Deann M. Totta v. CCSB Financial Corp. ( 2021 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DEANN M. TOTTA, LAURIE )
MORRISSEY, CHASE WATSON, and )
PARK G.P., INC., )
)
Plaintiffs, )
)
v. ) C.A. No. 2021-0173-KSJM
)
CCSB FINANCIAL CORP., )
)
Defendant, )
MEMORANDUM OPINION
Date Submitted: September 21, 2021
Date Decided: October 20, 2021
Kevin H. Davenport, John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington,
Delaware; Counsel for Plaintiffs Deann M. Totta, Laurie Morrissey, Chase Watson, and
Park G.P., Inc.
Art. C. Aranilla, MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN,
Wilmington, Delaware; Brett A. Scher, Patrick M. Kennell, KAUFMAN DOLOWICH &
VOLUCK, LLP, New York, New York; Counsel for Defendant CCSB Financial Corp.
McCORMICK, C.
The plaintiffs bring this suit under 8 Del. C. § 225 to challenge a corporate election
conducted by Defendant CCSB Financial Corp. (“CCSB” or “Defendant”). CCSB has
moved to dismiss the complaint for failure to state a claim. Misconstruing the applicable
pleading standard, CCSB urges the court to consider the “fuller story” beyond the
plaintiffs’ allegations, a story supposedly revealed by 33 documents neither attached to nor
referenced in the complaint.1 Because CCSB bases its motion on matters outside of the
pleadings, this decision converts the motion to one for summary judgment and grants the
plaintiffs a reasonable opportunity to conduct discovery.
CCSB also argues that two of the plaintiffs lack standing to challenge CCSB’s most
recent election because they are plaintiffs in a separate case in this court challenging
CCSB’s prior annual election. CCSB feigns concern that those plaintiffs’ success in both
actions would result in two people holding four board seats, suggesting this court would
mindlessly reach such an outcome. But this court would not act so obtusely. Nor must it.
The prior litigation has been stayed at CCSB’s request and there are multiple other ways
in which the two proceedings could be harmoniously resolved. CCSB’s motion to dismiss
those two plaintiffs is therefore denied.
1
See C.A. No. 2021-0173-KSJM Docket (“Dkt.”) 20 (“Def.’s Reply Br.”) at 1, 6, 9, 10.
I. FACTUAL BACKGROUND
These facts are drawn from the Verified Complaint (the “Complaint”).2
Plaintiff Park G.P., Inc. (“Park”), a stockholder of CCSB, nominated plaintiffs
Deann Totta, Laurie Morrissey, and Chase Watson (with Park, “Plaintiffs”) as candidates
for director positions at CCSB’s Annual Meeting on January 28, 2021. Of 723,678 eligible
voting shares, Park’s nominees received 360,275 votes, and the incumbent directors
received 359,336 votes. The Inspector of Elections, however, disallowed 37,416 shares
voting in favor of Park’s nominees based on a provision in CCSB’s Certificate of
Incorporation that prevents any stockholder, acting individually or in concert with others,
from voting shares in excess of 10% of outstanding common stock (“10% Voting Rule”).
CCSB’s Board of Directors (the “Board”) determined that several individuals, including
Plaintiffs, violated the 10% Voting Rule by “acting in concert” with each other.
Plaintiffs filed this lawsuit on February 26, 2021, asserting two claims. In Count I,
Plaintiffs seek a declaration that the Board’s decision to disallow votes was invalid. In
Count II, Plaintiffs seek a declaration that Totta, Morrissey, and Watson were elected to
the Board at the 2021 Annual Meeting.
CCSB moved to dismiss the complaint. The parties fully briefed the motion on May
10, 2021, and the court held oral argument on September 20, 2021.
2
Dkt. 1, Verified Compl. (“Compl.”).
