Opinion ID: 16726
Heading Depth: 2
Heading Rank: 1

Heading: Termination of the Trust

Text: 9 To resolve the question of mootness, we first examine the terms of the instrument creating the trust. Mootness hinges on when the trustee's legal responsibilities terminated, thus depriving him of a legal interest in the outcome. We interpret trust instruments as we do contracts. See Askanase v. LivingWell, Inc., 45 F.3d 103, 106 (5th Cir.1995). The interpretation of a contract is a question of law which we review de novo, unless the language of the contract is ambiguous and the lower court resorted to factual determinations of intent. See Snug Harbor, Ltd. v. Zurich Insurance, 968 F.2d 538, 541 (5th Cir.1992) (review is de novo to the extent language is coherent and intent is clear on its face). Therefore, our review of the trust instrument here is de novo. The trust instrument, by its express terms, is to be construed under Texas law.
10 The district court found that the trust ended, by its own terms, on July 15, 1997. At the onset, it is crucial to note the purpose of the trust. While MCORP was in Chapter 11, and had been since 1989, the trust, established in July 1994, was specifically designed to effectuate the rapid liquidation of the MCORP assets and distribution of them to the creditors. 1 In line with this expectation, the trust instrument provides The Trust shall terminate on the earlier of (1) the third anniversary of the Effective Date or (2) the date as of which substantially all of its assets have been reduced to Cash and distributed. 2 This language amounts to a clear and express statement that the trust would terminate on the third anniversary of its effective date--i.e. on July 14, 1997--notwithstanding that by that time substantially all of its assets had not been reduced to cash or distributed. 11 Goldin argues that the second sentence of this section, [i]f any assets of the Trust remain after termination, they shall be deposited with the Clerk of the Bankruptcy Court ... unless the Trust Board and General Bank Trust Board direct, and the Bankruptcy Court approves, after notice and a hearing, an alternative procedure, provides an extension mechanism. However, this alternative procedure provision refers to the establishment of an alternative to the disposition of residual assets after the termination of the trust. It does not envision extension of the trust itself. Indeed, the establishment of a procedure for distribution of residual assets provides further evidence that the trust was intended to terminate automatically. We find the language of the trust instrument unambiguous, and we agree with the court below that the trust terminated on July 15, 1997.
12 Goldin does not now seriously dispute the above analysis or that the trust had terminated by July 15, 1997. However, he contends that although the trust may have then terminated, Texas' statutory winding-up powers apply and allow him to continue as trustee for a reasonable time, thus preventing mootness. 3 The Texas Property Code explicitly provides for such powers. Tex. Prop.Code Ann. § 112.052 (Vernon 1995). However, all Texas trust instruments are governed first and foremost by their own terms. Section 111.002(a) provides that [i]f the provisions of this subtitle and the terms of a trust conflict, the terms of the trust control ...; and, section 112.053 states that [t]he settlor may provide in the trust instrument how property may or may not be disposed of in the event of failure, termination, or revocation of the trust. Tex. Prop.Code Ann. (Vernon 1995). Texas courts have recognized that winding-up powers are subject to the terms of the instrument: The rule in such cases is that subject to the provisions of the trust instrument, the trustee has [winding-up powers]. Kimble v. Baker, 285 S.W.2d 425, 430 (Tex.Civ.App.--Eastland 1955, no writ). See also Cogdell v. Fort Worth National Bank, 537 S.W.2d 304, 307 (Tex.Civ.App.--Fort Worth 1976, writ dism'd) (There was nothing in the will creating the trust that is inconsistent with the trustee exercising such powers as are necessary to enable the trustee to wind up the trust). We conclude that under Texas law, winding-up powers are a default provision that may be denied to a trustee if the instrument affirmatively indicates they are not contemplated after a specified termination date. 13 Here, we find that the language of the trust instrument is unambiguous in foreclosing the existence of winding-up powers after its third anniversary date. The instrument is solely focused on the rapid liquidation and distribution of trust assets. It is not a typical trust designed to insure preservation and growth of the corpus. The trust's entire function is winding-up, and we decline to find that the Texas default rule applies to provide it with additional winding-up powers after its stated termination date. In this case, such an addition would clearly defeat the terms of the trust. 14 The cases cited by Goldin invoking statutory wind-up power can be distinguished based on the nature of the trust instruments. All of the Texas cases involved testamentary trusts which provide for immediate distribution upon a set termination date. 4 The process of distribution is not instantaneous, so when the obligation to distribute does not begin until termination, 5 some residual power is clearly to be inferred. Because the need for such a power is so obvious in these cases, the statutory provisions are generally noted as a limitation on the trustee; Appellant correctly states that upon termination as to appointed property, a trustee is authorized only to 'wind up the affairs of the trust and to make distribution of the assets to the appropriate beneficiaries.' . Nowlin v. Frost Nat. Bank, 908 S.W.2d 283, 289 (Tex.App.--Houston 1995, no writ), quoting Tex. Prop.Code Ann. § 112.052 (Vernon 1995) (finding trust had not terminated). With these types of instruments, the grant of winding-up power is merely a recognition of the powers necessary to effect distribution coupled with a restriction to a reasonable time. 15 Here, the instrument is not one which requires the insertion of the statutory default term. It is a liquidating trust. We find the imposition of further time for liquidation--winding-up--inconsistent with its terms. It is specifically designed to effect liquidation and distribution as soon as practical, and termination expressly occurs on the earlier of substantial final distribution or a set date. There is thus not the inevitable period following termination when the administrative function of distribution is carried out that is found in the cases cited by Goldin. Distribution is contemplated throughout, and the termination date provides the outer limit of the trustee's powers. The record indicates that the overwhelming bulk of the trust's initial assets were in fact distributed at the time of termination. Goldin's own pleadings admitted that the litigation against the directors and officers, and funds held pending resolution of the appellees' severance claims, in essence constituted the trust's sole remaining assets. 16 In addition, the instrument provides a mechanism to deal with the problem of illiquid assets that may remain. Such assets were to be deposited with the clerk of the bankruptcy court, or another method could be employed with the approval of the trust board and the bankruptcy court. This provision for the unitary and intermediate disposition of trust assets further distinguishes this instrument from those in which winding-up powers are necessary. 17 Goldin has not cited, nor have we discovered, any Texas cases that deal with trusts that contemplated complete liquidation prior to a set termination date, or that utilized an intermediary to hold assets prior to final distribution. 6 Here, the purpose of the trust was the liquidation and distribution of the bulk of trust assets within a set time frame. The record indicates that this goal was largely met and that the trust design served its purpose. The trust's terms and express purpose foreclose any residual grant of powers to the trustee after its time had expired. We conclude that Texas law does not provide for wind-up powers for this trust.