This appeal arises from a long-running Chapter 11 bankruptcy proceeding involving Highland Capital Management, L.P. (HCM). In 2020, HCM filed an amended reorganization plan that created the Highland Claimant Trust to hold assets for specific claimants. The trust was organized under the Delaware Statutory Trust Act. The plan distinguished between 'Claimant Trust Beneficiaries,' who hold general unsecured or subordinated claims, and former limited partners who hold unvested, contingent, and subordinate interests. Dugaboy Investment Trust, controlled by HCM's former CEO, holds one of these unvested Class 11 interests. More than two years after the plan was confirmed, Dugaboy filed an adversary proceeding in bankruptcy court seeking disclosure of trust assets and an accounting. The bankruptcy court dismissed the complaint, and the district court affirmed that ruling. Dugaboy then appealed to the Fifth Circuit, arguing it should be treated as a beneficiary under Texas law and that the trustee breached its duty of good faith.
The Fifth Circuit applied de novo review to the legal conclusions regarding the trust's terms. The court noted that the Claimant Trust Agreement (CTA) expressly limits information rights to quarterly reporting for Claimant Trust Beneficiaries. Dugaboy conceded it held an unvested, contingent interest and therefore did not meet the definition of a Claimant Trust Beneficiary under the CTA. The court rejected Dugaboy's argument that Texas law would classify it as a beneficiary, emphasizing that the CTA is governed by the Delaware Statutory Trust Act. Under Delaware law, a beneficial owner is defined by the governing instrument, which here explicitly excludes unvested contingent interests. The court further addressed the claim that the trustee breached an implied duty of good faith by funding indemnification reserves. The court cited its prior decision affirming the trustee's conduct and stated that existing contract terms control. The court explained that implied good faith cannot be used to circumvent the parties' bargain, especially when the contract clearly defines vesting conditions.
The decision confirms that holders of contingent, unvested interests in a Delaware statutory trust created during bankruptcy reorganization have no right to demand asset disclosures or accountings until those interests vest. It limits the ability of former limited partners to challenge trust administration based on implied duties of good faith when the contract terms are clear. The case is remanded with instructions to dismiss the complaint, leaving the trust's asset distribution and indemnification reserves undisturbed.
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