2
Park also filed an earlier suit in this court challenging the 2020 CCSB election (the
“First Chancery Action”).3 In that suit, Park alleges that CCSB made false and misleading
statements concerning Totta in a letter sent to stockholders prior to the election. Before
the First Chancery Action was filed, Totta filed defamation claims against CCSB in
Missouri state court. Defendant moved to dismiss or stay the First Chancery Action in
favor of the Missouri litigation. This court stayed the First Chancery Action on December
29, 2020.4
II. LEGAL ANALYSIS
CCSB moved to dismiss the Complaint under Rule 12(b)(6) for failure to state a
claim and, as to Totta and Morrissey, for lack of standing.
Under Rule 12(b)(6), the court may grant a motion to dismiss if the complaint
“fail[s] to state a claim upon which relief can be granted.”5 “[T]he governing pleading
standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability.’”6 When
considering such a motion, the court must “accept all well-pleaded factual allegations in
the [c]omplaint as true . . . , draw all reasonable inferences in favor of the plaintiff, and
deny the motion unless the plaintiff could not recover under any reasonably conceivable
set of circumstances susceptible of proof.”7 The court, however, need not “accept
3
See Park G.P., Inc. v. CCSB Fin. Corp., C.A. No. 2020-0230-KSJM.
4
First Chancery Action, Dkt. 59.
5
Ct. Ch. R. 12(b)(6).
6
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011).
7
Id. (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
3
conclusory allegations unsupported by specific facts, nor do we draw unreasonable
inferences in the [non-moving party’s] favor.”8
A. Defendant’s Motion to Dismiss Is Converted To A Motion for
Summary Judgment.
Defendant argues that the Complaint fails to state a claim upon which relief can be
granted because the “fuller story” reflects that the Board correctly applied the 10% Voting
Rule.9 In advancing this argument, CCSB relies on 33 documents neither referenced in nor
attached to the Complaint.
“Generally, matters outside the pleadings should not be considered in ruling on a
motion to dismiss.”10 There are exceptions to that rule, including for documents that are
integral to the complaint or subject to judicial notice.11
Defendant contends that every single one of the 33 documents fall within one of
these two exceptions, arguing that three of the documents are integral to the complaint and
that the remaining 30 are subject to judicial notice.12 Because Defendant relies most
heavily on the judicial notice doctrine, this analysis jumps to that issue.
8
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
9
Def.’s Reply Br. at 1, 6, 9, 10.
10
In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 68 (Del. 1995).
11
See Windsor I, LLC v. CWCapital Asset Mgmt. LLC, 238 A.3d 863, 873 (Del. 2020)
(identifying exceptions); see also Acero Cap., L.P. v. Swrve Mobiles, Inc., 2021 WL
2207197, at *1 (Del. Ch. June 1, 2021); Stephen G. Perlman, Rearden LLC v. Vox Media,
Inc., 2015 WL 5724838, at *9 (Del. Ch. Sept. 30, 2015).
12
Defendant does not argue that any of the 33 documents are incorporated in the Complaint
by reference.
4
A court may take judicial notice of a fact that is “not subject to reasonable dispute
because it: (1) is generally known within the trial court’s territorial jurisdiction; or (2) can
be accurately and readily determined from sources whose accuracy cannot reasonably be
questioned.”13 The Delaware Supreme Court, however, has urged that the doctrine “be
used with caution.”14 Generally speaking, the court may not take judicial notice of the truth
of the contents of matters outside the pleadings.15
Defendant asks the court to take judicial notice of the content of six websites,16 two
newspaper articles,17 six SEC documents,18 six filings in the First Chancery Action,19 and
ten orders and judgments by Missouri courts.20
Some of these documents may be appropriate for judicial notice to a degree. For
example, the court can take notice of this court’s stay in the First Chancery Action and the
13
D.R.E. 201(b).
14
Fawcett v. State, 697 A.2d 385, 388 (Del. 1997).
15
See, e.g., Pulieri v. Boardwalk Props., LLC, 2015 WL 691449, at *4 n.24 (Del. Ch. Feb.
18, 2015) (holding that “[t]aking judicial notice of the truth of the statements in the [court
filings], however, is beyond the scope of what Rule 202(d)(1)[(C)] permits”); In re Rural
Metro Corp. S’holders Litig., 2013 WL 6634009, at *9 (Del. Ch. Dec. 17, 2013) (holding
that “Rule 202 does not permit this court to take judicial notice of the [bankruptcy filing]
for the truth of its contents”).
