, and has served on the Board for at least 10 years. She too was removed in November 1999 for missing three consecutive meetings. The 200 Block Club includes over 25 residents from the 200 block of Madison Street. While records were kept by its Secretary, Eva Carter, or by Fields, these too were destroyed in a deluge. Also destroyed in the deluge was the letter submitted to the Board by Fields, purportedly from the 200 Block Club, attesting that Fields was the 200 Block Club's chosen representative. Though Fields claimed that she was selected to be the Board representative for the 200 Block Club in 1982, and that she was reselected in subsequent annual meetings, she could not recall with any precision the year that she was last reselected to serve as the Board representative of the 200 Block Club (or even any other details regarding her appointment).
Fields denies ever having received a letter from WCCNPAC notifying her of any action taken in response to her attendance problems.
Based upon the record before me, I am unable to find that Fields has satisfied her burden. The record, or lack thereof, surrounding her appointment falls well short of that required to sustain her burden. No description of any meeting was presented. No records were produced; not one document regarding the workings of the 200 Block Club was put forward. Fields could not recall with precision the year of her latest reappointment, and she did not testify about any procedures followed at any point in time that would remotely resemble democratic processes. As such, I find that Fields is not entitled to recognition as a member of the Board.
c. McNeil
McNeil is the purported President of the Madison Lane Block Club and claims to have represented the Madison Lane Block Club on the Board for approximately two to three years. Prior to this, McNeil served as Vice-President of the Madison Lane Block Club and as an alternate to then-President and Board representative Derrick El. McNeil assumed the presidency, with no election, of the Madison Lane Block Club when his brother moved outside of the Madison Lane Block Club's boundaries. Currently, McNeil is the only officer of the Madison Lane Block Club. Except for a miscellaneous letter irrelevant to issues at hand, no records have ever been produced.
The frequency of McNeil's participation on the Board during this period is uncertain, although McNeil claims to have voted on several matters.
McNeil is the brother of Derrick El.
The letter informed Madison Lane Block Club constituents of WCCNPAC's proposal to increase the number of rental units, and the possible negative impact this would have property values.
It is unclear whether McNeil was ever recognized by WCCNPAC as the proper representative of the Madison Lane Block Club. What is more puzzling, and never fully explained by any party, is how and whether McNeil, whose votes as a Board member may have been counted, was ever removed from the Board.
McNeil apparently seeks to justify through general theories of political succession his ascendance to the position of Board representative for the Madison Lane Block Club. Analogizing himself and his brother to Vice President Cheney and President Bush, respectively, McNeil testified that he was elected to serve as Vice-President and, therefore, is the successor to Derrick El. No election was or has since been held. Although McNeil recalls being elected to the vice-presidency of the Madison Lane Block Club at one point, he claims that it was so long ago that he does not remember any of the details regarding the election. McNeil claims that he had at one point given WCCNPAC a letter declaring him to be the alternate for the Madison Lane Block Club; however, no such letter has been produced. Thus, no evidence has been produced explaining how McNeil became the Vice-President or the alternate Board representative. As such, I cannot find with any confidence that the processes by which McNeil claims his office at any point involved anything resembling a democratic process. Therefore, McNeil has not met his burden.
This logic also explains how McNeil now claims to be the current Board representative for the Madison Lane Block Club.
Essentially, any entitlement McNeil enjoys to serve on the Board stems from having been acknowledged for some period of time by the Board as representing the Madison Lane Block Club in some capacity. However, this history does not negate the underlying, and more important, defect in McNeil's claim: McNeil has not demonstrated that he is the properly selected representative of the Madison Lane Block Club. One cannot circumvent the basic requirements of the Bylaws on the mere assertion that at some point one was acknowledged in an uncertain capacity and permitted to participate in the meetings. As such, McNeil is not entitled to recognition as a member of the Board.
Once again, testimony on this state of affairs has been inconsistent and conflicting.
d. Turner
Turner has been the President of the Penn Square Association since 1993. The Penn Square Association encompasses the 500 block and the 600 Block of West 3rd Street, and the 500 Block and 600 Block of Lafayette Boulevard, an area that includes approximately 120 people. Turner was removed from the Board in November 1999 for failure to attend three consectutive meetings. By her admission under cross-examination, Turner stepped in and became President after the former President departed in 1993. Turner also admitted that the Penn Square Association has not had any meetings since 1994, although communications with the general membership have occurred by means of flyers placed on doors. There are no officers of the Penn Square Association other than Turner. Turner believes that no notice need be provided to residents of any meeting of the Penn Square Association, or that she must request of her constituents that they select her to represent the Penn Square Association on the Board. Indeed, she herself typed the letter which was submitted to WCCNPAC claiming that she was the proper representative of the Penn Square Association. Apparently, she concluded that anytime she was removed by WCCNPAC, she could simply reselect herself.
