Background: A Bond Financing Gone Wrong

Preston Hollow Capital, LLC and PHCC LLC purchased over $21 million in senior bonds to finance a senior living facility called Inspired Living at Sugar Land, developed by Senior Care Living VI, LLC. Truist Bank (formerly Branch Bank & Trust) served as trustee under both the Master Trust Indenture and a related Bond Indenture executed with conduit issuer Woodloch Healthcare Facilities Development Corporation. The financing structure required Senior Care to deposit all gross revenues into blocked accounts controlled by Truist, with strict requirements governing fund disbursement. Preston Hollow held authority as both the Series 2017A Majority Representative and Noteholder Representative, empowering it to exercise bondholder and trustee rights under the indentures.

When Preston Hollow discovered in 2019 that Senior Care had defaulted on multiple obligations—and that Truist had approved Senior Care's deviation from the mandatory deposit requirements—Preston Hollow directed Truist to accelerate the bonds and loan. Five days after appointing successor trustees on July 12, 2019, Truist resigned, citing lack of capacity to oversee the defaulted instruments. Preston Hollow then sued Truist for breach of fiduciary duty, breach of trust, and breach of contract, seeking compensatory damages, attorneys' fees, and punitive damages.

The Legal Issues: Waivers and Post-Termination Duties

The parties submitted three discrete legal questions for early resolution under Texas Rule of Civil Procedure 166(g). First, whether the punitive damages waiver in the Master Indenture is enforceable despite Trust Code sections 111.0035 and 114.007. Second, if enforceable, whether that waiver applies not only to claims under the Master Indenture but also to claims arising under the related Bond Indenture executed in connection with the same financing. Third, whether a trustee owes continuing fiduciary duties to beneficiaries after the trustee resigns and is replaced by a substitute trustee.

The Court's Analysis: Trust Code Does Not Bar Contractual Waivers

Judge Whitehill concluded that the Trust Code does not reflect legislative intent to prohibit punitive damages waivers in commercial trust arrangements. The court's December 17, 2025 order held that section 114.007 does not bar the Master Indenture's punitive damages waiver. Applying principles of contract construction, the court further determined that the waiver applies to both the Master Indenture and the Bond Indenture because they constitute "integral parts of the same financing arrangement." The opinion emphasizes that courts must "ascertain and give effect" to the parties' intent as expressed in their contracts, and here the parties structured a unified bond financing with interconnected obligations.

On the post-termination duties question, the court issued a December 9, 2025 discovery order limiting the scope of Preston Hollow's claims that Truist misused confidential information after resignation. While the opinion does not elaborate extensively on this holding, it establishes that a terminated trustee's duty to protect beneficiary confidential information survives termination and replacement. As the court stated in its syllabus:

a terminated and replaced trustee must protect a former beneficiary's confidential information that the trustee obtained during the trust relationship.

Significance for Texas Commercial Practice

This decision provides important guidance for parties structuring complex commercial financing arrangements in Texas. First, it confirms that sophisticated parties may contractually limit their exposure to punitive damages in trust-based financing structures, even where the Trust Code applies. This holding will be particularly significant for bond trustees, indenture trustees, and other institutional fiduciaries seeking to manage litigation risk through contractual provisions. Second, the court's willingness to extend a waiver from one contract to related agreements within the same financing structure signals a practical, transaction-oriented approach to contract interpretation that looks beyond individual document boundaries.

The post-termination confidentiality holding creates a potential compliance obligation for resigning trustees. Financial institutions serving as trustees must implement procedures to safeguard beneficiary information even after successor trustees assume responsibility, or risk discovery disputes and potential liability. The court's limitation of discovery on these claims suggests it views the duty as real but narrow—protecting against affirmative misuse rather than imposing broad ongoing fiduciary obligations. Practitioners should note the court's invitation to the parties to brief whether the Trust Code applies at all to this financing arrangement, which Truist characterized as potentially exempt as a deed of trust structure. That threshold question remains open and could affect the precedential scope of these holdings.