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Silberberg v. Becker

Court of Appeals of The District of Columbia

August 16, 2018

Howard B. Silberberg, et al., Appellants,
v.
Joanne S. Becker, et al., Appellees.

          Argued September 19, 2017

          Appeal from the Superior Court of the District of Columbia (CAB-5970-14) (Hon. Michael K. O'Keefe, Trial Judge)

          Mark P. Friedlander, Jr. for appellants.

          Stephen D. Charnoff' for appellees.

          Before Thompson and McLeese, Associate Judges, and Pryor, Senior Judge.

          Thompson, Associate Judge.

         This matter returns to this court after a remand to the trial court and an ensuing May 27, 2016, order (the "May 27 Order"). The May 27 Order granted the motions by appellees Joanne Becker, Brian Becker, Adam Becker, and Robin Tacchetti (hereinafter referred to individually by their first names and collectively as "the Beckers") to dismiss under Super. Ct. Civ. R. 12 (b)(6), or in the alternative to dismiss as moot, the Amended Complaint filed by appellants Howard Silberberg, Rachel Silberberg Sulkin, and Jason Silberberg (hereinafter referred to individually by their first names and collectively as "the Silberbergs"). We reverse and remand for further proceedings.

         I. Background

         At all relevant times the plaintiff Silberbergs and the defendant Beckers were the sole shareholders of the Shenandoah Corporation ("Shenandoah"), a small family corporation engaged in the ownership and operation of two multi-unit apartment buildings in the District of Columbia. The Silberbergs own a total of 47.5% of Shenandoah's issued and outstanding capital stock, and the Beckers own a total of 52.5%.

         The Silberbergs' Amended Complaint asserts that in 2013, "there was a division within the families owning Shenandoah," with the Beckers "wish[ing] to sell the two apartment buildings and terminate the corporation," while the Silberbergs "did not wish to sell the buildings or terminate Shenandoah." On January 15, 2014, a special meeting of Shenandoah's Board of Directors and shareholders was held, at which all the shareholders were present either in person or by proxy, and the directors unanimously adopted a resolution to enter into a Stock Redemption Agreement (the "SRA" or the "Agreement") "for the purpose of . . . redeeming all of the issued and outstanding stock of [Shenandoah]" owned by Joanne, Adam, and Robin. Under the terms of the SRA, closing was to occur on or about April 24, 2014. The Amended Complaint asserts that the SRA was "carefully negotiated" "[i]n order to accommodate the diverse wishes of the two family factions and in order to benefit the Beckers' desire for the immediate cash from a sale of the apartment buildings, and in order to benefit the Silberbergs' desire to preserve the corporation in order to continue the ownership of the properties through the corporation." The stock redemption described in the SRA would leave the Silberbergs with 95% ownership of Shenandoah.

         Also at the January 15, 2014, special meeting, Howard and Rachel were elected as directors, Howard was elected President, and Rachel was elected Secretary of Shenandoah. On January 30, 2014, just a few weeks later, another shareholders meeting was held. The Silberbergs contend that, in violation of District of Columbia law and Shenandoah's by-laws, the meeting notice was given electronically and the (telephonic) meeting, attended solely by the Beckers, was conducted with "less than forty-eight hours' notice." At the January 30, 2014, meeting, the majority shareholders (the Beckers) elected (or purported to elect) Joanne and Brian to be directors, and the new directors elected (or purported to elect) Brian as President and Robin as Secretary of Shenandoah. Then, on July 14, 2014, notwithstanding what the Silberbergs contend was the contrary purpose of the SRA, Brian, purportedly on behalf of Shenandoah, signed a Purchase and Sale Agreement, agreeing to sell one of the two Shenandoah properties to Phoenix Tenants' Association ("Phoenix"). On September 2, 2014, Brian, again purportedly acting on behalf of Shenandoah, signed a Purchase and Sale Agreement agreeing to sell the other property to New Beginnings Tenants' Association ("New Beginnings"). Brian also closed out Shenandoah's account at Sonabank by withdrawing the entire balance of the account ($244, 572.79) on September 5, 2014, and (initially) depositing that money into a Bank of America account in his own name.

