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In re Marriage of Dilick

Court of Appeals of Texas, Fourteenth District

February 22, 2018


         On Appeal from County Court at Law No. 1 Galveston County, Texas Trial Court Cause No. 14-FD-2582

          Panel consists of Justices Boyce, Jamison, and Brown.


          PER CURIAM

         This order concerns the motion to substitute filed by Jay H. Cohen, individually and as trustee of the JHC Trust I and JHC Trust II ("Cohen"). Cohen seeks to substitute himself as a party to this appeal in place of appellant Ron Sommers, Bankruptcy Chapter 7 Trustee ("the Trustee") to litigate on behalf of three limited partnerships ("the Partnerships"). Cohen filed the motion "for himself, the trusts, and derivatively as 80% limited partner of [the Partnerships] on behalf of the Partnerships." Appellee Matthew Dilick opposes the motion and requests sanctions. The Trustee responded to the motion at our request; he does not oppose the motion. We deny the motion without prejudice, and we deny Dilick's motion for sanctions.


         This appeal has a complicated history.[1] It arises from a divorce proceeding, but it does not concern the divorce.

         A. The Partnerships

         Dilick and Cohen formed the Partnerships[2] to commercialize several tracts of land Cohen owned. Cohen transferred the land to the Partnerships so the land could be developed to generate income.

         Cohen or one of his trusts holds an 80% interest in each Partnership as a limited partner, and Dilick or entities he controls hold the remaining 20% - roughly 19% as a limited partner and 1% as the sole general partner.[3]

         B. Cohen sues Dilick

         Cohen sued Dilick and others in 2010 in Harris County ("the Harris County Suit"), alleging Dilick improperly used Partnership assets for personal gain. Cohen asserted primarily derivative claims brought on the Partnerships' behalf. In turn, the Partnerships, through their general partners, asserted counterclaims against Cohen and third-party claims against others. The case wended on for years as parties and claims were added and dropped.

         C. Partnerships declare bankruptcy

         In November 2014, two months before the scheduled trial date in the Harris County Suit, the Partnerships filed voluntary petitions for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. Sommers was appointed as bankruptcy trustee for the Partnerships. Soon after, one of the defendants in the Harris County Suit removed that suit to the United States District Court for the Southern District of Texas on the basis of the bankruptcy proceeding.

         The Trustee soon sought and obtained a declaratory judgment from the bankruptcy court that he owned all the claims asserted by the Partnerships in the Harris County Suit. As a result of that judgment, the Trustee owned Cohen's derivative claims against Dilick, the Partnerships' counterclaims against Cohen, and the Partnerships' third-party claims.

         D. Trustee sues Dilick and Cohen

         The Trustee then filed an adversary proceeding in the bankruptcy case against Dilick, Cohen, and many others. In later filings, he described the crux of Dilick's alleged wrongdoings as "pillaging" each Partnership, either by skimming from loans to that Partnership or stealing from the proceeds of the sale of the Partnership's real property, and using the ill-gotten gains for his personal benefit. Cohen, according to the Trustee, "thwarted and disrupted" one Partnership's use of its real property by prohibiting or undermining negotiations for development of that property. The Trustee also alleged Cohen improperly continued to collect rent from tenants in the apartment building located on the property.

         The Trustee asserted numerous causes of action, including breach of fiduciary duty, breach of contract, defalcation, civil theft, conversion, fraud, fraudulent transfer, conspiracy, and equitable claims. In addition to several equitable remedies, the Trustee sought actual and exemplary damages.

          E. The Dilicks' divorce suit

         1. The Trustee intervenes in the Dilicks' divorce suit

         Shortly before the Partnerships declared bankruptcy, Dilick's then-wife sued him for divorce. In order to minimize the divorce's potential negative effect on the collectability of a judgment in the adversary proceeding, the Trustee intervened in the divorce suit in April 2015. The petition in intervention stated:

Property owned by [the Partnerships] is included in the community property subject to this divorce proceeding and Matthew Dilick's separate property, if any. This property includes real estate and funds in excess of $10 million and assets acquired subsequent to the illegal transfer of funds to himself and the marital estate from [the Trustee].

. . .

The purpose of this suit is to preserve these millions of dollars and the real property itself so that it is not wrongfully divided as if it were part of the marital estate.

         The Trustee alleged Dilick used the Partnerships' properties as collateral to obtain loans of approximately $34 million, deals he characterized as "insider transactions" subject to the Texas Uniform Fraudulent Transfers Act ("TUFTA"). See Tex. Bus. & Com. Code Ann. § ch. 24 (West 2015). He sought constructive trusts, resulting trusts, injunctive relief, and attorneys' fees.

         Mr. and Mrs. Dilick filed separate answers to the petition in intervention. In his second amended answer, Mr. Dilick sought attorneys' fees under the TUFTA. See id. § 24.013.

         In his briefing in this court, Dilick says the Trustee maintained throughout the case that he was not asking the divorce court to determine Dilick's liability with respect to the Partnerships; that determination would be made by the bankruptcy court in the adversary proceeding. Instead, the Trustee sought only to have the divorce court place constructive and resulting trusts on certain assets in the marital estate or Dilick's separate property so that if the Trustee obtained a favorable judgment in the adversary proceeding, he could collect on that judgment.

         2. The Trustee settles with Mrs. Dilick and nonsuit his claims

         In late March 2017, the Trustee sought the bankruptcy court's approval of a settlement he reached with Mrs. Dilick. He filed a notice of nonsuit of his claims in the divorce proceeding the following week. Though the settlement was with Mrs. Dilick only, the nonsuit applied to the Trustee's claims against both her and Dilick. The divorce court signed an order dismissing the Trustee's claims without prejudice on April 7, 2017. Dilick's ...

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