16
Compl.at 4–6 & nn.4–6, 10–12, 15.
17
Id. at 4 & n.4, 13 n.20.
18
Id. at 1 & n.1, 4–6 & nn.4, 7–9, 13–14.
19
Id. at 3, 12–13 & n.19.
20
Id. at 6 n.14, 9–11 & n.18, 12–13 & n.19. I note that corralling the universe of documents
on which Defendant relied was a chore. Defendant submitted ten as exhibits to the opening
brief, but provided only hyperlinks to eleven others, and merely mentioned the remainder
through citations.
5
Orders and Judgments entered by Missouri courts. The court can also take judicial notice
of websites, newspaper articles, and SEC filings, albeit for limited purposes; typically, the
judicial notice doctrine does not extend to the truth of those documents’ contents.21
In this case, many of the documents that Defendant seeks to introduce are not
capable of judicial notice, at least not for the truth of their contents. In the interest of
judicial economy, the court highlights some of the obvious offenders.
• Defendant relies on newspaper articles to support the propositions that
Johnson is the controlling stockholder of a certain bank and active in
litigation.22 While judicial notice would be proper on the issue of whether
Johnson was the subject of media interest, it is improper to take judicial
notice of those articles for the truth of the articles themselves.
• Defendant asks the court to take judicial notice of a series of websites in order
to establish that a bank affiliated with Johnson is located in close proximity
to another entity affiliated with Johnson.23 Whereas judicial notice that a
website existed or that a certain entity published a website would be
appropriate, it is improper to take judicial notice of the contents of the
website for the truth of the matter asserted.
When a Rule 12(b)(6) motion depends on a large volume of documents outside of
the pleadings, chances are that the movant has not applied the pleading standard faithfully
and is effectively pursuing a motion for summary judgment. In such circumstances, the
court has no obligation to undertake the painstaking task of determining what subset of
21
See, e.g., Windsor I, 238 A.3d at 873 (noting that a court can only consider documents
outside of the pleadings “‘when the document is not being relied upon to prove the truth of
its contents.’”); In re Primedia, Inc. S’holders Litig., 2013 WL 6797114, at *11 (Del. Ch.
Dec. 20, 2013) (holding that “Newspaper Articles” and other financial communications
were not capable of judicial notice because “they were not required by law to be filed, and
were not filed publicly with a state or federal agency.”).
22
Dkt. 14, (“Def.’s Opening Br.”) at 4 & n.4, 13 & n.20.
23
Id. at 4 & n.4.
6
extraneous materials should be excluded so as to limit the court’s analysis to the well-pled
facts. As Vice Chancellor Lamb explained when confronting a similar issue, “[i]t [is] not
the court’s duty to wade through the defendants’ voluminous submissions, to search for
arguments or sub arguments that could be decided on the basis of the well pleaded facts of
the complaint alone.”24
Rule 12(b) provides a procedural solution for addressing this precise circumstance.
As Vice Chancellor Fioravanti recently explained when addressing a similar motion to
dismiss,
It is clear that defendants “chose to make a motion for
summary judgment in the guise of a Rule 12(b)(6) motion to
dismiss.” That tactical choice has consequences.25
The consequences referred to by the Vice Chancellor are found in the last sentence
of Rule 12(b). When a party presents matters outside the pleading on a Rule 12(b)(6)
motion, and the court elects to consider them, Rule 12(b) directs that the court convert the
motion to one for summary judgment.
If, on a motion asserting the defense numbered (6) to dismiss
for failure of the pleading to state a claim upon which relief can
be granted, matters outside the pleading are presented to and
not excluded by the Court, the motion shall be treated as one
for summary judgment and disposed of as provided in Rule 56,
24
Black v. Gramercy Advisors, LLC, 2007 WL 2164286, at *1 (Del. Ch. July 23, 2007)
(denying motion for reargument of decision to convert a Rule 12(b)(6) motion to one for
summary judgment).
