In an informative discussion of Chapter 33’s requirements for designating responsible third parties, the Business Court has ruled that a party alleged to have breached fiduciary and trust duties may designate as RPTs borrowers whose alleged defaults may have contributed to the creditor’s “harm.”
Preston Hollow Capital, LLC; and PHCC LLC v. Truist Bank Formerly Known as Branch Bank & Trust (No. 25-BC01B-0030; 2026 Tex. Bus. 5; February 2, 2026) arose from a dispute over financing a senior living center in Sugar Land. Senior Care Living was created to develop the center and sought bond financing for the project. BB&T (Truist is BB&T’s successor) served as the initial trustee under a Master Indenture with Senior Care, and a Bond Indenture with the conduit bond issuer, Woodloch Health Care. Woodloch issued the bonds, for which Senior Care was the ultimate obligor. Woodloch loaned the bond proceeds to Senior Center, which Senior secured by pledging most of its assets. Woodloch also assigned its rights and interests under the Bond Documents and loan proceeds to Truist. Truist and Senior Care executed Account Control Agreements whereby Truist held all bank accounts into which Senior Care was to deposit its gross receipts and proceeds. Preston Hollow controlled the bond funds during construction of the center, which was substantially complete by late 2017 and began leasing in early 2018.
About a year later, Preston Hollow became aware of several alleged Senior Care defaults. It directed Truist to send Senior Care default notices and issued a Letter of Direction to Truist, instructing it not to act under the loan or Bond Documents unless specifically directed by Preston Hollow. Preston Hollow followed that with a Directions to Trustee and Indemnification Letter to Truist. Truist alleged that it acted consistently with both letters. When Senior Care allegedly refused to cure its defaults, Preston Hollow directed Truist to accelerate the bonds and loan, which it did in May 2019. The following month Preston Hollow sued Senior Care and Bouldin. Truist then appointed two successor trustees and resigned, at which time Preston Hollow asked Truist if Senior Care had deposited its gross revenues as required by the Account Control Agreements. Truist replied that they had never done so. Preston Hollow later learned that Truist’s representative approved Senior Care’s deviation from those agreements. Consequently, Preston Hollow sued Truist for breach of fiduciary duties, trust, and contract in its capacity as trustee. Truist responded that part of Preston Hollow’s harm resulted from Senior Care and Bouldin’s breaches and sought to designate them as responsible third parties. Preston Hollow opposed the motion.
In an opinion by Judge Whitehill, the court granted Truist leave to designate Senior Care and Bouldin as responsible third parties. Preston Hollow argued that the only harm it sought recovery for was Truist’s “deprivation of its fiduciary and trustee duties.” Truist, however, characterized the harm as the “irretrievable deterioration of the trust estate,” as alleged by Preston Hollow. Looking to § 33.011(6), CPRC, the court observed that the statute defines an RPT as “any person who is alleged to have caused or contributed to causing in any way the harm for which recovery of damages is sought ….” As opposed to the pre-2003 RPT statute, current law doesn’t require that the RPT “be liable to the plaintiff for the damages claim, which would require satisfying all the essential elements of a cause of action” (citations omitted). Put another way, under the old statute a party seeking to designate would have to show “that the alleged [RPT] violated the same legal standard as the named defendant, whereas the current statute requires only that they violated some legal standard and that violation contributed in some way to the claimed harm.”
So what does “harm” mean? The court concluded that “the Legislature appears to have intended ‘harm’ to be somewhat synonymous with ‘injury’ and ‘damage’” (citations omitted). Since the Legislature used the term “harm” and “damages” in the same sentence in § 33.011(6), it could not have intended to conflate them but rather to equate them to “compensation.” Consequently, “[b]oth ‘harm’ and ‘damages’ focus on the results or effects of a defendant’s alleged breach; whereas breach itself focuses on the actions taken by the defendant in violation of a legal duty, giving rise to the injury” (citations omitted). In short, Preston Hollow’s argument that its “harm” flowed solely from Truist’s breach of fiduciary duties was neither here nor there because “there is no rule that a non-fiduciary cannot contribute to the harm caused by the breach of a fiduciary’s duties … the defendant and third party’s breaches of their legal standards may be different if there is a shared harm” (citations omitted).
As to Preston Hollow’s contention that Senior Care’s and Bouldin’s alleged defaults “concerned their contractual obligations (nonpayment, tax issues, and diversions of funds) and thereby did not cause or contribute to Truist’s own alleged misconduct (breach of fiduciary and breach of trust), the court declined to rule that “Chapter 33 applies to only jointly committed torts and that a potentially responsible third party cannot contribute to the harm for which recovery is sought by breaching a contract alone” (rejecting a 2018 federal district court decision from the Northern District of Texas). By contrast, the court held, “violating an ‘applicable legal standard’ as used in § 33.011(6) may include violation of standards established by contract.” The court thus concluded that Truist’s motion “connects Senior Care’s and Bouldin’s alleged acts to Preston Hollow’s alleged harms ….” Finally, the court determined that at least one harm for which Preston Hollow sought recovery was the “irretrievable deterioration of the lost estate,” not just the loss of Truist’s trustee and fiduciary duties. Additionally, Preston Hollow asserted tort claims against Truist, alleging that Truist failed to monitor Senior Care and wrongfully approved Senior Care’s failure to deposit gross receipts in the proper accounts. It further alleged that Truist “impermissibly advised Bouldin on asset protection strategies.” In both cases, even Preston Hollow connected the dots from Truist to Senior Care and Bouldin.
In granting Truist leave to designate, the court expressed no opinion at this point about whether anybody’s alleged misconduct occurred, only that, assuming the trust of Truist’s factual allegations, Senior Care and Bouldin may have had something to do with Preston’s Hollow’s injury.
