Sunday, March 25, 2012

Elliott Associates v. J. Henry Schroder Bank & Trust Co. case brief

Elliott Associates v. J. Henry Schroder Bank & Trust Co.
United States Court of Appeals, Second Circuit, 1988.
888 F.2d 66.
"What is the purpose of the trustee?"



FACTS
-Indenture required issuer to give 50 days written notice to Trustee of issue of convertible debentures before redeeming them.
-If trustee required less time for the redemption mechanics, it was authorized to waive the 50 day period within which the issuer was to inform the Trustee of the proposed redemption.
-The trustee shortened the notice period because the mechanics of the particular redemption were simple and could easily be handled within a shorter period, however this caused one semi-annual interest payment to not be paid.


PROCEDURAL HISTORY
-Court of appeals affirmed district court's holding that the 'trust waiver did not constitute a breach of any duty owed to the debenture holders because a trustee's pre-default duties are limited to those duties expressly provided for in the indenture. 


RULES
-An indenture trustee is more like a stakeholder whose duties are obligations are exclusively defined by the terms of the indenture agreement.
-So long as the trustee fulfills its obligations under the express terms of the indenture, it owes the debenture holders no additional, implicit pre-default duties or obligations except to avoid conflicts of interest.
-The most fundamental duty owed by the trustee to the beneficiaries of the trust is the duty of loyalty.


HOLDING
-Affirm the judgment of the district court which dismissed Elliott's action.
-Trustee only owes beneficiaries duty of loyalty and whatever is defined in the agreement itself.


Elliott Associates v. J. Henry Schroder Bank & Trust Co. at Justia.com

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