The Delaware Court of Chancery recently held that the trustee of an expired trust does not have capacity to pursue a derivative suit unless authorized by state law, or in the trust instrument.  In April 2009, shareholders of Jenzabar, Inc. brought derivative and direct claims against the company. Most claims were dismissed, and in March 2012, the remaining claims settled as to the named plaintiff. Jenzabar shareholders had a right to intervene and oppose the motion to dismiss for the rest of the class. The only intervener was a trust governed under Massachusetts law, the only asset of which was Jenzabar stock. The trust held approximately four percent of the total equity in the company. According to the terms of the trust instrument, the trust terminated in May 2002. Jenzabar moved to dismiss, claiming, in part, that the trustee lacked capacity to sue. 

The court held that under Massachusetts law, the powers of a trustee of an expired trust are limited to those necessary to preserve trust assets pending distribution, and any powers explicitly provided for in the trust instrument. The trustee did not allege that the litigation was necessary to preserve trust assets, and the trust instrument only granted the trustee the ability to contest claims affecting the trust’s property, which the court held did not empower the trustee to initiate litigation. The court also opined that if the trust authorized the trustee to bring litigation, it was unlikely that the trustee, who was charged with winding up the affairs of the trust, was a suitable stockholder representative. The derivative action was of nominal value to the trust. Thus, the court granted Jenzabar’s motion to dismiss. 

In re Jenzabar, Inc. Derivative Litig., Civil Action No. 4521-VCG (Del. Ch. July 30, 2014).