Reed Smith Client Alerts

In a robust 191-page opinion, the Delaware Court of Chancery recently held that holders of bare title to assets granted to a trustee for the benefit of noteholders owe fiduciary duties to those noteholders.1 This decision is the first of its kind in Delaware to define the rights to the collateral in these trusts and expands on the well-established principle that one who controls property of another may not, absent implied or express agreement, intentionally use that property in a way that benefits the controller to the detriment of the property or its beneficial owner.


This decision arises out of several actions involving Delaware statutory trusts (the Trusts) that were created to issue notes collateralized by student loan debt.2 Each of the Trusts was governed by a trust agreement which incorporated by reference an indenture (the Indenture) and other, related trust agreements.3 By a “Granting Clause” in the Indenture, the Trusts “Grant[ed] to the Indenture Trustee … all … right, title and interest in” the student loans and other trust property and contract rights “for the benefit of the holders of the Notes” (the Collateral).4 This Granted Clause was “made in trust to secure the payment of principal of and/or interest on … the Notes” and to “secure compliance with the provisions of th[e] Indenture.”5