In In re Jenzabar, Inc. Derivative Litig., Vice Chancellor Sam Glasscock III held that a terminated trust that has not yet distributed to its beneficiaries shares of a corporation, cannot bring a derivative suit on behalf of the corporation. It “can take only those actions related to preserving its assets for purposes of distribution and wind-up, together with those actions for which the trust instrument specifies.”
The Gregory M. Raiff 2000 Trust (the “Trust”) was established in 2000. The terms of the Trust Instrument held that it was to terminate in 2002 and distribute all of its assets to another trust. However, the Trust assets, which included shares of Jenzabar, were never actually distributed after the Trust terminated in 2002. After the trustee filed this derivative action on behalf of the Trust in 2013, Jenzabar filed a motion to dismiss the derivative suit, arguing that the Trust lacked the capacity to sue because it had terminated. The Plaintiff countered that because the Trust had never distributed its assets, it still had the capacity to bring a derivative suit due to the fact that it still held Jenzabar stock.
Vice Chancellor Glasscock rejected this argument. He said that Massachusetts law, which governed the Trust, restricted the powers of a trustee of a terminated trust to what’s necessary to “preserve the trust property while winding up the trust and delivering any trust property to the beneficiary.” He said that post termination, the only litigation in which the Trust could engage was defensive action necessary to preserve its assets, pursuing litigation was not encompassed within the Trust’s limited powers and thus, it lacked the capacity to pursue the derivative action.