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IMO Bartrust, Bartrust II, and Robert A. Raley Trust

Court of Chancery of Delaware

April 12, 2017

IMO Bartrust, Bartrust II, and the Robert A. Raley Trust

          Myron T. Steele, Esquire Andrew H. Sauder, Esquire Potter Anderson & Corroon LLP

          Richard L. Renck, Esquire Jocelyn M. Borowsky, Esquire Oderah C. Nwaeze, Esquire Duane Morris LLP

         Dear Counsel:

         Pending before me is a motion for a status quo order filed by Petitioner Margaret Raley-Ward. For the reasons that follow, I recommend the motion be denied.

         By way of background, Petitioner is a beneficiary of two family trusts, [1] and is seeking the removal of two of the three individuals who serve as co-trustees of these trusts. Petitioner accuses these co-trustees of self-dealing and the potential looting of the family's assets. Petitioner also accuses the trusts' accountant of aiding and abetting these co-trustees in their breaches of fiduciary duty. Additionally, Petitioner is seeking an accounting of the family trusts and a declaratory judgment that the second amendment to a limited liability company agreement is void.

         Shortly after Respondents John Hall, Mary Ann Ryan, and James LaChall filed their response to the petition, [2] Petitioner moved for partial judgment on the pleadings, arguing that the co-trustees had been authorized to serve as co-managers of several limited liability companies ("LLC" or "LLCs"), but subsequently had breached their fiduciary duty by amending the LLC agreements to vest their authority in Hall as the sole manager of the LLCs.[3] Petitioner's motion also claimed that there had been an improper sale of property from an LLC to Hall and his wife, and ongoing recreational use of LLC property by Hall and his friends. Following oral argument on February 6, 2017, I recommended denial of the motion for partial judgment on the pleadings because the standard of review required me to draw reasonable inferences on behalf of the non-moving party, and I could not find on the record a sufficient evidence of a breach of fiduciary duty warranting removal of a trustee as a matter of law. Neither party took exception to my recommendation and, following de novo review, the Court approved an order adopting my findings and conclusions of law on February 23th.[4]

         In her motion for a status quo order filed on March 13th, [5] Petitioner alleges that Hall recently revealed his plans to sell the Holly Lake Campgrounds ("Holly Lake") for $20 million during a hastily-called meeting with Ryan, Hopkins, LaChall, and Mrs. Raley on March 2nd.[6] According to Petitioner, Holly Lake is the biggest cash generator and, perhaps, the single most valuable asset in the family trusts. Petitioner accuses Hall of failing to engage in a fair process of valuing this asset because he refused to obtain a proper appraisal, and the price Hall mentioned, $10-20 million, is likely to be far below the campground's true value, which Petitioner estimates as between $40-60 million.[7] Petitioner also claims that Hall decided to sell this property to spite Hopkins, whose husband and daughter are employed by Holly Lake, because Hopkins had complained about Hall's use of a cabin owned by the family trusts. Petitioner learned of this proposed sale after Hopkins, who is Petitioner's sister, informed her of the March 2nd meeting despite Hall's insistence on confidentiality. Petitioner now seeks an order preserving the status quo by, inter alia, restricting Hall, Ryan, and Hopkins from amending any operating agreement or governance document or from engaging in any transaction with a value in excess of $50, 000 except by written agreement of the parties to this litigation or by Court order.[8]

         A status quo order is akin to a temporary restraining order, and to obtain this order, a party must demonstrate: (1) that the order will avoid imminent irreparable harm; (2) a reasonable likelihood of success on the merits; and (3) that the harm to the plaintiff outweighs the harm to the defendant.[9] Petitioner's motion comes at an early stage in the proceedings; therefore, the record is insufficient for me to assess the merits of Petitioner's claims. However, after considering the other two factors, I conclude that Petitioner's motion should be denied because she has failed to make a clear showing of imminent irreparable harm.

         Petitioner's motion is accompanied by Petitioner's affidavit dated March 13, 2017, which is based on hearsay, that is, the affidavit consists of Petitioner averring what Hopkins told her had transpired during the March 2nd meeting.[10]Although Petitioner was not present at this meeting, Petitioner claims that a sale of Holly Lake at a price of $20 million is "potentially imminent" and would irreparably harm the trusts by depriving them of a "unique and major asset without even the semblance of an appropriate process."[11]

         In opposition to this motion, Respondents filed the affidavits of Hall and LaChall, who were present at the meeting, and the affidavit of Stanley Tobin, the investment banker who had approached both Petitioner and Hall at different times regarding a potential sale of Holly Lake. According to Respondents' affidavits, Hall was contacted by Tobin about a possible sale of this property shortly after a regular trustees' meeting on February 28th. Hall then invited Ryan, Hopkins, Mrs. Raley, and LaChall to a meeting on March 2nd to inform them of his discussion with Tobin, and the group talked about issues involved in a possible sale of Holly Lake.[12] Their discussions are briefly summarized in the minutes of the meeting, which was signed by the participants.[13] Although no concrete price had been offered by Tobin, during the meeting LaChall estimated that the value of Holly Lake was $10 million, or possibly $20 million for development purposes if water and sewer were made available along its road frontage.[14] At no time during this meeting did Hall refuse to obtain an appraisal of the campground; instead, Hall informed the group that there was no need to obtain an appraisal at this stage, but the issue could be revisited in the future if and when there was an offer to purchase Holly Lake.[15] During the March 2nd meeting, Mrs. Raley and Hopkins both expressed their disinclination to sell Holly Lake, but the group agreed to invite Tobin for a follow-up meeting to present his proposal for their review.[16]

         Hall had requested that this discussion remain confidential in order to prevent negative effects on employee morale and customer reservations if rumors spread that Holly Lake might be sold, but Hall never informed Hopkins that she could not discuss the topic with her immediate or extended family.[17] Hall also denied that he and Hopkins had had an argument about his use of the cabin, or that he would threaten to sell Holly Lake out of spite.[18] In his own affidavit, Tobin corroborated that he had initiated the contact with Hall, after having approached Petitioner in August 2015 about a possible purchase of Holly Lake.[19] At that time, Petitioner informed Tobin that there was no interest in selling the campground because she was attempting to remove the trustee in charge of her family trust.[20]Shortly after the March 2nd meeting, Petitioner contacted Tobin and asked whether Tobin had spoken to Hall about a possible purchase of Holly Lake and whether he had quoted Hall a purchase price.[21] Tobin averred that he had informed Petitioner that he did not provide Hall with an estimate of the value of the campground because he had not had an opportunity to inspect the property.[22]

         In her reply, Petitioner changes tack, and argues that if the sale of Holly Lake is merely on hold, if no contract for sale has been signed, then there should be no reason for Respondents to oppose a status quo order.[23] Petitioner contends that if the Court fails to enter a status quo order, the transaction will again become imminent, and she will be left in the dark about Respondents' activities, facing irreparable harm from "the loss of the strategic opportunity to have a proper sale of Holly Lake[.]"[24]

         Regardless of Petitioner's personal belief that a sale of Holly Lake is intended by Respondents, she has failed to make a clear showing of imminent irreparable harm to the moving party. That a sale of Holly Lake may occur at some point in the future does not constitute imminent and irreparable injury for the purposes of this motion.[25] Therefore, I recommend that the Court deny the motion for a status quo order. Because of the nature of this action, I am waiving a ...

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