Cook v. Marshall

Filing 256

ORDER AND REASONS denying 246 Motion to Compel. Dr. Cook shall advise Preston regarding his intentions no later than July 7, as discussed herein, and the Court shall address relevance and proportionality thereafter, if necessary. Information about the financial condition of MLF and TMHF is irrelevant to the claims and defenses in this case and as to these requests, the Motion to Compel is DENIED. Signed by Magistrate Judge Janis van Meerveld on 6/30/2023. (Reference: 21-2139) (rt)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
STEPHEN D. COOK, in his capacities as
Co-Trustee of the Marshall Heritage
Foundation and the Marshall Legacy
Foundation

* CIVIL ACTION NO. 17-5368
* C/W 21-2139
*
* SECTION: “L”(1)
*
VERSUS
* JUDGE ELDON E. FALLON
*
PRESTON L. MARSHALL, personally * MAGISTRATE JUDGE
and in his capacity as Co-Trustee of the * JANIS VAN MEERVELD
Peroxisome Trust
*
* Ref. 21-2139
*********************************** *
ORDER AND REASONS
Before the Court is defendant’s Motion to Compel. (Rec. Doc. 246). Oral argument was
held on June 28, 2023. Because some of the documents sought are not in the possession of the
plaintiff and the remainder of the documents are irrelevant, the Motion to Compel is DENIED.
Background
This lawsuit involves an effort to remove a trustee for alleged breach of duty and to obtain
damages as a result of those breaches, and for interest. Plaintiff Dr. Stephen Cook filed the
Complaint in his capacity as a co-trustee for each of The Marshall Heritage Foundation (“TMHF”)
and Marshall Legacy Foundation (“MLF”). TMHF and MLF are Louisiana charitable foundations
whose sole purpose is to provide funds to charity. E. Pierce Marshall, Jr. and his mother Elaine T.
Marshall are Dr. Cook’s co-trustees. Pierce and his brother Preston Marshall are co-trustees of the
Peroxisome Trust, which is a charitable lead annuity trust (“CLAT”) that must pay a fixed annuity
for a period of years (in this case 20) to a charity. If it does so, it will not owe any taxes because
its income will be entirely offset by the annual donation. Further, under the Internal Revenue Code,
when a CLAT terminates, the remaining principal is distributed to the remainder beneficiaries.
The Peroxisome Trust was settled by Elaine with the transfer of 1,000 membership units in
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Peroxisome LLC to its co-trustees in 2011. These units were valued at $100,000,000 at the time
and are worth more today. The membership units in Peroxisome LLC are the Trust’s only assets.
The Trust was designed so that all income from the membership units would be distributed to the
designated charity. The designated charity was the Marshall Heritage Foundation, which was
divided into TMHF and MLF in December 2013. 1 In addition to being co-trustees of the
Peroxisome Trust, Preston and Pierce are its remainder beneficiaries.
Pursuant to the Peroxisome Trust Instrument, the Peroxisome Trust is required to pay
TMHF and MLF an annuity of about $3.3 million, in equal installments at the end of each quarter.
If the Trust fails to do so, it is deprived of the deduction for charitable donations necessary to offset
its income; thiswill result in the Trust incurring income tax for the year.
Although Preston and Pierce jointly approved distributions to TMHF and MLF from April
11, 2014, to June 30, 2016, after that time, Preston refused payment. 2 Pierce could not act
unilaterally to authorize the payments.
In May 2017, Dr. Cook filed an earlier lawsuit on behalf of TMHF seeking to compel
Preston to authorize distributions from Peroxisome Trust to TMHF. Judge Fallon granted summary
judgment in favor of Dr. Cook and against Preston in February 2019, finding that none of Preston’s
purported justifications for refusing to authorize distributions had merit. Judge Fallon found
Preston’s refusal to sign the documents required to effect the distributions to TMHF was a breach
of his duties. The judgment required Preston to effect required future distributions to TMHF.