         Appellants filed their original Complaint on September 20, 2014, seeking declaratory relief against the Beckers, Phoenix, New Beginnings, and RE/MAX Allegiance ("RE/MAX") (the real estate listing agent for the properties) and an award of monetary damages from the Beckers. Specifically, in Count I, the Silberbergs sought a declaration that the purported corporate actions taken by the Beckers were unlawful and null and void and that the agreements with RE/MAX, Phoenix, and New Beginnings were null and void. In Count II, the Silberbergs sought damages from the Beckers for breach of the SRA. And in Counts III-V, the Silberbergs sought, respectively, damages for breach of fiduciary duties owed to the Silberbergs by Joanne, by Brian, and by the Beckers as majority shareholders. The Beckers filed a motion to dismiss pursuant to Super. Ct. Civ. R. 12 (b)(6) and R. 12 (b)(7). In a November 21, 2014, Order, the trial court granted the Beckers' Rule 12 (b)(6) motion, dismissing Count II with prejudice and the other Counts without prejudice. On December 8, 2014, the Silberbergs filed a Notice of Appeal to this court.

         On January 26, 2015, while the appeal was pending, an annual meeting of the shareholders of Shenandoah was held and an annual meeting of the directors followed on January 26-27. The Silberbergs do not dispute that these meetings were properly noticed and held and resulted in the election of Becker family members to the Shenandoah Board. Specifically, at the shareholders' meeting, Brian, Joanne, and Robin were voted directors, and the Becker majority voted to rescind the SRA, to ratify the RE/MAX listing agreements, to ratify the Phoenix and New Beginnings purchase-and-sale agreements, and to "ratify all actions taken by Brian Becker and Joanne Becker as directors of Shenandoah" and "all actions taken by Brian . . . and Robin . . . as Shenandoah's officers through January 26, 2015." At the Board of Directors' meeting, Brian was elected as Shenandoah's President, Joanne was elected Treasurer, and Robin was elected Secretary. The Board also voted to ratify all actions taken by Brian and Joanne as Shenandoah's directors and all actions taken by Brian and Robin as Shenandoah's officers through January 26, 2015; to sell Shenandoah's properties "as quickly as possible"; and to compensate the directors for their service. On March 5, 2015, through an action in lieu of meeting, the Board voted to terminate and rescind the SRA.

         After the January and March 2015 meetings and actions described above, the Beckers filed a motion in this court to deem the pending appeal moot, arguing that appellants sought relief with respect to sales contracts and a rescission of the SRA that had been "ratified, affirmed, [and] reauthorized . . . in 2015 by Shenandoah via the actions of the Board of Directors elected without dispute on January 26, 2015" and that "the trial court ruling on outdated matters would be purely academic." This court remanded the matter on May 18, 2015, stating that "it appear[ed] from a review of all motions filed that events have occurred that may impact th[e] litigation and that the impact is more properly brought first in the Superior Court." The order stated that the remand to the trial court was for "the parties to file appropriate motions to determine the impact of the latest events in this litigation" and that "[i]f any party remains aggrieved upon the conclusion of the matter in the trial court, it shall file a new notice of appeal."

         Back in the trial court again, the Silberbergs filed their Amended Complaint on October 26, 2015 (and, on November 18, 2015, dismissed their claims against RE/MAX). The Beckers filed a motion to dismiss the Amended Complaint as moot and a motion to dismiss the amended complaint pursuant to Rule 12 (b)(6). In the May 27 Order that is the subject of the instant appeal, the trial court granted both motions and dismissed all Counts with prejudice. The trial court dismissed Count I, which sought a declaration about the alleged invalidity of purported corporate actions and agreements, because the claims belonged to Shenandoah, not the Silberbergs, and could be brought by the Silberbergs only through a derivative action and upon satisfying the requirements for bringing such an action (which the Silberbergs had not done). In dismissing Count II (breach of contract) pursuant to Rule 12 (b)(6), the trial court stated first that it had previously (in its November 21, 2014, Order) dismissed the Count with prejudice, a ruling that the court said remained in effect because this court had not vacated it. The trial court reasoned in addition that even if the contract claim was not barred by that earlier ruling, the court would still dismiss it with prejudice because the Silberbergs could not establish that they were intended third-party beneficiaries of the SRA.