25
Acero Cap., 2021 WL 2207197, at *1 (quoting Lavi v. Wideawake Deathrow Ent., LLC,
2011 WL 284986, at *1 (Del. Ch. Jan. 18, 2011)) (internal citations omitted).
7
and all parties shall be given reasonable opportunity to present
all material made pertinent to such a motion by Rule 56.26
Multiple decisions of this court have converted a Rule 12(b)(6) motion to one for summary
judgment under this rule.27
In this case, it is appropriate to convert the motion to one for summary judgment
given the large volume of extraneous materials heavily relied on by Defendants.
While there is no bright-line rule concerning the number of extraneous documents
that will render conversion appropriate, a higher number makes it more difficult to justify
expending judicial resources to exclude documents inappropriate for consideration.
Further, a large number of external documents increases the risk of prejudice to a plaintiff
in considering such documents. Here, Defendant’s reliance on 33 external documents
weighs in favor of converting Defendant’s motion.
26
Ct. Ch. R. 12(b).
27
See, e.g., Acero Cap., 2021 WL 2207197, at *3 (converting Rule 12(b)(6) motion into
motion for summary judgment because defendant submitted and relied on matters outside
the pleadings); Raj & Sonal Abhyanker Family Tr. ex rel. UpCounsel, Inc. v. Blake, 2021
WL 2477025, at *9 (Del. Ch. June 17, 2021) (same); Bedrock Techs., LLC v. Earthwater
Tech. Int’l, Inc., 2006 WL 2521430, at *1 (Del. Ch. Aug. 24, 2006); Kessler v. Copeland,
2005 WL 396358, at *4–5 (Del. Ch. Feb. 10, 2005) (same); Peoples Sec. Life Ins. Co. v.
Fletcher, 1988 WL 26791, at *1 (Del. Ch. Mar. 16, 1988) (same); Kramer v. W. Pac.
Indus., Inc., 1987 WL 17043, at *1 (Del. Ch. Sept. 11, 1987) aff’d, 546 A.2d 348 (Del.
1988) (same); Strauss v. Silverman, 1977 WL 5177, at *1 (Del. Ch. Aug. 25, 1977) (same);
Lineberger v. Welsh, 290 A.2d 847, 848 (Del. Ch. 1972); Broadscale OC Invs., L.P. v.
Clayton, C.A. No. 2020-0262-PAF, at 78–81 (Del. Ch. Oct. 15, 2020) (TRANSCRIPT)
(same); Montgomery v. Erickson Air-Crane, Inc., C.A. No. 8784-VCL, at 62–63 (Del. Ch.
Apr. 15, 2014) (TRANSCRIPT) (same); Dawson v. Pittco Cap. P'rs, L.P., C.A. No. 3148-
VCN, at 37 (Del. Ch. Dec. 7, 2007) (TRANSCRIPT) (same).
8
Similarly, a high degree of reliance on extraneous materials supports conversion. A
quick review of Defendant’s opening brief reveals 67 citations to matters outside the
pleading, including ten citations to a complaint in an entirely different case, compared
against 33 citations to the Plaintiffs’ actual complaint. Again, while no precise ratio or
formula is discernable, a two-to-one ratio of citations to external documents favors
conversion.
For these reasons, Defendant’s Rule 12(b)(6) motion is converted into one for
summary judgment. The parties shall confer on a schedule for resolving Defendant’s
motion in conformity with Rule 56.28
Although this decision converts Defendant’s 12(b)(6) motion to one for summary
judgment, it warrants reminding the parties that Plaintiffs filed this action pursuant to
28
Because Defendant’s overreliance on the judicial notice doctrine warrants converting its
motion to one for summary judgment, the court need not address Defendant’s argument
that the other three documents are integral. It bears noting, however, that Defendant also
seems to misapply the integral-to-the-complaint exception.