According to Preston, Elaine did so to give Pierce control of TMHF and Preston control of MLF. Preston also submits
that at the time Elaine went to court to split the Marshall Heritage Foundation, she also asked the court to permit
division of the Peroxisome Trust to give each Pierce and Preston control of individual trusts. But Preston says that
Pierce refused to execute papers necessary to divide the Peroxisome Trust.
2
According to Preston, he did so because he became concerned that TMHF was not specifically named as an annuitant
or beneficiary in the trust instrument. As discussed further below, though, his reasons for refusing payments were
rejected by the court.
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Preston appealed, and Judge Fallon stayed the judgment pending the appeal. 3 The Court’s
judgment was affirmed by the Fifth Circuit on December 31, 2020. Yet Preston did not begin
issuing distributions.
On February 3, 2021, Dr. Cook filed a Motion to Enforce Judgment by Removing Preston
L. Marshall as Co-Trustee of the Peroxisome Trust. The problem was that due to the past failure
to make required distributions, the Trust had incurred huge tax liabilities and was required to
resolve those before any payments could be made to TMHF and MLF. In ruling on the Motion to
Enforce in April 2021, Judge Fallon found Preston in contempt of court for intentionally refusing
to comply with the Court’s judgment and ordered Preston to authorize Pierce to contact and
negotiate with the IRS to resolve the Peroxisome Trust tax liability and make the appropriate
payments to TMJF and MLF. Preston did so. And Pierce negotiated a resolution of the tax
liabilities by paying about $8,000,000 (although the issue of whether the IRS will waive penalties
for 2018 remains open). Pierce has distributed all outstanding annuity payments to TMHF and
MLF other than for a portion of the fourth quarter of 2018 and all of 2019. According to the
Complaint, the remaining payments were not made “due to a lack of available funds.”
In July 2021, Judge Fallon granted Dr. Cook’s motion seeking additional authorization to
authorize Pierce to resolve the Louisiana tax liabilities of the Trust so that additional payments to
TMHF could be made. Pierce has paid the Louisiana Department of Revenue (LDR) a little over
$1,000,000 for the Trust’s taxes due for 2017 through 2019. The estimated interest due is about
$200,000. Pierce has requested a waiver from LDR but no decision has yet been made.
In November 2021, Dr. Cook instituted the present lawsuit on behalf of both TMHF and
MLF seeking removal of Preston as trustee of Peroxisome Trust for breach of his fiduciary duties.
Preston points out that in granting his motion to stay the judgment pending appeal, Judge Fallon found the case
presented “unsettled questions of Louisiana trust law.” (Rec. Doc. 149, at 3).
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He argues that the rulings of Judge Fallon and the Fifth Circuit in the first lawsuit finding that
Preston had breached his duties and had no justifiable excuse for doing so are res judicata. Dr.
Cook contends that Preston’s breaches are the sole cause for the Peroxisome Trust incurring
millions of dollars of tax liability that should not have been incurred. He adds that Preston failed
to authorize the filing of tax returns and extensions, which resulted in additional penalties. He
argues that these actions have harmed TMHF and MLF by depriving Peroxisome Trust of the funds
it needed to satisfy its mandatory obligations to them. He alleges that TMHF and MLF were each
damaged in the amount of $3,354,453.75 because the tax payments deprived the Trust of the funds
dedicated to the payment of the required annuity to them. They each seek an award of this amount
as well as interest arising out of the failure to pay the required annuity in an amount of
$2,148,439.05 each pursuant to Louisiana Civil Code article 2000. The outstanding annuity
payments and the alleged interest are the only damages TMHF and MLF seek. 4
Preston takes the position that the IRS can extend the period for the Peroxisome Trust to
make distributions. Yet, he complains, rather than pursue that relief here, Dr. Cook, Elaine, and
Pierce are pursuing this litigation even though they know that TMHF and MLF will eventually
make the payments and TMHF and MLF will, therefore, not suffer any damages. Further, Preston
insists that the fair market value of the Peroxisome Trust exceeds the outstanding annuities owed
to TMHF and MLF so there is no deficit in funds available to pay them. He submits that the
Peroxisome Trust tax returns shows that the Trust’s assets (the Peroxisome LLC membership
units) are worth over $220,000,000. He insists that membership units could be sold to cover
outstanding payments to TMHF and MLF.

