93 A.3d 1203
Del.2014Background
- In 2007 Marisco Superholdco issued notes under an indenture; in 2010 amendments to the Indenture were approved by a majority of noteholders as part of a restructuring.
- GS Mezzanine (majority holder) voted for the amendments; Caspian (dissenting noteholders) sued in the Court of Chancery alleging injury from the amendments and claiming Section 6.06 gave them a cause of action against fellow noteholders who voted to approve the amendments.
- GS Mezzanine moved to dismiss under Court of Chancery Rule 12(b)(6); the Court granted the motion, finding Section 6.06 could not reasonably be read to permit suit against other noteholders for voting to approve amendments.
- The Delaware Supreme Court reviewed the dismissal de novo, applying New York law principles of contract interpretation because the Indenture is governed by New York law.
- Section 6.06 is a no-action clause that limits when a holder may pursue remedies under the Indenture and ends with a sentence forbidding a holder from using the Indenture to prejudice other holders or obtain a preference.
- The Court held that read in context (and consistent with Model Indenture commentaries), Section 6.06 prohibits a holder acting in a representative/standing-to-sue capacity from prejudicing other holders, not ordinary voting by noteholders on amendments approved under Section 9.02.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §6.06 creates a private cause of action against noteholders who vote for amendments injuring dissenters | §6.06’s last sentence means a holder who votes for amendments that prejudice another breaches the Indenture and owes damages | §6.06 is a traditional no-action clause limiting when a holder may sue in place of the trustee; it does not impose liability for ordinary voting | Held: §6.06 cannot reasonably be read to permit suit against noteholders for voting to approve amendments |
| Proper interpretation standard and sources | N/A (Caspian urged a broad reading) | Use New York contract law, read instrument as whole; consult Model Indenture and commentaries for uniform commercial meaning | Held: apply NY law and Model Indenture commentary; clause is limited to suits under the indenture (no-action context) |
| Whether reading §6.06 as Caspian urges conflicts with amendment provisions (Section 9.02) | N/A (implied argument that §6.06 independently restricts voting consequences) | Such a reading would undermine Section 9.02, which allows amendments by majority vote and would chill voting | Held: Caspian’s reading would produce odd results and impair voting rights; reject that interpretation |
| Whether Delaware courts should expand New York law to create novel holder liability | Caspian implicitly asked for novel rule to impose liability on voting holders | Courts should not innovate; maintain uniform, predictable meaning of standard indenture clauses | Held: decline to adopt Caspian’s novel expansion; affirm dismissal |
Key Cases Cited
- In re General Motors S'holder Litig., 897 A.2d 162 (Del. 2006) (standard for Rule 12(b)(6) review)
- Vanderbilt Income & Growth Assocs., LLC v. Arvida/IMB Managers, Inc., 691 A.2d 609 (Del. 1996) (contract interpretation principles)
- VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606 (Del. 2003) (contract ambiguity and reasonable constructions)
- Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir. 1982) (importance of uniform interpretation of boilerplate in capital markets)
- Bank of New York v. First Millennium, Inc., 598 F. Supp. 2d 550 (S.D.N.Y. 2009) (reliance on Model Indenture commentaries consistent with NY law)
- Empire Properties Corp. v. Mfrs. Trust Co., 288 N.Y. 242 (N.Y. 1942) (give contract clauses their purpose in promoting dominant contract purpose)