Introduction
In this case, decided in a pre-trial conference pursuant to Rule 166(g), the Business Court held that to create an express trust (other than by a declaration of trust) imposing formal fiduciary duties on the trustee, it requires the grantor to completely transfer legal title to the trust property to the trustee to hold for a beneficiary’s benefit.
Factual Background
Defendant Truist Bank, agreed to act as a trustee in a bond offering issued to raise money to develop a senior living facility. Plaintiff Preston Hollow Capital purchased more than $21,000,000.00 in senior bonds. Senior Care Living VI, LLC (Senior Care) was the entity creating and building the senior living facility. Needless to say, when Senior Care engaged in multiple defaults, including failure to pay the general contractor, failing to pay property taxes, and others, which resulted in liens against the property, lawsuits, including this one, ensued.
Business Court Ruling
The Business Court held that to create an express trust that imposed formal statutory fiduciary duties on the trustee, it required the grantor (Senior Care) to transfer and vest all legal title of the trust estate to Truist and equitable title to the beneficiary (Preston Hollow). This was not done, so the Business Court held that the Bond Documents, in a case of first impression, did not create an express trust. Rather, the Bond Documents described the “Trust Estate” as only a collection of security instruments and interests. This holding is of vital importance because it means the Texas Trust Code’s imposition of certain unwaivable fiduciary duties do not apply.
Instead, the Bond Documents themselves control what duties, fiduciary or otherwise, are imposed upon Truist Bank. Applying well settled law on contracts, the Bond Documents were to be enforced as written. And while Preston Hollow protested bitterly that the documents, as written, required them to notify Truist of a default by Senior Care at a time when Preston Hollow had no such knowledge (and Truist Bank did!) as a condition precedent for Truist to be liable, the Business Court simply stated that “That is what the parties agreed to and we do not protect parties from the consequences of their own agreements.”
The Business Court went on to state that while parts of the Bond Documents could have been written more clearly “A contract is not ambiguous because a provision, through the lens of hindsight, could have been more clearly stated.” and “Where contract language is not ambiguous the court is obligated to interpret it as a matter of law.” In the final nail in Preston Hollow’s coffin, the court concludes that the contract “Requires Truist to receive written notice even when it might have actual knowledge of an Event of Default to trigger its heightened duties under Section 8.01(b).”
What Businesses and Business Lawyers Should Do Now
The attorneys at the Rogge Dunn Group are well experienced in representing businesses and individuals in complex business and contractual disputes. If you have questions and need help, assistance, or advice, our team of lawyers are ready and able to help you.