In the Matter of The Jeremy Paradise Dynasty Trust and the Andrew Paradise Dynasty Trust

• Court: Court of Chancery of Delaware
• Decided: March 22, 2022
• Docket: C.A. No. 2021-0354-KSJM
• Status: Published

Opinion

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.”). C.A. No. 2021-0354-KSJM March 22, 2022 Page 2 of 6

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 March 22, 2022 Page 3 of 6

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. C.A. No. 2021-0354-KSJM March 22, 2022 Page 4 of 6

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 March 22, 2022 Page 5 of 6

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)). C.A. No. 2021-0354-KSJM March 22, 2022 Page 6 of 6

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)