837 F.3d 146
2d Cir.2016Background
- Chesapeake issued $1.3 billion of senior notes in Feb 2012 governed by a Base Indenture and a Supplemental Indenture that provided two early‑redemption regimes: an "At‑Par" redemption available through March 15, 2013, and a post‑March 15 make‑whole redemption (Make‑Whole Price).
- Section 1.7(b) allowed redemption at 100% principal (At‑Par) if notice was given 30–60 days before the redemption date; Section 1.7(c) required the Make‑Whole Price for redemptions after March 15, 2013.
- Chesapeake mailed a March 15, 2013 notice calling for a May 13, 2013 At‑Par redemption. BNY Mellon (indenture trustee) disputed timeliness and asserted the Make‑Whole Price might apply.
- The district court initially held the notice timely (allowing At‑Par redemption); Chesapeake redeemed on May 13, 2013 and paid At‑Par. This Court reversed on appeal, holding the notice was untimely and remanded.
- On remand the district court awarded the Noteholders contract damages equal to the difference between the At‑Par amount paid and the Make‑Whole Price (plus prejudgment interest), and entered judgment for ~$438.7 million; Chesapeake appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Measure of recovery for underpayment on early redemption | Chesapeake: restitution (return to pre‑redemption position) is the proper remedy after reliance on a judgment later reversed; not contract damages | BNY Mellon: New York contract law controls; the indenture sets the remedy and Make‑Whole applies because redemption occurred after March 15 | Court: Affirmed contract‑based measure — damages equal to Make‑Whole minus At‑Par + prejudgment interest |
| Whether restitution displaces contract remedy | Chesapeake: doctrine of restitution after reversal requires rescission‑style relief | BNY Mellon: restitution is displaced where an enforceable contract governs the subject matter | Court: Restitution subordinate to contract here; indenture governs recovery |
| Whether awarding Make‑Whole over‑compensates Noteholders | Chesapeake: Make‑Whole yields more than the actual loss and is inappropriate for an unauthorized prepayment analogy | BNY Mellon: Parties voluntarily redeemed; Make‑Whole is the contract price for post‑deadline redemptions | Court: Rejects over‑compensation claim — enforcing the contract price respects investor expectations and contract terms |
| Procedural authority to award damages after declaratory action | Chesapeake: (argues remedy should be restitution) | BNY Mellon: District Court may grant further relief under 28 U.S.C. § 2202 to effect its declaratory judgment | Court: § 2202 was an appropriate mechanism; Chesapeake does not contest this on appeal |
Key Cases Cited
- Bank of N.Y. Tr. Co. v. Franklin Advisers, Inc., 726 F.3d 269 (2d Cir.) (indentures are contracts governed by contract principles)
- Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549 (N.Y.) (treating indentures and structured‑product agreements as contracts enforceable under New York law)
- MacDraw, Inc. v. CIT Group Equipment Financing, Inc., 157 F.3d 956 (2d Cir.) (where a valid written contract governs, quasi‑contract restitution is ordinarily precluded)
- Clark‑Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382 (N.Y.) (invalidates quasi‑contract recovery when an undisputed written agreement covers the dispute)
- Northwestern Fuel Co. v. Brock, 139 U.S. 216 (U.S.) (restitution awarded where a court entered a judgment it had no authority to render; distinguished in this case)