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Scott v. Dondero

Court of Chancery of Delaware

September 8, 2014

Scott
v.
Dondero

Submitted: August 15, 2014

Robert A. Penza Christopher M. Coggins Polsinelli PC

Michael F. Bonkowski David W. Giattino Cole, Schotz, Meisel, Forman & Leonard, P.A.

Dear Counsel:

Consider the persimmon. No wild fruits are so sweet and delectable as ripe persimmons after the first fall freeze, if you can beat the birds to them. But a green persimmon is not just less tasty; it is inedible. Not even a 'possum will eat a green persimmon. As with fruit, so with litigation. A bench judge has several tools to ensure that litigation, while perhaps not sweet, is at least palatable: one of these is the power to stay litigation in the interest of judicial and litigants' economy. I used that discretion to stay this matter pending resolution of some related issues currently being litigated in Texas, with leave for any party to seek to lift the stay. The plaintiff and the third-party defendant have made such a request, which is denied for the reasons below.

A. Background

In November 2010, the Dugaboy Investment Trust (the "Trust"), a Delaware trust, was formed. Plaintiff Grant James Scott III is Independent Trustee, Third-Party Defendant James Dondero is Initial Trustee and Family Trustee, the Commonwealth Trust Company ("Commonwealth") is Administrative Trustee, and Dana Scott Breault is Settlor. James[1] is also the primary beneficiary of this Trust pursuant to Section 3.1(a)(i) of the Trust Agreement.

Since September 2011, James and Defendant Rebecca Dondero have been engaged in divorce litigation in Dallas, Texas. In that matter, the Donderos are litigating James' obligation to pay Rebecca, upon their divorce, in accordance with a Marital Property Agreement entered into prior to their nuptials. Rebecca has alleged in that action that the Trust was set up and is being used by James to avoid paying her under this prenuptial agreement.[2]

On August 19, 2013, Rebecca sent a Demand Letter to Commonwealth purportedly on behalf of her children, whom the letter describes as the "beneficial owners" of the Trust.[3] This Letter requested a "'written statement of accounts;'" "information about the Trust acquiring and/or disposing of assets;" "information with respect to the Trust's affairs, 'including the review of trust accountings, reports, and communications between [Commonwealth] as Trustee, the Settlor, any co-Trustees, and unrelated third party inquiries;'" and "a 'statement of accounts' that shows five categories of information: (i) Trust property not previously listed as Trust property; (ii) Trust receipts and disbursements, including their destination and origin; (iii) 'property being administered;' (iv) cash-on-hand; and existing liabilities."[4] In this Letter, Rebecca conveyed her intent to initiate litigation against Commonwealth if her demands were not satisfied within sixty days.[5] The Plaintiff contends that this Demand Letter, as well as counter-claims filed in this matter, were mechanisms used by Rebecca to obtain Trust documents for use in the Texas litigation.

On October 28, 2013, Scott filed a Verified Complaint on behalf of the trust, requesting a declaratory judgment that there was no basis for an accounting, including because Rebecca lacked standing; that complying with the demand letter and performing an accounting would involve the wrongful dissipation of Trust assets; and that bringing a lawsuit to demand an accounting would be an abuse of process.

On December 27, Rebecca filed a Counterclaim and Third-Party Complaint against James. In her Counterclaim and Third-Party Complaint, she contends that the Trust is a sham, that James is using the Trust to defraud her of funds due her in connection with their divorce, and that Scott and James have conspired to facilitate James' evasion of his obligations under the Marital Property Agreement. She no longer asserts that she is acting on behalf of her children, the residuary beneficiaries of the trust; her standing to challenge the actions of the trust is based upon her creditor status, which is currently being litigated in Texas.

On July 1, 2014, I held oral argument on pending discovery motions. Among those was the Plaintiff's motion for a protective order, on the ground that Rebecca was using discovery in this Court to facilitate the litigation in Texas, to circumvent limitations on discovery there. At that time, I sua sponte stayed litigation in this matter, pending the Texas court's resolution of the matters pending before it which will necessarily bear on issues here. At oral argument, and pursuant to an Order of this Court entered July 3, I made clear that "[e]ither party may seek to lift the stay as appropriate."[6]

On July 9, Scott and James moved to partially lift the stay; this Motion is opposed. For the following ...


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