Heartland Holding, Inc v. U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation

CourtCourt of Appeals of Texas
DecidedApril 8, 2010
Docket14-08-00232-CV
StatusPublished

This text of Heartland Holding, Inc v. U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation (Heartland Holding, Inc v. U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Heartland Holding, Inc v. U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation, (Tex. Ct. App. 2010).

Opinion

Affirmed and Opinion filed April 8, 2010.

In The

Fourteenth Court of Appeals

___________________

NO. 14-08-00232-CV

Heartland Holdings, Inc., Appellant

V.

U.S. Trust Company of Texas N.A. and U.S. Trust Corporation, Appellees

On Appeal from the 281st District Court

Harris County, Texas

Trial Court Cause No. 2002-25256

OPINION

            Heartland Holdings, Inc. (“HHI”) appeals from the trial court’s grant of a plea to the jurisdiction and, in the alternative, motion for summary judgment filed by appellees’, U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation (collectively “U.S. Trust”).  HHI sued U.S. Trust for alleged violations of trustee duties under various, related, municipal bond indentures.  In its plea/motion, U.S. Trust asserted, among other things, that HHI did not have the right to sue under the indentures because it was not listed by name on the bond register established pursuant to the indentures.  On appeal, HHI contends principally that (1) in order to sue on the bonds, it was not required to be listed by name on the bond register; (2) the legal doctrines of issue preclusion and judicial estoppel bar U.S. Trust from arguing to the contrary in the present action; (3) even if being listed by name in the register was required, HHI has now fulfilled that requirement; (4) the trial court erred in refusing to permit HHI to amend its pleadings after HHI became listed by name on the bond register; and (5) the court erred in dismissing HHI’s claims “with prejudice.”  We affirm.

I.  Background

            The municipal bonds forming the basis of HHI’s lawsuit were issued between 1996 and 1999 for the purpose of financing, acquiring, or renovating several individual healthcare facilities.  Certain inter-related entities, deemed the “Heritage entities” by the parties, were to be the recipients of the bond proceeds for the stated purposes.  The agreements under which the bonds were issued were referred to as the bond indentures.  The parties to each of the indentures were the bond trustee and the Heritage entity slated to receive the proceeds.  U.S. Trust was the original trustee on each of the bonds and continued in this capacity until 2001.[1]  Ultimately, all of the bonds subject of this lawsuit went into default.

            HHI purchased the bonds on the secondary market in 2002.  HHI held the bonds in “street name,” meaning that while HHI was the beneficial owner of the bonds (i.e., entitled to sell and receive disbursements), the bonds were physically held by a depository firm, the Depository Trust Company (“DTC”), and were registered in the name of DTC’s nominee, “Cede & Co.”  HHI obtained beneficial ownership of the bonds through an assignment from the State of Wisconsin Investment Board (“SWIB”).  SWIB, in turn, had obtained the bonds from certain municipal bond funds that had been offered by Heartland Group, Inc. and managed by Heartland Advisors, Inc.

In 2001, a receiver appointed to oversee the “Heartland Funds” filed suit against U.S. Trust in federal court.  The case was subsequently transferred to the United States District Court for the Central District of California.  In that lawsuit, the Heartland Receiver alleged, among other things, that U.S. Trust had violated the terms of the bond indentures by improperly disbursing bond proceeds to various Heritage entities.  U.S. Trust defended that lawsuit, in part, by asserting that the Heartland Receiver was not entitled to sue to enforce terms of the indentures because the Heartland Funds no longer owned the bonds.  Based on this argument, the district court granted partial summary judgment favoring U.S. Trust.

After purchasing the bonds in 2002, HHI filed the present lawsuit against U.S. Trust.[2]  HHI alleged that U.S. Trust had violated the terms of the indentures by improperly releasing bond proceeds to the Heritage entities and by failing to adequately notify bondholders regarding the Heritage entities’ alleged misuse of bond proceeds.  In 2006, U.S. Trust filed a number of dispositive motions, including multiple pleas to the jurisdiction and motions for summary judgment.  On October 17, 2006, the trial court granted one of U.S. Trust’s pleas to the jurisdiction; the court subsequently granted HHI’s motion to reconsider, thus vacating its order of dismissal.[3]  On November 30, 2007, with the court’s permission, U.S. Trust filed a “Restated and Supplemental Plea to the Jurisdiction and, in the Alternative, Motion for Summary Judgment.”  In that pleading, U.S. Trust argued that HHI was not entitled to sue for enforcement of the bond indenture because it was neither a party to, nor an intended third-party beneficiary of, the indenture.

In response to U.S. Trust’s dispositive pleading, HHI principally argued that as an owner of the bonds at issue, it was entitled to sue for enforcement.  In support of their respective arguments, both parties pointed to the same sections of the indentures, section 1.01 and section 1.10.  Although there are some minor differences in the language from indenture to indenture, the indentures all read substantially as follows:

SECTION 1.01          Definitions.

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

A.        The terms defined in [Article One] have the meanings assigned to them in this Article . . . .

Owner” or “Holder”, [sic] when used with respect to any Bond, means the Person in whose name such Bond is registered in the Bond Register.[4]

. . . .

SECTION 1.10          Benefits of Indenture.

Nothing in this Indenture or in the Bonds, express or implied, shall give to any Person, other than the parties hereto, their successors hereunder, the Corporation, any separate trustee or co-trustee appointed under Section 9.12, and the Owners of Outstanding Bonds any benefit or any legal or equitable right, remedy, or claim under this Indenture.

HHI contended that as a bond owner, it was entitled to sue to enforce the indentures pursuant to section 1.10.  U.S.

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Bluebook (online)
Heartland Holding, Inc v. U.S. Trust Company of Texas, N.A. and U.S. Trust Corporation, Counsel Stack Legal Research, https://law.counselstack.com/opinion/heartland-holding-inc-v-us-trust-company-of-texas--texapp-2010.