Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In Re Energy Future Holdings Corp.)
842 F.3d 247
3rd Cir.2016Background
- EFIH issued First Lien Notes (2010) and Second Lien Notes (2011–12) that included optional-redemption provisions requiring an "Applicable Premium" (make-whole) if issuer redeemed before specified dates.
- Both indentures contained acceleration clauses triggered by EFIH's voluntary Chapter 11 filing; each also permitted noteholders to rescind acceleration.
- EFIH filed for Chapter 11 in April 2014 and refinanced (redeemed) the First Lien Notes on June 19, 2014 and portions of the Second Lien Notes in March 2015 without paying the make-whole sums.
- Trustees for First and Second Lien Noteholders sued in adversary proceedings seeking declarations that the make-whole was owed and that rescission of acceleration was permitted (or that the stay be lifted); Bankruptcy and District Courts ruled for EFIH.
- The Third Circuit reversed, holding the indentures required payment of the make-whole for the optional post-acceleration redemptions that occurred before the contractual cut-off dates.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether EFIH's post-petition payoff constituted a "redemption" triggering the make-whole | Trustee: payoff after acceleration was a redemption under §3.07, so make-whole is due | EFIH: post-acceleration payoff is not a "redemption" because notes were already due | Held: Payment was a "redemption" (New York law recognizes redemption at or after maturity) |
| Whether the payoff was "optional" under §3.07 | Trustee: EFIH voluntarily chose refinance path; thus redemption was optional | EFIH: bankruptcy acceleration made payment mandatory (not optional) | Held: Redemption was optional — EFIH voluntarily refinanced and could have reinstated maturity under §1124(2) |
| Whether acceleration clause (§6.02) negates or supersedes make-whole in §3.07 | Trustee: §3.07 governs optional redemption and survives acceleration unless contract says otherwise | EFIH: §6.02’s silence on make-whole and acceleration language nullifies §3.07 post-acceleration; specific governs general | Held: §6.02 does not annul §3.07; both can apply and §3.07 controls redemptions |
| Whether Second Lien indenture language changes analysis | Second Lien Trustees: §6.02 expressly references "premium, if any," tying acceleration to the make-whole | EFIH: phrase is too vague to require make-whole after acceleration | Held: Phrase reasonably refers to the Applicable Premium under §3.07; make-whole due for Second Lien redemptions as well |
Key Cases Cited
- Chesapeake Energy Corp. v. Bank of N.Y. Mellon, 773 F.3d 110 (2d Cir.) ("redeem" includes repayment at or after maturity under New York law)
- NML Capital, Ltd. v. Republic of Argentina, 952 N.E.2d 482 (N.Y. 2011) (acceleration does not automatically extinguish other contract terms unless parties so provide)
- In re AMR Corp., 730 F.3d 88 (2d Cir.) (make-whole disallowed where indenture expressly excluded Make‑Whole on acceleration)
- Muzak Corp. v. Hotel Taft Corp., 133 N.E.2d 688 (N.Y. 1956) (specific contract provisions govern over general ones)
- Treasurer of N.J. v. U.S. Dep’t of Treasury, 684 F.3d 382 (3d Cir.) (courts recognize that matured or long-matured instruments may be presented for redemption)