I acknowledge that the number of members of the various Block Clubs seems to vary widely.
Turner also claims to have never received a letter from WCCNPAC notifying her of any attendance problems or action taken in response.
These flyers apparently provided notice of Block Club activities and answered practical questions, such as trash collection on holidays.
I find that the processes, if any, used in selecting Turner as the representative of the Penn Square Association were so deficient as to violate any basic assurance of representative selection demanded by the Bylaws. Essentially, the reign of Turner has only been approved by Turner. Clearly, such practices are inconsistent with any notion of a democratic process producing a result representative of the community. Thus, Turner is not entitled to recognition as a member of the Board.
2. The WCCNA Designees
WCCNPAC also refused to acknowledge the validity of the representatives designated by WCCNA at the February Meeting. I find that only Ashe and Davis, who is subject to suspension, are entitled to recognition as members of the Board.
a. Ashe
"WCCNPAC considers Ms. Ashe to be an alternate [B]oard member from WCCNA." As WCCNPAC concedes that there are two vacancies among the director slots allocated WCCNA, "Ashe may attend WCCNPAC meetings and vote if she so chooses." Therefore, I find that Ashe is entitled to recognition as a member of the Board.
Def.'s Answering Post-Trial Mem. at 10.
This treats Davis' suspension as having created a vacancy.
Def.'s Answering Post-Trial Mem. at 10.
While WCCNPAC contends that "Ashe is not entitled to a seat as a regular member from WCCNA for the reason that the alleged February [Meeting] appointing her as such was invalid, " it does not argue that the processes that first installed Ashe as President of WCCNA and its representative to WCCNPAC somehow preclude her recognition even as an alternate. Id.
b. Davis
WCCNPAC concedes that "Davis is, and at all times relevant to this case, has been, a member of the [Board]." Thus, "[a]side from his suspension, there is no dispute that ... Davis represents WCCNA on the [Board]." Because the issue of whether the suspension was validly imposed upon Davis was not raised in the complaint or the pre-trial stipulation, I refrain from deciding the merits of that issue.
Id. at 8.
Id. at 9.
I pause to note the obvious. Assuming that the suspension was a valid exercise of the Board's powers, the suspension should not serve as a permanent or even long-term solution to issues concerning Davis. A final resolution should be reached promptly in order to determine the extent of Davis' right to serve on the Board as the selected representative of WCCNA.
c. Chambers
Chambers, prior to the February Meeting, did not serve as a representative of WCCNA on the Board. Thus, his only claim to status as a director of WCCNPAC rests upon the validity of the February Meeting. Because I find that the February Meeting was improperly convened, Chambers is not entitled to recognition as a member of the Board.
While conflicting testimony was provided about the practices of WCCNA in selecting its representatives to WCCNPAC, specifically, whether historically the WCCNA President (Ashe) or the WCCNA board made the selection, I find that the practice was that the WCCNA board selected the representatives to serve on the Board. The Plaintiffs have pointed to no provision in the WCCNA bylaws that grants the President such power. Davis testified that the historical practice had arisen that the WCCNA President would appoint the directors to serve on the Board. Yet, documentary evidence, in the form of the February 6th Minutes, evidences that a "[m]otion was made and seconded to appoint" the Individual Plaintiffs to serve on the Board. Such a practice is inconsistent with the claimed custom of the selection power exclusively residing in the WCCNA President. If anything, custom supports the testimony of Watson that the practice had been that the WCCNA board appointed the representatives to the Board. Thus, I find by a preponderance of the evidence that it is the practice for the WCCNA board, and not the WCCNA President, to select the directors to serve on the Board. Therefore, the issue becomes whether, given this past practice, the February Meeting can be considered properly convened.
WCCNA was unable to produce a copy of its bylaws despite WCCNPAC's diligent use of this Court's discovery rules. The record, following trial, was left open for submission of the WCCNA bylaws if they were discovered. Shortly after the period specified for submission of the WCCNA bylaws expired, WCCNPAC, through its efforts, was able to obtain a copy of the WCCNA bylaws. WCCNA nevertheless opposes the admission of its own bylaws because of the delay and because of unspecified questions about authenticity. I now admit the WCCNA bylaws as transmitted by the Defendant's Answering Post-Trial Memorandum into evidence. I do so because there is no prejudice to WCCNA; because I find unpersuasive WCCNA's unspecified argument with respect to authenticity; and because WCCNA had its chance to produce its own copy and failed to do so. WCCNA speculates that its bylaws may have been amended. I simply note that no one should be in a better position than WCCNA to produce any amendments, if, indeed, there ever were any. I do not, however, rely upon the WCCNA bylaws for any decision that I make.