Although the complaint alleges that the failure of Peroxisome Trust to distribute the required funds caused TMHF
to be severely delinquent in its charitable donations, Dr. Cook’s counsel clarified at oral argument that this allegation
served as a background fact. Counsel confirmed that Dr. Cook is not seeking such damages in this lawsuit.

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A bench trial in this matter is scheduled to begin on January 22, 2024. The deadline to
complete discovery is December 11, 2023. Presently pending before the District Court are two
motions for partial summary judgment filed by Dr. Cook. In one, he seeks removal of Preston as
co-trustee of the Peroxisome Trust. In the other, he seeks a ruling that Preston is personally liable
for damages and interest in the amount of $10,718,153.40 as of April 1. 2023 (to be split by the
two foundations) for breach of his fiduciary duties. On June 6, 2023, the District Judge continued
the submission date on these motions to August 30, 2023.
Presently before this Court is Preston’s Motion to Compel. He submits that his discovery
requests seek information intended to disprove the damages claims and to respond to the
allegations that he should be removed as co-trustee. Specifically, he seeks documents related to
the assets of the Peroxisome Trust 5 to demonstrate that it had sufficient assets to pay the amounts
owed to MLF and TMHF (either via income or principal because the trust instrument provides that
if income is not sufficient, payments be made from principal). He argues this information is
relevant to showing that Peroxisome Trust’s failure to make the remaining payments to MLF and
TMHF is a result of Pierce’s choice not to do so. Preston also seeks documents related to the
financial condition of MLF and TMHF to dispute their contention that the delay in payments from
Peroxisome Trust has resulted in MLF and TMHF being severely delinquent in their charitable
donations.
Dr. Cook contends the requested documents are irrelevant. He submits he has provided
enough information about the financial condition of the Peroxisome Trust. He argues further that
the financial documents of MLF and TMHF are irrelevant and that the documents he has produced
supporting the foundations’ inability to meet its charitable obligations are sufficient. At oral

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According to Preston, he does not have access to any Peroxisome Trust documents.

