In the Matter of The Jeremy Paradise Dynasty Trust and the Andrew Paradise Dynasty Trust ( 2022 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
March 22, 2022
Jonathan M. Stemerman, Esquire Henry E. Gallagher, Jr., Esquire
Armstrong Teasdale, LLP Gregory J. Weinig, Esquire
300 Delaware Avenue, Suite 210 Scott E. Swenson, Esquire
Wilmington, DE 19801 Jarrett W. Horowitz, Esquire
Connolly Gallagher LLP
1201 N. Market Street, 20th Floor
Wilmington, DE 19801
Re: In the Matter of The Jeremy Paradise Dynasty Trust and The
Andrew Paradise Dynasty Trust, C.A. No. 2021-0354-KSJM
Dear Counsel:
This is my decision on the motion for issuance of a commission for documents and
testimony (the “Motion”) directed to Vigomar Realty LLC (“Vigomar”) filed by Charlotte
Edelman, Casey Chafkin, and John Pomerance (the “Fiduciaries”).1
The Motion was filed on February 14, 2022, and seeks to compel non-party Vigomar
to produce four categories of documents and designate a corporate representative to attend
a deposition on Wednesday, March 23, 2022. According to the Motion, Vigomar
performed work as a contractor at a property indirectly owned by the Jeremy Paradise
Dynasty Trust at the direction of the trust. In support of the Motion, the Fiduciaries assert
that Vigomar “may have received funds from the Jeremy Paradise Dynasty Trust at Jeremy
1
See C.A. No. 2021-0354-KSJM, Docket (“Dkt.”) 121 (“Mot.”).
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March 22, 2022
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Paradise’s direction for unauthorized purposes,” which the Fiduciaries claim is relevant to
their unclean hands defense.2
Petitioner Jeremy Paradise (“Petitioner”) objects to the Motion, arguing that it is
overly broad, unduly burdensome, and wholly irrelevant to the claim for reformation of
Article 12(h) of the Jeremy Paradise Dynasty Trust Agreement.3
On reply, the Fiduciaries argue that Petitioner does not have standing to object to
third-party discovery requests and that the discovery requested is neither overly broad nor
unduly burdensome.
I address the standing issue first. The Fiduciaries cite Chancellor Chandler’s 2005
decision Cede & Co. v. Joulé Inc. for the proposition “that when a subpoena is issued to a
non-party, a party does not have standing to object to the subpoena unless production of
documents pursuant to the subpoena would violate a privilege held by the objecting party.”4
Their interpretation of that holding is overstated. It is true that a party does not have
standing to object to a subpoena or motion for commission on the grounds that the
discovery sought would unduly burden the producing party; the producing party is
responsible for protecting its own rights, as are we all. Yet, a party has standing to object
to third-party discovery that imposes a burden on the party.5
2
Id. ¶ 3.
3
See Dkt. 126 (Opp’n) ¶ 9.
4
2005 WL 736689, at *1 (Del. Ch. Feb. 7, 2005).
5
See, e.g., Feeley v. NHAOCG, LLC, C.A. No. 7304-VCL, at 4 (Del. Ch. Aug. 16, 2012)
(TRANSCRIPT) (recognizing that a party may object to third-party discovery on the
C.A. No. 2021-0354-KSJM
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The court has often considered parties’ arguments on the extent to which third-party
discovery requests may run afoul of proportionality principles.6 In Lions Gate
Entertainment Corp. v. Image Entertainment, Inc., for example, Chancellor Chandler
considered an issue very similar to the instant case.7 Decided after Cede, Lions Gate
involved a claim for reformation of the defendant’s certificate of incorporation and bylaws.
The defendant filed twenty-six motions for commission, each with twelve requests for
documents. The Chancellor agreed with the plaintiff that the number of motions was
“unduly burdensome” and that ten of the twelve requests were “not relevant to the subject
matter of the present litigation.”8 Thus, the court only granted five of the motions, and
only with respect to the two requests that it found relevant to the litigation.
Because Petitioner has framed his objection as based on the burden that the
commission will impose on him, I reject the Fiduciaries’ argument that Petitioner lacks
standing to assert the objection.