Like many other facts in this case, even Ashe's Presidency of WCCNA is disputed and shrouded in mystery. Ashe claims to have been appointed President for life in 1984. However, conflicting evidence, in the form of a letter, dated August 6, 1998, with WCCNA letterhead, was produced evidencing that Umar Khalif Hassan El had been President for some period of time. No records exist as to Ashe's rise to power. Yet, I will assume for purposes of this discussion that Ashe is the current President of WCCNA. For a cryptic review of Watson's claim that she is WCCNA's President, see supra note 25.
Though not dispositive, it is interesting to note that appointing WCCNA representatives to the Board is not among the WCCNA President's enumerated powers. See West Center City Neighborhood Association, Inc., Bylaws, Art. VIII, § 1.
Davis claims that the authority for such a practice is derived from Bylaws, Article 9, Section 3, which states that "[o]ne member of each committee shall be appointed by the President to be chairman of that committee." I merely note that this section provides no authority for the practice of the alleged WCCNA President Ashe selecting the delegates herself.
February 6th Minutes at 2.
Davis claims that the appointments were made before the February Meeting. However, no documentation was produced corroborating this statement. Furthermore, Davis failed to satisfactorily explain what the purpose of the motion, and the seconding of that motion, then served.
Even if the issue of compliance with the WCCNA bylaws is ignored, I, nevertheless, find that the February Meeting was not appropriately noticed. The Plaintiffs admit that notice, in the form of a telephone call from Davis, was only given to Ashe, Trotter, Fields, McNeil, Derrick El, Turner, Bertha Lingham, and Marla Garris. Ashe admitted that notice should have been given to Watson and Lingham, who were being replaced as WCCNPAC directors and, thus, had an obvious interest in the outcome of any such proceeding. Providing notice of the February Meeting solely to a limited group that did not even include all of WCCNA's directors silences the properly heard voices of the WCCNA constituency and provides no assurance that the will of the people is heeded. Given this lack of notice, I cannot find that the appointment of Chambers was a proper exercise of the WCCNA board's historic or intrinsic powers. Therefore, Chambers is not entitled to recognition as a member of the Board.
As noted above, however, WCCNA was not able to produce its own bylaws. Furthermore, serious questions have been raised, and serious defects have been admitted, with respect to compliance with the quorum requirements and the requirement of holding regular meetings of both the WCCNA board and WCCNA's general membership.
Davis also gave personal notice to the same individuals.
Notice is all the more important if one believes Watson was then President of WCCNA.
"[T]he rationale of the requirement for notice.., is not only to convenience directors, but also to assure that the corporate body, including its stockholders, is given the "benefit of the judgment, counsel and influence of all' of its directors." Schroder v. Scotten, Dillon Co., 299 A.2d 431, 435 (Del.Ch. 1972) (quoting 2 FLETCHER, CYCLOPEDIA CORPORATIONs, § 406).
CONCLUSION
For the foregoing reasons, Trotter, Ashe and Davis are entitled to entry of judgment confirming their status as members of the Board. WCCNPAC is entitled to entry of judgment in its favor as to the claims asserted by the other Individual Plaintiffs of a right to serve on the Board.
Nothing in this memorandum opinion prevents these Individual Plaintiffs from being re-designated by their respective Neighborhood Associations or Block Clubs to serve on the Board, as long as an appropriate selection process is employed.
An order will be entered in accordance with this memorandum opinion.
These conclusions resolve the dispute presented for decision. They do not, however, address the larger questions of how WCCNPAC should be structured to carry out its significant functions or whether, given its existing structural limitations, it can reasonably be expected to meet its objectives. These questions are beyond the scope of this memorandum opinion; indeed, they are questions which should be answered in the appropriate political forum.
ORDER
NOW, this 24th day of January, 2003, for the reasons set forth in the Court's Memorandum Opinion of even date,
IT IS HEREBY ORDERED that:
1. Judgment be, and the same hereby is, entered in favor of Plaintiffs Bessie C. Ashe, Dwight L. Davis, and Frauline Trotter declaring and determining that they are directors of Defendant West Center City Neighborhood Planning Advisory Committee, Inc., provided, however, that nothing in this Order addresses the status of the purported suspension of Plaintiff Dwight L. Davis.
2. Otherwise, judgment be, and the same hereby is, entered in favor of Defendant and against the Plaintiffs.