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argument, counsel for Dr. Cook made clear that he only seeks to recover the outstanding annuity
payment plus interest owed under Civil Code article 2000. This code article provides that:
When the object of the performance is a sum of money, damages for delay in
performance are measured by the interest on that sum from the time it is due, at the
rate agreed by the parties or, in the absence of agreement, at the rate of legal interest
as fixed by R.S. 9:3500. The obligee may recover these damages without having
to prove any loss, and whatever loss he may have suffered he can recover no
more.
La. Civ. Code art. 2000 (emphasis added).
Law and Analysis
1. Scope of Discovery
The Federal Rules of Civil Procedure provide that “parties may obtain discovery regarding
any nonprivileged matter that is relevant to any party's claim or defense and proportional to the
needs of the case.” Fed. R. Civ. Proc. 26(b)(1). “Information within this scope of discovery need
not be admissible in evidence to be discoverable.” Id. The Rule requires consideration of the
following factors in assessing proportionality: “the importance of the issues at stake in the action,
the amount in controversy, the parties' relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit.” Id.
The advisory committee comments to the 2015 amendment to Rule 26 make clear that the
parties and the court have a collective responsibility to ensure that discovery is proportional. The
party claiming it would suffer an undue burden or expense is typically in the best position to
explain why, while the party claiming the information sought is important to resolve the issues in
the case should be able “to explain the ways in which the underlying information bears on the
issues as that party understands them.” Id. advisory committee’s note to 2015 amendment. “The
court’s responsibility, using all the information provided by the parties, is to consider these and all
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the other factors in reaching a case-specific determination of the appropriate scope of discovery.”
Id.
2. Discovery at Issue Here
a. Documents related to assets of Peroxisome Trust
Request for Production No. 8 seeks all documents regarding the assets of Peroxisome Trust
and all assets relating to the valuation of the assets of the Trust at the time of its settling and from
2016 to present. Preston complains that Dr. Cook has selectively produced tax returns, general
ledgers, and balance sheets. He points out that in tax returns for Peroxisome Trust filed by Pierce,
Pierce represented that the fair market value of the 1,000 units of Peroxisome LLC (which the
Trust retains) is $226,530,000 (the original value plus accrued interest). Preston seeks information
that substantiates the representation of asset value made to the IRS. At oral argument, Preston’s
counsel explained that this might be an appraisal or statements from the LLC or whatever
documents provided to the Trust’s accountant to arrive at the value.
Dr. Cook responds that he has produced Peroxisome Trust’s federal and state tax returns,
proforma returns, correspondence with the IRS and LDR, filings from the Tax Appeal, authorized
and requested distributions from the Peroxisome Trust to TMHF and MLF, bank statements,
balance sheets from 2011 to 2021, cash ledgers from 2011 to 2021, and cash flow statements. He
insists Preston has sufficient information related to the Trust. In response to Preston’s claim that
the units of Peroxisome LLC should have been used to pay TMHF and MLF, Dr. Cook argues that
there may not be a market for sale of the units (even if Pierce could act unilaterally to effect a sale,
which he cannot). Plus, he points out that selling the shares would reduce the amount of income
available to the Trust in the future and would prevent it from meeting its future obligations to

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TMHF and MLF. He also argues that Pierce did not “choose” not to pay TMHF and MLF when
there was insufficient income to do so because all tax liabilities had to be resolved first.
In reply, Preston argues that the Peroxisome Trust tax returns demonstrate that the Trust’s
assets are valued at over $220,000,000. He insists that less than 5% of the assets could be sold to
pay the outstanding annuity payments and that the Trust would still have income and dividends
sufficient to pay future annuity payments.
At oral argument, the parties discussed an additional issue. Any documents related to the
valuation of the Peroxisome LLC membership units owned by Peroxisome Trust would be in the
possession of Pierce and/or Peroxisome Trust—not Dr. Cook. Dr. Cook’s counsel was unable to
speak to the valuation documentation that might exist.
The issue of whether the Peroxisome Trust under Pierce’s control should have sold its
assets to cover the payments to MLF and TMHF is a legal argument that is not now before the
Court. Is there a market for the shares? Could Pierce have effected the sale unilaterally? Would a
sale of principal assets amount to a breach of fiduciary duty? Importantly, the question of whether
there were, as a matter of fact, sufficient principal assets to cover the payments appears to be
undisputable. Peroxisome Trust itself represented principal assets to be worth over $220 million;
annuity payments of $6.6 million for the entire 20 year obligation are equal to $132 million. Dr.
Cook argues that the assets could not have been sold at all, could not have been sold unilaterally
by Pierce and/or would improperly rob the remainder beneficiaries to pay the charitable
beneficiaries. However, in his Motion, Dr. Cook also argues that the Trust would be unable to
meet its future required annuity payments if it sold its principal asset. (Rec. Doc. 248, at 18). This
puts the valuation at issue. Should Dr. Cook wish to continue to urge the argument that the Trust
would have been unable to make future payments if it sold part of its principal assets, then the