Turning next to the substance of the Motion, under Court of Chancery Rule 26,
“[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any
grounds that it is “grossly disproportionate to the proceeding and burdensome in the context
of the overall proceeding”).
6
See, e.g., In re Fuqua Indus., Inc. S’holders Litig., 1999 WL 959182, at *3–4 (Del. Ch.
Sept. 17, 1999); Sutherland v. Sutherland, 2007 WL 1954444, at *2–4 (Del. Ch. July 2,
2007).
7
2006 WL 1134172, at *1 (Del. Ch. Apr. 19, 2006).
8
Id. at *2.
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party’s claim or defense and proportional to the needs of the case.”9 The court “shall” limit
discovery requests if “the discovery sought is not proportional to the needs of the case.”10
The critical issue in this action is whether Petitioner will be entitled to reformation
of the Jeremy Paradise Dynasty Trust Agreement, which was executed on April 23, 2019,
based on mistake and fraudulent inducement.11
The discovery requested pertains to the Fiduciaries’ unclean hands defense, which
posits that Petitioner “has sought to use assets of the Jeremy Trust on expenditures not
related to the wellbeing of any Trust beneficiaries” and “requested excessive compensation
as Notice Recipient of the Trust.”12
Specifically, the Fiduciaries allege that the Jeremy Paradise Dynasty Trust
purchased the property described in the commission for the benefit of the trust’s
beneficiaries, that Pomerance hired Petitioner to serve as property manager for the property
while it underwent renovations, and that Vigomar was the contractor that performed the
renovations.13 According to the Fiduciaries, Petitioner approved contractor invoices
totaling $118,000, but the Fiduciaries contend that they have only observed “limited
renovations.”14 The Fiduciaries thus suggest that Petitioner, who resigned as property
9
Ct. Ch. R. 26(b)(1).
10
Id.
11
Dkt. 1, Verified Pet. To Reform Trust & Remove Invalid Fiduciaries ¶¶ 86, 147–63.
12
Dkt. 90, Answer at 73.
13
See Dkt. 127, Reply in Supp. of Mot. ¶¶ 1–2.
14
Id. ¶ 7–8.
C.A. No. 2021-0354-KSJM
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manager in March 2021, may have “improperly or dishonestly managed the funds” the trust
paid Vigomar.15 Because the discovery could be probative as to whether Petitioner acted
inappropriately as a property manager, Fiduciaries argue that seeking the requested
discovery from Vigomar is relevant to their unclean hands defense.
The commission seeks four categories of documents from Vigomar in addition to
compelling Vigomar to produce a corporate representative for deposition on March 23,
2022. The requests and topics date back to June 2019.
Generally speaking, the defense of unclean hands is unavailable unless the opposing
party’s inequitable conduct has “an ‘immediate and necessary’ relationship to its claims.”16
“If a plaintiff’s ‘claim grows out of or depends upon, or is inseparably connected with, his
own prior fraud, a court of equity will, in general, deny him any relief.’”17
The problem with the Fiduciaries’ theory is that the timeline for the requests begins
on June 1, 2019—after the Jeremy Paradise Dynasty Trust Agreement was executed. It is
therefore hard to conclude that the Motion’s requests relate to the formation of the trust.
For that reason, they do not appear relevant to whether reformation of the trust will be
15
See id. ¶¶ 7–8, 18.
16
Stone & Paper Invs., LLC v. Blanch, 2021 WL 3240373, at *23 (Del. Ch. July 30, 2021)
(quoting Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 523 (Del. Ch. 1998)).
17
United BioSource LLC v. Bracket Hldg. Corp., 2017 WL 2256618, at *7 (Del. Ch. May
23, 2017) (quoting 2 John Norton Pomeroy, A Treatise on Equity Jurisprudence § 401 (5th
ed. 1941)).
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appropriate. Nor do they have an immediate and necessary relationship to the claim at
issue.
Of course, if I conclude after evaluating the evidence presented at trial that the
discovery sought by the commission is relevant, I can order it to proceed at that time. For
now, I am convinced that Petitioner’s objections have merit.
For those reasons, the Motion is DENIED.
Sincerely,
/s/ Kathaleen St. Jude McCormick
Kathaleen St. Jude McCormick
Chancellor
cc: All counsel of record (by File & ServeXpress)