In Preston Hollow Cap., LLC v. Truist Bank, an entity was a bond obligor and failed to follow the requirements of the bond documents. 729 S.W.3d 46 (Tex. Bus. Ct. First Division December 19, 2025, no pet.). Truist Bank initially served as trustee. The bond obligor was required to deposit gross receipts and revenues into an account. Preston Hollow purchased more than $21 million in senior project bonds. In 2019, Preston Hollow learned of defaults by the bond obligor and directed Truist to issue default notices. After there was no cure, Preston Hollow directed Truist to accelerate the bonds and loan; Truist did so on May 31, 2019. Truist appointed two successor trustees on July 12, 2019, and resigned five days later, asserting it lacked capacity to oversee the defaulted bonds and loans. After Truist resigned, it disclosed that the bond obligor had never deposited gross revenues as required. Preston Hollow alleged that Truist committed fiduciary breaches during its tenure as trustee and after resignation. It sought damages, fees and costs, interest, punitive damages, and other relief.
The indenture agreement contained a clause providing that the trustee would not be liable for “special, indirect, punitive or consequential loss or damage.” The parties litigated whether the punitive damages limitation of liability clause was enforceable. The Texas Business Court concluded that the punitive-damages waiver was enforceable and was not barred by Texas Trust Code Section 114.007.
The court expressly assumed, for purposes of the opinion, that the Texas Trust Code applied because the parties requested that assumption. It noted that Truist had suggested the Trust Code might not apply because the arrangement could be an exempt deed-of-trust arrangement and invited further briefing on that question.
The issue was whether Texas Trust Code Section 111.0035 barred enforcement of the indenture clause excluding Truist’s liability for punitive damages. The court described the parties’ arguments:
Truist posits that the punitive damages waiver is valid consideration for Truist’s agreement to serve as Master Trustee. Relying primarily on Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213, 231 (Tex. 2019), Truist further argues that sophisticated parties are free to contract and that liability limitation clauses are valid limited warranties that were the basis of the parties’ bargain. Truist also cites Bombardier for the premise that even fraud does not automatically vitiate a liability limitation clause. Thus, Truist urges that the punitive damages waiver is enforceable and precludes Preston Hollow from recovering punitive damages here.
Preston Hollow relies on Mendell v. Scott, No. 01-20-00578 2023 WL 4712050, *13 (Tex. App—1st Dist. July 25, 2023, pet. denied) to argue that Trust Code § 114.007 precludes enforcing punitive damages waivers favoring trustees where the trustee is found to have breached their duty in bad faith, intentionally, or with reckless disregard for the purpose of the trust. Preston Hollow further cites Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P., 564 S.W.3d 105, 138 (Tex. App.—8th Dist. 2018, no pet.) to assert that courts refuse to enforce contract provisions in direct conflict with statutory protections.
Id.
The court held that the Trust Code did not make punitive damages nonwaivable and therefore did not bar the waiver in this agreement between sophisticated parties. The ruling did not address whether the clause limited compensatory damages or other recoveries. The court held:
As a matter of statutory construction, the court concludes that the legislature did not bar enforcing the punitive damages waiver because the Trust Code, particularly §§ 111.0035, 114.001, and 114.007, does not expressly preclude such waivers and those sections support permitting them. For starters, § 111.0035 provides that certain mandatory default protections—including § 114.007’s restrictions on exculpation clauses—may not be limited by agreement. But § 111.0035 does not expressly bar punitive damages waivers. Nor do §§ 114.001 and 114.007.
Next, §§ 114.001 and 114.007 are complementary statues that should be construed together (along with § 111.0035) to also provide certain nonwaivable recoveries related to trustee breaches. Tex. Gov’t. Code § 311.021(2); Janvey, 487 S.W.3d at 572. To that end, Trust Code § 114.001, captioned “Liability of Trustee to Beneficiary,” concerns beneficiaries’ remedies when a trustee breaches its trust duties. Specifically, that statute subjects breaching trustees to equitable constructive trust, disgorgement, and accounting remedies. See TRUST CODE § 114.001(a). Additionally, it contemplates compensatory damages resulting from trustee breaches: “(c) A trustee who commits a breach of trust is chargeable with any damages resulting from such breach of trust, including but not limited to: (1) any loss or depreciation in value of the trust estate as a result of the breach of trust; (2) any profit made by the trustee through the breach of trust; or (3) any profit that would have accrued to the trust estate if there had been no breach of trust.” Trust Code § 114.001(c). But § 114.001 does not mention punitive damages.
