IN THE MATTER OF THE MARRIAGE OF CONNIE SUE DILICK AND MATTHEW GERARD DILICK
Appeal from County Court at Law No. 1 Galveston County, Texas
Trial Court Cause No. 14-FD-2582
consists of Justices Boyce, Jamison, and Brown.
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
appeal has a complicated history. It arises from a divorce
proceeding, but it does not concern the divorce.
and Cohen formed the Partnerships to commercialize several
tracts of land Cohen owned. Cohen transferred the land to the
Partnerships so the land could be developed to generate
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.
Cohen sues Dilick
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.
Partnerships declare bankruptcy
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
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.
Trustee sues Dilick and Cohen
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.
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
The Trustee intervenes in the Dilicks' divorce
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
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.
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
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. §
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.
The Trustee settles with Mrs. Dilick and nonsuit his
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 ...