It is sometimes hard to pinpoint what “integral” means in this context, as this court has
treated the exception as a facts-and-circumstances inquiry. In re Gardner Denver, Inc.,
2014 WL 715705, at *3 (Del. Ch. Feb. 21, 2014). Generally, a document is central or
integral to a complaint where the plaintiff’s factual or legal theories rely on the document.
See, e.g., Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *5 (Del. Ch.
Dec. 22, 2010) (holding that the underlying contract is integral to a claim for breach of that
contract); Orman v. Cullman, 794 A.2d 5, 16 (Del. Ch. 2002) (holding that SEC filings are
integral to a claim challenging the sufficiency of those disclosures).
In this case, Defendant argues that two of the three documents—letters from CCSB to
Johnson requesting beneficial ownership information—are integral because a third letter
requesting the same information was attached to the Complaint. Defendant argues that the
third document—minutes of a CCSB board meeting—is integral because Plaintiffs discuss
the meeting. But these arguments miss the mark because Plaintiffs claims do not rely nor
depend on the three documents, which speak more to merits-based issues.
9
Section 225. “The purpose of [S]ection 225 is to provide a quick method for review of the
corporate election process to prevent a Delaware corporation from being immobilized by
controversies about whether a given officer or director is properly holding office.”29
Consistent with their purpose, the court endeavors to resolve Section 225 claims on an
expedited basis.30 Thus, although the parties have not moved with alacrity to date, the
court is not inviting further delay by converting the motion.
Further, when the court considers a Rule 56 motion, “the court may, in its discretion,
deny summary judgment if it decides upon a preliminary examination of the facts presented
that it is desirable to inquire into or develop the facts more thoroughly at trial in order to
clarify the law or its application.”31 Given the possibility that the court may exercise its
discretion to deny summary judgment if circumstances warrant and the expedited nature of
these proceedings, the parties may elect to proceed to trial on the merits instead of pursuing
a summary judgment motion.
B. Totta and Morrissey Have Standing.
Defendant argues that Totta and Morrissey lack standing to pursue Counts I and II.
Defendant does not argue that Totta and Morrissey have failed to plead a harm capable of
remedy in this action. Rather, Defendant’s argue that the relief sought by Totta and
Morrissey in the instant action is duplicative and mutually exclusive with the relief sought
in the First Chancery Action.
29
Box v. Box, 697 A.2d 395, 398 (Del. 1997).
30
8 Del. C. § 225.
31
In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 16 (Del. Ch. 2014).
10
In this action, Plaintiffs seek a declaration under Section 225 that Totta, Morrissey,
and Watson were duly elected as CCSB directors following the 2021 annual election. In
the First Chancery Action, Park seeks to invalidate CCSB’s 2020 annual election and to
require CCSB to hold a “new, and untainted, election.”32
Defendant contends that granting Totta and Morrissey complete relief in both
actions would result in Totta and Morrisey impermissibly occupying multiple board seats.33
But that concern speaks to only one hypothetical outcome of the two related cases. There
are other ways in which the cases could be harmoniously resolved. For example, Plaintiffs
argue the court could simply invalidate the 2020 election and order a new election.
Although this decision does not pass judgment on the propriety of such an outcome, the
existence of one potential outcome that would not render the First Chancery Action in
conflict with the instant action undermines Defendant’s motion.
In any event, the solution to Defendant’s hypothetical problem is not to dismiss
Totta and Morrissey from this action thereby eliminating their ability to seek redress for
harm in connection with the 2021 election. Rather, the solution is to take into account any
mooting effect of relief granted in this action on the relief sought in the First Chancery
Action, which this court is capable of doing.
32
See First Chancery Action, Dkt. 40, Amended Verified Compl. ¶ 1.
33
See Def.’s Opening Br. at 23–25.
11
III. CONCLUSION
Defendant’s Motion to Dismiss Counts I and II for failing to state a claim is
converted into a motion for summary judgment and will be considered at a later time in
accordance with Rule 56. Defendant’s Motion to Dismiss based on lack of standing as to
plaintiffs Totta and Morrissey is DENIED. The parties shall meet and confer on a
discovery schedule and form of order consistent with this ruling.
12