Likewise, the Trust Code places these limitations on trustee exculpation clauses: “(a) A term of a trust relieving a trustee of liability for breach of trust is unenforceable to the extent that the term relieves a trustee of liability for: (1) a breach of trust committed: (A) in bad faith; (B) intentionally; or (C) with reckless indifference to the interest of a beneficiary; or (2) any profit derived by the trustee from a breach of trust.” Id., § 114.007(a); see also id., § 111.0035(b)(4)(B) (trust may not limit a trustee’s duty to act in in good faith and in accordance with the purposes of the trust). However, nothing in this statute expressly bars punitive damages waivers.
In short, §§ 111.0035, 114.001, and 114.007 express legislative intent regarding (i) a trustee’s liabilities to beneficiaries generally, (ii) and liabilities associated with trustee breaches specifically, (iii) beneficiaries’ remedies for those breaches, and (iv) which remedies are nonwaivable. But nowhere do those statutes state that punitive damages are nonwaivable.
Had the legislature intended to bar clauses that exclude awarding punitive damages connected to a breach of trust committed in bad faith, intentionally, or with reckless indifference to a beneficiary’s interests, it would have done so. But it did not. Thus, those omissions individually and collectively reflect legislative intent that punitive damages are waivable in sophisticated agreements. See City of Houston v. Williams, 353 S.W.3d 128, 145 (Tex. 2011) (inclusio unius a sound construction maxim absent a valid alternative construction); Scalia and Garner, Reading Law: The Interpretation of Legal Texts, 107-11 (2012).
Moreover, § 114.007(a)(2)’s mandatory protection for the disgorgement of profits a trustee obtains from a breach of trust serves a deterrent purpose like punitive damages. That is, punitive damages are not compensatory; they exist to punish the defendant for outrageous conduct and deter future such behavior by that defendant or others. Bombardier, 572 S.W.3d at 230.
Similarly, disgorging improper trustee benefits does not compensate for beneficiary losses. Instead, it serves to punish trustee misconduct and to deter it and others from engaging in similar future conduct. So, § 114.007(a) strikes a balance between (i) contract freedom and (ii) deterring and punishing trustees for their breaches.
Finally, Bombardier’s reasoning provides a paradigm for analyzing whether the Trust Code bars punitive damages waivers. Specifically, Bombardier reasons that the punitive damages waiver was enforceable there because it did not preclude liability for fiduciary breaches or prevent the buyer from recovering compensation for its injury. See Bombardier, 572 S.W.3d at 232. Likewise, enforcing Master Indenture’s punitive damages waiver here does not deprive Preston Hollow of its non-punitive damages remedies. Accordingly, the court concludes that the Trust Code, including § 114.007, does not bar enforcing the Master Indenture § 8.01(e)’s liability limitation clause.
Id.
The court also considered whether Truist continued to owe fiduciary duties after it resigned and successor trustees were appointed. The parties and court agreed that resignation did not eliminate liability for claims that accrued before resignation and replacement. The court held that Truist’s contract duties ended upon resignation and replacement, subject to any surviving contractual duties not presented to the court; its general fiduciary duties likewise ended when it resigned and at least one substitute trustee accepted appointment. However, Truist retained a duty not to use Preston Hollow’s confidential or proprietary information, obtained while serving as trustee, against Preston Hollow.
Interesting Note. Breach of fiduciary duty claims are torts, and they can be intentional torts. These claims can, where the requisite mental state is present, support a punitive damage claim. However, the above opinion may support the position that a limitation-of-liability clause in a trust document is enforceable such that a beneficiary cannot pursue punitive damage claims against a trustee even where the trustee commits an intentional breach of fiduciary duty. The court relies on the Bombardier decision, but that case, like the one at issue in Truist, dealt with parties on both sides of a transaction creating an agreement that includes such a clause. They did not deal with traditional trust documents where a beneficiary is generally not a party to the trust document. There is an argument that the result in Truist should not apply in a traditional trust dispute. However, the Texas Supreme Court has held that arbitration clauses are enforceable in trust documents even though a trust is not a contract and a beneficiary is not a signatory to that document. The court relied on direct-benefits estoppel in holding that a beneficiary who obtains a benefit from the trust is estopped from rejecting an arbitration clause in the trust document. The same logic could apply to limitation-of-liability clauses. Yet, in the author’s experience, trust documents do not generally include these types of limitation-of-liability clauses. So, until those clauses are more commonly used by trust drafting attorneys, this issue may be hypothetical.
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