Chancery Rules on Statutory Trust Issues Involving Cargill and Refco
In Cargill, Inc. v. JWH Special Circumstance, LLC, (Del. Ch., Nov. 7, 2008), read opinion here, the Delaware Chancery Court issued a 68-page decision involving a Delaware statutory trust (formerly referred to as a business trust), and found that common law fiduciary duties would apply to a trustee as a "default rule" in light of the agreement among the parties being silent on the issue. Compared to corporate law, there are comparatively fewer Delaware decisions involving trusts created pursuant to statute, thus making this a notable decision for that reason alone. Hat tip to Delaware Business Litigation Report.
The extensive facts described a deal in which Cargill sold a subsidiary to Refco shortly before Refco filed for bankruptcy, among other problems experienced with that company. Procedurally, the court denied both a motion to dismiss counterclaims and a motion for judgment on the pleadings based on a complaint that sought a declaratory judgment that no fiduciary duty claims were owed.
The Delaware Statutory Trust Act , which is the basis for the entity involved in this case, is found at 12 Del. C. §§ 3801-3826. From its enactment in 1988 until its amendment in 2002, the Act was called the “Business Trust Act,” and what are now called “statutory trusts” were known as “business trusts.”
Also addressed was the concept upheld in the USA Cafes line of cases (cited in the court's opinion), that a corporate parent of a general partner that has control over an entity may owe fiduciary duties to that entity.
There are many other important parts of this decision that should be required reading for anyone who prepares statutory trust agreements or who needs to know the latest Delaware law on the duty of trustees.