         The trial court dismissed the Count III breach-of-fiduciary-duty claim against Joanne on the ground that the Amended Complaint "includes no specific facts as to what actions Joanne . . . took that disregarded Shenandoah's or its shareholders' best interests." The court reasoned that Joanne's participation in the allowance of director and officer compensation failed to state a claim because, under the company's by-laws, "directors may receive compensation and officers may be salaried." The court found that the Count IV breach-of-fiduciary-duty claim against Brian failed to state a claim "for the same reasons." The court stated that there was "nothing inherent" in the Silberbergs' "bald allegations" about Brian's actions (e.g., his withdrawing of Shenandoah funds from the Sonabank account and issuing dividends at different times to the Beckers and the Silberbergs) that constituted poor business judgment. As to both Counts III and IV, the court reasoned that the Silberbergs had not shown how their claims "overcome the protection of the business judgment rule." Regarding the allegations of Count V, i.e., that the Beckers as majority shareholders had acted in disregard of the Silberbergs's rights as minority shareholders and that the Silberbergs had been "financially damaged," the court found the claims "bare and conclusory."

         Finally, the trial court ruled that "[e]ven if the Amended Complaint were not dismissed under Rule 12 (b)(6), it would be dismissed on mootness grounds." Emphasizing that the Silberbergs had "not challenged the propriety of the 2015 annual meetings," the court concluded that to the extent the Silberbergs' Amended Complaint claimed that the Beckers had acted "without proper Board approval," all of the Beckers' challenged actions, including their decision to "hinder, prevent performance [of, ] and . . . abrogate" the SRA, "w[ere] ratified at the 2015 annual meetings."

         On June 21, 2016, the Silberbergs filed a second Notice of Appeal, listing the May 27 Order as the "order appealed from." In their briefs on appeal, they contend that the trial court erred in ruling (1) that they had failed to properly plead a claim for breach of contract as third-party beneficiaries of the SRA; (2) that their contract claim became moot when Shenandoah's majority shareholders and directors voted in 2015 to rescind the SRA; and (3) that they had no cause of action against the Beckers, as Shenandoah's directors and majority stockholders, for breach of fiduciary duties owed to the Silberbergs as minority stockholders in a family corporation.[1] The Silberbergs highlight that the trial court dismissed the case as moot even though the Beckers "attempted to rescind the [SRA] after the Silberbergs had already filed this court action to enforce it," and the Silberbergs also suggest that the court's mootness-based-on-ratification ruling "ignor[ed] the fiduciary obligations of the Beckers" to the Silberbergs that were violated when the Beckers "raid[ed] the corporate treasury over the objection of the Silberbergs." (emphasis added). The Beckers defend the trial court's rulings.[2]

         II. Standard of Review

         We review "de novo a dismissal under Super. Ct. Civ. R. 12 (b)(6) for failure to state a claim on which relief can be granted." Poola v. Howard Univ., 147 A.3d 267, 276 (D.C. 2016). In reviewing the dismissal order, "we construe the complaint in the light most favorable to the plaintiff[s] and take [the] factual allegations as true." Id. We have adopted the pleading standard articulated by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), requiring a complaint to "plead 'enough facts to state a claim to relief that is plausible on its face.'" Poola, 147 A.3d at 276 (quoting Twombly, 550 U.S. at 570). This means that the complaint must plead '"factual content that allows the court to draw the reasonable inference that defendant is liable for the misconduct alleged."' Id. (quoting Comer v. Wells Fargo Bank, N.A., 108 A.3d 364, 371 (D.C. 2015)).

         We review the issue of mootness, a question of law, de novo. See Fraternal Order of Police, Metro. Labor Comm. v. District of Columbia, 82 A.3d 803, 814 (D.C. 2014).

         III. ...


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