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financial information sought by Preston could be relevant (if Dr. Cook is unsuccessful in his claims
that the assets could not have been sold at all, could not have been sold unilaterally by Pierce,
and/or would improperly rob the remainder beneficiaries to pay the charitable beneficiaries).
However, the documents are not in Dr. Cook’s possession, and he was unable to articulate what
might exist, nor the burden associated with producing alternative/more detailed documents than
those already produced. As such, additional analysis would be required by the Court before it could
order production. At oral argument, it was revealed that a subpoena for the same information
sought here was sent to Peroxisome Trust which has objected to producing them. Apparently
Peroxisome Trust also intends to file a Motion to Quash in the near future.
In order to determine whether such a Motion is necessary following this ruling, Dr. Cook
should advise Preston, in writing, no later than Friday, July 7, whether he intends to argue that the
Trust would have been unable to make future payments if it sold part of its principal assets. If he
intends to proceed, then Peroxisome Trust should file its Motion to Quash. If he does not intend
to so argue, then no Motion to Quash is necessary because all valuation information sought by
Preston is irrelevant. As to the Motion to Compel the Peroxisome Trust documents, though,
Preston’s request is denied because the documents are not in Dr. Cook’s possession.
b. Documents related to financial condition and obligations of TMHF and MLF
Preston seeks bank account statements, tax returns, general ledgers, cash flow statements,
and balance sheets for TMHF and MLF all from 2013 to present. He also seeks demand notes to
Elaine and any other documents reflecting claims of debt on tax returns in favor of Elaine. Dr.
Cook did not produce any of the requested documents, except he did provide some information
about the public availability of some tax information (Forms 990). The interrogatories at issue seek
identification of payments made by Peroxisome Trust to TMHF and MLF and the amount of such

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payments that TMHF and MLF distributed/donated to others. Dr. Cook objected but also
referenced documents produced showing payments from Peroxisome Trust to the foundations.
Preston argues that the requested information will assist him in showing that TMHF and
MLF had sufficient funds to make their charitable donations, did in fact make their charitable
donations, and their tax-exempt status was never in jeopardy. He argues that the requested
information is relevant to the allegation that MLF and TMHF were allegedly caused to be severely
delinquent in their charitable donations and also relevant to his mitigation of damages argument
because it will reveal whether MLF and TMHF took on extra charitable giving when they knew
funds were not being distributed after June 2016.
However, Dr. Cook’s Complaint does not seek damages resulting from delays in MLF and
TMHF’s payments to charitable institutions. At oral argument, counsel for Dr. Cook repeatedly
affirmed this interpretation of the Complaint, insisting that the only damages being sought on
behalf of MLF and TMHF is the interest due under Civil Code article 2000 resulting from the
delay in payments owed by Peroxisome Trust, allegedly caused by Preston’s breach of fiduciary
duty.
Preston argued that the financial records of MLF and TMHF remain relevant because they
will show that MLF and TMHF do not hold on to the funds they receive and would therefore never
have earned interest on the funds owed by the Peroxisome Trust had they been timely paid. But
this theory is contrary to the text of the Civil Code article, which explicitly states that the obligee
may recover only contractual or judicial interest for delayed payments, that the obligee does not
have to prove any loss, and that the obligee cannot recover more than this amount even if the
obligee suffered greater damages. La. Civ. Code art. 2000 (“The obligee may recover these
damages without having to prove any loss, and whatever loss he may have suffered he can recover

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no more.”). Whether MLF and TMHF actually suffered a loss in an amount more or less than the
rate of judicial interest is irrelevant to the calculation of damages under article 2000.
The Court finds that the requested financial records of MLF and TMHF are completely
irrelevant to the claims and defenses in this case. Accordingly, the information is not within the
scope of discovery and as to these requests, the Motion to Compel is denied..
Conclusion
With regard to documents showing the valuation of the Peroxisome Trust principal assets,
the Motion to Compel is DENIED because Dr. Cook does not have possession of the requested
documents. Dr. Cook shall advise Preston regarding his intentions no later than July 7, as discussed
herein, and the Court shall address relevance and proportionality thereafter, if necessary.
Information about the financial condition of MLF and TMHF is irrelevant to the claims and
defenses in this case and as to these requests, the Motion to Compel is DENIED.
New Orleans, Louisiana, this ____ day of June, 2023.

Janis van Meerveld
United States Magistrate Judge

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